The following is a conversation between Andrea Espinola Wilson and Adam Cole, national co-leads for the practice at BDO , and Denver Frederick, the Host of The Business of Giving.
Denver: BDO delivers assurance, tax, and financial advisory services to clients throughout the country and around the globe. They also have a Nonprofit and Education Practice, which is led by my next two guests. They are Andrea Espinola Wilson and Adam Cole, the national co-leads for the Practice at BDO.
Welcome to The Business of Giving, Andrea and Adam.
Andrea Espinola Wilson and Adam Cole, national co-leads for the practice at BDO
Andrea: Thank you for having us.
Adam: Yes. Thank you very much.
Denver: Let me begin with you, Andrea. And before we get into the area where you are specifically engaged, tell us about BDO.
Andrea: Well, great, and we’re happy to be part of this conversation. So, BDO is really an international accounting and professional service firm. We’re the fifth largest in the world. We have a really strategic focus in working with the exempt space, in every sector of the nonprofit sector, every subsector of the nonprofit sector. Adam, who’s on the phone with us, has a rich and deep experience with health and human service organizations. My focus is more on the charitable organizations and international, as well as Higher Ed. So, once again, Denver, we’re really pleased to be with you today, and thank you for the opportunity. Adam, I’m sure you can say a lot more about BDO.
Adam: Well, the only thing I wanted to say is what we try to bring to our National Center of Excellence is that many accountants are historians. That’s just their nature. And we’re really trying to look down the road and help our clients navigate the proper roadmap for success and to thrive, especially since many of them serve many people in various services.
Denver: Yeah, and I think it’s almost roadmaps now because there really isn’t a single way forward. There’s a lot of different ways after what’s happened in the last two years.
Adam, for five years now, you guys have issued the benchmarking survey, a nonprofit industry over you. What’s the objective of that report? What’s the methodology you use, and who responds to the survey?
Adam: So the idea behind the benchmarking survey is sort of to take a pulse of the industry. It’s evolved in five years and become a little more scientific where we just, at first, canvassed a hundred organizations, where now we try to capture, and again, it’s anonymous to us, but the survey company tries to capture a good cross section of the organizations that we serve. So there’s been an increase in the last few years of grantmaking organizations, human service organizations, which of course during the pandemic, they were really at the front lines in providing a lot of the services and saw much of the change that took place, much of it positive. So what we really want to get a sense is the pulse of what people are seeing and what they’re thinking, again, not to be historians, like: How was everything for you the last two years? Where do you think things are going? Where are your pain points? What are you thinking strategically? We have these conversations with our clients every day, but we really want to broaden our horizons and capture the feelings of organizations at large.
Denver: Wonderful. I’m glad you’re looking to codify it. It’s a help to everybody in the sector. Well, one of the questions that you ask in the survey, Andrea, is as of the result of the COVID-19: What challenges has your organization experienced? What were some of the more common challenges respondents cited?
Andrea: Yeah. That’s a great question. And the information from this year’s survey, just to further on your first point, if you don’t mind, we actually took a different approach this year than our previous four years of surveys. So, we really broke this out by subsector. And the reason for that is because each of the sectors is really different in their revenue streams, and kind of what makes them special and what makes them tick. So if you really delve into the details in any one of those questions, you really have the full richness of what’s going on through the landscape of the sector as a whole.
But back to your question is one is an emphasis on technology– 60% of respondents said that they were accelerating advancement in technology. Another big, important kind of outcome, for me at least in reading the survey respondents and the results, was that 69% of organizations cited that they received some form of COVID funding from CARES or ARPA or whatnot. Those two were pretty dramatic. And I think the end result was a really kind of dynamic, in my opinion, result in the financial reserves of organizations. The plurality of organizations in our 2020 survey, which was like 28%, had four months or fewer of financial reserves. Now we’re seeing like 38% have 12 months or greater. So the plurality did increase quite dramatically. So, I think the overall message for this sector is one of resiliency. We’ve seen that the sector as a whole has really been stretched to being first responders, like Adam mentioned, but actually being financially resilient at the same time.
