Sep 16
0

Transparency & Trust: Key Takeaways for Nonprofits

By | Nonprofit | No Comments

“Research indicates that nonprofits earn public trust by doing.” That’s the key takeaway from Trust in Nonprofits and Philanthropy, a report published by Independent Sector. The organization surveyed 3,000 adults aged 18 and older in the United States to generate the report’s results. It offers a refreshing and somewhat eye-opening view of how people feel about nonprofits, philanthropy, and giving, as well as trends in nonprofit management, such as the use of AI.

Given how much nonprofits rely upon public trust for support, this is good news. Here are the top findings from the report and how your organization can use them to improve.

two hands holding many people and two hands shaking

What Engenders Trust in Nonprofits?

Connection. Transparency. Communication. Community. These are the four things that signaled trust to the people surveyed as part of this study. More importantly, people who were hands-on participants in the activities of their chosen nonprofits expressed higher degrees of trust and confidence in the organization.

That’s not surprising. If you’re volunteering at the animal shelter, handing out bags of groceries at the food bank, or helping with the phones at the local health clinic, you’re seeing firsthand how the organization is run. You’re part of the daily fabric of their work, and probably deeply committed to the mission.

What if people aren’t hands on with their favorite nonprofit? After all, not everyone has the time to volunteer in person. That’s where transparency becomes key. Nonprofits that were clear and transparent about their activities, funding, and budgets were much more likely to receive high marks for trustworthiness than those who weren’t. The more people felt they knew about an organization’s activities, the higher the degree of trust.

Trust in Nonprofits Remains Steady

One of the most encouraging findings from the study is that trust remains high and steady among certain types of organizations. Nonprofits focused on human services, especially in the form of abuse counseling, addiction and recovery, and community integration services for formerly incarcerated persons, all maintained steady, high levels of trust with the public. Two-thirds of respondents (67%) indicated trust in human services nonprofits that encompass counseling, recovery, and reentry services. The second most trusted category is that of animal and wildlife charities, which held a 62% trust rating, and health organizations at 58%. The only ones that dropped were those that focused on civic issues, possibly due to the increasing political polarization dominating the media today.

But Trust in Philanthropy (and Philanthropists) Is Waning

Interestingly enough, trust in philanthropy and philanthropists is waning. It seems like Americans’ distrust for all things big—big business, big government, and big donors—has spilled over into the nonprofit realm, too. Americans included in this survey were skeptical of the motives of businesses and the government, as well as individuals contributing large sums to nonprofits. They expressed less confidence in the abilities of these organizations to tackle major social issues.

When organizations were careful to include citizens on their boards instead of only the wealthy and the powerful, they regained some level of trust among those surveyed. Additionally, perceived independence of the nonprofit also drove trust levels higher. If an organization had some level of independence in its decision making, and oversight by their fellow citizens, people expressed higher levels of trust than those without citizens on the board or organizations tightly aligned to government or corporate interests.

What People Distrust: AI

For the past several years, artificial intelligence (AI) has infiltrated every aspect of life, including nonprofits. And people are starting to resent it. Most of those surveyed (76%) felt that nonprofits should disclose their AI use. This dovetails almost perfectly with other studies indicating that consumers, in general, want all companies (not just nonprofits) to disclose AI use, with around the same percentage, 75%, responding similarly in a UK-based study.

Among the respondents, 37% said that AI use would make them trust a nonprofit less. Again, the issue seems to go back to transparency. It seems like people recognize that AI will be used in some way, but they wish to understand exactly how it’s used.

Next Steps for Nonprofits: Focus On Building Trust

While the overall findings of the report shared good news, there are a few hidden messages worth repeating.

One, trust is won through action. This means acting trustworthy. It means making sure that your financial reporting is clear and transparent. Communicate with your constituents early and often, almost as if they were actually there doing the work. The more you can help people feel like they’re part of the mission, the better.

Next, AI use remains controversial. More than three years into the generative AI journey, people remain uncomfortable with how it’s infiltrating every aspect of their lives. This goes back to transparency—people want to know when and how it’s used. They want to consent to it, not have their participation taken for granted.

