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More than a back office: Nonprofit finance and accounting outsourcing

INSIGHT ARTICLE  | 

Nonprofit organizations are generally very familiar with outsourcing strategies, leveraging the solution for many of the same reasons their for-profit counterparts do—increased efficiency, skilled resources, best-in-class systems, process consistency and sometimes even lower costs. However, many nonprofit organizations underestimate the magnitude of benefits that outsourcing can provide to their finance and accounting function. Having the right outsourced provider to partner with can elevate an organization’s back office to another level, creating significant and sometimes unexpected value.

Highlighted in this article are four common challenges that nonprofits face, and how having the right outsourced partner can help support the organization.

Multiple reporting requirements

Reporting is a significant, ongoing challenge for many nonprofit organizations. Organizations often utilize systems that don’t provide satisfactory reporting or they don’t have the necessary skill sets to produce accurate financial information. In addition, nonprofits often have multiple reporting requirements to third parties, including donors, members, board members, and external audit and tax providers. Often, the current systems in place are not robust enough to support the many elements of reporting that a nonprofit organization needs.

A finance and accounting outsourcing (FAO) platform can significantly streamline the reporting process for nonprofit organizations. The solution can give nonprofits the ability to run financial reports in different ways, as well as allow upper management and department heads to view the real-time performance of their business through financial dashboards. This functionality allows organizations to eliminate Excel-based reporting, reduce time preparing for board and audit committee meetings, and provide complete transparency to donors and other benefactors.

Budgeting and forecasting

In addition to adopting an annual budget, many of the more sophisticated nonprofits are doing a formal reforecast of their budget throughout the year, some as often as monthly. This process is only effective with accurate financial information throughout the year and effective insights into future potential impacts to the budget.

FAO can provide varying levels of annual budget or forecasting support, including assistance with long-term revenue modeling and the tools for the organization to get accurate budget-versus-actual reporting. Additionally, organizations can actively reforecast their financial budget directly within financial management software solutions each month or quarter, and utilize this information to determine the effect on certain planned initiatives and programs.

Audit and tax support

Many nonprofit organizations require an annual independent audit and the preparation of IRS Form 990. The data gathering process for these obligations can be overwhelming for any organization, but more so for nonprofits, given their often understaffed accounting and finance departments. Moreover, the constantly evolving accounting and audit standards paired with updates to requirements in Form 990 can make it extremely difficult for nonprofits to keep up with the changes.

An FAO solution provides more efficient implementation of new accounting pronouncements, and results in a more proactive approach to incorporating these changes into financial statements. In addition, access to the information needed is another important aspect to a smooth audit and tax process. Automated cloud-based applications within FAO solutions can make the audit process much smoother for organizations by creating an environment where the entire audit and tax process can be performed remotely, creating a more streamlined and efficient approach.

FAO inherently includes documentation of policies, procedures and internal controls. A properly established outsourced accounting platform has integrated controls, such as journal entry approval, account reconciliation preparation and review workflow, and other segregation of duties that lead to a strong set of internal controls.

Through effective segregation of duties and documentation of internal controls using proven best practices, the organization’s back office can be elevated to provide more insight and value. Furthermore, with a strengthened control structure and an unbiased external perspective, FAO can lower the likelihood of misappropriation of assets or fraud.

Enhanced people management

In the current competitive employment market, nonprofit organizations sometimes cannot afford to hire skilled talent, let alone talent that is the right fit for the culture and mission of the organization. Instead, they often bring in people they can afford instead of people who can enhance key processes and help the organization succeed and grow.

However, FAO solutions can provide more experienced resources with insights gathered from other similar organizations. With outsourcing, nonprofits no longer have to worry about ongoing turnover and recruiting troubles, as reliability and consistency is increased within the finance and accounting function.

Choosing the right provider

While FAO can enhance several critical areas for nonprofit organizations—even beyond the areas listed above—all providers are not created equal. The provider selection process is the key element to getting the most value and gaining the most efficiency and insight from an outsourcing relationship. With a growing number of outsourcing options, organizations must be careful to choose a provider with the right mix of skill sets, industry experience and capabilities.

Nonprofits do not just concentrate on the bottom line; instead, they are focused on helping. An outsourcing provider will be an extension of the organization, so it should exhibit consistent values. The wrong fit can be counterproductive and costly, so organizations must perform a thoughtful due diligence process before selecting a provider.

Conclusion

FAO solutions are a key strategy for nonprofits, providing several measurable benefits as well as intangible value. The right outsourcing framework can deliver not only customized finance and accounting solutions, but can also increase stability and clarity into financial information and ultimately allow management to focus on what matters—strengthening the core mission.

Contact RSM to learn more about FAO:

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