A National Imperative: Joining Forces to Strengthen Human Services in America (Jan 2018)

Benchmarking and Self-rating. CBOs should compare their financial performance to peers on an annual basis using IRS Form 990 data, and explore us of “self-rating” tools to combine financial measures into an overall indicator of organizational health. Financial Stability Targets. CBOs should have targets for operating results associated with financial stability. An example might be not having two consecutive years of unplanned/ unfunded deficits. Some organizations are consciously investing endowment proceeds and running deficits as capital investments. They should also have targets for cash, unrestricted net assets, operating reserves, and access to credit. Trustees should develop contingency plans for when minimum targets are not met. Organizations should think creatively about how to build the necessary reserves. Ideas might include one-time capital campaigns and pledged funds from trustees for use in a crisis. CBOs should put in place monitoring and governance processes to ensure that reserves are not inadvertently spent down to fund operating deficits. Reporting and Disclosure. Larger CBOs with annual revenues exceeding $100 million should summarize their financial and programmatic results in a short, plain-English version of the management discussion and analysis section of the SEC’s Form 10-K. This report should also cover their opportunities and risks in the context of internal and external conditions. Creating this type of report would give a sense of urgency to the underlying processes. It could also help reassure stakeholders such as trustees, funders, and regulators that the organization is doing all it can to ensure long-run sustainability. Board Composition, Qualifications, and Engagement. CBOs should redouble their effort to recruit trustees with a wide range of experience, including financial and risk management expertise. They should empower high-functioning committees focused on finance and risk. They should also ensure that ongoing education is provided to both new and existing trustees. Trustees cannot participate in intelligent risk management unless they understand important contracts and the associated processes for approval and registration. They also must know the distinction between direct/indirect and allowed/disallowed costs. Many CBOs, particularly large, complex ones, would benefit from having an experienced nonprofit executive on their board with firsthand experience of the programs and the associated funding streams. Financial Management Expertise. CBOs need to ensure that their staff possesses adequate financial expertise. For mid-size and larger CBOs, this need is best met through a dedicated Chief Financial Officer and supporting staff who possess both nonprofit and for‑profit financial management experience. Nonprofit experience is critical to ensure that the CBO deals with the particular requirements of nonprofit accounting, program and grant accounting, and government contracting. For-profit experience is helpful as well, to ensure that the CBO’s cash flow and capital management capabilities are robust. In addition, it is critical that financial expertise enables CBOs to account for and understand the full costs of delivering services, so that they can position themselves for financial success. The CFO should be positioned and compensated as a senior member of the CBO’s management team.

Alternative Revenue Sources. Many human services CBOs receive much of their funding from a small number of sources (usually government funders) and it is often concentrated in a

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