IRS Form 990 Preparation

The following is a true overview; the name of the organization has been changed to protect its identity.

In 2000, the ABC organization realized the benefits of better quality financial information, access to expertise, and more efficiencies for a lesser cost by outsourcing its accounting function to Tate & Tryon. This was achieved through a well balanced team of professionals:

1) A controller who:

• oversaw the work of the organization's internal accountant who was responsible for processing and posting transactions,
• reconciled the general ledger,
• prepared the month end close,
• prepared management useful but yet GAAP compliant financial statements,
• monitored and implemented necessary internal controls,

2) A CFO who:

• reviewed and approved the month end close to ensure accurate financial statements,
• performed analytical analysis of and monitored the financial results,
• prepared projections,
• managed cash flow,
• oversaw the annual audit process,
• oversaw and assisted with the annual budget preparation
• monitoring industry tax and accounting developments, and
• much more to provide CFO level oversight.

In May 2007, shortly after a new Executive Director arrived the organization determined that it could realize even more savings by replacing Tate & Tryon with a part time employee who had experience in overseeing the processing of transactions, managing the general ledger, closing the books and preparing financial statements.

This new support structure worked all right for the organization for several months, or so they thought. As accounting is such a cyclical function it takes time to realize that things are not being taken care of properly. In addition, many non-finance folks don't understand what to look for to really ensure that everything is handled properly. It wasn't until a year later when its annual audit had been put on hold for a few months that the Executive Director, at the urging of its auditor, made the decision to bring Tate & Tryon back to handle its accounting function.

Upon coming back into the organization our first task was to provide the auditors with the remaining items needed to wrap up their audit. This was not just a simple task of answering questions and providing documentation. It required six months worth of proper reconciliations, most especially the cash accounts. Most of the reconciliations had been prepared; they had just not been prepared properly. It took approximately two months to get everything corrected so that the auditors could finish.

As you may realize, even though the accounting records were corrected to get through the audit, the damage had already been done. The results of the audit were as follows:

• 36 adjusting journal entries.
• Net assets in the audited financial statements were $82,000 less than in the internally prepared financial statements that had been issued.
• A material weakness was reported regarding the lack of appropriate financial expertise and proper account reconciliations not having been performed.
• The audit was final ten months after year end. Prior to this year the audit was always completed four months after year end.

The above only lists the results of the audit. Of more significance is the impact this had on the operations of the organization. Following is a list operational issues uncovered:

• Over a period of 16 months, monthly financial statement were rarely issued and when they were the information was inaccurate resulting in improper decisions or lack of decisions as needed.
• The Executive Director lost some credibility with the Board of Directors.
• The organization experienced cash flow issues.
• Many receivables went uncollected.
• Integrity of the data within the accounting software was not reliable due to turnover of temporary help sought and their lack of knowledge/training of the software.
• These temporaries were hired to help with heavier workloads than anticipated. Previously entered data had been removed from the accounting software.
• State and local tax returns were not filed timely.
• The part time accountant initiated a project to re-structure the organization's chart of accounts. The budget process followed the revised COA but the accountant never carried the project to completion.
• The budget was not uploaded in the accounting software.
• The total cost for the accounting function for that year was 50% more than usual.

As a result of these findings both the CEO and COO of the organization realized that what appeared would save them more, in reality ended up costing them twice as much in direct costs. Then there are the immeasurable costs of lost opportunity, lack of well informed business decisions, and internal staff time spent on dealing with the reprocutions of the sloppy accounting. No one will really know how much that cost the organization. The organization has learned this costly lesson and now vows to retain Tate & Tryon as its accounting support function going forward, as it will provide them with the CFO and Controllership support needed by the organization at a fraction of the cost of hiring that talent or even the lower level talent it had for a short period of time. Following is a direct quote from the COO:

"When we decided to bring the accounting in-house, we did not realize how much we relied on Tate & Tryon's expertise and the cost savings it yielded. Of course, bringing accounting in-house turned out to be a mistake that I won't make again. Realizing our mistake, we again outsourced accounting to Tate & Tryon, and you got us back on track as quickly as possible. The competence and hard work of you and your staff have been appreciated by me and others at our organization."

So where did the ABC Organization go wrong? What they did not realize was that by bringing the accounting back in-house through one part time employee to oversee the internal accountant is that they hired one person to perform and oversee the accounting with limited checks and balances. By doing so they completely removed the financial oversight and expertise of the CFO level. Many small to medium size organizations think that is just a function needed for large organizations. That is a dangerous misconception; although it's not needed all of the time it is needed to some extent which is why outsourcing is such a great solution for small to medium size organizations. However, even with that, many organizations cannot even afford to add the CFO level for just a fraction of time. This is why outsourcing all of the accounting function is the best solution as there are cost savings at the other levels that are sufficient enough to cover the added expense of a part time CFO. Had this organization kept the outsourcing model it would have saved $45,000 during that year.