Insights for Nonprofit Professionals, April 2024

Insights

Best Practices of Highly-Effective Nonprofit Organizations

How to Prepare for Your Nonprofit Financial Statement Audit

By Anthony Savasta, CPA Senior Manager | Holmdel, NJ

Remaining transparent and open is crucial to being a successful nonprofit in the eyes of stakeholders, donors, and the public. One way to demonstrate transparency is through your financial statements via an independent audit. But before committing the time and resources, your organization should first determine if an audit is necessary. You have other options, such as a review, compilation, or preparation engagement that could satisfy financial transparency at less cost to your organization. This article will discuss the factors in determining whether an organization needs a financial statement audit and how best to prepare for that audit.

Do you need an audit?

There are multiple factors to consider when determining if an audit is necessary, including:

• Internal requirements: Organizations have internal documents that can dictate their financial reporting requirements. An organization’s bylaws might state that a financial statement audit is required annually for the organization to remain transparent with donors.

• Charity registration requirement: The state where you are registered might require an audit based on revenue or other financial metrics. For example, in New Jersey, a registered nonprofit organization is required to attach a certified audit with its charity registration renewal each year if its gross revenue exceeds $1,000,000.

• Grant funding requirement: Organizations that expend more than $100,000 in combined federal and state funds in a fiscal year require a Generally Accepted Government Auditing Standards (GAGAS) Audit, frequently called a Yellow Book Audit. Additionally, organizations that expend more than $750,000 in combined federal and state funds in a fiscal year require a Single Audit.

• Grant Application Requirement: At times some grantors require a financial statement audit regardless of the amount awarded to ensure trustworthiness relative to the funds. This could come in the form of a requirement to include your most recent audit with an application in consideration of grant renewal.

There are multiple factors to consider when determining if an audit is necessary:

• Internal requirements

• Charity registration requirement

• Grant funding requirement

• Grant Application Requirement

April 2024

Vol. 4 // Issue 1

CONTENTS

3 / HBK Nonprofit Solutions Contacts

GOVERNANCE

4 / Improve Your Board: Set Clear Expectations

INDUSTRY HIGHLIGHTS

8 / Key Takeaways from the 2023 AICPA National Nonprofit Conference

COMPLIANCE

10 / Understanding and Utilizing Charity Navigator Ratings

CLIENT SPOTLIGHT

14 / Cancer Bridges: Beyond the Hospital Walls

ABOUT HBK NONPROFIT SOLUTIONS

HBK Nonprofit Solutions is a dedicated team of subject matter experts within HBK CPAs & Consultants, an Accounting Today

Top 100 CPA firm. With more than 800 clients in the nonprofit sector, and more than 70 years providing financial compliance and consulting to nonprofits, we offer the hands-on experience and technical skills to help nonprofit organizations fulfill their missions.

Selecting a reputable and experienced audit firm is essential for a thorough and unbiased examination of financial statements

Understanding the audit process

Once an audit has been determined necessary, the next steps are to understand the audit process and properly plan for it. An audit involves a thorough review of financial records, internal controls, and compliance with other requirements to ensure that financial statements are fairly presented in accordance with the applicable accounting standards. Here are some tips to help you prepare for a successful audit:

Financial Accounting Standards

Board (FASB) has put many new standards in place, including ASC 606 Revenue Recognition and most recently ASC 842 Lease Standard, that have had significant impacts on nonprofit organizations’ reporting.

• Maintain accurate financial records. Accurate and up-to-date financial records and reports are essential for a smooth audit. Accounts should be reconciled and reviewed by management and/or the board of directors on a regular basis not only to ensure proper documentation for an audit but to assist in identifying errors and discrepancies that can be addressed prior to the audit.

• Be cognizant of changes in accounting standards. In recent years, the Financial Accounting Standards Board (FASB) has put many new standards in place, including ASC 606 Revenue Recognition and most recently ASC 842 Lease Standard, that have had significant impacts on nonprofit organizations. It is important for management to stay up to date on new standards as they enter the pipeline so the organization can properly prepare for them. Some new standards can be complicated enough to require additional training of accounting personnel prior to implementation.

• Engage professional auditors. Selecting a reputable and experienced audit firm is essential for a thorough and unbiased examination of financial statements. The board of directors and/or audit committee should seek recommendations, conduct due diligence, and ultimately choose an audit firm with a track record in nonprofit auditing. The process of selecting an auditor can take one to three months, so getting started early is key.

• Develop a timeline and establish responsibilities. As part of the process of engaging an auditor to perform a financial statement audit, the auditor will provide an engagement letter laying out the terms of the engagement, including expectations, responsibilities, start date, and expected issuance date. It is important to review and agree to the terms laid out and make sure that your accounting department is aware of the timeline and the expected fieldwork dates.

