The economic climate, even in slow recuperation mode, still impedes the nonprofit industry, leaving a footprint in both their financial statements and the methods for reporting them.
"The bottom line is that economic recovery hasn't quite reached the not-for-profit industry," said Judy Murphy, partner-in-charge of the Nonprofit Services Group for regional accounting and professional consulting firm RubinBrown. The firm recently released its annual Nonprofit Economic Outlook report, which surveyed 70 not-for-profit organizations in the greater St. Louis and Kansas City areas. "This is not unanticipated because it typically lags other industries in terms of economic trends."
With salaries and benefits making up the largest chunk of most nonprofits' budgets, this is where cuts are deepest. "Organizations are looking for revenue increases and what to do to increase the top line," Murphy explained. "But they don't want to cut out those programs, those things that are key to [their] mission."
When nonprofits have exhausted the options of frozen salaries and excised programs, and are unable to find new sources of revenue, they can borrow a recent transactional trend from the for-profit sector - affiliations or mergers.
"For a lot of not-for-profit programs out there, numbers are not declining - some mergers have occurred and will continue to," added Murphy. "Organizations are looking to see if some sort of affiliation with another organization makes sense."
The RubinBrown survey did, however, reflect some optimism among the respondents, with 45 percent expecting increased revenue in 2011, while 25 percent anticipated no change and 30 percent projected a decrease.
TOUGHER REGS
Those nonprofits that have weathered financial challenges might still find obstacles in regulation, like the Internal Revenue Service's 2008 reformatting of the Form 990, Return of Organization Exempt from Income Tax, and the complexities of state reporting.
Hillary P. Coley, chief financial and administrative officer for fishery conservation organization Trout Unlimited and co-chair of the Nonprofit Accountability Task Force for the Greater Washington Society of CPAs, has seen these struggles emerge, especially for smaller nonprofits.
She sees this fostering collaboration across organizations. "The regulations aren't going to get any easier," Coley said. "The IRS isn't going to get any easier. There's the continued burden for nonprofits to do this ... some people may look around first: Is a nonprofit doing what I've already done?"
And some in the nonprofit sector might not stop at mere guidance from other organizations. "It may stop auto-expansion in the industry," Coley predicted. "One could see if one might contribute or be part of [another nonprofit] instead."
SYSTEMATIC SHIFT
In addition to using the necessary systems for reporting under changing IRS guidelines, surviving nonprofits have embraced new technology for internal use and tracking grant activity.
Peter Stam, president of Boston- and Littleton, Colo.-based AccuFund, which provides financial management software solutions to nonprofit and government organizations, has noticed an uptick of interest in grant management. "I'm seeing people realizing they need to focus on their grant reporting, and looking for a system to better do cross-year reporting, because grants are not the same year as the nonprofits' fiscal year," he explained. "In the past, they relied on spreadsheets to accomplish that."
Gary Deemer, accounting director and treasurer of the Arbor Day Foundation, recently shepherded the organization away from Excel dependence with a new software conversion. As that fixed grid disappears, transparency increases. "We're focusing on trying to get information out to people sooner," he explained. "The older the information gets, the less valuable it becomes in its ability to affect people to make good decisions on how to manage their areas."
"You're seeing a lot more finance people being able, and willing, to provide that access," agreed Holly Scheuble, senior sales engineer at Colorado- and Canada-based nonprofit solutions provider Serenic Software. "You need to empower the staff with tools they can use."
With the democratization of access comes a hierarchal shift. "There is a mindset change, from our standpoint," Deemer explained. "There is a loss of control over the information to some extent. Before, we doled it out how and when we wanted to, and people got whatever we wanted to give them."
Now, reports are available to an "expand[ed] net of people to troubleshoot and spot check," for whom, Deemer said, "the benefits far outweigh the small, minor challenges."
Also helping tip the scale is the ability to individually frame the information. "There is a challenge - how do you provide access to the data to people that are non-finance people in a way that's going to make sense to them?" Scheuble asked. "We're getting away from traditional hard-copy reports, and providing information on the screen is one way."
Using this fluidity of presentation, management can filter the relevant numbers. "One audience might be an executive management team that wants to be looking at a much higher level, with a broader brush and what catches their interest," Scheuble continued. "They can put alerts on if something goes under budget or over. [The software] allows them to drill deeper into the details making up that trend."
Soon, Scheuble predicted, management will have even more unfettered access to this information: "The next step is non-financial people being more comfortable with being able to query data online in real time, versus having to rely on someone else to manipulate the query view for them. It's going to fall on the shoulders of the program director becoming more adept with the computerized tools at our disposal."
THE PROFIT MODEL
Nonprofits are poised to embrace more than just the technology systems of their for-profit cousins, according to Deemer, who has 20 years of experience working with nonprofits as a CPA.
"In the last several years, there's been a trend in the nonprofit world to move to a presentation more like that for the profit world. There have been some significant changes to get us there; we've made some decisions here for the organization based on Sarbanes-Oxley - things we are not required to do, but there might come a day these things might be expected of a nonprofit. We've made some changes in policy, with our board dovetailing with Sarbanes-Oxley [requirements]."
Trout Unlimited's Coley, on the other hand, doesn't believe the two models will ever come close to mirroring each other, citing fundamental format differences. For one, where retained earnings appear on for-profit reports, nonprofits list net assets, divided into categories of unrestricted, temporarily restricted or permanently restricted.
She did, however, concede that corporate legislation has impacted the nonprofit sector, with the "Sarbanes-Oxley concept of rotation of auditors [taking] hold for the first time in the industry," which she considers "to be fairly well adapted," though not required.
Deemer does forecast a greater symmetry between the two worlds - especially when it comes to the larger nonprofits. "There's going to continue to be a push to make the nonprofit financial statement comparable to the for-profit, with less difference between those two," he elaborated. "There will be an ability to look at the financial statements for the American Red Cross and on some level compare it to General Motors, and that's a good thing. They are totally different institutions, but some things that are similar between them can be reported in a similar way."
The curve is steep in some areas, with continued flux in the 990 (such as the 990-N threshold changes for the 2010 tax year) and, for many organizations, more intensive training on new internal software systems.
But one of the biggest trend drivers composes the most important part of any report. Donors contribute more to a nonprofit organization than its reported assets - they also set the tone. "Donors have gotten more sophisticated," said Coley, "and because of that, board members have, too."
