Navigating the Changing Role of the Nonprofit CFO

By Kathleen Hoffelder, NJCPA Content Editor – November 12, 2019
Navigating the Changing Role of the Nonprofit CFO

CFOs have experienced one of the most dramatic transformations of any in recent years — from number crunchers to strate­gic advisors who help lead the direction of their organizations. Nonprofit CFOs are no different, except they often face even more challenges amid shifts in tax policy and finding alternative ways to obtain revenue. They are more analytical than ever, but they need to also consider the organiza­tion’s growth.  

As James P. Ferrone, CPA, CGMA, director at Gramkow, Carnevale, Seifert & Co., LLC, notes, the nonprofit CFO/controller function has changed such that the CFO is not only the tracker of expenses and revenue, but a person who is key to fundraising. The controller/CFO needs to stay current on any chang­es in reporting, he says, to make sure the nonprofit is in compliance with the Financial Accounting Standards Board (FASB) and other regulations. “They need to be the person with the full skills, knowledge and experience no matter the size of the nonprofit,” he adds.  

Dr. Joseph Howe, CPA, CFE, CGFM, the CFO of a government entity in New Jersey, agrees. “Being a nonprofit CFO today is much more than balance sheets and income statements. The job entails a command of communication and risk management skills in order to keep the organization’s mission in focus,” he says. 

And that’s not always easy. Since nonprofit CFOs budget for events and programs compared to traditional physical products, it can be challenging to obtain the budget data needed. “CFOs working in the nonprofit community must help their organizations understand that the term ‘nonprofit’ reflects their tax status and not their business plan,” explains Bridget Hartnett, CPA, partner in charge of the nonprofit practice at SobelCo. They need to prepare realistic budgets and cash flow analyses, but all too often the organization does not know the complete cost of a pro­gram, making it difficult to determine the true return on investment. “The decision of when to sunset a project is complicated when the costs are not estimated accurately early in the process,” she adds.

Today’s nonprofit CFO must be more entrepreneurial with his or her thought processes than in the past, adds Caren C. Jesseman, CPA, MBA, a provider of CFO advisory services. “That’s a thought that may be foreign to some in the nonprofit world and previously belonged only in the halls of corporate America. However, the days of reliance on grant funds or dona­tions have gone by the wayside. As a result of budget deficits at many government levels, grant funding has dried up, or at best, remained at constant levels.”  

As Jesseman explains, it may be neces­sary for nonprofits to “become creative with revenue sources.” For example, one charity that had a mission to vocationally train individuals with developmental dis­abilities in preparation for gainful employ­ment decided to expand their vocational training to include janitorial and shredding services as grant funding dried up. “The result was an increased revenue base which allowed for expansion of the programs to train additional consumers in a more com­prehensive way,” she says. 

“There is no doubt that in this changing economy, nonprofit CFOs have to be in the know more than ever before,” adds Jason Cullari, CPA, MBA, PSA, managing mem­ber of CullariCarrico. “Pinpointing what is important to donors, knowing how to ask for gifts and how to showcase the nonprofit’s mission and metrics are all important factors when trying to grow a sustainable nonprofit into the future.”

And selling goods and services in ways that provide revenue to the organization, while benefiting and maximizing their social impact, is becoming an essential move for nonprofits, he adds. For example, a New Jersey-based nonprofit providing supportive employment services to adults with autism needs donations to support the deficiency of funding provided by Medicaid.  But, as Cullari says, this isn’t a sustainable model. “Adding a profitable social enterprise, such as a farm, ware­housing/distribution or even eateries, can provide jobs for the adults with autism while driving profit to the nonprofit.”

TCJA Aftermath 

With the implementation of the Tax Cuts and Jobs Act (TCJA) of 2017, the job of a nonprofit CFO and controller became a bit more complicated. As charitable donations slow down due to the inability for many households to claim an itemized deduction for their charitable gifts, CFOs have had to be much more open to new ways to receive revenue. According to Urban-Brookings Tax Policy Center estimates1, the TCJA reduced the marginal tax benefit of giving to charity by more than 30 percent in 2018, raising the after-tax cost of donating by about 7 percent. The TCJA increased the standard deduction to $12,000 for single tax filers and $24,000 for married couple tax filers, while limiting the state and local tax deduction to $10,000. “Unless taxpayers increase their net sacrifice — that is, charitable gifts less tax subsidies — charities and those who benefit from their charitable works, not the taxpayers, will bear the brunt of these changes,” according to the Tax Policy Center. 

Tax Policy Center TCJA graph

With the changes in tax law, nonprof­its may see a change in how their donors donate, explains Ferrone. “Some taxpayers may no longer see a benefit from making donations on their 1040s. Charities may need to inform their donors, along with the assistance of tax advisors, on how to instruct donations to receive benefits.” He has seen donors double up in one year to receive a benefit on their 1040 filing, which means the charity will need to make ad­justments to their cash flow as these larger donations in year one will be much smaller in year two.  

Maria C. Plucinsky, CPA, partner at SAX LLP, adds that “by increasing do­nations in one year to a level where they would qualify to itemize their deductions, and in turn, save on taxes, it may provide enough incentive for some to continue donating to an organization.” Nonprofits, she says, may need to adjust budgets by reducing expenses to deal with any significant reductions in donations, in addition to having verbal conversations with their donors about the options at hand.

