power Steering: Nonprofit Tricks & Treats
October 2008
- Turn that Downturn Upside Down
- How Public Company Failures Have Affected Audits of Nonprofit Entities
- Technology Transparency: IT Requirements that Reduce Your Risk
- A Board Summit Match
- Nonprofit of the Month: Preservation Texas
Turn that Downturn Upside Down
By Kimberly Caldwell, Greenlights
The last few weeks have been a stressful rollercoaster of bad-to-worse on the financial market. And while we in the nonprofit sector may not have felt the effects of the crashing global market yet, we are all holding our breaths to see what will happen to our funding sources.
While many nonprofits have been fairly quiet on the topic, the newsletters, blogs and websites that we look to for guidance have been messaging on this topic for the last month – each week getting more aggressive in their rhetoric. Their tone certainly reflects the growing fear in the pits of our stomach: where is rock bottom, and what happens when we hit it? And with the need for nonprofit services increasing in times of economic strife, how will we meet those needs with reduced resources?
At Greenlights, we have experienced both the consulting and nonprofit sides of the situation: we are in the same boat as our clients, members and friends – but we also have the opportunity to help steer the sector in a direction that will minimize damage and maximize success. We are big believers in alliteration and mnemonics here, so here are Five Ps to keep in mind as you work to address the economy’s effect on your nonprofit.
- Be Proactive: Meet this crisis head on. Don’t wait for it to come to you, start developing your strategies now. Think through possible scenarios you might meet and what that would mean to the staff, board, volunteers, donors, and stakeholders. Start today to steer your organization in the direction of the best possible outcome.
- Prioritize: In times of uncertainty, knowing what matters most will help keep you on track. While all of the work we do is important to our community, we have tools to help us know what is absolutely vital to do ourselves, and what responsibilities can be shared or offloaded: these are our mission, vision and strategic plan. These resources should help you focus on what is yours to do, and how it needs to be done.
- Partner: If there ever was a time to work together, this is it. Combining our resources, talents and passions will allow us to do more to protect the community we love and the services that help make it so great. Being innovative in how we can share the responsibilities and work smarter will not only allow us to continue meeting our missions, but it will model the type of collaborative, mission-driven business that can keep our sector relevant and valued.
- People Matter: Whether they are your employees, your volunteers or the clients you serve, now is the time to make people feel engaged in your mission and your plan to navigate this uncertainty. Not only can these people provide insight and resources to your cause, making them part of the solution will bring buy-in for seeing your mission thrive. And empathize with your donors – wouldn’t you rather invest in an organization that has plan than a group that is just waiting to see?
- Don’t Panic: Yes, this is a big deal. Yes, it will have an effect on our work and our workers, but panicking—as we’ve seen on Wall Street—doesn’t help. Communicating from a place of frenzy only increases the uncertainty. And who wants to invest in that? But seeming to ignore the project or approaching it with the emotions of a robot won’t send a message of empathy or sincerity. Find a place of calm, concerned caution, and go from there.
We at Greenlights are happy to help you accomplish any of these Ps – and dozens more that might apply to your particular predicament. And for even more information on this topic, Greenlights is hosting a Town Hall Meeting on understanding and weathering the economic downturn. Learn more about the event and how to RSVP on our website.
How Public Company Failures Have Affected Audits of Nonprofit Entities
By Sara Bohn, Maxwell Locke & Ritter LLP
In response to the series of corporate business failures that began with Enron in late 2001, Congress issued the Sarbanes-Oxley Act of 2002 (“Sarbanes”), which created the PCAOB to establish auditing standards for public companies and to perform the oversight function for auditors of public companies. The implementation of these new standards resulted in significant costs as well as significant increases in the time spent to comply with the standards by both auditors and company employees. There are still mixed opinions regarding whether or not the impact of Sarbanes was beneficial to capital markets in relation to the costs.
Auditors of nonprofit entities continue to be required to comply with generally accepted auditing standards (“GAAS”) issued by the Auditing Standards Board (“ASB”), the technical committee of the AICPA. In response to this new financial reporting environment, the ASB developed more definitive auditing standards (effective for audits of financial statements of periods ending on or after December 15, 2007) that incorporated some of the basic aspects of the PCAOB standards.
Changes in audits of nonprofit entities
Organizations will see the most significant changes to audit procedures during the planning phase of their audits. Auditors will obtain a more in-depth understanding of the entity and its environment (regulatory and other external factors; the nature of the entity, including its mission, funding sources and significant program expenses; entity program objectives, funding plans and associated risks; and financial performance, including budget to actual) in order to perform a more rigorous assessment of the risks of material misstatement in the financial statements. Auditors will also test gaps in the design of controls by obtaining an understanding of the key control activities related to material transactions, account balances and disclosures. Because many organizations rely heavily on their information technology systems for some of their key controls and reporting, a greater focus will be placed on the understanding of the design and operating effectiveness of the information systems as they relate to financial reporting.
