Gaps In Financial Knowledge Challenge US NFPs - Survey

A new survey of financial managers at mid-size US Not for Profit organisations reveals gaps in their financial knowledge, even as they grapple with economic challenges.

The study was conducted by the Center on Philanthropy at Indiana University to help Not for Profits understand and increase their financial knowledge levels and improve their effectiveness.

The report says Not for Profits’ knowledge, policies and procedures were studied; some results were positive, while others revealed a clear need for financial education.

More than 500 NFP professionals who are most responsible for their organization’s overall financial management were surveyed. The study is a sample of primarily human services NFPs, as well as health, civic, environmental, arts and education NFPs with revenues of $1 million to $5 million.

“Seventy-six percent of financial managers at mid-size Not for Profits said they are knowledgeable about financial principles, but only a third correctly answered all three basic financial literacy questions asked,” said Una Osili, director of research at the Center on Philanthropy.

“This disconnect has potentially significant implications for Not for Profits and the donors who place their trust in them. Solid financial knowledge is critical to sound decision making as nonprofits strive for financial well-being and greater impact.”

The researchers say the survey is among the first to show a shift in financial priorities. Until recently, they say Not for Profits this size often focused on just breaking even. The findings indicate they are now putting more emphasis on longer-term planning and sustainability.

The top three financial objectives among NFP’s surveyed were:

• Maintaining a targeted level of cash reserves and financial flexibility (38 percent).
• Assuring an annual surplus so the mission can be achieved in down years (27 percent).
• Breaking even financially (24 percent).

Patrick M. Rooney, the executive director of the Center on Philanthropy says Not for Profit managers and board members need a high level of financial literacy to establish a sustainable, long-term financial plan, maintain a healthy cash balance and fulfill their missions effectively.

Nearly half (49 per cent) of mid-size NFPs had less than three months’ worth of cash reserves for operating expenses available. A quarter (26 per cent) had four to six months’ worth on hand, while another quarter had more than seven months of operating expenses.

Other key findings:

• Respondents said they were knowledgeable about negotiating with banks or lenders (78 percent), cash flow projections (75 percent) and financial scenario planning (72 percent).
• Only 46 percent reported knowing about debt restructuring.
• Financial literacy increased with the number of courses taken in accounting, economics, operations and financial management, and with the Not for Profit ’s revenue.
• Boards were involved in accountability (66 percent), but less so in managing investments (38 percent), developing budgets (30 percent) and scenario planning (27 percent).
• Less than 40 percent of nonprofits surveyed had an audit committee.

The full report can be downloaded here (PDF).