Denver: Yeah, that’s a little counterintuitive too because I think a lot of people think, “Oh, these poor nonprofits with COVID, they’re going to get absolutely creamed.” And you’re saying their balance sheets are actually looking a little bit better now than they were before. Do you attribute that to the generosity of philanthropists? Or maybe the boards are just beginning to look with a more careful eye that, “Hey, we just can’t live hand to mouth, we have to do something about this.”
Andrea: Yeah, I think there is no one silver bullet answer to that question. I think there were obviously a lot of canceled events and galas and whatnot. And for a lot of organizations, those are seeds for more substantial giving. But those migrated to virtual events, which actually reduced the cost of those events quite dramatically. So the ROI, I do think that individual donors did elevate during that time and really increased their contributions where there was a deficit for certain organizations. The financial impact of the CARES Act and the PPP cannot be understated, so I think there’s a number of different elements that work together.
Denver: From your perspective, Adam, give us a couple of the challenges that really stood out to you in terms of what these organizations faced, and again, maybe another silver lining or two that you took note of.
Adam: So the greatest challenge in the beginning was working remotely, and that challenge brought about cybersecurity challenges, accessibility, and again, just to sit and stand in the shoes of many of our clients, their constituency that they service, their ability to safely reach to have their individual safely reach them and provide the services, many of the critical services.
So what we saw here was a significant pivot. Right now I know we’re in the Great Resignation, but I think the late spring of 2020 represented the greatest pivot in history where I saw state and local governments, the federal government nonstop, just continuing, continuing to pivot, but state and local governments changing regulations, making changes so many of the services that were being provided could be done remotely. The silver lining for that was the revenue streams were not cut off. Many times when we were explaining to clients, many times when acute situations like a hurricane or tornado, or in the case, if you may remember, 20 years ago at 9/11 when downtown was closed off and people couldn’t get in their buildings, those situations are usually one to six weeks and you’re off. We knew it was a longer period of time; everybody pivoted; they changed how they did their services. The silver lining in that was, one, the revenue didn’t turn off so that helped to keep the costs. Of course, the stimulus came through, but it got organizations to accelerate their planning for a more digital world, as well as their service model.
For example, we work with many human service organizations. Many of them have been on the fringe or dabbling with virtual services, like telehealth that’s been out there. It became, actually telehealth, not only the norm for their constituency, they expanded their constituency because today everybody needs mental health. So, I think the silver lining brought about sort of a reboot and a rethink for management, for board members, for constituents, for people receiving the services. And I think that’s what drove the positive change and the profitability at some point.
Denver: I think it put the sector in good stead in going forward because maybe some of those things will snap back a little bit, but we’re going to have a lot of hybrid situations where it’s going to be a blend of the two. And one thing that I did take note because it’s always bothered me, but one of the silver linings you indicated in your report was faster decision-making, right, Andrea? I mean, that is something that you just didn’t have a choice to get that 90% of information. If you had 50, you were lucky, but you either had to act or things were going to happen without you.
Andrea: I know. It’s hard to even recall two years ago or nearly two years ago when the pandemic first started and the situations seemed to be evolving, not just day by day, but sometimes minute by minute we were getting new guidance, all these things were happening. So there was definitely a sense within the sector that analysis paralysis was going to lead to our collective peril. So we saw clients, we saw organizations really doing what used to take months sometimes in a matter of hours. Perfect information was not necessarily the goal; that traditional consensus building before we make a decision was not always possible. I think it’s going to be interesting in the next several years: Do we see that continuing in the speed with which organizations are making decisions… Do we see that slide back? I think when you also couple that with the increase in technology, it also becomes a really interesting data point moving forward.
Denver: You have a sense of that? Do you think that we’re going to snap back, or you don’t…?
Andrea: I think that when you take all of these situations and together, it becomes interesting… When you look at organizations, I think 37% said that employee retention and morale was their top concern for the next 12 months, I do think people feel like the cultural elements of their organizations have not been revived since the start of the pandemic. Some of that is the convening that happens in decision making. You feel like internally, you’re part of a process. So, my prediction if I had a crystal ball, which I clearly do not, would be that we see a slide, but it’s a slide for a different purpose toward the perfection of information, but really toward the greater engagement with the teams.
Denver: Andrea, you bifurcated this report in a number of different ways. One was done by size. You had looked at mid-sized organizations, upper mid-sized, and then large organizations, but you also looked at it by different sectors as we kind of touched on before– education and health and grantmakers and public charities– Were there any distinctions either based on the sector or by the size?
