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Nonprofit Knowledge Matters | Having Fun With Nonprofit Financial Literacy

Posted: 
April 16, 2014

How much is that doggy in the window?

By Jennifer Chandler

April is financial literacy month, so in the nonprofit community it’s the right time of year to ask this question: “We’ve got some board members who don’t want to serve on the finance committee and claim not to understand financial reports. How can we help them become more comfortable with our nonprofit’s finances?”  Hmm. Without meaning to be flippant, I submit that helping board members with this is as simple as showing them a cute puppy and asking them how much it costs. They might not be familiar with cost allocations for programs, or restricted funds, but they can understand that the cost of the puppy is not just the initial cost, but also the direct costs of food, treats, vet bills, plus the real, yet indirect costs of washing towels (muddy paws!), and just in case – “Oops – the puppy just swallowed its leash!” (this actually happened to a neighbor of mine) – funds set aside for emergencies.

So the puppy provides us with some important but pretty basic concepts in nonprofit finance: calculating full costs, annual budgeting, and reserves. Another very important concept for board members to understand, that I confess I couldn’t figure out how to fit into the cute puppy analogy, is donor restricted funding. Why not take ten-minutes at the next board meeting to make sure everyone is on the same page with these basic concepts?

If you’re still asking: “What’s with the puppy?” I admit that nonprofit accounting is not THAT simple, but how about opening your next board meeting with some cute puppy pictures and then introducing your board to one of these options?

(1)    Take a “video coffee break” – Balance Sheet Basics – What we have, what we owe, and what we’re worth (Nonprofits Assistance Fund);

(2)    Energize the board with a group project: The authors of Nonprofit Sustainability designed a way for board and staff members to analyze, visualize, and recognize the relative costs and return on investments for a nonprofit’s various activities using their “matrix map;” 

(3)    For those who like checklists:  Ask your board to complete a short Financial Management Self-Assessment Tool developed by the Nonprofit Association of Oregon that will give you a starting point for what to focus on first when building up your board’s financial literacy.

(4)    For readers: Share these how-to publications: Understanding Nonprofit Financial Statements, Third Edition  (BoardSource) which can help your board members understand underlying financial concepts so that they are equipped to perform their fiduciary responsibilities, set realistic financial goals, evaluate your organization's performance, and make informed decisions, or the Budgeting guidebook for small nonprofits (a free resource provided by the Virginia Society of CPAs);

(5)    For board members who take the DIY route: Affordable software tool for building a budget with proper cost allocations and managing cash flow: Cash Flow and Budget Toolkit (New York Council of Nonprofits); and finally,

(6)  The OD approach: Share and discuss: How to talk about finances so nonfinancial folks will listen (Bridgespan).

Happy Financial Literacy Month from all of us at the National Council of Nonprofits.

Soon, what you don't know can cost you

Speaking of financial literacy, quick – tell me – what’s your nonprofit’s indirect cost rate? Need a hint? Sometimes it’s referred to as your “overhead” or “administrative” cost rates (although technically there is a difference). Still not sure? Most nonprofit executives don't know either, probably because no one has asked before.

But what if there were a financial incentive for knowing your indirect costs, so that you would be paid more if you could accurately calculate those costs? Would an extra 10%, 15%, or even 26% inspire you to understand the full costs of delivering your nonprofit’s programs?! If so, then read on, because it’s possible!

The National Council of Nonprofits has been focusing on a financial literacy challenge that will benefit the entire nonprofit sector and those we serve. The issue involves the source of a third of the nonprofit sector’s revenue every year: no, it is not foundation grants (which amounts to only 2% of the total revenue to the nonprofit sector) or individual giving (9%), but government contracts/grants that provide 32% of the sector’s revenue.

In the past, governments – federal, state, and local – have often (around 4 out of every 5 times,  according to a recent survey by the Nonprofit Finance Fund) refused to pay nonprofits the full cost of program delivery. How? Among other ways, by setting artificially low limits on how much nonprofit contractors and grantees can receive for the indirect costs (sometimes called overhead or administrative costs). Fortunately, that will change in late 2014 when new federal guidelines go into effect; whenever federal agencies or “pass-through” entities (like state and local governments) use federal funds to pay nonprofits for services provided under a contract or grant, they will have to reimburse the nonprofit for the indirect costs it incurred. How much? Whatever rate the nonprofit has negotiated with the federal government for an indirect cost rate. What if the nonprofit hasn’t already negotiated a rate? Then the nonprofit will have a right to ask either to negotiate a rate or get paid a default minimum rate of 10 percent. So now there is a financial incentive for nonprofits to understand, manage, and recover their full costs. Stay connected with the National Council of Nonprofits and your state association of nonprofits to learn more as the procedures are finalized and more information becomes available later this year.