• Prepare for the auditors. An auditor typically prepares a document request list prior to the start of an audit, listing what they need and expect to receive prior to and during the scheduled audit fieldwork. Here is a checklist of some requests to expect for individual accounts:

• Reconciliations for all bank and investment accounts

• Aging schedules for accounts receivable and payable

• Schedule of capitalized assets along with the related capitalization policy

• Schedules and statements for debt and other long-term liabilities

• Schedule of donor restricted net assets

• Schedules of major sources of revenue

• Schedule of expenses allocated by functional categories

Preparing for a nonprofit financial statement audit requires careful planning, attention to detail, and a commitment to transparency. By understanding audit requirements, maintaining accurate records, staying up to date on new standards and pronouncements, engaging a professional, and understanding the timeline, responsibilities and audit requests, your nonprofit organization will be able to navigate the audit process successfully and efficiently. Proactive measures, clear communication, and a commitment to continuous improvement contribute to building a strong financial system of integrity and fair financial reporting.

For more information on nonprofit auditing efficiencies, see “Nonprofit Audits Made Easy or Easier” by Kathleen M. Clayton, CPA, PSA, Principal and Co-National Director of HBK Nonprofit Solutions, at https://hbkcpa.com/nonprofit-auditsmade-easy-or-easier/

Anthony Savasta, CPA

Senior Manager

Anthony is a Senior Manager in the Holmdel, New Jersey office of HBK.

He has more than ten years of experience in audit and assurance. He serves a variety of clients including nonprofit organizations, employee benefit plans, and S-Corporations. Since joining the firm, he has specialized in the nonprofit industry, leading audits of organizations receiving public support and government funding.

For more information, contact Anthony at 732-453-6532 or asavasta@hbkcpa.com

HBK Nonprofit Solutions Contacts

Darby Beaverson, CPA

Principal, National Assurance Director

| Naples, FL

T (239) 263-2111

E DBeaverson@hbkcpa.com

Kathleen Clayton, CPA, PSA, MBA

Co-National Director, Nonprofit Solutions

Principal | Holmdel, NJ

T (732) 453-6528

E KClayton@hbkcpa.com

Melissa Crowley, CPA

Principal | Youngstown, OH

T (330) 758-8613

E MCrowley@hbkcpa.com

Amy Dalen, JD

Co-National Director, Nonprofit Solutions

Principal | Naples, FL

T (239) 263-2111

E ADalen@hbkcpa.com

Timothy Gagen, CPA

Principal | Pittsburgh, PA

T (724) 934-5300

E TGagen@hbkcpa.com

Sean Kocan, CPA

Principal | Pittsburgh, PA

T (724) 934-5300

E SKocan@hbkcpa.com

Ashlynn Reeder, CPA, MST

Assistant Director, Nonprofit Solutions

Senior Manager | Naples, FL

T (239) 263-2111

E AReeder@hbkcpa.com

Anthony Savasta, CPA

Senior Manager | Holmdel, NJ

T (732) 453-6541

E ASavasta@hbkcpa.com

Teal Strammer, CPA Manager | Sarasota, FL

T (941) 909-7607

E TStrammer@hbkcpa.com

IMPROVE Your Board:

Set Clear Expectations

By Michael B. Ross, MSOL, MSPM, CBC Principal, High Performance | Youngstown, OH

Over the past 15 years, I’ve worked with hundreds of nonprofits in leadership development, culture alignment, strategic planning, and succession. I’ve discovered at least one certainty: For a nonprofit to be successful it must have board members who are engaged, active, and supportive. But most nonprofits don’t set clear expectations for board members in terms of their contribution, behavior, or communication. Without clear expectations people focus on their own agendas, which is understandable, but individual agendas can be disastrous for directors and a CEO attempting to unify their organization behind a common vision.

For a nonprofit to thrive, board members must dedicate their time, energy, and focus to becoming good board members. It takes work. It takes commitment. It takes intentionality. In this article, I’ll address some of the differences between good and poor board members, and explain what nonprofits can do to set clear expectations for their boards. Then, I would like to offer a simple call to action.

Good versus Poor: Alex & Mark

Alex Mark

Alex is a dedicated and effective nonprofit board member, in contrast to Mark, a less-than-ideal counterpart.

Passion:

Alex is deeply passionate about her nonprofit’s mission. She is actively engaged in the organization’s initiatives, attending events and volunteering time to support various programs. Her passion translates into a strong commitment to the cause, aligning with the organization’s goals.

Mark, however, lacks enthusiasm for the mission. He rarely attends events or participates in activities, showing a lack of dedication to the organization’s core purpose.

