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After-School Nonprofits at Risk From Poor Money-Management Skills, Study Finds

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Funding isn't the only challenge facing nonprofit organizations that run after-school programs. Managing the money once they get it isn't necessarily a strong suit or priority for people whose mission is to work with children.

That can lead to all sorts of problems in maintaining staff and quality and, ultimately, could threaten the organizations' ability to continue providing services. But new research suggests strong fiscal practices can be learned.

A four-year study commissioned by the Wallace Foundation that tested two very different fiscal-management training models at 25 Chicago nonprofits running after-school programs found "long-lasting improvements" at all but one of them.

"These are important findings," said Edward Pauly, the director of research and evaluation at the Wallace Foundation, in a written statement.  "It is rare that staff training results in consistent and sustained behavior changes, and in this case it did.  The fact that both strands had positive results, and that the less-expensive intervention had very cost-effective results, is also exciting news," he wrote. "It signals to funders and nonprofit leaders that an investment in smart management can help those organizations pursue their missions effectively."

The Wallace Foundation, which has provided nearly $147 million through its initiatives to improve quality and access to after-school and summer learning programs (and also supports Education Week's reporting on expanded- and extended-learning opportunities and other topical coverage), became concerned about money-management problems ten years ago, when working with cities to create partnerships for after-school programs.

"As programs worked across cities to lift quality and expand access, they were often stretched financially, and some even risked closure," said Nancy Devine, the director of learning and enrichment at the foundation.

She said a 2008 study by Fiscal Management Associates (FMA) of youth organizations in New York City and Chicago, also funded by Wallace, "found that good financial management was directly connected to the ability to provide high-quality, after-school services."

That research found that doing high-quality public service work did not provide immunity against financial calamity. Consider the case of Hull House in Chicago.  After 122 years of serving the social welfare needs of generations of immigrants and poor Chicagoans, the historic settlement lost millions in federal funding during the recent recession, a time when the need for its services was growing, and was forced to file for bankruptcy in 2012 and close it doors.

But the just-released report titled, "The Skills to Pay the Bills," found that Hull House was already $2.3 million in debt before the recession began.

"Hull House is emblematic of what can happen to services when an organization's financial position is tenuous, and its management does not take the steps needed to correct the problems," write the authors, adding that a number of other nonprofits also shut down during that period.

Their stories revealed common missteps—using money from one grant to cover expenses in another, failing to budget enough for overhead, not listening to the accountant, and not accounting for changes in economic conditions.

"The hardest hit was recognizing what was already spent that we shouldn't have. That was the true crisis," explained the executive director of an after-school provider that closed. "We needed to raise money to get us out of debt, and the number continued to grow as we combed through each of the contracts...Some of our grants had overhead expenses, but nothing near to cover what we needed."  

The Wallace Foundation launched a demonstration project in 2009 to study the best way to develop strong financial management in community-based nonprofits and hired FMA to test two training approaches in Chicago.  They divided the organizations into two groups. Fourteen each received $115,000 for customized learning from FMA, which involved a financial audit, direct assistance to develop a work plan, on-site consulting to put that plan into practice, and individual coaching amounting to 703 hours of professional development.  The Wallace Foundation also gave a $125,000 cash reserve grant to each organization for completing its work plan.   

FMA also worked with the other 11 organizations, but in a more modest group-learning model. They each received $40,000 to conduct an assisted financial review, send executive staff members to eight daylong group sessions on financial management training, develop their own work plan, and receive one-hour of individual consultations.  Total professional development time under that model:  183 hours.

Researchers estimate that each organization put another 800 to 1,000 in staff time into implementing the training during the four years of the project.  Some key findings include:

  • Nearly every organization improved its financial management practices and skills by using better computer systems, improving internal financial reports, and working closely with their finance staff to develop their budgets
  • The nonprofits in the group-learning model improved nearly as much as those that received more intensive and expensive customized coaching, suggesting that it's a good, cost-effective approach.

One component of the initiative that didn't work out as well as the Wallace Foundation hoped was an effort to improve some practices outside of the control of the nonprofit groups by supporting legislative changes to cut down on onerous paperwork; create uniform formats for applications for state grants and contracts; and streamline grant, payment, and reporting practices. 

The state agreed to some of the changes, but did not address the biggest financial burden affecting the nonprofits—late payments from the state, which went from being paid within 90 days before the recession to as much as 180 ever since.

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