Fresh Air for Annual Reports

When was the last time your nonprofit invested long hours and significant dollars in drafting, designing, editing, proofing, printing, and mailing a hard copy annual report? If you are scratching your head or thinking, ‘Never!’ you are not alone. With the ease of handheld video cameras, sending an e-blast, and posting a pdf, technology is morphing the traditional annual report into something else. But as these exciting alternative opportunities develop, let’s make sure we continue to honor the purpose: to let in the fresh air of transparency so our nation’s charitable organizations continue to earn the trust of the donating public.

A novel way to present an annual report that offers transparency as well as connections with stakeholders is to host a national conference call. That’s what GuideStar did earlier this year, experimenting with an innovative approach to annual reports.

“We really want to evolve the definition of transparency. We were interested in sharing timely, substantive information in an interactive and easily digestible way,” explained James Lum, CFO of GuideStar, when we asked him why GuideStar chose to convene an “Impact Call” to present its 2013 accomplishments. “We wanted to model financial transparency and essentially be more forward looking than is possible through a traditional annual report.” GuideStar’s February 24, 2014, Impact Call (which was convened via Webex so GuideStar could share dashboards of financial information and depict other information visually) was so successful that GuideStar is planning to convene similar Impact Calls after each quarter’s end, with the next call scheduled on Mary 12.

According to GuideStar, the advantages of moving off paper, and even off its website, into real time, accomplished these goals:

(1)    Sharing timely information: Sharing your nonprofit’s IRS Form 990 financial information immediately shifts attention to the past, whereas sharing a snapshot of more recent financial status is more transparent. Typically, by the time a nonprofit’s Form 990 is filed (sometimes on extension) it’s many months, if not a year or more, since what is reflected on the IRS form was the nonprofit’s actual financial situation.

(2)    Accountable: In a conference call format members of the community are on the phone as the nonprofit’s leadership explains its financial position, mission accomplishments, and perhaps even its challenges. Those community members can submit their questions and get their answers during the call. A call provides real-time access, modeling accountability in a compelling way for those on the call (and for others who may listen to a recording.)

(3)    Inclusive and Interactive: Let’s face it: reading a traditional annual report, even one chock-filled with lovely photos, is still passive. And watching a short video, while more entertaining, asks the viewer to accept a portrayal of the nonprofit that some may worry is overly choreographed. In comparison, simply the act of inviting stakeholders to be at once audience and focus group on an “Impact Call” is an inclusive gesture, signaling to donors and other supporters that the nonprofit has nothing to hide and is listening to community voices. Anyone can join GuideStar’s Impact Call, which means its results are being reported far more widely than to just its funders and board. 

(4)    Comprehensive: Being freed from the traditional “table of contents” of annual reports allows a nonprofit to include the most relevant and timely information that goes beyond financials and includes programmatic outcomes and a prospective discussion of where the organization is heading.

How could your nonprofit reinvent its annual report? Whether convening a call, creating a video, or sticking with paper or pdf, try to personalize the nonprofit. By including voices (such as the Board Chair, senior staff, and perhaps even a loyal donor) and by creating space for interaction, you can portray the nonprofit less like a monolithic institution, and more like the diverse, empathetic, and human-focused organization it is. Accomplishments can be highlighted through testimonials and stories. And if you go the route of inviting the audience to ask or submit questions, that interactive process can present opportunities for explaining why additional help is needed from the community to advance the mission. Your nonprofit might even use an Impact Call to lay the groundwork for recruiting its future advocates: community ambassadors, donors, and even potential board members!

All this sounds great, but will it take a ton of time? Actually, it may not be as time consuming as you think. Preparing for the call might be similar to preparing for a presentation to your board members, especially if your nonprofit already shares timely financial reports or dashboards with board members. What will it take to set-up a webinar, and share a desktop Prezi or PowerPoint presentation, compared with sending out a direct mail piece or an e-mail blast? What are the advantages or draw-backs of each?

Whatever method you choose: How is your nonprofit opening a window to share timely financial and impact information? It doesn’t do your nonprofit any good to wait a year or more to share financial and programmatic information with potential donors. Over a year ago we pointed out the many creative and engaging ways nonprofits are using to turn the traditional “annual report” into a testament to their organization’s impact. A year later, as we open a window to share our updated financial and programmatic information with you via our Charting Impact report, we want to underscore how important it is to provide the donating public with timely and transparent financial and programmatic information. The annual report is dead! Long live the annual report!

For additional resources and educational programs for board and staff on accountability and transparency and financial management, look to your state association of nonprofits. 

 


 

Resources for boards on financial literacy

Financial Management – the basics  (National Council of Nonprofits)

Board’s role in reviewing executive compensation (National Council of Nonprofits)

The importance of operating reserves – How much is just right? (Gilman, Rosenburg, and Freeman)

Other goodies for board orientations

Glossary of financial terms  (Nonprofit Finance Fund)

Cheat sheet on balance sheets (Nonprofits Assistance Fund)

Characteristics of financially healthy nonprofits  (Nonprofits Assistance Fund)

How to manage restricted funds (Nonprofits Assistance Fund)

Kivi Leroux Miller has posted all her blog posts on nonprofit annual reports here.

