INDUSTRY INSIGHTS | SUMMER 2011 EFFECTOutsourcing Accounting as a Nonprofit Financial Solution
by Kelly Kienholz and Jason Spessard
Nonprofits are suffering. Funding streams including state dollars, individual donations, memberships, and grant money are all down, sending many charitable entities into crisis. How should boards and executive management respond?
Outsourcing administrative functions like IT, finance, and accounting can save on salary and benefit expenses, and have other advantages too. Consider the following examples.
Stopping the turnover cycle
When the two-person accounting staff of an $8 million nonprofit membership association retired, the once stable department became unmoored. New hires would quit within a year because of minimal advancement opportunities and low compensation. Hence, the organization spent a lot of time and resources recruiting for and replacing these positions. There seemed to be no end to this cycle until the association decided to stop hiring a full-time accounting staff.
Instead, they outsourced these roles, hiring the equivalent of a bookkeeper, staff accountant, and controller. These individuals provided different skills, worked on an as-needed basis, and were paid accordingly. They completed all required accounting tasks, including monthly compilation of financial reports, but the outcome for management was much, much bigger, including a stable department, overall cost savings, and insight on how to improve other administrative areas.
Straightening out the finances
A social service agency with an annual budget of $3 million had years of messy and inaccurate accounting, delay of unbilled services, cash flow issues, and lack of transparency. The conditions came to light after a very painful and stressful audit for the executive director, who asked us for help. We gave three alternative structures for their accounting department, and the cost and benefit for each option:
- Provide better training for existing staff
- Start over by hiring two new accountants (a finance director and bookkeeper)
- Or outsource one or both accounting positions
The agency opted to outsource both positions, because the fees were cheaper than paying salary and benefits. In return, the organization received all the skills of a traditional accounting department, (CFO, controller, and staff). The arrangement clarified the segregation of duties, provided high-quality work, and improved communication and transparency across departments. Now the entity could monitor accrual-based financial statements monthly and were audit ready. After one year, the individuals were able to provide more than just the expected accounting services by offering forecasting and program analysis to help the organization plan for the future.
Outsourcing offers efficiency and quality at a lower cost
Outsourcing isn’t the right solution for all situations, but it typically provides the following:
- Highly qualified professional staff who find efficiencies, save time, segregate duties, and turn full-time jobs into part-time positions; billing only the hours needed to get the job done
- No benefit costs
- Professionals with experience in a variety of financial scenarios that an in-house group doesn’t have exposure to
- Access to specialized accounting, tax, and audit expertise
- Get three skill levels (CFO, controller, accountant) in a single person, without compromising internal controls
The financial crisis has pressed nonprofits into considering the way they traditionally do business. Many are re-examining what administrative resources are needed to support program goals. Even if your organization is riding out the economic crisis, outsourcing a few accounting roles may be beneficial. Just knowing your books are in solid shape offers a welcome measure of relief.