How not-for-profits can stay strong amid uncertainty

Not-for-profit executives and finance teams—and the boards that oversee those organizations—are facing challenging times.

In addition to the uncertainty of the upcoming U.S. election, they are confronting significant cybersecurity threats and preparing for the issuance of a new FASB standard on not-for-profit financial statements.

“We talk about a tug-of-war when it comes to managing and balancing how we allocate resources amid the various competing needs in an organization,” said Michael Forster, CPA, CGMA, the CFO of the Woodrow Wilson International Center for Scholars in Washington.

Amid the uncertainty, not-for-profits need steady leadership from executives, finance teams, and governance bodies to continue their charitable work.

Here are six points for not-for-profit leaders and board members to consider, as articulated by finance executives at the AICPA Not-for-Profit Industry Conference earlier this summer, as they try to plot a steady course in turbulent times.

Prepare for new financial statement rules. FASB soon will issue a new standard providing guidance for not-for-profit financial statements.

The new rules will update the not-for-profit financial reporting model, reducing the categories of net asset classification from three to two. The standard will be designed to improve information for financial statement users about financial performance, cash flows, and liquidity, and to better enable not-for-profits to “tell your story.”

Implementation may be difficult for some organizations.

“We will have our hands full,” Forster said.

“We will see significant change in presentation formats for our financial statements,” he said. “The net asset classes on the statement of financial position are changing, along with a number of different presentations and disclosure requirements related to the statement of activities.”

The standard will require an analytical and methodical approach from finance teams, Forster said. He said it’s a good idea for CFOs and their teams to:

• Look carefully at both their financial statement structure and their information systems structure.
• Analyze how they capture data and how their data are organized.
• Decide how they are going to deliver the data into new reporting formats to make sure they conform to the new standard’s requirements.

Maintain focus on cybersecurity. An emerging threat is hackers who will take over an organization’s system, render it inoperable, and hold it for ransom.

“People are hacking every single day,” said Stephen Howell, CPA, CGMA, chief financial and administrative officer at The Nature Conservancy in Washington. “I think all you can do is hire good people, stay on top of it, and then have contingency plans to deal with when one of these attacks happen.”

Employees are particularly vulnerable to hacking when they travel internationally, said John Kroll, CPA, senior adviser for finance and administration at the University of Chicago. When personnel from the national labs run by the university travel outside the country, they turn in their laptops to IT specialists for analysis before and after their trips.

“We do instruct people that when you do go overseas, there’s no question about it. You are going to get hacked,” Kroll said.

Many not-for-profits are transacting business with new electronic platforms that may leave them increasingly vulnerable to being hacked, Forster said. With new external-facing web applications, not-for-profits are accepting credit card payments from mobile phones and tablets.

The data involved in the transactions include donors’ financial and personal information.

“It’s imperative for us to make sure that as we collect it and store it, we do it in a prudent way, because there are downside ramifications, if that is hacked, for what you’re responsible for,” Forster said.

Forster said finance leaders may want to consider exploring outsourcing with “security-as-a-service” options that are similar to popular “software-as-a-service” models. In addition, he advised scrutinizing general liability insurance coverage to see whether it adequately covers information related to credit cards and bank card information.

If not, Forster said, it may be prudent to purchase additional insurance.

“We did that,” Howell said. “I think if you can afford it, it’s a smart move. Right now it’s not that expensive.”

Stay calm amid economic fluctuations. Within weeks of the stinging blow the world’s financial markets felt from the United Kingdom’s Brexit vote to split with the European Union, U.S. stock indexes rebounded to record highs.

The globalization of the world’s economy has created a roller coaster ride unlike anything finance executives have seen before, Forster said. This is a challenge for not-for-profits that are managing endowments and investments.

“We can’t think about our economy the way we used to think about it,” Forster said. “Thirty- and 40-year economic cycles are irrelevant because it’s different.”

Kroll said it makes sense to be patient during times of global economic turmoil.

“In terms of endowments, our approach has been to not panic,” he said. “We’re simply letting it ride itself out. We did that in 2008. It took a while, but it worked itself out.”

Opportunities remain. Despite all the challenges, finance organizations have many opportunities to create positive results at not-for-profits.

Forster pays close attention to the cash-in, cash-out cycle to maximize the return on his organization’s money.

“Making sure we get it in as quickly as possible and spend it as late as possible without being late is what I’m doing to try to optimize,” he said. “One of the key benefits to our organization is all about whether we’re getting a little bit of interest or a little bit of return on our money, and obviously we can do that at a higher clip.”

Many not-for-profits also may be looking for cost savings as potential donors continue to struggle to find funds to contribute in the slow recovery from the financial crisis.

“Cost containment at our not-for-profit is going to be a primary area of focus for the next three years,” Kroll said. “We are currently looking at shared services where you pool everybody’s administrative services into one central area. This approach can be controversial and sometimes tough to do but worth looking at if you want to improve services levels and at the same time save money.”

Vigilance needed on gifts. The continual pressure to find new sources of funding may cause development personnel to consider gifts that are outside the norms of what a not-for-profit would ordinarily accept.

This is where having a strong gift-acceptance policy—and sticking to it—is essential.

“There are times when you shouldn’t accept certain types of gifts,” Forster said. “See if it’s actually in your sweet spot and whether it plays to your core competencies, and then figure out how to tactfully push back on your program partners.”

Forster said it’s best to find a way to say, “No, but …” and suggest a different, more acceptable way to work with a donor.

Savings are critical. In volatile times, building reserves is critically important, Howell said.

He said having ample reserves can help not-for-profits make long-term decisions during short-term crises.

“There’s nothing more expensive for us than having to lay people off and hire them back six months later,” he said. “If you are able to think about building reserves, that’s a great thing. And if you haven’t, think about trying to build some. It helps you get through these volatile times.”

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.