Why NPOs should consider outsourcing bookkeeping and payroll

October 30, 2019

Not-for-profit organizations (NPOs) face a number of challenges: managing payroll, delivering accurate and timely financials, and trying to prevent fraud from occurring.

To help deal with compliance issues, many NPOs have begun to outsource some functions by seeking out external expertise so they can focus on giving back to the community.

Managing payroll and bookkeeping

Payroll can be complicated. There are changes constantly being made to provincially regulated employment laws regarding statutory pay, overtime, termination pay, and the minimum wage. These updates often make payroll even more confusing.

For NPOs where many employees have multiple roles, it can be even more difficult if the person handling payroll doesn't have a lot of experience or expertise. The person responsible also has to fill out the record of employment (ROE) when an employee leaves and take care of the T4s before the end of February of each year.

ROE mistakes are common. According to Service Canada, the most common errors occur with the final pay period ending date, total insurable earnings, pay period details, monies pay or payable on separation, and comments. Failing to issue an ROE could also lead to a fine of up to $2,000.

T4 mistakes are also common, and the penalties can vary. For instance, if the slips aren't filed before the end of February, the penalty can be as $5 a day. But for larger NPOs, the maximum penalty can reach $1,500 for those with 51 to 500 employees. There are also penalties and fines for not making the correct deductions.

Bookkeeping can also be a hassle for many NPOs if the person handling it is doing it on a part-time basis. This often means delayed reporting, and the NPO won't be able to manage cash flow properly and stick to its budget. If the financial statements are delayed, it won't provide as much visibility to both the NPO and its board of directors.

One of the biggest challenges is regarding grant and government filings – these can be onerous for someone who is inexperienced. It can make or break an amount given by the funding organization if not completed appropriately and timely, which means funding could be at risk.

If the person managing the books has other duties at the NPO and bookkeeping isn't their speciality, it's likely they'll make mistakes. This can lead to a longer audit and most likely additional expenses.

Dealing with fraud

While fraud isn't always publicized—because no organization wants to be in the spotlight—it does happen at NPOs. For instance, the former director of finance recently defrauded a Toronto charity of more than $900,000 over three years. She was in charge of payroll and issued wages into bank accounts in her name using employee numbers of people who shouldn't have been paid.

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

Fraud is prevalent at many NPOs because many employees are taking on two or more roles and there's little to no oversight. The NPO's board needs to know what internal controls are in place, and who handles the payroll and bookkeeping functions. Without having a clear picture, fraud is a risk for the NPO's management team and its board.

Learn more about the hidden costs of the annual audit scramble and download our fraud and theft prevention checklist.

BDO can help

We provide a number of NPOs with outsourced bookkeeping and payroll services. When an NPO's books and payroll are in order, it's good for both the organization as well as its board. The cost of outsourcing is often less than hiring a part-time bookkeeper.

Contact our NPO Payroll or Bookkeeping professionals to find out how we can help your organization.