As Seen in CFO Studio Magazine Q4 2015 Issue

WHEN IDEALISM MEETS THE REALITY OF COSTS AND NEED

The concept behind not-for-profits —also known as tax-exempt organizations— is admirable: enhance the social good without worrying about profits. But in practice, the CFOof a tax-exempt organization shares many concerns with his or her cohorts in corporate life.

Cutbacks in local and federal aid, coupled with a growing number of people who need assistance, are forcing many tax-exempts to try to do more with fewer resources, according to CFOs who took part in a panel discussion at the CFO Innovation Conference, attended by more than 440 CFOs, and held earlier this year at MetLife Stadium in East Rutherford, NJ.

“Like for-profit companies, we’ve been affected by issues like the Affordable Care Act [ACA],” said panelist Michael Kawas, CFO of the Musculoskeletal Transplant Foundation, an Edison, NJ–based organization that works with, among others, donors of organs to provide tissue for transplants. “We distribute tissues to hospitals, and we’re finding our reimbursement rates are being reduced because of the ACA, even as our costs are rising. We’re considering a series of actions to reduce costs, and we’ve already instituted ‘lean’ operating practices.”

Other tax-exempts face similar challenges. Robert Barry, CFO of the Community FoodBank of New Jersey, noted that the CFBNJ has invested in warehouse logistics systems, like a new order pick system, to help streamline operational costs. “We’ve also collaborated with other tax-exempts to utilize a network of purchasing power in order to gain discounts,” he said. “For example, by partnering with other organizations, we were able to shave 18 to 27 percent off our insurance premiums.”

One of the biggest cost drivers at the Musculoskeletal Transplant Foundation is tissue processing, and to help rein in those expenses, Kawas said that the organization has adopted Six Sigma manufacturing processes.

“We’re also trying to be creative about compensation costs,” he added. “But we’re competing for employees against medical-device companies, so there are no easy solutions.”

On top of this, tax-exempts, like their for-profit cousins, are also dealing with fallout from scandals.

“We all get tarred when one or two organizations act improperly,” said Cheryl Marks Young, CFO of Easter Seals New Jersey. “We’ve adopted Sarbanes-Oxley (a federal law that set requirements for U.S. public company boards, management, and public accounting firms), and test our decisions against those and other policies. I look for creative thinking, not creative accounting.”

Kawas considers his organization’s practices by asking himself how comfortable he’d feel “if [investigative reporters] from 60 Minutes showed up at your office, questioning some of your decisions. We have a compliance officer, and an ethics panel that deals with donor intent, and other advisory panels.” —Martin Daks