Key takeaway: Board members must be the biggest supporters and even biggest fans of the nonprofit they represent. If not, being on the board can feel like an obligation and not an opportunity to advance the mission.

Leadership:

Alex excels in strategic planning. During board retreats, she actively contributes to discussions, helping to set clear goals and objectives for the organization. Her ability to articulate a vision and guide decision-making ensures the nonprofit is on a path to long-term success.

On the other hand, Mark is disengaged during strategic planning sessions. He fails to provide meaningful input, leaving the board with vague goals and a lack of direction.

Key takeaway: Board members are leaders of their respective nonprofit. They must be proactive by being observant, asking questions, giving feedback, and advancing initiatives.

Transparency and Collaboration:

Transparency is a hallmark of Alex’s leadership. She fosters open communication among board members, sharing information about challenges and successes. This transparency builds trust among members, creating a positive and collaborative environment.

Mark, however, tends to withhold information and is not forthcoming about challenges. His lack of transparency erodes trust within the board, hindering effective collaboration.

Key takeaway: Board members pushing their own agenda often withhold information and aren’t forthcoming about challenges. Good board members understand that their role is to advance the mission, and they keep their egos in check.

Financial Stewardship:

Alex takes a lead role in overseeing the organization’s budget and financial policies. She actively participates in fundraising, leveraging personal networks to secure resources for the organization. Alex’s financial acumen ensures the nonprofit’s fiscal health.

Conversely, Mark lacks involvement in financial matters. He shows little interest in fundraising, neglecting his role in contributing to the organization’s financial stability.

Key takeaway: With no money there’s no mission; and with no mission, no money. Every board member must be dedicated to the financial health of their nonprofit. If they are not contributing in this area, they are inhibiting the organization and its mission.

Community Engagement:

Alex actively builds relationships with local stakeholders, ensuring the nonprofit is responsive to their input. Her community engagement contributes to the organization’s relevance and impact.

Meanwhile, Mark does not prioritize community engagement. He neglects to connect with stakeholders, diminishing the nonprofit’s ability to understand and address the community’s concerns.

Key takeaway: Leaders actively put their teams in the best position to succeed. By utilizing their influence in the community, board members broaden communication, raise community awareness, and put their organization in the best position to raise funds, attract volunteers, and meet more people’s needs.

Ethical Leadership:

Alex upholds ethical standards rigorously, ensuring the nonprofit operates with integrity. Her commitment to ethical leadership earns the trust of both board members and the wider community.

In contrast, Mark’s approach lacks ethical diligence. He may engage in questionable practices that compromise the organization’s reputation and trustworthiness.

Key takeaway: Board members must have integrity. They are a part of the “face” of their organization. They must maintain the highest standards of excellence in their role.

Choosing Board Members

Alex represents the qualities of a good nonprofit board member –passionate, strategic, transparent, financially responsible, engaged with the community, and committed to ethical leadership.

Alex Mark

In contrast, Mark’s disengagement, lack of transparency, financial neglect, community disconnection, and ethical lapses make him a lessthan-ideal board member. Anyone who has been involved in nonprofit leadership has experienced good and poor board members. But what can nonprofits do to ensure they choose good board members?

First and foremost, remember that it is a privilege and honor to be on the board of your nonprofit. Often nonprofits can appear desperate when asking people to be on their board. Instead, operate with intention. Poor board members cost nonprofits dearly in time, energy, and resources. To be intentional about selecting board members, here are a few suggestions:

Create a board member profile:

Prior to inviting people to be on your board, you must know the qualities, skills, resources, and availability you want in a board member. Put these qualities in detail in writing, and discuss them with executives and board members. The resulting profile will serve as your guiding standard for selecting board members.

Create board member expectations:

In detail, write down your expectations for board members. Here are three key expectations you might set for nonprofit board members:

• Commitment to the mission: Expect board members to fully align with and champion the organization’s mission. This involves understanding the purpose, values, and goals of the nonprofit and actively contributing to its fulfillment.

• Active participation and engagement: Set expectations for regular attendance at board meetings and active participation in discussions. Board members should come prepared, contribute meaningfully to strategic conversations, and engage in key initiatives and events.

• Fundraising Support: Clearly communicate the expectation that board members will actively support fundraising efforts. This may include leveraging personal networks, making personal financial contributions, and participating in donor cultivation to secure necessary resources for the organization.

Expectations help ensure that board members are not only aligned with the organization’s mission but also actively contribute to its success through engagement, commitment, and support in critical areas like fundraising. Write down every expectation with as many details as possible.

