Not-for-profit boards play a key role in developing an organization’s potential by bringing expertise in a variety of fields, including accounting and risk management. The pandemic was extremely disruptive to not-for-profits, which underscores the importance of providing guidance and understanding the COVID-19 impact. All of these factors are also vital to conceptualizing future operational and endowment investment strategies. Management and board members should continue to work together to overcome any lingering repercussions from the pandemic and position the organization for the next chapter. The following are four elements of COVID-19 recovery initiatives that your board should understand.
Extent of Financial Damage
Your board should fully understand the current financial position of your organization and the extent of the pandemic’s impact both in the short and long term. One of the ways that management can help the board visualize the financial repercussions is to rework strategic financial planning and reporting dashboards to provide more clarity to non-technical stakeholders.
If your organization experienced a significant financial impact from the pandemic, keep in mind that traditional accrual-basis financial statements are often misleading during a cash crisis. A 13-week cash flow, monitored on a weekly basis, will provide your board with visibility of the near term survival of your organization. This is usually the gold standard reporting tool for businesses during periods of recovery, and for not-for-profit organizations, the playbook should be no different. The concept is a simple diagram of all sources and uses of cash during the upcoming quarter.
Expected Impact on Endowments
Another key impact area to monitor during down times is the organization’s endowments. For example, were endowments heavily affected by the financial market disruption? External economic factors could affect the overall performance of endowments and underlying investments and may even cause some endowments to go underwater or otherwise become unavailable for use. Consider, too if your organization’s cash flows are taking hit, which is leading the organization to spend more from its unrestricted assets than in a typical operating year.
Keep in mind that your organization may not be totally out of the woods yet when it comes to financial repercussions. Significant declines may be coming in federal and state grant support that could affect the use of endowment funds. Many local governments are projected to suffer significant tax revenue shortfalls in 2020, which will likely dampen their ability to continue supporting community organizations. Boards should be working with management now to develop alternate strategies on how or whether programs can be sustained if these funding cuts are realized.
COVID-19 Stimulus Opportunities Taken
Boards should understand if the not-for-profit took advantage of any pandemic related stimulus measures. One of the most significant programs in response to COVID-19 was the Coronavirus, Aid, Relief, and Economic Security (CARES) Act’s enhancements to the Small Business Administration (SBA) loans. The Paycheck Protection Program (PPP) offered significant, potentially forgivable loans to help organizations maintain their headcount, but the program came with a lot of red tape. If your organization received a PPP loan, the board should consider whether the organization expects the PPP loan to be forgiven. Unforgiven PPP loan balances are due within two years after the loan origination and will accrue interest at a rate of 1%.
Employers that did not take advantage of the PPP could have also taken a payroll tax credit that incentivizes the retention of employees. Not-for-profit organizations should be carefully working with their tax preparer to ensure they are taking full advantage of that credit’s benefits.
How Future Disruption Plans Have Changed
One of the big strategy questions to address will be the “lessons learned” from the COVID-19 disaster in terms of continuity planning. Your not-for-profit should discuss with its board whether the pandemic response has so far highlighted needs for additional investments in remote technology or upgrades to employee management practices.
Organizations may have found that they had to create or update business continuity plans, which should be considered in terms of effectiveness as well as whether the same measures will be reliable for future concerns. In being tasked with helping the organization with risk management, boards should be part of those conversations. Board members may be able to share some additional insight about what worked and what didn’t during the pivot from routine operations to remote work and social distancing protocols.
Keep the Conversation Going
The key to board communication is to keep channels open so that best practices can be shared between the two parties. Recovery from the COVID-19 pandemic will be an ongoing process as will the changes that may be needed to weather future business disruptions.
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Tracey McDonald is the Co-Leader in the Not-For-Profit Attest Practice in the Tampa Bay office. She can be reached at 727.572.1400 or firstname.lastname@example.org.
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