Finance Fundraising And The Executive Suite

March 1, 2006       Paul Clolery      

If yesterday’s nonprofit financial department was a comfortable two-lane highway, today’s financial operation is beginning to look more like the intersection of several highways and train routes with an explosion of city streets thrown in for good measure.

Standing at the center of those new patterns of demand is the chief financial officer. Looking on and often feeling equal amounts alarm, pride and amusement, is the CEO.

How does the person responsible for managing a nonprofit’s finances put together all of the various demands for knowledge based on the independent streams of information? What are the ways that today’s nonprofit financial manager, no matter the organization’s size, can put together such multifaceted elements of their responsibility area?

In this edition of Executive Session, four guests discuss those questions: Martin Abel, chief financial officer, Toronto International Film Festival Group; Peter Farnsworth, senior vice president, finance and technology and CFO, AmeriCares; Nancy Flippin, CFO, director of support services, The Atlanta Community Food Bank and Liz Marenakos, product line manager, Business & Financial Solutions at software provider Blackbaud. The discussion was moderated by Thomas A. McLaughlin, a national nonprofit management consultant with Grant Thornton LLP in Boston and a contributing editor of The NonProfit Times. The session was held during Blackbaud’s recent annual conference, attended by more than 1,000 nonprofit executives, in Charleston, S.C.

Thomas A. McLaughlin: One of the subtle effects of the recent spade of corporate fraud trials is the position of the CFO and the CEO in almost the same footing related to corporate accountability. Do you feel any sense of increased expectations from the outside world, directly or indirectly, in your role as a person responsible for the financial operations of your organization?

Peter Farnsworth: I feel that I report to the outside world. What we do inside the organization is comply with the rules and educate the stakeholders as to what they’re doing. But in terms of what I have to certify and how I have to say we conduct our business and our controls and our behaviors, it is nothing less than as if I were completely transparent and open.

The significant change is that, many years ago, if you wanted something done, you just sort of did it and you reported really only to the founder, in our particular case.

There was a very strong founder mentality, too, probably similar with other organizations as they got started. But as we move from a founder-based organization to a board-run organization, the feeling of reporting and being accountable to others is clearly different.

Nancy Flippin: The foundations, those kinds of donors, look for even more detail in documenting how you’re spending the funds and if you’re really spending funds the way they’re supposed to be spent.

Things are not quite so broadly looked at in terms of “generally you spent things in the right way.” It needs to be very specific and even have very specific backup documentation to prove that you really did what you said you did with the funds that they gave you.

McLaughlin: And that’s different than in past years?

Flippin: I think it’s stronger. There’s always been, certainly around restricted grants, that kind of scrutiny. But I think it’s much stronger now, just in the general sense of how you are operating your organization. They want to know whether you are really doing the things as an organization that you say you’re doing and how can you prove it.

It means that people have to be a lot more accountable internally and provide that documentation to me as a CFO. I have to know what everybody’s doing and what’s going on so that I can then report that back out to the public.

McLaughlin: Have you felt anything on the board level in this regard?

Martin Abel: We have quite a varied board, and they’re all experiencing different levels of this throughout their (for-profit) organizations, so they’re bringing that same kind of standard back to their perspectives in our organization.

I want to pick up on something that Nancy said. What we’re experiencing also applies to the government side. We receive a fair amount of government funding, and they’re reviewing our operations at a detailed level. Where we used to be able to say, “yes, this is what we did” and “yes, we have our standards of accounting,” and “yes, we have our internal controls,” they’re now looking to see exactly where we spent the funding and exactly how that accounting system works.

McLaughlin: What implications does that have for your operations?

Abel: It’s a change. I think the process used to be a bit more organic. There previously had not been a CFO in our group. The position was elevated because there is a new, heightened standard of accountability.

Plus, we were also expanding our scope of operations, so there were pressures on a number of sides.

McLaughlin: Peter and Nancy both mentioned an internal aspect to accountability, board as well as CEO and so on. That’s an element sometimes that gets overlooked in questions of accountability because the expectation is that push for accountability is always coming from the outside.

How do you experience, or do you experience changes in internal accountability in your organizations, boards, CEOs, senior managers, your peers and so forth? Are there changes there or is it the same?