Worth Reading

2014 State of the Sector Report (Nonprofit Finance Fund)

Beyond Financial Oversight: Expanding the Board’s Role in Pursuit of Financial Sustainability (Nonprofit Quarterly)

The Power of Habit: Why We Do What We Do in Life and Business

Nonprofit Knowledge Matters | Funding for capacity building - What is most effective?

Posted: 
March 19, 2014

Effective capacity building support is contextual, continuous, and collective

To gain insights to what grantmakers are currently thinking about nonprofit capacity building, Jennifer Chandler, our vice president and director of network support & knowledge sharing, recently interviewed Lori Bartczak, vice president of programs at Grantmakers for Effective Organizations (GEO). GEO is a community for grantmakers committed to building stronger and more effective nonprofits.

Jennifer Chandler, National Council of Nonprofits: Lori, at GEO you are in a unique position to observe how grantmakers think about funding for capacity building. What are you and your colleagues at GEO seeing?

Lori Bartczak, GEO: What we’re seeing is that as the demand for services from nonprofits continues to rise in communities everywhere, more funders are recognizing capacity building as a critical way to support strong organizations that are equipped to rise to the challenge.

JC: Are there specific types of capacity building funding that grantmakers find more valuable than others to invest in?

Lori Bartczak: In our most recent study in 2011, Is Grantmaking Getting Smarter, we found that a slight majority (65%) of the grantmakers that participated in our survey provided some type of capacity-building support to grantees. The areas they funded tended to be: leadership development, fundraising capacity, evaluation capacity, communications, and technology. When we publish our new report later this year we’ll see whether those categories remain at the forefront.

JC: Can you give us a sneak peek into the new findings?

Lori Bartczak: What we know so far from a listening tour with both funders and leaders of nonprofits is that questions persist about how to build strong nonprofit boards; how to build and track budgets in uncertain times; and how to look at questions of decision-making and leadership. We have also learned that one solution does not fit every problem, because each leader and organization is unique, and circumstances are always changing, so capacity building has to be contextual.

JC: What exactly do you mean that capacity building support needs to be “contextual?”

Lori Bartczak: By “contextual” we mean that it’s essential for capacity building to be tailored to meet the unique characteristics and needs of individual nonprofits, because effective capacity building is influenced by variable characteristics such as the organization’s geography, life cycle stage, and revenue sources, among other factors. Grantmakers want to support their grantees in having the greatest impact possible, and capacity building is a key means of achieving that end. But the diversity of the organizations that grantmakers support makes it difficult to be clear on best practices. Based on fifteen years of experience with our members and conversations with nonprofit leaders, GEO believes that by taking an approach that is contextual (tailored to the unique needs of the grantee), continuous (taking the long view), and collective (considering how the parts add up), grantmakers will be well positioned to provide capacity building support in ways that effectively support nonprofits to achieve lasting impact.

JC: Can you share an example of “contextual capacity building” assistance?

Lori Bartczak: One example is capacity building support through an award established by the Evelyn and Walter Haas, Jr. Fund, called the “Flexible Leadership Awards” program, which provides long-term, customized leadership support to grantees. The award recognizes that there is no one-size-fits-all approach to leadership development. Access to longer term support allows the nonprofit board and staff to step back and think expansively about what their organization wants to achieve and the leadership challenges ahead.

JC: Do you have any suggestions for how nonprofits can help their funders take a more contextual approach?

Lori Bartczak: Last year we traveled around the country and held focus groups with nonprofit leaders to get a better understanding of their capacity needs. One nonprofit leader described an exemplary relationship with one particular program officer. She said: “She will have lunch with us, she visits, she’ll call us because she heard something that might be of relevance to our work. I see her in the community, at coalition meetings, in city meetings. She’s not just sitting in her office. I’m impressed with her because she cares about what we—her funded organizations—are doing. That’s big. We have a relationship, and because of this I am more likely to call her with a concern or a problem, or to let her know what we’re up to so she won’t be blindsided.”

JC: I can imagine that funders might not be wild about GEO’s second finding, of “continuous” capacity building funding, so how should a nonprofit make the case for longer-term support?

Lori Bartczak: Nonprofit leaders repeatedly tell us that funders are not providing capacity-building funding with an appropriate time horizon. At the listening sessions we heard many stories of partially completed capacity-building projects that ended up not meeting their original objectives due to the lack of funding to cover costs required to implement and maintain the work. So we are seeing the need for continuity --

Funders build our capacity, and then what?” one leader asked. “The funders are going to walk away, and we have to be able to sustain whatever they helped us build. A lot of the challenge with capacity building is the question of how we’re going to sustain the work after the funders are done helping us.”

JC: Are foundations aware of the realistic need for long term capacity building, or “continuous” funding as you call it?

