Knowledge and Insights

Mercadien’s Nonprofit Co-Services leader, Lisa Thouin, and I attended the AICPA’s Not-For-Profit (NFP) Industry Conference, a three-day event in Washington, D.C., where we learned about industry trends, developments on the accounting and reporting fronts, and current product and service offerings.

While we had refreshers on nonprofit accounting, advanced 990 issues, accounting for contributions, as well as the new single audit rules and changes to the OMB cost circulars, one of the highlights for me was listening to keynote speaker Jacob Harold, President and CEO of GuideStar. Mr. Harold spoke about the current and prospective process for organizing information necessary to assess the NFP market and explained how nonprofits operate in a VUCA (Volatile, Uncertain, Complex and Ambiguous) world.

Harold suggests there are new forces moving and shaping our society, including the low cost of information and collaboration, lowered barriers to market entry, and the new accountability class of individuals. Harold was really addressing, how nonprofits can go from the current VUCA world to the new world of Vision, Understanding, Clarity and Agility. As NFPs evolve, and are legitimized by society, they near this new VUCA paradigm.

Let’s face it – social change does not happen overnight.

In evaluating market failures, there are two elephants in the philanthropic room.

1) Some NFPs are better than others – like those who create more good with fewer dollars, and 2) Some donors do a better job than others at finding and supporting the better nonprofits. In the old paradigm, donors gave money to organizations based on the NFPs word. In contrast to market failures are the characteristics of a healthy market including the dissemination of meaningful information, transparency, low transaction costs, aligned incentives and ease of market entry and exit.

Harold challenged us to apply these characteristics to the nonprofit sector.

The sector’s current tool for managing information is the 990, but quantitative measures and numbers alone don’t tell us much about their social good. The overhead ratio is not the measuring stick of a good NFP, and social change will require dispelling the overhead myth. GuideStar, Charting Impact, and Charity Navigator are all information agencies to help stakeholders navigate a VUCA world.

What does the new paradigm look like? It adds meaningful feedback groups to the equation. Markets for Good (Gates Foundation) suggests that new VUCA is achieved through proper organization of information. GuideStar plans to transform the supply chain of information using the following five steps in the process:

• Gather reviews
• Survey the experts
• Create a hub – GuideStar will collect and distribute basic information;
• Disseminate information through channels – Fidelity, Vanguard, Schwab, Amazon[dot]com, and Volunteer Match will perform a deep analysis of performance for end users;
• Users will access channels to guide their decisions.

Did you know that GuideStar has an information exchange? At a basic or bronze level, the NFP completes their profile; they can enhance their level to silver by including financial information and gold level by providing impact and effectiveness information. The goal is to change the chain of information for the sector from data collection to data dissemination. Mercadien professionals can assist you in presenting this information in the most positive light.

I mentioned use of the overhead percentage as a current measuring stick for NFPs and the concern in the industry about the validity of this metric. You should be thinking about how to assess, measure and report results in a compelling and meaningful way – not just overhead. Dispelling the Overhead Myth is one of the 10 top trends currently impacting nonprofit operations. The others include:

• Succession planning,
• Strategic planning,
• Ongoing regulatory changes,
• IRS and donor focus on executive compensation,
• Fraud,
• Donor retention,
• Reserve levels,
• M&A, and
• Transparency and accountability.

Over the next year, members of our Nonprofit Services Group will profile each of these topics in our Nonprofit Examiner newsletter.

In our next issue, we will tackle the regulatory changes and risks your organization faces and how to stay on top of them all!

For more information, contact Sherise Ritter at (609) 689-9700 or [email protected].