Looking Back and Skipping Forward: A 2022 Reflection
My three-year-old loves to skip everywhere she goes. She also loves to look back and see if her brother is watching her gracefully traipsing across the icy parking lot. As you can imagine, this combination often doesn’t end well. But sometimes, she pulls it off, beaming. In this quick blog today, I’m going to channel my toddler skills to look back on 2022 for the nonprofit sector, while we gracefully enter 2023. (It is still considered entering the year when in January, right? Best laid plans had this posted 1/2/23, but alas, here we are).
So, 2022 in the nonprofit sector: what did we see from the seat of accountants, consultants, and advisors? I’ll use that good old sandwich feedback approach to not seem too doom and gloom.
- Positive trends in flexible philanthropy: During the early days of the pandemic, many foundations came together led by the Council on Foundations (CLA client shout-out!) to form a giving pledge. This required philanthropies who joined to relax some requirements for grantees, extend multi-year grants, and do other things to allow nonprofits receiving their grants to focus on the chaos, changes, and stakeholder needs, without focusing on the (often rigorous) funding requirements. More than 800 foundations signed that pledge, which did a lot to ease the grant-related burdens most nonprofits navigate daily. While that pledge didn’t specifically continue into 2022, we did see some shifts in philanthropy, most notably the Mackenzie Scott approach to philanthropy. Her approach is large, unrestricted, unsolicited grants with an entirely non-invasive vetting process. CLA has more than 225 clients who have received Scott grants to date, and the pure relief we see and hear from our clients is palpable. The trend is catching on. Melinda French Gates took a similar approach in 2022, and the “trust-based philanthropy” concept continues to gain steam, despite objections from some grantors still heavily focused on outcomes-based measurement and reporting.
- Unstable markets: Volatile financial markets obviously mired 2022. For nonprofits reliant on large endowments or investment portfolios, it was a rough year—and when most draw policies include a 2-3 year rolling average- they’ll feel the impact for the next few years. That said, many nonprofits came out of the pandemic with a healthier balance sheet than they had seen in years—even decades—and many had those assets sitting in checking accounts. With increased interest rates from the FRB to cool inflation, cash management opportunities are arising for the first time, really, since about 2010. What does that mean? Nonprofits can use tools like Treasury bills to generate pretty good returns in a low-risk environment. Silver lining??
- Uptick in emergency-related needs: With an unprecedented number of environmental disasters and social tragedies in 2022, nonprofits are continually pressed to be agile enough to jump in and help when something happens in their communities. This requires a lot of the staff and stresses systems and processes, even when their work may be seemingly unrelated to the crisis at hand.
- Increased scrutiny and threats of more to come: One of the biggest nonprofit headlines this year came from my own backyard in Minnesota: Feeding Our Futures and their alleged scandal to defraud the federal government of $250M while claiming to feed hungry children through the pandemic. Many of us in the sector stepped back to wonder what type of ripple effects this news would have. Here in Minnesota where I live (or survive, this time of year), we’ve seen some early attempts to introduce additional levels of accountability, reporting, and review so this doesn’t happen again. There is absolutely a place for strong internal controls, reporting, and compliance (you know we live and breathe this stuff at CLA). That said, it always comes with “then we need money and people to pay for what it costs to do that work…and nobody wants to pay for that.” We expect to see a lot more of this in 2023.
- Technology-enabled organizations: Ending with that toasted whole wheat bread end of the sandwich (this metaphor falls apart when the bread has to be the “good” part of the sandwich), in 2022 we saw so many nonprofits actualize the digital journeys they inadvertently started in 2020 and 2021. With forced automation, technology upgrades simply to function, and moves to remote or hybrid workforces during the pandemic, many of our clients made lemonade out of those lemons: they became far more flexible, tech-enabled, and faster-moving over 2022. We expect this to continue and suspect that an increasing portion of nonprofit budgets will be allocated for technology assessments, system implementations, and equipment to support hybrid and remote work environments in the future. Where haven’t we seen this? Fundraisers. While virtual fundraisers were a novelty and pretty effective in 2020 and 2021, we saw the resurgence of in-person events in 2022. While we know the immense work that goes into an in-person event, and the sometimes-lackluster financial ROI, not a single client I talked with was unhappy with their 2022 events. I know that our teams loved attending a record number of events and seeing so many clients and friends in person. We hope for more of that in 2023.
What else are we anticipating in 2023? Stay tuned for an article outlining where we think our clients (and our teams) will focus in 2023. We’ll also continue to provide you timely, practical, insightful information about nonprofit accounting, finance, technology, and our musings on the sector. Looking forward to skipping into this year alongside you!
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