Many Nonprofits Lack Financial Knowledge

Seventeen percent reported that they are novices in terms of their level of financial knowledge, and only 6.9% consider themselves to be experts, according to a report released by the Center on Philanthropy at Indiana University. 

To create a measure of financial literacy, respondents were asked three questions covering bond prices and interest rates, investment risk and diversification. More than one-third of respondents (36.4%) were able to answer all three questions correctly, and about 32% answered two questions correctly.   

When examined across various organizational revenue categories, financial literacy increases as organizational revenue increases. Nearly 45% of organizations with revenues of $5 million or more answered all three questions correctly compared to 26.4% of organizations with a revenue size of less than $1 million.   

About 80% of organizations reported having a fiscal policies and procedures manual, which outlines financial and accounting policies and procedures for staff, and documents internal controls for the organization. More than three-quarters (77.4%) of organizations had a board-approved spending policy regarding operating expenses to be paid from endowment principal or earnings. Two-thirds (66.2%) of organizations had a board-approved spending policy regarding capital expenses to be paid from endowment principal or earnings.   

The presence of monitoring mechanisms, such as audit committees, has been recognized as a means of improving accountability of nonprofit organizations. Only 39.3% of organizations had an audit committee.