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Nonprofits: Recognize and Treat Symptoms of a Faltering Finance Function

Non-profit finance

If your organization’s finances are keeping you up at night, you’re not alone. Many nonprofits are trying to tackle issues like inadequate cash flow, incomplete or untimely financial reporting, and a general skepticism about the accuracy and consistency of financial data.

Many times the cause of these problems is not obvious, and like a nagging pain that comes and goes, it may linger for months, or even years, without being adequately treated. Eventually, financial deficiencies can threaten an organization’s very existence, or, at the very least, the ability to fulfill its mission.

The stuff of sleepless nights

Problems like these are keeping nonprofit CEOs, CFOs, program directors, controllers, and financial department personnel up at night:

  • You don’t trust your financial statements to be 100% accurate
  • Financials are often late or incomplete
  • You don’t have reliable numbers to confirm the financial health of your organization
  • You have to tap your credit line to pay the bills
  • Turnover is high in the finance department
  • The finance team doesn’t act like a team and is difficult to work with

First, recognize the symptoms

Addressing just one of these concerns, like the lack of teamwork and cooperation, can be a challenge. But, in many situations there isn’t going to be a single answer that will right the ship. It may make more sense to take a top-to-bottom look at the finance function.

Kelsey Vatsaas, CLA consulting manager, recently experienced this first hand. “Our team came in and worked with the leaders of a nonprofit to do a thorough review of the organization’s many moving parts. After several days of interviews, document reviews, and analysis of processes and systems, the financial department assessment team identified a number of underlying issues and we were able to work with leadership to develop a plan of action.”

By asking questions, assessing systems, and testing controls, nonprofit finance leaders can learn:

  • Whether they have the right staff capacity and mix of skills
  • Procedures and processes to produce more consistent, accurate, and timely financial reports
  • Strengths and weaknesses of technology tools and the people who use them
  • Internal control weaknesses that could leave assets vulnerable to fraud and mismanagement
  • What it would take to develop infrastructure to support organizational growth
  • Best practices for improving transparency and accountability
  • Ways to better align with federal grant guidelines

Defeat the status quo

After Vatsaas and her team performed the financial assessment, she was able to share detailed insight with her nonprofit client. The organization’s cash-flow challenges were found to be largely driven by the billing process (or lack thereof). Invoices were being generated three to four months late, revenue was not being collected in a timely manner, and the nonprofit’s line of credit was being tapped for routine expenses. Going deeper, it was discovered that the billing delays were driven by lack of clarity in the roles and responsibilities within the department.

To help remedy this challenge, the team identified ways to reorganize the roles and responsibilities and suggested changes to streamline processes. In addition, new schedules and reporting were developed, leading to greater transparency in the short-term. As a longer-term solution, the assessment team recommended ways to better utilize general ledger modules in the client’s accounting application.

Within months, the organization’s cash flows started to stabilize, accountability increased, and the pain points began to fade.

This article was originally published on the CLA website.

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