posted on: Wednesday, December 17, 2008

by Gary Snyder

The storm clouds are gathering, but the ski may be clearer on the horizon.

Much has been written about the charity downturn and pending crisis. The objective seems to be to just afloat especially with projections like that of Paul Light, professor at NYU. He suggests that as many as 100,000 nonprofits will collapse in the near term. Here are some core fundamentals for the short-term with always one eye on the long-term.

• Prepare for the worst. Take a look at the strategic plan and the budget and act accordingly. Safeguard operating funds and cash reserves. Have up to 180 days for cash flow availability. As old staff vacate, be cautious in filling the position. Consider doubling up, but be mindful that the mission of the agency must be fulfilled.
• Focus on the core business. There may be some need for consolidation within the sector. Funders will want to rely on a trusted executive to assume the mantel for two or merged more agencies. If there is a symbiosis then consider it by strengthening the agency’s core; if not, do not give it any thought.
  
• Do not try to get a quick fix. Quick fixes, such as financial opportunities, have been known to end up as a bust. See Baptist Foundation ($500 million); National Heritage Foundation ($6.5 million). Keep a secure line of credit open.
  
• Do not go into a high spending mode. Conserve cash and monitor expenditures aggressively, including staff salaries that are usually the highest expenditure of a charity. Choose eliminating travel rather than staff. Capital improvements are typically less expensive during a national downturn, but the 10-15% savings must warrant the outflow. Monitor that insurance premiums are paid.
  
• Continuously befriend current and prospective donors. There is a fine line between keeping your current contributors and prospective donors warm and bothering them. Remember donors and funders are feeling the pinch, also. Keep in mind foundations may want to spend more now that they normally do.
  
• Stay close with the board/staff. Both the board as well as staff should be open with one another. The board may be the lifeline for the agency, so it must be kept informed as to the status---financially and programmatically. On the other hand, an ongoing open dialogue with staff will calm the agency’s internal waters. Both can be partners in developing contingency plans.
  
• Retooling may be in the offing. During painful times, introspection may be an opportunity to flip the switch. The dissection of the budget, mission statement, staffing, and fundraising could lead to a reinvention of the agency. All changes should point to a strengthening of the organization. Invest in projects that can assess operational needs, productivity and efficiency against organizational goals.

The flexibility of the charity is most important when the times are hardest. Set backs are frequently opportunities if kept in a long-term perspective. If history is any guide, the nonprofit world has been remarkably resilient and has adapted to similar economic slumps.

Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is http://gary.r.snyder@gmail.com; website: http://garyrsnyder.com/, phone: 248.324.3700.

posted on: Tuesday, December 16, 2008

By Aaron Dorfman

The Washington Post is reporting that Rep. Xavier Becerra (D. Calif.) has withdrawn himself from consideration for the position of U.S. Trade Representative in the Obama Cabinet. While I’m sure that Becerra would have done a fine job at Trade, his decision to remain in the House of Representatives is good news for those who want to see institutional philanthropy doing more to benefit marginalized communities.

Rep. Becerra understands the potential and the shortcomings of foundations better than most members of the House Committee on Ways and Means. His thoughtful engagement with philanthropic leaders about their support for lower income communities and communities of color is helping to focus attention on important issues in the sector.

I, for one, am glad he’ll be keeping his post.

posted on: Monday, December 15, 2008

By Niki Jagpal and Lisa Ranghelli

Ken Berger, the CEO of Charity Navigator, recently blogged about his goal of identifying new measures of nonprofit effectiveness that go beyond simply rating an organization’s financial health. He rightly points out that financial efficiency is only ‘part of the puzzle’ and is not necessarily always associated with positive outcomes. He indicates that Charity Navigator will be developing an expanded rating system to more comprehensively evaluate nonprofits. This also aligns with the IRS’s efforts to include efficiency indicators when it revised the form 990 earlier this year (the indicators didn’t get included but the new 990 does include governance information).

This move toward using better metrics to help individual donors decide which charitable organizations to donate to has striking parallels in institutional philanthropy. For example, there continues to be a lot of debate about what types of information foundation leaders should collect from their grantees and how grantees’ work should be evaluated best.

The bottom line, of course, is impact. Is the nonprofit organization having an impact on the issues and communities it seeks to address? From the perspective of individual or institutional donors, is their check or grant contributing effectively to achieve that impact? As Buzz Schmidt recently noted, foundations lack accountability mechanisms to make them show that their grantmaking is even having impact.

Although Charity Navigator’s leadership is to be commended for seeking to broaden donors’ conception of effectiveness beyond financial stability, there are myriad problems with relying on outcome metrics. And anyone, individuals or grantmaking institutions, attempting to do so should proceed with caution. One challenge is that measures need to be tailored to the roles and missions of different types of nonprofits. An organization that engages ordinary people in the democratic process and helps them advocate and organize to improve their communities will have very different benchmarks and measures of success than a food pantry or an arts organization. And with any of these types of organizations, it is much easier to find out whether the nonprofit did something, but much harder to determine if that achievement made a difference.

Michael Edwards wrote about what some call the ‘tyranny’ of business metrics in Just Another Emperor? The Myths and Realities of Philanthrocapitalism. Because the bottom line for evaluation in business is profit, measures aren’t easily transferable to the civil society sector where the bottom line is impact. Yet, many in institutional philanthropy appear to have embraced wholesale the idea that predetermined metrics built in from the inception of a funded piece of work is the ultimate way for grantmakers to evaluate the impact of their grants.

