Does Your Corporate Foundation Need Its Own Accounting Team?

Corporations that successfully weathered the COVID-19 storm have been eager to give back. More than $9 billion flowed from corporations and their foundations to pandemic-related causes in 2020. But in that philanthropic zeal, it can be all too easy to overlook the importance of dedicated accounting resources.

With the current staffing shortage, corporate accounting departments are increasingly time-strapped, and extra duties (such as foundation accounting) are likely to move further and further down the priority list. This can have some harmful repercussions for your foundation.

Side Effects of Making the Foundation a Side Job

In the beginning, when you first launched your corporate foundation, accounting for the limited number of grants probably took very little time and was easily handled by your company’s internal accounting team.

But as your foundation has grown, your in-house accounting department is less likely to have the resources required to keep it functioning properly. And as for-profit accountants, they also likely don’t have experience with all the nuances of nonprofit accounting.

For example, accountants generally know that nonprofits must report expenses by functional class (management and administration costs, program costs and fundraising costs). But experienced nonprofit accountants also know how to properly allocate joint costs (expenses that are applicable to more than one function).

The implications of making foundation accounting a “side job” of the internal accounting staff can include overlooked deadlines or even noncompliance with foundation accounting requirements.You could also miss out on fundraising opportunities if your internal team can’t generate the up-to-date financial statements that donors expect.

Signs Your Foundation Needs Its Own Accountants

At some point in its lifecycle, your foundation will need dedicated accounting resources so that it can continue to fulfill its mission. But how do you know when it’s time?

Often, the juncture comes when the person who has been heading up the foundation (maybe that’s you) steps into the executive director position full time. This is typically an inflection point in the organization’s growth.

Here are a few other indicators that your foundation could benefit from dedicated accounting resources:

• You’re not getting timely financial statements from your internal accounting department.
• You want to expand your mission or give more or bigger grants.
• You’re considering applying for external grants rather than relying on funding from the corporation.
• The internal accounting team tells you that they no longer have time for the foundation tasks.

The bottom line? When your foundation is poised for growth, it’s time to look at bringing in dedicated accounting resources.

Outsourcing vs. In-House Accountants

If your foundation is ready for dedicated accounting staff, you might wonder if it makes sense to hire an accountant internally. Or will you get more bang for your buck by hiring an external firm for outsourced accounting support? Here are some factors to consider:

• Level of expertise needed. If you’ve significantly increased the number and dollar amounts of grants you give annually — and you expect that level of activity to continue — it might make sense to hire internally. But at what level? Would a staff-level accountant meet your needs or do you need a controller, or even a chief financial officer (CFO)? Unless you can justify the cost of an entire accounting team, any one person you hire will likely end up being either overqualified (e.g., a CFO paying bills) or underqualified (e.g., a staff-level accountant leading financial discussions with the board). One advantage of outsourcing is that you can assemble a team of professionals with varying levels of expertise, whenever you need them.
• Consistency of transactions year-round. Does your foundation have a consistent amount of accounting activity throughout the year? If so, hiring a full-time accountant might well be the right move. But if your grant-making is concentrated during just a couple of months, outsourcing might be far less expensive than paying year-round salary and benefits for full-time staff. You can customize your outsourcing service agreement so that you’re only paying for those resources when you need them.
• Recruiting and retention. Experienced nonprofit accounting professionals are hard to find in today’s tight hiring market. (If you do manage to attract one, lock them in pronto!) When you’re having trouble hiring or keeping accounting talent, outsourcing can ease this strain. Even if the outsourced accounting firm experiences turnover, they have a team that can step in and pick up the work.
• Technology. If you already have foundation accounting software that meets your needs, then your focus should be on finding accounting talent (whether in-house or outsourced) with experience in those platforms. On the other hand, if you’re unhappy with your current technology, you may want to consider hiring an outsourced accounting partner that can bring to the table a suite of vetted software that will allow your foundation to hit the ground running and support it as it grows.

At some point, your foundation’s needs will exceed your corporate accounting team’s capabilities. Whether you go on the hunt for in-house accounting staff or outsource to a professional accounting firm, adding dedicated accounting resources will help you continue to grow and meet your mission.

When your foundation is ready for dedicated accounting resources to support its growth, reach out to our nonprofit accountants.