Friday, December 2, 2011

10 Questions Your Audit Committee Can Ask External Auditors

We have been visiting with many nonprofit boards this past month presenting the 2011 audit.  What questions should a Board or Audit Committe ask their external auditors?  Here are some to get the conversation started adopted from an article by Boris Feldman:

1. What is your degree of comfort with the company's accounting decisions? How would you characterize the company's aggressiveness/conservativeness relative to other non profits?

2. Did you make any recommendations or suggestions that management did not accept?

3. Are there any employees of the company that you felt were not entirely candid and responsive to you?

4. How would you assess the internal controls at the Organization? What improvements would you make? In what priority?

5. How would you compare the quality of our accounting to other organizations with whom you work?

6. What was your materiality threshold?

7. Are we up-to-date on all of our filings and remittances?

8. Do our investments conform to our investment policy?

9. Are you getting the appropriate cooperation from management? Reluctance to cooperate can signal that there's something to hide.

10. Are there any areas of the financial statements including the notes, in which you believe we could be more explicit or transparent, or provide more clarity to help a user better understand our financial statements?

Thursday, November 3, 2011

Find Capacity, Find Funders

Last month I spoke to the Grant Professionals Association at their annual conference in Las Vegas about attracting more funders by illustrating to them the power of an investment with your organization.  I have spoken and blogged (here) about this topic before.  It is one of my favorite discussions.  Just as my last post discussed ways to tell a compelling story, the numbers can also tell a compelling story.  

The story is not just for your donors.  It is also for you.  We have illustrated for several organizations where they have unused capacity by analyzing the data and the financial information.  This has led to the expansion of services and reaching new groups with services.  How does this work?

As applicable, we look at the facility usage, staff and volunteer usage, and resource usage to determine maximum capacity.  We determine the percentage of this capacity that is currently used.   The organization is then able to focus on areas where there is room to grow because there is already existing capacity in this area.  They identify the resources needed to use this capacity and can adopt a strategic plan of action.   This plan can be communicated to funders and donors and show them clearly how their investment will fuel the expansion of services.

Saturday, October 22, 2011

Writing with Passion

Dalya F. Massachi in her presentation, Writing With Passion and Power discussed a number of great writing practices from her book Writing to Make a Difference: 25 Powerful Techniques to Boost Your Community Impact. One that resonated with me was the idea of two levels of “so what” Her illustration: your organization states that a donation of $100 will buy a new clinic massage table. You ask yourself “so what?” The answer—So our volunteer therapists can provide 50 additional revitalizing, healing massages per week to cancer patients in our community. Then you ask again--”so what?” The second level answer—So they will enjoy happier, healthier, more productive, and longer lives and YOU will be part of making that happen.

The answer to the second level “so what” results in getting to the heart of the impact your organization is making. We saw this illustrated at a recent seminar. Our opening question was “what would happen to your community if your organization did not exist?”

All of the organizations answered the question by describing the programs that the community would no longer have. While true, asking a second level of "so what" questions may reveal that graduation rates would decrease harming the future economy of the area; the quality and length of life for area seniors would be decreased; umemployment would increase harming the future economy of the area; and the culture and vibrancy that made the community an attractive place to live would be diminished.

Second level questioning can assist in directing boards and organizations to think with impact.

Friday, October 14, 2011

Economic Outlook--5 Strategies

We have been to several conferences recently that featured an economic update. The consistent message was that the economy is not likely to improve in the near future and even indicated that it could be another five years. Nonprofits have been hit hard—reduced government funding coupled with increased demand for services.

A few things to do, if you aren't already:
1. Prepare a cash flow projection for 6 months, 18 months, and 3 years. Continually roll it forward. Determine now what changes you will make if you don't hit certain revenue targets.
2. Strengthen your volunteer program. Today's volunteers want to contribute in more meaningful ways and you can expand or maintain your capacity with volunteers. Volunteers are also more likely to give to your organization and to give in larger amounts.
3. Individual donors make up 73% of giving (81% if you count bequests and 87% if you include family foundations). I am still convinced that there are individuals who have not yet learned the joy of giving. Make sure you have a robust donor cultivation program and many opportunities to connect people to your organization.
4. Review nonprofit best practices. Talk with others in your field. Make sure your organization is operating efficiently and employing the best strategies.
5. Look for opportunities to collaborate with other nonprofits or even for profits.
I just returned from speaking at the Grant Professionals Association/Charity Channel summit. My session was Find Capacity, Find Funders, a topic I have blogged about in the past. I will revisit that in a few posts but I first wanted to highlight points from some great presentations.

