Fiduciary Magazine

Archive for February, 2010

Not everything that can be counted counts, and not everything that counts can be counted. – Einstein.

Just because numbers seem factual, in the sense that one plus one equals two and so two must be true, that doesn’t mean that they tell the whole story or that they tell the real story. There has been a push these last few years for accountability and transparency in all business sectors, in most cases the transparency is about what can be counted. Sometimes this push makes financial statements even harder to understand as nonprofits work to find ways to tell an honest story with numbers alone.

The assumption by the government seems to be that ‘everything that can be counted counts’. I’m with Einstein on this one because numbers can be misleading and definitely don’t tell the whole story, not everything that can be counted (chart of accounts) ‘counts’. One cannot assume that an organization is healthy and thriving because it has money in the bank or spends a little (or a lot) on any particular line item. As a matter of fact, just because the amounts are listed on the chart of accounts, it doesn’t mean that it tells the whole story, or even part of the story, of an organization. The chart of accounts includes everything that can be counted, that doesn’t mean that’s all that is relevant.

“Everything that counts can be counted.” Often the board (well, and the public) take this new transparency of numbers to mean that the numbers reported are important. Not just important, but they could possibly tell the whole story…that the numbers are everything. Although I can learn a lot from the balance sheet and budget of a non profit, I can’t learn everything there, as too many things that ‘count’ that are not listed on a balance sheet or budget.

No one person or company can be understood exclusively from looking at their numbers. If you were to look at my bank statement and make decisions about who I am based on those numbers they would tell you a lot. About where I shop. What they wouldn’t necessarily tell you is what I value, how I spend my time when I’m not spending money, who I love, what my goals and dreams are. They would only tell you what I value that is for sale, like clothes and organic produce. It wouldn’t tell you that I don’t have a television, that I’m wicked good at Bananagrams, that I stay up until all hours of the night some nights making art. So, my bills would give you a window into me, but not a very big one. The only way to learn about me is to get to know me. Same for an organization.

What counts in an organization, especially a non profit, is its impact. Exploring an organization’s impact can be challenging. Don’t rely upon numbers alone. First, most people don’t really read them, and second, they don’t tell you everything you need to know. Some things are only learned by attending board meetings and seeing the programs in action. Decide what counts to you and give to that cause. Complaining never got anyone any closer to a solution, action does. Giving money can be a noble action, especially when you’ve done your research and your heart is in it. Give because it will make YOU feel better about the community you live in.

The nonprofit sector is under more scrutiny today than at any time in our history, and yet detailed 990s and audits don’t guarantee that oversight is happening. Why is that? There are as many answers to this question as there are charities, but there are some things that seem to crop up again and again when problems arise. Here are some key reasons why oversight is overlooked:

1. No one wants to admit that oversight didn’t happen in the past so there is never a good time to ‘start’. In other words, things keep getting done the way they have always been done. Pieces of paper get signed and filed, but there isn’t willingness to revolutionize the way the organization does business.

2. Even when there are losses it is usually looked at as an ‘event’. Rarely are governance practices put in place that would prevent it from happening again because the root of the ‘event’ isn’t researched. Everyone points the finger at the ‘event’ and then moves on with only cursory changes, if any.

3. Often everyone will agree at a committee or board meeting that something is wrong with how they are working, but then the topic is never brought up again.

Why do these things happen?  From an outsider’s point of view, the changes seem easy and painless enough, so why aren’t they made? Why don’t companies, and especially non profits who are given so much trust by the community, jump at the opportunity to run more efficiently and effectively?

Because change hurts. It’s difficult; it is an ongoing process – not a one time solution; sometimes it makes things worse; and it can make you wish you’d never had any issues in the first place. We are wistful about how life used to be (before we changed) and yet change is a given. Sweeping things under the carpet is always easier. Changing in crisis when there’s no other choice in some ways is easier because we don’t have to ‘decide’ to change, it is thrust upon us.

If change is so hard, what are the other options? Frankly, there aren’t any. Either companies get with the program and start moving with the times or they will in a few years find themselves quite suddenly out of business. It’s a tough economy out there and nonprofits that don’t change may find that if they wait too long, it’s too late.

Often the board’s first reaction to change is that they do need to do some change, but not too much. The idea of changing puts everyone ill at ease and there is fear that things could get worse; that change in and of itself could threaten the organization. Most boards realize that they need to embrace new ways of doing business, both to be compliant with laws and also to draw in new members.

I understand that no one wants to be Chicken Little. It’s human nature to want to be accepted and to be a part of the group — and nothing sets you apart like questioning leadership. But in today’s economy change is critical to the success of your organization. The bravery of being willing to stand out by asking questions and demanding changes ensures that you won’t fall into the dangerous habit of overlooking oversight.