I, along with Shane Gastecki, Schneider Downs Audit Manager, and approximately 130 other accounting professionals, recently attended the PICPA’s annual Not-for-Profit Conference in Harrisburg, PA. One of the first presenters was Laura Otten, Ph.D., Executive Director of The Nonprofit Center at LaSalle University’s School of Business. The focal point of her session was the health of the not-for-profit sector. Overall, Dr. Otten was “cautiously optimistic” about the sustainability of not-for-profit organizations; however, she indicated that not-for-profit organizations need to be willing to change. One of the reasons for this need to change is that the number of 501(c)(3) organizations has grown 17%-24% in the last ten years, and the current approximate total number of not-for-profit organizations in the United States of 1.6 million will likely continue to grow.
One of the threats to the not-for-profit sector that Dr. Otten discussed was challenges surrounding philanthropy. Impacts to individual giving that she spoke of included the political climate, mega gifts (those gifts that are over $5 million that are primarily given to hospitals and universities), and wealth consolidation. As individuals become more focused on organizations having underdog causes, organizations having the greatest reach, or organizations showing evidence of impact, not-for-profit organizations need to ensure that their messaging draws donors. An astounding statistic Dr. Otten gave was that in the first quarter of 2017, the American Civil Liberties Union raised 8,000 times the funds that it received in all of 2016. This demonstrates that donors are becoming more selective of not-for-profits they choose to contribute to depending upon where they think their donations will make the biggest impact. Other trends related to philanthropy that are impacting the health of the not-for-profit sector that she commented on included strategic prioritization by foundations, volunteerism as a form of corporate giving, pay-for-success models, and the rise of millennials.
Dr. Otten talked about signs of health for the not-for-profit sector, as well. One sign was the need for management of not-for-profits to recognize that not-for-profits are businesses, and it is necessary for not-for-profits to generate a profit in order for them to be sustainable. She also indicated that an increasing number of not-for-profit organizations are discussing mergers and strategic alliances. In addition, she stated that there is an emphasis on the evaluation of programmatic impact in order to know what not-for-profit organizations are making a difference so that funders can make informed decisions.
While it may seem that not-for-profits have significant hurdles to overcome, Dr. Otten closed out her session with ways to adapt to the current and future environment. Research-based decision-making could be used as a tool to help not-for-profit organizations understand not only what they are doing well, but also what they should improve upon as the not-for-profit environment fluctuates. Ultimately, there are opportunities for not-for-profit organizations to become flexible, learning organizations and to apply best practices to operate smarter as the sector grows.