Nonprofit leaders reliant on government grants face both shrinking dollars and sharper questions about how every dime is spent.

With over two decades of nonprofit financial management expertise, BTQ Financial has helped over 70 nonprofits successfully manage over $1 billion in operating budgets through dynamic conditions.

We explore the reasons behind this shift in scrutiny and share key questions for organizations to ensure their finance functions are prepared, proactive, and transparent.

The Shifting Landscape of Financial Oversight

While we’re not seeing a full wave of oversight changes just yet, there are clear signs that expectations around accountability are tightening, especially for those organizations receiving government funding.

• Funding Uncertainty: Many nonprofits have experienced, or anticipate, reductions in government funding, leading to uncertainty in planning and staffing.
• Increased Scrutiny: There are early signs of increased attention on how funds are being utilized by nonprofits, with a shift towards greater scrutiny from funders.
• Federal Signals: Recent executive orders indicate a renewed federal focus on preventing fraud, waste, and abuse in public spending.
• Pass-Through Entity Requirements: Pass-through entities are increasingly demanding more documentation, active monitoring, and higher expectations from their subrecipients.
• Emphasis on Internal Controls: Funders are pushing for stronger internal controls and real-time compliance, not just during audits but throughout the year.

This new environment has created a lot of uncertainty about how to plan, how to staff, and how to respond when the funding picture shifts.

1. Do We Have Instant Financial Clarity?

Funder emails rarely wait for month-end. Data quality and system integration should enable you to tell your financial story in hours, not weeks.

“This isn’t just about access to reports, it’s about the quality of your data, how your systems talk to each other, and whether your team can tell the story behind the numbers.” 

• Funder Question Simulation: Regularly simulate funder questions, particularly concerning spend-down variances and restricted fund usage, to assess response capabilities.
• Understanding Regulations: within government contracts.
• Spend-Down Plans: to ensure effective and funder-approved utilization of funds throughout the year.
• Effective Financial Reporting Tools: Investing in and regularly reviewing accounting and grant management software for accurate and efficient reporting.
• Staff Understanding of Reports: All relevant staff should understand financial reports and be able to explain them to funders.
• Ongoing Budget-to-Actual Monitoring: Monthly or at least quarterly budget-to-actual monitoring, involving both finance and program personnel to identify and address changes quickly.
• Program Staff Involvement in Budgeting: Engaging program staff early in the budget process fosters greater accountability for spending and leads to a stronger, more realistic budget.

Anyone in contact with funders should understand how funds are being spent, even if that means doing a budget modification.

2. Are Our Internal Controls Real, or Just on Paper?

Beyond having policies and procedures documented, nonprofits need to verify their internal controls are working in practice, not just existing on paper, to prevent mistakes and ensure accountability.

Most organizations have policies and procedures written down somewhere, but the real question is: “Are those documents accurate and are staff following them?”

• Comprehensive Documentation: Documented policies and procedures manuals that are readily accessible and understood by all staff.
• Regular Updates: To policies and procedures manuals to comply with new general accounting principles and changes in uniform guidance.
• Spot Checks/Mini Audits: Conducting regular, informal spot checks or mini audits of financial transactions helps identify and address issues before a formal audit.
• Reviewing Past Mistakes: Analyzing previous audit reports or funder findings, as well as insights from mini audits, helps identify root causes of errors (e.g., staff training, software issues) and prevent recurrence.

“Spot checks are an opportunity, not a failure. It’s a chance for us to find out if there’s something that we missed, if a process is not being followed, someone’s not trained and it can be a really useful tool.”

3. How Quickly Can We Produce Documentation Requests?

Funder fire-drills are becoming the norm. Nonprofits need systematic organization and regular retrieval system testing to quickly locate and provide documentation upon request.

• Centralized Documentation: Establishing a centralized, easily accessible system for electronic documentation, including clear filing and naming conventions..
• “Funder Ready” Folder: Containing approved budgets, signed contracts, audited financials, and registration/renewal documents.
• Testing Response Time (Fire Drills): Simulate a funder request and give the team a limited timeframe (e.g., 24 hours) to gather and respond to the mock request. Debrief afterwards to identify obstacles and areas for improvement.
• Real-Time Updates: Calendar regular times to refresh and update materials (e.g., liability insurance certificates, board lists) to avoid sending outdated information.
• Nine-Month Audit Review Process: To proactively assess readiness for the annual audit cycle and create a culture of continuous preparedness.

“Have SOPs, even around how to store things electronically. At BTQ we have a very clear way of how we’re filing things and naming conventions, so if a new staff member comes on they’re easily able to find something.”

4. Are We Ready for Informal or Discretionary Oversight?

A single unexpected email can make or break trust. How quickly and clearly you respond can either build confidence or raise concerns.

Beyond formal audits, organizations should prepare for unexpected requests, informal inquiries, and discretionary oversight that may come without advance notice.

