Easy Office Blog

Blue Avocado recently published a great letter from a lawyer regarding the difference between a Financial Review and a full-blown Audit.  Check it out here: http://www.blueavocado.org/content/attorney-recommends-review-instead-audit

Clients frequently ask us if they need an audit or a review.  This can be dictated by state requirements, the need for a Federal A-133, or by specific funders requirements.  The state of New York has especially onerous requirements that have a very low threshold for when non-profits have to conduct an audit.  Each organization should be aware of the state requirements and requirements of funders - both current and future prospects - when making this decision.  There are two basic differences between the two:  One, the cost of a review is typically 1/2 that of an audit.  And secondly, a review is just that... a review.  The CPA doesn't perform in-depth 'testing' as they do in an audit.  They review for material issues and obvious deviations from GAAP.  But they won't go in and test unique individual transactions in the same way an audit is done.  A review provides some assurance, but does not independently validate transactions.

The moral of the story is to make sure you comply with government regulations based on your size and geography.  And be proactive to understand funders requirements.  (i.e. the United Way requires a review for organizations of a certain size, an audit for larger ones.)

Keeping track of all these regulations can be tricky, so make sure you have an active informed Finance Committee or a partner like Easy Office who can help you through the issues.

Paul Light's 5-page article on the Four Futures facing the non-profit sector is worth a read.  http://tiny.cc/d06xa  On the heels of my post about "Small is Beautiful" this article highlights the challenges small organizations face.  He talks about all the buzzwords of collaboration, efficiency, and scale.  Whether you agree with his assessment or not of the potential four futures for the sector, his article is one more piece of evidence that the need for flexibility and unique collaborative business models - like ours - are continuing to gain traction.

We are seeing mergers among our client base and a continued push to find efficiencies in the face of funding cuts.  I believe this is making the sector stronger and much more focused.

American's tend to be optimists and I'm excited to see how our sector steps up and responds collectively to the challenges all around.  We have a great future ahead of us.

Of the 1.1 million non-profits in the US, 90+% have an annual budget of under $1M.  A very high percentage of those have an annual budget of under $100,000.  There is frequent talk of the need for non-profits to merge.  The conventional wisdom goes that there are too many small non-profits, performing uncoordinated redundant tasks.  Conventional wisdom also states that because they are small, they can never attain the scale to run efficiently, i.e. the small folks spend too much on administrative costs.

While much of this is true, I have a different philosophy.  I feel that one of the key roles that non-profits play in society is as niche-fillers.  Societies major institutions are governments, educational institutions, corporations, and religious institutions.  I believe that non-profits, in part, exist to fill the cracks between these major building blocks.  In essence, non-profits pick up where others fail.  If you agree that this is a primary role of non-profits, then small is beautiful.  A smaller, more nimble, organization can more readily fill those cracks in society.

As to mergers or shared cooperatives, the primary issue tends to be around people.  Who is going to lead the merger?  What is the new name going to be?  Who will be the Executive Director and who will be the Assistant?  As to cooperatives, like the hen baking bread, everyone wants the benefits but no one wants to organize them.  This is part of the reason why we created Easy Office.  We can deliver the scale, access to technology, and expertise that no single organization can reasonably afford on their own.  We enable the non-profit sector to stay relatively small and nimble.  And our shared service approach allows the service to be affordable and accessible for even the smallest of non-profits. 

Good article put out by Blue Avocado nonprofit magazine (http://www.blueavocado.org/content/our-executive-director-embezzling) on an issue that is all too prevalent in the nonprofit sector.  In our experience with hundreds of nonprofits throughout the country, we estimate that at least 5% have experience with some level of fraud or embezzlement.  We see everything from fraud in how expenses have been disclosed to outright missing funds.  There are simple steps that any sized nonprofit can and should take to help prevent this.

In almost all cases of fraud, the following things exist:  perceived need, justification, and opportunity.  Folks who are struggling to pay bills, or Bernie Madoff who wants a million dollar home, both have perceived need.  Folks who feel mistreated at work, underpaid, or overworked can all justify fraud in their minds.  "I'm just getting what I should be being paid anyway."  There are things that can be done in employee and volunteer screening - like credit checks - that can help identify risk associated with need.  There are things that can be done in leadership and morale related to justification.  But the biggest area where small and mid-sized nonprofits can improve is around "opportunity."  Simple checks-and-balances should be employed in even the smallest nonprofit to limit the opportunity for fraud.  If people know no one is looking and no one ever looks, the door of opportunity is opened.  Once need and justification enters someone's head, fraud can follow.

Simple checks-and-balances include things like segregating duties and enforcing simple policies.  For example, the person handling donations shouldn't be the person cutting checks.  Also, have a separate person or company process the bank reconciliations.  This provides a very simple - few hours a month - way to discover if what happened in the bank is what is recorded in your accounting system.

Fraud can't be eliminated, but it can be reduced.  Be prepared and smart out there!  We serve a great variety of needs, the more we can focus and channel to productive activities and to our missions, the better.

There are a lot of accounting software options out there for non-profits.  When picking an accounting solution, there is always a trade-off between cost and quality. 

Cost can be thought of relatively straight-forward : what does it cost to buy this thing, configure this thing, and run this thing.  Most smaller packages such as Quickbooks require very little configuration.  It is what it is.  Larger software packages such as NetSuite, MIP Fund by Sage, Financial Edge by Blackbaud can require extensive time and energy (and $$) for consultants to turn on and off the hundreds of features to fit your exact needs. It costs more, but it'll fit perfectly.  We often say that QuickBooks does 95% of what needs to be done for 90% of small and mid-sized non-profits (<$2M annual budget).

Quality can be broken out into the application itself, and ecosystem that exists to support it.  Certain larger software has better audit trails, management is able to place tighter controls on who sees what data, etc.  But on another quality dimension, such as Ease of Use, QuickBooks has very high quality.  But that same ease of use can give you too much flexiblity at times - enough freedom to hurt yourself.  The big difference in quality is the ecosystem that QuickBooks has to support it.  Thousands of bookkeepers across the country - of varying quality! - know and use Quickbooks.  And if you want to convert to / from Quickbooks, almost every accounting software that exists makes it very easy to do so.  Quickbooks dominates in terms of market share and this creates a vast ecosystem of trainers, users, and technology support that helps everyone.

In summary, picking an accounting solution can be complex for larger organizations.  We have helped many groups walk through that process.  And Easy Office currently helps a variety of groups using a variety of accounting software packages.  But for most small non-profits (<$2M annual budget), we generally recommend Quickbooks because of the cost and flexiblity.  That said, we know that there are a lot of horror stories out there about Quickbooks falling apart, but we've found in almost every case it could have been avoided by improving the set-up of QuickBooks and proper training on the procedures to use within QuickBooks.

Lastly, for another opinion on the topic, here is a nice article written a few years back by the good people at Tech Soup.
http://www.techsoup.org/learningcenter/software/page5144.cfm?cg=fundraising&sg=wk3