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Case Study: Water For People
Water For People is an international nonprofit that works to give communities in under-developed countries access to clean water, sanitation, and hygiene. As their auditors, our job was to help them comply with accounting and reporting requirements. We also encouraged the organization to provide their financial statement users with context behind the numbers. Here's their story as told by Water for People's controller, Crystal Huish.
For years we have received questions from potential donors scrutinizing our financial results. Donor concerns are often borne out of our financial results being interpreted without context, creating a gap in understanding between financial statement users and our management team. We have found that donor concerns are typically abated after we have had the chance to paint a picture of what our organization is doing beyond the numbers.
In an effort to proactively communicate with and provide programmatic context for donors, Water For People included a management discussion and analysis (MD&A) section at the front of its financial statement package with four parts: Who we are, Momentum building, Demand outpacing supply, and The (near-term) future.
Who we are
We want our potential donors to understand our purpose so they can make more informed decisions about their investments and be partners with us as we work toward accomplishing our goals. So this section described our organization and the macro-level goals that we are attempting to achieve.
This section included specifics on how we are carrying out our programs and attempting to achieve our goals. These detailed explanations and metrics provide our financial statement users valuable context that they can utilize when evaluating the current period activity and year-end results.
Demand outpacing supply
In fiscal year 2013, Water For People showed an operating deficit, and we specifically addressed this result in our Demand Outpacing Supply narrative. We explained that our deficit was a conscious decision made by the governing board and management as demand for our services outpaced the resources we received in the current operating period. Our hope is that this conversation will inform financial statement users that a strategic investment in our programs in the current period will allow us to carry out our mission and programs more effectively going forward.
The (near-term) future
This section demonstrated our strategy and commitment to carrying out our programs in the future, and where we plan to go with these programs. Stating our intentions allows donors to invest strategically, act as partners, and hold us accountable for achieving our goals.
By focusing on our near-term goals, we are hoping to move discussions with donors from “What was your overhead expense ratio?” and “How much of my money went to programs?” to “Are you achieving your near-term objectives?” and “Are you closer to providing everyone water and sanitation forever?” This section will help our donors improve their analytical focus, and allow Water For People to have meaningful conversations about the specific strategies we set out to do and the specific projects our donors invest in.
We also added a cost of programs schedule to show the true, fully loaded cost of each program, including costs for supporting staff and fundraising, which are necessary for our programs to function effectively. This allows our donors to see how we are strategically investing in our programs regardless of the functional expense category, and shows how the success of our programs is more dependent on strategic investment than functional expense ratios. By seeing the full picture, our donors will be able to ask, “Where do we need to invest to improve the outcomes of this program?” rather than “How can we reduce fundraising expenses or other overhead?”