Andrea: Absolutely. So, if we want to tackle that first by sector, we absolutely saw that the concerns or the top issues really varied. Not surprising, education, the top concern is tuition and enrollment, for example, and it’s frankly not even a consideration for health and human service organizations. If you look at the numbers for health and human service organizations, 56% of them experience new partnerships and opportunities. If you’re a grantmaker, that’s probably not the same thing. So, once again, we really felt like the subsectors that we chose to highlight, the data would be different just by the very nature of their business, their mission. So, I don’t know if I completely answered your question, but absolutely the concept there was really to enrich the information, to have it be much more accurate. You can read the holistic one and go, well, that’s, oh… It’s harder to do when it’s organizations that are just like you.
Denver: Yeah. No, it’s really very interesting because you look at those human service agencies, and they’re getting more money coming in than ever before, but their services’ demand was off the charts. And then you take a look at museums, which were essentially hibernators, which were closed and nothing was going on so you’re not going to get parallels. And each one of them has their own story and their own narrative as you go along. Adam, you talked about cybersecurity, a moment ago, and this is becoming an increasingly important issue. As a matter of fact, I just saw recently that BoardSource and Planned Parenthood, Los Angeles, publicly reported data breaches that they had. What do nonprofits need to do to safeguard against cyber attacks as well as prepare the organization to respond to a cyber breach?
Adam: Well, first and foremost, I think the organizations that initially at the onset of the pandemic had the easiest transition into a virtual world were the ones that had always prioritized investments in technology. We have seen in past surveys organizations discussing the priority of the investment in technology, but not necessarily the wherewithal to do that immediately. So those organizations, and again, that in some cases falls into different sectors– health and human service organizations, especially those in a healthcare environment, it’s necessary for protection of information to have certain protocols and certain technology. So that was there, as far as other organizations as well, there were certain things like that.
So I think we’re seeing a continued acceleration and investment in technology. And I think what’s also important is education and messaging because as we were discussing before the pandemic. A lot of services are being provided, and a lot of interaction was taking place on phones, on iPads, and things like that. So with everything related to the internet, it was more important that organizations start beefing up security. But now I think what’s most important, the message is they’re becoming more common. And I think nonprofits are a perfect target because they house a lot of data, like credit card data if you take donors’ information. For organizations that serve certain populations, they have Social Security numbers and a lot of that information. So it’s become more common. What I think a lot of organizations are already seeing that we’re also seeing was a significant payroll breach that happened in the last couple of weeks. Also they’re seeing many of their vendors are being hit. So it’s really something to be vigilant. And to be on top and have certain protocols and certain things in place that you can act quickly if necessary.
Denver: Yeah. I think our nonprofits are finally beginning to look at technology as not being overhead and that mindset that it’s more program. The other thing too is I’ve talked to a couple people, Adam, and they’re saying that unless you really invest in technology, you can’t recruit any young people. Young people want to see what they’re going to be playing on, and they want it as close to the way their life is, and they don’t want to cross the threshold of a proverbial office and go back to 20 years ago. So I think it has so many aspects of it that are important. I think you said, Andrea, recruitment and retention are really big at the top of these nonprofit organizations lists. And that takes us to the Great Resignation of which this sector is certainly not immune. How can nonprofits rethink and re-engage and re-imagine how and why we work?
Andrea: Yeah. And I think that the key is the why, especially in remote environments, there can be disengagement with the mission of an organization, especially in the administrative and operation side of the house. I become just an accountant and the myriad transactions that I process. So how do we re-engage and re-imagine why we work and how we actually interact with our colleagues? So I think that’s going to be critically important. The other thing is for organizations to consider a lot of people are dropping out of the for-profit sector for nonprofits.
So how can organizations rethink and re-imagine recruitment? How can you find those people that are completely passionate and have exceptional skills? And how can we wire them into our organizations to have passion forward individuals and leaders within those organizations that have all the skill sets and pedigrees of being able to run very successful organizations? So I think there’s a lot packed into that question. Once again, I don’t think there’s a silver bullet. I do think communications is going to be key. In the absence of communication, people make up their own story. So really thinking about how you’re communicating, being very intentional with those communications. Do you have open forums; do you have consistent methodologies? Are you creating cohorts of communications? So there’s pockets of individuals who are meeting together to really have that family and team atmosphere. A lot of that just went away.
