Monday, April 20, 2015

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; or phone at 317-819-0780.

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