Why NPOs Should Consider Outsourcing Bookkeeping and Payroll?

on July 10 at 10:40 AM

Nonprofit organizations (NPOs) face a number of challenges: managing payroll, providing accurate and timely financial data, and trying to prevent fraud.

Many NPOs have begun outsourcing some functions to focus on compliance.

Managing payroll and bookkeeping.

Payroll can be complicated. Changes are constantly being made to provincial labor laws related to statutory pay, overtime, severance pay and minimum wage. These updates often make payroll even more complex and confusing.

For nonprofits where many employees have multiple roles, it can be even more difficult if the person doing the payroll does not have much experience or expertise. The person in charge must also complete the Record of Employment (ROE) when an employee leaves and take care of the T4s before the end of February each year. So, NPOs should avail the payroll outsourcing services to avoid difficulties.

ROE errors are common. According to Service Canada, the most common errors occur in the end date of the last pay period, total insurable earnings, pay period details, money paid or payable at separation, and comments. Failure to issue an ROE can also result in a fine of up to $2,000.

T4 errors are also common, and penalties can vary. For example, failing to submit supporting documentation before the end of February can result in a penalty of up to $5 per day. But for larger NPOs, the maximum fine can reach $ 1,500 for those with 51 to 500 employees. There are also penalties and fines if proper deductions are not made.

Bookkeeping can also be a problem for many NPOs if the person doing it is doing it on a part-time basis. This often means delayed reporting, and the NPO will not be able to properly manage cash flow and meet its budget. When financial statements are delayed, there is no longer transparency for the NPO and the board.

One of the biggest challenges in applying for grants and submitting them to the government - this can be troublesome for someone who is inexperienced. They can make or break a grant if it is not filled out properly and on time, which means funding could be at risk.

If the person managing the books has other responsibilities in the NPO and bookkeeping is not their specialty, it is likely that they will make mistakes. This can lead to a longer audit and most likely additional costs.

Dealing with fraud

Although fraud is not always made public because no organization wants to be in the spotlight-it does occur at NPOs. For example, the former finance director recently defrauded a Toronto charity of more than $900,000 over three years. She was in charge of payroll and transferred wages to bank accounts in her name, using employee numbers of people who should not have been paid.

The former executive director of a Charlottetown-based charity, who was responsible for bookkeeping and finance, defrauded the organization of more than $26,000 by writing checks to herself and using the charity's credit card for personal purchases.

Fraud is rampant at many nonprofits because many employees take on two or more roles and there is little to no oversight. The board of a nonprofit needs to know what internal controls are in place and who is handling payroll and bookkeeping. Without a clear picture, fraud is a risk to the nonprofit's management team and board.

For more details regarding outsourcing payroll and bookkeeping services, please visit: Finex Outsourcing

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