Flippin: We are going through some changes right now with all of the hurricane activity going on in our part of the country. Because there is an outpouring of money around that particular issue, we’ve had to really tighten up our accountability internally and say “if we’re going to take this money, how are we really going to spend it and how are we going to document how we spent it.”

I have felt increased support from my CEO, making sure that I’m getting the documentation I need from people, that I’ve set up the process for them to report it to me on a weekly basis. It’s been somewhat of a positive, where before it sort of felt like a nagging kind of situation.

Farnsworth: The related sets of internal accountability can change dramatically whenever just one person changes. Internal accountability is a subset to one of our core values: Excellence. There has to be 100 percent support by the CEO and all your colleagues when trying to re-establish the fragile network of dependencies that allow for accountability. If it isn’t there, you just run into the problem of “I couldn’t do X because John did it Y, because Mary did it Z.” Without constant best efforts to re-establish the accountability framework, we all fail to reach our objectives.

Flippin: Right.

McLaughlin: There’s agreement on that. How does that support manifest itself?

Farnsworth: It’s the CEO taking the time to understand your point of view as to why you need to review all contracts before they’re signed. It’s the CEO taking your support and then building it into the goals and objectives of the development department. All of the marketing letters that are going out really should be looked over by the accounting or the financial department first to make sure there aren’t hidden restrictions, so we’re not getting any restricted solicitations, for example.

Abel: In our case, you’ve got a CEO who’s been in place for 15 years, a number of senior managers who have changed during in the past year or two, and they’re all hungry for information. It’s a matter of the CEO having vested the authority in the CFO to implement the changes necessary to be able to produce the information.

It needs to be a consistent message from the CEO. There’s no other way to do it. It needs to be institutionalized, which it now is in our organization.

McLaughlin: Compliance and fraud examination. Are you folks seeing that compliance is getting the support, the resources you need for compliance activities?

Flippin: I haven’t really felt an additional push for a need of resources, yet. But I would expect that I’ll probably get it, as long as I can state things in a reasonable way and why I need it. Certainly on the board there’s enough support for it and an understanding for it because so many of them are compliance officers and have that sort of thing in their companies.

They understand the need for it. So if I have an issue of stating it well within our organization, I channel it through those board members and they can make the case for me. So, that’s helpful.

McLaughlin: You’re all lucky to some degree that you all have a CEO who gets it. What if you didn’t have that? Can you create it?

Abel: I think that you can create it.

McLaughlin: How do you do that?

Abel: You look to the support of the board. You look to the support of the finance committee on the board and push your agenda through that way.

Our CEO attends all the finance committee meetings and he hears the message. I’ve done my campaigning with them and he hears as much coming back from them, not just from me necessarily. He’s hearing it now from both sides and it helps.

Farnsworth: The silver lining of the Sarbanes-Oxley legislation is that, in fact, we are forcing ourselves to put in place the kinds of controls which do allow an organization to move from being founder-run to board-run. (Editor’s note: Nonprofits are exempt from federal Sarbanes-Oxley regulation. However, the expectation is that it soon apply.)

So without Sarbanes-Oxley, you might not have had that support from the CFO. And now, for example, we have a risk committee, an audit committee and a finance committee, all very separate and distinct. It is through each one of those mechanisms that we make sure that we pass on risks, issues, mitigants and needs.

McLaughlin: Peter, you raised the question of technology a moment ago. Technology usually comes first and most deeply in a nonprofit’s finance area. So, let’s take that as a given. How are you experiencing that

relationship with technology? Are you all the chief technology officers de facto or entitled for your organizations or is there a split?

Flippin: Well, for us, technology falls under the auspices of my position because I’m also a director of support services. Whatever services support the organization, including HR and technology, fall under me.

I’m not the chief technology officer, but the person who serves in that role is a direct report to me. So I have my hands very much on what’s going on, setting the goals and objectives and looking at that as it fits in with all of the other things going on.

It’s not that I know all of the ins and outs of it, because I really have to look to him to be the expert in those areas and give me good information to help make the decisions.

McLaughlin: Liz, how do you see the role of technology changing during the past five to 10 years, and more importantly, where do you see it heading in the next five to 10 years for nonprofits?

Liz Marenakos: When it first started, it was definitely siloed. There were lots of point systems. They didn’t really talk to each other. Integration was a dream of the vendor more than the organization.

But because of this accountability, all the transactions get entered — they can start anywhere in the organization — but ultimately they have to sum up to what sits on the financial statements.