And lastly, nonprofits remain a trusted entity in a world where trust is crumbling on many fronts. Most are still seen as doing good work. Make sure yours is, too, through smart communications that build connections, community, and trust.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Sep 14
0

Managing the Unpredictability of Nonprofit Budgets: The Right Software Makes a Big Difference

By | Budget, MIP Fund Accounting, Nonprofit | No Comments

Budgeting is tricky. At best, you get close to an accurate forecast. At worst, you’re wildly off. Corporations adjust budgets all the time. So do nonprofits. In fact, nonprofits have a tougher time budgeting because of the uncertainties surrounding their work and their finances.

Budgeting Can Be Tricky

Nonprofits are founded on a cause and a mission. While some do sell products or services, they do not rely solely on sales to support the budget. Most rely on donations, grants, and endowments to continue their mission, and that’s where budgeting gets dicey.

person sitting at desk in front of several computer monitors and pointing at one of them

Look, even companies get their budgets wrong. They can’t predict catastrophic weather conditions that ruin crops; geopolitical events that shut down shipping; or sudden quality issues that threaten their whole supply chain. Nonprofits face different uncertainties. Donors who once flocked to the cause find another cause to support. An economic downturn leaves once-generous givers unable to open their pocketbooks and donate, even if their hearts remain open to the cause. Grants can dry up. Federal funds can cease if Congress halts the money or diverts it elsewhere. Costs escalate.

Given all of these uncertainties, how in the world is your organization expected to budget with any sense of accuracy? Here’s where the right software can make a big difference. With the right software, past patterns can be tracked, analyzed, and used to predict the future. And while no software has an accurate crystal ball, the right platform can help with budgeting as well as analyzing best- and worst-case scenarios.

Plan for the Worst, Hope for the Best: Scenario Planning

You’re probably doing scenario planning all the time—you just don’t know it. It’s when you take an umbrella along “just in case” on your afternoon walk because a few clouds are on the horizon and the weather app predicts a 30% chance of rain. There’s a chance, so you plan for the worst by taking the umbrella along but hope for the best by keeping it rolled up and tucked under your arm.

The same goes for budgeting. Many organizations forget scenario planning when it comes to budgeting and instead believe that the budget they developed for the upcoming year is accurate. It may be, but more likely, unforeseen events will occur that tilt the budget higher (better results from fundraising events) or lower (the rent just increased).

Scenario planning enables you to put into practice both best and worst-case scenarios so that you have a budget ready no matter what happens. This enables you to think ahead, for example, should costs rise and funds dry up. What activities can be cut? How will you continue to pay for essentials such as salaries, rent, and insurance if major grants are discontinued or federal funding ceases? By thinking through each scenario, you have an action plan in place and can course-correct as the year progresses.

The same may hold true for surplus years. Should additional funds flow into the organization, you’ll have a best-case scenario ready to go. Either way, no matter what the future holds for you, you will be ready for it.

Diversify Funding Sources

Many nonprofits rely on federal and state funds, such as grants, to support their programs. Relying solely on these funds is risky. You cannot predict, for example, when such funds will be discontinued or reduced. A new administration or competing interests may result in a grant or funding source being completely shut off, in which case, if you don’t have additional income streams, your organization could face serious difficulties.

Additionally, even if funds are still earmarked for your organization, payment delays could seriously hurt your cash flow. It’s never a good idea to put all your eggs in one basket. Even if you feel that a grant is secure, you cannot be certain of it. Diversifying income streams is a smart idea for all businesses, including nonprofits.

Managing Restricted and Unrestricted Funds Carefully

Restricted funds are earmarked for specific program or activity lines, while unrestricted funds can be used for any expense. Nonprofits must have policies in place governing the use of both types of funding. Unfortunately, unrestricted funds are often in short supply. What then?

Some organizations have written guidelines allowing borrowing from restricted funds. Clear, unambiguous repayment terms must accompany such borrowing; you cannot shuffle money back and forth at will. Another idea is to build fundraising campaigns solely around shoring up your unrestricted funds. Such campaigns emphasize how the organization fulfills its mission so that donors understand why unrestricted funds are needed. And continually educating the public about how your organization manages its unrestricted funds, by being transparent in reporting your organization’s financial reports, is essential to generating goodwill and building trust with donors.

The Right Software Makes Budgeting Easier

So how do organizations run best- and worst-case scenarios and manage restricted and unrestricted funds carefully? With spreadsheets?

You know what we’re going to say—spreadsheets are not the answer. Sure, they’re easy and accessible, but as your organization grows, they become unwieldy. It gets harder and harder to manage them, the chance of mistakes through simple keying errors grows, and it’s almost impossible to get good reports and data visualizations from them.

