2014 Not-for-Profit
Governance Survey Results
A CohnReznick LLP Report
MAY 2014
According to the National Center for Charitable
Statistics (NCCS), there are more than 1.4 million
not-for-profit organizations registered in the U.S.
This includes almost one million public charities,
over 96,000 private foundations, and more than
360,000 other types of not-for-profit organizations,
including chambers of commerce, fraternal
organizations, and civic leagues.
About the Survey Results
Purpose
The members of CohnReznick’s Not-for-Profit and Education Industry Practice specialize in working closely with the boards
and management of not-for-profit organizations to assist them in developing and implementing best-practices for their critical
financial and operational functions. Now more than ever, our clients are asking us questions about policies and procedures
relating to audit committee governance and risk detection and minimization strategies.
Based on the nature of those questions and the ever-increasing interest in stewardship and transparency on the part of
donors, regulators, and watchdogs, CohnReznick has conducted our first ever Not-for-Profit Governance Survey and we
are happy to share the results with you.
Methodology
The online survey was sent to not-for-profit organization contacts across the country during an eight-week period in the fall
of 2013. The survey included 27 questions related to governance-related issues for not-for-profit organizations.
Representatives from 260 organizations responded to the survey. The respondents included presidents, CEOs, CFOs, controllers,
executive directors, and board members of organizations with annual budgets ranging from the local to national.
Respondents are, as reflected in this report, from across the sub-segments of the not-for-profit industry.
Our thanks goes to all of the respondents for taking the time to share their collective knowledge. We hope that, as we did,
you will gain some new insights that can be valuable to your not-for-profit organization.
Thank you,
Kelly Frank, CPA John Alfonso, CPA
PartnerPartner
Not-For-Profit and Education
Not-For-Profit and Education Industry Practice Leader
Industry Practice
[email protected]
[email protected]
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Figure 1: Which of the following categories best
describes your MISSION?
Unknown,
Unclassified
Respondent
Profile
To begin the survey, we asked respondents
about the missions of their organizations. As
you can see in Figure 1, we were then able to
International,
Foreign Affairs
Environment
and/or Animals
Mutual/Membership
Benefit
Public, Societal
Benefit
Arts, Culture,
and Humanities
Religious
Health
Human Services
Education
compare this data to not-for-profits nationally
using the National Center for Charitable Statistics
(NCCS) database. In many cases, our sample
of respondents paralleled the percentages of
the overall population according to NCCS.
0%
CohnReznick Survey
5%
10%
15%
20%
25%
30%
35%
National Center for Charitable Statistics
(registered organizations)
Figure 2: Which of the following best describes your
type of ORGANIZATION?
Hospital
Private Foundation
13.6 million
The number of people that work for
a not-for-profit organization.1
Religious
Organization
Professional
Association
Industry Association
Healthcare (other
than hospitals)
Independent
School
College
or University
Another area of focus was the description
Social Service
Agency
Public Charity
of the organization. We were again able
to compare the data to that of the NCCS
0%
CohnReznick Survey
10%
20%
30%
40%
50%
60%
National Center for Charitable Statistics
(registered organizations)
database to show a comparison (see Figure 2).
When we asked respondents for information
on their position within the organization,
we again received the expected response
Figure 3: What POSITION in your organization do you
currently hold?
Board Member
President
in that the majority, about 44%, holds the
title of Chief Financial Officer (CFO) (see
8%
Controller
Figure 3). In our experience, the CFO is
4%
13%
usually the primary management liaison
44%
to a board for audit committee and
financial governance matters.
15%
Executive
Director
1
2
Static Brain Research Institute: http://www.statisticbrain.com
2014 Not-for-Profit Governance Survey Results
Chief Financial
Officer
16%
Chief Executive
Officer
In our experience, the CFO tends
to take on a “gatekeeper” role
for audit committee and financial
governance matters.
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Figure 4: What is the date of your last FISCAL YEAR END?
