Estimated Reading Time: 6 minutes
Outsourcing financial tasks has become a popular trend in the nonprofit sector. Common reasons nonprofit leaders outsource some or all of their financial management responsibilities include:
In addition to the benefits listed above, retaining an independent, qualified finance or accounting firm may enable a nonprofit to mitigate certain downside risks that arise in financial management, such as:
Fiscal outsourcing can be helpful to a nonprofit that finds itself ill-equipped to manage these and other financial risks alone. But before outsourcing, nonprofit leaders must first prepare to mitigate risks that may arise from outsourcing.
Before turning over access to any aspect of the financial management function to a third-party, it’s important to take the time to choose a vendor whose expertise, business model and pricing suit your needs.
According to Ed Mulherin, CEO and Founder of eCratchit, a Boston-based accounting firm that offers “virtual” financial services, the key to successful fiscal outsourcing is finding the right match. “Collaborating with the right firm is essential for a healthy partnership,” Mulherin said. “Partnering with an inexperienced firm or one that is unfamiliar with your organization is the greatest potential downside risk.”
Planning for a successful partnership begins by understanding your needs. Ask: What specific fiscal tasks should we outsource? What are the pros and cons of outsourcing a few specific financial tasks or activities, versus the entire finance function? Knowing the answers to these questions will help guide you in the search for a firm and enable you to reduce the risk of a costly match. Mulherin also urges nonprofits to seek out firms that carry professional liability insurance.
Once you identify potential partners, interview them as if you were hiring an employee. Some of the questions you might ask include:
The answers to these questions will be invaluable as you narrow down your options. You may discover, for example, that a well-respected firm isn’t in position to assign a go-to account manager; instead, you’ll be working with a different representative every time you call. Or you may learn that the affordable flat fee for services is a baseline only, and weekly or monthly bills are likely to include unpredictable costs, such as fees for work by senior accountants, or fees for custom reports.
As fiscal outsourcing becomes more common in the nonprofit sector, it may be tempting to jump on the bandwagon. Like any other trend, however, it is important to first identify, understand and manage the downside risks associated with any new approach before you can reap all of the benefits.
For information about the Nonprofit Risk Management Center, visit www.https://nonprofitrisk.org/ or call (703) 777-3504.
“First let me congratulate you on a conference well done. I had a great time at the Nonprofit Employee Benefits Conference and walked away with some valuable tools and questions that we’ll need to be addressing in both the short and long term. Thanks to you and your staff for all you do to provide us with quality resources in support of our missions.”
“BBYO’s engagement of NRMC to conduct a risk assessment was one of the most valuable processes undertaken over the past five years. Numerous programmatic and procedural changes were recommended and have since been implemented. Additionally, dozens (literally) of insurance coverage gaps were identified that would never have been without the work of NRMC. This assessment led to a broker bidding process that resulted in BBYO’s selection of a new broker that we have been extremely satisfied with. I unconditionally recommend the Center for their consultative services.
“Melanie Herman has provided expert, insightful, timely and well resourced information to our Executive Team and Board of Directors. Our corporation recently experienced massive growth through merger and the Board has been working to better integrate their expanded set of roles and responsibilities. Melanie presented at our Annual Board of Director’s Retreat and captured the interest of our Board members. As a result of her excellent presentation the Board has engaged in focused review which is having immediate effects on governance.”
“The Nonprofit Risk Management Center has been an outstanding partner for us. They are attentive to our needs, and work hard to successfully meet our requests for information. Being an Affiliate member gave us access to so many time- and money-saving resources that it easily paid for itself! Nonprofit Risk Management Center is truly a valued partner of The Community Foundation of Elkhart County and we are continuously able to optimize staff time with the support given by their team.”
“The board and staff of the Prince George’s Child Resource Center are extremely pleased with the results of the risk assessment conducted by the Nonprofit Risk Management Center. A thorough scan revealed that while we are a well run organization, we had risks that we never imagined. We are grateful to know that we have now minimized our organizational risks and we recommend the Center to other nonprofits.”
Great American Insurance Group’s Specialty Human Services is committed to protecting those who improve your communities. The NRMC team has committed to delivering dynamic risk management solutions tailored to nonprofit organizations. These organizations have many and varied risk issues, hence the need for specialized coverage and expert knowledge for their protection. We’ve had Melanie speak on several occasions to employees and our agents. She is always on point and delivers such great value. Thank you for the terrific partnership and allowing our nonprofits to focus on their mission!