In Critical Compliance: State Registration of Charities, Helen Arnold from Clearly Compliant discussed the importance of complying with the state registration requirements. Most states require nonprofits soliciting contributions to register. Consultants and fund raising professionals (including grant writers) need to register in many of these states too.

A few practical recommendations from Helen:
-print a list of donors by state. Determine if you received the donation as a result of soliciting in that state. Be careful with the thank you notes to these donors—if you request more funds with the thank you—you are now soliciting in another state.
-most internet appeals are considered as coming from the state your charity resides in—except for NJ, NY, PA and FL. If you receive donations from an internet appeal from one of those states, you need to register there. Again when thanking internet donors, be careful about asking for more funds with the thank you note. Also be careful if you add internet donors to your mailing list.
-if you do have multiple states that you need to file in, there are several compliance services that can do this for you. They keep up to date on the state requirements and can save you time and money. Clearly Compliant offers this service
-the National Association of State Charity Officials has a list with links to all the state oversight offices
-the Unified Registration Statement which is accepted by 37 states can be found here There is also a nice state by state discussion of the requirements in the appendix on their site.

Monday, October 10, 2011

Map out your Future Success

One of the tools we like to use when working with clients on a strategic plan is a cost benefit matrix map. This tool provides a straight forward way to map programs based on both mission impact and financial impact. The beauty of this matrix map is its visual simplicity.

We recently had the good fortune to learn about Jan Masaoka's enhanced version of this matrix map during a training session on "Understanding and Changing Your Business Model in 60 Minutes" while at the BoardSource Leadership Forum. Many of you know Jan from her work at Blue Avocado ( She, along with Jeanne Bell, has just published a new book entitled Nonprofit Sustainability: Making Strategic Decisions for Financial Viability.

The cost benefit matrix map is a four-square which plots mission impact along the vertical axis and financial impact along the horizontal axis. Jan takes the matrix map one step further by classifying each of the quadrants in the foursquare with easily identifiable visual designations: stop signs, money trees, hearts and stars.

Stop Signs
In the lower left quadrant you will list the programs which produce little or no revenue and do not have an impact on your mission. These are your "stop signs". In other words, unless you are able to revamp these programs so that they increase their mission impact or generate new or more revenue, these are usually the first programs to be cut from an organization as their value is very low.

Money Trees
In the lower right quadrant you will list programs that generate a lot of revenue, but still do not have a significant impact on your mission. These are your ‘money trees’. Often you will find special events or donors in this quadrant. Look for ways to bring your mission message to these events.

In the upper left quadrant you will list programs that have a high impact on your mission, but generate little or no income. These are your ‘hearts’. They often have a very valuable place in the organization, but they are sustained by revenue from other programs. Often these programs reach deep into the community with your mission message. If possible, strategize new ways to generate revenue for these programs.

Finally, the most important quadrant in the matrix is the upper right hand quadrant. The programs in this quadrant have high impact and generate revenue for the organization. These are your stars. When planning for growth, you will want to look first at these programs and investigate opportunities for expansion.

To learn more about the Cost Benefit Matrix Map or other tools to improve your organization’s financial sustainability, feel free to contact Cindy Bergvall, CPA, Catalyst Center for Nonprofit Management.

Tuesday, August 30, 2011

Key Performance Indicators

I will be speaking at the Pennsylvania Community Providers Association 2011 conference in October on A Roadmap to Financial Health Using Key Performance Indicators and Dashboards. As I am putting together the presentation I am thinking about leading indicators and lagging indicators.

