United States: In-House Or Out Source?

Last Updated: April 24 2014
Article by Margaret Swain

There are many circumstances when it makes sense for a not-for-profit organization to engage the services of an outside contractor, especially smaller organizations that may not have sufficient internal resources or the need for full-time staffing in auxiliary departments such as marketing or accounting.

However, before engaging an external consultant, the cost to benefit consequences must be carefully considered, as consultant fees tend to add up very quickly. At what point would it be less expensive and more effective to hire another staff person rather than utilize an outside service? And, if you choose to work with an outside firm, it is important to evaluate how the integrity and identity of the organization will be served by such an arrangement.

For a one-time rebranding or major campaign, the specific expertise and experience needed may require bringing in a marketing or public relations firm, since attempting to handle such a large project internally, even if for a limited time period, could place a burden on existing staff. They are already giving their all for the organization as it is. The benefits of successfully executing a major initiative can more than justify the expense. Ideally, a fresh perspective from a talented marketing and public relations firm can help the organization clarify and express its intentions in a meaningful way, as well as assist in increasing visibility and awareness.

Development is an integral part of any not-for-profit organization. Most organizations will have, if not a department, at least one staff person who is responsible, along with the support of the board of directors, for the cultivation of donors and other funding sources. Although it may seem appropriate or expedient to hire an outside party for grant writing and the preparation of supplemental materials such as budgets, before looking outside your organization, consider who knows your organization best, understands its mission best and has the passion for who and what you are in order to speak compellingly on your behalf. An outside consultant may have good "grant-speak" skills, but can they articulate your unique vision as eloquently and convincingly as your staff, board and volunteers?

Finance and accounting are crucial to the operations of a not-for-profit organization, even if it seems to some to be unrelated to the charitable or artistic purposes. Most not-for-profits, both small and large, attempt to conserve their resources for the fulfillment of their mission and, consequently, staffing is kept at minimum levels. The knowledge base of a "lean, mean" staff will tend to be more germane to the nature of the organization's activities, often resulting in a lack of solid bookkeeping.

It is almost always advisable to use an outside payroll provider to process payroll and prepare the required quarterly and annual returns. It will be cost effective and can prevent filing errors and omissions that could later mean that the organization will incur fees and penalties. In extreme cases, compliance failure can even compromise the good standing of the organization. Many of the payroll service firms also offer related services, such as providing workers compensation insurance, as well as other human resources functions, such as tracking accruals for paid leave. When entering into these ancillary arrangements, be certain to assess the value of the services offered in relation to the cost.

Smaller organizations may have too few employees to meet the recommendations for good internal control. One individual may end up being the only person available or capable of approving invoices, writing checks, making deposits and performing the bank reconciliations. Engaging an outside bookkeeper or accountant would be a prudent use of funds to add a layer of financial oversight on a regular basis – aside from the annual audit or preparation of form 990. A qualified firm or individual provides the accounting knowledge to set up and maintain books and records properly and to produce reliable and transparent reporting for the board, funders and outside agencies, in accordance with GAAP. However, the independent accountant will not automatically possess the institutional knowledge needed for some tasks specific to your organization – best results are achieved by relationships where each party brings to the table their own gifts and expertise. And keep in mind that while you can outsource accounting, you cannot outsource accountability. Your organization remains ultimately responsible for the accuracy and timeliness of reporting and filings.

Once an outside contractor has been in place for a while, the effectiveness and cost should be reviewed. If necessary, the nature of the arrangement may need to be altered to continue to realize the benefits. Determining whether or not to outsource requires research, analysis and monitoring to assure that your organization is getting the best value and desired results.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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