Contemporary Issues in Nonprofit Finance

There’s a common misperception floating around the public service sector: nonprofit managers have no idea how to run a business. While it may be tempting to attribute the tumultuous financial conditions of many nonprofits to poor management, Associate Professor Thad Calabrese argues that we need to look elsewhere for answers.

Calabrese’s research began when a group of child welfare social service agencies asked him to conduct an analysis of their financial conditions.

He started interviewing the organizations’ Chief Financial Officers to see if they were fiscally on track. Fiscally responsible organizations usually have active boards that check the finances, governance committees that meet frequently, and regularly scheduled budget check ups. Calabrese didn’t expect to find positive results.  

However, most of the organizations were following financial standards in all or most of these categories. They had proper organizational governance and the necessary management tools in place to be financially successful. But the agencies were still struggling.

So if nonprofit managers are taking care of their finances, why are these organizations still struggling financially?

Calabrese discovered that the State of New York commissions child welfare agencies to secure children’s social rights, but does not give them sufficient resources to cover the costs of securing those rights. As a result, the agencies must turn to private money, which undermines their financial stability. The child welfare agencies that approached Calabrese were put in financially risky territory because of their continuous reliance on outside money.

Understanding this relationship—not simply assuming that nonprofits don’t understand money management—is essential to figuring out how to build more effective nonprofits capable to lead necessary change.

Watch Professor Calabrese's WAGTalk: