In the face of declining revenues from donors, granting agencies, federal and state governments, and underwater endowments, nearly all associations and other nonprofit organizations felt the squeeze in 2009, according to Grant Thornton LLP's seventh annual National Board Governance Survey for Not-for-Profit Organizations. Organizations responded with all around cost cutting, including 57% of respondents reporting reductions in personnel. In addition, among the many policy changes boards undertook in 2009, Form 990 review was by far the leading focus for change. Consequently, more than half (55%) established formal policies for their board members to review the form, up from about 22% in 2008.
"There was an enormous uptick in governance activities among not-for-profit boards since 2008, due to increased scrutiny of not-for-profit organizations, instances of fraud, changes to Form 990, and an intensified push for not-for-profit transparency," said Frank Kurre, national managing partner of Grant Thornton's Not-for-Profit and Higher Education practices. "The heightened attention resulted in a flurry of activity and policy changes surrounding the Form 990, as well as several policy areas including whistle-blower, conflict-of-interest, records-retention, investment, and executive compensation policies."
Grant Thornton's annual survey provides additional insight into how not-for-profit organizations are responding to the challenges of the day.
Economic Impact
The vast majority of organizations responded to economic challenges in 2009 by cutting costs: 87% reduced expenses, while 57% reduced personnel; and more than half (53%) delayed capital projects. In addition, recognizing that their plans no longer match their situation, more than half (56%) of survey respondents revised their strategic plans in light of the economic downturn.
Attention to Investments
A volatile market and staggering losses for a number of organizations led 58% to rebalance their investment portfolios. In addition, 39% respondents made changes to their investment policies in 2009, up from 27% in 2008.
"Many organizations have reduced their positions in alternative investments and are maintaining much higher cash positions than in previous years," notes Kurre. "Unfortunately as the market improved in the last half of calendar 2009, many organizations did not fully benefit since they had shifted out of equities into more conservative cash and fixed income positions."
Executive Compensation
Form 990 disclosure requirements cast a spotlight on executive compensation among not-for-profits by creating an easily accessible format for anyone to view this information and increased the board's focus on review of executive compensation. Nearly three-quarters (73%) of respondents said their organizations have formal policies in place to review executive compensation, up only slightly from 71 percent in 2008.
Board Policies
As part of efforts to increase accountability, boards have become more focused on scrutinizing the performance of the board, CEO, CFO and development director. Thirty percent reported that one of the main ways the board's agenda changed in 2009 was that they spent more time evaluating CFO performance. Nearly one-quarter (24%) were paying more attention to evaluating board performance, while 14 percent became more focused on evaluating the executive director/CEO or the director of development (fundraising executive).
Working with an Audit Firm
More than half (52%) of audit committees met with an auditor either two or three times in 2009, up from 44 percent in 2008 and 35 percent in 2004. Conversely, the percentage of organizations for which a single meeting between the audit committee and the independent auditor was deemed sufficient is shrinking: in 2009 only 35 percent of audit committees met with the independent auditor only once, compared with 40 percent in 2008 and 54 percent in 2004.
In the past few years, there has also been a clear increase in the percentage of audit committees that include at least one certified public accountant on the committee. Nearly three-quarters (74%) of responding organizations' audit committees include a CPA, up from two-thirds (66%) in 2008 and only about one-fourth (24%) in 2006.
"Given the complexities of internal controls and governance, we expect this percentage to continue to rise," said Kurre. "Organizations that do not have at least one CPA on their audit committee should strongly consider adding at least one professional who brings this credential and skill set."