The TCJA has also made nonprofit CFOs think strategically about how organizations can participate in alterna­tive fundraising options. While giving by corporations has increased by an estimat­ed 5.4 percent in 2018 to $20.05 billion (an increase of 2.9 percent, adjusted for inflation), according to Giving USA2, giving by individuals declined 1.1 percent (a decrease of 3.4 percent, adjusted for inflation) in 2018 to an estimated $292.09 billion. CFOs, in turn, have had to become more aware of revenue-making opportunities. According to Hartnett, savvy CFOs are helping their organiza­tions by suggesting alternative fundraising options. “Many put time and effort into new, bolder #GivingTuesday 

campaigns (where nonprofits have come to launch giving campaigns after the Thanksgiving holiday for all kinds of donations), while also leveraging live auctions as well as silent auctions at events, identifying passionate support­ers whose donations are not predicated on a tax deduction,” she says. Nonprofit organizations have also expanded their fundraising efforts to reach more diverse audiences to ensure sustainability.  The TCJA is also likely to require nonprofits to pay more taxes on quali­fied transportation fringes, such as on any parking or mass transit benefits it offers to employees, adds Hartnett. If an organization provides these benefits, it may be required to complete Form 990-T (Exempt Organization Business Income Tax Return) and incur a 21-percent tax  on those amounts. “The overall impact can be very significant. For example, if an organization pays $10,000 to a third-party provider for its employees to park during the workday, they would be subject to approximately $2,000 in tax after allowable deductions.”  Similarly, she says nonprofits may also have to pay unrelated business income tax (UBIT) since under the TCJA, starting in 2018, each unrelated business must determine its net income without regard to losses from other unrelated businesses.

More Data Analysis 

The increased use of new data and analytics tools has helped free nonprofit CFOs from pure number crunching. “Thanks to the advanced technologies of today, nonprofit CFOs can utilize data to predict, and in as much alter, financial outcomes of tomor­row,” explains Jesseman. “Today’s nonprofit CFO can make decisions based on data in a way that can positively impact the bottom line which correlates to advancement of the organization’s mission.”

Since donors today have more knowl­edge of the proper questions to ask nonprofits than ever before, CFOs and their development team need to work hand in hand to understand the proper metrics and numbers that they need to convey to potential donors, once the donor has ex­pressed an interest to give, explains Cullari. Therefore, “CFOs and their development team need to ensure that their organiza­tional story is consistent, relatable, qualita­tive and quantitative,” he adds.

Amy MacFadyen, CPA, partner at EisnerAmper LLP, sees CFOs benefitting immensely from technological advance­ments. “As technology evolves, so does the role of the CFO/controller. Technolo­gy offers options to gain process efficien­cies, but it can also remove some of the key controls that can be performed with manual/paper processes. Implementing new technology can greatly save a compa­ny time and money, however, it still needs to consider which controls are needed to maintain best practices,” she says. 

And as Hartnett adds, while technol­ogy is minimizing the need for nonprofit CFOs to generate the financial data and reports, they are expected to share insights, offer suggestions and assume a consultative role. This way, “they provide resources for the organizations assisting with board selection; fundraising, includ­ing planned giving; governance guidelines and other tactics.”

Reputational Risk 

Managing reputational risk is another task that a CFO must deal with today, and perhaps no CFO is more impacted by reputational risk than the nonprofit CFO. As Howe explains, “all nonprofits are inherently businesses that rely on public trust, so reputational risk can be particular­ly pronounced. Malfeasance by directors, employees and even donors/funders can ill effect the viability of the organization.” When this happens, he adds, nonprofits that rely on outside funding can be especially hurt by donations and grants being pulled. 

Keeping the lines of communication open between nonprofit CFOs and the organization’s board can lessen the impact from such risks. Together the board and the CFO can discuss which reports, bud­get considerations, new policies, proce­dures and risks — whether financial or reputational — they want to discuss, says MacFadyen.

1. taxpolicycenter.org/briefing-book/how-did-tcja-affect-incentives-charitable-giving
2. givingusa.org/giving-usa-2019-americans-
gave-427-71-billion-to-charity-in-2018-amid-complex-year-for-charitable-giving/

Amy  MacFadyen

Amy MacFadyen

Amy E. MacFadyen, CPA, is a partner at EisnerAmper LLP. She has been a member of the NJCPA since 2011 and serves on the NJCPA Nonprofit Interest Group, its Chaper Operations Committee and its Joint Chapter & Interest Group Leaders. She is also president of the Monmounth/Ocean Chapter Board of Directors.
Bridget  Hartnett

Bridget Hartnett

Bridget Hartnett, CPA, PSA, is the member in charge of SobelCo's Nonprofit and Social Services Practice. She is a member of the NJCPA Nonprofit Interest Group.

More content by Bridget Hartnett:

Caren C. Jesseman

Caren C. Jesseman

Caren C. Jesseman, CPA, MBA, is the owner/president of CFO Solution, LLC. She is a member of the NJCPA Nonprofit and Federal Taxation interest groups.
James P. Ferrone

James P. Ferrone

James P. Ferrone, CPA, CGMA, is a director at Gramkow, Carnevale, Seifert & Co., LLC. He is a member of the NJCPA Nonprofit and Governmental Accounting & Auditing Interest Groups.
Jason M. Cullari

Jason M. Cullari

Jason Cullari, CPA, MBA, PSA, is the managing member and executive committee member of Cullari Carrico, LLC. He is a member of the NJCPA Federal Taxation and Nonprofit interest groups.

More content by Jason M. Cullari:

Joseph S. Howe

Joseph S. Howe

Joseph Howe, Ed.D., CPA, CPE, CGFM, is the CFO of a government entity in New Jersey. He is a member of the NJCPA Governmental Accounting & Auditing Interest Group and the Monmouth/Ocean Chapter Board of Directors.

More content by Joseph S. Howe:

Maria Campanella  Plucinsky

Maria Campanella Plucinsky

Maria C. Plucinsky, CPA, is a partner at SAX LLP. She is a member of the NJCPA Nonprofit Interest Group.

This article appeared in the November/December 2019 issue of New Jersey CPA magazine. Read the full issue.