Nonprofit Finance: Contracted or in-house?

October 6, 2011 3:08 PM

[Nonprofit Filter] We're investigating options to shop out the major financial needs of our nonprofit organization. If we do this, what tasks should be kept in house and (if we no longer have a dedicated finance person) who should do them? We are considering this option, but have a fair number of questions about how other small NGOs manage their financial administration. Is yours in-house, contracted, a combination of both? What are the benefits/challenges? Lots of questions and would appreciate experienced feedback!

We've had some difficulty finding the perfect combination of office manager+bookkeeper at our stable, well-established, small-town nonprofit. We finally decided to investigate splitting the position entirely and shopping out the more complicated tasks to a local bookkeeping service (this would allow us to focus on bringing in a smart, charismatic, organized OM without worrying about extensive $$ skills).

A few facts:
*We have a staff of 10 and a budget of $1M.
*We use Quickbooks and currently its contents and management are mostly a mystery to everyone except our outgoing admin/bookkeeper (this person will likely leave under unfavorable conditions...);
*There is one local bookkeeping service available to us.

So my questions are these:
*Do you have an in-house finance person who does everything? (is there a way to learn how many nonprofits do?). If so, are they f/t finance or do they have other duties? Also, how do you assure a sound position if this person gets hit by a train? And what would you do if that happened?
*Do you use a contracted bookkeeping service? If so, what finance stuff is still done in-house? (e.g., accounts payable? Basic QB reporting for grant purposes?). And who does it if not a dedicated finance person?
*If you use a contractor: Do they come to the office? How often? Do they have a desk? A mailbox in your office? How much annually do you budget for your contracted bookkeeper? Or how much did you pay in your last FY? Are you happy with your arrangement?
*What finance docs do you take to your monthly board meetings? And do you generate these in-house or call upon your contractor?

I wonder if it would be difficult to transition to a contractor some of the more unique-to-us financial tasks:
*A somewhat involved method of using formulas to allocate general expenses (e.g. office supplies, electric bill, rent) across grants--done with every bill paid, I think (does anyone else do this? and how to you go about it?);
*A dynamic customized Cash Flow spreadsheet that shows our FY by month at a glance, with funding sources, inflows, outflows.

Please feel free to share what works with your organization, any suggestions you might have, if you recommend shopping payroll to an entirely separate online service (and what one pays for this), any drawbacks to this, plus any web sites that could prove useful in guiding us through this investigative process.

Keep in mind we are in a small town with few choices. We're happy to consider online alternatives if they exist. We want to streamline, be effective and secure in any transition and think it might suit us to move most of our finance out of the office if we can address the above concerns.

posted by anonymous to work & money (7 answers total)

This is quite a complex question. I have partnered in the development of one MSO (Management Services Organization) which provided a range of management services for two community MH nonprofits with a combined budget in excess of 10 million and I have contracted managed smaller community MH agencies. Financial services were part of all these arrangements. If you wish email me and I will give you my phone # and we can chat--There are many questions to be answered and many possible solutions/combinations. My email is in my profile or use mefi email. Trust me--no solicitation involved--I am thoroughly and completely retired and am going to keep it that way. Frank
posted by rmhsinc at 3:41 PM on October 6, 2011

I would also be willing to talk to you. I'm the ED of a nonprofit exactly your size and budget. We outsource our accounting, payroll, monthly financials, audit, and a number of other functions.. My e/mail is in my profile as well and would be glad to talk to you during the day tomorrow if you want to call. Like rmhsinc said, this is a pretty complex question that would take pages to answer....
posted by HuronBob at 3:44 PM on October 6, 2011

Like HuronBob, I run a not-for-profit about your size. Me-mail me if you'd like to talk--I'm happy to share--but no way am I typing out a comprehensive answer to your very big question.
posted by Short Attention Sp at 6:26 PM on October 6, 2011

HuronBob and ShortAttention--appreciate your comments and it was not my occasional sloth or unwillingness to work out the many permutation based on a number of unknowns. HuronBob--you appear to be up the road a bit and AttnSp only a 3 1/2 hr drive to the west. The innate helpfulness of mid-westerners.
posted by rmhsinc at 6:38 PM on October 6, 2011

We have 60-plus staff in Cambodia and three in Singapore on a budget half your size. We split our book-keeping, with basic spreadsheets in Excel for the Singapore side which is very straightforward, and QuickBooks in Cambodia with an external accountancy firm that prepares our monthly books and quarterly audits, with one staff on our Cambodia team who manages all the internal bookkeeping.

