In recent years, you may have heard about not-for-profits who “outsource” their accounting and you’re probably wondering “why”?

To be honest, there are many reasons. Outsourcing can be an effective way to tap into professional expertise that you may not have internally.  It can also be helpful to offload certain tasks that your employees don’t have time for, or a way to avoid increasing your not-for-profit’s head count.

However, it may not always be the best option for your organization.  It’s also important to remember that management cannot outsource its oversight responsibilities, nor can the board of directors outsource its fiduciary responsibilities.  It’s not a quick fix that can solve all of your problems.

Every “outsourced accounting service provider”, or OASP, has its own approach to outsourcing.  Here are two common scenarios:

  1. The not-for-profit keeps track of basic information (such as payments made to vendors and checks received from grantors) and provides this raw data, along with various documents, to the OASP each month. The OASP, in turn, processes and analyses the information and produces financial statements and supporting spreadsheets.
  2. The OASP may promote itself as a one-stop-shop to process your accounts receivable, accounts payable, and payroll, as well as generate financial statements.

Outsourcing is a big deal, however there are a few things to consider before jumping into an arrangement. Let’s take a look…

Consider these questions before outsourcing your not-for-profit accounting

1 – Who will be doing the work?

It’s vital you know what the OASP’s qualifications are.  Are they experienced and trained in not-for-profit accounting? Are they a CPA (certified public accountant)? Note: The CPA is the only accounting designation regulated by the state, which requires a rigorous licensing examination, significant education, ongoing training, and monitoring through a peer review process.

You’ll also need to consider how the duties will be divided.  It should be clear exactly who it is you’ll be dealing with when you have questions or when problems arise. Will one person be tending to all of your needs, or will you passed along an assembly line of 10 different workers?

And just to elaborate on something mentioned earlier, you need to know if your OASP has experience working with not-for-profits.  Most of the accounting rules that apply to businesses also apply to not-for-profits, but then there are additional standards that apply specifically to not-for-profits (i.e. accounting for restricted grants, allocation of functional expenses, etc.)  In addition, these standards are constantly evolving and it is important to consider your provider’s level of proficiency in this area.

2 – Where will the work be performed?

With the skyrocketing cost of rent and the increased use of mobile technology, more providers are operating virtually without a physical office.  This can be great and have many benefits, like translating into lower fees – but there can be downsides, too.  For example, long-distance relationships can be hard work (different time zones, having to Skype instead of meet, etc.)!  Maybe this is a non-issue for you, but it’s important to at least evaluate the impact.

3 – Where is the data, who can access it, and who owns it?

Due to advances in technology and dramatic reductions in cost, even the smallest organizations use accounting software.

When you’re talking with potential OASPs, find out what type of system will be involved.  You and your OASP might use one cloud-based accounting system that each party can access simultaneously (like Xero or Quickbooks Online), or they might feed raw data into a proprietary system that you don’t have access to.  It’s important that you understand who owns the data file (and whether you will have access to it) should you terminate the relationship down the road (i.e. so that you don’t have to rebuild your accounting system from scratch).

4 – Are there alternatives?

Not ready for outsourcing?  Consider Quasi-Outsourcing by leveraging existing relationships (like your staff, board members, and even your independent auditor).  Don’t over-outsource by paying a lot of money to have someone else do things that your existing team could easily handle. Sometimes this happens because the OASP offers specific packages (e.g. “platinum service”, “gold service”, etc.) that can feel like you are trying to squeeze a square peg through a round hole.  Don’t be afraid to talk with your OASP about a customized “a la carte” approach that might work better for your not-for-profit.