Friday, February 12th will usher in Lunar New Year in many Asian traditions. In the Chinese zodiac, we enter the Year of the Ox. People born in the Year of the Ox are said to be strong, reliable, fair and conscientious, which in turn inspires confidence in others. They are also said to be calm, patient, methodical, and can be trusted.
Don’t all of us who run nonprofits aspire to having our organization perceived with those traits?
In China, Lunar New Year kicks off a 15-day celebration. It’s a time for new beginnings and a celebration of fortune, happiness and health. Normally, resolutions are not typically associated with the Lunar New Year. However, I would like to challenge nonprofits to embrace the qualities of the Ox this year by resolving to build stronger, more reliable and more methodical back offices.
Last Friday, a friend who is also a consultant asked me to join her in a Zoom meeting with the board vice president of a nonprofit that is ending their relationship with the current Executive Director. The ED had failed in the role, and was publicly berating the board to the donors. The board suspects that the ED has engaged in inappropriate financial practices because they could not get reliable financial information. I had to reassure the VP that, sadly, her situation was not uncommon. Later, as I was replaying our conversation in my mind, I reflected on what makes nonprofits “an easy mark” for fraud.
Overwhelmingly, nonprofit boards and leaders suffer from a “poverty mindset.” BusinessBlogs defines this as “a mindset that people develop over time based on a strong belief that they will never have enough money. This mindset is driven by fear and can cause poor financial decision-making.” In nonprofit organizations, that mindset leads to a consistent under-investment in basic financial controls and solid business practices.
This is endemic in U.S. nonprofits. In the four I have worked for personally, each had experienced some form of theft, embezzlement or other internal financial malfeasance prior to me joining them. And, each one of them pointed to their auditors, blaming them for not finding the fraud. If you take nothing else away from this article, take this: it’s not the auditor’s job to find fraud. They don’t test for fraud; they test for compliance with the organization’s own business practices. If your organization has shabby business practices but is compliant with them, it will likely get a clean audit. It is the job of the board to hold the organization accountable for fraud prevention.
The fact that so few nonprofits (1) understand this and (2) invest in good back office practices makes them easy targets. The poverty mindset is easily exploited, especially among the board of directors. If an executive director cannot present clean, G.A.A.P.-compliant financials to the board on a consistent basis, there is something wrong. Boards must not accept “we can’t afford this” excuses. There are simply too many inexpensive, reliable tools and services out there.
At Our Fundraising Search, we believe the best way to help nonprofits succeed is by helping them build strong, sustainable revenue streams. Those streams only work if they are paired with reliable, sustainable back office practices. When a client engages us in a search for a CEO or ED, one of the things we recruit for is good business skills and experience. We encourage nonprofit boards to look beyond technical proficiency and nonprofit experience. What is important is that a candidate can run a business effectively and ethically, and knows how to prove it.
On Friday, we hope you get to have some awesome dumplings, see some fireworks, maybe experience a socially-distant Dragon Dance, and receive a red envelope with a gift or donation. We also hope you look at your business operations with a new, clearer viewpoint.
We wish you a joyous and prosperous Year of the Ox.