Challenges Facing Nonprofits Due to the Current Pandemic

Costpoint supports many government contractors throughout the project lifecycle, but did you know that Costpoint also supports more than 100 nonprofits across the globe advance their mission? In our guest blog below we welcome BDO to share their valuable insights regarding current challenges facing nonprofits and non-governmental organizations (NGOs) due to the current pandemic. And don’t miss the first of our nonprofit webinar series  “Navigating Financial and Operational Challenges of Nonprofits in the Era of COVID-19” where we will dive deeper into these issues and hear how Costpoint’s capabilities can help overcome many of these challenges.

Non-governmental organizations (NGOs) and other nonprofit organizations have been hard at work trying to help the world navigate the novel coronavirus (COVID-19) pandemic which is shaping our world in ways unseen for the last century.  While trying to maintain focus on their missions, these organizations and institutions face massive uncertainty in the face of COVID-19, including financial turmoil and countless operational challenges.

Navigating the Crisis

Financial

One of the immediate concerns for any nonprofit affected by the Covid-19 crisis is compromised funding.  Many organizations in the social services space rely on physical attendance to continue to receive funding. Organizations with planned fundraising events or conferences could need to eat some of those costs if the events are not rescheduled, and “high touch” fundraising efforts may decline. Donations could also be impacted if the financial markets don’t rebound quickly. All of these forces could put nonprofits’ finances in jeopardy. Nonprofit organization and NGOs are rapidly shifting to diversify funding streams, shore up reserves, and pursue non-traditional funding. 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which was signed into law in late March authorized two Small Business Administration (SBA) disaster loan programs—The Paycheck Protection Program (PPP) and the Emergency Economic Injury Disaster Loans (EIDL) program. The PPP program is limited in scope to 501(c)(3) and 501(c)(19) non-profit organizations, while all non-profit organizations are eligible for the emergency EIDL program. Both loans are permitted if the basis for the loans and/or costs being paid with each loan are different.

The CARES Act included $45 billion for the Federal Emergency Management Association's (FEMA) disaster relief fund.  State, Territorial Government, Indian Tribe, Local Government, or Private Non-Profits (PNP) which are directly responding to the crisis organization, who occupy eligible facilities and whose costs are tied to the performance of work resulting from the crisis may be eligible for funding.

On April 24, the President signed an additional $484 billion bill to bolster small businesses and hospitals ravaged by the coronavirus pandemic and expand testing for COVID-19.  The latest iteration of the CARES Act injects another $310 billion into a key loan program designed to maintain company payrolls.

State, local, and community foundations are another source of funding for nonprofits seeking relief.  Community foundations have mobilized $723 million as of May 6^th nationwide. Funding is scattered among organizations within different states, and a list of state-by-state resources can be found here.  Likewise, the Gates Foundation and the NYC COVID-19 Response & Impact Fund has set aside $250 million and $75 million, respectively, to support the response and recovery to this pandemic. 

In addition to pursuing non-traditional funding, nonprofits should re-assess existing grants, including restricted funds.  Many funders have eased restrictions to allow grantees maximum flexibility.  Recently, The Council on Foundations called on funders to pledge to eliminate existing restrictions, to award unrestricted grants, and to reduce reporting requirements among other commitments.   To date, over 400 funders have taken the pledge.

This signals to organizations the need to be creative, and exhaust all resources, from the federal level all the way to the local authority in your area.

Operational

While financial disruptions require immediate attention, nonprofits must also consider internal factors affecting mission support and programming.   Some nonprofits faced internal obstacles before the pandemic while others were running smoothly.  In either case, both are now faced with new requirements which will surface any underlying operational weaknesses.  

Streamlining Processes & Integrated Systems

Manual processes and disparate sources of data result in lagging and inconsistent data. Systematically integrated financial records will generate consistent and timely reports that drive streamlined reconciliations, improved cash management, and value-add resource time.  This would allow for establishment of standard processes designed to mitigate risks and drive efficiency.  Integrated systems would also permit cost structures that are linked to live system data to track spending real time, improve cost recovery, and support accurate rate model analysis.

Improved Compliance

A redesigned internal control framework developed to properly mitigate identified risk areas would ensure that check points are established, implemented, and monitored to reduce overall exposure.  For NGOs, aligning local and home office account, project, and organizational structures will result in accurate and timely reporting to stakeholders and readily produced statutory financial statements.

Automation & Transparency

Disparate systems and lack of timely budget to actual data make scenario planning difficult during a time when foresight and continuity is essential. Technology can be a powerful tool to automate processes and improve data visibility. Leveraging technology, expense reports can be automated and balance sheet accounts can be reconciled through use of integrated systems with multi-currency capabilities.  Nonprofits can digitize invoice intake and automate their billing process to gain efficiencies and simultaneously improve electronic file retention.  Automation and transparency put data at your fingertips and provides for timely resolution to expense or billing issues.

Next Steps

Many NGOs and nonprofits are overwhelmed by the obstacles in hand, but also by the opportunities and options ahead.   Organizations must self-assess, act now, and plan ahead for the unknown.

A comprehensive self-assessment should evaluate revenue, demand for services, and operations.  Nonprofits must obtain a thorough understanding of each funding stream, what if any restrictions have been lifted, and which if any funds will be reduced or eliminated.  Scenario planning should be conducted to estimate demand for services and concurrently identify opportunities for cost reductions and internal efficiencies.  And lastly a self-assessment should weigh candidly the organizations ability to operate effectively with a remote and/or reduced workforce.

With a clear picture of the now, NGOs and nonprofits can act immediately to seize the financial opportunities available.  These should include diversification of funding streams, negotiations with vendors to reduce and defer costs, and streamlining operations to maximize staff productivity and mission delivery.    

Ultimately, regardless of the tactics a nonprofit employs, the goal should be to continue to deliver on the mission as much as possible under the current circumstances. Some nonprofits may have limited options as they tackled immediate needs by the day. Those that can, however, should leverage whatever resources and tools that are available.

Join us on Tuesday, May 12 from 11:00am-12:00 pm for Navigating Financial and Operational Challenges of Nonprofits in the Era of COVID-19, a deeper look into many of these issues and concerns facing nonprofits and NGOs.

Author: Clivia Laínez is a Senior Manager in the Industry Specialty Services Group at BDO. Clivia has over 14 years of professional finance experience with focus on Government Finance & Compliance.

Co-author: Sly Atayee is a Manager in BDO’s Nonprofit Advisory Services, with a focus on internal controls, organizational transformational and grants management. Sly brings over 5 years of experience assisting a wide range of nonprofit clients, from brand-new organizations to multinational firms with global footprints. with all aspects of compliance and business process improvement.