Nonprofit organizations face numerous accounting demands, but their board members are often unfamiliar with the specific nuances of nonprofit accounting and lack experience. On the other hand, a CPA is in the perfect position to prepare board members for important financial roles and ensure that their organizations maintain good governance. Having the assistance of a knowledgeable individual with a dedicated nonprofit accounting background can put boards at a significant financial advantage, enabling them to fulfill their obligations more efficiently.
Six effective strategies that CPAs can utilize to assist nonprofits are as follows:
1. Teaching nonprofit accounting fundamentals
New board members of nonprofit organizations may find financial language specific to nonprofit accounting to be intimidating or confusing. Therefore, it is important to provide them with a crash course in the unique terminology used in this landscape. Once they understand the essentials, they will be better equipped to adhere to regulations and optimize funding. Nonprofit revenue recognition rules, the separation of donor-restricted funds from unrestricted ones, and cost allocation methods are just a few examples of distinct nonprofit accounting aspects that board members should be familiar with.
2. Tracking financial health
Nonprofit boards can remain financially healthy with help from CPAs. User-friendly accounting software that produces meaningful reports, in adherence with GAAP and IRS requirements, can positively impact their success and speed.
In addition, board members may benefit from assistance in organizing data to effectively present clear and concise information to the relevant parties at critical intervals. Applications that automate various accounting functions such as invoicing, expense reporting, and payment processing would be highly valuable.
3. Assisting with investments
Board members may be unfamiliar with endowment law and its regulatory framework, the Uniform Prudent Management of Institutional Funds Act (UPMIFA), despite their understanding of investments. To assist boards in fulfilling their fiduciary duties, CPAs can educate them on the specifics of this endowment statute.
In addition, CPAs can provide guidance on prudent investing to help boards keep investment expenses below 7% by creating portfolios with a mix of asset classes using modern portfolio theory.
4. Optimizing risk tolerance and investment goals
The board of a nonprofit organization decides the goals, operations, and risk tolerance of their investments. They determine how much volatility they are willing to tolerate and set credit ratings, maturities, and allowable instruments for short-term investments used for working capital.
5. Implementing investment strategies
Determining who will handle investments is a crucial decision for a board. Typically, members would hire an investment manager to handle this task. These experts can be external consultants who provide recommendations on changes to the endowment portfolio, or external investment companies, such as an Outside Chief Investment Officer (OCIO), who provides strategic advice and makes daily investment decisions. Large endowments often have their own in-house investment teams, where staff purchase quality fixed-income securities for short-term funding.
6. Long-range planning
By evaluating past performance and monitoring current results, CPAs can develop a plan for achieving future goals with realistic milestones.
CPA careers in nonprofit organizations
Nonprofits can benefit from the expertise of a CPA specializing in nonprofit accounting. A nonprofit CPA can guide board members in fulfilling their unique duties, from separating donor-restricted funds to adhering to state and federal regulations.
Comments
Download this infographic.