Considerations for Nonprofits in the Post-COVID-19 Environment
Only one thing about COVID-19 seems certain: uncertainty. Over the past year, the nonprofit sector has navigated a range of unanticipated changes due to the pandemic, from remote work to the absence of large gatherings, reduced travel and the like.
While this article discusses some of the challenges facing nonprofits (other than healthcare-focused organizations), these considerations are not all-inclusive and may apply to a variety of organizations as they think about how COVID-19 has affected them and what this means for the future.
Overarching Issues Impacting Nonprofits Post-COVID
The COVID-19 pandemic has changed how many nonprofits operate and serve their communities — including everything from how they communicate and prioritize to how they fundraise and leverage technology. When thinking about how their organizations have adapted over the past year — and will continue to evolve in a post-COVID-19 environment — nonprofit leaders should keep the following in mind.
General Organization Operations and Financial Reporting
- Management may need to make adjustments to internal procedures and oversight — especially when staff (paid and volunteer) may be working remotely long-term — to ensure that organization functions are being carried out as intended. There will most likely be additional costs involved, which may be partly offset by savings on office space rentals that are no longer needed.
- Management should continue to keep governing boards informed about the effects of the virus on the organization and its constituents.
- Maintaining financial liquidity, including an available line of credit, to be prepared for the unexpected (and the expected) is more important than ever. This sometimes requires management to judge between competing priorities: Should we spend now in response to the immediate crisis, or keep more in reserve for an uncertain future? Merging with another nonprofit organization might be considered. Even if the organization is financially healthy at the moment, there should be a plan B and C, especially if the organization is greatly dependent on one or a few sources of support.
- In-person activities such as on-site office work, meetings, performances, social events and some programmatic activities such as soup kitchens may necessitate medical testing of participants, which can be costly.
- Extra consideration must be given to the possible impairment of assets like non-publicly traded securities, non-financial assets such as inventory, real estate (e.g., owned rental property which is now (or soon to be) vacant because the tenant went out of business or may be about to go out of business), deferred charges and goodwill. The allowance for uncollectible receivables — especially pledges — is always a sensitive area; it has become even more so now.
- Organizations conducting any group activities — even with appropriate precautions — should have insurance in place to cover liability for defense and payment of claims that infections occurred in connection with these activities
- Donors of all types are themselves often in strained financial circumstances due to loss of jobs or reduced work hours (individuals), reduced tax revenue (governments), reduced profits (businesses) or reduced investment income (foundations). This may limit their ability and willingness to give. As a result, nonprofit leaders may need to reconsider their fundraising strategies and funding mix.
- Management must maintain open communication with current and prospective donors about the effects of the virus on the organization and how management is dealing with them.
- If unspent restricted gifts on hand were given for activities that now have a lower priority or those that cannot be carried out in the current environment, nonprofit leaders should determine whether donors are amenable to repurposing their gifts for higher priority activities or for unrestricted purposes.
- Organizations that do hold meetings may continue to see reduced attendance.
- Organizations should look at event insurance to determine if they have the appropriate insurance in case of future cancellations.
- Technology improvements may be needed to offer meetings and other events virtually.
Long-term Remote Work and Learning
- Additional internal controls and management oversight will be needed to assure compliance with proper procedures, especially when staff size is limited.
- Additional technology issues may need to be addressed, and related costs may be incurred.
- Auditors may have additional challenges in documenting and evaluating the design and effectiveness of internal controls.
- Virtual activities such as classroom teaching, musical performances and office operations will require specialized technology to be acquired and operated, with technical support readily available in real time to deal with potential problems.
- An increase in technology resources may be necessary to ensure protection from cybersecurity threats.
Effects on Specific Types of Organizations
Every nonprofit’s mission is unique — and so are its challenges, even amid the pandemic. While not all-inclusive, the below offers examples of how different organizations may have been affected by the pandemic and shares recommendations they should consider in order to thrive in a post-COVID-19 environment.
