Doing More With Less? Enough is Enough–supporting effective oversight
Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)
Doing more with less is a well-known dynamic for nonprofits. Funders accept that nonprofits provide key social services for less money by mobilizing and directing community resources. The basis of the government funding-model is that nonprofits make things happen for less money. But, wait a minute…less money for whom?
Sure, the government spends less money, but the costs of providing a high-impact program don’t disappear simply because the program is conducted by a nonprofit. Government funding generally covers only about 80 percent of true program cost.* Nonprofits supplement grant funding with outside contributions. That’s always the case, right?
Apparently not. A group in New York called the Human Services Council studied this issue after some high profile nonprofit closures, including an organization called FEGS. In February 2016, the Council released their report, New York Nonprofits in the Aftermath of FEGS: A Call to Action. Their findings were pretty bleak, reporting that human services agencies have a higher rate of insolvency than other nonprofits, with six out of 10 human service nonprofits in financial distress.
What’s more, they found that many nonprofit leaders are kept in the dark by weak internal financial reporting that can’t alert them to financial dangers in time to address them. Why? When funding is tight, nonprofits skimp, to the point where nonprofit employees are underpaid, roofs are leaking and equipment is in disrepair. When program funding is stretched, devoting scarce resources to financial reporting is essentially frowned upon as something a small nonprofit can’t afford.
Well, basically, the Council just said enough is enough. You can’t lead the organization unless you can see where you stand, and where you’re headed. You can’t provide significant mission impact unless you’re financially sustainable. The Council urged nonprofits to strengthen their financial reporting capability to support their ability to survive. Furthermore, they urged nonprofits to “expand their risk assessment capacity to ensure that executive staff and Boards focus effectively on organizational sustainability and continued delivery of services to the community.”
But who’ll pay for it? The funders. Significantly, the Council put the responsibility for supporting nonprofit accountability and oversight squarely on the shoulders of “private and governmental funders” urging them to:
- “underwrite the development of robust financial and performance monitoring systems necessary for long-term sustainability…” and
- help nonprofits build their capacity by promoting access to professional development training and coaching.
The Council urged the philanthropic community to “better facilitate investment in these functions”.
It doesn’t get any plainer than that. Nonprofit supporters should fund the capacity for accountability, oversight and governance. Finally, we have a recommendation to support and strengthen nonprofits that doesn’t involve doing more with less!
What can we learn?
Insist on timely and accurate financial reporting. Accountability is the foundation of nonprofit governance. Leaders must see a true and timely picture of where you stand and the results of operations. Learn more at our seminar session, The Power of Financial Reporting – making your finance function work for you at our live 2-day seminar, Financial Intensive Training for the Nonprofit Emerging Leader.
Run a projection. Take your budget and break it down by month. Use that to project what will happen each month for the rest of the year. If your funding stream is seasonal, project out 18 months or so to see how you will get through till your next big inflow. Learn more at our seminar session, Building Your Budget—and putting it to work at our live 2-day seminar, Financial Intensive Training for the Nonprofit Emerging Leader.
Support your next generation of leaders and invest in developing their capability to oversee the finance function with our live 2-day seminar, Financial Intensive Training for the Nonprofit Emerging Leader.
Update your risk assessment. Undertake a risk assessment process to prepare your organization for the future. The Human Service Council urged human service nonprofits to “affirmatively identify risks to their survival and collectively act to address them”.
To learn more about nonprofit risk assessment, check out our 501(c)(fit!) NEXT Guided Solutions webinar series; Your Nonprofit Risk Assessment.
Calculate your unfunded program costs. Compare your true program costs to what your grant funding covers. Identify where the rest of the funding will come from. Unless you can get more overhead reimbursement, don’t take on more grants than you can support with outside funding. To learn more about grants, check out our 501(c)(fit!) PLUS webinar; Grant Basics—Following the strings attached.
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*Yes it’s true per the Human Services Council; New York Nonprofits in the Aftermath of FEGS: A Call to Action.
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