160
140
120
100
80
Most respondents reported that they are on
60
a June or December fiscal year close. This is
40
consistent with information we obtained from
20
our clients and contacts.
June 30
On the topic of annual budgets, most of the
Dec. 31
Sept. 30
March 31
Based on answers from 90% of total respondents.
respondent organizations, 44%, were in the
“under $10 million” revenue category. As a
comparison, NCCS data show information for
Figure 5: What was your annual BUDGET?
not-for-profits registered with the IRS by level of
50%
revenue reported for the time period ending
45%
December 31, 2013 compared to the same
40%
period in 2012. The data reflect that not-for-profits
35%
between $100,000 and $100,000,000 saw on
30%
average a 2% increase in revenue. Not-for-profits
25%
with more than $100 million in total annual
20%
revenue saw an increase of 5% overall.2
15%
10%
5%
<$10,000,000
$10,000,000$50,000,000
$50,000,000$100,000,000
>$100,000,000
Figure 6: What was the change in total REVENUE for
the last fiscal year?
100
80
60
40
20
DECREASE
> than 5%
1% - 5%
2
4
National Center for Charitable Statistics: http://nccs.urban.org
2014 Not-for-Profit Governance Survey Results
INCREASE
> than 5%
1% - 5%
Measures number of responses. Respondents were able to select all that apply.
Figure 7: How confident are you in your organization’s
GOVERNANCE practices?
1% 1%
14%
47%
Governance
We chose governance as the focal point for
this survey as it is a constant topic of concern
for our clients. Donors, regulators, and watchdogs
seem more interested than ever in good
stewardship, accountability, and transparency.
37%
1.45 million
Very Confident
Fairly Confident
Somewhat Confident
Not Very Confident
Not Confident
Figure 8: What SIZE is your board?
90
80
70
The number of registered not-for-profit
organizations filing forms 990, 990EZ,
990N, or 990PF in the past two years
(December 2012) according to NCCS
When we asked respondents about their
level of confidence in their organizations’
governance policies, 47% responded that
they were confident overall. However, we
have seen a recent upward shift in this area
as many not-for-profits have been adjusting
their governance procedures over the last
few years.
Sixteen percent of respondents stated that
they are either “somewhat confident” or
“not confident” in their governance practices.
With the emergence of several significant
new laws in the not-for-profit industry, notably
the Nonprofit Revitalization Act in New York,
not-for-profit governance is becoming a more
critical topic for directors and managers of
60
50
40
30
20
10
1-5
5-10
10-15
15-20
20+
Number of Board Members
not-for-profit organizations.
Measures number of responses. Respondents were able to select all that apply.
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We are seeing a trend in recent
years toward smaller boards.
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2014 Not-for-Profit Governance Survey Results
The Board
Figure 9: Do any of your annual board meetings
contain an EDUCATIONAL component?
Based on our experience with clients and
YES
boards with which our partners currently
NO
68%
volunteer, we are seeing a trend in recent
years toward smaller boards. (See more
32%
about this below.)
Not surprisingly, we were encouraged to
see that 68% of the organizations surveyed
include an educational component to
their board meetings and place a strong
Figure 10: Which of the following EDUCATIONAL topics
were covered during your board meetings?
emphasis on financial, strategic planning,
and governance.
Financial
Strategic Planning
Governance
Industry Trends
Technology
Risk Management
What does
CohnReznick think?
Thousands of books, articles, seminars, and blog
posts have been written on the topic of building
a strong board of directors for not-for-profits.
Maintaining a small board makes an organization
more nimble, streamlines the decision making
process, cuts down on the time needed to make
programmatic changes, makes it easier to redirect
dollars where needed, and cuts down on the
reaction time needed to assess risks and develop
contingencies. We do want to be clear that we’re
not suggesting organizations simply
cut the board, the goal is to appoint
the right people. Be sure that
you have a good nominating
committee in place to vet
candidates and needs in order
to match the qualifications
to serve the needs of the
organization. Diversity is key.
