Evaluating a NonProfit 101

10 Tips to Help You Evaluate a NonProfit “NPO”

  1. Transparency. Established NPOs should have several years of financials, audits and annual reports easily accessible on their website. They should be registered with all the charity watch dog organizations as well. Newer foundations may not have all of these documents available and they are not obligated to have them; however, a quick call or email to the Executive Director, Chairperson or board member of even a new foundation, should result in satisfactorily and promptly answered questions.

  2. Board Governance. The board should be a reflection of the very community they claim to serve. If the organization serves low income students in a primarily black and/or hispanic neighborhood and the board is made up of rich old caucasian men, that is the opposite of reflecting the community the org serves. The board is also responsible for business continuity, strategic planning, board recruitment, succession planning and Executive Director performance reviews. If any of these items are not being addressed appropriately, the organization is probably in trouble. These are clearly signs of mismanagement, lack of protecting the organization, & lack of loyalty to the organization. The board is responsible for the organization’s budget as well. There should be a well thought out budget submitted to the board (via the business committee more often then not) and the budget should be reviewed, approved, followed and tracked at least quarterly. No excuses…not ignorance or busyness will get a board out of board governance responsibilities if each member agreed to do the job.

  3. Board Members. Just like the board should reflect its constituency, it should also possess membership with certain skillsets that will help the foundation reduce expenses and also steer clear of trouble. Skillsets that are required include: CPAs, marketing experts, business experts, NPO experts and attorneys.

  4. Board Participation. Does the board contribute to the organization in the way of time, talent and treasure? The board as a whole should contribute no less then 3% of the annual revenue for an organization. They must have skin in the game. Their mere egotistical presence isn’t enough. 👿 An established give/get should not only be communicated by the Chairperson to each board member but it should be enforced and evaluated each year when the chairperson conducts board member performance reviews.

  5. Cash Reserves. Is there enough cash on hand to cover three - six months of operational expenses? Is there a deficit? It happens at times but the organization should be able to speak to why the deficit occurred and what the strategy is to address the deficit. Are expenses substantially higher from one year to the next? Are certain expenses substantially higher such as legal fees? Is the organization using donor dollars for legal fees? If so, why? Donor dollars should not be used for certain types of legal fees—legal fees outside of operational business that require operational legal counsel. Lawsuits should be avoided especially lawsuits involving program recipients. That’s just common sense.

  6. Audits. Independent third party audits are very important for organizations that generate $750k+/annually. Audit reports should then be reviewed by the board of directors and action should be taken for any findings. Audit reports should be made available to the public either by the organization’s website or on request. It’s best for the audit reports to be hung on the website. By hanging them all on the website with the Form 990s and annual reports, the organization communicates transparency and a “nothing to hide” way of doing business

  7. Impact. Many times we get very focused on the programs and services expense percentage on the Form 990 because that’s really all we know to look at but honestly, what we really want to look at is the impact. For instance, how many cancer patients did you serve this past year? Just because a travel expense is very high it does not necessarily automatically indicate that Execs are off vacationing. Probe a little deeper. Does the organization fly recipients to therapies that fall under the mission? Do they fly family members to program approved events such as funerals? Remember the 990 is a rough document for the lay person to interpret. Numbers & program recipient and donor / investor testimonials matter. If you can’t understand the true impact on the community the organization claims to serve and you can’t pin down a recipient or donor to vet the organization, it’s probably an organization you want to pass over.

  8. Policies. Organizations should have basic policies in place. Basic policies include: conflict of interest, donor privacy, whistleblower, delegation of authority, document retention policy, gift acceptance, & anti-discrimination.

  9. Staff Turnover. If the organization has experienced 25% turnover rate or has not been successful in replacing key executives timely, you may want to wave on. This is an indication of a volatile work environment or an organization that does not compensate employees appropriately or does not provide feedback. With regards to key executive positions remaining open more than two months, very bad sign & you may have yourself a scandal on your hands. Probably a good idea to pass over that organization until they are able to get their ducks in a row.

  10. Public Relations & Legal Issues. A quick Google search of the NPO you are evaluating will quickly provide you with any PR the organization has received (good or bad) or any legal troubles the organization may be enduring. If there is recent negative press that quickly pops to the top of your search or even lawsuits, you’ve got yourself not only a red flag, you’ve got yourself a real problem that you want nothing to do with. If after reaching out to the organization, you do not receive a satisfactory response to your inquiry regarding the organization or no response at all, you know that you need to move on.

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So you say you are ready to address the lack of board member giving on your board of directors. You understand what a give/get is now and you are ready to establish the minimum and hold these pompous