Transcript New Models for Small Nonprofit Financial Management

New Models for Small Nonprofit
Financial Management
Presented by
NFP Partners
Introductions
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Why are we here?
Define “small” NPO
Define “financial management”
Introductions
 NFP, Lee and Laura
 Find out composition of audience between executive directors, finance
managers, and other
 Find out the sizes of the organizations represented (under 100k, 500k, 1 – 2m,
2m +)
 Take a poll on how organizations represented do the financial function:
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In-house accountant on staff
Contract accountant
Volunteer
Outsource the entire function
Other
Agenda
• The Challenge for Small Nonprofits
• What May Indicate That Not All is Right with Your
Financial Management?
• What Is a Fair Expectation from Your Finance Function?
• What is the Traditional Model and Mindset?
• So What Is the Alternative Model?
• Are All Outsourcing Models Created Equal?
• How Much Should the Finance Function Cost?
• Can Outsourcing Costs Save Money Then?
The Challenge for Small Nonprofits
• Limited financial and personnel resources
• Executive director focused on mission, programs, fundraising
• Executive Director not financially literate and ill-advised
 Knowing what is needed in way of infrastructure and resources
 Knowing how to go about getting them
• Limited financial expertise on BOD
The serenity prayer – modified:
“God grant me the serenity to admit there are business tasks I don’t do
well, the courage to do the ones I excel at, and the wisdom to know the
difference.”
What May Indicate That Not All is Right with
Your Financial Management?
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No financial statements or they are late and hard to read
Bank statements not reconciled regularly
Excessive vendor inquiries about payment
Audit or review results in significant adjustments and management comments
Bounced checks
Funding held up for reporting compliance
Frequent payroll mistakes
Office politics and intrigues
Hard to explain or answer question about data on the financial statements
Accountant serves as the “Jack (or Jill) of all trades”
Accountant always too busy and slow to respond
Accountant seems to be spending excessive time running QB or Excel spreadsheets
Preparation and support of audit overly time-consuming
What May Indicate That Not All is Right with
Your Financial Management?
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Hard to get information on financial status of grants and programs
No budget or budget not broken out by program or funding source
Restricted funds not tracked in accounting system
Accountant never takes a vacation
Form 990 is perpetually late
Accountant tends to live in a silo
Basic internal controls not in place or not understood
Board member complaints and questions
Past due receivables
Finance staff turnover excessive, resulting in discontinuity
Frequent IT issues and interruptions
What Is a Fair Expectation from Your
Finance Function?
• Basic internal controls
• Basic financial statements:
 Statement of Financial Position (Balance Sheet)
 Statement of Activity (Profit and Loss)
 Comparative Revenue and Expenditure Statement (to budget
and prior year)
• Financial statements reviewed for accuracy and delivered
timely (within 10 working days of period close)
• Ability to track financial information by function/program
and funding source (grant)
• Ability to understand and explain clearly the information on
the financial statements
• Audit or review goes smoothly with no surprises
What is the Traditional Model and
Mindset?
• Full or part-time accounting manager, finance director,
controller, CFO (titles are cheap)
• Qualifications vary for accounting and computer tools
savvy
• Result is usually a compromise between qualifications
and affordability
• Person receives nominal guidance, training or
mentoring; expected to be self-sufficient
• Internal controls limited
• Dependence on one individual
• Available "down the hall"
So What Is the Alternative Model?
Premise:
Small nonprofit organizations under $2m annual
operating budget require professional-level financial
expertise but acquiring that in-house and
competently supervising the function is unrealistic.
Are We Talking About Outsourcing Then, and What Are
the Main Benefits?
• Internal control beyond the basics
• Professional competence and specialized nonprofit accounting
knowledge
• Accurate, relevant, and timely financial reports
• Efficiency and normalcy in the accounting cycle
• Professional standards and demeanor (objectivity, independence,
and confidentiality)
• You pay for the level of expertise required
• Continuity and ease of transition to a permanent in-house function
• Intelligent and efficient use of accounting technology
• Strategic help at Executive Director and BOD level as needed
• Leveraging skills and broad experience for solving problems
• Achieving financial literacy through interaction and training
• Cost-effective (almost always less than in-house)
• Streamlined audit process
Are All Outsourcing Models Created
Equal?
Some of the more traditional delivery models:
• Part-time contract accountant
Likely competent
Usually a sole practitioner
Short-term availability and on-going continuity may be
issues
• CPA firm or other third-party accounting services
Competent performance
Tend to do things their way (one-size-fits-all)
May not specialize in nonprofit accounting
So what is the New Model(s) and how
is it different?
• A flexible arrangement that provide highly competent personnel to
become part of the organization’s financial function.
• Encourages utilization of in-house personnel for accounting
operations.
• Spectrum of involvement is from total turnkey to period-end
controller-level review of financial reports based on the client’s needs
and culture.
• More typical is somewhere in between with in-house personnel doing
accounting operations under the functional supervision of an
outsource professional who also performs period-end review,
reconciliations and financial reporting with a second outsourced
person reviewing the financial statements before delivery.
• One team member can step in for another as required.
• Proven accounting technology is used and with the power of the
Internet the geographic location of the client organization of lesser
importance.
• Clear?? and deadlines are established at the time of engagement.
How Much Should the Finance
Function Cost? (Group discussion)
In discussion groups consider the personnel-related costs of the
finance function in your organization and come up with a percentage
range of costs compared to the total operating budget.
*Hint: Administrative costs to the total operating budget are usually
around 10%, and finance is part of administration.
Results:
• 3 – 5%
• Examples:
• $100k budget
• $500k budget
• $1m budget
$5,000 annual $400 per month
$20,000 annual $1,700 per month
$30,000 annual $2,500 per month
Can Outsourcing Costs Save Money
Then?
• Almost always
• How: Through competence, focus and
efficiency
The main question should not be that it is
significantly cheaper but that it delivers superior
results and peace of mind so the Executive Director
can pursue his or her passion unencumbered by the
distraction of a dysfunctional finance function.