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What is a Non Profit organization?

A nonprofit organization (abbreviated NPO, also not-for-profit) is any organization that does not aim to make a profit, and which is not a public body.

Although many countries have different requirements for an organization to qualify as Non-Profit

Key Characteristics of a Non Profit Organization

A NPO has certain key characteristics which are unique and which differentiate it from a Profit Organization

  • Passion for mission,
  • Atmosphere of “scarcity”
  • Bias toward informality, participation and consensus
  • Dual bottom lines: financial and mission
  • Program outcomes are difficult to assess
  • Governing board has both oversight and supporting roles
  • Third-party funding
  • Mixed skill levels of staff (management and program)
  • Participation of volunteers

Key Challenges

Capacity building is an ongoing problem faced by NPOs for a number of reasons. Most rely on external funding (government funds, grants from charitable foundations, direct donations) to maintain their operations and changes in these sources of revenue may influence the reliability or predictability with which the organization can hire and retain staff, sustain facilities, or create programs. In addition, unreliable funding, long hours and low pay can lead to employee burnout and high rates of turnover.

Founder’s syndrome is an issue organizations face as they grow. Dynamic founders with a strong vision of how to operate the project try to retain control over the organization, even as new employees or volunteers want to expand the project’s scope and try new things. 

Need for Governance

The need for governance stems from regulations and various local laws that a Non Profit has to deal with. 

Funding

In the US a particular question related to this is: Can a section 501(c)(3) organization [domestic nonprofit]accept funds from a foreign government?

http://www.treas.gov/offices/enforcement/ofac/programs/index.shtml

If you look into this there is a list of sanctions which can affect the funding depending on the source.  It is a global trade problem where you need to identify the countries or parties with who you can trade with.

The scope of this can be unending and the implications also. Thus a NPO would want to clarify the funding has happened through legally allowed sources and the organization is not in violation of any laws.

With security being at risk, the funding of NPO is something to look at.

Local Laws

When we talk about laws, it is interesting that political shifts in a country might have a significant impact on a NPO. A NPO which till yesterday was seemingly helping people can come under fire the next day for not following local laws, in many cases not being aware of the laws.

Some of the examples

Ethiopia  –  http://en.afrik.com/article15095.html

US –  http://www.okrcd.org/NonProfitMngt.pdf

In – http://en.wikipedia.org/wiki/Republic_of_India_non-profit_laws#Registration

 

Fiscal Reporting

The need for governance and compliance becomes more highlighted in Fiscal Reporting.

Although not required by Law to follow SOX, NPOs ” have voluntarily adopted some of its provisions, watchdog groups have revised their standards, some states are considering

legislation that would apply similar provisions to non-profit organizations, and the IRS is considering the Act in connection with forthcoming guidance for exempt organizations. The result is that the Act may well be giving rise to new standards of “best practices” for non-profit corporate governance……   Like the for-profit sector, the nonprofit sector has seen its share of high profile scandals: “

http://www.okrcd.org/NonProfitMngt.pdf

In addition to the above, the taxation law and risks involved need governance and compliance especially in distributed organizations.

In the US, there is a federal law http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html for governing taxation.

“To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes …. none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization …..”

At the same time there are specific state law viz.: “Nonprofit or exempt organizations do not have a blanket exemption from sales and use taxes.”  in California   http://www.taxes.ca.gov/exemptbus.shtml

In the European Union, different countries have different rules. Belgium allows an individual to deduct 10% towards donations while in Finland there is no exemption for a donor   http://www.partnerstva.sk/buxus/docs/MSS_Presentation_Bullain_Tax_Incentives_in_EU.ppt

Resource and Portfolio Management

A NPOs portfolio includes high investment and high risk projects. A number of the NPOs maintain an investment portfolio for cash flow.

Portfolio management

For a NPO to be effective and sustainable in the long term it needs to align Fiscal results to mission.  

A child care NPO’ s primary responsibility is to provide child care, at the same time, alignment of budget and resources against the mission is critical.  The need for maintaining and executing on the mission introduces Portfolio and Program Management. The following paper explains the needs of a Non Profit Managers http://www.idealware.org/articles/fgt_project_management.php

In today’s economy conditions some Non Profits are linking Sustainability to Investments in Stocks. http://www.bizjournals.com/buffalo/stories/2008/03/03/focus5.html

The Moment an NPO goes the “The Street”, it is also subject to the rules of the game, viz. Investment Fraud. A great resource to read on this topic, Non-Profit Fraud: The Ethical Failures of our Boards   http://www.allianceonline.org/ARC/change_agents.res . This article outlines the major issues and key solutions.

A NPO needs Project and Portfolio Management to increase visibility and accountability, which is demanded of them by donors.

Resource management          

Many a times there is a need various skills for an NPO to functions viz. Managers, Volunteers, and Administration etc.  http://www.delawarenonprofit.org/toolstemplates/samplejob.php

A number of the members of a NPO come in through volunteering.

The need to manage the skills, volunteering and allocation of the most skilled resource to the project is paramount to the success of the project and the organization.

A lot of waste can be contained and the motivation levels of participant of a NPO can be increased through an efficient Governance and Portfolio Management.

What can SAP offer?

SAP Project and Portfolio Management with an overlying SAP GRC -Risk Management and SAP GRC – Process Controls can induce a better visibility and governance. SAP Business Planning and Consolidation can track the Investment Portfolio. The programs can be aligned to the mission with SAP Strategy Management.

Also to make the offering more attractive, ideas similar to Open Charity Licensing

http://www.microsoft.com/licensing/programs/open/opencharity.mspx can be leveraged

 

 

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  1. Norman Marks
    Asif, I agree with many of the excellent points you have made. One area that I believe merits expansion is in the definition of governance. Governance is usually defined as more than compliance with legal and regulatory requirements.  It includes all the processes, systems, policies, and procedures that are used (by the board and management) to ensure the interests of the stakeholders are protected and their needs met.

    The diagram of the SAP portfolio is a good one. The governance requirements are identified and risks to their achievement are assessed, using a combination of SAP BusinessObjects Strategy Management and Risk Management. Strategy Management manages the non-profit’s strategies, goals, and initiatives – including their measurement and monitoring.  SAP BusinessObjects Risk Management works with Process Control to ensure the risks to achievement of the governance requirements are identified, assessed, managed, and monitored on an ongoing basis. Several other applications contribute to the overall governance process, as you have so ably described.

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