The following article originally was published in July 2024 in The CPA Journal and is republished here with permission.
Accountants working for nonprofit entities are always pressed for time; there never seem to be enough hours in the day. Which comparative and trend analyses get pushed to the wayside because the accounting team is spending hours—and even days—each close with data entry? How many errors have to be corrected each period due to clunky data imports or manual transaction processing? Nonprofit entities must make the most of the resources they have, including people. Managers must ask themselves: are their people being utilized to their highest and best use given their experience and job description? Or are they weighed down with mundane tasks that must be done—but by whom?
Focusing on the following six areas can give accounting teams the gift of time, resulting in more effective, accurate, and meaningful reporting.
Eliminate Unused Reporting
Executives and donors alike love a glossy package of reporting every month, chock-full with year-over-year comparatives, trend analyses, different key metrics, and the occasional pie chart or colored graph. These are the tangible representations of an accounting team’s efforts. However, reporting for reporting’s sake is a costly legacy practice; by reevaluating both the deliverable’s purpose and the audience that it currently serves, nonprofit organizations may find that information that was once critical is now either outdated, easily available somewhere else, or already being produced by someone else. Using the budget as an example, nonprofit with $5 million of revenue has much different budget reporting needs than when it grows to $50 million. Determining the needs of the stakeholders is key.
Reporting should be evaluated based on answers to the following questions:
- What is the purpose of each report? Who (if anyone) is utilizing the specific data it provides?
- Can these report sets be consolidated, either with other similar reporting or dashboards or on a frequency basis?
- Is this information better pulled by another department, depending on the intended audience, which may have easier access to the underlying dataset?
- Can the organization’s systems produce a canned report that will give some, most, or all of what is needed with much less lift?
- Is anyone using this information to make business, programmatic, cash flow, or strategic decisions? If so, on how frequent a basis is this used, in order to warrant it being run more than ad hoc?
- Is the level of detail necessary—and does that knowledge outweigh the time required to produce it?
Cutting down on reporting or simplifying reporting procedures can free up valuable hours for the accounting department. It is essential for accounting team leaders to challenge the necessity of allocating resources to generate reports that are not utilized, or are underutilized relative to the work necessary to produce. Good stewardship of resources includes the resource of time.
Understand the Why
This advice complements the effort to remove unnecessary reporting. Take a close look at daily, weekly, and monthly task lists to understand the purpose behind each transaction cycle process. Tasks marked as “because that’s how we’ve always done it” should be scrutinized and revamped. Once the “to-dos” with minimal value have been pinpointed, ask the following questions:
- Is there a more straightforward method to acquire this data or eliminate this step altogether?
- Is there an internal control objective that is only satisfied by performing the task in this exact fashion?
- Is this process crucial for other departments? Can it be transferred to the department that utilizes the information?
- Is there any possibility of automating the process? (If so, see the next tip below.)
If the only response to the above questions is the dreaded “because that’s how we’ve always done it,” then leaders should exercise their prerogative and eliminate the process altogether.
Automation
Ironically, the limited capacity of nonprofit accounting teams often stops the “how to automate” conversation dead in its tracks. Not only do certain automation tools come with a substantial economic cost; there’s also a significant upfront investment of time required to research and implement these solutions.
Nevertheless, several areas of accounting are well-suited for automation:
- Data entry. Automating data entry tasks such as invoice processing, expense categorization, and bank reconciliations can save significant time and reduce errors.
- Accounts payable and receivable. Automating invoice approvals, payment processing, and receivables management can improve cash flow, reduce late payments, and enhance vendor relationships.
- Expense management. Automating expense reporting, approval workflows, and reimbursement processes can simplify expense tracking, ensure policy compliance, and expedite reimbursement turnaround times.
- Budgeting and forecasting. Automation can streamline the budgeting and forecasting process by automatically aggregating data and performing calculations.
- Audit and compliance. Automation tools can facilitate the creation of an audit trail, enhance risk assessment, and improve compliance monitoring, all of which help organizations maintain transparency and accountability.
Instituting greater automation in a nonprofit accounting department increases the potential for elevated efficiency and accuracy. Automation can streamline repetitive tasks, reduce manual errors, and expedite processes, allowing staff to focus on more strategic initiatives and analysis. In addition, automation can enhance the consistent application of rules and regulations, reducing the risk of noncompliance. Overall, automation can lead to cost savings, improved productivity, and better decision-making capabilities within the accounting department.
