Nonprofit Accounting: It's Not for Wimps

Sep 22nd 2014
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If you're a CPA with a bent for do-gooding, nonprofit accounting may be just your niche.

"We deal with a lot of organizations that do a lot of good things", says Ryan Keith, a partner in KB Parrish & Co. in Indianapolis, Indiana, who heads the firm's nonprofit services group.

But there's another big reason to specialize in nonprofits: There's lots of opportunity. "It's a far more expansive field than many CPAs realize", says Keith, president of the National Association of Nonprofit Accountants & Consultants (NPAC).

"The possibilities in nonprofit work are nearly endless because when you say 'nonprofit' that can mean a lot of different things", he says. "The general assumption is 501(c)(3) but there are so many different types. "

That's why within this specialty accounting, further specialty is crucial. "You almost have to specialize in a particular nonprofit because there is just so much", Keith says. "There's a common misconception that if you're a nonprofit, taxes aren't important." But tax implications are huge if there are missteps, and certain groups aren't entirely tax-exempt.

"So what a 501(c)(3) or (6) or (7) can do is a night-and-day difference", he says.

Keith ticks off a list of exempt businesses: homeowner associations, houses of worship, fraternal organizations, some healthcare providers and hospitals, membership organizations, industry groups such as those for bankers and auto dealers, social health and welfare groups, schools, and quasi-governmental entities that operate as part of a municipality, including some hospitals and schools.

Despite all that potential business for your firm, nonprofit work isn't for the faint of heart. That's for several reasons, Keith says.

The IRS increased its scrutiny of nonprofits around 2007, holding tax-exempt organizations more accountable. Continual changes to accounting and auditing standards increases costs to the CPA but organizations may not have increased their budgets to allow for that.

And, here's a biggie: Fees are dictated by the market, and they are fixed. "It's extremely difficult to get yourself above what's dictated by the [nonprofit's] market", he says. "It's why some CPAs don't want to get into nonprofits. It makes for a very cutthroat process in terms of competition."

That means CPAs have to boost their volume by adding clients rather than working with fewer clients who pay better in other industries, he says.

"Our total fee for the service is 'x' dollars and they know that before the job starts, regardless of how much work it takes", Keith says. "Obviously, you won't take on a 200-hour audit job for $5,000 so you have to be comfortable that the fixed fee is high enough to put you where you're comfortable."

Finally, there's the loyalty issue. Or rather, the lack thereof. At for-profit businesses, the CPA deals with a few top managers. At nonprofits, you're dealing with the entire board of trustees whose members rotate on and off the board and hail from varying walks of life—whose only exposure to accounting may be TurboTax once a year. (No offense to TurboTax, we're just sayin'.)

"The challenge to most people in the nonprofit world from the CPA's perspective is building close relationships with the boards", Keith says. "It's not like you can develop a 30-year relationship with the president of the company. You can develop incredible relationships with the [nonprofit's] staff but the staff doesn't have decision-making power."

Not scared off yet? Good, because niche accounting is a growing trend in the profession, as we told you in an earlier AccountingWEB article. And according to Erik Asgeirsson, president and CEO of, a subsidiary of the AICPA, nonprofit accounting is one of the growing areas.


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