Nonprofits by the Numbers

In the wake of embarrassing revelations, high-profile scandals, and Sarbanes-Oxley, nonprofit CFOs are striving for greater transparency and accountability.

Still, despite such progress, the poll showed that only a third of nonprofits maintain a high level of documentation on internal-control policies. And more than half have a combined audit and finance committee, a worrisome conflict.

The Nature Conservancy was quick to upgrade its policies. The group’s audit committee chief, Pete Correll, CEO of Georgia-Pacific Corp., asked Howell in January 2003 to evaluate Sarbanes-Oxley for its relevance to the Conservancy. After Howell did a gap analysis, the Conservancy adopted a number of Sarbox provisions, including a whistle-blower policy, an audit-committee charter, and standards for ethical conduct.

But the Conservancy decided to hold off on certifying financial statements and adopting Section 404 provisions. Both promised to cost too much in hard-won donor contributions to warrant quick action. At first, Howell thought that certifying would be easy. Then he met with a counterpart at Goldman Sachs, whose chairman and CEO, Henry M. Paulson Jr., is also chairman of the Conservancy.

“It was mind-boggling in terms of the people involved and the cost,” Howell says of the process necessary for Paulson to sign off on the financial statements at Goldman Sachs. Likewise, Howell realized he would have to set up a chain of people to certify the Conservancy’s numbers at each organizational level. “That’s a fairly daunting requirement,” he says, given his roughly 20,000 cost centers and 1,000 daily transactions.

Howell did beef up disclosure on Form 990, appending a 36-page list of organizations receiving grants from the Conservancy. He also added new footnotes, enough to clarify CEO McCormick’s compensation, and continued to break out the value of land versus “conservation easements” (development rights acquired to protect conservation land). At about 100 pages, the Conservancy’s 990 now runs twice as long as before.

Howell also added a quality-control process, in which internal audit and each department double-check the 990 line by line. The CFO estimates the extra checking costs the Conservancy $10,000 a year, and has doubled the time he spends on the document. But he figures that’s just the new cost of quality control. “If there’s a mistake in there,” he says, “even if it’s a misplaced decimal point or typo, and it’s highlighted [by the press], it’s embarrassing.”

All this was not enough to please Senator Grassley. “Time and time again,” he said in comments issued on June 7, “The Nature Conservancy’s Form 990s provide only bare-bones information, if any at all, regarding its participation in transactions with insiders as well as unique and complex programs such as…its conservation buyer program.” Other senators were not so critical at the June hearing. Sen. Jay Rockefeller (D-W.Va.) referred to Conservancy reforms to date as a “gold standard” for other nonprofits.

The Good, the Bad, the Ugly

UWNCA took its reforms much further than The Nature Conservancy. CEO Chuck Anderson, who began at the organization just six weeks before release of the forensic audit in August 2003, embraced a disclose-everything approach even before he was hired. In Anderson’s job interview, the board asked how he would share the upcoming audit’s bad news with the public. “I’d take that sucker and put it right on the Web,” he recalls saying. “Let the whole world read the good, the bad, and the ugly about this organization.”

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