Transparency and Nonprofit Organizations
It was 2004 when a local nonprofit org (NPO) came to me and asked, “Can you review our project for us?” They had been working with a professional event planner, expecting that the agency would make their annual event more successful than ever before – but in reality, the gross profit had tripled while the net profit had been somehow cut in half.
Big Buzz Idea Group was borne out of that project review.
I found it difficult to believe that the NPO wasn’t getting all that it was expecting, and it seemed clear that they had been taken advantage of. I couldn’t stomach the fact that, though the event had grown, the NPO was no longer receiving the amount of funding they depended on from the event that they had created and turned over to the “pros” to improve.
I am a firm believer that for-profit companies can certainly serve NPOs and help them grow to the next level, but how can you tell if it’s the right partner? How does a nonprofit know if they are receiving everything they are entitled to? It can be difficult, so I have created these Tips for Transparency to help guide you.
Accounting Tips for Financial Transparency for Nonprofit Organizations
- All payments for a project should be issued in the nonprofit’s name. The NPO should receive and deposit all funds for a project themselves. Some agencies charge for handling the administration of client payments. This can result in unnecessary fees, and when the money is first going into the agency’s account and then a check is issued to the nonprofit, it is difficult to know if the NPO is receiving the full amount.
- Review the proposed budget closely. In the example at the beginning of this article, I found a lot of additional costs in the budget that were not clearly understood by the NPO. For example, the budget showed $5,000 for PR/Marketing services but no one was clear what was being provided for that fee. Additionally, the marketing company being utilized was a division of the event agency hired!
- Always seek three bids for each service provider in the budget. Some event agencies have an inventory of supplies that they rent out to the client; this is not necessarily a bad thing, but I recommend that you secure your own bids to confirm that the event agency is charging a fair rate. I have seen some agencies promise convenience and then overcharge the NPO. Every small upcharge adds up in the overall budget.
- Form a committee to review the proposed budget. This committee should be comprised of two financially savvy professionals and two to three shrewd business folks to review the event budget to ensure that the NPO understands the proposed budget clearly.
- The committee should question if there are any line items that they could obtain at a better price. By working with local partners or Board contacts, the NPO might secure better pricing and/or in-kind contributions for their event.
Transparent Systems for During the Event
- If you host a large fundraiser and have cash onsite, it is imperative that you use the NPOs most trusted board members, staff, etc., to do the accounting. Your personnel should always be the ones receiving and processing the money onsite. I propose that there are always two people from the NPO and two people from the event planning agency, as well as a security officer if the cash is sizeable.
- There should always be a minimum of two people with the money onsite at an event, as well. Again, the best way to ensure that there is no theft is to never leave money with a single person. When money has to be moved between the office and the destination onsite, it is best to use an event representative and a security officer.
- Create checks and balances that help you identify if all the money is accounted for. Consistent starting banks and a system for tracking sales will help confirm how much has been sold and how much cash should be in the cash drawer at the end of the shift. But all too often, NPOs do not properly track sales and verify the cash drawers. It should all be written and tracked.
- When depositing funds from an event, it is advised that you have two representatives from each organization (the NPO and the third-party provider) along with a security guard, and the funds should be taken to a night depository immediately following the conclusion of the event.
- Keep a log of all the deposits made during the event to reconcile to the actual bank deposit total.
Ask the event agency to provide a copy of the income tracking logs as well as each invoice that supports the expenses in the budget. It is best to confirm that all of the numbers are accurate in the final accounting phase.
There are plenty of good agencies out there who want to service and support the nonprofit community, but it is in an organization’s best interest to spend the necessary time before, during and after to ensure that the NPO is receiving all of the money they are entitled to. As a Board Member, it is your fiduciary responsibility to the organization.