Truth In Advertising: Understanding The Real Numbers of a Not-for-Profit

by David Cygielman

When recently sitting at a fundraiser next to a prominent philanthropist, I asked how he compares the work he does in business to philanthropy. Without hesitation, he said, “My not-for-profit work is much more difficult. In my business, I can see each month if we are making money or losing money, but in the not-for-profit world it is much more gray.” In having this conversation, it struck me that we have an obligation in our industry to remove some of the gray areas, and it begins with reporting.

Just last week Moishe House completed its third annual audit. This is a process taken from the business world and it includes extensive research conducted by a team of third-party accountants with hundreds of questions and many hours of on-site work. In the for-profit world, financials serve as the ultimate insight into a corporation’s success or failure and stakeholders rely on the financial reporting to be accurate and honest. The government created Generally Accepted Accounting Principles (GAAP), in order to ensure that companies report uniformly to the public. For businesses, financials are key and the audit ensures that the organization’s books are accurate. But, for nonprofits, our true success is not in the size of our budgets, but rather in our social impact, often defined by both the depth and breadth or our work. In our sector, we have moved to increase the evaluation process, which looks closely into our depth but a major gap exists in examining our breadth. Businesses rely on the standard practices put in place by GAAP to measure their financial numbers, but what do nonprofits rely on to measure our program numbers?

I propose that we take a play straight from the business playbook, one that could make measuring a nonprofit’s reach and impact more accurate and honest than ever before: Let’s create a second type of audit, one that focuses on nonprofits’ programmatic reach and not just their income and expenses.

Traditional audits only focus on the financial reporting and do not show the full picture of success or failure. I believe an additional audit, focused on the programmatic numbers that the nonprofit is reporting, would serve to benefit both the organization and its donors. As it stands, we can commission evaluations and run informal surveys to gauge our programmatic impact but there is no across-the-board standard that governs the accuracy in which we report the numbers of those impacted. This new type of program audit would determine accuracy in reporting, which is much more of an equivalent to a for-profit financial audit. I already addressed my discomfort with current reporting tactics in my February Moishe Monthly article “When There is No Strength in Numbers: The Dangers of Self-reporting,” but it is so prevalent in our world that we must continue the conversation. With standards for programmatic reporting, nonprofits would be required to work with outside auditors to ensure that their numbers, and methods for gathering/reporting those numbers, are accurate.

In an environment where the pressure to show growth is directly correlated to raising dollars, we are all working to increase our impact. For many of us, this includes increasing the number of people we serve. But, this doesn’t always lead to the best type of programming, despite the good intentions. For example, without regulation, we can either have dozens of high-quality programs or we can spend $20,000 on one well-known comedian that can fill a bar. We only report on total numbers so there is no way to distinguish between the two when it comes to programmatic reporting. Similarly, if Moishe House gives $500 to be a sponsor of a large, community-wide program with ten other organizations, can we claim that everyone at that event came to a Moishe House program? As it stands now, yes (although we do not record it that way). Further, if someone says they want to come to a program but never follows up or participates, can the organization claim there was a waiting list? Again, as it stands now, yes.

I am not one to generally advocate for regulation, but I have seen how vitally important the audit process is to the for-profit world when reporting financials. We need a similar process in our industry that creates a formal and uniform reporting system. Without an external program audit that adheres to a set of guidelines, similar to GAAP for financials, we risk making decisions off of inaccurate numbers, which truly is not fair to the organizations or their supporters.

David Cygielman is founder and CEO of Moishe House.