Charitable Organizations (and Others That Depend Heavily on Donated Support)
- Social service organizations such as food banks, soup kitchens, counseling services and charity clinics may have seen increased demand by those who suffered reduced personal income and/or increased personal stress during the pandemic.
- At the same time, fundraising may have become more challenging. The additional effort required to obtain needed resources may have resulted in a higher ratio of fundraising expenses to contributions raised and a lower ratio of program expenses to total expenses. Potential donors may look to these ratios to determine whether or not they’d like to offer their support. As a result, organizations must be able to explain their ratios to donors and to the public.
- Grant-making organizations that rely on their endowment to generate the cash to make grants must continue to prepare for volatility in investment markets and a potential reduction in investment returns. They should be cautious about making long-term funding commitments without having certainly available cash. At the same time, they are likely to receive additional requests for funding by other nonprofit organizations which are themselves experiencing financial stress.
- Some higher education institutions are facing drops in enrollment as students defer their education plans while awaiting the return of fully in-person instruction.
- Some residential institutions may find themselves with underutilized housing, dining and meeting facilities, which still must be maintained.
- Limitations on or hesitancy to travel may affect the ability of students from foreign countries, and in some cases even from other states, to attend in person, as well as the ability of students to study abroad, the ability of faculty and students to attend educational conferences or collaborate in research with colleagues at other institutions, and the ability of athletic teams to travel to games.
- In-person group activities such as classes, meetings and athletic events may be limited to only the permitted number of attendees/participants and require reconfiguring of meeting spaces, additional medical testing, and facilities for sequestering persons who test positive.
- Sports, by their nature of close personal contact and travel to game locations will require special care to ensure safety of athletes, coaches, staff and fans (if allowed).
- Educational institutions have to answer to a larger variety of constituencies than most nonprofits. Besides students, there are parents, faculty, staff, donors, alumni, regulators and residents of the town where the institution is located, all of whom have — sometimes competing — agendas. For example, after a period of remote classes, students may want to return to campus sooner than the faculty or community would prefer.
- On-campus student organizations such as academic and social clubs, performing arts groups and service organizations will likely be constrained as to how, when and where they can be active.
- Increased unemployment and business failures will reduce the ability and willingness of members to join the organizations, advertise in the organizations’ publications and participate in meetings and other programmatic activities of associations and clubs.
- Charitable and educational affiliates of such organizations will be subject to the same issues as discussed under those headings above.
- Visual arts organizations are having to deal with limitations on their activities, such as availability of non-owned venues, permission by local governmental authorities to hold live in-person events, willingness of visitors to attend exhibitions and the ability to enforce protective measures, such as limitations on numbers of visitors, use of masks, sanitizing and social distancing.
- Performing arts organizations have the same issues as visual arts organizations, plus willingness of performers to gather for rehearsals and performances and of audiences to attend.
- Cultural organizations may be limited in their ability to bring performers from other countries or conduct foreign tours.
- If organizations plan to have virtual exhibits/performances, the specialized technology involved will have to be acquired and operated. A decision needs to be made about how to charge ‘attendees’ of virtual events: the same as for live events, reduced charge or free. Also, since the experience by attendees at such events is not the same as at live events, participation may be lower, which may also lead to a reduction in contributions.
- If in-person events are limited or canceled, besides less revenue from admissions or ticket sales, there will be a reduction of revenue from sales by the organizations’ on-site gift shops. This might be partly made up with online sales.
- While this constitutes a very diverse group and includes many of the considerations discussed previously, organizations that send missionaries to foreign countries may continue to have limited ability to do so.
Communication is critical to managing risks and answering stakeholder questions. Management and those charged with governance, as well as committees established to address the above issues, need to be involved in monitoring these and other concerns on an almost daily basis. Organizations also should consider posting regular updates on the status and effect of COVID-19 on their websites and make them available to stakeholders. Connect with a Member of MFA’s Nonprofit Advisory Team today to discuss employing strategies to ensure that your organization is not only able to only survive these times but to thrive in the current environment and in the future.
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