Nonprofit Case Study: From Financial Crisis to Resolution

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The following story details how a small nonprofit arts organization survived a potentially deadly financial crisis and successfully negotiated a payment plan with the IRS concerning unpaid payroll taxes and filing penalties.

An eight-year-old arts organization had a budget of slightly less than $200,000 annually, six volunteer board members, and five paid staff members, all of whom were artistic, with the exception of the organization’s managing director.

The managing director intentionally misled the board about the organization’s financial condition. When it came to managing the organization’s finances, the managing director was well meaning but out of her depth.

With the organization already facing a cash-flow challenge, a project that involved a national touring artist went well over budget. To resolve the situation, the artistic director gave the organization a personal loan of approximately $25,000. The organization continued to thrive artistically but struggled to rise above what was perceived as moderately challenging financial circumstances.

At each board meeting, the board received Excel spreadsheets containing financial reports, which the managing director had created. The board treasurer position was vacant, and no additional financial oversight had been put into place.

Then the financial crisis hit.

Shelly Chamberlain is the manager of operations and human resources at the Minnesota Council of Nonprofits.