Reporting and Operations

Outsourced Accounting Services

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Updated: 
Feb 15, 2021

Outsourcing is a contract with a third party to perform services which are normally done in-house. These services typically are provided by companies who specialize in the field. An example of a very common outsourcing arrangement is payroll processing. Today, many nonprofits are moving toward outsourcing their accounting services. There are five primary reasons why nonprofit organizations should consider outsourcing their finance and accounting functions:

  1. outsourcing may cost less than internal staffing
  2. outsourcing can provide a higher level of expertise
  3. outsourcing may result in more timely, accurate, and meaningful financial information
  4. outsourcing generally improves business processes and controls
  5. outsourcing often eliminates risks associated with poor internal hires

Every organization would like to have an experienced CPA who can inspire confidence, trust, and make eloquent financial presentations to the board of directors. However the organization also needs a person who will post all the accounting transactions, maintain the general ledger, reconcile the bank accounts and the member or donor database, and create monthly financial statements. The most qualified and skilled professionals often do not have the time nor the desire to perform the administrative tasks described above, and the typical bookkeeper is not equipped to perform the higher-level finance functions. Therefore, for many nonprofits, particularly small- and medium-sized organizations, outsourcing accounting and finance functions is often a more cost-effective way to access professional-level accounting skills and expertise on an as-needed basis without having to maintain a full-time finance department. Furthermore, by placing the appropriate professionals with the right skills in key accounting positions, organizations often benefit from improved efficiencies which can lead to further cost savings. Outsourcing arrangements can be set up in many different ways depending on the needs of the organization. The engagement can be billed on an hourly basis or on a fixed-fee basis. If you go with a fixed-fee arrangement, make sure you have a good understanding of what is included so you can minimize any items that may be deemed "out of scope" and thus result in additional fees. For most organizations, if the right provider is selected, outsourcing can be a cost-effective way to:

  • achieve management focus
  • expand access to resources
  • obtain more accurate and timely financial information
  • increase flexibility
  • improve cost efficiency

If you do decide to outsource accounting, choosing the right provider is a key component to ensuring a successful arrangement. The ideal accounting provider will have experience working with organizations of a similar size and with similar constituencies. Lastly, the provider you chose should demonstrate a desire to partner with your organization over the long term and continuously seek opportunities for process improvements and improved efficiencies.