Executive Director + Bookkeeping = Conflict of Interest?

January 26, 2009 3:10 PM

Should the Executive Director of a non-profit organization also be doing its bookkeeping?

I am a Board Member for a non-profit organization. We recently relocated, giving us much more exposure, hence more revenue, but also more work in the bookkeeping department. Our annual budget is around $250,000.

For the last 5 years, our Executive Director has handled all the bookkeeping. She is now feeling overwhelmed, and feels that she needs a salary increase to make it worth her while. The Board is thinking that her workweek would then be too long, and that we might be better off hiring it out to a bookkeeper.

Can anyone give me some pros and/or cons of allowing the Exec Director to do the bookkeeping? Is there a conflict of interest? Would we be denied any grants because of this?

(We are an educational/family fun facility in Washington state, if it matters.)

Thanks for your help!

posted by jildelicious to work & money (13 comments total)

Get an account on the Board of Directors who's willing to act as treasurer (and who comes with stellar recommendations, obviously).
posted by availablelight at 3:28 PM on January 26

account = accountant
posted by availablelight at 3:28 PM on January 26

Lots, and lots, and lots of NPO ED's do the book keeping. What you need to recognize is that if you're assuming the ED is the public face of the organization, is responsible for recruiting funds as well as overseeing program operations, at some point everything is going to suffer so that she may continue to do the book keeping.

Right now, nationwide, it's pretty easy for those with NPO experience AND QuickBooks experience to pretty much write their own ticket in the $40-50k range, and that's in fairly small towns <6>
Realistically you can farm out the books to someone who does it for a living, and as such does it quickly and efficiently.

DO NOT LET A BOARD MEMBER, EVEN THE TREASURER, HANDLE THE BOOKS. BAD MOJO and a recipe for disaster.

So to answer your question, YES it's common, YES your organization will choke itself at some point because books get to be bigger and bigger.

The concerns are that 1) the board or whomever stays cognizant of where the money is going and what the cash levels are and that 2)you damned well better require 2 signatures AND one of those signatures SHOULD be a board member. Lots of high profile NPO's let 2 office employees be the signatures and then watch as one day the ED and secretary walk away with the bank account.

Also, there's a shifting tide now as young ED's move into positions that they've actually gone to school for. Time was that you moved up in the NPO world after time in the trenches---not always the case now. Chances are if she's not an MBA or an accountant, there are tiny ways she's not doing things to GAAP OR places you could be putting your money to actually get returns on it.

Also, you do a yearly audit, right? If not, GET ON IT. NOW. RIGHT NOW.

Feel free to memail me, this is my 13th year in this industry :)
posted by TomMelee at 3:43 PM on January 26 [2 favorites]

mefi eats my less than's. Read that as "less than 60,000 population"
posted by TomMelee at 3:43 PM on January 26

The signer of checks should never be the bookkeeper, especially in a not-for-profit that owes a fiduciary duty to those that donate expecting that their donations are used in a proper way.
With that kind of budget you should be able to get an independent bookkeeper that can come in 3 to 4 hours a week for $15 - $20 an hour, depending on your location. But expense is beside the point, although your executive director may be entirely honest, your board has left itself open to fraud.
A few years ago I was doing some volunteer work for a not-for-profit, and I offered to help out with any accounting or tax needs thay had, pro-bono. The executive director never set up a time with me, and I was never contacted again for any work (although I had felt they were in great need of help), The next year the executive director and the financial person were indicted as they had skimmed thousands of dollars over the years. These people seemed to be dedicated to their work of helping prostitutes that chose to get off the streets a hand up, but they combined that work with helping themselves. A friend who was with the state's attorney's office told me that this is an entirely too common scenario at churches and non-profits. There are often inadequate internal controls, and no one seems to have criminal intent so this can go on for years.
posted by readery at 3:44 PM on January 26

I am not an expert on this subject, but I do work for a non-profit (<5 staff members, 400k budget). My understanding is that you want do not want to have one person handling all of the bookkeeping. If you followed a check that comes into your organization, more than one person should be involved in recording it and depositing it. Some advice on this subject can be found here: http://www.managementhelp.org/finance/np_fnce/basics.htm. Scroll down to "Internal Controls."
posted by val5a at 3:50 PM on January 26

I've worked with non-profits for the past five years or so, and continue to do so.

Your ED needs to hire a bookkeeper, or at least an office manager who can handle the books. There is absolutely no reason for your ED to be spending so much time on the books that they are requesting a raise. It's a total waste of time, and indicate you may need to start looking for a new ED who has better time-management, delegation, and, last but not least, negotiation skills.

The ED will supervise the bookkeeper, and will also generate quarterly and annual financial reports. The EDs activities will be overseen by a finance committee (rather than a single Treasurer).

You should also consider bringing in an auditor once a year to go over the books with the bookkeeper.
posted by KokuRyu at 4:41 PM on January 26

What TomMelee said about an audit. That will provide a lot of security and transparency and could yield surprising areas where there could be cost saving, too.

I'm not on the finance side but I do work for an NPO, and I think the best thing you could do at this point is farm the piece out to an accountant as contract work for an hourly wage.

Honestly, that would be much better than raising her salary. If she merits a salary increase in addition to adding the bookkeeper, certainly negotiate that, but if the accounting is beginning to feel a burden to her she would burn out soon enough even with a bigger paycheck. Free her up to focus on fundraising and strategizing to build the organization - it's likely with more time, you could set up a work plan with her that would bring in enough in additional revenue to cover the relatively small cost of bookkeeping plus a salary increase for her within the next fiscal year.

The board should review the financials each month at the board meeting, too. They can ask questions and make recommendations, and there should be a finance committee handling major strategy and any endowment or other investment income, but no, they shouldn't be doing the bookkeeping themselves.
posted by Miko at 5:19 PM on January 26

I'm the ED of a 900k budget NPO, I've worked for the organization in a variety of roles for over 25 years.. our auditors would never tolerate my doing the bookkeeping, there is no check and balance in that situation.

We have two people in the organization (only 14 employees) involved in every transaction, and our checks are cut by an outside contractor.

Don't make it easy for someone in your system to abuse it...
posted by HuronBob at 5:37 PM on January 26

also, email me, I would be glad to have a conversation about this via e/mail or phone..

good for you for serving on the board, and being willing to ask these questions!
posted by HuronBob at 5:38 PM on January 26

DO NOT LET A BOARD MEMBER, EVEN THE TREASURER, HANDLE THE BOOKS. BAD MOJO and a recipe for disaster.

Quoted for holy crap ain't that the truth.
posted by desuetude at 5:56 PM on January 26

I also agree that the ED shouldn't be doing the bookkeeping. In my 3-employee NPO the financial director can't sign checks, and doesn't get to touch incoming funds until someone else has logged them. We also have monthly internal checks of the books, an accountant that comes in quarterly, and a full scale audit each year. You really don't want even a hint of impropriety, and it seems a much better idea to outsource it than to raise the ED:s salary.
posted by gemmy at 8:42 PM on January 26

Thank you all SO much, this has really helped me out!
posted by jildelicious at 9:10 PM on January 26