Category

Accounting

Oct 09
0

From Number Cruncher to Strategic Leader: How Modern CFOs Are Mastering Cross-Functional Roles

By | Accounting, Corporate Culture, Nonprofit | No Comments
person at desk crunching numbers between printouts and laptop

Although the duties and responsibilities of the CFO and the finance team may appear to be the same on paper, in reality, they are rapidly evolving. Today’s finance team works across multiple disciplines and functional areas to provide cross-functional support for human resources, IT, sales, operations, and customer care centers. The reality is that financial leaders need to better understand a broad range of business disciplines to provide expert leadership and guidance for their organizations.

Why the Role of the CFO and Finance Is Changing

A McKinsey survey demonstrates the broad range of roles reporting to the CFO. These roles include everything from procurement to investor relations. More important than the breadth of the roles is the fact that the depth is changing too; it’s not just reporting lines but interaction that is increasing. The CFO must now be conversant in everything from the organization’s digital strategy to how it procures supplies.

This change reflects the growing awareness that in business, nothing occurs in isolation. Many factors contribute to an organization’s ability to make margin. Increasing margins may mean increasing gross revenues (while holding expenses steady) or it may mean decreasing expenses (while maintaining gross revenues). To help improve the organization’s revenues, for example, the CFO and finance team must understand the nuances of each service and program area, what is delivered, to whom, and the prices charged. All of this used to be the sole domain of either the program manager, the marketing manager, or both, but today, the finance team must understand it as well, to add to the conversation and provide guidance.

Cross-Functional Finance: How Finance Interacts with Each Department

Here’s why finance has become the cross-functional “go to” team—and why the CFO and finance leaders must work across teams with each department. Here are three examples:

  • Human Resources: Salaries and benefits are often the biggest expense on the balance sheet. Therefore, it makes sense to consult with finance when discussing staffing. Understanding both current and future plans, as well as the skill sets needed now and in the future, are all conversations that finance should be part of from the start.
  • IT (Technology): IT used to make all the decisions about the platforms the company needs but when choosing a nonprofit accounting platform, finance should be actively involved in the process, along with representatives from other departments. Additionally, the potential for financial data to be exposed in a data breach is a shared concern of both finance and IT. The two departments must work closely together on IT plans, continuity planning, cyber security defenses, and more.
  • Sales and Marketing: The finance team can help sales and marketing assess the profitability of donor campaigns. They can also provide added insight into pricing, budget allocation, and other areas.

Other departments, including customer service and operations, can also benefit from finance’s inputs.

Preparing Your Cross Functional Finance Team

To prepare your department to become a cross-functional finance team, you’ll need to make some adjustments. During the hiring process, look for applicants who may have cross-discipline skills. Such experience indicates an applicant with a flexible approach to finance, one who may already have ideas about how to collaborate with their counterparts in other departments.

Next, pave the way by making time for higher-level, collaborative work. This means using the automations built into your current accounting and finance platform (or looking for new software that includes these features). AI offers excellent potential to automate many tasks, including preparing first drafts of financial statements and audit reports. Automatic routing of messages, invoicing, approval notifications, and similar repetitive tasks can also save considerable time. Work with your team to determine which routine tasks take up the most time and which can be automated. This will free up time for more cross-functional collaboration.

Although there’s no one-size-fits all approach to the role of the finance team, CFOs and financial department personnel form an important leadership group within an organization. Their knowledge of financial data, combined with business acumen, can guide an organization into new areas of growth and potential.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Oct 02
0

Revolutionizing Finance: How AI is Transforming Reporting and Audits

By | Accounting, Nonprofit | No Comments
person using laptop with overlay screen of virtual financial reports

AI is transforming all areas of business. One area where it holds great promise is in financial reporting and audits. AI brings several strengths to financial reporting and audits, including the ability to review and synthesize vast amounts of data. It is also quite good at pattern recognition and can spot anomalies in financial data. Instead of the CFO gathering reports and data manually, data can be ingested into an AI-enabled system to help prepare for audits. Here, we take a look at the state of how AI is transforming reporting and audits, and how it may impact your organization.

