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.

Today, UWNCA has adopted a full repertoire of rules aimed at assuring total accountability and transparency. It voluntarily complies with every Sarbanes-Oxley reform, including all those related to audit-committee requirements, financial-statement certification, and Section 404 internal-controls procedures.

Of all the reforms, financial-statement certification was the biggest worry for Anderson and Kim Tran, who became CFO in August 2004. That’s because, for starters, they had to sign off on numbers from their predecessors. “It was a struggle for us,” says Tran. But she insisted on testing entries herself, until she and Anderson were satisfied. “I always do my own testing above and beyond what the auditors do anyway,” she adds. Today, says Tran, “I can stand behind every number I have in the books.”

The cost, of course, has been a burden. Although Anderson doesn’t quantify compliance figures, he has a ready handle on the price of past abuses: roughly $1 million in legal fees, $300,000 for auditing fees, and tens of millions of dollars in lost donations. But he has no regrets about putting on the straitjacket of reforms. “Either way you’re going to pay,” he says — if not for the controls and disclosure, then for the abuse somewhere down the line. “We’re the poster child for nonprofit abuse,” he adds with a sigh.

Anderson estimates that the full recovery of the public’s trust will take 10 years, and UWNCA has entered just the second year of that effort. Anderson and Tran are counting on open-book management, however, as a way to make amends and turn the organization around. “If we had not communicated and been transparent, the gains we have made over the past two years wouldn’t have been there,” says Tran.

Agenda for Reform

UWNCA is a rare bird, of course. Most nonprofits feel it’s premature to adopt all the items on the reformers’ menus, and are waiting for clearer signals from lawmakers. Diana Aviv, president and CEO of Independent Sector, believes new regulations under discussion will at least require electronic filing of Form 990, audited financial statements for nonprofits with more than $2 million in revenues, and the signing of returns by the CEO, CFO, or a responsible trustee.

Senate Finance Committee insiders say the reform panel established by Independent Sector carries great weight with Grassley and committee ranking member Max Baucus (D-Mont.). What may concern the senators most is that nonprofit boards are asleep at the wheel — that directors think they were appointed for ribbon cuttings rather than for actively managing their institutions. As for financial transparency, the insiders say the Senate has obtained enough research data to confirm their view that Form 990s are frequently incomplete and inaccurate, filled out inconsistently, and filed late — and, therefore, must be reformed.

With that in mind, Aviv says, the nonprofit CFO “has a heightened role now more than ever.” She urges finance chiefs to work with executives and the board to beef up oversight, accountability, and transparency. Her recommendations: institute conflict-of-interest policies; conduct regular audits; have a financially literate board; help CEOs understand Form 990; establish procedures for setting executive compensation; and, in particular, make sure noncash gifts are not overvalued by donors (this problem has lately become a lightning rod for criticism).

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