Selecting Professional Services

Every nonprofit regardless of its size, location or mission faces the same administrative minutia, and it has to be dealt with. One key to operating a nonprofit more efficiently is to minimize the administrative burden through outsourcing and selecting expert professionals.

According to a report by the Management Assistance Group (MAG) and the Eugene and Agnes E. Meyer Foundation there are four primary reasons nonprofits choose to outsource.

• Reducing operating costs and capital investments.
• Increasing organizational impact by allowing staff to focus on core business.  
• Access to technology, skills and insights not otherwise available or affordable.  
• Increased flexibility and responsiveness.

The benefits of outsourcing back-office functions are simple and straightforward, but deciding what functions to outsource is not as easy.  In the MAG and Meyer Foundation report, their study found that the easiest and cheapest services to outsource are routine financial bookkeeping, accounting and reporting, human resources payroll, and benefits management. The importance of outsourcing these areas are beneficial to successfully operating a nonprofit.  This resource will look at the importance and the advantages of outsourcing and the use of professionals.

Accounting and Administrative

There are two databases that are the lifeblood of a nonprofit organization, a donor database, and financial software. As one of our previous whitepapers on donor databases emphasized, the importance of using sophisticated donor database software over the less agile Excel sheet. The same goes for an accounting platform. Excel spreadsheets are great tools for simple tasks, however they are limited in the information they can provide. For instance, a good outsourced web based accounting, such as Accountiviti (www.accountiviti.com) will provide assistance with filing all nonprofit tax returns such as the 990 and 990PF. This is especially important as the IRS released a list in 2010 of approximately 200,000 nonprofits that are in danger of losing their tax-exempt status, due to failure of filing their tax returns.  These outsourcing services work with a nonprofit to ensure that they remain compliant, and keep them up to date with the ever-changing tax laws.

There are other, more immediately recognizable benefits that come from outsourcing accounting services. Online outsourcing services are cost effective and are significantly cheaper than retaining the services in-house. Most full service accounting firms cost about $1,000 a month and there are many local and regional accounting outsourcing firms that are less than that. This figure is significantly cheaper than paying an individual a salary, plus there is no need to pay benefits or payroll taxes. Other services are even less expensive, depending upon the number of transactions that take place per month. Accounting and bookkeeping services might be the least enjoyable functions of a nonprofit, but they are arguably the most important.

Banking

Money is essential to every nonprofit. No money, no mission. And where that money is kept is a decision that deserves serious consideration. Maximizing the potential interest and minimizing fees should be important goal when selecting a bank account. Setting up a bank account for a nonprofit is not very different than setting up a personal account. There are specific questions and logistical issues that should be considered before signing with a bank.

1. What is the minimum required deposit?
2. What is the minimum required account balance?
3. Is there a monthly account fee?
4. What is the proximity of a branch office or ATM?
5. Does the bank offer multiple check signing rights?
6. Is there a check-writing fee?

Living in the technology age, a nonprofit could benefit from a nontraditional banking institution such as an online bank or a credit union. There are benefits and drawbacks to each. An online bank may offer the flexibility of instant transactions, but lack the physical store location, which can make personal interactions difficult, and even in today’s “online world” the personal relationship between an executive and his or her banker is one of the most important relationships in the business world.

A credit union is an attractive option as they typically offer lower rates and fees compared to a traditional banking institution. Credit unions act as a “not-for-profit” which is distinctly different than a nonprofit, as credit unions do not accept donations but take excess profits and use those to give loans and lower fees.

It is important to weigh each question and banking organization structure carefully to determine which one is appropriate. Regardless of which banking institution is chosen, each provides a certain level of security for deposits. The Federal Deposit Insurance Corporation (FDIC) insures accounts with a balance up to $250,000 per depositor per bank. This means is if a bank account has 4 approved depositors that account is insured up to $1,000,000. If there is a similar set up, but with 4 separate banking institutions, that is $4,000,000 of coverage that is applicable. In these turbulent economic times we have recently been facing, insurance of nonprofit funds is not something to be taken lightly. Money is every nonprofit’s lifeline make sure it is protected.

Lawyers

Having access to an experienced nonprofit lawyer is vital to remaining in legal compliance – as proven by the nearly quarter of a million nonprofits in danger of losing their tax-exempt status, which we mentioned above. There are many complexities that are associated with nonprofit law such as tax-exempt status, charitable contributions, trusts and endowments, and intellectual property. There are numerous forms that must be completed by a nonprofit organization such as 990, 990T, 990EZ, 1023, 1024, and 5768. A good legal council will be able to assist in the completion of these forms, to ensure accurate and timely submission. There are numerous ways to find a nonprofit lawyer. The easiest and most accessible way is through the use of the Internet. There are various databases available that will list lawyers by state and city. To start with, check this site out.

Insurance Solutions

Nonprofits are faced with unique insurance needs that are similar to a for-profit organization. Most experts agree that a nonprofit Board of Directors should have Directors and Officer’s insurance (D&O). D&O insurance provides against a breach of duty by the directors and officers. D&O insurance generally protects against any actual or alleged act or omission, error, misstatement, misleading statement, neglect or breach of duty by an Insured Person in the discharge of his/her duties. There are common claims that are generally covered under D&O insurance.

• Wrongful termination, discrimination and harassment.
• Failure to provide services.
• Mismanagement of assets

It is important to note that D&O insurance does not cover personal liability sure as physical injury or property damage. Having the correct coverage is important to not only the directors and officers, but also the employees and volunteers. Under the 1997 Federal Volunteer Protection Act, volunteers for nonprofits are immune from liability that results from ordinary negligence.  With the vast details in insurance coverage for nonprofits, hiring an expert in nonprofit insurance solutions is vital to the overall health and durability of a nonprofit.

There are two other insurance solutions that are important to every nonprofit: General Liability and Risk Assessment. As mentioned above, D&O insurance does not cover physical injury or property damage. It is also a common notion that an individual’s homeowners insurance will cover and injuries or property damage. While that may be true in specific cases, it is important to know for sure.

Risk assessment should be an important control function of a nonprofit. The purpose of a risk assessment is to give the Executive Director a better understanding of the risks that are present in their organization. A successful risk assessment can instill confidence in an organization and potentially translate into increased donations. However, a full service risk assessment can be expensive, costing anywhere from $5,000 to $15,000. Because of this high price point, the Public Entity Risk Institute created a software called Nonprofit CARES (Computer Assisted Risk Evaluation System) which takes a detailed look at a nonprofit’s risk management practices for a fraction of the cost.

Management Consultants

Regardless of what a nonprofit’s mission may be, at one point or another, every organization finds that they are in need of outside help. Management consultants can assist in helping an organization by providing important services such as:

• Strategic Planning
• Organizational Assessments
• Marketing
• Executive Search
• Board Building
• Board Training
• General Executive Council

Management consultants can assist even fundraising professionals, since revenue generation is a key management function. The key areas that management consultants can assist are:

• Grant Writing
• Major Donor Cultivation
• Capital Campaigns
• General Fundraising Council

Reducing operating costs and capital investments, increasing organizational impact by allowing staff to focus on core business, access to technology, skills and insights not otherwise available or affordable and increased flexibility and responsiveness are all clear benefits from outsourcing and choosing the correct professionals. Each area provides a unique opportunity to each of the four advantages found in the Meyer’s Foundation report. There is no doubt that outsourcing and selecting the appropriate professionals will allow a nonprofit to focus on the reason it was founded, to raise money and awareness for a specific mission.

For more information, please visit the Giersch Group at http://www.gierschgroup.com/ or contact us at prosper@gierschgroup.com