Lori Bartczak: Yes, some are. Grantmakers who do this work well devote a considerable share of their time and resources to capacity building and endeavor to establish a strong and open relationship with grantees. For example, one program officer advised fellow-grantmakers to take the long view in their capacity-building work like this: “Be willing to stick with programs longer than three years… While it’s always good to be open to new ideas, funders can sometimes jump from one fad to the next without giving programs enough time to produce results or taking the time to learn from both success and failure.”

JC: In addition to understanding the context, and accepting that capacity building is not usually effective as a short-term intervention, what other measures has GEO noted are needed to promote effective capacity building?

Lori Bartczak: Many successful capacity-building programs reach beyond the executive director role to engage a team that is drawn from multiple levels of the organization. Since people remember and respond to learning new things better when they are in a group, effective capacity building often benefits from a “collective” approach. Also, grantmakers can look for opportunities to collaborate with other grantmakers to leverage investments in capacity and provide more organizations comprehensive support to grantees. Because building capacity requires a significant, ongoing investment, grantmakers might look for opportunities to collaborate with other grantmakers to leverage their individual investments and thereby collectively provide more comprehensive support to grantees. Another way to look at the collective approach is to think about the overall capacity of the set of organizations that are vital to the issue you work to address—whether that set is bound by a geographic area or an issue area – take a systems approach to building capacity.

JC: Can you share an example of this type of collective approach?

Lori Bartczak: In Washington State nine funders were working collectively to build the capacity of the nonprofit ecosystem across the state. The funders came together in 2009 in response to the challenges facing the nonprofit sector as a result of the economic recession. They commissioned an assessment of capacity building in Washington State that found a disinclination for thinking systematically about capacity building at a state or community level, and recommended specific investments and strategies—from providing more general operating support, to filling gaps in knowledge and service delivery. Since 2010, investments from the collaborative include an online directory of vetted consultants and resources related to capacity building, targeted funding to rural areas in the state, and the creation of an organization (Washington Nonprofits) that aims to provide a voice for nonprofits across the state through advocacy, education, capacity building, and networking.

JC: Thank you, Lori, to you and your colleagues at GEO for highlighting practices that can help grantmakers feel more comfortable with funding capacity building.

For even more information on this topic, we recommend that you read this article by Lori that inspired this interview: Supporting Nonprofit Capacity: Three Principles for Grantmakers (Nonprofit Quarterly, December 2013).

Should you go global with your nonprofit’s domain name?

You’ve heard the expression: “Think globally, act locally.” That expression usually applies to our imprint on the environment. But it also is a fitting description of how potential donors and others find your nonprofit via the internet. Today your nonprofit may be using a domain name ending in “.org,” but starting in late summer 2014, two new domain names will be available for nonprofits: “.NGO” and “.ONG.” Unlike .org, the new domains will be available only to charitable nonprofits and other tax-exempt organizations, as well as non-governmental organizations (commonly referred to as “NGOs”) – thus creating for the first time an international database of verified or “genuine” NGOs (according to the Public Interest Registry, the entity that was originally created to manage the .ORG domains). Why might a nonprofit decide to reserve or use a new domain name in addition to its existing URL? Reserving one of the new URLs may help avoid future confusion in the event another organization reserves the same name with a different ending. To make sure your nonprofit has the opportunity to reserve a domain name using one or both of the new endings, you’ll want to visit GlobalNGO.org and fill out an “Expression of Interest” so that you are contacted and have the opportunity to reserve the new domain names when they are released on a first come, first serve basis later this year. Learn more.  

 

How does your budget grow?

Just announced! We are happy to announce that nonprofits now have two affordable, easy-to-use tools: one to develop their budget and another to help manage their cash flow. These tools were developed specifically with the needs of small and mid-sized nonprofits in mind. It doesn’t take someone with an accounting degree to use them, and they offer the ability to create reports for your board members. Both toolkits are intuitive and easy to use even though they have lots of accounting rules built-in. For example, the budgeting tool makes sure your nonprofit allocates costs in accordance with nonprofit accounting requirements. We are proud that these tools were developed by staff members of the New York Council of Nonprofits with the needs of small nonprofits in mind. Through a generous arrangement with NYCON, any member of our state association network is eligible to receive a member-only discounted price on the toolkits.

 

If you would like to know more about the NYCON Budget and Cash Flow Toolkits, try the demo, and if your nonprofit is a member of its State Association of nonprofits be sure to contact your membership liaison at the State Association in you state for special discounted pricing and details on other member benefits. If you are not a member of your State Association, learn how being part of the nation’s largest nonprofit network can advance your mission!

 


 

 

Nonprofit Trends

A new nonprofit sector report from New Jersey could be a harbinger of 2014 trends for nonprofits.

  • 82% report increase in demands for services
  • 31% expect expenses to exceed financial support

Interested in what economic trends impact nonprofits in other states?

Did you know?