Instead of spreadsheets, smart nonprofits use nonprofit accounting software to build and manage budgets, run reports, and gain visibility into their financial position to ensure they have a solid foundation.

MIP Fund Accounting offers a great solution for nonprofits seeking a true fund accounting platform. Unlike small-business accounting software, MIP Fund Accounting is designed for nonprofits. It tracks expenses and revenues by program line, helps you build solid reports for your board and constituents, and enables you to track the metrics that matter.

We’ve also found a great solution for nonprofits in Martus, a data reporting platform that works with MIP Fund Accounting to produce outstanding reports. When you need to build trust with donors and constituents, nothing beats good reporting on your activities. Martus with MIP Cloud enables you to build better budgets, generate reports, and improve planning thanks to its seamless integration and robust interface. Separately, MIP and Martus are great platforms. Together? A powerhouse budgeting and reporting solution.

The Future Is Unpredictable. Your Software Doesn’t Have to Be.

The future has always been uncertain. However, you can smooth out some of the uncertainty with the right software. It won’t solve all your budgeting problems, but it will give you the facts you need to make better decisions and build a better future for your organization.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Jul 31
0

Staying Calm in the Center of the Storm: How Leaders Mitigate Financial Uncertainty

By | Accounting, Nonprofit | No Comments

As we pass the midyear mark, many nonprofit leaders are pausing to take stock of the current economic and business climate. The turbulence of the last few months has left many pondering ways to mitigate uncertainty. With federal funds shifting, grants changing, and donors’ pocketbooks shrinking, nonprofit leaders must face the future with calm, deep determination, and a sound plan to guide them.

Three essentials form their plan:

  1. Diversifying revenue streams
  2. Delaying or reducing expenses
  3. Accelerating automation
person in office meditating while people yell at her

Nonprofit leaders who focus on these three essentials can weather the storm of uncertainty and lead their organizations to a successful future.

Diversify Revenue Streams

Diversification is the secret to managing uncertainty. There’s an old saying, “Don’t put all your eggs in one basket.” Nonprofits that put all their income “eggs” into one basket—relying on federal funds, for example, or heavily relying on a single grant or donor—may find themselves struggling if something unexpected happens. Federal funds can be cut or put on hold; grants may be awarded to someone else; donors may choose to give their money elsewhere.

To mitigate against this risk, it is vital to ensure that your nonprofit has multiple, diverse income streams. Examine the current revenue patterns; what are the risks? Even something that seems sure, like an annual fundraiser, can be risky if your organization relies on it for its sole source of funding.

Look for small but meaningful ways donors can contribute. Add new events, fundraising campaigns, and resources. Explore alternative grants and program revenues for additional funding. But above all, make sure you aren’t relying on a single revenue stream to support the entire organization.

Reduce or Delay Expenses

Look for ways in which you can reduce current expenses or delay new ones. Some ideas include reviewing recurring expenses and subscriptions and cutting back on duplicative services. Does the marketing department really need two graphic design programs, or can they use only one? You’d be surprised at how expenses can creep up over time. Comparison shop for major expenses, such as rebidding insurance policies and gathering competitive bids for contracted work, to ensure you are getting the best value for your money.

Delaying expenses is another tactic to improve financial stability during times of uncertainty. Can you wait to add new staff or launch a program? Examine upcoming budgets and expenses and identify ways to delay or defer major expenses.

Accelerate Automation

Accelerating automation means using technology to automate as much as possible, reducing manual work for your existing staff. AI is a good example of automation. Many nonprofit accounting systems now include AI components that can schedule invoicing and payment reminders, send documents for approval, and run and email reports to stakeholders without requiring people to key in requests. These rule-based systems save considerable time by performing common tasks without prompting. Explore the automations already built into your existing software.

Or consider adopting a new cloud-based nonprofit accounting system. Sage Intacct and MIP Fund Accounting both offer excellent nonprofit accounting platforms that can help you better manage your finances. These and other accounting and financial management systems can make it much easier to budget, forecast, and prepare for the future.