Regulation
Ratios/Metrics
Tax
0
20
40
60
80
100
120
140
Measures number of responses. Respondents were able to select all that apply.
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Audit
Committees
The survey revealed that a large group,
42%, stated that they do not have an audit
committee that’s separate and apart from
a finance committee. While 33% mentioned
that their finance committee also serves as
the organization’s audit committee, we found
that 9% stated that they don’t have any audit
committee in place. Not-for-profits without an
audit committee should be aware that, while
many states do not require an audit committee
to date, certain states require the full board or
a committee consisting of independent board
members to take on certain audit committee
responsibilities. These responsibilities include
meeting with auditors prior to, and at the
end of, an audit; monitoring and approving
potential conflicts; and monitoring whistleblower
complaints. Not-for-profits should take appropriate
action to ensure they are in compliance with
the regulatory requirements of the states they are
registered in and understand the roles and
responsibilities of an audit committee.
Of the 58% of organizations that responded
that they do have an audit committee for
their organization, the majority said that their
committees contain between four and six
professionals. It was also noted that most of
these audit committees, 70%, meet quarterly
or semi-annually.
Figure 11: Does your board have an AUDIT COMMITTEE?
9%
33%
58%
Yes, we have an audit comittee and a separate
finance comittee
No, our finance committee serves as our
audit committee
No, we do not have an audit committee
Figure 12: What is the SIZE of your audit committee?
70%
60%
50%
54%
40%
30%
35%
20%
10%
11%
1-3
8
2014 Not-for-Profit Governance Survey Results
4-6
6+
Number of board members
Figure 13: How often does your audit committee MEET?
12%
35%
18%
35%
Semi-Annually
Quarterly
Annually
Monthly
Figure 14: Do you have a FINANCIAL EXPERT on your
audit committee?
YES
88%
NO
7%
NOT SURE
5%
Figure 15: Does your audit committee have a CHARTER?
YES
52%
NO
34%
NOT SURE
14%
Eighty-eight percent of the organizations
with audit committees stated that these
committees include a financial expert. This
was an encouraging response because,
among other things, audit committees are
usually charged with overseeing the financial
accounting process and reviewing the results
of the independent auditor, all of which
require a meaningful level of financial literacy.
Does your audit committee have a charter?
The survey revealed that only 52% of the
organizations stated that they have a charter.
We believe audit committees of all not-forprofit organizations should have a charter
as the charter can act as a set of broad
guidelines that will assist the committee
in fulfilling its oversight responsibilities and
we encourage every not-for-profit to review
the American Institute of Certified Public
Accountants’ (AICPA) Not-for-Profit Audit
Committee Toolkit which is available from the
AICPA at no charge. In addition, to improve
effectiveness, we recommend that each
meeting should include a formal agenda,
which outlines the various tasks set forth for
each meeting.
What does
CohnReznick think?
We believe audit committees with more than six
professionals can become difficult to manage.
Due to the number of significant stewardship
responsibilities that audit committees
are required to assume, we believe
that they should meet no less
than quarterly and have clearly
defined tasks in their agendas. In
addition, these meetings should
include a financial expert that is
informed about not-for-profit
accounting and reporting issues.
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Figure 16: Does your organization have a WRITTEN
whistleblower policy?
7%
Whistleblowers
11%
We were pleased to see 82% of responding
organizations have a whistleblower policy
in place. For the remaining 18% who reported
82%
that they did not intend to develop a policy,
or had no plans to develop one over the
next 12 months, it is important to check
Yes
on individual state regulations. Many states
No intention of developing it
require a whistleblower policy.
No, but plan to develop it
in the next 12 months
Not-for-profit organizations should also be aware
that the implementation of a whistleblower
“hotline” has been recommended by the IRS
for adoption by all not-for-profits. This hotline
Figure 17: Does your organization have a
whistleblower HOTLINE?
protects the board and demonstrates its
commitment to best practices.