The State of AI Adoption in Finance and Accounting

The latest McKinsey report on AI adoption states that 65% of respondents regularly use GenAI. This represents an increase over the response to the 2023 survey. A KPMG report focused solely on AI and financial reporting and audits clarifies further how financial leaders plan to use AI. Among those responding to the KPMG report, 100% stated they plan to use GenAI for financial reporting in the next three years as compared to 71% who answered yes to the same question in 2023. Clearly, there is growing acceptance of the use of AI in finance. Financial leaders are seeing the benefits and exploring its many uses.

According to the KPMG report, financial leaders see the following benefits and uses of AI in reports and audits. (Note: respondents could choose more than one answer.)

  1. Real-time insights into risks, fraud, and control weaknesses: AI can continuously monitor financial data, identifying anomalies and potential issues as they arise, which 70% of surveyed leaders found valuable.
  2. Lower costs: Automating repetitive tasks and improving efficiency helps reduce operational costs, a benefit noted by 58% of respondents.
  3. Ability to predict trends and impacts: AI’s predictive analytics can forecast financial trends and potential impacts, aiding strategic planning. This was highlighted by 57% of those surveyed.
  4. Increased data accuracy and reliability: AI enhances the accuracy and reliability of financial data by minimizing human error and ensuring consistent data processing, appreciated by 57% of participants.
  5. Better data-enabled decisions: With more accurate and timely data, decision-making processes improve, benefiting 53% of the surveyed leaders.

Getting Started with AI in Financial Reporting

Given these benefits, how can you get started with using AI in financial reporting?

There are many, many considerations.

  1. Assess AI readiness: Is your organization ready for AI? It’s more than a matter of updating your accounting and finance software so that the new features are enabled. It’s ensuring that your organization has a sound data policy in place, including security, privacy, governance, and standards. Smart use of AI begins with good data policies. AI requires copious amounts of clean data to work well. How is your data? If you aren’t sure, speak with a consultant who specializes in nonprofit accounting to better understand your organization’s data, how it may be used, and what safeguards may be needed to utilize it in an AI platform.
  2. Don’t reinvent the wheel: Before searching for an AI-enabled financial tool, explore the platforms you are already using. Most, if not all, software vendors have added AI features over the past year or are planning them for upcoming releases. Check with your software consultant or vendor to learn what’s available within your current platform before buying a new one. You may be able to use the one you have quite well for the tasks you need automated with AI.
  3. Create AI policies for your organization: AI consists of public AI platforms (Microsoft CoPilot, ChatGPT, and others) as well as private AI (those used within a specifically licensed, proprietary platform, such as a finance or accounting platform.) When using publicly available tools like the search function in Microsoft Copilot or ChatGPT, be aware that anything you put into these tools becomes part of its immense data set. Nothing proprietary or confidential, like financial statements, reports, or personal information, should ever be added to such tools. You may wish to add an AI use policy to your existing policy manual and add a session on AI use to any cyber security training you run for your team now.

Adding AI to financial and auditing reports and processes can improve efficiency. It can enhance accuracy, spot problems, and provide draft documents faster than you may be able to do on your own. However, as with anything produced using AI, outputs must be reviewed and fact-checked by humans before sharing it with coworkers, boards, directors, constituents, and others.

AI is a powerful tool that offers excellent potential. When used correctly, it can transform your financial and audit reporting.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Sep 17
0

Evaluating Changes in 2024 Compliance – Where Do You Stand?

By | Accounting, Audit, Nonprofit | No Comments
person moving blocks with people icons and justice scales

We are rapidly heading into the final calendar months of 2024. Many changes this year have impacted the nonprofit landscape. Audits, changing regulations, and the economic environment have each created its own set of challenges. The following 2024 accounting changes all merit evaluations at this point in the calendar year to see what, if any, changes our organizations should make for compliance and adherence to best practices, laws, and regulations.

The following highlights several areas of nonprofit accounting compliance that have changed this year. These changes impact auditing, leases, and much more. To stay abreast of nonprofit changes, check out our blogs and speak with the experts at Welter Consulting for specific audit preparation and support.

Lease Standard Implementation

Changes affecting lease standard implementation went into effect two years ago. Organizations should evaluate their previous estimates on leases to ensure the estimates are reasonable and supportable.

Organizations who have leases under common control should also take a second look at FASB Accounting Standards Update (ASU) No. 2023-01, Leases (Topic 842): Common Control Arrangements. Changes in the determination of whether related party arrangements fall under the scope of FASB Accounting Standards Codification (ASC) Topic 842 and how the amortization term for leasehold improvements is determined should be re-evaluated.