In addition, auditors do not have as much discretion to use their professional judgment to determine audit procedures; regardless of the auditor’s risk assessment, auditors are required to perform substantive testing to address all relevant assertions related to each material class of transactions, account balance and disclosure. The determination of materiality was defined to be more closely-based on the needs of the specific users of the financial statements.
The new standards created additional auditor reporting and communication requirements with organization staff and the governance/oversight function, generally the Board of Directors or Finance Committee. Auditors are required to report control deficiencies identified through the audit of the financial statements that are classified as significant deficiencies or material weaknesses; the internal control standard includes types of control deficiencies which must be classified as significant deficiencies or material weaknesses, so organizations should expect to receive control deficiencies. Auditors are also required to communicate directly with the governance function regarding 1) the auditors’ responsibilities under GAAS, 2) an overview of the planned scope and timing of the audit, 3) significant findings from the audit and 4) information related to the audit of the financial statements that is significant and relevant to their responsibilities in overseeing the financial reporting process.
Audit fees and benefits
Due to the enhanced audit procedures, reporting, and requirements for more extensive documentation in order to support the audit opinion, there is a higher minimum requirement of procedures that must be performed in order to comply with a GAAS audit. The extended amount of time that it takes to complete an audit, as well as the need to be more strategic and mindful of the experience level of the auditor performing certain parts of the work, has resulted in more hours overall to complete the audit and more hours by auditors with higher bill rates. Therefore, the increase in audit fees is more indicative of an increase in the base price of an audit rather than a one-time cost related to implementation of the standards.
While the new audit procedures are more extensive and costly, they should result in a more effective and efficient audit and users of the financial statements will have the knowledge that the audit was tailored to address the significant risks associated with the organization. In a nonprofit environment where the oversight function is comprised of volunteers with the ultimate legal responsibility of the organization, communications related to control weaknesses and risks, as well as information an auditor deems significant to the oversight function, should be especially relevant to their role.
Maxwell Locke & Ritter is the largest locally owned and managed accounting, tax and consulting firm in the Greater Austin Area. We are dedicated to creating an environment of open communication, honesty, compassion, respect, and active community participation.
Maxwell Locke & Ritter strives to help dynamic companies and people achieve their dreams. We accomplish this by selecting and retaining Great People, serving Great Clients and focusing on Great Execution. Through these efforts, Maxwell Locke & Ritter has been voted one of Central Texas’ Best Places to Work by our employees 5 years in a row. Please visit our website for more information about our firms.
Technology Transparency: IT Requirements that Reduce Your Risk
By Rebecca MacDonald, Mumboe
Transparency is a concept that most nonprofits take very seriously. According to Guidestar, a nonprofit research organization which asked its members what transparency meant to them, it is a combination of financial accountability and openness about an organization’s missions and programs.
Unfortunately, when it comes to purchasing technology applications, nonprofits often discover that level of transparency is often harder to find. Many organizations in search of solutions to help them work faster and more efficiently have found themselves saddled instead with expensive upfront installation and training costs, as well as ongoing support and maintenance fees. In addition, organizations often get a rude surprise when the application turns out to be much harder to learn and use than they were originally told.
Now, a new class of web-based applications collectively called “on-demand” software is changing that scenario. On-demand solutions are “rented” on a subscription basis for a low monthly fee. In addition to the lower costs, there are many advantages to this model. The software is hosted by the provider, so there is nothing to download or install. You simply log in to the provider’s application over the Internet to use it. There is no special hardware to buy, maintenance fees to pay or upgrades to manage, and you always have access to the latest version.
Of course, as with any market, not all on-demand solutions are created equal. Following are a few key criteria that will greatly reduce your risk:
Try Before You Buy: Look for vendors that offer a free trial version of the application. Do not be satisfied with a simple “demo” that only gives you the highlights. You want to give the people who will actually use the software the opportunity to fully evaluate it hands-on, before you commit to a purchase.
Pay as You Go Pricing: Cost is always top of mind for nonprofits, and not all on-demand applications are inexpensive. Look for solutions that offer affordable monthly subscriptions, with no long-term commitment. Your organization’s needs, not the software provider’s, should dictate when you can add or cancel a user’s account.
Ease of Use: As new volunteers come on board and employees change, the last thing you need is an application that requires its users to become experts. Look for a simple, clean user interface, and make sure the most important features are easy to find and use.
Free Training Resources: These include “Getting Started” tools, training videos, and online resources that can help users get up to speed. Look for a library of resources on the provider’s web site, and try a few out to make sure they are easy to understand and use before you buy.
From office productivity suites to specialized applications for accounting, contract management and sales, technology providers are delivering on-demand solutions that finally meet the needs of cost-conscious organizations. To ensure you get an application that meets your needs, be sure your technology vendor is committed to the same level of transparency you insist on in your own organization.