The new domain name for nonprofits ending in “ONG” has the same meaning as “NGO” (the widely recognized acronym for non-governmental organizations) but it is specifically used in regions of the world that speak Romance Languages (e.g., Spanish, French, Italian, and Portuguese). Learn more.

Resources

 

 

Worth reading

A message to grantmakers: Why what’s happening in YOUR state matters

 

Nonprofit Knowledge Matters | Audit Your Heart Out

Posted: 
February 12, 2014

 

A Valentine for your Auditors?

by Rick Cohen, Director of Communications and Operations

It’s February, which means that Valentine’s Day is around the corner. For many nonprofits that operate on a calendar fiscal year, it also means that a visit from your accountant(s) for your annual financial audit and Form 990 preparation is coming up. As someone who wears the finance and compliance hats in the organization, this used to be a stressful time for me; working with our bookkeepers to close out last year’s books, gathering copies of organizational policies, and making sure every “t” is crossed and every “i” is dotted. But with more experience, I have come to realize that a visit from our auditors is also a time of great opportunity. In this month’s issue of Nonprofit Knowledge Matters, we’d like to share a few tips on how to make the audit process easier and why you should show your auditors a little love this Valentine’s Day.

Tip #1: Get a head start by gathering key documents throughout the year

More and more accounting firms are turning to electronic or “paperless” audit systems, requiring their nonprofit clients to upload requested documents to a secure online portal, rather than providing a tall stack of paper-based policies, check copies, statements, and timesheets. This makes it easier than ever to be preparing for an independent financial audit year-round. Just create a file folder on your computer with shortcuts to key documents that auditors often ask for: new contracts signed, revisions to bylaws or other control policies, payroll records, etc. Creating these shortcuts throughout the year will cut down on the time you spend before fieldwork begins – and help ensure you don’t forget anything!

Tip #2: Use the audit process as a capacity building experience

Engage your nonprofit’s accountants beyond the compliance task at-hand and have conversations with them about best practices and trends they are observing in their practice. Your nonprofit can stay ahead of the curve by tapping into insights from experts who are evaluating new practices in the field. However, not every new practice may be right for your organization. What works for a nonprofit with 50 staff members may not be appropriate for a nonprofit with a staff of two.

Tip #3: Strengthen your fundraising appeals by demonstrating your transparency

In a time when donor confidence has been damaged by media stories of fraud and waste, let your nonprofit’s commitment to accountability and strong financial management be a badge of honor. Audits don’t uncover fraud, but an unqualified audit demonstrates that your nonprofit is keeping its books in accordance with generally accepted accounting principles. Post your audited financials on your website for potential donors and funders to see. Complete your nonprofit’s profile on Guidestar, where many donors are looking for information before donating – and display your Guidestar seal prominently on your website. Has your staff been certified by the Standards for Excellence Institute or adopted practices recommended in a Principles and Practices program promoted by your local state association of nonprofits? Each of these steps demonstrates your organization’s commitment to ethics and transparency.

You’ve Got Mail (or maybe you don’t!)

Have you ever moved and changed addresses, only to find that you never received an important piece of mail because it was sent to your old address? Here’s how to prevent that scenario in the nonprofit zip code.

Whenever a charitable nonprofit moves to a new address, or the executive director or board chair changes, often the person who was identified on state or federal filings as the “go to” person also changes. When this happens, the nonprofit may miss out on receiving important mail, so update the IRS and state government by filing IRS Form 8822-B with your changed mailing address or the identity of the “responsible party” at your nonprofit, whenever that changes. This can happen easily so add this IRS Form to your checklist of annual housekeeping tasks. Accountants who prepare tax forms for charitable nonprofits may sign the form on the nonprofit’s behalf, subject to a power of attorney. The IRS Form 8822-B cannot be filed electronically.

2014 State of the Sector Survey, last chance!

This week is the last chance to help the Nonprofit Finance Fund (NFF) map common nonprofit financial health challenges by participating in NFF's annual State of the Sector Survey. This anonymous survey takes 10-15 minutes to complete and asks about your organization's recent financial and management challenges. Our network has used this data extensively to highlight challenges and promote solutions. Your stories have been shared at dozens of conferences, included in policy recommendations, and used to bring your challenges to life in new ways.

Review the results of the 2013 national survey

 


 

 

Finance tools you can use: NYCON’s budget and cash flow toolkits

https://www.eventbrite.com/e/product-purchase-budget-cash-flow-toolkits-for-nonprofits-tickets-10434821833

Especially designed for the needs of small charitable nonprofits, the NYCON Budget Toolkit can be used to develop a streamlined, compliant, and easy to understand budget. Similarly, the NYCON Cash Flow Toolkit takes the mystery out of forecasting and helps guide nonprofit staff through an interactive process to understand the nonprofit’s cash flow. Board members and staff alike love these tools!