Key Performance Indicators (KPI's) are indicators used to measure performance in strategic area such as financial, quality of care, operational performance, and business development. My focus for this presentation is on financial indicators--days cash remaining, days sales in accounts receivable, cost per unit of service, etc.

Lagging indicators show you what happened in the past. Leading indicators help you see what might be happening in the future. For example, look at days sales in accounts receivable as a leading indicator. If over time, you see this number getting larger it means you are not collecting monies due you as fast as you used to. If this continues though--you are going to start to have cash flow problems. You may also end up having to write off revenue as a bad debt.

Initially you might look at the increasing days sales in accounts receivable and excuse it as a consequence of the economy, your client mix, payor difficulties, etc. However, if you have been tracking this as one of your indicators AND you are cognizant of the detrimental effect it has on other areas, you will pursue the reasons for the increase and seek to remedy the situation.

I have come across a few articles in these areas. While these articles relate to businesses, they have some great applications for nonprofits.

The Power of Leading Indicators - As Important As Ever by Paul Niven

Managing Through The “Rear View Mirror”…a dangerous practice for any business by Robert Champagne

Which is more important? Rearview mirrors or windshield? by Gary Cokins

Thursday, August 11, 2011

The Data (and Donations) are in the Details

Last summer I spoke with a wonderful group for a wonderful organization, the Association of Fundraising Professionals at their Lehigh Valley conference. The presentation was "Where Can your Limited Funding Dollars Have the Most Impact: Communicating to Your Funders the Power of Their Investment in Your Organization."

A lengthy title, but it reminds nonprofits that their funders are indeed investors. Prior to making an investment, investors will look at the investment and make sure it delivers a good return on their money, at a level of risk that is acceptable to them. What information do your investors need to determine that their money will make the most impact in your organization?

First you need to figure out where your funds have the most impact. If you have several programs you need to look at each program separately. What are the direct costs related to that program? How many people can you serve? What amount of staff time is required to deliver your services? Can you use your staff time or your facilities or your resources in a more efficient manner to serve more people?

Once you have the financial information and the data, you need to figure out the best way to communicate that to donors and grantors. Different audiences will need different types of communication. One grantor may be interested in investing in your organization because they can see that if they provide money for staff training, the staff will be able to serve 50 more people each week. Another donor may donate because you have explained that their donation of $500 will enable your organization to build a well that can bring water to 600 people every day. And another funder may appreciate your commitment to building a stable, healthy nonprofit that continually is a community resource. They are glad to add to your reserve fund because they can see evidence of this stability in your financial statements.

Financial and data analysis will not only attract more donors, it will help you manage your nonprofit better. As the saying goes, “If you can measure it, you can manage it”

Cindy Bergvall, CPA

Thursday, July 7, 2011

Using Technology to Improve Transparency

In his post Wednesday, David Matthew observed how technology can help nonprofits improve their transparency which in turn, can help them avoid mismanagement or accusations of mismanagement. As an accounting firm focusing on internal controls in our audits and a consulting firm focusing on helping nonprofits attract donors, we couldn't agree more. You can read the post here.


Last night I was reading an article about companies who invest in the community around them. It was a great article about great companies that have made a difference in their communities by their involvement with nonprofits. The article noted one company that provided paid time off to its employees to volunteer (my italics) in the community up to 2,080 hours in total—the cost of a full time person. I have seen variations of this from various businesses. While I applaud this benefit and recognize the financial donation of the company, I wrestle with the use of the word “volunteer”. defines volunteer as:

1. a person who voluntarily offers himself or herself for a service or undertaking.
2. a person who performs a service willingly and without pay.

Perhaps under definition 1 it is ok if the volunteer is paid by their company. However under definition 2, a volunteer is not paid.

Why this concerns me—
1. Are people really volunteering if their company is paying them?
2. Does it diminish the sacrifice of those who volunteer without pay?
3. Will people who were involved in the community when their company paid them, continue with community involvement if they went to another company where they did not have this benefit?
4. Over time would this trend change the concept of volunteerism?

That said, I recognize that—
1. Many employees are making a sacrifice even when they take a day with pay due to a heavy workload that they will need to catch up on later.
2. This growing trend in business has been a boost to the nonprofit sector and more and more people are encouraged to be involved in the community.
3. The business is truly making a financial sacrifice that benefits the community.