So I think there was an increased push for integration. There is an increased need or push for better reporting, internally and externally. And internally means polling information from multiple systems and putting it in a form that’s digestible as it gets more aggregated.

McLaughlin: The word integration can become like mom and apple pie. Who could argue with it? Let’s break that down a little bit. What does integration really mean from your prospectives?

Farnsworth: Present company excepted, “integration” is still the dream of most vendors. We hear it spoken of all the time, but we do find that often it just doesn’t (integrate). Integration, to me, means you take the financial accounting system and attach it to one of its subsystems that allows that system to talk to other systems, and then you create those links where the financial system automatically pulls from and pushes to other systems.

Integration, to me, means one of the reporting tools fires off every month and it automatically sends emails out that are scheduled or event-driven. We set them up and they run. Integration produces reports that can be read by our email system and go to anywhere in the organization, including our board of directors and our audit committee people.

It’s integration with our office systems, with our inventory system, and then in our daily lives, the way we move around things. Moving toward integration meant, in our case, we had to replace three entire systems in the past three years.

McLaughlin: What were they?

Farnsworth: The three systems, inventory, financial management and our development systems, wouldn’t talk to each other. They never broke, but they still couldn’t talk to each other. And, none of them could communicate with Microsoft Office. None of them could create a Microsoft Word document.

Integration means you move past all that. Instead of being a complicated thing where we have to run around to the front of the car and start it, we just sit in the car and turn the key and the systems all work.

Marenakos: And explode.

McLaughlin: Well, it seems simple enough. You’ve sketched the promised land a bit. Why is it still a dream of many vendors?

Farnsworth: Well, it’s a hope and it’s a reach. They still have to get there. In our case, the vendor that can’t supply that doesn’t exist in my world in the future. If we cannot get the financial and this other development system to talk to one another, one of them is going to go.

Flippin: Interesting, those are the three components we have. Our development and financial are integrated, but certainly not our inventory. And, I don’t really foresee the day that our inventory system will be.

McLaughlin: Why?

Flippin: From what I understand of what’s on the market and what our needs are as a food bank and a food bank industry, there are very few things to choose from out there that will work.

McLaughlin: You are an unusual type of nonprofit in the sense that many nonprofits, their single largest expense is personnel?

Flippin: Right.

McLaughlin: If your volume is $100 million, or if your volume is $100, the vast majority of that would be food, right? If your revenue and expenses were 100 units, 80 percent of that would be food?

Flippin: I’ll say it the way that you’re supposed to say it for IRS purposes. The bulk of what we have is donated product, all of which does get booked, both on a revenue and expense side. You take that out and we’re back to the same kind of place where our biggest expense would be personnel, yes.

Abel: We have some similar challenges in that we have three systems that don’t talk to each other. We’re a film festival reliant on several different sources of funding. The technology needs to support the way the operation needs to go. Development needs more information. They need to be able to extract that from the box office, because some people are philanthropic supporters of the organization, and some people are simply film-going patrons.

Some people are supporters of the organization through donations and they buy tickets. Sometimes they get tickets through their packages, sometimes they don’t. Sometimes they’re just simply donors. We also have a major capital campaign going on. There are donors to that who aren’t necessarily festival-goers.

None of that information can be shared right now and it’s a real frustration because in terms of managing donors, you need to turn that around and give the development team timely information back so that they can recognize and acknowledge that donor. We just don’t currently have the ability to do that without really extensive manual processes.

McLaughlin: Is it the matter of technology that isn’t there or the administrative processes aren’t there?

Abel: It’s both really.

McLaughlin: Break that down. What are the components?

Abel: The databases right now are all separate. Plus, there are not clearly defined business processes or rules in some cases.

McLaughlin: So it’s from a technological perspective, they can’t talk to each other.

Abel: From a technological prospective, there’s no sharing of information at this point. We have to introduce a number of manual processes to pull information out of one, summarize it, re-key it and put it into this and send it down here.

McLaughlin: Is your ticketing part of a national system or is it your own ticketing service? Can I call a toll-free number for the Toronto Argonauts and for the Toronto Film Festival or do I have to call just the Toronto Film Festival?

Abel: It’s through the Toronto International Film Festival, it’s our own service.

McLaughlin: So, if you were part of a larger system, the complications would be multiplied?