Adopt a structured interview process:

Here’s a simple interview process you can follow:

• Application: Request interested individuals to submit a written application including their resume, a letter of intent expressing their interest in the board position, and any relevant experience or skills.

• Initial screening: Conduct an initial review of applications to shortlist candidates. Look for alignment with the organization’s mission, relevant skills, and a commitment to actively contribute to the board.

• Phone or video interview: Schedule a phone or video interview with shortlisted candidates to assess their communication skills, enthusiasm for the mission, and the potential for collaboration.

• In-person interview (if feasible): For local candidates, consider an in-person interview to further gauge their commitment and interpersonal skills. This step allows for a more personal connection and a deeper understanding of the candidate’s motivations.

• Reference check: Conduct reference checks to verify the candidate’s background and past experience. Speak with individuals who can provide insights into the candidate’s work ethic, collaboration skills, and commitment.

• Board meeting observation: Invite final candidates to observe a board meeting to witness the dynamics of the board and gain a better understanding of their potential role.

• Board approval: Present the vetted candidates to the existing board for approval. Discuss the candidates’ strengths, alignment with the organization’s needs, and potential contributions.

• Orientation and onboarding: Once approved, provide a comprehensive orientation for new board members. This should cover the organization’s history, mission, current initiatives, and expectations related to their participation.

By following these steps, you can ensure a thoughtful and structured process for selecting board members who not only possess the necessary skills but also align with the organization’s mission and are committed to active engagement. Do not be haphazard in this process; be intentional.

Accountability

Board members should not have to be held accountable; they should be accountable. But if a board member is not fulfilling expectations, and you have to hold that member accountable, here is a process to follow:

• One-on-one confrontation: Take the board member aside and confront them. Assume positive intent. Use inquiry, not suspicion. Reiterate expectations.

• Establish consequences: Every organization is different and therefore consequences will vary. However, there must be consequences. If you permit poor behavior, you promote it.

• Over-communicate expectations: Ensure you communicate repeatedly the expectations of board members. Do this before and after board meetings. Make sure the board continues to understand what and how they are supposed to contribute. The more you communicate, the more board members will focus on meeting expectations.

We can help

HBK Nonprofit Solutions can help you establish these processes for your organization. Contact us to set up a 30-minute complementary consultation where we can discuss effective processes and systems that will improve your board and its performance. Book your consultation at: https://highperformancehbk.com, or email Mike Estrich at mestrich@hbkcpa.com

High Performance

Principal

Michael Ross has worked with hundreds of business owners and executives, from large corporations to small businesses, helping them become more effective leaders who inspire their employees and grow their revenues. His dynamic leadership programs have reshaped companies from stagnation and paralysis to highly competitive and successful organizations. As a college athlete and during his service with the United States Navy, Michael learned that intentional actions combined with strategic disciplines can create exceptional outcomes. He witnessed firsthand the power of unified teams and quality leadership. In building his firm and programs, he has used his education and experience to help leaders clarify their vision and enact real behavioral change in their organizations.

For more information, Connect with Michael Ross on LinkedIn: http://linkedin.com/in/michael-b-ross-914b2866 HBK

By HBK Nonprofit Solutions

Michael B. Ross, MSOL, MSPM, CBC High Performance Principal | Youngstown, OH

Key Takeaways from the 2023

AICPA National Nonprofit Conference

In June 2023, three members of HBK Nonprofit Solutions—Anthony Savasta, CPA; Teal Strammer, CPA; and Ashlynn Reeder, CPA, MST— attended the 2023 AICPA National Nonprofit Conference in Washington, D.C. The Conference consisted of three days of seminars on a wide variety of topics, from Uniform Guidance Auditing best practices to cybersecurity and fraud risk management. Following are reports on key Conference sessions:

Mission-Critical: The SEFA:

Elevating the Role of the Nonprofit Finance Leader by Natalie Anderson and Chuck Miranda of Sage Intacct.

The presenters discussed the changing role of financial leadership in nonprofit organizations. Historically over half those leaders’ time has been spent in accounting through manual processes and calculations. But through automation and software products like Sage Intacct, they proposed, the financial leader can become a datadriven strategist. They showed samples of dashboards from these systems that present key financial results and other metrics in real-time. There is a growing shift to automation and artificial intelligence, and they discussed one of the possible steps nonprofits can take in this direction.

How to Get it Right by Sadie Mayle, CPA and Rachel Stushek, CPA.

The speakers discussed the requirements of Schedule of Financial Assistance (SEFA) reporting, including a discussion of common errors. It is important to make sure that SEFA provided at the beginning of an audit agrees with the information that needs to be reported in the financial statements at the conclusion. Audit adjustments and other changes could lead to the need for the auditee to revisit the SEFA. Another common error in SEFA reporting is the lack of cluster presentation. It is important to include the cluster name, individual programs within the cluster, and the applicable federal agency name in the SEFA to ensure requirements are met.

