Some of you might have been bombarded yesterday (as I was) with articles discussing a new study on the financial literacy of the nonprofit sector. The study was put out by The Center on Philanthropy at Indiana University and can be found here. As with all studies, there are flaws and critics are already pointing them out (see Nonprofit Quarterly’s response here).
I don’t purport to be a financial wizard, and I am not here to criticize either of the sources above. However, I would like to add a few of my own thoughts to the discussion:
- I don’t think that anyone can deny that, particularly with smaller nonprofit organizations, the financial arena is often the area that organizations struggle the most in. Most people do not start a nonprofit because they like to analyze financials. Often people do not volunteer for an organization because they want to be involved in the financial management of the organizations (sincere kudos to all the CPAs, bookkeepers, and other financial gurus who do).
- I do want to hammer in some points that the report made regarding the Board’s role in ensuring that proper financial management is occurring.
- Board members should be regularly reviewing (and asking questions about the financials of the organization). This is a part of their duty of care.
- Boards should be adopting policies to effect internal controls (note that this is my most recent rant on the blog…which will continue after this post!) The policies noted in this report include: conflict of interest, whistleblower, records retention policy, gift acceptance policy, investment policy (if applicable), and cash management policies. Regular review of organizational policies both serves at an educational exercise for the board members, and helps to ensure compliance with those same policies.
- Organizations should put together a fiscal policies and procedures manual for the organization – this includes not just the policies mentioned above, but also sets out procedures so that the finances of the organization are handled in a consistent (and appropriate) manner.
- Finally — We have a great organization here in Minnesota that provides fabulous resources and training to organizations in the area of financial management – Nonprofits Assistance Fund. They have great training modules on their website. Along with the Minnesota Council of Nonprofits they put on great in-person trainings (I myself have attended one before). They provide other great services as well (I could not do them justice in describing them in brief here). For organizations that feel like they are struggling with financial management – I recommend that they check out Nonprofits Assistance Fund and the wonderful resources they provide.
Overall – I agree with Nonprofit Quarterly that this report is perhaps overly harsh to the nonprofit sector as a whole. However, there are some nuggets of truth in it – and great guidance/reminders for organizations that financial management is important to the organization. As I have said before – even though your organization is a nonprofit and works on great and wonderful things – it is still a business.