Current Expected Credit Loss

FASB ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replaces the current method of recognizing expected credit loss (CECL) with the requirement to estimate losses expected over the contractual life of a financial asset. It went into effect for fiscal years starting December 15, 2022. Under this new model, moving forward, the expected losses must be based on one of three things: historical experience, current conditions, and reasonable/supportable forecasts.

Financial assets nonprofits should consider complying with this guideline include trade receivables, promissory notes receivable, loans receivable, grants receivable following the exchange transaction model and off-balance sheet credit exposures. There is flexibility in the estimation models if the approach is supported by evidence and is deemed reasonable.

New Statements on Auditing Standards

Starting on or after December 15, 2023, Statements on Accounting Standards (SAS) numbers 143-145 will be effective. These cover auditing standards for financial statements. Nonprofits can expect to see changes in audit procedures relating to how estimates found in financial statements are tested, for example, and audit procedures when specialists are used. 

Yellow Book 2024 – Changes to Auditing Procedures

The GAO issued Government Auditing Standards changes on February 1, 2024. These changes add application guidance to Chapter 6, Standards for Financial Audits, and seek to provide clarity as to when the concept of reporting key audit matters. These concepts might apply when organizations receive government financial assistance or to government entities.

Get Help Keeping Up with Changes

As you can see, there are many changes and updates to nonprofit accounting – and that’s just a few of them! To keep up with accounting changes, it’s helpful to have a partner with both an accounting and nonprofit background, like Welter Consulting, who can offer advice and guidance throughout the year.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Aug 20
0

Employee Retention Credit Compliance for Nonprofits: Are You at Risk of an Audit?

By | Accounting, Audit, Nonprofit, Tax | No Comments
folders and notepad, employee retention tax credit

Enacted in 2020 as part of the Coronavirus Aid Relief and Economic Security (CARES) Act and now codified at IRC section 3134 (after various amendments), the Employee Retention Credit (ERC) is a refundable tax credit available for certain employment tax quarters in 2020 and 2021. And while it may have helped some organizations and people financially, over the past two years, the IRS has warned that many who claimed the tax credit were ineligible to receive it.

The IRS is increasing its enforcement campaign in 2024 and targeted for potential audits are those who benefited from this tax credit. The IRS is looking for those who received this benefit in error. Some ERC promoters, for example, charged fees to help organizations apply for and receive the credit. Many of these companies charged fees commensurate with the funds they were able to secure, a recipe for problems. Now, the IRS is increasing enforcement of the requirements around the ERC, and organizations may find themselves on the receiving end of an inquiry or audit.

Nonprofits May Be at Risk for Noncompliance

Unfortunately, these ERC promoters heavily targeted certain nonprofit organizations, including religious organizations and healthcare nonprofits. Those who realize that they made a mistake and perhaps should not have received funds will face some penalties.

Many organizations who applied for ERCs will find they did not fully comply with the requirements simply because they didn’t fully shut down during the pandemic. A good example is a house of worship that moved its services online during the pandemic. Yes, the building’s doors were closed, and congregations could not gather in person, but services were held online. This is akin to a business shutting its office doors but asking employees to work from home; it is not a full shut down, and therefore did not comply with all the rules around receipt of the tax credit.

Next Steps to Get Back into Compliance

If the IRS determined that you received ERC tax credits and did not comply with the rules around them, your organization may face penalties like those for erroneous refunds. These may include:

  • Bills for previously unreported taxes
  • Penalties
  • Interest or penalties extending back in time to the date when the mistake occurred.

Take Action Now

If you’re afraid that your organization made a mistake and incorrectly received an Employee Retention Credit, it is vital that you consult with a tax and accounting professional immediately for specific guidance. Professionals can help you get back into compliance with the law and assess any potential fees. Working together, you can ensure that, moving forward, your organization will comply with the law and pay any penalties owed.

The pandemic upended many things and caused a great deal of disruption for all businesses, both for-profit and nonprofit. The ERC was intended to help individuals during a time of national crisis. Unfortunately, some companies targeted nonprofits aggressively to rake in fees on their own for the ERCs and may have steered organizations into accepting erroneous refunds. It’s important to act quickly if you think your organization may be at risk. Mistakes can happen to anyone, but it’s how you address them that counts.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.