Top Challenges Facing NFPs Today

by Divya Gadre, Ted Phillips, and Amy West, CPA.

Topics included increasing interest rates, outsourcing, the structure of the board of directors, and the role of the CFO. The discussion of outsourcing addressed the different needs of different organizations, such as outsourced accounting, information technology, human resources, and marketing. There are many nonprofits with small teams that are so mission-focused that they lack the infrastructure in these areas that require significant technical expertise. Outsourcing can be a great opportunity to get specific skills into the organization at reasonable rates without having to hire and train employees.

Deploying a 501(c)(4) for Maximum Impact

by Dick Locastro, Diara Holmes, and Lauren Haverlock.

The presenters not only discussed the structure of these types of organizations, and the mechanics of applying for exemption under this code section with the IRS, but they also brought forth ways in which these organizations can be included in income tax and estate planning. While these types of organizations aren’t a “one size fits all,” when they do fit, they can have a substantial impact on the estate plan as well as the family legacy.

View of the IRS moderated

by Meghan Bliss.

This annual session is hosted by representatives of the IRS who specialize or work in the IRS’s Tax Exempt & Government Entities Division. They provide insights into different regulations, how the IRS sees those regulations impacting tax-exempt entities, and the status of certain initiatives within the IRS as they relate to nonprofit organizations. They also highlight requests for comment that are ongoing, and specifically acknowledge the AICPA’s responses to those requests. For those professionals who work on the tax compliance side of the nonprofit industry, this session is especially insightful, as it will cover the difficulties the IRS is seeing and existing remedies for those situations.

Show me the Money

by Isreal Tannenbaum and Brian Yacker.

Reporting compensation on 990’s has always been an area of confusion, especially with definitions that are specific to those parts of the Form 990 and 990-PF. For officer compensation specifically, the definitions of who qualifies, what is considered compensation, and how to report that compensation can be tricky. There is also the determination of what is considered “reasonable” compensation that can be a pitfall for a nonprofit. I highly recommend this session to anyone who is preparing a 990-series return or who is involved in setting or monitoring compensation within a nonprofit organization.

Making the Most of Your Audit

presented by Cohn Reznick

Ryan Jenkins talked about how important it is to connect to others. He provided statistics showing that employees are feeling disconnected, and that they don’t feel their workplaces are addressing the issue or providing opportunities for belongingness. Younger generations appear to feel lonelier than their elder peers. Additionally, employers may not be even aware of the importance of fostering ways for their employees to fell like more than simply workers who clock in and out every day. His research also touched on the different generations that are currently in the workforce and how the importance of connections among these diverse generations could lead to increased performance, engagement, and worker retention.

Cybersecurity is an issue that everyone, not just nonprofit organizations, should be concerned with. Organizations need to spend the time it takes to ensure they have properly assessed potential risks and to implement strategies to mitigate attacks. Nonprofits are targets for cyber assailants: They store a significant amount of data on donors and members, and they send marketing messages that cyber assailants can copy to get cyber victims to click on thinking they are responding to a nonprofit. The presenters covered local, state, federal, and international regulations and laws currently in place to address cybercrime. Noncompliance with rules is being enforced: Examples were given of companies that have violated privacy laws and the associated settlements to deter others from doing the same.

The presentation was a valuable refresher on the roles of auditors. We strive to have seamless and efficient audits and hope to provide valuable information regarding the application of accounting policies, and recommendations for internal controls. Although the audit period can be an arduous process, the end result provides a tangible result that is needed to satisfy the requirement that made an organization seek an audit in the first place. Auditors can also be used as advisors outside of the audit period to assist organizations with financial questions. We are able to provide recommendations to help management make decisions while maintaining independence.

Outside the Lines Compliance

Understanding and Utilizing Charity Navigator Ratings

By Sean Kocan, CPA

In the dynamic landscape of philanthropy, where countless nonprofits vie for support and resources, the importance of transparency and accountability cannot be overstated. One invaluable tool aiding both donors and nonprofits in this pursuit is Charity Navigator, a platform that assesses and rates the financial health and accountability of charitable organizations. Understanding the significance of Charity Navigator ratings is essential for both donors seeking impactful giving opportunities and nonprofits striving to build trust and credibility within the philanthropic sector.

Who is Charity Navigator?

Since 2001, Charity Navigator has provided free access to data, tools, and resources on more than 225,000 charities to guide philanthropic decision-making. The extensive ratings illustrate the costeffectiveness and overall health of a charity’s programs, encompassing measures of stability, efficiency, and sustainability. The metrics inform donors of not just where their dollars are going but what their dollars are doing. Like the organizations rated, Charity Navigator is a 501(c)(3) nonprofit; there’s no charge to the charities, ensuring the objectivity of the evaluations and ratings.

