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Is outsourced accounting right for your NFP?

By Chris Mennel, audit manager, Alerding CPA Group

As your nonprofit strives to use its resources as effectively as possible, at some point, you might consider outsourcing the functions that fall under your accounting and financial umbrella.

Nonprofits often outsource areas that require specialized knowledge or a significant number of hours, such as payroll processing and payroll tax preparation. Outsourcing accounting functions also can provide benefits – if it matches up with your organization’s needs and budget.

Before committing to an outsourced accountant or an internal hire, consider the following:

  • Labor costs – Organizations that outsource their bookkeeping often realize an overall reduction in payroll, employee training and the cost of benefits. On-staff accountants are often charged with administrative tasks that could ultimately be accomplished with personnel that can be hired at a lower salary. Additionally, the outsourced provider would offer consistency, even when your organization has turnover. However, it’s important to know that sometimes the cost of outsourcing could be higher depending upon the mix of work required.
  • Depth of knowledge and expertise – Outsourcing with someone that specializes in nonprofit accounting often provides your organization with a higher level of expertise and greater resources than you could find if you hired your own accountant. The outsourced person likely has a number of individuals that they can consult with as issues arise, and these individuals will be knowledgeable in a variety of areas.
  • Efficiency – Bookkeeping is time-consuming, especially when dealing with multiple responsibilities. Moving bookkeeping, payroll and other financial responsibilities to an outsourced service provider allows your staff to focus on your organization’s mission. But, keep in mind that an outsourced accountant won’t be onsite every day.
  • Staying current with regulations and laws – Nonprofit regulations and laws are always changing, and it’s challenging and time-consuming to stay up-to-date on these matters. An outsourced accountant will likely be up-to-date on those matters that affect your organization.

Outsourcing allows you to work with financial professionals of varying levels of experience and expertise tailored to the functions they’ll perform. These responsibilities could include:

  • Processing payables, receivables and cash transactions
  • Reconciling accounts at each month’s-end
  • Preparing financial statements, budgets and forecasts
  • Assisting with tax and grant reporting requirements, and
  • Adequately communicating financial matters to your board.

But you don’t have to outsource all of these functions. Depending on your needs and budget, you can outsource only the ones that make sense for your organization. You also may benefit from occasionally using other firm experts — investment advisors, HR and IT support and valuation specialists, as necessary.

Many nonprofits turn to outsourcing accounting functions at times of significant personnel transition or workload increases. For the nonprofit that can’t afford the day-to-day expertise of a director of finance or CFO, outsourcing certain financial oversight functions, such as review of bank reconciliations, may enhance the system of internal controls.

When considering outsourcing any accounting function, make sure you’re working with a manager or partner who’ll become familiar with your operations. This will help provide continuity of service, as well as a resource for your senior management and board of directors. This manager or partner will also supervise junior firm members, providing an added layer of oversight.

The final word

Even with a provider handling your accounting functions, you won’t be able to absolve yourself of financial decision-making. Remember, while an external firm can assist and advise you on financial matters, those charged with governance (typically the board of directors) must continue to have the last word on making significant financial decisions. Be prepared for some commitment of time during any transition of accounting services. A learning curve is inevitable, whether it be external outsourcing or an internal hire. However, accounting and financial reporting is ever-changing and complex, at times. The wealth of knowledge and support that an experienced outsourced accountant can bring to the table could be invaluable.

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