Abel: Definitely. We’re blessed right now by the fact that it is our own. We have some ability to work within it and work directly with our vendors.

McLaughlin: Let’s shift gears a little bit and talk about fundraising as a source of integration. I see many smiles.

The fundraiser is a unique animal. And I think the fundraising tribe doesn’t necessarily talk the same language as the financial tribe. The fundraising tribe needs to know different information and they need to know it in different ways and they don’t always need or want to keep it in the financial tribe’s language. You have this inherent conflict. How do you deal with that?

Flippin: I don’t know if it’s true for everybody, but really I have two aspects of fundraising. One aspect is special events and promotions, because we do a ton of them. And then, there is the development department, which sees itself as very different. They deal with the foundations and with the direct mail pieces and more of the text-based solicitations. It’s really trying to get all three talking to each other and working with each other and sharing information back and forth, all of which then has to funnel into the financial.

I try to go back to the development people and say, “I need to prove the figures that you’re giving out are the figures that you’re stating. We’ve got to reconcile them between what you say you raised and what really came in to revenue and make sure they match each other.”

How you break that down in terms of the sources or who you got it from or which pockets of money those are, that’s kind of your bailiwick and I’ll stay out of that.

McLaughlin: Talk about the difference between special events, development, direct mail, all of those in a larger and sophisticated fundraising operation. All of those types of activities have certainly different cultures, different ways of succeeding, different methods and procedures. Why is it so difficult to integrate those from a financial prospective? Is it simply a cultural difference or are there other aspects as well?

Flippin: I look at it as being left brain, right brain. A lot of events are very creative. They’re constantly being challenged to come up with a new way, a new twist. It’s a marketing piece — how can we re-present ourselves, what niche can we fit in with that we haven’t before? I respect that because that’s not my thing.

But in the end, what we represent to them about the money, what they’re getting in return for participating in this event, has got to meet the legal requirements so that nobody gets in trouble.

Farnsworth: To your point of how it can be misunderstood, we had a gala not long ago where the senior financial analyst, the controller and I were stunned to see that there was a little booth over to the side that said, “Well, if you donate here this will be 50 stethoscopes. And if you donate here, it will buy 45 meals.” And I said, “Did we just make a promise that if you donate we will buy 50 stethoscopes?” And the development department said, “Well, no, it’s just an analogy.” I said, “ Gee, for a finance guy, it’s not quite like that. It’s a lot like you just took in a restricted donation”.

McLaughlin: Have you financial types ever been accused of squelching the creativity of the fundraising and development types?

Abel: Not yet.

McLaughlin: Not yet, to your face.

Flippin: All I know is that every time they’ve said you have to go talk to Nancy, they suddenly get this look of terror on their face. I keep trying to tell them I’m really not that mean and I’m really not an ogre, I just got to keep us out of trouble.

Farnsworth: In our case there’s a thirst for education. The development department, to their credit, is very eager to ask, “Oh, how can I do that differently?” In any of our cases, there’s no attempt to mislead. Ours is very much of a proselytizing, educating role in that sense.

Abel: I’m very fortunate in being new to the organization. The head of development is new to the organization. The head of marketing is new to the organization. And, they’re all eager for new information, new ways of doing things.

McLaughlin: How do any of you provide the training, knowledge and that education?

Flippin: I try to go to some of the marketing staff meetings, just a few times a year just to kind of refresh people’s minds about the things that are important, the things of which they need to be aware. I see if there are questions and tell them that they should use me as a resource. It’s not that I’m going to tell them they can’t do something. We’ve just got to figure out the right way to do it so that they can accomplish it, be successful, and we don’t hit any snags down the road.

McLaughlin: If you could listen in on the minds and the thought process of the development people in your organization and the marketing people and the special events people, what would they be thinking and maybe saying about your operation, the financial area, and how it’s changed?

Farnsworth: Well, why does it take so long to make the money transfer? I don’t get it. Why do they need all this stuff? I’ve already told them, here, I have it signed on the bottom from my boss.

Well, there’s no documentation. There’s no statement that you evaluated this in a transparent way to make this grant. There’s no clear, affirmative number we have knowing this is the account number of the intended recipient.

Oh, okay. Well, you guys are just clumsy. Why do you need all that? So that would be one example, I suppose.

