Friction between a nonprofit’s fundraising and finance teams is not uncommon, but it can lead to division within the organization and confusion in the boardroom. Conflict typically stems from differences in performance measurement, reporting standards and business terminology. Left unresolved, goals can become compromised, performance questioned and reputations damaged. Reconciliation and synergy between disconnected departments will lead to a stronger organization, enhanced philanthropy and greater overall community impact.
Black-and-White versus Gray
Accounting takes a black-and-white approach, whereas development dabbles in the gray.
Following strict FASB and GAAP requirements is critical for accountants. Managing donor funds is a highly regulated practice, and the finance department is responsible for ensuring the organization follows requirements and receives a clean audit report.
“This is why the finance department can seem rigid and inflexible, but ultimately it’s for the good of the organization,” says Colette Kamps, CPA and partner at Henry+Horne. “At the same time, there is opportunity for flexibility. Organizations can include any additional information through audited financial statement footnotes. They can expand on their performance, describe successes and share information they think is important or attractive to donors.”
Fundraisers often follow a different set of standards and guidelines, such as the Council for Advancement and Support of Education, which allows more flexibility. And that’s where communication can fall apart. “Building relationships, establishing direct lines of communication and creating ground rules between departments will help bridge the gap,” says Sherri Mylott, vice president of university advancement at University of La Verne.
Build Synergy and Bridge the Gap
As in any healthy relationship, communication is key. In this situation, it’s critical the two departments “speak the same language.” Fundraisers build relationships but can’t control when a donor makes a gift, how it will be made or the amount. It is the long-term approach to optimizing relationships versus a short-term need for cash that can be misunderstood or, seemingly, misaligned.
Often, this and similar conflicts can be overcome by understanding the “why” behind a request for information, explains Kamps. “If accounting can explain why it needs certain information at a certain time, that relationship can be much more successful.” If both teams understand why it’s important to come together to provide weekly or monthly cash flow projections, there is great opportunity for a collaborative conversation that can go a long way in building synergy.
Develop and Adhere to a Performance Reporting “Playbook”
For fundraisers and development departments, reporting true fundraising performance to the CEO and board is more than just reporting unrestricted cash, which, for many nonprofits, is king. This misalignment causes confusion that, ultimately, reflects poorly on fundraising teams.
Overcoming obstacles between reporting unrestricted versus restricted cash takes thoughtful planning and well-documented policies that meet expectations and requirements from both sides of the table.
Beyond cash, there are other factors to consider. Development and accounting can often reconcile their differences in reporting if they use two different ways of calculating contributed revenue:
- Total commitments — an industry standard for measuring performance, cost of raising funds and more. Consists of new outright gifts, pledges, gifts in kind and planned gifts, all of which are calculated at both net present value (for accounting purposes) and face value (for donor recognition purposes).
- Total cash — consists of new outright gifts, payments on previously booked pledges and realized planned gifts.
Strong gift acceptance policies and a performance reporting playbook should be developed in collaboration with development, finance, executive management and the board. The playbook should be reviewed and approved every few years and live on the organization’s website so major donors know how their gifts will be managed.
While this playbook can help lessen misunderstanding and alleviate confusion, questions or challenges can still exist for which consistent communications are needed. This is particularly true for counting pledges when there is usually a disconnect between when the pledge is received and when the cash will be available to spend.
CEO and board reports should visually show a complete snapshot of total fundraising performance and present information in a way that makes the most sense to management. Simple reconciliation notations and differences to GAAP should be included in these reports.
Key Takeaways to Get this Critical Relationship on Track
- Take a proactive approach to forecasting revenue projections. Like any other revenue-generating department, the fundraising group must stay on top of its cash flow and total commitment projections, working in coordination with the finance team. This will ultimately improve communication and build understanding and synergy.
- Establish gift acceptance policies. Gift acceptance policies help maintain consistency in performance measurement, how gifts are reported and counted and allows organizations to say “no” to risky
- Show a path toward alignment in financial statements. It’s important to explain differences between accounting and development to governance during reviews of financial statements. For other unaudited reporting, there is additional flexibility to show restricted funds, unrestricted funds and overall totals, as long as any GAAP differences are documented in the report. Reporting both total cash and total commitments will ease problems.
- Establish rules of engagement to create synergy. Regular communication is key. It’s important that the two groups speak the same language to understand terminologies and clearly explain why information and reporting performance are being requested in a specific way. Understanding will go a long way in creating harmony in the organization.
Richard Tollefson is founder and president at The Phoenix Philanthropy Group, an Arizona-based international consulting firm serving nonprofit organizations as well as institutional and individual philanthropists.
