Information travels quickly today and is so readily available via technology and social media that it seems like a spell cast in a fairy tale. While many nonprofits utilize technology and social media tools to raise funds successfully and communicate with donors, they can also have the opposite effect when publicizing negative financial information – bad news travels just as quickly. Transparency is critical to demonstrate strong fiduciary control and maximize fundraising dollars. With sound financial management, donors and grantors are likely to be much more willing to give at their highest potential.
In an article written by Michael Cohn in Accounting Today, Cohn discussed a study performed by an associate professor of accounting at the University of Notre Dame. The associate professor concluded that nonprofit organizations experience accounting errors at nearly double the rate of comparable for-profit entities. While the study suggests the error rate applies to nonprofits of all sizes, it also suggests that the use of larger CPA firms typically reduces the rate of errors dramatically. So what should an organization do? Look for a CPA firm that’s just the right size.
Many nonprofit organizations operate on limited budgets in an attempt to maximize the percentage of funds used for program spending. As a result, many organizations select a provider based on cost (i.e. least expensive) versus experience (i.e. most experience). This concept commonly applies to the selection of a nonprofit organization’s CPA firm. As a result, smaller, less experienced CPA firms are selected in an attempt by the nonprofit’s management to save money. Cohn’s study results indicate that such a decision can most often result in significant accounting errors.
National firms include the “Big Four” and others of similar size. These firms audit public entities and other large, higher risk clients in metropolitan areas. National firms have tremendous experience and international resources; however, these resources typically align with higher fees.
Regional firms are smaller than their national counterparts, but they deal with similar issues. While they may be slightly more expensive than local firms, regional firms are a better value because they can leverage the experience of multiple professionals and develop specialties that local CPA firms cannot.
More important than fees and the sheer size of a firm, is the firm’s experience serving a wide variety of nonprofit entities. Nonprofit accounting and reporting is quite different from for-profit accounting and is best handled by a CPA firm that knows the distinct differences. Familiarity with numerous types of nonprofit entities is also helpful in providing information on best practices throughout the industry in areas such as policies & procedures, benchmarking financial data, and fraud prevention.
Avoiding Accounting Errors Isn’t a Fairy Tale
Recently, CRI began working with a new nonprofit client with annual revenues of nearly $10 million. Our nonprofit CPAs discovered that the accounting guidelines for handling restricted funds had not been applied correctly by the former accounting firm – a small, local firm – engaged to conduct the organization’s audit. Also, responses to some of the questions on their Form 990 were incomplete, and other answers were inaccurate. CRI’s experience in the nonprofit industry enables us to recognize these errors quickly and correct them, which helped the client along the path to sound financial management.
Live Happily-Ever-After with CRI
If you lie awake at night worrying about your nonprofit organization’s fiduciary responsibility, then consider engaging the services of a super-regional firm like CRI. You may find that we’re “just right,” and the cost of a better night’s sleep may not be as much as you think!