Nonprofit finance study: Challenges for nonprofit finance professionals

Nonprofit finance study:  Challenges for nonprofit finance professionals

By Jim Simpson, CPA and director, Financial Technologies & Management

In 2013, over 1.5 million tax-exempt organizations in the U.S. reported $1.74 trillion in total revenues and $1.63 trillion in total expenses, according to the National Center for Charitable Statistics. That means nonprofits are responsible for reporting and tracking all that financial information.

In September, Abila, a nonprofit software company, set out to understand this current financial landscape and interviewed 350 nonprofit finance professionals. Specifically, they wanted to:

o   learn about the day-to-day challenges facing nonprofit finance professionals

o   define emerging trends in fund accounting and technology

o   apply how trends and challenges differ based on the organization

Nonprofit boards and leaders should pay careful attention to the Nonprofit Finance study. The study reveals that the trends are for smaller, leaner finance teams and the importance for leaders to improve the finance department by implementing more efficient software products and processes.

Finance teams staff feels too many of their limited resources are spent on day-to-day activities, and not on more important strategic and planning activities.  A typical finance team says they spend significantly more time than they would like in the following areas: helping other departments, month-end-closing, financial reporting, grant reporting, bookkeeping, accounts payable, accounts receivable and payroll processing. Their preference would be to spend more time with strategic and planning activities including strategic accounting, financial analysis, budget planning, and board engagement and development department activities.

 

Here are some key findings and study recommendations for how you, as a nonprofit finance professional, can overcome similar challenges.

·         Interruptions are common: It would help if other departments would schedule collaboration times and learn to self-manage their finance role to minimize interruptions to the finance department.

·         Nobody is above the basics: Nearly all financial/accounting professionals continue to be involved in the day-to-day activities of the organization. This is reflective of a trend towards smaller, leaner finance teams.

·         Funding is (obviously) key: Organizationally, finance/accounting professionals identify long-term sustainability and finding new funding sources as the biggest challenges. 

·         Embracing the cloud: Larger organizations are moving to the cloud quicker, and see greater value and benefit to cloud-based software. Overall, most of the respondents see the cloud as beneficial, with security being the biggest area of concern.

·         Finance/accounting professionals want to focus more on strategy: By and large, respondents spent much of their time focused on either running reports or preparing for monthly presentations, and would like to spend more time on strategic and budget planning.

The full study is available for download at: http://www.ftmllc.com/training.html

Jim Simpson, CPA and director of Financial Technologies & Management, is a financial leader and trainer, Software Advisor, CFO advisor, controller and

forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, controller and software        advisor for over 25 years.

Contact Financial Technologies & Management to learn how our firm can improve your organization’s financial management operations and capacity.  

You can schedule an appointment directly from the website at WWW.FTMLLC.COM, or email info@ftmllc.com; or phone at 317-819-0780.

Standard mileage rates will go down in 2016 which is good news to nonprofits that are looking to reduce expenses. The reduction from 57.5 to 54 cents per mile is a 6% decrease for 2016

Standard mileage rates will go down in 2016

Significant nonprofit financial reporting changes

Significant nonprofit financial reporting changes
By Jim Simpson, CPA and director, Financial Technologies & Management

The way nonprofits prepare and present financial reports is about to change. It is the first significant changes in over 20 years.

In 2011, the Nonprofit Advisory Committee recommended modification of the 1993 financial reporting mode to the Financial Accounting Standards Board (FASB). In April, the FASB issued an exposure draft that proposed updated accounting standards. The released draft has a comment period that ends on Aug. 20.

So what does this mean for your nonprofit organization?

Before the change is official, you may want to consider formal training for board and staff members. It may be good idea to adopt some of the proposed changes before they are mandatory because they will create more relevant financials and comparable measurements.

These updated accounting standards will have an impact on six major financial reporting areas. These include net-asset classifications, financial performance, cash flows, expense reporting, liquidity and enhanced disclosures.

Under the new standards, the precise distinction between temporary and permanently restricted would be combined to net assets with donor restrictions focused how and when resources are used.  The nonprofit can focus more on the restriction itself.  Currently, nonprofits focus is on determining the two classifications which would be eliminated.

Operational activities financial reporting changes would make it easier to compare and determine these activities based on mission and resource availability.  Now, organizations have significant flexibility in operational reporting which allows two similar organizations to be reported differently.

