Clients: Not-For-Profits: Personnel and Management

The dependence of many nonprofit organizations on voluntary contributions and funding sources that impose restrictions on the use of their funds has implications for the management and personnel of the organizations. The management and personnel factors in turn may affect accounting practices.

Many nonprofit organizations have volunteer governing boards whose members may serve for limited terms, possibly contributing to a lack of continuity in or understanding of accounting and recordkeeping requirements. Also, such governing board members may have less time available or less knowledge about matters that predated their terms on the board than one would find in upper management in a business enterprise. In addition, the fact that nonprofit organizations typically have a separate board charged with governance is different from many private businesses, where generally those charged with governance are part of management.

Business enterprises can generally recruit and hire employees and set compensation within relatively broad legal limits, usually with a good deal of flexibility in filling specific positions. While nonprofit organizations' recruitment and hiring are also generally subject to the same broad legal limits (for example, equal employment opportunity laws and minimum wage requirements), some organizations may also find that funding source guidelines require them to hire people from specific geographic areas or meet other hiring criteria. In addition, flexibility in filling specific positions (particularly administrative) tends to be further restricted by funding source limitations on salaries.

Payroll is the major expense in many nonprofit organizations because they are service-oriented. Yet salary scales are often limited by budgetary requirements, personnel activities (except for volunteer work) are often limited to specific areas, and there is often an uncertain future because of the year-to-year nature of outside funding. Because of the uncertainty of continued support for the nonprofit organization from grants, bequests, etc., the control of personnel and payroll costs of a nonprofit organization may differ from that of a business enterprise to the extent that nonprofit accounting and recordkeeping may focus on meeting the immediate needs of the current funding sources, possibly without an accompanying emphasis on basic, long-term requirements. In some organizations, year-to-year funding and limitations on compensation may contribute to increased turnover of personnel. Very high turnover can be disruptive of sound accounting and control environment practices and routines and can make it difficult to obtain explanations and information about past activities.

Employee training and skills can also affect the effectiveness of internal control, particularly for smaller organizations. The service motivation of nonprofit organizations may affect internal priorities, with accounting and recordkeeping sometimes seen as less important than the organization's public service purposes. In some instances, limited resources may be available for financial management, leading to too few employees to permit an adequate segregation of duties. Also, lower pay scales may result in accounting and bookkeeping personnel whose education or experience in accounting may be limited. Similarly, rapid employee turnover can mean that replacements may not receive adequate training. These conditions can result in greater risk of misstatements in accounting records and financial statements. On the other hand, some accounting personnel in nonprofit organizations are so instilled with a belief in the mission of the entity that they continue working harder for less pay than if they found a job in the for-profit arena.

Some nonprofit organizations rely heavily on volunteers to help carry out the organization's mission, sometimes including volunteer financial management, bookkeeping, or accounting services. Volunteer staff members may lack training and be less amenable to direct control than paid employees, which can affect understanding of and compliance with program and accounting requirements.

Copyright Blythe Paperless 2011