Blog - Spokes | Resources for Nonprofits

Conflicts of Interest

December 27, 2020 by Michael Simkins

“Looking at the agenda, does anyone see that they may have a potential conflict of interest?”

As president of a nonprofit board of directors, I routinely ask that question at the beginning of each board meeting. Rarely does anyone speak up, and we go on about our business. We also have a conflict of interest policy and each board member must sign an annual acknowledgement that they have received and read a copy. When it comes to conflict of interest, our board is on top of things, right?

Not necessarily. At a recent meeting of leaders of some of our Spokes member organizations, the topic of conflict of interest came up. These leaders were concerned that their board members did not have a very sound understanding of what constitutes a conflict of interest. That prompted me to do a little research and guess what? I learned that my own concept of conflict of interest, while not wrong, was far too narrow.

Duality of Interests

First of all, the concept of conflict of interest relates to more than direct financial gain. Let’s imagine a board needs to hire a general contractor for some job. Let’s also imagine that one of the board members happens to be a general contractor. We probably all would say that board member should recuse him or herself from the discussion and decision on what contractor to hire for the job. On the other hand, what about a board member who also serves on the board of another nonprofit in the same community. Is that a problem? Could be!

Two considerations can help us to a broader, more complete understanding of conflict of interest. First, we need to think in terms of ethics rather than legality. An action can be strictly legal yet not necessarily the right or good thing to do. Second, we need to remember that among the three “duties” that board members owe to their organization is the Duty of Loyalty—essentially, that they will put the organization’s welfare first.

As the National Council of Nonprofits puts it, “Conflicts can be nuanced and have more to do with a “duality of interests” than a financial conflict.”

What now?

Based on my new understanding, I want to go back and re-read our conflict of interest policy. Are we following it? Does it reflect this broader concept? Does it say anything about how we will manage conflicts of interest that do come up? What should we consider adding or changing? My hunch is there will be work to do.

Want to educate yourself and/or your board on this topic? Here are some excellent resources to share.

Conflicts of Interest | National Council of Nonprofits

Charity Conflicts of Interest: A Guide – Non Profit News …

Nonprofit Conflict of Interest: A 3-Dimensional View – Blue …

Nonprofit Accounting Best Practices

October 28, 2020 by Grace Nielsen

Nonprofit accounting can be a daunting task due to its specific and detailed nature. Here we have compiled some basic information about nonprofit accounting including best practices and software choices.

Basics of nonprofit accounting

Since nonprofits have no ownership interests, receive donations from third parties, and have goals other than making a profit, accounting is much different and often more complex than for-profit accounting.

What makes nonprofit accounting so much different? Business.com’s “A Nonprofit’s Guide to Accounting” sums up three key differences:

Since a nonprofit does not have stakeholders, it produces a statement of financial positions, which outlines assets and debts rather than a balance sheet.
Nonprofits do not have equity, so this item is referred to as net assets, which are labeled as restricted or unrestricted.
Rather than an income statement, nonprofits produce a statement of activities that tracks revenues and expenses for each program.

Nonprofit accounting best practices

When managing your books, protecting your nonprofit’s financial data should be a top priority. Aplos’ “Ultimate Guide to Nonprofit Accounting” and National Council of Nonprofits’ “Internal Controls for Nonprofits” both list important tips for responsible financial management. These can be policies or plans which reduce risk surrounding your nonprofit’s funds or assets.

It may seem obvious, but creating a budget and a multi-year plan is a great way to prepare for spending ahead of time. Both should be realistic for your organization.
Understand the requirements of the IRS and GAAP and remain aware of any rule changes.
Make sure everyone in your nonprofit understands how money travels through your organization. Creating a flowchart can help your staff visualize different responsibilities and risks at different points.
Delegate financial duties among multiple employees.This can prevent fraud and increase accountability.
Manage your fundraising expectations. Use past data to set realistic goals and adjust them if anything goes wrong—or right!

Software

When it comes to accounting software, Best Accounting Software has compiled one ranking of software for nonprofits. Their recommendations:

Aplos as best overall software: Aplos has features important to nonprofits such as fund accounting, membership management, and fundraising capabilities.
QuickBooks Online best for small nonprofits: QuickBooks is an inexpensive software that has the basics of program and fund accounting, donation management, and more.
Blackbaud Financial Edge most flexible for nonprofits: more suitable for large nonprofits, Blackbaud offers user-level permissions tools, customization, and flexibility in financial reporting and analysis.

For more information on nonprofit accounting:

Cal Nonprofits’ Nonprofit Compliance Checklist

Indiana Attorney General’s Best Practices for Nonprofits Checklist (pdf)

Grant Writing Basics

October 5, 2020 by Grace Nielsen

With billions of dollars given away through grants each year, it’s no wonder nonprofits often rely on them as major components of their annual funding. Grants are an excellent way to fundraise for your organization—however, the process can be intimidating.

Grant writing is the process of requesting funding provided by a private, corporate, or government grant maker. Grant seeking can be competitive, which is why it is important for grant writers to write clear, logical, and tailored proposals.

The Writing Center at University of Wisconsin-Madison examines the basics of planning and writing a grant proposal.

One way to begin is to obtain background information on your potential funder. What are their goals and values? How does your nonprofit align with them? This way you can adapt your proposal to further persuade your potential funder. Make sure to review the grant’s expectations to make sure your organization meets the requirements and follows the instructions.

