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Don’t Avoid Your Nonprofit’s Problems

Imagine this scenario:  You are catching up on Facebook one night when you see a post from a friend.  Someone you both know has been diagnosed with a horrible disease and given little hope for recovery.  You find out later that this person had experienced all the warning signs…pain, fatigue, other clues…for months before they finally summoned up the courage to see their doctor.  If only they had gone when they first realized something was wrong, maybe they could have been helped.

Sound familiar?  Sure it does.  We have all heard those stories.  But what about your nonprofit?  Is it possible that this very ostrich-like tendency can also plague a nonprofit?  I’m here to answer that question with a resounding, “YES”!  We see it everyday, and the results are just as deadly.  What you don’t know absolutely CAN hurt you!

So how can you avoid getting a bad prognosis?  By learning to recognize the warning signs of impending problems and proactively addressing the issues…before they prove too much to deal with.  Let’s take a look at three common symptoms and what you can do about them:

1.  You know your bookkeeping is pitiful, but you just don’t know anything about accounting. This one is epidemic.  It is also inexcusable and can literally threaten your organization’s existence.  There are both legal and practical issues at play here.  A nonprofit, just like any other business, is required by law to keep accurate records of financial transactions.  This includes income and expenses, asset and liability balances, records of donations received…every penny tracked.  Problem is, few nonprofits have qualified people internally to do this properly.  Some hire a professional (like us!) to do it for them.  Far too many, however, choose the ostrich method and pray nothing bad happens.  Eventually, bad happens.  It may be the IRS catching up you.  Or, it may be that donors lose confidence in your organization because your financials are not trustworthy.  Either way, this pain is avoidable…and much less expensive to fix now than later.

2.  You know you have an improper board structure, but you don’t really care because it’s just easier this way. First, let’s define improper.  I’m assuming here that we are talking about a 501(c)(3) public charity.  By improper, I mean a board with a majority of members related by blood, marriage or common business interest, a board with a majority of members being paid as employees of the organization…or both.  Again, we have issues both legal and practical.  From a legal standpoint, the IRS considers such a board structure to be completely unacceptable for a public charity.  Such a structure does not allow for the necessary arms-length dealing.  It can also subject the nonprofit to unwanted IRS scrutiny and even financial penalties, called Intermediate Sanctions, levied against the board members personally.  And from a practical standpoint, there is simply no way to adequately serve the public interest, at least in the long term, when you have such close control.  There is too much opportunity for self-dealing and not enough opportunity for input by others who should have a seat at the table.

3.  Critical, delegated tasks are not getting done correctly (or at all!), but you have such a hard time securing volunteers, you would rather put up with it than confront it. That’s fine if you are talking about something minor.  Unfortunately, we see this involving major issues quite frequently.  Things like donor receipting, record-keeping…even payroll issues.  Make no mistake, this is a failure of leadership.  While it can be a difficult task to recruit and retain volunteers, that is no excuse to put the organization’s effectiveness in jeopardy.  Frankly, most volunteers have no problem being corrected and redirected.  If you are not confrontational enough to do what is necessary, let someone who is handle the responsibility.

Don’t be an ostrich.  Don’t let fear keep you from dealing with what must be dealt with.  The earlier you tackle your problems, the less likely one of them will turn into a terminal issue.

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has One Comment
  1. Greg,
    I appreciate this good and important information. Thanks and keep it coming.


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