Flippin: I think, for the most part, people would say it’s sort of a mystery, what goes on. But there’s also an underlying sense we know that we always come up with good, clean audits. And, we know that from the public perspective, our numbers are trusted. So, that’s a value to them but it’s a mystery.

It’s, “I don’t really know what all you do with this and how this all translates.” And as much as I try to push it back down and say here’s what I pulled, it still just seems real fuzzy.

Abel: Again, from my point, I’m quite fortunate, because they’re looking to us now to help them. It’s not adversarial at all. They’re quite cooperative and they’re looking for us to take the lead on that, which is great. I wouldn’t have it any other way.

McLaughlin: We have a convergence of themes here. It strikes me that what you’re saying is that as your systems, processes and procedures become more integrated, so too do you in your operations. So, your role is changing. How do you see your role evolving?

Farnsworth: I already carry two devices on my person that control the flow of money, without which wire transfers can’t be made. I have them with me as I speak. I see that sort of technology with me, involved in what I do and controlling functions, being aware of functions, as simply a nonstop future. That’s not the way to describe it now, but it’s only going to get more and more that way.

Whether it’s a pocket PC that alerts me to a new campaign that’s been started or an email that pops up that tells me that we’ve gone over budget in some areas. I can’t imagine all the possibilities, but it’s in that realm of instant transfer of information connecting to us as we move around.

McLaughlin: And those two devices are an instrument of integration, control?

Farnsworth: Control.

McLaughlin: Communication?

Farnsworth: Control. These two are purely control devices.

Abel: I see an evolution from simply the score keeper and the control aspect and the reporting aspect to much more of a strategic hub. It’s being involved in how campaigns are established, being involved in how are we going to deal with the growth.

We’re building a cultural center that will be recognized around the world as a center for film. We have to expand our programming to fulfill that. Finance has to take much more of a leadership role than in the past. To date, it’s been very much like having the three-foot broom following the elephants of the circus. And, it’s got to be up there leading the band a lit bit more.

McLaughlin: And how are you going to do that? How do you see that happening?

Abel: I think, first and foremost, we’ll do it probably through the use of technology. We’ll use it to bring the various systems together, to get people following and leading the whole communication pattern that also need to evolve within the organization.

I see it as a much more of a seamless network of communication throughout.

Farnsworth: There’s a board role that I want to mention, because we will never go backwards to the way it used to be where the CFO only reported to the CEO.

I now report to three different committees of the board. I touch three quarters of the board with information involving them and risk issues. So, keeping the fine line between management and what management is supposed to be doing, but keeping the board informed, will be much more the role of the CFO.

Flippin: Yeah, it’s just a lot more higher corporate executives. It’s making sure that we have a good representation of people who are CFOs or that equivalent in corporate partners so that there’s a little bit more sense of bringing in our own outside scrutiny to make sure are we really up to snuff. And if they raise flags there, let’s address them so it doesn’t raise flags for the public.

So I think there’s some sense of wanting to do a better job of having people around the table who will scrutinize our activity so that we know we’re going to pass muster with anybody, because we’ve already passed it with everybody that’s there.

Abel: Our board composition is changing. It’s not so much in response to Sarbanes-Oxley or heightened controls, although there is an element of that. We’ve had a lot of people from the film industry on the board. It’s been a very industry-focused board. That’s changing as the focus of the organization changes. We’re bringing in more people from the philanthropy side, more people who are going to be capable of supporting our development activities.

We have a huge capital campaign under way and we need people who can be catalysts for that. The expectation of the board is they will all do that. There’s a counterbalance, I guess, in that we’ve got stronger financial representation, stronger legal representation on the board at the very senior levels.

Farnsworth: We had a situation where the board was actually fairly financially attune when we started out, because they were business people. The downside of that was that we didn’t have a diverse board. But as many organizations move toward more diversity in their board of directors, they’ll be bringing in quite a few people who traditionally weren’t brought into this role and who were not at the table.

But, make no mistake, they should be at the table. And, again, that’s the role that falls on the financial officer, to bring them up to speed with respect to financial matters. For example, a new board member might be terrific in the area of social responsibility, but has not been exposed to the financial side of things.

As that board changes to be more diverse, we’re going to find we have, in some cases, that the CFO has a new job. The CFO has work to do bringing financial skills and acumen to those new board members so they can fully participate in the governance of this public trust. NPT