Since navigating the headwinds of the past year, nonprofit organizations have reimagined their operations to maintain relationships with donors, volunteers and the communities they serve while discovering new means to protect mission funding. Even so, the impacts of the pandemic and calls to further social justice work won’t subside overnight, leaving many organizations continuing to reassess their processes, approaches and impact.
In this first blog of a two-part series, we outline five of the top 10 considerations nonprofits are contending with and how organizations can approach them:
Since the outbreak of the COVID-19 global pandemic, some nonprofit organizations have benefited from different types of federal financial aid. These include the Paycheck Protection Program (PPP), Economy Injury Disaster Relief (EIDL) and the Main Street Lending program advances and loans, the Higher Education Emergency Relief Fund (HEERF), the Employee Retention Credit (ERC), the Families First Coronavirus Response Act (FFCRA) paid sick and child care leave and related federal tax credits, shuttered venue relief, special relief for hospitals and health care providers, and the ability to defer certain federal payroll deposits interest-free. To ensure compliance, nonprofits should consider the following questions:
Organizations should involve auditors, bankers and key board members in discussions around managing and abiding by the various requirements of pandemic-related federal financial aid. Nonprofits should be cognizant of any federal program rules (which frequently change) and should be sure to document the organization’s compliance with those requirements.
The Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02, Leases, is now effective for many nonprofit organizations. The impacts of adopting ASU 2016-02 include:
To prepare, organizations should discuss the new lease standard with their accounting advisors and evaluate the impact the standard will have on all facets of the organization’s leasing activities. Organizations should also identify and classify all leases based on the criteria in the ASU, and prepare financial statements based on their guidance to determine whether the organization has any potential issues with meeting current debt covenants as a result of recording these leases. Lastly, organizations should review current lease disclosures and update them to meet the ASU’s criteria.
The FASB issued ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, to increase the transparency of the presentation and disclosure of these items. Important items to note are:
To prepare, organizations should discuss the new standards with their accounting advisors and evaluate the impact the standard will have on the presentation and disclosure of contributed nonfinancial assets.
As many nonprofits have moved to adopt a fully remote or hybrid work environment, there are significantly more employees working from home, using personal devices, internet providers and cybersecurity practices that likely aren’t as robust as an organization’s systems. As a result, there has been an increase in cybercrime, and these occurrences are only expected to continue to rise as bad actors become more advanced. This is especially harmful to nonprofits because of the sensitive information they may have in their records pertaining to staff and the communities they serve. A breach could present significant reputational risk and damage future fundraising efforts and partnerships.
For this reason, it’s imperative that nonprofits prioritize risk management to implement procedures to safeguard against cyberattacks as well as prepare their organizations to respond to a cyber breach. Organizations should develop a robust plan and implement procedures to guide the steps the organization will undertake if a breach were to occur.
For some organizations, remote work has highlighted their reliance on manual workflows. Certain internal processes that worked before, such as cross-organization collaboration in communal workspaces and in-person reviews of invoices, are no longer the status quo.
As a result, organizations should reassess systems, controls and processes from a remote work point of view and develop a plan to share with management and board members/committees. The plan should reflect the organization’s goals for adopting technology across departments, a funding plan and actionable steps to facilitate implementation.
The events of the past year have drawn heightened attention to organizations’ social impact, and nonprofits should carefully consider their organizational approach to DEI. Begin with an exploration of these terms and define what they mean for your organization and its mission. Consider the following questions:
No matter where organizations are in their DEI strategy, they should ensure that it’s ingrained seamlessly in all processes. Organizations can broaden their view by relying on experts, whether the board or external consultants, to brainstorm the most impactful approach.
As we emerge from the pandemic, the nonprofit landscape will continue to evolve. To support operational sustainability and social justice work, it’s imperative for organizations to monitor how these considerations impact their mission and processes, and to remain agile enough to adapt to change.
By Divya Gadre. This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” Blog (July 21, 2021). Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com
If you have questions about nonprofit organizations, contact Sarah DeVoe for more information.