Adding It All Up: Nonprofit CFO Study

by Jan Masaoka, Steve Zimmerman on October 22, 2013

Categories: Finance| Leadership and Management Topic Tags: Research & Reports| Wages

This survey of 906 nonprofit finance professionals reveals some surprises about these crucial-but-often-overlooked staff, looking at questions ranging from educational backgrounds, workload, board and CEO understanding of finance, and CEO compensation:

Nonprofit finance scandals make for eye-catching headlines: whether about misused public funds, egregiously high salaries, constituents not served, or reserves squandered. But while nonprofit finance scandals make the headlines, the people who manage the funds — nonprofit finance professionals — are largely overlooked. And while studies have looked at the tenures and experiences of executive directors (CEOs) and development directors, few have looked at the finance professionals in our nonprofits.

Despite the occasional and highly-publicized problem, the very fact that such problems make the news testifies to the infrequency of such occurrences. Nonprofits are relatively free of financial scandal and abuse, demonstrating both professional expertise and a strong sense of values. But today even the best-managed nonprofits are working not only to steward charitable funds, but to manage earned-income operations, to re-invent their business models, to strengthen the leadership functions of governance, and to maximize the use of funds for mission and values.

Finance professionals are at the core of these efforts.

This study was conducted by Steve Zimmerman and Jan Masaoka under the auspices of American Nonprofits with data analysis assistance from Kristen Wolslegel. More than 900 individuals responded to survey notifications through Blue Avocado and American Nonprofits. For job and career-related questions, only those respondents who characterized themselves as staff CFOs or equivalents were analyzed; this represented 557 professionals. Different screens were used for various questions. Percentages reported are percentages of those answering a particular question. (Results from each segment of respondents is being used to inform planning efforts at Blue Avocado and American Nonprofits.)

The study reports findings in four areas:

• • CFO Profiles: educational and job backgrounds

• • Staffing the finance function: how nonprofits of various sizes and business models staff finance activities

• • Concerns: stressors and areas presenting challenges

• • Miscellaneous: some questions were added to the survey touching on financial health, CEO compensation, and other miscellaneous areas.

CFO profile

Nonprofit finance professionals have strong educational backgrounds and average tenures that are considerably longer than executive directors and development directors.

Despite the stereotype of the nonprofit finance person as untrained, 47% of nonprofit finance professionals have college degrees in finance-related majors. All segments of the CFO population reported high usage of books, articles, non-degree training programs, counsel from auditors and board members, and other on-the-job learning opportunities.

More than 70% of finance professionals have been in their positions for more than six years. These tenures compare very favorably with those reported for development directors of two years and executive directors of three to five years.

Three distinct profiles of nonprofit finance professionals emerged correlating to the financial sizes of their organizations.

For larger organizations with revenues over $3 million, the finance professional:

• • Frequently has more than six years of experience: 43%

• • Studied finance in college: 56% studied finance or accounting in college

• • Is likely to handle government contracts as part of their work: 45% rate government contracts as “very important” to their organizations

• • Has an engaged board and/or finance committee that understands the business model of the organization: 51% responded that the board has a general understanding of the organization’s financial health

• • Has an executive who understands the business model and strategy: 81%

• • Has an average salary of $97,764

For mid-sized organizations with revenues between $500K and $3 million, the finance professional:

• • Learned about nonprofit finance from other nonprofit finance professionals and books and articles, although 31% reported having learned about nonprofit finance in college

• • Is somewhat likely to handle government contracts as part of their work: 39% rate government contracts as “very important” to their organizations

• • Is less likely to have an engaged board and/or finance committee that understands the business model of the organization: 36% responded that the board has a general understanding of the organization’s financial health

• • Has an executive who understands the business model and strategy: 72%

• • Has an average salary of $62,274

For small organizations with revenues of below $500,000, the finance professional:

• • Is more likely to be a volunteer or part-time staff: 62% of respondents from small organizations were board members, contrasting with 4% for large ones. 38% of respondents from small organizations were employed part-time, contrasting with 9% for large ones.

• • Is more likely to have less than one year of experience: 43%

• • Learned about nonprofit accounting and finance from the board treasurer, books and articles, and a technical assistance provider

• • Is unlikely to have an engaged board and/or finance committee that understands the business model of the organization: 13% responded that the board has a general understanding of the organization’s financial health

• • Is unlikely to handle government contracts as part of their accounting: only 16% rate government contracts as “very important” to their organizations

• • Is less likely to have an ED who understands the business model and strategy (46%)

• • Has an average salary of $13,403

While there can be resilience and competence among all nonprofit finance professionals, these results imply that larger organizations offer a more supportive environment for the finance professional. In turn, larger organizations are often rewarded with a longer tenured finance staff.

