Outsourcing Your Nonprofit’s Accounting Functions?

As your nonprofit strives to use its resources as effectively as possible, you might at some point consider outsourcing the functions that fall under your accounting and financial umbrella. But wait: You’ll need to weigh the pros and cons before making this important decision.

What are the potential advantages?

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

One potential benefit is accessing a higher level of expertise and greater resources than you could if you hired your own accountant.

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-end
  • Preparing financial statements, budgets and forecasts
  • Assisting with tax and grant reporting requirements
  • 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.

Some CPA firms offer outsourced CFO services, while others work closely with small firms that provide general accounting services. 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 its 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 to your senior management and board of directors. This manager or partner will also supervise junior firm members, providing an added layer of oversight.

What about cost?

Depending on your organization’s size and complexity, the cost of outsourcing accounting functions might equal or even exceed what you’d pay an experienced accountant internally — or it may cost less. With an outside firm, you pay only for the amount and level of services you require. With an on-staff accountant, he or she may spend some time doing work that someone at a lower pay level could handle equally well. Outsourcing also will spare your nonprofit the expenses associated with a regular employee, such as payroll taxes and health insurance.

A benefit that many smaller organizations derive in working with an accounting services firm is reduced fees for audit and tax services — because of the professional attention to accounting functions you receive during the year. And most of the accounting questions that typically arise in an audit already will have been resolved.

What are other considerations?

A common concern is that there won’t be a CFO or business manager whose office you can walk into unannounced whenever a financial question arises. Meetings with the CPA firm will need to be planned and scheduled. It’s important for your nonprofit and the CPA firm to understand availability expectations.

You also need to determine how financial data will flow. For example, will your nonprofit send information to the accounting firm, or will firm personnel come on-site to perform bookkeeping? If the firm is unfamiliar with your accounting software, it may need to perform some tasks on-site, at least initially.

Finally, you must be prepared for some commitment of time during the transition. There will be a learning curve as the CPA firm familiarizes itself with your policies, procedures and systems.

The final word

Even with a CPA firm 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 at your nonprofit (typically the board of directors) must continue to have the last word on making significant financial decisions.