Navigating the Future

We can’t control the future, but we can take steps today to prepare for anything that comes up. Preparing for financial uncertainties includes diversifying income streams, reducing expenses, and automating as much as possible to free up staff time. When taken together, these three steps can go a long way toward laying the foundation for a solid financial foundation.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Jul 29
0

Payment Matters: Nonprofit Payroll Facts and Fiction

By | Accounting, Nonprofit, Tax | No Comments

Just because you run a nonprofit organization doesn’t mean that you work for free. Nonprofits, like their for-profit counterparts, hire workers and are required to pay all federal and state employment taxes.

Many people have misconceptions about payroll and nonprofits. Such misconceptions can be costly. Let’s look at the myths and facts about nonprofit payroll.

Myth busting: Fact versus Fiction in Nonprofit Payroll

First, how well do you understand the world of nonprofit payroll and employee classification? Answer “true” or “false” for each statement.

  1. Nonprofits’ employees’ pay rates are significantly lower than those of comparable for-profit organizations.
  2. Nonprofits are tax-exempt, so they don’t have to submit federal payroll taxes.
  3. A person who comes into the office, works on-site 40 hours a week, and receives a monthly payment can be declared an independent contractor if they sign an independent contractor agreement.
  4. Employee misclassifications aren’t a big deal; you just pay a fine.
  5. You can discard employee documentation after one year.

Every single answer was false, so if you marked any as true, brush up on your payroll and employee compliance knowledge. Even a small mistake can be costly when it comes to complying with employment classification and taxation rules.

Employee Classification

First, the tricky bit: employee classification. Nonprofits often have four categories of workers: volunteers, independent contractors (or freelancers), part-time, and full-time employees. Proper employee categorization ensures your organization remains fully compliant with federal and state tax and employment laws.

The classification that can trip nonprofits up the most is the difference between an independent contractor and an employee (full or part-time). The IRS guidelines for classifying employees have shifted over time, placing the burden squarely on employers to prove their classifications. And, if you misclassify an employee as a contractor, you can face stiff penalties and fines that can put a big dent in your organization’s finances as well as ruin the trust of your donors.

The IRS lists three general categories employers must consider when evaluating contractor versus employment status. There is no one ‘right’ or ‘wrong’ mix of responses. The evaluation considerations vary according to company and industry, but applying the so-called common law rules is important to avoid misclassification.

These common law rules focus on the degree of control and independence of the worker:

  • Behavioral: Does the payer control or have the right to control when and how the worker completes the job? For example, do you require the worker to provide services at your place of business, or, if a remote worker, require them to log on during certain business hours?
  • Financial: Are the business aspects of the person’s job controlled by the payer? In other words, does the payer control how the worker is paid, expense reimbursement, or benefits? Who provides the tools and equipment to the worker? Providing laptops and office space indicates an employment relationship, for example.
  • Relationship: Is there a written contract specifying the nature of the relationship? Does the worker-payer relationship continue indefinitely? Is the work performed a key aspect of the business? For example, an independent contractor is often hired for a specific project or task that no full-time employee can fulfill.

If these categories sound vague, they are – and it’s purposefully vague, since companies, industries, and roles vary considerably. However, using common sense and answering the questions honestly can point you in the right direction. And, when in doubt, treat the worker like an employee. If the IRS ever deems that person misclassified, the penalty is back wages, penalty fees, and more that can accrue to a much higher amount than what you would have paid for the person’s salary in the first place.

Payroll Taxes and Salaries

Another common misconception is that because nonprofits are tax-exempt, they are exempt from paying payroll taxes. This is a myth. You must file and pay relevant federal and state payroll taxes, including unemployment taxes, FICA (Social Security and Medicare taxes), and any relevant state unemployment taxes.

As for salaries, another common myth is that joining a nonprofit is like joining a religious order – in other words, that you are taking a vow of poverty. Nonprofit salaries can be equal to those of the for-profit world. In fact, they often must be to attract the best talent. Boards must often approve salaries, but as long as they are not deemed excessive, they can certainly reflect the ‘going rate’ for talent.

Outsourcing to Professional Payroll Processors

One approach for nonprofits to comply with payroll regulations is to outsource payroll processing to a third-party provider. These companies specifically focus on federal and state compliance, issue employee payments, and ensure appropriate deductions are taken and reported to tax authorities. They can often take a considerable burden from your accounting staff, especially if you work with remote employees and need to juggle multiple tax jurisdictions.

Employment and taxation laws can be complex, so work with someone knowledgeable in both if you have questions about your organization and its employment and tax practices.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.