Study: Compliance Weighs Heavily On Executives

September 14, 2016       Andy Segedin      

Multiple funding streams, incoming regulations and increased efforts needed in compliance have finance professionals in the nonprofit sector stressed and confused.

Abila surveyed 414 nonprofit finance professionals earlier this summer as part of its 2016 Nonprofit Finance Study. What researchers at the Austin, Texas-based software company found was that managing a complexity of revenue sources (31 percent), outranked budget management (24 percent) and ensuring fundraising processes that can continue once people exit the organization, 18 percent, as the hardest financial challenge at their organization.

The financial professionals, in total, identified eight different fundraising sources that accounted for at least 5 percent of their organizations’ revenue – topped by service-based revenue (26 percent) and government grants (21 percent). Health organizations and those with larger finance teams struggle with multiple streams the most. Dan Murphy, senior manager, fund accounting strategy and co-author of the report, attributed this to the regulatory requirements placed on both health and human service providers and larger-staffed organizations as a cause.

Regulations, too, are placing stress on financial professionals. More than three-quarters (78 percent) of respondents said that they were at least somewhat concerned that new requirements could raise costs at their organization. Concerns regarding the potential lack of feasibility of implementing regulations were shared by 65 percent of respondents, while 54 percent feared that their offices might not fully understand a rule and inadvertently do something wrong.

The study particularly looks into the new overtime rule and FASB 117, which requires organizations to classify revenue into two as opposed to three sects. More than half (55 percent) of respondents supported the overtime rule with 39 percent against. Nearly half (43 percent) stated that the rule could do harm to their organization while 8 percent thought of it as a benefit and 49 percent were either unsure or believed that the rule would have an even or no effect.

Requirements under FASB 117 were clearer, with 84 percent understanding what will be required. Feelings about the change are less concrete. Though 46 percent support the rule, 42 percent of respondents stated that they were unsure how they feel.

Murphy described FASB 117 and the overtime rule as hot topics at the moment. Depending on what workforces look like, overtime rules can increase costs. Altering how revenues are separated requires internal changes in offices including development, finance and accounting. All the while, 62 percent of respondents stated that both costs and time dedicated to compliances has increased in recent years. “As the burden increases, the stress on staff increases exponentially,” Murphy said.

The co-author said that with all the changes and growing challenges present, he was most surprised by the educational background of the financial professionals surveyed and the risk of fraud some organizations, by lack of options, are placed in. Relatively few (13 percent) of financial professionals shifted into finance as opposed to being hired directly, yet just 43 percent of them received finance training as compared to 84 percent of those hired into finance.

On the fraud side, 94 percent of finance professionals stated that their organizations are making at least some effort to prevent fraud, yet 34 percent conceded that practices open up exposure to fraud. Such exposures could include no segregation of duties among finance staff or allowing volunteers at shops to handle cash, according to Murphy. “There are a lot of economic restrictions for nonprofits that lead them to activities that might put them at risk,” he said.

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