Businesses and individuals could consider—
1. Renaming the benefit from “paid time off to volunteer” to “paid time off for community service”
2. In lieu of paid time off a business could offer to donate the dollar amount of the time that a volunteer donates—essentially matching time donated with dollars donated. This could be an option presented in the employment policy.
3. The employee could consider donating the pay they receive for the time to the organization. This would be another option that could be presented in the employment policy.

It is hard to criticize a trend that has been so beneficial to the nonprofit sector and perhaps the benefits outweigh any downside to diminishing the concept of volunteerism. Maybe adding to the paid time off policies, options to donate dollars, would expand the benefit to the sector and still preserve the concept of volunteerism.

Wednesday, June 29, 2011

Numbers to Know

Recently released .....

The value of volunteer time in 2010 is calculated at $21.36 (From NPCC News, June 2011)
Volunteers can be your biggest financial asset. Make sure you are capturing all your volunteer time and letting them and your donors know the value. If professional services are donated, make sure you get an estimate of the value of the services from the donor--the rate for these will be much higher.

IRS Increases Mileage Rate to 55.5 cents per mile If you reimburse employees for mileage following the IRS rates this is an increase that takes effect July 1, 2011. The mileage rate that volunteers can use to calculate a deduction on their tax return remains the same at 14 cents per mile.

Tuesday, May 10, 2011

Participate in The NonProfit Times 2011 Nonprofit Organizations Salary and Benefits Survey

One of the procedures of a strong compensation policy is to annual compare salaries to similar organizations. This notice from our friends at PANO can help you do that:

Get a FREE Executive Summary and a chance to win $500 for your organization. All organizations who participate in the survey will receive a FREE executive summary of the results and will be able to purchase the full report at a 50% discount. In addition, any organizations that complete the survey by May 23, 2011 will be entered to win a $500 donation for their organization or organization of their choice!

Link to the NonProfit Times page describing more about the survey, benefits of participating and answers some FAQs:
Link to the actual survey tool for when the user is ready to start the survey:

Friday, April 15, 2011

Expanded 1099 Reporting Requirements Repealed

On April 14, President Obama signed legislation repealing the expanded 1099 reporting requirements. Under the legislation that was passed last year within healthcare reform, organizations would have had to file a 1099 for every vendor whether incorporated or not for all payments over $600. This would have been a significant reporting burden. The rules for 1099 filing revert back to the old rules--you only need to file a 1099 for unincorporated businesses that provide you with services.

Monday, April 11, 2011

Strategic Living

Many thanks to the Board Members who spent their Saturday morning at Boot Camp. We really appreciate their dedication to the nonprofit community.

We had two tracks to Boot Camp on Saturday. In the advanced track we looked at Strategic Thinking. How do you take the energy from your Strategic Planning and incorporate that into the Board work throughout the year?

A few ideas:
Stakeholder interviews during the process provided you with feedback from all directions. Keep that going by focusing on a different set of stakeholders throughout the year. The process does not have to be elaborate. It can be a five question survey after a service is provided; a short survey in the newsletter once a year; or a focus group lunch with the employees.

Periodically evaluate the financial condition of the organization to make sure you have the financial ability to continue to pursue the goals of the plan. Revisit funding goals and initiatives to make sure you are staying on track. If planned funds are not coming in, you will need to cut back on programs.

Set aside time at Board Meetings to discuss strategic items in more detail as necessary. The strategic plan will have scheduled times for the completion of certain items. Schedule these time frames on your Board agenda.

Modify the plan as necessary to address identify opportunities or threats. The Strategic Plan needs to be a living document, not a binder on the shelf that you dust off every three years.

Thursday, April 7, 2011

Board Tools

Our first session on Saturday’s Boot Camp will look at the General Duties of Board Members. There are the legal obligations:

  1. Duty of Loyalty-avoid conflicts of interest and put aside personal and professional interests

  2. Duty of Care-actively participate, ask questions

  3. Duty of Obedience-stay true to the mission and obey both organizational and societal laws

We then review the Ten Basic Responsibilities outlined in the previous post from the Ten Basic Responsibilities of Nonprofit Boards, Board Source book. Lastly we provide some practical tools that can help Boards put these responsibilities in practice.