A Board Summit Match
By Heather Davies Bernard, Board Member, Sustainable Food Center
I support local farmers. I help children learn to grow their own food. I analyze budgets and financial statements. I debate the merits of bylaw changes and growth strategies. And I do all of these things in my role as a board member for the Sustainable Food Center. (In my spare time, I am an attorney, a writer, and mom to two dogs.)
The opportunity to serve Sustainable Food Center as a board member has been a tremendous experience for me. I returned to Austin several years ago following law school and began seeking out ways to be active in the community. I have always appreciated the dynamic energy in Austin – but was excited to find that the energy only increases when you actively reach out to serve and get involved. To a would-be non-profit volunteer, the world of Austin is, quite literally, your oyster.
As a recent graduate of Leadership Austin Emerge, I began evaluating how I could engage in a more personal way. While I am delighted to volunteer in more grassroots roles, I felt that I could provide a more serious commitment to a local organization. I had honestly evaluated the causes and issues which really resonate with me – an important part of the self-evaluation process. So, I knew myself, and I knew what I was looking for. I was ready to stop playing the field, as it were. I was ready for a serious relationship.
Enter, Greenlights Board Summit. The event was a relaxed evening of hors d'ouerves and honesty; non-profits and go-getters; I was in the right place. I will never forget two things that happened that evening.
First, Evan Smith of Texas Monthly gave a powerful keynote speech, encouraging us, the would-be board member attendees, to do good work that was meaningful to us. He also clearly iterated the hierarchy of priorities that every volunteer should follow: First is family. Second is career. Third is community. Far from instructing us to volunteer and then put those commitments on the back burner, he encouraged us to keep a healthy balance as we became board members. Family, career and community are all essential components of a healthy life. I have thought of this advice countless times in the last year, and I appreciate its wisdom.
Second, I found Sustainable Food Center. I had the pleasure of meeting the Executive Director, Ronda Rutledge, with whom I shared my love of local food, cooking, and my passion for health and food-related issues. She shared with me the board’s vision of adding several motivated members to their ranks. I wanted to join a board to grow as an individual. They wanted to grow their board and benefit their organization. We were both ready for a serious relationship, and, well, a match was made.
I am currently completing the first year of my term with SFC, and have enjoyed every moment of the experience. I am fulfilled by my contribution to our local food system and growing community. I am true to my passions – and true to my family and career. From this vantage point, I encourage you to attend next month's Greenlights Board Summit. From personal experience, I can attest to the value of the forum it provides – hor’doerves and honesty, non-profits and go-getters. Who knows? You could find yourself in the right place.
Nonprofit of the Month: Preservation Texas
October’s nonprofit of the month is a statewide organization that knows what it means to be charitable, not only in its mission and services, but also toward other nonprofits. After Hurricane Ike hit Galveston on September 13th, Preservation Texas opened its doors to the Galveston Historical Foundation (GHF) whose employees suddenly found themselves without an office or homes to go to. Many of the staff had already made plans to stay temporarily in Austin, so GHF Executive Director Dwayne Jones called Krista Gebbia, Executive Director of Preservation Texas, to see if they had any room to spare. She immediately agreed to open Preservation Texas’ office space to serve as temporary headquarters for GHF. It’s this example of how nonprofits can help each other during times of crisis that earns Preservation Texas the title of Greenlights’ Nonprofit of the Month.
Preservation Texas is a statewide nonprofit that advocates for the preservation of historic resources. They work with local partners (GHF is one) as well as cities and groups who don’t have a strong local organization to help them serve the needs of their communities. Since 2004, the main focus of Preservation Texas has been on their Most Endangered Places Program, which was implemented to bring statewide attention and action to threatened historic sites. Through the program, Preservation Texas offers technical assistance, builds a better and stronger preservation ethic among local populations, and provides resources such as architects, fundraising assistance, and more to help save the properties. Since the Most Endangered Places Program launched, they have identified 65 sites in need of assistance and have served about 10-13 per year.
With all the different sites they serve across the state and the projects they juggle, it’s remarkable that Preservation Texas so easily made the transition from a 1-2 person office to at 20 person office while they housed most of the Galveston Historical Foundation. Now most of the staff is back in Galveston, but the time they stayed with Preservation Texas was critical. There they were able to gather information on what to do once they returned, by researching what groups in New Orleans did after Katrina. Their research enabled them to hit the ground running when they returned home. Now back in Galveston, GHF is not only working to preserve and reopen their 13 historic properties, but they are talking to other groups, such as churches, about how to preserve their buildings as well.
Greenlights is happy to name Preservation Texas our October nonprofit of the month because of the crucial role it played in assisting the Galveston Historical Foundation after the hurricane. While the media has mostly moved on, nonprofits in Galveston and throughout the state are still dealing with the aftermath of Hurricane Ike. Please consider helping in whatever way you can. For more information, visit www.preservationtexas.org or www.galvestonhistory.org.