IRS 990-EZ and 990-N filers:

IRS Phone Forum, Feb 20 (2 pm Eastern) Learn tips and avoid legal risks before you file your nonprofit’s IRS Form 990-EZ or 990-N

IRS Form 990 and 990-EZ filers:

Summary of changes to the 2013 forms

Nonprofit Knowledge Matters | Perspectives on Nonprofit Leadership

Posted: 
January 9, 2014

Vision: Looking Back to Look Forward

by Tim Delaney

Most people know that the transitional month of January is named after Janus, the Roman god of beginnings and endings who looked both backwards and forwards at the same time. But how many of us know about the power of the Janus Effect? I certainly didn’t, until reading a brilliant book, The Leadership Challenge, by James Kouzes and Barry Posner. In it, they recount the Janus Effect research that can help nonprofits. Corporate CEOs were divided into two groups and asked to “think of things that might (or will) happen to you in the future” and “think of things that have happened to you in the past.” In answering the questions participants were to list 10 events, attaching dates to each event. But the order of questions was switched. Group A was asked to think of the future first; Group B to think of the past first. When comparing results, CEOs in Group B – who first thought of the past – consistently envisioned twice as far into the future than those in Group A who looked at the future first. Since reading The Leadership Challenge many years ago, I’ve enjoying tapping into the power of the Janus Effect in various ways that you can use, too. It doesn’t have to be elaborate. In fact, here’s how our staff at the National Council of Nonprofits recently invoked the power of looking to the past to sharpen our view of the future.

Like many nonprofits, the National Council of Nonprofits reacts to meet the needs in its local community. Unlike most nonprofits, however, our “community” stretches from coast-to-coast and border-to-border, so there is a high premium placed on being nimble. But without a crystal ball to see what the nonprofit community will need in 2014, our staff recently activated the Janus Effect by reflecting on our network’s accomplishments in 2013. We did so trusting that, as Kouzes and Posner explain, “When we gaze first into our past, we elongate our future. We also enrich our future and give it detail as we recall the richness of our past experiences … and gain a greater appreciation for how long it can take to fulfill aspirations.” By looking at the recent past, we saw ongoing trends continuing into and natural arcs emerging in 2014. Here’s what we saw from 2013 that inspired insights about what’s ahead in 2014:  

Nonprofits finally paid their indirect costs: For the last couple of years the National Council of Nonprofits’ network has worked closely with the White House Office of Management and Budget (OMB) on what has been described as a “once-in-a-generation” overhaul of federal policies concerning government grant and contracts with nonprofits. In late December, OMB released its Final Guidance that requires federal agencies, states, and local governments receiving federal funding to reimburse a nonprofit’s indirect costs using the nonprofit’s already-existing federally negotiated indirect cost rate. If a negotiated rate does not yet exist, then nonprofits are empowered to request negotiating a rate or elect the default rate of 10 percent of their modified total direct costs. This recognition by the federal government that a nonprofit’s indirect costs (sometimes called overhead or administrative costs) are legitimate expenses that need to be reimbursed for the organization to be sustainable and effective is a landmark decision. Beyond the obvious financial benefits and the new respect for work by nonprofits, it should prompt people to stop using the artificial metric of lower overhead as a false proxy for nonprofit effectiveness that winds up starving charitable nonprofits. (See “The Overhead Myth.”)

Looking forward, even beyond 2014, OMB’s new Guidance will change the game significantly for charitable nonprofits that receive funding from governments. It provides much-needed clarity and direction. Still, to secure the benefits of the new rules, nonprofits and foundations must do much, immediately. For instance, during the next year as federal agencies revise their regulations and train staff to implement the changes, many nonprofits will need to learn how to properly allocate costs so they can negotiate for the full indirect costs rather than settle for the default rate of 10 percent. Nonprofits also must secure training on how to negotiate for their own indirect cost rates at the federal as well as state and local levels. In short, immediate efforts are needed to ensure that the recognition gained through the OMB Guidance is turned into the reality of reimbursement.

Nonprofit Knowledge Matters | Trends, Transparency, and Totally Cool Stuff

Posted: 
December 11, 2013

Trends: What’s ahead for 2014?

At the National Council of Nonprofits we are in the fortunate position of learning and hearing from charitable nonprofits all around the country. It is fascinating to see how ideas developed in one part of the country travel to other regions. To help your nonprofit’s staff, board, and volunteers be prepared for what’s ahead in the policy world we publish Nonprofit Advocacy Matters every other Monday, and to share other trends that we are hearing about through our State Association network, social media, or questions that arrive in our inboxes, we’ve put together a look at some of the most intriguing nonprofit trends to get you ready for 2014. We’d love to hear from you what else you think is on the horizon.

 


 

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Transparency

Being a transparent nonprofit is not just about sharing financial information with donors and the public (although that type of transparency is so important that we devote several pages of our website to examples of practices that reflect financial accountability and ethical fundraising practices). Transparency is also about answering the question you inevitably get a few minutes after being introduced to someone for the first time: “What do you do?” (Which ends up meaning, What the heck does your nonprofit spend time and resources doing?) Your website looks good, your financial house appears to be in order, photos of your staff show happy smiles …But is the world a better place because your nonprofit exists? Of course it is! So how is your nonprofit telling the story of its outcomes?