Staffing the finance function

For nonprofit staff in many positions, it can seem that there is never enough time to get the job done. The finance function is no different. Almost 80% of respondents said that having enough time to do their jobs was at least somewhat difficult; almost half of those said it was very difficult. This isn’t surprising given that smaller organizations are more likely to have volunteer or part-time finance staff. Strikingly, over 80% of all respondents are also responsible for functions other than finance.

In fact, regardless of revenue size, about 80% of finance staff has responsibilities beyond finance.  The most common area of responsibility other than finance was human resources with most also engaged in technology, legal and office management. There were also a wide array of answers including facility management, program evaluation, administrative tasks such as insurance and risk management, and earned revenue enterprises.

Small finance departments

To do all this work, organizations with less than $1 million in revenue generally rely on one person, whereas between $1 and $3 million have two staff people in finance.  Between $3 and $5 million, the average moves to 3 people in the finance department. Given the complexity of nonprofit financial transactions and management, no wonder so many feel they do not have enough time. Organizations do outsource some of their financial work with almost 60% outsourcing payroll.

Confidence

Their backgrounds, continuing study and long tenures contribute to a strong sense of confidence among nonprofit finance professionals. When asked about a series of challenges, nonprofit finance professionals view themselves as capable and confident:

Given their strong academic backgrounds and experience, the technical aspects of the job are not seen as difficult for finance professionals. However, those aspects that introduce greater uncertainty such as forecasting for year-end and preparing budgets create more difficulty.  Similarly, finance professionals tend to enjoy non-difficult relationships with their peers and supervisors including the board, executive directors and auditors, but are challenged by staff who may not be complying with financial procedures such as timesheet submission.

Financial knowledge of other staff

We asked two questions to see how finance professionals perceive the degree to which their CEOs and their co-workers understand the organization’s financial health and business model. Nearly half of respondents — 48% — say that staff understand the financial health of their own programs, but not the overall organization’s financial health; only 22% reported such an understanding.

Finance professionals from small organizations were less likely to say that staff did not understand the financial health of the organization. This could be because smaller staffs lead to greater transparency or that the finances are easier to understand.  Either way, it suggests that staff from small organizations have a better grasp of the financials than their counterparts at mid-size and large organizations:

		< $500K	$500K-3M	> $3M
Staff understands financial health “not very well”		17.4%	43.5%	38.3%

Likewise, the staff of small and medium-sized organizations were somewhat more likely to understand the business model and strategy of the organization:

		< $500K	$500K-3M	> $3M
Staff understands the business model and strategy “not very well”		19.2%	33.7%	46.2%

Financial knowledge of the executive director

For nonprofit financial professionals, few partnerships are as important as the one with the executive director or CEO. This partnership is often the foundation for financial success or turmoil within an organization. We asked financial professionals if they felt the CEO understood the organization’s financial health. Given the importance of the question even a response of half having in-depth knowledge seems low. In organizations with larger budget sizes, the CEO generally had a better understanding of the financial health and business model of the organization:

In contrast, there were virtually no differences among organizations of different sizes in terms of the degree to which the executive understands the business model, and executives appear to have strong understanding; as a result averages are shown here:

How well does the executive understand the business model?

• • Not very well: 4%

• • A general understanding: 23%

• • In-depth knowledge: 74%

Financial knowledge on the board

We also asked to what degree the board understands the financial health and business model of the organization. While the financial expertise of board members is often descried, respondents in many cases gave board members higher marks than they gave their CEOs.

Government contracts

Larger organizations are more likely to have government contracts, which typically come with new challenges for finance departments. Of those with such contracts, 91% of respondents found government accounting and reporting to be challenging. The delays in payments from government agencies can explain why 80% of agencies that have government contracts rate having enough cash on hand to meet payroll as difficult.  But managing cash flow was not the only difficulty that government contracts cause.  The survey also found that if you had significant government contracts you tended to have:

• • More difficulty finding trained staff to hire (70% vs. 30%)

• • More difficulty getting staff to comply with accounting procedures (69% vs. 31%); and

• • More difficulty working with contracts (73% vs. 27%)

Each of these becomes more important for government reporting and is under increasing scrutiny by public auditors as funds become scarce.