• Strong Funder Relationships: Building close, consistent relationships with funders, including program officers and higher-level agency contacts, helps foster trust and anticipate upcoming needs.
• Networking with Other Nonprofits: That share the same funders can provide valuable insights, advice, and contact information.
• Leveraging Technology and Automation: To significantly reduce the time required to generate reports and respond to ad hoc requests, building funder confidence and freeing up staff for program activities.

“Building close consistent relationships, strong relationships with funders is very key. Sometimes that’s difficult… but when you can find that one person…having a good contact at a funder’s office is so helpful.”

Staying Current: Resources and Best Practices

The BTQ team shares tips and tools to keep up with regulatory changes and shifting federal priorities.

Technology

• Grant-tracking and accounting systems that mesh (ledger ↔ grant)
• Automation for GL detail exports and payroll allocations

Regulatory Intelligence

• Grants.gov email alerts for Uniform Guidance updates
• National Council of Nonprofits policy bulletins
• Ask each funder about their own list-serves or portals

Best Practices

• Directly contact funders to understand their communication preferences
• Utilize resources like the National Council of Nonprofits
• Stay updated on uniform guidance requirements
• Monitor federal websites and regulatory updates
• Establish regular check-ins with program officers

Preparation Beats Perfection

Greater scrutiny is coming, but nonprofits that tighten data quality, field-test controls, centralize documents, and cultivate funder relationships can answer tough questions with clarity and confidence.

“Being ready isn’t about catching mistakes. It’s about building structure so your mission keeps moving when oversight ramps up.”

BTQ Financial has spent over two decades refining the very practices nonprofits need to withstand rigorous oversight.

Here’s what partnering with BTQ delivers:

1. A 200-person bench of specialists: Directors, controllers, grant-optimization experts, and CFO-level strategists who act as an extension of your team.
2. Compliance and reporting: Generate detailed financial and compliance reports, maintain audit trails, and ensure adherence to regulations and donor requirements.
3. Financial analysis and planning: Monitor budgets, forecast future expenses, and conduct variance analysis to stay on top of your financial health.
4. Funder submission and processing: Automated approval workflows and integration with your financial systems.
5. Expense management and allocation: Track and allocate expenses to specific grants and contracts with precision, ensuring funds are used according to donor requirements.

Schedule an assessment with BTQ today to start building a resilient and transparent finance function.

Nonprofit organizations are facing a rapidly evolving environment where funding uncertainties, increased service demands, and staffing challenges intersect. 

In light of these trends, BTQ Financial surveyed over 100 nonprofit leaders on the top finance challenges they face, and the strategies that can help address them.

BTQ’s Andrew S. Perumal, Partner and Director of Client Operations, and Sisil John, Senior VP of Finance, sat down to discuss the survey’s findings and highlight how BTQ is working with nonprofits to address and reduce those challenges.

Survey Scope

Nonprofit leaders including CEOs, executive directors, founders, and COOs contributed their insights on critical financial challenges. Annual budgets represented in the survey ranged from $3 million to $200 million.

The survey captured feedback from a diverse range of nonprofits, from small community-based organizations to large national providers.

Despite organizational differences, leaders reported a common set of financial management issues.

The Nonprofit Landscape

Today’s nonprofits navigate a “perfect storm” of rising service demands, funding complexities, and political uncertainties. 

For many, maintaining financial health is a balancing act of mission delivery and risk management.

Key Statistics

• Essential Services: 83% of Americans consider nonprofit services—such as social services, education, and housing—to be essential.
  
• Financial Risk: Between 60%–80% of nonprofits could face serious financial danger if federal grants are disrupted.
  
• Policy & Funding Concerns: 70% of nonprofit leaders worry that the current political climate will negatively affect their organizations.

It’s clear these programs aren’t just “nice-to-have”,  they serve an essential role in their communities. However, the hard truth is that a majority of nonprofits could find themselves at serious financial risk.

Major Financial Management Challenges

Six critical themes emerged from the survey regarding the top financial management hurdles:

1. Financial Sustainability & Risk Management: Leaders need better tools and bandwidth to proactively plan.
   
2. Accurate & Timely Financial Reporting: Multiple funding sources and reporting requirements cause complexity.
   
3. Audit Readiness & Regulatory Compliance: Ongoing prep is needed year-round, not just during audit season.
   
4. Scaling Finance as Organizations Grow: Systems and processes often fail to keep up with rapid changes.
   
5. Consistent Financial Processes: High staff turnover or remote setups can lead to inconsistent record-keeping.
   
6. Low Operating Reserves: Many nonprofits run with limited or nonexistent reserves, leaving no margin for error.

“Many leaders are actively trying to assess their financial sustainability and manage risk, but often without the tools or bandwidth to do it in a proactive way,” observed Perumal.

Hiring and Turnover in Finance

High turnover in finance roles disrupts operations, causing knowledge loss and delays. According to the survey, only 28% of respondents reported that turnover in the finance function was “rare,” whereas the majority deal with frequent or occasional staffing gaps.

Key Takeaways

• Frequent Turnover: 72% of organizations noted occasional, frequent, or very frequent staff turnover in finance roles.
  
