2022 Not-for-Profit Considerations

As the new year begins, not-for-profit organizations are continuing to face disruptions caused by COVID-19, and they need to be active in assessing new or ongoing risks that their organizations may encounter this year. Continued scrutiny regarding mission and programmatic impact to communities, increased inflation costs, federal and state regulatory matters, and the ‘Great Resignation’ are just a few of these challenges to consider. Board committee members will need to refine and expand their risk strategies and priorities based on these emerging trends and concerns. The following factors should be considered as part of the 2022 planning and risk mitigation process:

Pandemic & Liquidity Matters

Funding and supply chain disruptions will impact entities at all levels, regardless of the financial strength of an organization. The emergence of new COVID-19 outbreaks also contribute greatly to the cancellations of in-person fundraising events, conferences, and programs, further stressing liquidity matters and concerns for many organizations. In response, not-for-profit organizations should continue to re-imagine themselves and consider diversifying funding resources to aid with maintaining financial health and mitigating volatility. Additionally, continued cash management, specifically daily monitoring of accounts receivable and accounts payable, as well as monitoring overall liquidity concerns, are critical considerations.

During the budgeting process, not-for-profit entities should account for these pandemic-related factors such as potential revenue shortfalls, increased pressures from inflation, rising cost of goods due to the supply and distribution delays, and workforce matters such as the ‘Great Resignation.’ As a general best practice, not-for-profit organizations should strive to establish a liquidity and operating reserve for a minimum of six months of operating costs.

Governmental Aid

Federal stimulus funding for pandemic relief has been the lifeline for many organizations over the past two years, but these opportunities come with a catch. These federal funds create increased reporting complexities that organizations will need to address. Not-for-profit entities should carefully review their federal grants and contracts on an ongoing basis to make sure that the organization is in compliance. In particular, these federal grants often require the company to maintain a system of internal controls to ensure that appropriate oversight of the funding is in place. Certain types of federal funding may also subject organizations to potential new compliance reporting requirements under Uniform Guidance.

Workforce and The Great Resignation

During the COVID-19 pandemic, many employees shifted to either a fully-remote model or a hybrid model with some in-office days. With this changing work environment, many organizations implemented new or enhanced internal controls and safeguarding procedures, especially regarding the risk of inadequate segregation of duties. As mandates begin to allow for a return to an in-office model, not-for-profits need to revisit procedures and consider new environmental risks and changes, while also being mindful of employee health, safety, and their expectations of the work environment.

Another challenge facing all industries is the current labor market shortages brought about by millions of employees quitting their jobs after reassessing their work-life balance since the pandemic. This is commonly known as the ‘Great Resignation.’ Employee surveys in nearly all sectors depict a workforce that is overwhelmed and stressed not only with personal matters, but also seemingly interminable workdays due to the nature of remote work. Organizations must seek out new and innovative strategies that will encourage employees to achieve an overall healthier, productive, and more balanced lifestyle in order to retain and attract new talent to the organization.

Technology

As the pandemic persists, organizations rely more and more on technology, which has its risks and rewards. In many instances, technology created opportunities for not-for-profits to continue their programmatic missions, but it also exposed organizations to new and changing business risks which can disrupt or compromise operations and reputation. Cyber threats such as malware, ransomware, and phishing result in data breaches, network issues, and other costly problems. Not-for-profit organizations often maintain highly sensitive information, similar to other for-profit entities, and need to ensure that employee and donor personal identifiable information (PII) is stored, protected, and secured at all times. Organizations should seek to refocus and invest in their information technology infrastructure to maintain reliable defense systems, provide appropriate data backup, and establish recovery processes in the event of a cyberattack.

How We Can Help

There are many factors that not-for-profit organizations must consider as they look ahead to the rest of the year. Citrin Cooperman has a dedicated team of Not-For-Profit Practice professionals who can help you navigate your risk considerations and assist you with audit, tax, and advisory services. If you have any questions, please reach out to your Citrin Cooperman advisor.