Nonprofits: Transformation as a result of COVID-19

By Danny Sklenicka, CPA, principal, Rea & Associates, Inc

The last two years of the COVID-19 pandemic have been some of the most difficult and turbulent times, and the economic fallout hit the nonprofit industry particularly hard.

Nonprofits experienced stay-at-home orders, limitedcapacity events, event cancellations and reduced donor contributions. As the pandemic continues, the question looms — how can nonprofits continue to serve their mission, and what can they do to ensure financial solvency?

Nonprofit industry

There are 1.3 million charitable nonprofits in America that employ 12 million people and work with 64 million board members and volunteers. Although these organizations vary in size, 92% spend less than $1 million annually, and 88% spend less than $500,000 annually.

And most of them, regardless of size, have experienced lasting effects from the pandemic. Here are some of the most pressing concerns – and what nonprofit leaders can do to make it through to brighter days.

Pandemic fundraising

Nonprofits receive nearly 15% of their revenues through donations from individuals, foundations and corporations. Given the size of many nonprofit organizations, a major reduction in this revenue stream will have significant ramifications in 2022 and future years’ operations. It is critical to stay the course with donor engagement. Here’s how:

Grow relationships: Fear remains prevalent during this pandemic. However, you and your donors might share similar concerns. Reach out to them, listen to their needs and continue to build your relationships as partners weathering difficult times together.

Maintain contact: The last two recessions (2001 and 2008) showed that organizations focused on enhanced donor stewardship recovered more quickly than those that reduced donor engagement. Tell your organization’s story and provide examples of transformational impacts you have made to those you serve during the pandemic. Let them know their contributions will make lasting changes for those you serve.

Review your messaging: You might have a trove of marketing collateral from times before the pandemic, but those messages might not reverberate in the current climate. Make sure your requests acknowledge the difficulties of recent years while emphasizing your organization’s mission and the impact donors have in fulfilling that mission. Emphasize the changes your organization made to weather the pandemic. Focus on the positive and avoid dwelling on the unknown.

In a recent Ohio nonprofit survey, nearly one-third of respondents indicated they were very concerned about declining donations.

Service delivery

How has the pandemic changed how you deliver your services and engage with your employees and volunteers? Despite the obstacles faced, you must continue to provide needed services to your clients and constituents. Some things to think about:

Leadership Capacity: How have your leaders adapted to change? Have you shifted to using more online portals and technology platforms to engage with your constituents? You need a leadership team that understands your mission and challenges and can adapt to continue serving your organization’s mission. It is critically important to ensure you have the right leadership team to instill a positive, proactive mindset.

Collaboration: Given the recent economic challenges, operating in a silo might not be economically or operationally feasible. Who else works in your geographic footprint? They might be experiencing the same struggles and looking for a partner. Reach out to your peers and local leaders to form those partnerships. In one example, a tourist organization connected with local government leaders, presented its revised organizational plan and budget, and obtained a guarantee of consistent funding for the year, allowing them to retain employees and continue previously vulnerable programs.

Technology: Is your technology sufficient to deliver the needs of your employees and constituents? Can your employees work from home and communicate effectively and securely with your current technology resources? Are you able to share data previously stored in folders and file cabinets? Have you converted a paper mindset to a secure, electronic environment? Data are now being used to better engage with constituents and improve service delivery in a more efficient and cost-effective manner.

Financial impact and considerations

For many nonprofits, 2020 and 2021 seemed like a neverending cycle of budget, forecast, review, revise, and repeat. As you prepare for your audits and reviews, consider the following potential impacts on your financial statements:

Liquidity and availability of resources: How much cash and investments are on hand at year-end? How has the availability of resources changed, and what has been communicated to the board regarding the financial condition?

Endowments: Are any of the investments underwater (current fair value is below the original gift amount or the amount required to be maintained by the donor or by law)? Are these underwater endowments significant? If money was borrowed from the endowment, is there a plan to pay those funds back?

Debt covenants or troubled debt restructuring: Have you found yourself out of compliance with debt covenants? If so, have you communicated with the lender, received waivers for covenants, or worked to restructure any debt?

Going concern: Management should perform a detailedreview of its operations and its liquidity and assess if thereis substantial doubt about its ability to continue as a goingconcern.

Subsequent events: Consider any significant operationalchanges (new agreements, contracts) or financial impacts(investment decline, layoffs, etc.) that might need to beincluded in the financial statements.

COVID-19 grants: Has your organization received federalgrant funds? If so, have you worked with the funding agencyto determine how to report the funds and whether a singleaudit might be necessary? Are there additional controls orreporting requirements for these funds?

Path to prosperity

The last two years were certainly challenging for the nonprofitindustry. However, 2022 brings cautious optimism and a

chance to review existing practices to identify opportunitiesfor change to serve your team and your constituents better. Astrategic plan coupled with proactive outreach to donors andpartners will help position your organization for a strong andsustained recovery from the pandemic.

Danny Sklenicka, CPA, is a principal at Ohio CPA Proud firm Rea & Associates, Inc. in Gahanna. He has more than 14 years of accounting/ auditing experience with a focus on not-for-profit, government, and higher education clients. He can be reached at danny.sklenicka@reacpa. com or 614.553.5232.

If you work with or in the NFP sector, check out our Notfor-ProfitConference on June 15 to dive into this topicfurther. To register, visit my.ohiocpa.com.