You need to have at least one person in-house who understands your bookkeeping system. It doesn't matter if they're on staff or a dedicated volunteer - someone on your board would work. They don't have to work on it, but you need to have someone who can at least evaluate the work being done by the outsider.

We've been really happy with our external accountants. Recently, we got them to put our records onto Xero.com so that from Singapore we can remotely check the reports. It's user-friendly and has been fairly straightforward. They export from Quickbooks, and our Paypal account syncs automatically.

We chose them on recommendations from other NGOs who had worked with them, and one of our directors with a lot of financial experience interviewed them in-depth first. We went through our financial records at that point so they could give us an accurate quote of the time involved.

Do you have a financial policy? We're working on ours now, which is basically writing down all our standard processes like petty cash above $X amount gets banked in within 24 hours, wire transfers have to be recorded on this donor income spreadsheet, and on the last Friday of every month, our paperwork gets scanned in and filed on the network here, then photocopied for the audits there, and any wire transfers or cheques are recorded over here blah blah. You could ask your departing bookkeeper to write down a draft of all these processes before they leave.

My husband volunteers at another NGO, and they do not have any financial policy or a single bookkeeping system, and it's been an absolute mess. Not out of malice, but just a mess and all reliant on what's inside one person's head only.

This is all dependent on how complex your internal financials are. We have two larger grants in Cambodia, and one of them requires separate accounting by their particular system which takes up a good 20% of our finance staff's time, even though the amount is maybe 10% of our overall budget. Taxes are much simpler for us in both Cambodia and Singapore than in the US too.

You can definitely outsource most of your accounting work remotely. You might want to have a local part-time bookkeeper and then have the more complex stuff done by an online remote service.

It sounds like it would be a lot cheaper if you first spent an afternoon writing out all the internal financial tasks needed, put together a month or two of records and then got an evaluation of what you need from either a non-involved expert (ask around among your donors for someone with the right expertise, because a supporter is likely to be pleased to be tapped for their professional expertise as well as funds) or get a quote from 3-4 shortlisted professionals.

That way you'll have a realistic idea of your actual financial needs, and it's often a lot easier than it seems to a non-financial person. I was completely freaked out last year over some stuff, and then our financial volunteers came in and gently laughed me down because it was something very basic that could be easily fixed.
posted by viggorlijah at 7:52 PM on October 6, 2011

I work at a non-profit about your size also. I do program work and not admin so I can't answer all your questions but I wanted to share that I do know that we have a contract accountant who comes in once or twice a week. He does everything on QB. We used to use the Paychex service for payroll before him but he just does it all now, I have been told that this is a cheaper option for our organization. We had a bad book keeper once (not an accountant, a book keeper) and an auditor found that they did a really bad job. This person also had a bad temper. When they were fired, we had to get a guard to escort them out, change locks and post a photo of them at the security desk.

Our board requires that we have a 3rd party audit once a year and I am told it makes us more attractive to foundations.
posted by dottiechang at 1:29 AM on October 7, 2011

I also work at a similarly sized organization. We have a p/t accountant, who handles all nonprofit clients, that comes in for about 4 hours once a week. She has a dedicated computer (with QB), desk, and phone line. Our Assistant Director prepares everything for her during the week (check requests, cost-coding expenses, reconciling AMEX bills, etc.), which is processed by the accountant in additiona to handling payroll. Both the Director and the Assistant Director have access to the QB records, although they are not 100% fluent. We do have an annual audit by an outside company. Both the staff and the accountant help prepare materials for the auditors and are required to answer any questions they might have. We spend less than $10,000/yr for accounting (not including the audit).
posted by jrichards at 6:38 AM on October 7, 2011