  • Board Profile-a chart that shows the Board members across the top with skills, interests, and background down the side. When the Board profile is completed you can see what talents you currently have on the Board and what you need to look for in new Board Members.

  • Board Candidate Form-to collect information specific to your nonprofit to help you evaluate potential Board Members

  • Board Orientation manual-to provide to new Board Members to help them learn about their role in your Organization

  • Board Manual-for all Board Members-includes Board calendar, mission, vision, strategic plan, roles & responsibilities.

  • Annual Affirmation/Board Expectation form-for Board Members to affirm their commitment to support the organization through their financial support, attendance at special events, and commitment to Board meetings.

    Wednesday, April 6, 2011

    Ten Basic Responsibilities of Nonprofit Boards

    As I mentioned in the previous post we are getting ready for Board Boot Camp on Saturday. Each participant will receive a copy of the Board Source book-Ten Basic Responsibilities of Nonprofit Boards. In less than 100 easy to read pages, with practical examples and tips, this book discusses the following ten responsibilities:

    1. Determine mission and purpose

    2. Select the Chief Executive

    3. Support and evaluate the Chief Executive

    4. Ensure Effective Planning

    5. Monitor and Strengthen Programs and Services

    6. Ensure Adequate Financial Resources

    7. Protect Assets and Provide Financial Oversight

    8. Build a Competent Board

    9. Ensure Legal & Ethical Integrity

    10. Enhance the Organization’s Public Standing

    At $19 for members and $29 for nonmembers on the Board Source website, it is an easy decision to make sure that all of your Board Members have this great reference book. And it is also available as a digital download.

    Tuesday, April 5, 2011

    Picture This! Revisited

    I had a comment on the Picture This post from Jacob Smith whose blog Bright+3 had a great recent post-The Nonprofit Dashboard Roadmap. In the post, he looks at five types of dashboards with links to some excellent illustrations. I like the idea of categorizing the types of dashboards as it better helps you focus your purpose, your audience, and why you are trying to communicate with them.

    Getting Ready for Boot Camp

    I am preparing for our Board Boot Camp and I am impressed with the number of Board members who are willing to spend time on a Saturday morning learning skills that will help them better lead their nonprofit organization. On what key areas will we be focusing?

    General duties of Board Members
    Strategic Planning
    Fundamentals of Fundraising
    Understanding Capacity Building
    Financial Oversight for Boards
    CEO and Board relationships

    These areas provide a foundation for Board Members to lead their organization regardless of the economy or the challenges facing them.

    Monday, March 14, 2011

    Picture This

    A few weeks ago a Board Member contacted us looking for ideas on reports for the Board that would clearly communicate their financial situation. He had a 14 page package of monthly financial information that most Board Members could not easily understand. The Board knew the donations were down from the prior year and they were concerned that they might be using savings from prior years to cover current years expenses.

    We worked with the Organization’s bookkeeper and came up with a set of Key Performance Indicators that the Board could monitor each month. Targets were set for each indicator and the Organization determined three monitoring levels: green-on target or better; yellow-headed in the wrong direction and the Board needed to consider making changes; or red-the Board needed to take action which could include cutting back on expenses.

    The two indicators that the Board found most helpful was one that looked at revenues compared to the last two years and one that showed if the Board was using savings for current year expenses and if so, how quickly were savings used.

    A one page report summarized the indicators. The Board still receives the detailed financial information. The details provide an explanation for the performance and help the Board determine courses of action. However the summary report, typically called a dashboard, helps the Board see where to focus their attentions.

    The nonprofit blog Blue Avocado has a terrific post on dashboards with a variety of illustrations that expand on the discussion above. You can link to the article here.