Restricted funds

Although 77% of organizations reported having restricted funds, few appear to be borrowing from them: only 14% reported having a negative net worth in unrestricted funds “sometimes or often,” while 86% said this is the case “never, almost never, or rarely.” This is worth noting because there is often the perception that organizations are using cash for purposes other than its restricted purpose.

CEO compensation

Because nonprofits CFOs are likely to know the salaries of all or most of the staff, we took the opportunity to ask them about their opinions about the salaries of the CEOs in their organizations. Large organization CFOs (65%) are much more likely to believe that the executive makes too much than their counterparts in either mid-size organizations (28%) or small ones (7%):

“The CEO at my organization makes too much”

• • > $3M: 65%

• • $500K – $3M: 28%

• • < $500K: 7%

At the same time, about a third of organizations, regardless of budget size, said that the CEO makes too little:

“The CEO at my organization makes too little”

• • > $3M: 34%

• • $500K – $3M: 34%

• • < $500K: 33%

Tellingly, CFOs do not believe that boards understand the full extent of CEO compensation:

Closing comments

When we asked respondents about their next jobs, almost 40% said that they will stay until they retire and leave the work force. This finding may reflect an older cohort or a group of professionals who stay put once they find the right job. Some implications from this study about hiring finance professionals:

• • Invest in your search for finance professional: good finance professionals who are supported will stick around for a long time.

• • Invest in professional development for your finance staff: most finance professionals reported significant learning on-the-job and through taking workshops and classes. Both CEOs and board members can support these efforts.

• • When hiring finance staff, expand the areas where you might look beyond CPAs and accounting majors. Individuals who have finance degrees and/or significant experience at other nonprofits may be excellent candidates.

If you are a CEO or a board member, this study can serve to spark a conversation with your CFO about how better to educate staff and the board about the organization’s financial health and business model. Ask your CFO and finance staff about their workloads and non-finance responsibilities, what areas of work they find the most difficult, and what professional development they would like that would impact their job performance.

If you are a nonprofit board member, do you understand all the components of your CEO’s compensation? Does the board discuss the executive’s compensation, not just in terms of a raise, but in terms of whether the compensation is appropriate for both the scope of responsibilities and for performance?

If you are a CFO, which results reported here resonate with you? Are your experiences similar or different? How can you make use of this study to help you choose professional development activities for you and your staff?

Nonprofit finance staff are key to sound financial management and accountability, and important partners in business model analysis and evolution. This study shows them to be well-trained, long-tenured, and confident. They deserve our respect and support.

About the authors and the sponsors

Steven D. Zimmerman, CPA, MBA is the principal of Spectrum Nonprofit Services where he provides training and consulting in finance and strategy for community-based organizations throughout the Midwest. Steve writes the Finance and Strategy column for Blue Avocado, an online nonprofit magazine, and has also written for Nonprofit Quarterly and spoken nationally on these subjects. With Jeanne Bell and Jan Masaoka, he co-authored Nonprofit Sustainability: Making Strategic Decisions for Financial Viability (Jossey Bass, 2010).

Jan Masaoka is CEO of the California Association of Nonprofits (CalNonprofits), a statewide alliance dedicated to “bringing the full power of California’s nonprofits to strengthening communities.” Jan also founded and publishes Blue Avocado, to which 64,000 people have subscribed online, and which has been described as the second-best read publication in the nonprofit sector.

American Nonprofits is a membership organization open to U.S. nonprofit, 501(c)(3) organizations and their staff, stakeholders and volunteers. Members can participate in a range of educational, research, discussion, and collaborative opportunities in the broad area defined by finance and strategy.

American Nonprofits exists to:

• • Create a platform for research, dialog, and debate among nonprofit finance professionals and thought leaders on topics related to finance, accountability, capital, and strategy

• • Create a democratically governed financial institution — a federal credit union — owned by the nonprofit sector to which nonprofits, foundations and individuals can move their deposits, and see their deposits and fees used to support the nonprofit sector.

Blue Avocado is an online magazine written for nonprofit staff and volunteers to address issues real nonprofits face on a daily basis. Published six times a year and sent to 64,000+ subscribers (opt-in!), each issue provides at least one informative, one thought-provoking and one fun article. Blue Avocado operates under the sponsorship of American Nonprofits. To subscribe for free, visit www.blueavocado.org or send an email to editor@blueavocado.org with “subscribe” in the subject line. Blue Avocado depends on your donations to keep us going!