Management disfunction of a nonprofit organization: what it means to the external accountant

Two years ago I was the external accountant in a nonprofit organization (a church) with an internal conflict between the President and the Treasurer. My engagement specified that I was to report to the Treasurer. Yet the President had the power to end my contract. The predictable outcome was for either party to blame the undesired portion of the outcome on the accountant. That’s exactly what happened and I was released. That experience led to our re-evaluation of the process that I (or any external accountant) should use under conditions of severe management dysfunction. This lesson serves me well and I’ve been able to provide strong and clear leadership advice in this area for my clients after that experience.

Moving forward: now, for the first time, I am dealing with what I will call a hostile takeover of a nonprofit organization. While the term “hostile takeover” might not have well-established meaning and use within the nonprofit community, it does occasionally come up. As the external accountant, I assigned a high level of risk to this engagement prior to the hostile takeover and now assign a very high level of risk. Those terms “high level of risk” and “very high level of risk” are CPA lingo that give rise to the process and procedures I adopt in dealing with the client. The first three affected procedures impacted are listed below:

My first step was to advise their staff and my staff, as well as the other external parties that I deal with in the engagement to avoid making any assumptions and to discuss any proposed change in operational procedure connected with the accounting engagement with me. Last week that meant reasserting my understanding of the persons currently holding titles and responsibilities. In the course of dealing with a routine government matter, that meant establishing an understanding of the organization’s current officers and chain of command.

The second step, unique to this specific situation, was to have candid discussions with the key persons about the impact of the ‘golden rule’ in this donor-driven organization. We recognize that each party has their own bias. I assume that the colloquial belief of ‘whoever has the gold makes the rules’ is relevant here. In this case I presume that the key donors will eventually prevail in indicating their preference in leadership. In the interim that means that there may be gyrations in leadership while this situation evolves.

Next, a reevaluation of my engagement procedures and fee structure is important. What worked before may not work now. A task that took minutes could take hours of back-and-forth discussion now. Like it or not, their accounting services will cost more as a direct result of their internal conflict.

Finally, it seems clear that a CPA should not serve as a board member under this circumstance. It seems unlikely that a CPA could meet ethical standards under these circumstances. I learned this principle from y NJCPA peers, and am grateful for the lesson.