By Myron Shiffert, CPA
Nonprofits and associations must overcome a number of challenges unique to the nonprofit sector: building effective boards; attracting the right talent; operating in a tough regulatory environment; and balancing member/donor expectations with long-term organizational goals, among others. For small nonprofits and associations with limited staff, these challenges are exacerbated by tight budgets and limited resources.
But, like their larger counterparts, small organizations must tackle these challenges head-on in order to be successful. To do so, it’s critical that small nonprofits focus on managing high-priority concerns with cost-effective strategies. There are a number of low-cost methods for overcoming common nonprofit obstacles that even short-staffed organizations can implement.
Human Resources Challenges
Nonprofit leaders know that navigating the virtual ocean of HR regulations can be a full-time job, but few small nonprofits can have robust HR teams or afford expensive consultants. To ensure compliance without breaking the bank:
- Utilize inexpensive (or free) vetted checklists.
The IRS, as well as a number of accounting firms and HR associations, offer accurate checklists to help you better understand complicated regulations. For example, the IRS is currently cracking down on businesses that improperly classify full-time employees as independent contractors. The distinction between employees vs. independent contractor is not always clear-cut, but the IRS has published a thorough, plain-language guide for determining the proper categorization.
- Join and follow HR associations.
Organizations like the Society for Human Resource Management and the National Human Resources Association keep up with changes in regulations and publish a number of helpful resources. Attending webinars, following experts on social media, and downloading guides and checklists will help nonprofit leaders stay on top of the latest regulations without investing a great deal of money (or time).
- Invest in outsourced payroll.
Many small organizations may be tempted to handle payroll in-house, since there may be only a handful of checks to issue every pay period. However, payroll also requires filing payroll taxes, expense reports, contractor payments, keeping appropriate records, and handling a number of other technical concerns. For the preparation and filing of payroll and payroll taxes, outsourced payroll services such as ADP or Paychex offer convenience, security, and assurance at a great value.
Internal Controls Challenges
Small associations or nonprofits may think they’re immune to fraud. A small, close-knit team tends to trust each other, and it’s difficult to imagine a dedicated employee taking advantage of an organization’s weaknesses. But, unfortunately, even the most trusted employees can commit fraud if the right set of circumstances arises. Proper internal controls must be in place, but they need not involve expensive deterrent systems. Some of the most cost-efficient internal controls and fraud prevention systems include:
- Management involvement and oversight
Fraud prevention and effective internal control practices should start at the top. A first step is for management to show a clear interest in the books. Management should review financial reports on a periodic and on a drop-in basis. In addition, management should take appropriate steps to investigate variances, monitor and supervise employees, and establish and enforce a written ethics policy. A visible commitment to review will, in itself, help deter fraud.
- Segregation of financial duties
Segregating financial responsibilities can be difficult for organizations with small staffs, but doing so is necessary to prevent and detect fraud. One person should not be responsible for all financial duties, such as initiating, approving, and recording transactions, reconciling balances, handling assets and reviewing reports. Even a two-person team can effectively separate these responsibilities, and a third team member (or a board member) can perform random reviews. For example, when cash comes in the door, the cash or checks should be logged and deposited by two different people, and a third party should check the log and compare it against the deposit made.
- Basic Policies and Procedures
Enforcing common sense procedures can also decrease the likelihood of fraud in a cost-effective way. Policies should focus on cash receipts, cash disbursements, credit cards, bank statements, payroll, and fixed assets. Some of these policies could include requiring a copy of the original invoice or receipt with all cash requests, maintaining an approved vendor list to prevent employees from creating bogus vendor accounts, and using purchase orders for purchases over a certain amount. This prevents employees from setting up their friend or relative as a vendor, who then sends in legitimate-looking bills to be paid. Create a policy whereby management must approve a new vendor before any transactions can be made.
Technology Challenges
It’s important for nonprofits to invest in technology to streamline internal processes and better communicate with members or donors. But technology can be expensive, and small nonprofits should carefully plan their technology investments in concert with their organization’s objectives. To maximize ROI on your technology purchases:
- Gauge internal expertise and preference before you purchase.
Small associations and nonprofits don’t have the luxury of large training budgets, so it’s important to select technology that will help employees be more efficient, not slow them down. Asking employees to weigh-in on purchasing decisions, especially when you have a small staff, can help decrease time-to-productivity. For example, if your staff is already familiar with Salesforce from previous positions, it may make sense to stick with it instead of switching to a less expensive alternative that could slow productivity. Likewise, if your team consists of mostly Mac OS users, it may be smarter to invest in pricier Macs instead of requiring everyone to switch to (and learn) a Windows OS.
- Invest in Technology that Saves.
Focus on investing in technology that will actually save your association money. For example, teleconferencing solutions and high-quality webcams will save your staff from expensive, time-consuming travel. And, this should go without saying, but investments in security to protect your donor or members’ information should be a high priority and will save you from an expensive, embarrassing data breach.
- Take advantage of deals and discounts available for nonprofits.
Many technology companies, including software and hardware producers, offer special discounts for qualifying nonprofits. For example, Microsoft donates some of its software and cloud services to qualifying C3’s through a special nonprofit program.
Small nonprofits and associations certainly face unique challenges, but size isn’t everything. Implementing these cost-effective strategies can make a big difference in your organization’s productivity, morale, and ultimately, success.
Myron Shiffert, CPA, is Manager at Snyder Cohn, PC, a CPA and business advisory firm, 11200 Rockville Pike, North Bethesda, MD 20852; 301-652-6700; www.snydercohn.com.