Ideas for sharing outcomes:

  1. Use testimonials: This is an oldie, but a goodie: testimonials are extremely compelling. The trick is to collect them! Is collecting testimonials something that everyone on your staff and board understands is important, and remembers to gather? If not, who’s accountable? Collecting testimonials via surveys and written program evaluations often results in anonymous comments that are not as compelling because in the spirit of transparency, testimonials work best when the speaker is identified. Do you find people are reluctant to share without prompting? That's natural, so you just have to ask! And asking for a testimonial in person - rather than via an email - is most effective because people will be more responsive to a personal appeal.  Here are 5 tips for better testimonials.
  2. Use video: Typically a charitable nonprofit might publish an annual report, but paper reports are costly to produce and might be read only once before being recycled. Many nonprofits are posting short video testimonials on their websites. Don’t have a big budget for this? Experts tell us that as long as the audio is clear and the message is compelling, homegrown video works well. How-to tips from CauseVox.
  3. Use the 990 to communicate your nonprofit’s impact. Great tips: 5 steps to make the IRS Form 990 work for your organization. Get to the gold level of the Guidestar Exchange by completing your nonprofit’s “Charting Impact” profile. Answering the 5 simple questions offers a way to demonstrate to current and potential donors that your nonprofit is transparent about not only its strategy but also challenges to advancing its mission.
  4. Make sure your message is engaging to younger audiences: Learn how to tailor your nonprofit’s message to younger audiences with this free guide: Engaging Younger Donors Online with “inbound marketing” (website, social media, and email).
  5. Engage the board: At a recent conference about performance management, Phil Buchanan, CEO of Center for Effective Philanthropy, suggested, “Once a year we should stop and ask, ‘Should we still exist? Are we having enough of an impact?’" This would be a great question to ask at a board meeting, followed by a staff presentation about the nonprofit’s outcomes.

And don’t forget to supplement your nonprofit’s stories with substantive numerical information that shows how your nonprofit is moving the needle - You know what they say, “Numbers don’t lie!”

In the “cool stuff” category…..Nonprofits in the Cloud

Are you wondering whether “migrating to the cloud” is the right thing for your nonprofit? We wondered, too. After we learned more about what it would cost and how it would improve our efficiencies, the National Council of Nonprofits decided to migrate several months ago. If you are looking for trustworthy, nonprofit-friendly technology advice about migrating to the cloud, there is a terrific FREE ebook available, authored by Pat Callihan, CEO of TechImpact.  With the author’s permission we are sharing the first chapter that can help you decide whether moving to the cloud makes sense for your nonprofit.

 


 

Does your nonprofit receive funding through government contract(s)? Must Read! 12 Common Sense Solutions to Government-Nonprofit Contracting Problems

Did you know…? Some federal grant applications require nonprofits to explain how they establish executive compensation. Resources on what process your nonprofit’s board can follow to comply with federal expectations for approving compensation.

Get inside the minds of private foundations: Two recent reports by the Center for Effective Philanthropy help bridge the understanding gap between nonprofit grantees and private foundations that fund them:

Nonprofit Challenges: What Foundations Can Do

How Far Have We Come? Foundation CEOs on Progress and Impact

 

What We’re Reading

Working Hard and Working Well – a practical guide to performance management

By David Hunter - -Download the free ebook! What’s an “outcome”? “What’s a theory of change”? What are the keys to getting everyone on the same page so that your nonprofit can focus on delivering more effective outcomes?  If you are the staff person tasked with answering these questions, or a capacity builder helping a nonprofit become more outcomes oriented, the practical guidance in this book offers a welcome blueprint.

Nonprofit Knowledge Matters | Tackling Nonprofit Ethics Head-On

Posted: 
November 13, 2013

Tackle ethical conduct head-on

America’s charitable nonprofits rely on the public’s trust to do their work. That trust attracts volunteers who are committed to the cause, and donors who contribute to the mission. The public trust is the heart and soul of what keeps a charitable nonprofit’s mission alive.

In an environment where more than half of nonprofits surveyed reported that they didn't expect to have resources to meet the increased demands for their services in 2013, individual charitable nonprofits can ill afford mismanagement of precious resources. Nonprofit leaders know that even one dollar diverted through fraud or mismanagement from a nonprofit's mission is too much, and that when one would-be volunteer or donor loses confidence in a charitable nonprofit because of unethical conduct, that’s one too many. What’s worse, whenever there are media stories or investigations about alleged mismanagement, or even about charitable nonprofits falling victim to fraud, theft, or embezzlement, every charitable nonprofit is tarnished by the suggestion that “charities can’t be trusted.” So, ethical conduct is something we all have to deal with head-on.