7%
27%
66%
What does
CohnReznick think?
We strongly encourage all not-for-profit leaders to
develop a whistleblower policy and system to encourage
the anonymous reporting of complaints and minimize the
risk of frauds going undetected. According to the
2012 Report to the Nations on Occupational Fraud and
Abuse by the Association of Certified Fraud Examiners
over 43% of the detected fraud cases, that
were part of the study, were brought to
light through a tip.3 In addition, a typical
organization loses 5% of its annual
revenues to fraud with a median loss,
for not-for-profit organizations,
at approximately $120,000.4
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2014 Not-for-Profit Governance Survey Results
Yes
No intention of implementing it
No, but plan to implement it
in the next 12 months
3
Association of Certified Fraud Examiners (ACFE), 2012 Report to
the Nations on Occupational Fraud and Abuse, Austin, TX; ACFE,
2012, p. 14
Association of Certified Fraud Examiners (ACFE), 2012 Report to
the Nations on Occupational Fraud and Abuse, Austin, TX; ACFE,
2012, p. 4
4,5
Most cases of fraud were
committed by individuals who
were first-time offenders with
clean employment histories.5
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Asset misappropriation was by far
the most common type of fraud,
encompassing 87% of the cases
reported. (NCCS Survey)6
When asked if their organization has a
whistleblower complaint resolution process,
we found that 65% of respondents stated that
they do have a process in place. However,
only 11% said that they used an outside service
to record and monitor complaints. We have
Figure 18: Does your organization have a whistleblower
complaint RESOLUTION PROCESS?
included a list below of the eight software firms
that respondents said they were working with.
11%
• EthicsPoint
• Integralink
• Lighthouse
• Campus Conduct Hotline
• Global Compliance
65%
24%
• ListenUp
• Navex Global
• ReportIt
(We do not endorse any of these firms, but this listing is
intended as reference.)
Yes, we record and monitor complaints
No
The last question in this section refers back to
Yes, we use an outside service to
record and monitor complaints
the individual or committee that first receives
whistleblower hotline complaints. Respondents
were given the option of multiple choices to
indicate that more than one individual or team
Figure 19: Who within your organization is the first to
receive whistleblower hotline COMPLAINTS?
were notified. Twenty-one percent of respondents
indicated more than one individual receives the
complaints and 8% indicated three or more.
Responses were fairly even with the president/
CEO receiving the complaints 31% of the time,
human resources department at 28%, and
someone other than the audit committee or
in-house counsel receiving the complaints 22%
of the time.
31%
President/CEO
28%
Human Resources
Department
22%
12%
7%
Other
Audit Committee
In-house Counsel
Measures number of responses.
6
Association of Certified Fraud Examiners (ACFE). 2012 Report to
the Nation on Occupational Fraud and Abuse, Austin, TX; ACFE,
2012, p. 4
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2014 Not-for-Profit Governance Survey Results
Some of the more popular answers as to who first receives the whistleblower hotline complaints
included:
• Board Members
• Chief Financial Officer •Chairperson
• College Assembly
• Compliance Officer
•Chief Operating Officer
• Executive Director
• Internal Auditor
•Quality & Compliance Officer
What does
CohnReznick think?
While this is not an easy problem to solve in many organizations, CohnReznick typically recommends setting up an
anonymous independent hotline or web portal that directs complaint reports to assigned responders. This assists in
alleviating the stress of a one-on-one interaction as well as the fear of retaliation. Assigning multiple
individuals to receive these complaints can also minimize the possibility that the person responsible
for the complaints happens to be the person who is committing the fraud. Another major issue
that we see is that, while whistleblower information, hotlines, and policies may be in place, they
are not necessarily well-publicized. We recommend publishing this information on your intranet
site, external websites, and in your offices to make the information easy to find. A well-publicized
hotline is a great way to encourage the filing of whistleblower complaints and discourages
fraud due to ease of potential reporting.