Take a look at the hard and uncertain work of advocacy, organizing, and civic engagement: it can take years to achieve a desired impact. How can a uniform measurement tool account for the interim years, when important work is being done toward a larger goal that has yet to be attained but very well might be? How will metrics capture the strengthened social fabric in a community as neighbors unite to rally around a common cause?

In recent years, there have been tremendous strides made by advocates, philanthropists, and researchers to develop benchmarks and measures for these strategies. NCRP drew on these efforts to document the impact of advocacy, organizing, and civic engagement in New Mexico (see Strengthening Democracy, Increasing Opportunities). But the key distinction is that we measured impacts across a sample of 14 groups over a five-year period. We didn’t evaluate individual organizations on a yearly basis. The aggregate accomplishments were quite impressive, but in any one year for a single group they may not have been.

As Charity Navigator moves forward, we’d offer the same advice that should inform a foundation’s approach to evaluating its grantees’ impact:
1. Seek input from many quarters of the nonprofit community to ensure that any new measures are relevant to the diversity of goals within the sector;
2. Ensure that data collection tools are not overly burdensome for either grantees or donors; and most importantly,
3. Make the outcome measurement process valuable to the grantees, helping them use the information to improve their own effectiveness.

Donors, individuals or institutional, can expect an evaluation that uses these three guidelines to provide them with value, too: it can help them figure out whether their contributions are actually having broad social impact today and in the future. By making evaluation more reasonable and following these guidelines, we’ll avoid the counterproductive scenario of evaluation for the sake of evaluation, with a sizeable share of outcome measurement reports never being read or used for future grant allocation or nonprofit program decisions.

Perhaps the best thing Charity Navigator could do is educate donors about what to look for in an organization to determine its effectiveness. Empower donors to do their own due diligence by teaching them to read between the lines of annual reports, analyze media coverage of an organization, and find other clues to assess its impact. Teach donors in plain terms about the concept of effectiveness and share what research has shown is evidence of that effectiveness. Robert Herman and David Renz found that nonprofits that can engage with and respond to stakeholders are better positioned to achieve their mission than those that do not. Encouraging donors to learn more about the organizations they want to give to will ultimately strengthen donors’ commitment to those groups and give donors the sufficient skills to assess any potential gift recipient in the future.

Niki Jagpal is research director and Lisa Ranghelli is senior research associate at the National Committee for Responsive Philanthropy (NCRP).

posted on: Monday, December 08, 2008

By Gary Snyder


There are hundreds of billions of dollars in contributions and trillions of dollars in assets in the charitable sector. For a multitude of reasons over the past two decades years, we have seen substantial increase in malfeasance in the nonprofit sector. They range from the Baptist Foundation in Arizona indictment of $550 million obtained by fraud eight years ago to the $1,000 petty theft seen on a daily basis at the small and medium charities. There are some common denominators, in no order, that seem pervasive in these misdeeds.

• Most nonprofits are required by law to file financial statements each year at the state and federal levels. In my experience, the information is not timely, is incomplete or incorrect either intentionally or by accident. Because these documents are available for public inspection and frequently used in the decision-making by donors, they are less than transparent. Salaries are frequently understated. Fundraising expenses are often a guess. Related party disclosures are very rarely cited.
o A recent example: A supervisor at the Colorado Department of Revenue wrote $11 million worth of checks to her husband under a dummy corporation.

• The board is often kept in the dark. Most boards are disinterested and disengaged. Some say that intentional deception of donors and board members is a common occurrence. In virtually all instances, the board has had the opportunity to inquire as to malfeasance but has not done so. Why? There are no consequences. Seldom is the board held accountable for its lack of fiduciary duty. Many board members are not full engaged in oversight. Another reason is that the bond between the board and the executive is strong, thus there is considerable trust.
o A recent example: The Downtown Waco (TX) association trusted its 18-year leader until $511,000 was missing. After being caught, she pleaded guilty.

• In some instances, the auditors have not done their do diligence. Frequently, problems are dismissed by auditors to retain the client; as in the case of Baptist Foundation and $11.2 million in irregularities at Roslyn schools,
o Two examples: In those two instances, the auditor for Baptist settled for $217 million and the auditor for Roslyn, upon being charged, closed its doors.

• Because the federal Sarbanes-Oxley law is for for-profit corporations, many charitable organizations have instituted whistleblower policies as well as other accountability measures. Few have provisions for an employee to complain directly to the accounting firm. In some recent cases the policies have worked. The policies are getting tips from employees on financial misdeeds. The mere adoption of written policies and practices, however, does not mean they are being used. In most cases, employees are intimidated or bribed by superiors and therefore no one steps up to share malfeasance.
• A recent example: The District of Columbia tax office employees were showered by their supervisor with expensive gifts and remained quiet in a $48 million scheme that lasted decades.

• Few auditors have employed sound fraud-detection audit procedures. An auditor cannot rely too heavily upon management assurances.

• Internal controls are frequently lacking in most nonprofits. For those with such controls, implementation is compromised for the sake of convenience.
o A recent example: The Central Prince George County Community Development Corporation was forced to revise its internal controls when a board member embezzled $500,000.

• There is the need to further delineate the role of managers and governors or trustees. A dispassionate set of eyes from the board on financial matters is critical. Many times this is overlooked in favor of deferring to the competence, in the world of details, of the executive and his/her role as chief operations officer. This is a recipe for disaster.
o A recent example: The Virginia Farm Bureau found out after it waited 10 years and $2 million before an audit caught an inside attorney embezzling.

All that money has in fact spoiled the sector. Most of us want more vigilance in nonprofit leaders acting more responsibly. This will strengthen the charitable sector to make it compliant and vibrant.

Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.