Cash flow financial reporting changes are intended to help an organization understand and communicate financial performance.

Here are additional details for each reporting area:

For some, the existing term “unrestricted net assets” has been misunderstood. They thought it meant these were liquid resources for the organization when these resources may or may not be available. To clarify, the new standards for net assets would have two classifications – with donor restrictions and without donor restrictions.

A standardized method to measure operational activities would be required. Operational activities would be defined to operating revenue, support, expenses, gains and losses. This excludes amounts unavailable to the nonprofit because of donor-imposed restrictions.

Expense reporting will be required to be presented by nature and function. Functional expense reporting is required and an organization would report its expenses by individual program, management in general and fundraising. Natural expense reporting is currently optional and reports expenses by salary, supplies, occupancy and professional services. Many stakeholders believe that natural expense reporting by function is more useful than functional expense reporting to assess how a nonprofit uses and stewards its resources.

Liquidity, which includes the assets readily available and that can be used to meet current and debt obligations, would be required to be disclosed. The liquidity disclosure would encourage liquidity policies and reserves that should help nonprofits to manage risk. Organizations should know if they have liquid assets to meet their operational needs and related activities. This liquidity measure should help inform if a nonprofit is financially healthy or not.

Cash flows will need to be presented using the direct method, which presents the actual cash flows received and disbursed by the nonprofit. The cash flow statement using the direct method should be more understandable and useful for more stakeholders.

The enhanced disclosures would include the following:

·        limits placed by the board and donors towards financial flexibility, liquidity and financial resources allocation towards needed services

·        how an organization manages liquidity and meets its future needs

·        how resources are used and how are they allocated towards operating activities.

Although change is difficult, the FASB proposed changes, if adopted, should improve the usefulness and comparability of financial reporting for the nonprofit sector and its stakeholders.

Jim Simpson, CPA and director of Financial Technologies & Management, is a financial leader and trainer, Software Advisor, CFO advisor, controller and forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, controller and software advisor for over 25 years.

Contact Financial Technologies & Management to see how we can help your nonprofit become a financially healthier nonprofit.  You can schedule an appointment directly from the website at WWW.FTMLLC.COM, or email info@ftmllc.com; or phone at 317-819-0780.

Nonprofit Financial Reporting and Information proposed changes-Request for your feedback during comment period

By Jim Simpson, CPA and president of Financial Technologies & Management

Financial Technologies and Management (WWW.FTMLLC.COM) is pleased to share the following information about nonprofit financial reporting and statements.

a 120 day comment period started April 7th so please provide us with an feedback so we can make a coordinated response.

There is a couple of short video links if you would like to listen to the proposed changes as well.

http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176159286112

I know your are busy, but this is the first major change to financial reporting in over twenty years so please take the time to make your voice heard.

 
Jim Simpson, CPA and president of Financial Technologies & Management, is a financial leader and trainer, CFO advisor, and forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, controller and software advisor for over 20 years.

Contact Financial Technologies &Management to see how we can help your nonprofit become a financially healthier nonprofit.

How to make your nonprofit accounting operation more cost effective and efficient?

How to make your nonprofit accounting operation more cost effective and efficient?

By Jim Simpson, CPA and Director of Financial Technologies & Management

Since 1999, we have helped over 350 nonprofit organizations throughout the Midwest to improve their accounting operations and become more cost effective and efficient.   I thought I would share some insights to help your nonprofit accounting operations.  

Let’s start by dispelling the myth that a nonprofit has a complete and comprehensively skilled accounting staff.  There are simply too many required skills sets that accounting staff needs to have and develop for all these functions to be performed internally. 

Additionally, the internal accounting staff typically has minimal accounting time because they typically perform many other back office functions including information technology, human resources, facilities management, and office, program and fundraising administration.   As a result, many nonprofit organizations don’t explore or underutilize an outside specialist because of the perceived costs or this possible resource.   As many nonprofits face financial challenges, it is time for more nonprofits to consider assigning non-core functions to outside specialist rather than an internal staff without expertise or experience.  An outside specialist can complete tasks cheaper, quicker, and better than in-house staff which allows staff to be more productive and not fail.

Let me give you a few client examples to help you understand:

Example 1: Nonprofit paying full time bookkeeper $30,000 plus benefits and inefficient audit of $15,000 for total of $45,000 plus benefits without outside expert.

