In the wake of Hurricane Katrina, many nonprofits are struggling to meet the demands of those in need and the needs of their donors. Ensuring that donors' contribution dollars are spent helping hurricane victims, and not to change a light bulb at the local American Red Cross office, is often the accountant's job, as is implementing fundraising software systems with those capabilities."What we're seeing now are huge evolutionary changes in the nonprofit industry that are impacting my practice," said Vincent Carrodeguas, a partner at Coral Gables, Fla.-based CPA firm Goldstein Schechter Price Lucas Horwitz & Co. "Donors are now saying, 'No more [operating NFPs like] mom-and-pop shops.' They want to see where the money is going."
As federal, state and city governments often target funding to nonprofits as an expendable area in a budget crisis, many private donors have stepped up to alleviate the funding dip - but they are demanding more accountability.
Donors are helping shape these mission-driven organizations into efficient, technologically advanced and accountable businesses, said Gene Hoover, implementation consultant for AVF Consulting, an information technology firm and Microsoft partner located in Baltimore.
Regulations like the Sarbanes-Oxley Act and the revamping of Internal Revenue Service Form 990 also play a part in donors taking note of where their contributions are being spent. For this detailed donor tracking and donor retention, nonprofits are adopting business technology and financial software at a higher rate, restructuring their boards of directors, and even changing their investment strategies to mirror for-profit industries.
The large boards of directors and responsibilities within service-based nonprofits are shifting to simulate the smaller, tighter-run, for-profit companies' boards.
Downsizing their board, hiring veteran chief executives from the for-profit sector and spreading responsibility to lower levels of organizations are all tactics that nonprofits are beginning to implement to increase efficiency and accountability and create better organization within their businesses, said Hoover.
Big is bulky
BoardSource, an informational and training resource for nonprofit board members worldwide, and formerly the National Center for Nonprofit Boards, found that the size of the average nonprofit board of directors has dipped from 17 to 15 members over the past year. And while the dip is slight, it is the first time that the number has dipped in the last 11 years. The report stated that the dip confirms several concerns that the resource company has heard from board and nonprofit members - big is bulky and difficult to manage.
Plymouth Housing Group, a nonprofit housing development organization for the homeless in Seattle, has not changed the size of its 21-member board of directors in at least five-and-a-half years, but it has gotten more technologically savvy, and is looking to start tracking donations in much greater detail, per contributor's requests.
"We have to add a person in the compliance department this next budget year - partly because we're growing and partly because funders are paying a lot more attention, and want more details, than in the past," said Nikki Patterson, finance director at Plymouth Housing Group. "Before sending income balance sheets, we now have to make sure it's in their format."
Patterson added that the organization also installed remote access in the last couple years, enabling her to work from home, instead of going "clear downtown on the weekends to do work."
"The absorption rate of technology has accelerated over the last five years and continues to accelerate. I've worked for a long time, almost 20 years, with nonprofits," said Marc Griffin, senior vice president and general manager for nonprofit solutions at Sage Software. "Twenty years ago, the nonprofit industry was 10 to 15 years behind the commercial sector in adoption of technology. Today, they're a few years behind, but not many. In the last 15 years, they've really closed the gap."
Some not-for-profit organizations are getting so technologically advanced as to set up wireless cellular access to their computer systems through providers like Verizon Information Technology Inc., said Thomas Bruno, president and chief executive of Velocity Technology Solutions LLC, an enterprise software hosting and consulting services provider in New York City.
"Technology for mid- and large-tier nonprofits has matured very nicely," said Bruno. "You can deploy fairly sophisticated accounting applications and diminish the support - a big bone for nonprofits who wanted to have an ERP-grade system but couldn't afford to hire or retain the expertise or buy the server equipment and interface technology needed to support the solutions."
And while the price for nonprofit accounting systems has dropped over the last few years, the thousands of dollars still feel a little daunting for many nonprofits, said Bruno. The cost of losing funds, however, from city, state or federal governments, which demand a high level of detail of tracking, is even greater, Bruno forewarned.
Elizabeth Marenakos, product line manager for business and financial solutions at Blackbaud, a software provider for nonprofits in Charleston, S.C., agreed with Bruno. She added that the financial officers and accountants for nonprofits are those who most felt the pain of not having a financial software system in place, and subsequently are the ones who helped advance that aspect of the industry.
"The finance office is well aware where they are spending a lot of their time and effort - budgeting on spreadsheets, gathering and getting paper-based forms for paper requests," said Marenakos. "This paper flowed into financial offices and the accountants took responsibility for entering the data. It was an enormous drain on the staff."
The next step in closing the tech gap between the for-profit and nonprofit sectors is Web-enablement, said Jim Stone, chief operating officer of Boise, Idaho-based software provider Cougar Mountain. Just as for-profits have recently turned to Web-enabled products for a low cost per user and to streamline their IT departments, nonprofits are following suit.
Still one more area in which nonprofits are mimicking for-profit industries is in their investment choices, said Michael Amash, a senior portfolio manager for Westmount Asset Management Inc., a Los Angeles-based investment advisory firm.
However, this may be one area where they do not want to create a mirror.
"They are investing like retailers, diversifying accounts poorly and not managing their risk well. The goal to make them commercial-like rather than financial is, in many cases, not working," said Amash. He added that many nonprofits were still following retail investment strategies, rather than institutional strategies that rely on true diversification in low-risk, long-term investments like real estate or hedge funds.
"Today, nonprofits are looking more like actual businesses," said Patterson. "Before we were mom-and-pop shops trying to do something good in the neighborhood. But today, with all the compliance regulations and scrutiny, we're paying more attention and running as a business, rather than a social or welfare agency."
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