• Continuity Gaps: Finance staff turnover can lead to inconsistent reporting processes and institutional knowledge loss.
  
• Leadership Strain: Executive directors and CEOs often step in to fill finance roles during vacancies, detracting from strategic tasks.
  
• Compliance Risks: Delays in audit preparation and compliance efforts become more likely when teams are short-staffed.

Systemic Issues in Nonprofit Finance

While turnover is a major concern, the survey data reveals deeper underlying challenges, ranging from lengthy monthly closes to frequent budget reforecasts, that suggest process or infrastructure gaps.

“It’s not just a hiring challenge… these challenges reflect something more foundational—nonprofits need more scalable, strategic finance operations.”

Key Findings

1. Longer Month-End Closings: An average of 19 days to close the books, with some organizations taking 30+ days.
   
2. Frequent Cash Flow Problems: 74% of leaders experience cash flow issues, underscoring the need for stronger financial planning.
   
3. Budget Reforecasts: Over half of organizations reforecast frequently, highlighting the difficulty in maintaining stable financial projections.

“An average of 19 days to close the books isn’t just a staffing lag—it’s a sign that processes and systems may not be fully optimized or resilient.”

Outsourcing Finance: A Growing Solution

Although 100% of surveyed nonprofits outsource at least one function (e.g., IT, legal), only 30% currently outsource finance – despite the many benefits a specialized finance partner can provide.

Outsourced Finance Benefits

• Strategic Expertise: Access to professionals skilled in FP&A, grants management, and compliance.
  
• Reduced Burden on Leadership: Leaders can refocus on mission-driven activities.
  
• Systems Optimization: Finance partners often streamline or provide their own financial tools and technologies.
  
• Scalability: Partners can help organizations effectively manage growth or navigate sudden funding cuts.

“Working with a strategic finance partner, if it’s done right, delivers the structure, visibility, and capacity nonprofits need… without burning out their teams.”

Top Reasons Nonprofits Use Finance Partners

Among the organizations currently working with a third-party finance partner, the survey responses highlighted the most common motivations:

1. Leadership Focus: More time for executives to handle mission-driven work.
   
2. Streamlined Processes: Partners help establish consistent, effective accounting workflows.
   
3. Timely & Accurate Reporting: Critical for compliance, audit prep, and strategic decision-making.
   
4. Specialized Expertise: Access to experts in grants, audits, revenue recognition, and more.
   
5. Cost Savings: Outsourcing can reduce overall finance function expenses (including systems and staffing).

“One of the biggest reasons is more time for leadership to focus on mission-driven activities… It’s really not just about the numbers.”

BTQ’s Finance as a Service (FaaS) Model

BTQ specializes in providing comprehensive Finance as a Service (FaaS) tailored for nonprofits. 

The comprehensive approach extends beyond typical accounting support, providing strategic insights and continuous operational improvement.

Their support spans from day-to-day transactions and reporting to strategic analysis, grants management, and even medical billing.

• Customizable Support Models: Full-service finance or stand-alone options
  
• Core Service Areas: Day-to-day accounting and transaction support, strategic CFO-level guidance, grants and contracts management, and medical billing (revenue cycle management).
  
• Long-Term Partnerships: 86% of BTQ clients have been with the firm for 5 years or more.
  
• Proactive Finance: Emphasizes forward-looking strategy and risk mitigation.
  
• Scalable Solutions: Clients range from $1 million to $200 million in annual budgets.

As Perumal says, “BTQ’s motto is: it’s your mission to create a better world, and ours is to help.”

Key Takeaways for Nonprofit Leaders

Nonprofits must address systemic challenges, both operational and staffing-related, to remain resilient. 

Reflecting on the broader themes, these core insights capture the essence of the challenges and opportunities identified:

1. More Than a Hiring Issue: Financial struggles often point to deeper process and infrastructure gaps that require a strategic solution.
   
2. Partnerships Provide Stability: A trusted finance partner can bring stability, expertise, and structure, freeing leadership to focus on mission.
   
3. Readiness for Growth or Change: Building scalable processes ensures nonprofits are prepared for funding fluctuations and expansion.
   
4. Added Value of Specialized Teams: Fractional CFOs and dedicated finance experts can bolster compliance, audits, and strategic planning.
   
5. Underused Outsourcing: Despite outsourcing in IT or legal, many nonprofits still overlook finance outsourcing—even though it can significantly boost organizational capacity.

“Now more than ever, nonprofits really need a strong financial and accounting partner in their corner… people that understand the landscape and can help build flexibility and planning.”

When Should You Consider Bringing in a Finance Partner?

For nonprofits unsure about outsourcing and the ideal timing for bringing in a finance partner, many of BTQ’s clients “come to us at a critical inflection point—when they experience issues with cash flow, internal crises, or leadership changes.”

If your organization struggles with timely closes, ever-changing compliance rules, or staff turnover, consider exploring a finance partnership with BTQ. 

We have tailored and scalable solutions to help strengthen operational efficiency and mitigate risk, so you can focus on what truly matters: advancing the mission and serving your communities.