Sunday, December 07, 2008

Learn From Others' Mistakes To Improve Your Nonprofit

Allegations that the Museum of Contemporary Art in Los Angles, California has operated at a deficit for 75% of the time, during the last eight years swarmed the philanthropy media, at the end of last week. From time to time I share these kinds of news stories with our readers because they are excellent cautionary tales that should be taken by donors and those working for nonprofits, alike, as examples of what not to do and also what not to invest in.

The museum's endowment has reportedly shrunk from almost $50 million, in 1999, to about $6 million, today. The California attorney general's office is now, due to these potential legal discrepancies, auditing the Museum of Contemporary Art. In question is whether laws that protect donors' restricted donations were broken (such that the donors' wishes for their contribution's use were not followed; which is illegal. All restricted donations must be spent according to the donor's wishes or kindly returned to them). [Soaring In Art, Museum Trips Over Finances by Edward Wyatt and Jori Finkel, December 4, 2008]

According to Charity Navigator, a well known and trusted website providing information on nonprofits to inform anyone about any nonprofit's finances and spending, among other individual organizational traits. While Charity Navigator gives the Museum of Contemporary Art a four star rating, overall, it's highest rating; and while Charity Navigator can only report (and measure a nonprpofit) on what any given nonprofit reports about its operations and accounting, publicly; it does list that based on the (public IRS tax record) Fiscal Year End 2006/2007 Income Statement: 75.4% of every dollar raised is spent on its programs (art); $24.1 million in revenue and $21.1 in expenses, resulting in a $3 million deficit; but their assets are valued at $37.4. So, you can see that the value, spending (it is not unusual for a nonprofit to run at a deficit, assuming it is running legally, is planning for the deficit and can pay that out in the coming new fiscal year), and expenses are not terribly out of line; nor very telling about the organization (a good lesson for all of us who donate to organizations - look under the hood and kick the tires). If we look at Museum of Contemporary Arts' history on Charity Navigator, we see that their net assets (either entirely or at least partly comprised of the organization's endowment) has waned and then decreased from 2005 through 2007 (as reported). Charity Navigator needs to be including this tracking in its estimations of nonprofit organizations! Something else that is interesting is liabilities over these three years increased, while the organization's "working capital" stayed the same. This, too, can indicate that the organization is not operating with easy cash flow. But, we are just reading a report...

The museum's patrons, donors, local artists, and former board members are publicly requesting that the Director, Jeremy Strick and the board both resign. They will also settle for just the board or Strick leaving, too, reportedly.

Reportedly, the museum's leadership believe this will all be behind them by the end of the year. There have been rumors of a potential merger with the Los Angeles County Museum; but the Museum of Contemporary Art's official position is that it will remain its own organization, individually. The philanthropist Eli Broad offered a $30 million contribution, in November, if the museum could raise matching donations. Unfortunately, as of December 4, there were no known takers.

It is very important that any and all nonprofits, from the smallest newest start up organization, to the largest most prolific nonprofits operate as professional places of business. Where is it written that if an organization isn't a for-profit business; standards, professionalism, best practices, real world successful experience, skills, and knowledge are not necessary? The best intentions launch most nonprofits, yet at least half of the work will be raising money, which is really raising buy in and investors. No nonprofit wants a donation from a donor, once. The aim is to raise donors who give to your organization over and over again. Without a well functioning, legal, successful, efficient organization, though; who will want to invest in your organization? Know what the organization is legally responsible to do and report. Be certain that board members know their job descriptions and roles, their legally bound fiscal, policy setting, and oversight responsibilities. Know how to run an excellent nonprofit and how to fundraise well; and if you don't today, that's fine. Learn, then! The lesson in these unfortunate nonprofit news stories is that no matter how much money an organization raises, the size of its building, how old the agency is, or what it used to be; if a nonprofit does not run professionally, today, it may be listing to one side for a legal, financial, oversight or other failure. Donors and the community beware!

For help getting educated in best practices, nonprofit professionalism, standards, etc. see:

Places, Resources, And Ways To Learn Everything From Fundraising to Other Nonprofit Operations (Some Are Free)


Some Free Resources

We Need Money For Our 501(c)(3) What Is the Grant Seeking Process?

1 comment:

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yeah it is very important to learn from other mistakes.