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Figure 20: Do you have a written CONFLICT OF INTEREST
policy?
YES
Conflict of
Interest Policy
94%
When asked if their organizations had a policy
related to conflict of interest, respondents
NO
answered with a resounding “yes.” Ninety-four
6%
percent noted that they have such a policy in
place―this percentage is in line with the results
that CohnReznick expected.
When identifying conflicts of interest, we found
that 77% of the respondent organizations have
Figure 21: Does your organization use an annual disclosure
statement to identify CONFLICTS OF INTEREST?
an annual disclosure statement in place. We
YES
recommend that not-for-profits without robust
conflicts of interest disclosure statements review
77%
the AICPA’s Not-for-Profit Audit Toolkit to find an
example of such a statement that they could use
NO
23%
as a basis for developing their own. We suggest
having your trusted advisors, including general
counsel and audit and tax professionals, review
the policy to be certain that you have asked the
right questions. While we do see organizations
obtaining annual conflicts of interest disclosure
forms, they are primarily received only from members
of the board, 53%, and senior management, 27%.
We suggest broadening this approach to include
other employees and vendors to ensure that all
conflicts will be identified, disclosed, and remedied,
if necessary, in a timely manner.
In Figure 23 on the following page we noticed that
when reviewing the individuals who oversee conflict
of interest policies, it was evident that the president/
CEO takes on the brunt of the responsibility at
46%. However, as organizations were able to
make multiple choices, we found that of those
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2014 Not-for-Profit Governance Survey Results
Figure 22: Please identify the PARTIES from whom you
obtain annual conflict of interest disclosure
statements.
Members of
the Board
53%
27%
15%
3%
2%
Senior Management
All Employees
All of the Above
Vendors
Respondents were able to select all that apply.
who responded, 33%, gave more than one
Figure 23: Who OVERSEES compliance with the
organization’s conflict of interest policy?
answer and 5% gave three or more. Of the
answers that were checked, audit committees
and in-house counsel came in second and third
President/CEO
place with 30% and 14%, respectively.
Audit Comittee
We are glad to see that the conflicts of interest
In-house Counsel
policies are getting attention at the highest levels,
Chief Financial Officer
which shows that organizations understand the
Executive Committee
weight of the topic.
Board of Directors
Compliance Department
Governance Committee
0
20
40
60
80
100
120
Measures number of responses. Respondents were able to select all that apply.
Enterprise Risk
Management
For the final question in the survey we reviewed
a topic that we felt was gaining a lot of traction
in the not-for-profit industry: enterprise risk
management (ERM). ERM is an integrated
Figure 24: Have you ever conducted an ENTERPRISE RISK
MANAGEMENT ASSESSMENT?
approach to addressing all forms of risk across
the organization. Implemented correctly, it leads
to informed decision-making and helps enhance
NO
YES
29%
71%
and preserve value. While we plan to use this
as a more in-depth topic for future surveys,
we were not surprised to find that only 29% have
conducted an ERM assessment.
We are seeing renewed interest in ERM, largely
as a result of headline-making frauds that have
occurred in recent years. This is an area that
organizations should review in order to determine
if there is a current need for an assessment. While
this can be a daunting topic to many, we believe
most not-for-profits would benefit from designing
and implementing an ERM process that is scalable
to their needs.
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Conclusion
The 4.9% rise in charitable giving in 2013 is the
largest gain since 2008. According to Forbes,
charitable giving rose 4.9% in 2013―its largest
gain since 2008.7 This rise indicates a renewed
attention for not-for-profit organizations, which
can also lead to renewed scrutiny. As we found
in this, our first not-for-profit governance survey,
less than 50% of boards noted that they are
“very confident” in their organization’s governance
practices. With the addition of new laws and
regulations surrounding the industry, this lack of
confidence can give rise to much larger issues
that should be addressed quickly and without
hesitation. Knowledge of the intricacies of
regulations and the effects that it will have
on the governance practices of not-for-profit
organizations is crucial to the success of affected
organizations. It is therefore strongly suggested
that organizations work with their trusted advisors
to ensure that all areas of compliance are
reviewed and accounted for.