What is the Charity Navigator rating system?

The Encompass Rating System assesses four domains or “beacons”:

1. Accountability and Finance

2. Leadership and Adaptability

3. Culture and Community

4. Impact and Results

These beacons are weighted differently based on how many have been earned and result in a numeric score of between zero and 100 and a related 1- to 4-star rating.

Rating Score Assessment Description

4-star 90+ Great

3-star 75 – 89 Good

2-star 60 – 74 Needs improvement

1-star 50 – 59 Poor

0-star < 50 Very poor

Charity Navigator recommends charities achieve at least a 3-star rating and currently one in three organizations on its site have a 4-star rating.

Because it must ensure comparable and fair analysis, Charity Navigator only rates 501(c)(3) tax-exempt organizations that file a full Form 990 for three consecutive years. Those that do not have three years of financial history or those that file a 990-EZ, 990-N, or 990-PF are not eligible.

The data used in compiling the ratings comes from three sources:

• The IRS provides data via regular data transfer for organizations that electronically file.

• Organizations provide their own information.

• Data partners, such as Candid/GuideStar and Impact Genome, share data they have collected about organizations.

Charity Navigator updates its scores based on the most recent available information on the first day of each even month as well as prior to Giving Tuesday. Data not obtained from Form 990 is retained and applicable for use in determining ratings for three years.

Exceeds or meets best practices and industry standards across almost all areas. Likely to be a highly effective charity.

Exceeds or meets best practices and industry standards across some areas.

Meets or nearly meets industry standards in a few areas and underperforms most charities.

Fails to meet industry standards in most areas and underperforms almost all charities.

Performs below industry standards and well underperforms nearly all charities.

Who uses Charity Navigator ratings?

Nonprofit organization leaders should understand the potential audiences for their ratings. The following groups can be expected to review them:

• Individual donors to ensure they are giving to an effective, impactful and trustworthy organization

• Foundations and grant makers, such as community foundations or family foundations of all sizes, to serve as initial due diligence

• Institutional donor-advised funds when determining recommendations to high-networth philanthropists

• Media for content for ongoing coverage as well as when a crisis occurs

• Nonprofit professionals to help guide career decisions

• Corporations to guide corporate social responsibility efforts

Is a Charity Navigator assessment worth the effort?

Without hesitation, the answer is “yes.” Donors are increasingly focused on ensuring their contributions have a tangible and positive impact. Charity Navigator’s ratings provide donors with a comprehensive understanding of how efficiently a nonprofit uses its funds to achieve its mission. Charity Navigator prioritizes in their search and curated lists organizations with 3- or 4-star ratings and with two or more beacons. Their internal analysis demonstrates that organizations receive additional donations for every beacon they complete and being on their curated lists translates to significant increases in giving.

Securing and upholding a positive rating from Charity Navigator goes beyond mere accolades; it becomes a strategic necessity. Elevated ratings not only draw in more donors but also elevate the standing of the organization, creating opportunities for partnerships and collaborations. Nonprofits can leverage the ratings to identify areas that require their focus and showcase their commitment to their responsibilities to stakeholders.

The Four Beacons

• Accountability and Finance addresses the financial health, sustainability, and level of governance practices in place. It tells the audience the organization has the practices in place to ensure that fiduciary and governance best practices are followed and donation dollars are used wisely. The primary source of data is the previous three years of the organization’s Form 990. The metrics evaluated can be broken down into the two categories: accountability and financial.

Accountability includes the following metrics, some only applicable for larger organizations meeting certain revenue thresholds: Audited Financial Statements/Audit Oversight Committee

Financial analysis consists of four financial metrics: Programs Expense Ratio and Liabilities to Assets Ratio apply to all organizations; Working Capital and Fundraising Efficiency apply to organizations with more than $2 million in annual revenue. The metrics are calculated using an average of the three most recent years of Form 990 data. If an organization has found any errors in its previous filings, the only mechanism to reflect its correction in the above analysis is to amend them. This beacon cannot be evaluated by Charity Navigator for organizations that do not file a Form 990, such as religious organizations.

• Leadership and Adaptability evaluates an organization’s leadership capability, strategic evolution, and capacity to adjust to both internal and external changes, ultimately enhancing its effectiveness in fulfilling its mission. When an organization has a focused mission, a clear strategic plan, and capable and adaptable leadership, it is more likely to solve the underlying issues addressed by its program.

