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How to Choose the Perfect Outsourced Nonprofit Accounting Service Partner with the Right Expertise?

Over 1.7 million tax exempt nonprofits in the US, approximately 30% fail to exist after 10 years due to inconsistent fund accounting. Let’s ensure your nonprofit isn’t one of them!

Financial management for nonprofits is unique in many ways. With specific financial requirements of donors, board members, and regulators, strict reporting, complex funding streams, and a focus on the mission over profits, nonprofit accounting services require specialized expertise.

Whether it is accounting for charities, educational institutions, sports, clubs, you need to navigate intricacies to make the most impact.

The reality is many nonprofits tend to fumble when it comes to managing books and handling fund accounting. However, at the core of every successful program and community initiative is a well-managed and accurate grant accounting system. But for nonprofits including yours, accountants work remotely at their convenience or as a freelancer, so consistent bookkeeping is a concern.

That is why outsourcing financial management is a great option for many nonprofits looking to streamline their accounting functions.

But the big question is: How to choose the perfect outsourced nonprofit accounting service partner with the right expertise?

Choosing the ideal accounting partner is like crossing the finish line with better speed and accuracy

Here are the key things you should consider for a rewarding outsourced accounting partnership and set on the path to mission success.

6 Key Things to Keep in Mind When Outsourcing Nonprofit Financial Management

“In the world of nonprofits, every dollar saved on accounting is a dollar that can be redirected towards fulfilling our mission.” – Anonymous

Outsourced nonprofit accounting services are not just strategic cost-cutting measures. With a trusted partnership, you can save time, focus better on strategic programs, increase mission impact, and ensure consistent management reporting, multiple reviews, 100% revenue reconciliation, and rigorous internal control.

You need to consider these 6 key things to choose an ideal outsourcing partner and match your unique needs.

Domain Expertise: Deep Understanding of Nonprofit Financial Management

The foundation of a rewarding outsourcing partnership lies in nonprofit accounting expertise. Your chosen firm must be familiar with nuances of restricted & unrestricted funds, program expenses, cash flow, grants payable, chart of accounts and more. Before partnering, you should look for:

Proven Experience of an Extended Team: It is beneficial to partner with outsourced accounting service providers who has experience and better understanding of your unique financial needs, compliance requirements, management reports, and other internal workings. They must have a proven track record of successfully serving nonprofits within set timelines.

Specific Knowledge of Nonprofit Accounting: Regulations, grant reporting, fundraising accounting, statement of activities, and monthly and quarterly board reports differ significantly from other businesses. Extensive knowledge in this area enables you to streamline financial operations, liberating your volunteers to concentrate their energies on community initiatives rather than wrestling with books.

“In the world of nonprofit financial management, expertise isn’t a luxury – it’s a necessity. Choose a partner who understands your organization’s unique needs and challenges.” – Emily Smith, Treasurer at North Carolina

Standardization Certification: Setting Sail with Confidence

When selecting an outsourced nonprofit accounting service, it’s crucial to consider accreditation and certifications. Look for providers who align with global information security and data protection standards, such as ISO 9001:2015 and ISO 27001:2013.

You need to ensure that they go beyond digital safeguards, offering dedicated physical infrastructure to fortify electronic data, safeguarding both hardware and facilities. These credentials indicate that the provider opts for top-tier security and adheres to established standards of accounting excellence, ensuring your financial data remains impervious in the digital age.

Harness the Power of Software Expertise

When your accounting partner says they're 'tech-savvy' but can't even handle Excel

In the digital era we live in, it is crucial for you to harness the power of accounting software and technology for nonprofit financial management. That is why your outsourcing partner should be software agnostic and possess a deep understanding of various software solutions, ensuring that you benefit from a technologically advanced approach to nonprofit financial management.

When you choose an outsourced accounting partner who utilizes advanced accounting software, cloud-based solutions, and automation, you can ensure streamlined workflows, better accuracy, efficient operations, and real-time financial insights.

Weathering the Storm: Rigorous Internal Controls

Your outsourced accounting partner should be the guardian of rigorous internal controls, establishing a fortified financial infrastructure that safeguards against errors, fraud, and non-compliance.

System Access – The external team should provide secure and controlled system access, including virtual environment, document sharing and all ancillary systems and portals.

Compliance – Your organization, though exempt from federal income tax, must file an annual information return (Form 990, 990-EZ) or submit an annual electronic notice (990-N). Failure to file for three consecutive years may result in the loss of tax-exempt status and potential taxes on revenue. Therefore, the outsourcing partner must comply with regulatory, Form 990, insurance, and government requirements.

Financial Reporting – Look for a provider who ensures that you have access to comprehensive financial reports and quarterly board reports enriched with actionable insights through financial intelligence solutions.

Independent Audit – The outsourced team should facilitate a third-party assessment, adding an extra layer of trust and confidence for stakeholders.

Separation of Duties – The partner should establish a clear separation of duties, minimizing risks associated with errors and fraud. This strategic division enhances internal controls, ensuring accountability and operational integrity.

Accounts Payable & Cash Oversight – Partner with the outsourcing partner that keeps a watchful eye on financial transactions, leveraging accounts payable automation to identify irregularities, duplicate or erroneous payments, and fraud.

Unleashing Potential: Scalability and Flexibility

Flexibility and a scalable team on-demand are two of outsourcing’s biggest benefits.

Keep in mind though that every outsourced accounting firm offers varying levels of flexibility. Some providers offer services on short-term contracts or project based, while others offer at hourly rates or fixed prices. You’ll also find some offering access to an entire team of certified professionals working dedicatedly for you based on the FTE model.

So, which one should you choose then?

Well, it all depends on your accounting needs. However, the FTE model is the best way to start a partnership as you experience fluctuations in financial workload due to seasonal activities and fundraising events. This way, you can have greater control, easily adapt to changes, and ensure best practices, consistency, and better accuracy.

Outsourced accounting offers benefits beyond cost savings. That is why it is imperative to dedicate time to thoroughly evaluate potential outsourced nonprofit accounting providers, reach out for recommendations, join referral programs, and conduct due diligence. Keep in mind that an ideal accounting service provider will not only efficiently handle financial management of your nonprofit organization but also become a trusted partner in your mission success.

Take your nonprofits to the next level and maximize positive impact with a rewarding outsourced nonprofit accounting partnership!

By John Bugh

John Bugh is Chief Revenue Officer for Pacific Accounting and Business Services (PABS), responsible for the strategic direction, planning, vision, growth, and performance of the company’s marketing, branding, and revenue streams.

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