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 management1. The importance of outsourcing these areas are
beneficial to successfully operating a nonprofit. This paper 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 non-profit 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 recently released a list of approximately 200,000 nonprofits that are in danger of losing their
tax-exempt status, due to failure of filing their tax returns (located: Here)2. 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.
1
Leach, M. (2010). Outsourcing Back-Office Services in Small Nonprofits: Pitfalls and Possibilities. Management Assistance Group.
Washington D.C.: Eugene and Agnes E. Meyer Foundation
2
Internal Revenue Service. (2010, October 11). Internal Revenue Service. Retrieved October 11, 2010, from Internal Revenue
Service: www.irs.gov
Cathedral Consulting Group, LLC
www.CathedralConsulting.com
info@cathedralc onsulting.com
Page 1
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 bank3.
1.
2.
3.
4.
5.
6.
What is the minimum required deposit?
What is the minimum required account balance?
Is there a monthly account fee?
What is the proximity of a branch office or ATM?
Does the bank offer multiple check signing rights?
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 fees4.
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 bank5. 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
3
Kennen, E. (2007, March 27). Bank Accounts for Non-profits. Retrieved October 12, 2010, from suite101.com:
http://www.suite101.com/content/bank-accounts-for-nonprofits-a17319
4
World Council of Credit Unions. (2010, October 12). What is a Credit Union. Retrieved October 12, 2010, from World Council of
Credit Unions: http://www.woccu.org/about/creditunion/
5
Federal Deposit Insurance Corporation. (2010, October 12). FDIC Insurance Coverage Basics. Retrieved Octover 12, 2010, from
Federal Deposit Insurance Corporation: http://www.fdic.gov/deposit/deposits/insured/basics.html
Cathedral Consulting Group, LLC
www.CathedralConsulting.com
info@cathedralc onsulting.com
Page 2
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 non-profits 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
insurance6.
1. Wrongful termination, discrimination and harrassment
2. Failure to provide services
3. 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
negligence7. 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
6
Scott Simmonds, C. (2004, December 1). Nonprofit Directors and Officers Insurance: The Good the Bad, and the Ugly. Retrieved
October 12, 2010, from GuideStar: http://www2.guidestar.org/rxa/news/articles/2004/nonprofit-directors-and-officers-insurance-thegood-the-bad-and-the-ugly.aspx?articleId=839
7
Frenn, T. L. (1998, December 1). The 1997 Federal Volunteer Protection Act: Limited Protection for Volunteers. Retrieved October
12, 2010, from State BAR of Wisconsin:
http://www.wisbar.org/am/template.cfm?section=wisconsin_lawyer&template=/cm/contentdisplay.cfm&contentid=49556
Cathedral Consulting Group, LLC
www.CathedralConsulting.com
info@cathedralc onsulting.com
Page 3
potentially translate into increased donations8. 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 cost9.
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 consultants10 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
Conclusion
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.
8
Nonprofit Risk Management Center. (2010, October 13). Risk Assessments for Nonprofits. Retrieved October 13, 2010, from
www.nonprofitrisk.org: http://www.nonprofitrisk.org/consulting/risk-assess.shtml
Public Entity Risk Institute. (2010, October 13). Computer Assisted Risk Evalutation System for Nonprofits. Retrieved October 13
2010, from Public Entity Risk Institute:
https://www.riskinstitute.org/peri/component/option,com_deeppockets/task,catContShow/cat,57/id,805/Itemid,80/
10
Cathedral Consulting Group provides all of these services to non-profits, as well as many others. For a complete list of our
management consulting services, see the “Non Profit” tab on our website.
9
Cathedral Consulting Group, LLC
www.CathedralConsulting.com
info@cathedralc onsulting.com
Page 4
Peter Giersch is a Managing Director and Drew Dillard is a former Intern Associate at
Cathedral Consulting Group, LLC.
For more information please visit Cathedral Consulting Group, LLC online at
www.cathedralconsulting.com or contact us at info@cathedralconsulting.com.
October e-fundraising Tip – Year-End Online Fundraising
If your nonprofit is about to launch a year-end campaign there are a few questions that you
may want to ask and answer before you begin
1. Have you developed a specific campaign message? You’ll need a compelling
message to get people to donate
2. Is the donation ask clearly visible? If your ask comes in the form of an email, you
only have a few seconds to capture the attention of the reader before they delete
your message
3. Are you effectively using your donor database? Your donor database will increase
the successfulness of your online campaign by allowing you to target individuals
who have given in the past.
Cathedral Consulting Group, LLC
www.CathedralConsulting.com
info@cathedralc onsulting.com
Page 5