Charity Navigator identified the following critical components that evidence suggests are necessary for nonprofit effectiveness:

• Mission, vision and strategy statements

• Investment in leadership development and external focus on mobilizing mission

• Evidence of adaptability

Organizations can provide the necessary information by logging into the Charity Navigator Nonprofit Portal. Each question is assigned a set point value. Charity Navigator does not score the quality of the organization’s components, rather it scores solely on the presence or absence of them under the belief that an organization that demonstrates each of these components is likely to be more impactful and more effective than those without. The organization’s Leadership and Adaptability score reflects the sum of the points earned for each question answered.

• Culture and Community provides insights into how organizations listen to their constituents, use the feedback they collect to foster impactful programs and services, and sustain a diverse, inclusive, and equitable workplace culture. This beacon can be segmented into two aspects:

• Constituent feedback: Organizations with strong feedback practices are often more effective and provide higher quality programs. This metric assesses the extent to which the organization collects and uses feedback from its beneficiaries to improve program outcomes. Charity Navigator has partnered with GuideStar by Candid to survey organizations about their feedback practices. In order to receive full credit, organizations must fill out the “How We Listen” section of their Candid profile.

• Commitment to equity: Strong equity and inclusion practices help foster a positive workplace culture and, in some research, have been found to enhance a nonprofit’s decision-making, staff motivation, innovation, and effectiveness. Charity Navigator has partnered with GuideStar by Candid to collect data on charity equity strategies and provide a score on the number of strategies an organization has adopted. Currently, scores are not negatively impacted if they do not provide data for this metric, or if they have not adopted any strategies. To receive credit, organizations must fill out the Equity Strategies Checklist in their Candid profile.

• Impact and Results: Donors want to ensure their dollars are doing the most good when they support a charity. The Impact and Results beacon assesses whether an organization uses its resources efficiently to fulfill its mission.

Charity Navigator has created methodologies for 17 program areas as of this writing, and is working on expanding its methodologies to be inclusive of more types of organizations. The listing of types of eligible programs can be found on its website. The impact score is calculated based on organization-submitted data on program outcomes and program expenses. The cost-effectiveness of the program is then assessed as either highly cost-effective, cost-effective, or not costeffective with resulting scores of 100, 80 and 65, respectively. Data is submitted via the Charity Navigator Nonprofit Portal. If you are eligible for an impact and results score, be sure to carefully review the data elements and their definitions in the questionnaire before submitting your information.

Charity Navigator is currently pilot-testing a new short assessment of impact so organizations that do not fall in one of the current 17 program categories can tell their story. General release is expected in the first half of 2024; for updates, monitor the Charity Navigator website.

HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE

Steps to take right now

• Review your organization’s profile on Charity Navigator.

• Review your accountability and finance beacon score. If your organization is new to Charity Navigator, it is likely that the only score you have is based on your accountability and finance beacon score. Review that section to find areas where you can improve. Also, note the various data points from your Form 990 being evaluated by Charity Navigator, and carefully review them prior to filing your next Form 990.

• Access or create your Charity Navigator Nonprofit Portal account and submit additional data. You can earn your leadership and adaptability beacon and, when eligible, your impact and results beacon.

• Access or create your Candid profile. Earn your culture and community beacon by completing the “How We Listen” and “Equity Strategies Checklist” sections.

Sean

Kocan, CPA

Principal | Assurance Director, HBK Nonprofit Solutions

By HBK Nonprofit Solutions

Sean has been with HBK since 2011 and provides assurance services for a variety of nonprofit organizations. He consults on internal controls and has helped numerous clients identify and remedy control deficiencies. His expertise reflects his broad experience and background in fraud examination.

Sean is a member of the HBK Assurance Practice Committee that establishes and enforces the firm’s quality control standards for its assurance services. He is the the Assurance Director for HBK Nonprofit Solutions.

Sean’s industry-related experience includes serving as the lead principal on nearly all of the HBK Pittsburgh office’s audits of nonprofits, including providers of health services, residential and community based support services, housing and substance abuse rehabilitation, higher education, private and public K-12 education, and religious organizations.

For more information, contact Sean at 724-934-5300 or skocan@hbkcpa.com.

Cancer Bridges: Beyond the Hospital Walls

A Q&A with Stephanie Ciranni, Executive Director, and HBK Principal, Sean Kocan, CPA

Beyondmedical care, that is, beyond the hospital walls, the journey for cancer patients and their loved ones requires a great deal and wide range of emotional and social support. That’s the purview of Cancer Bridges, a Pittsburgh nonprofit whose mission is to support cancer patients, families, and friends with programs and services throughout their cancer journey. It’s a mission they have been on since their founding in 1988, one that over that time has reached more than 16,000 “members,” those with a cancer diagnosis, survivors, those who have a loved one with cancer, and the bereaved. In 2023 alone Cancer Bridges provided more than 500 counseling sessions and more than 2,200 programs overall.