    Saturday, February 19, 2011

    Health Care Credit for Small Nonprofits

    Reminder! For small organizations--if you have fewer than 25 employees (full time equivalents) and an average payroll of $50,000 or less per employee--and pay for at least 50% of your employees health care, you may be eligible for the health care tax credit. You will apply for a refund of this credit on form 990-T (even if you don't normally file this form). Contact me or see the link at the IRS website for more information.

    Thursday, January 27, 2011

    The Strength of Individual Donations over Federal Funding

    The news articles and emails about the federal and state budget crisis’ and the effect on nonprofit funding are rampant. Many of these are a call for nonprofits to contact their legislators and fight for their service. Others advise nonprofits to plan for the coming funding cuts through various strategic initiatives.

    This past week I heard Dave Ramsey interviewed and he noted that if individuals gave more freely to the social sector, it would eventually make the government irrelevant. While this statement might seem too idealistic, think for awhile what happens to your tax dollars before they actually get to a nonprofit.

    While nonprofits receive federal monies directly, many—especially the smaller nonprofits receive “pass through federal money” either through the state or through the County. In some cases, the money goes from the federal government to the state, then to the County, then to the nonprofit. Each step involves administrative costs—people, paperwork, compliance issues, etc. And this is in both directions. The nonprofit applies to the County for funding, the County applies to the state, the state applies to the federal government. Even if there isn’t an application, there are contracts signed, budgets agreed to, funding changes, statistical information, federal, state, and county procedures and rules to follow.

    If your nonprofit receives government money, while I am sure you are very grateful, you know of the forms and paperwork. Monthly, quarterly, and annual financial and statistical reports. Countless phone calls and letters if your financial information doesn’t agree with their financial information. One client had to submit all invoices and front and back copies of canceled checks in order to get their reimbursement. And someone at each level is reviewing all of that paperwork.

    And at year end (this is where we come in)—additional audit procedures are required at additional cost to the nonprofit.

    It’s just a guess—but I suppose that less than 20% of your tax dollars that are supposed to go to nonprofit purposes actually make it to the nonprofit’s bank account.

    Your tax dollars get so watered down before a tiny piece actually gets to the charity (with tons of redtape, bureaucracy, & strings attached). Give directly and 100% goes to the charity.

    Don’t think the individual sector has money to give? I would propose that a number of individuals have not yet experienced the joy of giving and if they were better acquainted with some nonprofits and were asked to give, they would give more.

    If you can still get Federal and State funding, pursue it aggresively and secure what you can, while you can. But even more aggressively, pursue your individual donors. Form relationships, find ways to engage the community with your nonprofit, get the word out. Speak out about the benefits and blessings of giving. Federal and state budget cuts are inevitable and individual donations can and should fill the gap.

    Wednesday, January 26, 2011

    PA Decennial Filing for Nonprofits: Do You Need to File?

    Decennial Filing with the PA Department of State will ensure protection of the corporate name.

    The next Decennial Filing may be made any time from January 1, 2011 through December 31, 2011. A Decennial Filing is required ONLY IF the corporation has not made a new or amended filing with the Corporation Bureau of the Department of State in the 10-year time period from January 1, 2002 through December 31, 2011.

    If the nonprofit corporation has filed an "Annual Statement" with the PA Department of State, within the 10-year period from January 1, 2002 through December 31, 2011, then it is not necessary for it to file a 2011 Decennial Filing. The advantage is that there is no cost to filing an Annual Statement, whereas the fee for the Decennial Report is $70. An Annual Statement is required whenever a nonprofit corporation changes Officers. This has been a long standing requirement that not many organizations have adhered to in the past.

    PANO is now encouraging all nonprofit corporations to file that report the next time you change Officers of the Corporation. That way the PA Department of State has indication that the organization is active and the 2011 Decennial Filing will not be needed if an "Annual Statement" has been filed between January 1, 2002 and December 31, 2011.

    Below is the information that is contained in the Standards for Excellence Legal Checklist regarding the Annual Statement filing:

    Description: Form DSCB: 15-5110 Annual Statement - Nonprofit Corporation

    Nonprofits must file annual reports only if there has been a change in corporate officers during preceding calendar year. (*No fee is required for this filing)

    From the PA Association of Nonprofit Organizations