Welcome: That’s Why Pencils Have Erasers

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Welcome to the Nonprofit Quarterly’s issue on financial management. In putting this edition together we shifted editorial emphasis slightly from exploration of innovative practices to a broader examination of barriers to effectiveness in financial management. Toward this end, we included a mix of practical “how-to” information and consumer guides, buttressed by a thoughtful selection of articles illustrating innovative practices and trends. We chose this approach because we have found–and have heard from many of our colleagues–that financial management is often the Achilles heel of many otherwise stellar organizations.

This is not to say that nonprofit administrators manage money badly. In many cases they perform miracles, mixing and matching revenue streams (each with a different set of regulatory and reporting requirements and a different start date) to provide a rational continuum of programs. Many of us have become expert at managing cash flow with no float, and managing our physical infrastructures and program development with no capital. Since many of our funders have a preference for funding programs over core costs, we manage all of this with minimal administrative overhead. In important ways we are wonderful financial managers.

Kim Klein, who leads off this issue of the Nonprofit Quarterly, warns us against any avoidance of money management (which naturally includes conversations about money)–although she considers such avoidance culturally unsurprising. She considers that learning to raise and manage money in service of a cause is a political act for which many of us are unprepared.

We need to confront our fears head on because poor financial systems can be devastating. They can ruin your relationships and credibility with funders and constituents, and damage, sometimes irretrievably, the all-important trust between the board and executive staff. In any number of ways, weak financial management can place your organization in a state of constant vulnerability and scarcity.

So let’s not go there. We offer, instead, “An Executive Director’s Primer on Financial Management,” providing a brief but comprehensive description of what savvy executive directors attend to as they approach financial management. Please note the accompanying sidebar on implementing good financial controls in your system.

Also in the category of basic information is an article by Brenda Rodriguez, who has experienced auditing “from both sides now.” She advises us on what to look for in our relationships with our auditors to avoid problems.

We also recommend two articles in the category of useful consumer guides. The first is a brief look at factors relevant to the consideration of outsourced financial services , including a user-friendly table for boards. The second suggests a critical approach to choosing among various accounting software packages, with a quick review of some leading packages.

Now that we’ve covered the basics–on to the realm of innovative practice in financial management! Two articles introduce the concept of open-book management, opening with the saga of Daniel Greenberg . Greenberg’s first act upon taking over the directorship of Legal Aid Society in New York City was to open the books to the staff (many of whom were feisty, no-nonsense, social justice oriented legal workers) and unions representing them. This courageous (and unorthodox) action cleared the rancorous atmosphere of labor-management disputes that had plagued the organization for years, and ushered in an orientation toward collaborative problem solving and decision-making.

To help you apply the theory behind Greenberg’s inspired practice, we have an article from John Case. Having long championed the concept of open-book management in the for-profit sector, his piece translates its basic principles to the nonprofit environment.

Keeping one eye on the road and one eye on the horizon, we look at upcoming trends in an article about the movement for a “Unified Chart of Accounts” for nonprofits. This movement comes in response to a number of recent developments–including the increasing access to our IRS Form 990s online. One consequence of such online posting is the potential for drawing comparisons between organizations that categorize their financial transactions very differently. Another mounting concern within the sector is the level of confusion many (especially smaller) organizations experience in establishing clear indirect cost rates-such confusion hampers constructive negotiation with funders over reimbursement for the real cost of programs. A unified chart of accounts would begin to address these issues.

Finally, three first-person narratives punctuate our feature coverage with thought-provoking tales from the frontlines of nonprofit practice. As one might expect, stories generated by the convergence of mission, money management and Murphy’s Law can be sad, humorous or frightening, but always enlightening chronicles of the human condition.

As usual, the back-of-the-book departments hold gems of useful information and insight. As a companion to the featured “Primer” for executive directors, we’ve included an article by Bill Ryan on how boards of directors should approach their fiduciary responsibilities. Switching gears, Kay Guinane of OMB Watch walks us through the central propositions of The Nonprofit Agenda, presented to the Bush administration last January. Staying with this national focus, Daniel Moore  of the New Mexico attorney general’s office discusses the “Charleston Principles,” a set of voluntary guidelines to aid states in examining the legal implications of charitable solicitation via the Internet. Continuing our exploration of workplace technology, Nonprofit Quarterly regular Mark Osten explains a “total cost approach” to technology planning, while Jonathan Spack muses on his growing flirtation with telecommuting. Finally, we pause to honor the memory of systems thinker Donella Meadows, a visionary activist whose recent passing has deprived the sector of an important and instructive presence.