Kocan. Stephanie, the reach of your organization is beyond impressive. Tell us a little about your history, how you came to provide so many services to so many people dealing with cancer.

Ciranni. Cancer Bridges began as the Cancer Caring Center in 1988. The primary focus was on

the emotional support piece of the cancer journey, through group and one-on-one counseling. There was another organization, called Gilda’s Club, an organization that was started in New York by Gene Wilder in honor of his wife, Gilda Radner. They opened in 2006 and primarily focused on social support and family and youth programming, opening a community center where people looking to escape the isolation that so often accompanies the disease could go. In 2014, that entity, under the name of Our Clubhouse, became an independent nonprofit, and in 2021, Cancer Caring Center and Our Clubhouse merged to become Cancer Bridges. We had been referring members back and forth to get the different type of support they needed, and the executive directors and Board members coordinated the merger to give everyone in our community dealing with cancer one place to go for emotional and social support.

We now offer nearly 200 free programs and activities every month. Our programs are complementary to medical care and support the

psychosocial needs of a cancer diagnosis. Anyone impacted by cancer is welcome to join Cancer Bridges and receive the social, emotional, and informational tools they need.

Kocan. I know you have a tremendous community of support in terms of volunteers. Tell us about the makeup of your organization, that is, how you are able to deliver so many programs to so many people?

Ciranni. We have a staff of eleven overseeing programs, administration, and development. They’re split pretty evenly between full-time and part-time. In 2023, we had more than 900 volunteers doing everything from helping at the front desk to running classes. A lot of those are people with a skill they can share, and we’ll create a program around it, for example, a knitting class or yoga. Our team is extended by about 25 facilitators who help run our support groups and specialized programs, and our Board of Directors includes 18 members.

We welcomed more than 900 new members in 2023, and we maintain contact with every member to ensure they have access to the services they need.

Kocan. Despite all those volunteers, your costs of running all your programs and providing services and maintaining your facilities has to continue to increase as you serve more and more members. So how do you raise funds?

Ciranni. We receive no state funding, no government funding at all, and we don’t accept insurance. We rely 100 percent on our three pillars of fundraising. We have five signature fundraising events throughout the year, including a gala in November, a golf tournament in June, a Topgolf event, a vendor fair in the fall, and a wine tasting in the spring. Individuals in the community host third-party fundraisers, like golf tournaments and roundups at restaurants. Secondly, we apply for grants, more than 200 in 2023, mostly local, many from small family foundations in the Pittsburgh area and beyond. And our third pillar is individual donors, the many wonderful people who donate in response to appeals that we send out, simply because they appreciate the work we do, and often in honor of a member who benefited from our services.

Kocan. Stephanie, what would you say is your greatest challenge to continuing this level of service?

Ciranni. Keeping up with the unfortunate need for our support. The instance of cancer in our county alone is 50 percent of our community. We welcomed more than 900 new members in 2023, and we maintain contact with every member to ensure they have access to the services they need.

Our biggest challenge is financially supporting the growth we have seen since the merger, an increase of at least 20 percent a year over the past three years. Previously we were seeing about 15 to 20 new members a month; it’s been between 80 and 100 a month over last two years: from ages 3 to 97; the diagnosed, friends, families, the bereaved; adults, children from throughout Pennsylvania. To be able to continue to offer the level of support we’re providing and the number of programs so that every member has access to the services they need, and raising the money to support all that, that’s an ongoing challenge.

Kocan. You chose to engage HBK as your auditing and accounting firm with the merger. How has it helped to work with an accounting firm experienced in working with nonprofits?

Ciranni. HBK came in and tackled the enormous burden of our first-year audit as a merged organization. The merger was in September so the first quarter of our fiscal year was as two separate organizations. Given our small staff, having that guidance and expertise during that critical audit was crucial as we were also managing bringing two organizations and staffs together during COVID under new leadership. We wanted new vendors to support us as one, new, cohesive organization with new best practices, so we issued an RFP. We got a lot of responses, took our time with our finance committee, and HBK kept bubbling up to the top. Comments from our partners in the community were always positive about them and some of our board members had worked with them in other nonprofits. So we decided to go with them that first year, then a second and third, and we’ve never looked back.

Additionally, the internal control recommendations and support provided also has been critical. HBK was willing to walk me through best practices to create a process to rollout to our board and meet our compliance standards and requirements as a nonprofit. If I have a question I know I can always reach out to the team. They’re responsive and helpful. And they have become part of our community and our events; they appreciate the work we do.