If your nonprofit is paring back its budget and even laying off staffers, you might want to think about outsourcing some functions. Start with accounting and financial tasks. It can be less expensive to outsource them than to pay employees to perform them. Also, work associated with such functions often benefits from the oversight of experienced outside professionals.
Reasons to consider it
Nonprofits may outsource accounting work, such as payroll processing, because they lack the staff resources to perform such time-intensive tasks or because the work poses a fraud risk if undertaken in-house. Many nonprofits also outsource obligations such as financial statement preparation and tax compliance because they lack an internal CFO or the expertise to execute high-level financial work.
Most outsourcing solutions are scalable, allowing you to outsource all or only some functions as your staff, financial and technological resources change. Options might include outsourcing payables, receivables and cash transaction processing; account reconciliation; financial statement, budget and forecast preparation; tax and grant reporting compliance; and communication of financial matters to your board.
Finding a service provider
To find an outsourcing partner, ask for recommendations from other nonprofits in your community and professional advisors, such as your attorney and banker. Higher-level work may call for hiring a CPA firm, while an outsource partner could handle routine tasks. For example, consider using a payroll service. Look for providers with extensive nonprofit experience, ask for references and follow up on contacting them.
When vetting potential service providers, make sure you talk with the manager or partner who’ll oversee the work you intend to outsource — even if that person won’t actually perform the job. This can help provide continuity of service and be a valuable resource to your nonprofit’s senior management and board.
Also, discuss cost. This can vary widely depending on your needs and factors such as your geographic location and niche. Services might equal or even exceed what you’d pay an experienced accountant internally — or might cost less. Keep in mind, however, that with an outside firm, you pay only for the amount and level of services you require. Accounting employees, on the other hand, could spend time doing work that someone at a lower pay level could perform. Outsourcing also saves your nonprofit the expenses associated with a regular employee, such as payroll taxes and health insurance.
Make a smooth transition
Once you’ve settled on a provider, discuss how financial data will flow. For example, will your nonprofit send information to the company, or will the company’s personnel perform the work in your office? If a vendor’s unfamiliar with your accounting software, it may need to perform some tasks onsite, at least initially.
Be prepared for other possible transition issues. Generally, there’s a learning curve as a service provider familiarizes itself with a client’s policies, procedures and systems. You can help smooth the way by assigning the vendor or firm to a single point of contact within your organization.
The buck stops with you
Keep in mind that even if you engage a full-service CPA firm, financial governance remains the responsibility of your nonprofit’s board of directors. External service providers can provide financial and accounting advice, but the buck ultimately stops at your board and executives.
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