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Why NPOs should consider outsourcing bookkeeping and payroll


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. A trusted third-party organization with the scale and expertise to handle these matters can help free up your time and resources so you can focus on your mission.

Common payroll challenges that NPOs encounter

Payroll can be complicated. Changes are 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 frequent, and the penalties can vary. For instance, if the slips aren't filed before the end of February, the penalty can be as little 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.

Challenges in not-for-profit bookkeeping

Bookkeeping can be a hassle for many NPOs if the person handling it is doing it on a part-time basis. It's especially challenging when bookkeeping documents are stored on a desktop computer where only one person, or a few people, have access to it. 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.

Cloud accounting benefits and considerations for NPOs

Another benefit of outsourcing your payroll and bookkeeping to a professional services organization like BDO Canada is getting hands-on support to access cloud-based accounting systems—and reaping the benefits.

Cloud accounting offers significant advantages over desktop-based accounting, where data and software can only be accessed using the single computer on which they're stored. From powerful automation capabilities to real-time reporting, improved benchmarking and analytics, cloud accounting can help your NPO operate more efficiently—but it does come with caveats.

To take full advantage of cloud accounting solutions, considerations around security and regular maintenance must be top of mind. A team of experienced consultants can help you choose the most suitable platform for your organization's needs, provide a 360-degree view of your operations based on deep industry expertise, and keep your cloud optimized to your expectations.

Fraud in the not-for-profit sector

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 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 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.

BDO's team can help

We provide a number of NPOs with outsourced cloud accounting and payroll services. When an NPO's accounting 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 accounting professionals to find out how we can help your organization.

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