Ever-changing tax codes, new legislation and obsolete laws are another roadblock that can cause nonprofits trouble in the financial sector.
“Nonprofits need to continue to educate themselves,” Jones-Weber said. “The staff has the responsibility of having oversight over other people’s dollars.”
Although it can sometimes be difficult to find educational opportunities, even taking a finance or accounting class at a local college or university can be helpful, she said.
Nonprofits can also use resources offered by firms such as Brooks Lodden and McGladrey, many of which are free.
Brooks Lodden holds a not-for-profit industry update each year, which discusses nonprofit taxation updates, legislative updates, new employment laws and nonprofit accounting updates.
Meanwhile, McGladery has put together a speakers’ bureau that discusses similar topics and pitfalls, and sends out a monthly newsletter that updates its clients on changes in these areas. Storing up cash reserves
Building up a cash reserve can be very difficult, especially in this economy when donations are down and needs are up, said Jones-Weber. However, it’s equally important to have a resource in case something unexpected happens, she said.
Earlier this year the Community Foundation conducted a survey that looked at local nonprofits’ strengths and struggles. Among its findings were that nonprofits are doing better financially than in years past and more are storing up cash reserves. There was a 5 percent increase in nonprofits holding on to a cash reserve of four or more months between 2010 and 2012.
But there is still a great need for organizations to build up their cash reserves. The survey found that about 7 percent of nonprofits have a cash reserve adequate to cover expenses for one month or less, and 8 percent of nonprofits have no cash reserve.
This can be problematic, Alexander said, if a group loses a grant due to tightened funding standards.
“Your funding source may dry up, but you’ve got to keep the doors open,” Alexander said. “Donors want to contribute to those groups who manage funds well.” Having a financially savvy board
Finding board members who are knowledgeable about financial matters is just as important as filling a board with members passionate about a nonprofit’s mission, Pistillo said.
“Too often there are board members without any financial literacy but (who) have a real passion for the mission of an organization and vice versa,” he said.
However, a nonprofit’s small size makes it even more important that it has a strong board.
“Nonprofit organizations typically run lean and mean,” Alexander said. “It can be difficult to acquire and retain employees with a high level of financial literacy. That’s why it’s important to supplement your staff with a financially minded board of directors.”
Jones-Weber agreed, pointing out that the Community Foundation has held seminars over the years to train board members on various aspects of nonprofits, including the financial side.
“It’s very important to have at least one financially minded person on the board to help the rest of the board understand what’s going on,” she said.
What’s more important is putting a monitoring mechanism, such as an audit committee, into place. The audit committee should work closely with the executive director, look over the budget process and make recommendations to the board, Davis said.
“On the board level, there are a lot of different things they have to look at, so (finances) can get lost in the shuffle without a group dedicated to it,” she said.
But only 39.3 percent of organizations reported having an audit committee, according to the Indiana University survey. The majority, 60.7 percent, did not have one.
Davis, who currently leads the audit committee for United Way of Central Iowa, said nonprofits can fine-tune these committees to meet both their financial needs and their members’ time restraints.
“You don’t necessarily need people on the audit committee that are also on your board,” she said, adding that she serves on the Girl Scouts of Greater Iowa’s audit committee but does not sit on its board. “You just need those folks to put attention on financials. There is great value in having people with financial acumen guiding the ship.”