Nonprofits and Community Accountability
I recently read a short and disturbing article from a Northwest Connecticut newspaper titled, “‘We have run out of money,’ Friendly Hands Food Bank director says.” If we work in the nonprofit sector, we periodically read these stories and shake our heard. “That’s sad,” we may think. Indeed, nonprofit failure is all too common but if we let these small stories go without comment then we will not learn. This willful ignorance, in turn, leaves the door open to others to make the same mistakes. Tragically those who ultimately lose are the community members we serve. While I live in Portland, Oregon my family grew up in Northwest CT. In fact, my father was born and raised in Torrington, where Friendly Hands Food Bank is located. So, this article about a nonprofit food bank on the verge of closure caught my attention.
I had to look at the organization’s IRS 990 forms (here). For the three years between 2012-2014, Friendly Hands revenues averaged about $150,000 annually. During the same three-year period, the agency reported cumulative losses of over $130,000 with expenses rising from $176,039 in 2012 to $212,405 (a 20% increase) in 2014. The 990 forms also suggest that half of the organization’s board of directors were on the board of the organization during all three years.
Quoting from the newspaper article, the executive director stated, “We’ve had some good times, and we’ve had bad times. But now we’re at our worst time, because we have run out of money.” The Executive Director placed the blame squarely on unstable revenues.
Perhaps that is true, in part, and one can only speculate what happened financially during 2015 and 2016. However, looking at the pattern of 2012-2014 we see an agency, run by a board of directors, willing to increase the organizational expenses each year while at a time that they were accumulating losses averaging over $43,000 annually. Whatever happened recently, this organization did not just “run out of money.” The IRS 990 forms that are available demonstrate a pattern of fiscal irresponsibility that has taken its toll on the organization.
Having painted this context, I would like to talk about the collateral damage caused by this agency’s crisis.
The Community: The newspaper article suggests that Friendly Hands serves approximately 700-800 people a year from throughout the Northwest corner of Connecticut. Those 700-800 people are the collateral damage of the organization’s mismanagement. Digging just a little deeper, one finds a report published by the Community Foundation of Northwest Connecticut. The Foundation’s report, Starved for Attention, details food insecurity in the Northwest Connecticut region. This report details that 13% of the residents of Torrington receive Supplemental Nutrition Assistance Program and 16% of children have experienced food insecurity. We know that food banks play an important role in the safety net system for these families and by simply, “running out of money,” these families are just a little less stable.
Other Nonprofits: The second area of collateral damage caused by a nonprofit in crisis is the impact on peer organizations in the community. When a crisis is announced rather than managed as it unfolds, other nonprofits in town are forced to react to the failing nonprofit. Specifically, peer agencies absorb additional service delivery (without additional resources). In the case of Friendly Hands’ crisis, there are eight other Food Pantries serving Torrington residents. This means that each of these pantries will need to theoretically absorb an additional 100 clients each. In times of crisis for one nonprofit, peer nonprofits also get the question, “how did this happen?” or the criticism, “why are nonprofits so inept? This places nonprofits in the awkward position of defending the failing organization or defending nonprofits in general.
Donors: Shrapnel of an exploding nonprofit also damages donors who have trusted their philanthropy to the organization. At the smallest level, if a community member is donating $35/month and one day opens the local paper to be greeted with an executive director proclaiming, “we are out of money,” it opens a wound of broken trust. At the level of grant-making foundations or government partners, a nonprofit in crisis that publicly announces it is in financial distress, it forces reaction from funders rather than providing the funders with an opportunity to problem-solve or plan for change.
I acknowledge that some reading this article might consider this commentary a “hit piece” targeting a small, unsophisticated, rural nonprofit and I can’t prevent that thinking. I stated at the outset that if we cannot learn from failure we are doomed to repeat failure. So out of this assessment comes three big ideas:
1. Honesty Matters: I encourage nonprofit leaders to be honest. Period. Honest means reflective, accountable, proactive, and forward-thinking. Declining financials? Board incapable of governing the agency? No strategy? Face it and make some hard decisions because, if you don’t, failure damages the community you serve.
2. Leadership Matters: I encourage nonprofit leaders to think strategically. Without a specific written strategy and a reliable revenue model, nonprofit leaders and their boards demonstrate mediocre governance and leadership. Without leadership, your success is merely opportunistic and you increase your risk of failure. And failure damages the community you serve.
3. Relationships Matter: I encourage nonprofit leaders to develop deep relationships. If you have deep relationships with your community, donors and nonprofit partners, it increases your accountability and broadens your organizational safety net. When you are accountable to others, you are less likely to roam the countryside like a lone wolf but live and work in the pack. In trouble, you can turn to your partners and work collaboratively to solve your problems before they blow up in the community. We are stronger together, even if that strength comes from thinning the pack through a merger.
Over my entire career, I have had the opportunity to work with many amazing nonprofits large and small. The distinguishing characteristic of successful nonprofits is that they implement the three big ideas above. As we move forward as a sector, nonprofit organizations need to embrace honesty, leadership, and relationships more deeply than ever. The community is counting on us.
Your thoughts are welcome.
~ Mark
Photo Credit: LEEROY Agency
