Latest on the State of the Sector – Zombie Nonprofits?

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

It’s not the latest HBO series.  It’s a description from a new report on the current state of nonprofits called The Financial Health of Philadelphia-Area Nonprofits, released last month by Oliver Wyman, SeaChange Capital Partners and GuideStar, funded by The Philadelphia Foundation.

Similar to the Human Services Council report on the condition of New York nonprofits, the Philadelphia report explains how the deck is stacked against nonprofit sustainability.  Grant funding often doesn’t cover the entire cost of a program, leaving no money for accountability and oversight functions like IT and finance.   Unless the organizations find outside support, they can fall into a downward spiral of skimping, leaving nothing but a hollowed out shell—a so-called ”zombie” nonprofit that can’t attract staff or support, having little capacity for mission-related impact.

How bad is it?  The report reveals that many Philadelphia-area nonprofits are in financial distress.  More than 1 in 5 did not have enough cash on hand to cover one month’s expenses.  Among human services nonprofits, more than one in ten owes more money than it has.  The report describes Philadelphia’s nonprofits as “fragile”, having little or no funds available to get through a tough situation, no funds to deal with an unexpected loss and no reaction time to keep things going in the event a grantor denies a grant reimbursement or cancels a grant altogether. 

What can we learn?

Conduct a risk assessment.  The report urges executives and boards to identify and prepare for possible risks to the organization and set goals for financial stability observing that “oversight for risk management is part of the board’s legal duties of care, loyalty, and obedience”.  The authors recommend assigning the responsibility for risk management to the finance committee or audit committee.  The report warns that “organizations that do not adopt risk management practices may find themselves in an increasingly precarious situation.”

Learn more about risk assessment in our July 31, 2017 FIT! TIP, Your biggest risk is the one you don’t see coming.

Learn how to lead your organization’s risk assessment in our Guided Solutions on-demand webinar series, Your Nonprofit Risk Assessment.  Just so you know, our on-demand webinars are available to you for one year, on your schedule, to help you lead your team through your own risk assessment.  The affordable price makes it accessible to just about any organization willing to spend the time.

Develop “what if” scenarios for potential risk events.  The report recommends that organizations flesh out identified risks with “scenario planning” to identify what it would look like if the potential risk event happened and how the risk can be mitigated.  We lead you through this in session three of our risk assessment series, What If…Possible Risk Events—where risks and drivers collide

Provide Board training.  The report urges nonprofits to support high-functioning committees and ensure ongoing board education.  Board members need to understand the organization’s programs and the details of how they are funded.  Learn more about the opportunity for a complete financial orientation with our Financial Leadership Training for Emerging Nonprofit Professionals

Learn more about how to meet grant requirements in our on-demand webinar, Grant Basics—Following the strings attached.  Just so you know, our one-hour on-demand webinars bring you topical information, available on your schedule, for one year, for a really low price.

Learn about The Grant Paradox in our FIT! TIP, What you don’t know can hurt you.   Our free FIT! TIPS arrive in your inbox weekly with timely nonprofit topics.

Get more FIT! TIPS.  Join our 501(c)(fit!) community.

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