Build Versus Buy
The hard truth is that many nonprofit organizations don’t have the personnel services budget to afford a full complement of finance staff, particularly when it comes to competing against corporate counterparts for talent in the hiring market of a profession that is already short on the supply of new entrants.
In that case, the cash it would take to build a finance department with the requisite skills may be out of their reach, but buying short-term, part-time, or on-demand resources that fit the bill as needed may be a more attractive option.
In order to be a good steward of resources, nonprofit finance team leaders should conduct a comprehensive cost-benefit analysis and self-assessment to ascertain whether outsourcing or adopting a shared or “managed services” model is suitable for their organization. Beyond the question of setting salaries, consider the following questions entailed in building a department:
- What is the opportunity cost of downtime for the other personnel involved in the search or performing these tasks, in addition to their own responsibilities?
- How much time is required to recruit the ideal employee?
- How long does it take to onboard and train new employees effectively?
- What are the expenses associated with fringe benefits, training costs, and recruitment fees?
- What are the implications if employees take extended leaves of absence?
It is worth considering whether to outsource discrete or siloed projects, tedious/data-intensive tasks, or areas in which the nonprofit organization lacks expertise. Although accounting leaders may not immediately consider seeking assistance externally, it’s a valuable option in order to accomplish tasks with a lean accounting team. Though consultants’ hourly rates might seem daunting, remember that third-party firms possess experience and industry insights that could result in a lower total cost compared to hiring additional staff. This, combined with confidence in working with an expert partner, may tip the scales in favor of this spending.
Document Management & Retention
The advantages of electronic documents extend beyond environmental and space-saving benefits. Although going paperless may seem like a straightforward suggestion, its impact on efficiency should not be underestimated.
When combined with cloud storage solutions like Microsoft OneDrive, Box, or Google Drive, modern optical character recognition (OCR) technologies enable rapid retrieval of crucial information, reducing search times from hours to seconds. Sharing electronic documents is straightforward and quick; it can be highly secure, unlike the cumbersome and insecure nature of sharing physical documents. This can also make an audit easier as documents are readily available when requested rather than spending days searching through file cabinets and boxes.
Be Disciplined
As nonprofit organizations grow, scale up, and evolve, maintaining focus on mission-critical tasks becomes increasingly challenging. The increase in transaction volume, complexity, and compliance requirements can lead to outsized growth in the accounting department’s workload.
The following are some strategies to remain efficient amid periods of rapid growth:
- Although analyzing results is crucial, excessive analysis drains team resources. Strike a balance when handling ad hoc data requests.
- Establish protocols in order to eliminate unnecessary meetings and email correspondence.
- Streamline workflows without compromising internal controls. Eliminate unnecessary approvals; consider materiality thresholds to expedite processes.
- Maintain a consistent and logical chart of accounts organization-wide. Ensure that assets, liabilities, equity, revenues, and expenses are logically numbered, with classes and subclasses using consistent numbering schemes. Link capitalized items on the balance sheet to corresponding expense accounts for clarity. Uniformity simplifies processes during business expansion or system migration.
- Ensure that lead sheets, tracking logs, or other backup documents related to accounting records are carefully maintained. In most cases, reporting already exists in an organization’s systems, or can be developed to replicate these tracking documents.
- Exercise discretion in accepting special project requests. Foster teamwork while fully understanding time commitments before undertaking tasks unrelated to accounting and finance.
- Seek assistance from other administrative team members. Administrators possess the skills and knowledge to support the accounting team effectively. Accounting team leaders should not hesitate to request pre-accounting analysis, such as having the benefits administrator calculate departmental expenses on insurance bills before processing by accounts payable or asking the marketing team to calculate shared costs among locations for month-end allocations.
Giving Back Time
A combination of strong leadership, commitment to acknowledging the value of people’s time without sacrificing the integrity of internal controls, a willingness to rethink legacy practices, and a desire to explore resources—in the form of software and related apps, specialized external personnel resources, and “found time” generated by a reduction of duplicative and outdated tasks—will allow the members of a nonprofit organization’s accounting team to operate at their highest and best use, giving them back time. That’s what working smarter, not harder, will bring to the team, the finance department, and the integrity of its financial statement output.