Structure of Non-Profit Organizations
Non-profit organizations typically structure their governance around a board of trustees, directors, or governors, depending on the terminology used in the organization's governing documents. The board of trustees usually consists of individuals with diverse backgrounds, skills, and expertise relevant to the organization's mission and operations. Here's a typical structure and the roles and responsibilities of board members:
- Chairperson/President: The chairperson or president of the board is typically responsible for leading board meetings, setting the agenda, and representing the organization to external stakeholders. They often serve as the primary liaison between the board and the executive leadership team.
- Vice-Chairperson/Vice-President: The vice-chairperson or vice-president supports the chairperson in their duties and may assume leadership responsibilities in their absence. They often oversee specific committees or initiatives as assigned by the chairperson.
- Board Secretary: The board secretary is responsible for ensuring that accurate records of board meetings, decisions, and actions are maintained. They typically handle the distribution of meeting materials, record meeting minutes, and manage official correspondence on behalf of the board.
- Treasurer: The treasurer or finance committee chair oversees the organization's financial matters, including budgeting, financial reporting, and compliance with financial regulations. They often work closely with the organization's financial staff or external auditors.
- Committee: Boards often establish committees to focus on specific areas such as finance, governance, fundraising, and program evaluation.
- General Board Members: In addition to specific leadership roles, general board members contribute their expertise, networks, and resources to support the organization's mission. They participate in board meetings, provide input on strategic decisions, and may volunteer for committee assignments or special projects.
Roles and responsibilities of board members include:
- Setting the organization's mission, vision, and strategic direction.
- Hiring, evaluating, and supporting the executive director or CEO.
- Establishing policies and procedures to ensure legal and ethical compliance.
- Overseeing financial management, including budget approval and financial reporting.
- Fundraising and resource development to support the organization's programs and operations.
- Advocating for the organization within the community and with policymakers.
- Monitoring and evaluating the organization's performance and impact.
- Fostering a positive organizational culture and promoting transparency and accountability.
Evaluating and demonstrating impact and effectiveness is crucial for nonprofit organizations to assess their performance, communicate their value to stakeholders, and continuously improve their programs and services. Here's how nonprofits typically approach this:
- Establish Clear Objectives and Metrics: Nonprofits start by defining clear, measurable objectives aligned with their mission. They identify key performance indicators (KPIs) and metrics to track progress toward these objectives. These metrics may include outputs (quantitative data like the number of beneficiaries served) and outcomes (qualitative data like changes in behavior or conditions).
- Collect Data: Nonprofits collect relevant data to measure progress and evaluate impact. This data may come from various sources, including program evaluations, participant surveys, client testimonials, financial reports, and external research studies. Collecting both quantitative and qualitative data provides a comprehensive understanding of the organization's impact.
- Conduct Program Evaluation: Nonprofits use program evaluation methodologies to assess the effectiveness of their programs and services. This may involve pre- and post-program assessments, surveys, interviews, focus groups, and case studies to measure outcomes and gather feedback from participants and stakeholders.
- Use Evaluation Findings: Nonprofits analyze evaluation findings to identify strengths, weaknesses, and areas for improvement. They use this information to make data-informed decisions about program design, implementation, and resource allocation. Evaluation findings also inform strategic planning and help nonprofits refine their approaches to better achieve their mission.
- Report Impact: Nonprofits communicate their impact to stakeholders through various channels, including annual reports, impact reports, newsletters, websites, social media, and presentations. They use storytelling, data visualization, and case studies to illustrate the difference their organization is making in the community.
- Engage Stakeholders: Nonprofits engage stakeholders, including donors, funders, beneficiaries, volunteers, board members, and the broader community, in the evaluation process. Engaging stakeholders fosters transparency, builds trust, and ensures that evaluation efforts are relevant and meaningful to those affected by the organization's work.
- Seek External Validation: Nonprofits may seek external validation of their impact through third-party evaluations, independent audits, accreditation processes, and partnerships with research institutions or academic experts. External validation adds credibility and strengthens the organization's reputation.
ACCOUNTING REGULATIONS FOR NON-PROFIT ORGANIZATIONS
- Financial Reporting Standards: Nonprofits must prepare financial statements according to recognized accounting standards. In many countries, this involves standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), with specific guidelines for non-profits.
- Statement of Activities (Income Statement): This statement reports the revenues and expenses of a non-profit organization, showing the changes in net assets during the reporting period. It should clearly distinguish between revenues and gains with donor restrictions and those without.
- Audits and External Reviews: Non-profit organizations in Nigeria are generally required to undergo external audits of their financial statements. This helps ensure the accuracy and compliance of financial statements with regulatory standards.
- Statement of Cash Flows: Non-profits must prepare a statement showing the cash inflows and outflows during the reporting period, broken down into operating, investing, and financing activities.
- Tax Regulations and Exemptions: Although non-profits are generally exempt from income tax on donations and grants, they must comply with other tax obligations, such as value-added tax (VAT) for commercial activities and pay-as-you-earn (PAYE) for employees. To maintain tax-exempt status, NPOs must avoid engaging in profit-oriented activities that could lead to reclassification as taxable entities.
Restricted funds are donations or grants received by a nonprofit organization with specific restrictions on their use. These restrictions can vary widely and may specify the purpose, time frame, geographic location, or other conditions under which the funds can be utilized. Examples of restricted funds include donations earmarked for a particular program, project, capital campaign, or endowment.
Types of Restrictions
- Temporary restrictions: are typically associated with specific time frames or purposes and may expire once the conditions are met.
- Permanent restrictions, such as endowment funds, require the principal amount to be preserved in perpetuity, with only the investment income available for expenditure.
Management of Restricted Funds
Nonprofit organizations have a fiduciary responsibility to ensure that restricted funds are used in accordance with the donors' or grantors' intentions. To manage restricted funds effectively, organizations typically establish internal controls, policies, and procedures to track and monitor the use of these funds. This may involve creating separate accounting records or sub-accounts for each restricted fund to maintain transparency and accountability.
Reporting of Restricted Funds
Restricted funds are reported separately from unrestricted funds in the organization's financial statements to distinguish between funds that can be freely utilized and those that are restricted for specific purposes. The financial statements typically include a statement of financial position (balance sheet) that discloses the balances of restricted funds separately from unrestricted funds. Additionally, the statement of activities (income statement) may include a breakdown of revenues and expenses by restriction category to provide transparency regarding the use of restricted funds.