Spotlight on Success:

Interim Financial Leadership Leads to Lower Risk, Lower Expenses and Increased Income

Case Study #5 CFO and Financial Management Services

How a Philadelphia, PA non-profit reduced risk and increased its assets by utilizing our Chief Financial Officer services.

For over 20 years a social services organization provided outstanding services primarily to low-income individuals with complex medical, emotional, social and financial challenges.

The Problem:

While no-effort had been overlooked to provide outstanding social services, managing the business of the non-profit had been a secondary priority. Over time the organization found it didn’t have enough cash
in its accounts to keep up with vendor invoices. Management believed this was primarily due to slow payments from city, state and federal funders. Finance and accounting staff had to spend a lot of time explaining to vendors why their bills were not being paid and this distracted staff from their primary job. Further complicating matters, the accounting and finance teams didn’t always work well together.

After over 10 years with the same Executive Director, the organization appointed a new leader. The new Executive Director knew the internal operations of this organization were not matching its external commitment to excellence and something had to change. That’s when he reached out to us to learn more about our Chief Financial Officer services.

The Solution:

The Executive Director engaged with us to provide interim financial leadership. As we dug into the numbers and the underlying challenges it became clear the organization’s financial challenges were deeper
than just a payment timing issue. A key error had occurred in the accounting for a newly built housing project and that masked other underlying issues. The new housing project had been properly recorded on the balance sheet, but the related loan over the previous three years had been recorded as a gift. The over-inflation of the assets by over $1 million created an inaccurate representation of the organization’s income. This error allowed the Board of Directors to believe the organization was running a surplus when in reality it was overstaffed for its current level of contracts and had higher expenses than the current funding allowed.

As we studied the numbers and the related contracts we found additional opportunities to improve the organizations finances. For example, a quick review of insurance coverage uncovered that the organization was paying twice for insurance on their primary office space and was not paying enough for a newly built residential housing complex. For their primary office space, the organization had purchased insurance both through the condominium association and through a separate, independent and redundant plan. For the new building, the organization cut corners to save insurance expense and effectively under-insured the building by nearly $1 million leaving them at substantial risk.

One of the most rewarding findings was discovered while reviewing the agency’s workers compensation coverage. When the agency was founded in the mid-1980s they had provided Home Health Care. Home Health Care is a relatively risky line of work. As a result, the agency was paying a high rate on its workers compensation insurance at an annual expense of roughly $80,000 for its 85 employees. Over the years, their services shifted away from Home Health Care to include almost only office and desk-based social services. Given the change was gradual, nobody thought about the potential impact on workers compensation insurance. By asking the state to conduct an audit of the organization’s coverage, we found that they were overpaying by $72,000 a year. And, because the state granted a refund of overpayments for the past three years, the organization received $216,000. This was equal to roughly the entire private donations made in a year. . . and it allowed the organization to catch up on all its past due balances with vendors.

Today, the Finance and Accounting teams are working well together again and the internal practices have been restored to match the quality of the external services. Our Chief Financial Officer services provided the interim financial management that is just what this organization needed to be able to continue to provide for the community.