A recent and depressing story in the Nonprofit Quarterly reported that a New Hampshire drug abuse treatment center was in receivership and considering bankruptcy. A representative from the New Hampshire attorney general office, the article states, acknowledged that the organization will probably not survive.
Why? They did not pay employee payroll taxes.
Were they bad people? That doesn’t seem to be the case. It seems to be more a matter of making a bad decision when faced with financial shortfalls. Since it is not a debt where the creditor will not turn out the lights or terminate the insurance, there is a tendency for a manager to think you can prioritize paying payroll taxes last. That can be very dangerous.
Failing to remit withholding taxes to the government could not just spell the end of your organization, it could result personal liability of board member and executive management. As an attorney, I have worked on these cases and it’s not just a matter of delinquency as far as the IRS is concerned: often it can become a criminal matter. The employer is submitting payroll taxes on behalf of its employees. When the employer uses that money for something else, it’s stealing.
Prevention is the best medicine.
As a board member or executive director of a nonprofit organization, insist on expert accounting help. The further in advance you can see cash constraints and shortages – the better able you are to mitigate them effectively in a way that protects your organization in the long run.
Outsourcing is the best prevention
Outsourcing offers the easiest and most impactful solutions to operating a nonprofit’s accounting department. Trying to build an in-house department often takes too long and never quite gets to the right balance of staffing that you need. When you outsource, you not only get a team of nonprofit experts working on your behalf, you have access to some of the best nonprofit accounting technology tools that we use on your behalf.
You may want to take a look at the cost comparison between the cost of hiring and the cost of outsourcing which is on page 5 of our eBook ‘The 5 Reasons Smart Executive Directors Outsource Their Accounting Department.’