Nonprofit financial governance FAILS

This weekend I took an informal look at the legal and financial filings of two nonprofit organizations that are associated with potential accounting engagements. In other words, this was my preliminary homework in preparation for my work week ahead. What I found could be described as ‘more of he same’ in substandard governance and public reporting that I find to be frustrating for both my own professional practice serving small nonprofits and on behalf of the public.

One organization, a fairly well know national media company, solicits donations online and boasts it’s affiliation with a 501(c )(3) charity. It does not say that donations are charitable donations. So I dug deeper. The problem is that the charity filed its final 990 for 2019 that confirms the charity is terminated. Illegal? Probably not. But definitely misleading to the public. It’s a for-profit asking for donations for what the public perceives to be a nonprofit. Moreover, the organization‘s web site does not appear to be making any effort to make public comments or inquiries easy. I can’t endorse a donation to them at this time despite a great mission and their dominant market position.

Another organization, seeking an audit of their financial statements, did not have internal financial governance capable of even knowing what was being audited. All I can do right now is offer a consultation on the basic steps of nonprofit reporting. Meanwhile they want audited statements by next month for a funding application. Theoretically possible but practically unrealistic. An AICPA publication says that perhaps 30,000 organizations are in this situation of seeking their first financial statement audit. The implication was that many may be unprepared and there is already a shortage of accountants able to accept this work.

Over the years I’ve made a general statement that every nonprofit organization I’ve looked at closely had at least one significant error, omission or financial control weakness in their organizational documents or annual filings . While I don’t actually know if that statement holds up in fact anymore, it does effectively underscore the main point that I’m trying to make. We should be able to do better.

I’ve sort of built a reputation, although not intentionally, of being a ‘crisis accountant’. Somebody has to help small businesses in these situations. I like jumping in when stakes are high and can often help steer back to a good track. But when we can see the crisis is completely avoidable, it also makes sense to sound the horn and call attention to this pattern of observations.