Should You Outsource Your Accounting Functions?

Copyright 2020

As your not-for-profit strives to use its resources as effectively as possible, you might at some point consider outsourcing the functions that fall under your accounting and financial umbrella. But wait: You'll first need to weigh the possible benefits and pitfalls.

What Are the Potential Advantages?

Not-for-profit organizations often outsource work in areas that require specialized knowledge or a significant number of hours, such as payroll processing and payroll tax preparation. Outsourcing some or all accounting functions also can provide benefits — if it matches up with your organization's needs and its budget.

One potential benefit is accessing a higher level of expertise and greater resources than you could if you hired your own accountant. Outsourcing allows you to work with financial professionals of varying levels of experience and expertise tailored to the functions they'll perform. These responsibilities could include:

  • Processing payables, receivables and cash transactions,
  • Reconciling accounts at month-end,
  • Preparing financial statements, budgets and forecasts,
  • Assisting with tax and grant-reporting requirements, and
  • Adequately communicating financial matters to your board

But you don't have to outsource all of these functions. Depending on your needs and budget, you can outsource only the ones that make sense for your organization. You also may benefit from occasionally using other firm experts — investment advisers, HR and IT support, and valuation specialists, as necessary.

Some CPA firms offer outsourced CFO services. Others work closely with small firms that provide general accounting services. And there are now cloud-based services that can perform some of the more repetitive tasks such as order entry, vendor invoice processing and bill payment.

Many nonprofits turn to outsourcing accounting functions at times of significant personnel transition or workload increases. For example, what if your organization can't afford the day-to-day expertise of a director of finance or CFO? Outsourcing certain financial oversight functions, such as review of account reconciliations and reporting financial results to funders and the board, can enhance your system of internal controls.

When outsourcing any accounting function, try to work with a senior level professional who'll become familiar with your operations. This will help provide continuity of service as well as a resource to your senior management and board of directors.

What About Cost?

Depending on your organization's size and complexity, the cost of outsourcing accounting functions might equal or even exceed what you'd pay an experienced accountant internally — or it may cost less. With an outside firm, you pay only for the amount and level of services you require. With an on-staff accountant, that professional may spend some time doing work that someone at a lower pay level could handle equally well. Outsourcing also will spare your nonprofit the expenses associated with a regular employee, such as payroll taxes and health insurance.

A benefit that many smaller organizations derive in working with an accounting services firm is reduced fees for audit and tax services. And most of the accounting questions that typically arise in an audit already will have been resolved.

What Are Other Considerations?

A common concern is that there won't be a CFO or business manager whose office you can walk into whenever a financial question arises. Meetings with the CPA firm will need to be planned and scheduled, although it's possible to arrange for your outsourced accountant to be on-site on a regular basis. It's important for everyone at your not-for-profit and the CPA firm to understand availability expectations.

You also need to determine how financial data will flow. For example, will your nonprofit send information to the accounting firm, or will firm personnel appear on-site to perform bookkeeping? Will your accounting software be available on a remote basis? If the firm is unfamiliar with your accounting processes and procedures, it may need to perform some tasks on-site, at least initially.

Finally, you must be prepared to spend some time on the transition. There will be a learning curve as the CPA firm familiarizes itself with your organization's policies, procedures and systems.

The Last Word

Even with an outside firm handling your accounting functions, you'll still be responsible for making financial decisions. Remember, although an external firm can assist and advise you on financial matters, those charged with your nonprofit's governance (typically the board of directors) must have the last word.