nonprofit organization – Sheila Shanker

Is Your Nonprofit Well-Organized?

Are you starting or organizing your nonprofit? Any business needs a setup to operate effectively, and nonprofits are no different. A basic organization may be a no-brainer for some people, but may not be that obvious many as well.

One of the challenges of nonprofits is to create and manage a structure that works well. Many founders of nonprofits are not managers and do not have a background in management. They are “program” people. They created the nonprofit to fulfill a goal, a dream that they are familiar with, but management is not their expertise. Knowing the basic structure of a nonprofit can only help in setting up an organization that is functional.

It is important for founders and boards of directors to realize this issue and to find proper personnel or volunteers to fill out the needed spots. I have seen new, small organizations fail to follow their mission statements because they didn’t have a basic infrastructure, management, personnel to deal with proper insurance, and other risk factors.

A common structure is for nonprofit operations to be divided into three areas, all supervised by the board of directors that often employs an executive director to oversee operations.

Programs/ Services — MOST IMPORTANT

With no program, the organization has no reason to exist, so this area is crucial to any nonprofit. Programs follow the mission statement of the organization. If the mission is to feed the homeless, for instance, you won’t see programs to improve antique cars. When in doubt, read the mission statement carefully. Most expenses are expected to be happening in this area.

Management and General — usually overhead

Management and General area is the backbone of the organization, including administration and accounting. It’s also called General and Administration or G&A. Someone needs to pay the bills, select insurance, pay employees, all functions of this area. Usually, tasks cannot be assigned to a specific program and are considered to be overhead by many grantors. This area typically incurs the most expenses after programs.

Fundraising

This is the marketing arm of the nonprofit, dealing with grants, events, and overall fundraising activities. Also known as “development,” people in this area contact donors, write grant proposals, follow up on prospective donors, including business and foundations. Fundraising should have the least costs of a nonprofit, unless the org. is a new one or starting a new major program.

Identification of these three main areas of nonprofit operations is crucial to set up proper accounting systems, internal controls, reporting, and management. Sometimes it’s not that obvious. For example, someone working in contract compliance is most likely part of management, even though the work relates to programs as well. Cost allocation can be a challenge to many nonprofits.

BEWARE>>> Note that tax returns and most financial reports are classified by these three areas, and the IRS asks about the organization mission statement on its 990 forms to verify that indeed the programs are linked to the org. mission.

Check out the book “Nonprofit Finance: A Practical Guide” –– First edition Nominated for the McAdam Book Award

Preventing Fraud in Your Nonprofit– Tips

I don’t know about you, but I’m sick and tired of hearing about nonprofit fraud, especially when done by an in-house, trustworthy person. It’s heartbreaking to see people in stealing from such organizations. In many cases, the theft lasts for a while, until someone stumbles upon it by chance to the shock and dismay of many people. Unfortunately, this is not that rare. So, how can a nonprofit stop such unpleasant incidents and at the same not be overtly suspicious of people who are, in most cases, innocent?

There are a couple of activities that can be used to find errors that may be very innocent, while at the same time identify signs of fraud. These tasks, known as controls within financial circles, can do double-duty in keeping an organization safe and error-free. They are by no means the only controls to prevent or identify fraud, but they are fairly easy to perform and worth a close look.

1- Look at bank accounts online —-Someone from the board could review bank activities online, looking for unusual vendors or checks. This task should be specified in the organization’s policies and procedures and should be known by everyone. The idea here is to let people know that there’s a process established that is part of the day-to-day business of the organization and not a big deal. Having a board member ask questions about checks and deposits should be expected. This is not micro-management, but a way to double check on bank transactions, like unusual vendors or amounts paid out or deposited.

A second pair of eyes looking at online bank data at least once a week can also help to find errors. For example, if the board member knows that someone donated $20,000 recently, but only sees $2,000 deposited in the bank, then the bank should be contacted and asked if this was an error on the part of the bank, which can happen. This discrepancy could also be an error from accounting that can be fixed right away. However, if errors don’t explain the discrepancies, then the situation needs to be further investigated. There’s a chance that someone misappropriated the funds, even if you don’t want to think about it.

2- Contact donors often — Someone outside development dept. or the CEO’s office could contact donors, especially if they haven’t donated as before or as expected. The point is to have someone who usually doesn’t talk to donors to follow up on an informal basis, verifying if any donation or payment was made. Why is this important?

Fraudsters call donors as a follow-up, but when the money arrives instead of depositing the money in the organization’s bank account, they deposit it elsewhere. Sometimes the payment goes to a bank account with similar name or initials, while other times the check is endorsed and deposited elsewhere with a totally different name. Banks usually don’t look this closely at the check to identify the ruse, unless there is a problem. Accounting staff wouldn’t know about the donation, and nobody, except for the thief, knows about the payment. This issue may be found when someone different talks to the donors.

Note that issues found are likely to be very innocent as well. Maybe the donor forgot about making the donation. However, if the donor made a payment, but it didn’t make it to the organization’s bank account, it could be because it was lost or the bank deposited it in the wrong account by mistake. These situations usually don’t point to internal fraud, just errors that can be corrected. The point is to follow the money trail.

These are only a few activities a nonprofit can do to protect itself against theft and fraud. It’s sad that we have to be a bit paranoid running a nonprofit, but it’s a must in today’s environment. Auditors may come in once a year to double check on financial issues, but they usually don’t find all fraud. By following just these two processes, nonprofits can make fraud harder to happen and that’s always a good thing.

Check out the book “Nonprofit Finance: A Practical Guide- Second Edition” –– First edition was nominated for the 2016 McAdam Book Award.

What You Need to Know to Organize Your Nonprofit

As in any business sector, there is a need for an effective infrastructure working behind the scenes to keep things running smoothly. This is especially true in the nonprofit sector where operations support the organization in a number of functional areas, including:

· office management,

· accounting and finance,

· administration,

· human resources,

· information technology,

· marketing and development.

Across all of these functional areas, there is one objective: to make sure the organization is operating efficiently at its full potential in providing goods and services to a community. If a bill needs to be paid, people within the organization will know where the bill should go to, not just into a pile that once in awhile someone looks at. Having a well and clear organization where functions are performed in accordance with a plan is a must for any nonprofit to survive and flourish.

A common structure is for nonprofit operations to be divided into three areas, all supervised by the board of directors that could have an executive director to manage the daily operations.

Programs/ Services — MOST IMPORTANT
Management and General — usually overhead
Fundraising

Identification of the three main areas of nonprofit operations is crucial in having proper accounting systems, internal controls, reporting, and management. If you have an area of operations, it must follow this setup. Sometimes it’s not that obvious. For example, someone working in contract compliance is most likely part of management, even though the work relates to programs as well.

BEWARE>>> Note that tax returns and most financial reports are classified by these three areas.

Check out the book “Nonprofit Finance: A Practical Guide” –– Nominated for the McAdam Book Award