Illustration of writing an article on a laptop

ASU Lodestar Center Blog

What Financial Transparency Practices Can Nonprofits Use to Develop Consistent Procedures?

The nonprofit sector is known for the good humanitarian work it aims to provide society.  Within the sector itself exist organizations that are run with the precision of any Fortune 500 company.  But, charitable organizations in general are thought to be lagging behind their for-profit cousins in some of the more basic areas of organizational operations necessary to grow and maintain healthy enterprises.  “Nonprofit organizations are as susceptible, perhaps more susceptible, to financial problems and insolvency than their for-profit counterparts,” according to Mark Melickian in " A guide for nonprofit organizations: Bankruptcy issues. " 

With the complex arena that nonprofit organizations have chosen to be accountable for, it is imperative that healthy business practices become sector standards in order to ensure that necessary services do not disappear due to avoidable mismanagement.

Additional motivators beyond service commitment exist for nonprofit organizations to tighten up operational procedures. Weerawardena, McDonald, and Mort  credit increased opportunity of for-profit businesses to offer what was once largely nonprofit services, and the sheer number of charitable organizations chasing the same dollars, as two of the primary reasons for this emerging issue in "Journal of World Business."  “These changes have forced NPOs [nonprofit organizations] to adopt strategies aimed at building viable, sustainable organizations in order to continue to pursue their social mission."  Nonprofit organizations are being faced with the more competitive reality in which successful fundraising campaigns are no longer the answer for poor operational practices.  

Within the nonprofit sector, the board carries the ultimate fiduciary responsibility.  Board roles and responsibilities include “making sure the nonprofit has adequate resources to advance its mission.” Because the board takes a role that is connected more to oversight than day-to-day operations, the executive staff shoulders the responsibility to present organizational financial data to the board in a method that communicates their true financial health.  “Understandably, the board and staff of a nonprofit may focus intently on mission and vision while paying insufficient attention to financial and operational issues until a crisis looms – an inability to meet payroll, or a lease payment, or a loan payment,” according to Melickian. If the board does not understand what is actually happening financially, they are not equipped to evaluate what course of action is the most appropriate to take in order to either continue in the current trajectory or to begin to change course.  By adopting financial reporting methods designed specifically to communicate with nonprofit boards, the nonprofit sector has the potential to become more structured in their overall financial practices.  

When thinking about how to create healthy financial practices, it helps to look at how an organization that does it well operates.  Carol Ackerson, Chief Financial and Operational Officer of the Girl Scouts – Arizona Cactus-Pine Council says she feels the two key ideas she is responsible for clearly communicating to the board are the current condition and the performance of the organization.She translates the information from the balance sheet to gauge the condition, and the revenue and expenses to evaluate the performance. Other key aspects in developing consistent procedures are using system generated reports, having the format in which the information is presented be clear and the layout stay the same, and using comparative data in order to establish context according to Ackerson.

Taking these elements into consideration, the development of a financial report card is an option to get an organization started down the path of financial transparency.  According to Mara G. Mann, CPA, the first aspects of a nonprofit organization that she looks into when performing a third party audit are their cash on hand, revenue diversity, expense responsiveness to income fluctuations, immediate liquidation/true net asset number, and risk analysis.  By grading these key condition and performance aspects of an organization on a consistent basis, strong financial reporting procedures will automatically need to be created and maintained over the course of the its life.  The time has come for all nonprofit members, board and staff alike, to engage their fiduciary responsibility with the same level of passionate commitment as mission delivery.  

Throughout her career, Mamie has served in various roles in business operations, specializing in streamlining day-to-day operations to optimize efficiency. Since 2010, Mamie has focused specifically on financial operations of wealth management firms. She also spent almost two years working with a financial educator, where she assisted in the analytics of financial data and client reporting.  While pursuing her Master’s Degree in Nonprofit Leadership and Management at Arizona State University, Mamie began to expand her financial operation specialties to several nonprofit organizations in the local Phoenix area and plans to continue her advocacy for financial transparency throughout the sector. She graduated in Spring 2018. Mamie received her Bachelor of Arts and Certification in Secondary Education from Michigan State University. 


ASU Lodestar Center Blog