We again thank all of the organizations who
participated in the 2014 Not-for-Profit Governance
Survey and look forward to your comments and
suggestions for future endeavors.
7
www.forbes.com, Charitable Giving Grew 4.9% In 2013 As
Online Donations Picked Up, 2/5/14
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2014 Not-for-Profit Governance Survey Results
About CohnReznick’s Not-for-Profit
and Education Industry Practice
In the public eye, a not-for-profit organization is defined by its mission. But in light of rising operational costs, more
scrupulous compliance requirements, and declining grant and pledge opportunities, fulfilling that mission has
become increasingly difficult. To be successful, not-for-profit organizations and educational institutions must improve
the efficiency of their operations while implementing financial reporting and accountability processes that bolster
member, donor, and regulatory confidence.
As one of the leading accounting, tax, and advisory firms in the United States, CohnReznick has a dedicated
Not-for-Profit and Education Industry Practice that works closely with the boards, management, and financial
leaders of not-for-profit and educational organizations. In addition to providing them with an array of tax and
accounting services, we also help them identify workflow inefficiencies, implement stringent internal controls,
leverage technology and IT infrastructure, and more effectively manage capital and planned giving campaigns.
Value Proposition
CohnReznick serves many of the most respected not-for-profit organizations and educational institutions in the United
States. These include our own industry’s professional organization, the American Institute of Certified Public Accountants
(AICPA), with nearly 400,000 member CPAs. We provide value to these organizations through our deep technical
knowledge, the high quality of our work product, and the specific capabilities we have in serving not-for-profits with
global reach. Our client experience includes:
• Not-for-profit housing developers: With extensive experience in the affordable housing real estate industry, we
help not-for-profit housing developers sustain their operations by identifying new partnership opportunities and
funding sources. These include a variety of tax credit programs and programs available through the U.S. Department
of Housing and Urban Development (HUD).
• Associations: We work with professional and trade associations to identify alternate revenue sources, integrate
technology to enhance operational efficiency, recruit financial personnel, and develop new strategies to provide
value to their members.
• Foundations: Foundations play a critical role in the not-for-profit environment. We help them navigate the complex
regulatory changes affecting them; implement practices to improve corporate governance, accountability, and
standards for giving; and balance financial and philanthropic objectives.
• Social service and charitable agencies: We help these entities leverage their governance and internal controls
to improve organizational efficiency, assess proposals for supporting community and educational programs, and
develop strategic plans to strengthen long-term viability.
• Educational institutions: We work with independent schools, colleges and universities, and other institutions to
give them the tools they need to refine their endowment and enrollment processes, improve their budget and
management systems, enhance accreditation procedures, and better manage and maintain campus facilities.
• Religious and cultural organizations: We help these organizations develop strategic plans to best meet their
humanitarian goals and objectives, maximize real estate assets, strengthen cash flow management, and create
planned giving strategies.
About CohnReznick
With origins dating back to 1919, CohnReznick LLP is the 10th largest accounting, tax, and advisory firm in the United
States, combining the resources and technical expertise of a national firm with the hands-on, entrepreneurial
approach that today’s dynamic business environment demands. CohnReznick serves a large number of diverse
industries and offers specialized services for Fortune 1000 companies, owner-managed firms, international
enterprises, government agencies, not-for-profit organizations, and other key market sectors.
Headquartered in New York, NY, CohnReznick serves its clients with more than 280 partners, 2,500 employees, and
26 offices. The Firm is a member of Nexia International, a global network of independent accountancy, tax, and
business advisors. For more information, visit www.cohnreznick.com.
A CohnReznick Report
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2014 Not-for-Profit Governance Survey Results