“I think that the events of the past two years have forced organizations to be very introspective. We may have an agenda that says, “Yes, we stand for all these things, but are we actually embodying all of it ourselves?” I think we’ve moved forward quite dramatically in the past two years.”
Denver: Yeah. And you always notice that when there isn’t that communication and people make up their own narratives, they’re always a lot worse than the real narratives. They’re never better. Let me stick with you, Andrea, on the issues of racial justice and racial equity. What are some of the questions that organizations have been and need to be asking about their approach to DEI?
Andrea: Yeah, so that’s a really important question. I’m going to start with grantmakers, Denver, if that’s all right. I think grantmakers typically operate with a five-year plan. And in that five-year plan, they make the decisions about the strategies they’re going to have. With the pandemic, we saw an agility in the grantmaking space, and the grantmakers and foundations that we hadn’t seen before, they were investing in new programs, in greater flexibility. A lot of foundations actually created special funds for nonprofits that were run by minority and Black and women-run organizations. So I think we’re seeing that diversification in governance. How do you make sure that the board of organizations is more diverse than it had been historically? Looking at leadership– or how does leadership represent the diversity of the organization? But also thinking about all types of diversity. I think we have to really engage in every element, the socioeconomics, every factor…
Denver: Yeah, disabilities… think of that… everything.
Andrea: Disabilities, right. It’s not just race. And so, I think that it has changed, and I think that the events of the past two years have forced organizations to be very introspective. We may have an agenda that says, “Yes, we stand for all these things, but are we actually embodying all of it ourselves?” I think we’ve moved forward quite dramatically in the past two years.
Denver: Adam, sort of a tough question but maybe something will come to mind: Have you come across any creative hacks from folks or clients that you work with that have really been inspiring in terms of tackling one of those myriads of problems that we’re all encountering collectively in the sector?
Adam: Well, I think one of the challenges you talked before about the Great Resignation, it’s creating, one, it’s creating opportunities because I think people are rethinking their core purpose, their why, as Simon Sinek would say, and maybe saying, “Well, look, I can work closer to home; I could feel like I’m doing something with my life, and that compensation now has become somewhat more competitive, and I could make a change.” That’s been the positive aspect of it. The negative aspect has been at the bottom level for many direct care workers who have been fighting state by state for a living wage, now all of a sudden, many of the companies like Walmart and Amazon are now paying $18, $19, plus all these types of benefits and worrying these individuals away. And that’s creating an inflationary cost within many of these organizations. So we’re just seeing a lot of our clients trying to do things to basically keep and maintain many of that staff by changing the cost structures, by doing things differently, and increasing the base compensation for many of these individuals, so that they can maintain them because that’s really what differentiates one organization from another, it’s the people. So that’s something; that’s one thing that I’ve seen because when you start to have vacant positions in direct care, you start to not be able to provide as much service, and it becomes a revenue loss.
Denver: Yeah. And I think one of the benefits the nonprofit sector has, getting back to what Andrea said a moment ago, there really has been significant disenchantment in the tech sector. It was pretty darn cool to work for Facebook and Google. It ain’t so cool to work for Facebook and Google anymore. And those people want to take their wares to the nonprofit sector because they want to have meaning, and they want to have value. And you do see nonprofits, just when they can’t compete on the dollars and in many cases particularly at that level, they’re finding other spots on the value chain in terms of trying to bring people in. And it’s just not dollars and cents.
Adam: I do think, Andrea, you would probably have something to add because many of my clients are service providers. Andrea, many of her clients, even though she works with a lot of our clients as well, are the grantmakers, and that is where maybe some of the innovative and audacious changes may have been seen. Would you like to add anything?
Denver: Yeah, Andrea, tell us how these grantmakers can be more effective. How can philanthropy do better?
Andrea: One of the things I’ve seen a lot is increasing diversity in their procurements. More organizations are actually creating processes and systems and policies around diversifying their vendor mix, in setting their own goals and targets, and deciding what that word diversity actually means to them and what are their goals. Does it mean that it has to be a small business? Can it be a large business, but the engagement be led by a diverse group of individuals within that firm, for example? And so, in the U.S. government space, there’s always been kind of a set-aside in small business rules, but we’re actually seeing it implemented very differently sort of at that level. So I think that’s one kind of interesting bit that I’ve seen. Obviously, we’ve done a lot of online things. I think that’s going to continue. We’re going to see more dual tracking. Once things are open up, we’re going to see much more dual tracking of virtual and live events. I’m curious as to the future–how those hybrid events actually merge together.