FTM provided outside bookkeeping and accounting specialist at $12,000 with 1/3 of the time with more accuracy and timeliness.  We added controller skills for $12,000 annually, reduced external audit to $10,000 for total savings of $11,000 with outside experts.   The nonprofit purchased specialized skills and improved its nonprofit accounting operations.

Example 2: Nonprofit had two fulltime internal operations staff at $80,000 plus benefits.  The two staff performed accounting and other back office functions.  The organization budget was less than $2,000,000 so it did not have the resources to add a controller or CFO position for $50,000 per year plus benefits.   While the organization needed accounting, controller, and CFO skills, it was on an as needed basis.  

FTM recommended reducing staffing to one fulltime internal operations staff member at $40,000 plus benefits.  The nonprofit switched the other fulltime staff person to a programming role, and with this position increased revenue for the organization by $50,000.   Additionally, FTM provided outside expertise for $25,000, resulting in more specialized and timely controller and CFO skills.   FTM improved the organization’s productivity while saving the organization $15,000 and increasing revenue by $50,000.   

Several myths of why nonprofits don’t use outside specialist include:

• we have always done it this way
• we don’t think about using anyone from outside the organization
• internal staff may lose job functions
• lose control of non-core functions

You can determine which functions you can use an outside specialist by performing the following assessments:

• What are your core competences versus support functions to determine tasks that are not central to your mission with a focus on back office functions like accounting?
• What are your assumptions about using outside specialist and is the task better performed and less expensive than in-house staff?
• What are the problems that we have and how long have we had them?  You should consider the hidden costs of in-house staff and the opportunity costs of failing to use an outside specialist?

Keep in mind that your goal is to bring in an outside specialist to do the things that your organization can’t do on its own.   It is about bringing the additional capacity when and where you need it.  Don’t let your organization become complacent and recognize when the organization needs to do better.

There are several reasons to use an outside accounting specialist which include:

Specialized skills brought to nonprofit

• Lower operating cost with project staffing
• Adds highly skilled consultant to the team with wide range of experience and application of best practices
• Ability and experience managing projects and staff

Effect on in-house staff

• Better management controls including clear authorizations, defined management responsibilities, and timely and accurate financial reporting
• Scalability is improved as you can easily increase or decrease capacity and level of service
• Minimizes risk with poor internal hires

Overall effect on nonprofit

• Built-in deadlines and deliverables resulting in more productive and efficient accounting operations
• Reduce likelihood of theft with external oversight
• Access to training manuals and forms, checklists, and policies and procedures
• Accounting systems configured and customized for individual nonprofit with improved user access and security
• Data security is improved with secure off site servers with disaster recovery plan
• Information improved to better understand performance, manage internal staff and resources, and make better decisions. 

After 15 years of working with nonprofit organizations, I have experienced how an outside specialist can provide better control and visibility into organization’s accounting operations.   

Think about using an outside specialist to perform bookkeeping, accounting, controller, and CFO duties.   While needs vary by organization, they could include financial analysis, financial policies and procedures, tax reporting, board and management reporting, cash management, budgeting, grants management, cost allocation, audit preparation, and forensic accounting.  

Talk the time to determine where your accounting operations deficiencies exist and seek outside help to resolve them.

Resources used to prepare this article include:

·       Nonprofit Outsourcing: A Vital Option by Laurence A Pagnoni

·       Have you considered outsourcing your accounting operation by journyx

Jim Simpson, CPA and director of Financial Technologies & Management, is a financial leader and trainer, Software Advisor, CFO advisor, controller and forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, controller and software advisor for over 25 years.

Contact Financial Technologies & Management to see how we can help your nonprofit

You can schedule an appointment directly from our web site at WWW.FTMLLC.COM, email at info@ftmllc.com; or phone at 317-819-0780.

Don’t Forget to budget indirect costs - The NonProfit TimesThe NonProfit Times

Don’t Forget to budget indirect costs - The NonProfit TimesThe NonProfit Times



It is important the nonprofit know what the true program costs is to determine what actual funds need to be raised.

Financial Technologies & Management for Nonprofits

Welcome to Financial Technologies & Management blog. We offer full service accounting solutions for nonprofit organizations. Our blog will keep you up to date on the latest technology in nonprofit accounting and tips to maximize your nonprofit's reporting efficiency.