Today, maintaining proper financial controls is the most important factor for not-for-profit watchdog groups. Charity Navigator, the largest charity evaluator in the United States, uses financial health and financial accountability as two of its three criteria to rank not-for-profit organizations. An important question to ask is, when you dig into your financial performance, how well does your organization look?
These days, accountability goes beyond filing IRS Form 990 or issuing an annual report. It’s not just a question of overhead ratios – in fact, major charity watchdogs have asked donors to stop focusing on overhead costs.
Instead, not-for-profit accountability addresses deeper questions about the insight you have into your operations, and what you can share with donors and regulators alike.
- Can you track expenditures in real-time? It’s an essential aspect to ensuring you’re using donor resources properly, such as maintaining compliance with restricted funds.
- Can you satisfy the various reporting requirements of multiple donors and regulatory agencies, across multiple currencies and languages?
- Is your organization auditable, with a clear trail of funding and project expenses?
- Do you have insight into the grant management process? It’s important to integrate the full arc of grant funding, from proposals to applications to funding and compliance monitoring, especially when account structures and reporting obligations evolve.
Few organizations would be able to answer in the affirmative to all these questions. To stand out among donors looking for accountability, the way to reach these capabilities is to embrace a digital solution that helps your organization track and account for every resource in real time. It needs to restructure processes on the go to match your changing operations, and report data efficiently so you can focus on your core mission.
The new standard in not-for-profit accountability transcends annual reports and financial statements. In people-driven organizations, financial tools need to provide real-time information and adapt to the dynamic nature of projects, and the evolving regulations you adhere to – at home and abroad. Most importantly, these financial tools need to give you information that satisfies external stakeholders while providing insight into running an effective organization.
I recently spoke to two non-profit organizations that are achieving extraordinary things, and exemplary fund management is the common thread in their stories.
Fund management done right can be a game changer
A good example of an organization enhancing accountability and transparency is Centro Internacional de la Papa (CIP). Based in Lima, Peru, CIP focuses on achieving food security through agricultural research. It is involved in a fascinating project #PotatoesOnMars (which is executed in collaboration with NASA) that has become big news and raised the profile of CIP and its cause worldwide with over 2 billion followers. The project is led by a team of world-class scientists that aim to grow potatoes under Martian conditions in a bid to save millions of lives.
CIP’s donors are typically individual countries, major foundations and international entities and the trend in the Not for Profit market is that the majority of funding is ‘restricted’ – that is, the funds provided should have a direct impact on 'on-earth' programs that directly impact farmers and communities. As such CIP has to use these funds on the specific projects the funds were granted for. The project to “Grow potatoes on Mars” is not one of those, and as such it had to be funded in different ways. The project is being mostly funded with under-utilized resources, rather than by donors. This is a unique approach, only possible because of the functionality delivered by their back-office enterprise technology.
CIP is able to capture details of its projects and their funding at a granular level. By linking all transactions to a purpose and a project, scientists and project and business managers are 100% accountable for their actions and spending. For the potatoes on Mars project, CIP can identify all under-utilized resources across the organization and allocate them to this special project using charge-back capabilities. More than 600 employees are enabled to find and earmark funds, even down to the value of time associated with scientists’ lunch breaks. Funds that otherwise might be wasted. How money is sourced and spent on every project is updated in real-time as well, so CIP can be fully transparent with its donors that their money is being spent as it should be.
The potential of the Potatoes on Mars project is revolutionary. After all, famine affects nearly 842 million people around the world, so learning how to grow food in harsh conditions could be a great solution. Add to that the excitement of Elon Musk and SpaceX planning a colony on Mars, NASA planning trips by 2030 and environmental concerns on earth, and it’s clear CIP is central to some very important work that could change lives.
Effective fund management in disaster relief
Eight years ago (2008), Heifer International, an NGO dedicated to eradicating poverty and hunger, was struggling to keep up with the speed of change that was happening in the world. Financial visibility was poor, with data stored in country offices where headquarters couldn't access it. Consolidation had to be done manually. There was no integration between systems. Donors, private foundations, other NGOs, government, and communities required more detailed and frequent reports. They required more transparency, lower G&A cost, and real time responsiveness and quickly realized they had to do something about their inability to scale up and increase the impact of projects more quickly.
In April 2015 in Nepal, an earthquake killed almost 9,000 people and left hundreds of thousands homeless. Previously, non-profits working in Nepal had suffered from poor financial visibility and waste. Without the ability to disperse necessary funds and resources quickly and efficiently, the situation could have been even more disastrous.
Heifer was able to make a real difference. Before the natural disaster occurred, Heifer had replaced its outdated ERP system to ensure maximum resource visibility and granular fund management. By replacing inefficient enterprise systems, Heifer International has increased its program impact while saving millions of dollars. This has helped it to become a much leaner organization, resulting in a reduction in general and administrative expenses which equates to an average saving of $2.3 million per year. Jesús Pizarro, Vice President of Enterprise Accounting and Controller at Heifer, says:
Achieving our current level of global visibility of financial data has helped to reduce costs by more than 27% and increase program impact by 57%. To put that another way, when we started our journey in 2011 we helped 1.9 million people on an annual basis ... Today we help over 3 million. That's impact.
Heifer's impact is influenced by its ability to make decisions based on relevant, timely, comparable and understandable financial information in real time. The organization was equally effective faced with China’s earthquake in April 2013, the Philippines' two typhoons: Hagupit in December 2014 and Super Typhoon Lando in October 2015, Ecuador's earthquake in April 2016 and Hurricane Matthew in Haiti last October 2016.
What these examples show us is that accountability and transparency are two sides of the same coin. Reporting is sometimes considered a necessary evil among nonprofits. Administrative overhead, needed to maintain compliance and demonstrate results to donors, can distract from the organization’s core mission. But leading not-for-profit organizations know that reporting is not just a burden – the same tools and mindset that satisfy outside groups (accountability) can help them gain internal visibility (transparency) to become more effective with the resources available.
Nonprofits share a passion for making a difference. Balancing the competing demands of accountability, efficiency and transparency are the only way for non-profits to fully achieve their highest potential.