“I think that we learned that we could pivot, that we could do things differently, that we could have more touchpoints with our constituents, with our stakeholders. Whereas it’s still nice to get together, to see each other, to breathe on each other, but it certainly could multiply the factor of engagement when you can do these things virtually all the time.”
Denver: Yeah, well, I think we all are. But that crystal ball, I guess, only gets one shot for interviews so we used it up already. And to your point about diversity, equity and inclusion, I think it’s a really good one because we think of that too much about our own organization internally, and what’s our mix and who we hired. And we think about inclusiveness. But it’s really how your organization interacts with the ecosystem, and who are your services targeted to, and who are your vendors and everything else. And you have to start almost outside your building before you go inside your building. And I think up until this point in time, it’s really just been our organization, our hundred employees, and what are we doing in our board. And that is only half the answer.
Let me close with this. A question for the both of you, I’ll start with you, Adam. Boy, we have seen historic upheavals over the last two years, with the pandemic and racial justice and everything else. Every aspect of our lives has changed as a result. What do you believe will be the most significant and lasting impacts of this on the philanthropic sector?
Adam: I think that we learned that we could pivot, that we could do things differently, that we could have more touchpoints with our constituents, with our stakeholders. Whereas it’s still nice to get together, to see each other, to breathe on each other, but it certainly could multiply the factor of engagement when you can do these things virtually all the time, including one of our clients did virtual tours over in Israel, nonstop, where there was somebody over there and it was on Zoom and it was wonderful. Of course, it’s not the same. The hummus doesn’t taste the same from your living room, but it’s really a wonderful way to look at things differently.
Denver: And if I could just add to that, it’s not the same yet. You know what I mean? It’s getting better and better, right?
Adam: So I think we learned how to engage more and differently, in some cases better, some cases not better. And I think that type of mass engagement is going to help these organizations to continue to evolve and to grow and to reach greater audiences and impact more people.
“Proven that when there is disruption of any type, the nonprofit sector rises to the occasion. Whether it is health and human service organizations, social justice organizations, we find solutions that benefit the totality of our society in the exempt space, that we see creativity; we see lasting change; we see the breaking down of barriers.”
Denver: Fantastic. Andrea, what do you see is the lasting impact of the last two years on the nonprofit sector?
Andrea: Yeah. Proven that when there is disruption of any type, the nonprofit sector rises to the occasion. Whether it is health and human service organizations, social justice organizations, we find solutions that benefit the totality of our society in the exempt space, that we see creativity; we see lasting change;we see the breaking down of barriers. I hope that one of the other impacts is that organizations understand that they also have to invest in themselves through technology, through systems, through better and faster decision-making. And that in order for them to have that impact, they need to take care of themselves. It’s like self-care.
Denver: Well, I can’t agree with you more. I mean, it is this sector that brings values to these conversations that otherwise might not be there. Andrea, tell us about this benchmarking survey, where people can find it, and also tell us about your website and your Practice and what people will expect to find when they show up.
Andrea: Sure, so we would love for anyone to come visit us online. We are the Institute for Nonprofit Excellence at BDO. So you can put that into Google and it’ll pop up, bdo.com. You can click into Industries and Nonprofit, and it’ll also take you there. You’ll see in there a resource page, and you’ll find the survey there. It also includes the Benchmark Yourself tool. I think one of the questions that organizations ask all the time is, “Am I normal?”
Denver: I ask that about myself all the time.
Andrea: Exactly.
Adam: You could do that, too.
Andrea: You could too if you can answer that question for yourselves, and you’ll also find a whole host of information. We at the firm are really dedicated to this space. We have about 2,000 professionals who work with nonprofits. We have around 4,000 nonprofits that we have the honor of working with every year.
Denver: Well, thanks, Adam and Andrea, for being here today. It was such a pleasure to have you on the show. I really enjoyed it.
Andrea: Thank you
Adam: Very much.
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