That’s why the National Council of Nonprofits is taking this opportunity to showcase resources to help more charitable nonprofits adopt and demonstrate core ethical values, such as accountability and transparency.  Let’s assume your nonprofit is committed to being accountable and transparent – that’s terrific in theory. But what does it mean in practice

 


 

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As a starting point, while unfortunate, we need to accept that there will always be people who try to defraud others, even charitable nonprofits. So, we can't assume that "it won't happen here," because it can happen anywhere. The key is prevention. After all, isn’t it better to stop the harm before it happens? All board members and staff members of charitable nonprofits must demand (and model) accountability, earning their supporters’ trust through transparent and ethical conduct.

So, what are the practices that ethical and accountable nonprofits follow to ensure that they earn the public trust, such as a conflict of interest policy, prudent financial management policies, accountability practices in fundraising, and good governance policies?

In addition to the links above, here are three more suggestions:

 


 

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First, is your nonprofit aware of accountability programs, such as the Principles and Practices and Standards for Excellence® programs that are offered by many state associations of nonprofits across the country? These programs not only address state specific legal requirements, but equip nonprofits with best practices tools and educational programs that promote effective and ethical nonprofit governance.

Second, just like you conduct fire drills, what about drilling to prevent fraud from occurring at your nonprofit?

We’ve posted resources including this nice checklist from Venable, a law firm with expertise in charitable nonprofits, that describe internal controls that your nonprofit can adopt to help prevent (or more quickly uncover) fraud, theft, and embezzlement. (Remember: it’s a myth that independent audits prevent fraud!)

Third, nonprofits’ work to promote ethical conduct and prevent fraud is never done. The nonprofit community must earn the public’s trust every day, not only by complying with the law, but also by modeling and promoting integrity, transparency, and accountability, and it starts at the top with the leadership of your nonprofit. We’ve posted resources to help your leadership team adopt a “code of ethics” or “statement of values,” that include some stellar examples from around our state association network to inspire your nonprofit’s own journey in good governance and ethical practices. 

From the Inbox: “Can our nonprofit use funding from a restricted gift to pay for administrative costs?” The answer may surprise you!

 As with all restricted gifts, the answer to this question lies in knowing the donor’s intent and respecting it: The general rule (and legal requirement) is that a charitable nonprofit must use 100% of any restricted gift solely for the explicit purpose(s) for which the contribution is intended. It may be the case that a donor intends for the nonprofit to use a portion of the contribution for administrative costs or similar indirect costs that are related to the primary purpose of the gift. For instance, If your nonprofit has adopted a policy or practice that a certain percentage of every restricted gift will be used for administrative purposes, AND if that policy or practice is shared with the donor, then it is perfectly acceptable for a portion of the gift to be used for administrative costs. “The key,” according to Ed Mulherin, CPA, Principal of eCratchit, “is that the donor must be aware of the policy/practice when making the gift. Remember to document this!” 

Accounting standards establish the general rule that 100% of contributions must be used in accordance with donor intent. However, the recently updated AICPA accounting guide applicable to nonprofits clarified that including in a written proposal for a grant or gift that a portion of the contribution will be used for administrative expenses is sufficient to put the donor on notice of the policy or practice of the nonprofit. We recommend confirming this policy or practice in follow-up correspondence with the donor, such as in connection with the written acknowledgement of the gift.

Nonprofit Knowledge Matters | The Leadership Lens

Posted: 
October 2, 2013

The Leadership Lens

Editor’s notes, by Jennifer Chandler

Jennifer ChandlerMy appreciation for what leadership is – and isn’t – has been sharpened lately listening to stories about first jobs. One young adult close to my family shared his experiences working for a leader who sounds like the antithesis of a “servant-leader.” Hearing that young person's misgivings motivated me to search for resources about good governance and inspiring leaders, both of which are abundant in the charitable nonprofit community. Hence the theme of this issue of Nonprofit Knowledge Matters. Whatever your leadership lens, we hope these articles will offer ideas for discussions with your nonprofit peers about the leadership role charitable nonprofits play in communities, and the characteristics you aspire to demonstrate in your own leadership journey. 

Nonprofit Knowledge Matters | 3 Rules for Small Nonprofits to Follow for Strong Internal Controls

Posted: 
September 3, 2013

This guest post is an excerpt from The Board Member’s Easier Than You Think Guide to Nonprofit Finances, by Andy Robinson and Nancy Wasserman, published by Emerson & Church:

“We’re a small nonprofit. What internal controls do we need to have in place?”

If you’ve spent time in airports, you’ve undoubtedly seen unaccompanied minors. Maybe they’re off to see Grandma, or heading to summer camp, or shuttling between parents who live in different cities.

Airlines have elaborate procedures for handing these children from one responsible adult to the next: from parent to check-in staff to gate agent to flight attendant to gate agent to Grandma. When they’re not on planes, the kids are herded from one secure holding area to another. Every movement and handoff is tracked. If the system fails, as it rarely does, it’s big news.

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