The Struggle Continues for Nonprofits
Demand is Up but Resources are Down
by Richard Sutter
The current economy continues to be a challenge for nonprofit organizations throughout the nation as well as Brevard County. The demand for services from nonprofits, especially health and welfare organizations, has been growing exponentially while sources of resources are dwindling. According to the Community Foundation for Brevard’s website, www.ConnectBrevard.com, there are over 2,300 nonprofit organizations within Brevard County, including public charities, private foundations, and other not-for-profit organizations. Of these, there are approximately 470 listed as health and welfare type organizations providing emergency shelter, food and health services for those in need.
The increased need in our community, as well as most others, has resulted in these organizations seeking funding from sources other than their traditional cash contributions. They are now increasing their focus on fundraising efforts through special events and also turning to the local, state, and federal governments for grants.
Providing Critical Data
From an accounting standpoint, the greatest need is to provide accurate and relevant information to these organizations and their donors concerning their finances. In an age where the buzzword ‘transparency’ is used all too often, it is important to provide the organizations and their donors with this sort of information so that it is reasonably clear where the money that is donated is spent. Donors, with good reason, wish to see the most of every donated dollar spent to forward the organization’s cause and not get diluted by paying excessive administration costs.
As an example, a health and welfare organization for which I have performed an annual audit for several years has more than quadrupled over the past five years, both in size and clients served due to the downturn in the economy and the reduction in activity at Kennedy Space Center. As a result of the demand, the organization has turned to the local, state and federal governments for grants that enabled it to expand its services in an attempt to meet the growing need.
The Bigger You Grow the Harder They Look
As with private donors, the government also looks for reassurances that the funds that it gives to organizations such as this one are well spent and that the organization is a good steward of the funds it receives. To this end (and this is normally where I get involved), the government may require an audit of the organization’s financial statements. This organization has had an audit performed on an annual basis for many years, but now that it has expended more than $500,000 in its current fiscal year, it is subject to the more stringent Government Auditing Standards, including the Single Audit Act.
An audit under these standards not only applies to the basic financial statements, but includes audits of the major programs funded by the government funds. As you may have already guessed, an audit of this nature requires significantly more time and effort by both the organization’s staff and its auditors since the Single Audit is essentially several audits wrapped into one with an emphasis on whether the organization is in compliance with the grant contracts and applicable laws.
Knowledge Is Power
The Single Audit Act was originally enacted in 1984 as a cost saving measure permitting one audit of the financial statements and major programs to substitute for individual audits of each program or grant. Thankfully, the additional funds received more than justified the increase in audit fees and the firm still has a happy client.
In conclusion, whether you are an employee of a nonprofit organization, a part of its leadership team or a donor, there are several things to take to heart. First, it is imperative that the organization maintains complete and accurate accounting records since one false step can ruin years of work building the trust of your donors; and secondly, it is very important to understand what requirements come with any new sources of funding. In certain cases, a single new grant can result in an audit requirement or, as in the case of my client, a more complex and intensive audit for which the cost may not be justified by the additional grant money.
Richard D. Sutter, CPA is the audit manager for Whittaker Cooper Financial Group, Certified Public Accountants and Consultants in Melbourne, (321) 723-3352.