To establish credibility, present your organization as knowledgeable, capable, and forward thinking. Reference past accomplishments where appropriate. Outline your information knowledgeably and concisely—don’t be afraid to be direct!

Once you are ready to start writing your proposal, review the main elements generally included in one:

Short overview/abstract summary: Present the most important elements of your proposal—such as an introduction of your organization, your purpose or goal, expected outcome, and how you will measure your success. It may be best to complete this last, as it is an abbreviated version of your proposal.
Statement of need: Establish value in your project by explaining the problem it will respond to. Include data if necessary.
Description of project/strategies and tactics: Describe your project’s goals, expected outcomes, methods to achieve these outcomes, and the timeline for your project.
Budget: Through tables and figures, clarify what you are asking for with justifications of costs.

Other sections may be required. For nonprofits, funders may ask for organizational qualifications in which you would describe the nature, mission, and function of your organization.

For more grant writing tips:

Candid’s free introductory training on proposal writing

The Modern Nonprofit’s Essential Grant Writing Tips

Grants Plus’ Nonprofit Grant Writing

Risk Assessment for Nonprofits

September 22, 2020 by Grace Nielsen

Last week, we covered the types of insurance your nonprofit should consider. But how exactly do you choose what types of policies you will need for your organization? Doing a careful risk assessment is a good starting place.

What is a risk assessment? Ready.gov provides a simple definition: “A risk assessment is a process to identify potential hazards and analyze what could happen if a hazard occurs.”

A risk assessment contains multiple stages of identifying and prioritizing risk. Nonprofit leaders are responsible for recognizing vulnerabilities and monitoring any risk that could affect their organization.

There are many ways to accomplish a risk assessment based on the size of your organization. For smaller nonprofits, the best way to save money is for internal leadership teams—such as volunteers, boards, or staff—to conduct the assessment. Larger organizations might hire a risk professional or even employ one in-house.

BoardEffect provides a simple risk assessment template that any small nonprofit could use as a practical guide. Essential steps include:

Identify risks in categories such as governance, external, financial, or operational.
Analyze risks and score each for likelihood and impact.
Prioritize and determine how much risk your organization is willing to accept.
Determine which risks are acceptable and decide what you will need to take action on.
Ensure that risk controls are in place.
Monitor and review identified risks and update controls as needed.

Once your organization has recognized and prioritized risks you’ll have a much simpler experience selecting the types and amounts of insurance appropriate for your organization.

Additional resources:

What Types of Insurance Should a Nonprofit Consider?

September 10, 2020 by The Spokes Team

Insurance can be overwhelming for anyone, let alone for a nonprofit organization. However, it is extremely important to stay educated on the types of insurance your nonprofit may need.

View insurance as a step along the way to fulfilling your mission, as it will help protect your organization and its assets and limit barriers to success.

Here are some of the types of insurance policies you may come across. Every nonprofit’s needs are different, so you will likely require a specific combination of policies.

Directors and Officers
A directors and officers policy is important to consider as the management and board of your organization can be sued for wrongful acts or mismanagement, which can result in financial damages not covered by your general liability policy. This coverage can provide defense and indemnification for lawsuits alleging errors made by higher tier executives.

Employment Practices Liability
An employment practices liability policy protects your organization against employee claims of legal rights violations. These internal violations can include sexual harassment, discrimination, and wrongful termination. Some of this type of coverage may be included in your Directors and Officers policy.

General Liability
A general liability policy can protect your organization from claims alleging negligent conduct by your employees, volunteers, or agents. Negligent conduct means your nonprofit failed to use the proper standard of care when carrying out services and this resulted in bodily injury, property damage, or personal injury. This type of policy is one of the most common for nonprofit organizations.

Workers Compensation
California requires that all employers with more than one employee provide workers’ compensation coverage for job-related injuries or illnesses. This policy will protect your organization from employee lawsuits claiming negligence as a cause of workplace illness or injury. Like most other policies, it can be helpful to get quotes from several providers as premiums can vary greatly.

Auto
There are two types of auto coverage: hired and non-owned policies and commercial automobile policies. A hired and non-owned policy protects your organization against claims from employees and volunteers. If an employee or volunteer gets into an accident while driving their personal vehicle on behalf of your organization, this policy could protect against extended losses or lawsuits.

Commercial automobile policies protect the organization when an employee or volunteer is at fault in an accident and can also cover physical damage.

Property
Property insurance will protect property the nonprofit owns. Optional property coverage can include computer or electronic data processing policies.

Employee Dishonesty/Crime
This policy can protect against employee risk of crime such as embezzlement, forgery, theft, or vandalism. Optional policies also cover third party crime such as robbery.

Business Interruption Insurance
Generally, business interruption insurance protects an organization against lost income due to physical loss or damage to covered property resulting from covered peril. Some business interruption policies include special endorsements that insure against lost income sustained due to the existence of a communicable disease at the insured property or a government order prohibiting the use of the property.

There are many elements to consider when shopping for policies: measurement of risk, monetary limits, who is to be covered, and more. Make sure to work with an insurance agent who understands or specializes in nonprofit insurance and the specific risks you may encounter. This will ensure an informed and trusted decision.

Staying informed is the best way to protect your organization from any harm that could burden your mission.

Next time we will take a look at nonprofit risk assessment and how it can help you determine what insurance you may need.

Learn more about the various types of insurance:

What Basic Insurance Coverage Should a Nonprofit Consider?

Types of Insurance Nonprofits Should Consider

Business Interruption Insurance for Nonprofits – Is COVID-19 Covered?