Not-for-profit Entities
By Ken John Asadon
NONPROFIT organizations exist mainly to provide help or resources to a target audience with a specific need. They usually serve a public purpose, such as
enriching the lives of people in a community, and enjoy special considerations in terms of tax, legal status and accountability. A nonprofit is mission-driven,
which requires its management and board to set objectives and goals aimed at achieving the organization's stated mission.
In the Philippines, nonprofit organizations are typically organized as "non-stock corporations" registered under the Corporation Code. Non-stock corporations may
be formed for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, such as trade,
industry, agricultural and similar chambers, or any combination thereof (Sec. 87, Revised Corporation Code). The Securities and Exchange Commission serves as the
registration authority for non-stock corporations, some of which register as foundations.
There are several strategic development components in nonprofit success, starting with the mission statement that helps establish its goals and objectives. A nonprofit
will later evaluate the success of these components based on measured outcomes. Clearly defining goals and objectives makes it easier for nonprofits to get community
partners, raise the necessary funds and recruit volunteer assistance.
The mission statement is critical because it concisely describes the overall purpose of the organization. It is usually established in the development stages and is a
part of the organization's bylaws. In addition to describing the organization's purpose, the mission statement also differentiates it from other nonprofits. These
statements are often short and designed to be memorable so the public can easily identify the nonprofit.
Objectives, meanwhile, are derived from the organization's goals, providing more specific ideas on how the nonprofit will achieve those goals. An organization cannot
have objectives without clearly defining its goals. The objectives should be measurable and provide metrics to later determine the success of the nonprofit's
activities. They need to remain concrete and comprise the following:
Strategic. A nonprofit organization's strategic objectives focus on the services provided to the target market. This requires identifying the needs of the relevant
community and developing programs and projects geared toward fulfilling those needs.
Financial. Nonprofits are not required to show financial surpluses but they need to generate enough income to cover their costs and establish reserves for lean times.
Financial objectives include raising enough money to fund strategic activities as well as fixed costs such as rental, staff compensation and utilities.
Nonprofits can generate income through fundraising activities or revenue that results from the services they provide. The primary objectives are to break even and maximize
cash flow while avoiding excessive financial risk.
Operational. The operational objectives of a nonprofit relate to the management of funds and resources to achieve specific tasks. These commonly show quantitative
performance measurements such as the type and frequency of activities and the number of people served.
Operational objectives include short-term dates for the completion of individual projects and programs, the resources used, and the degree of success the organization
wants to achieve.
Governance. Nonprofit organizations are subject to stringent governance requirements, mainly because they usually use donor or grant funding to do their work. This makes
them accountable to donors and grant programs as well as to the public, whose taxes go toward grant funding.
Governance objectives include the establishment of sound policies for issues such as compensation, purchasing and procurement, human resource and volunteer management,
and asset and risk management.
Partnership. Partnerships are vital aspects of nonprofit management, with organizations using in-kind donations of much-needed products and services. Partnership objectives
identify the type of external parties with which the organization can partner and ensure that potential partners' principles and philosophies follow the organization's work.
Lastly, an outcome for a nonprofit determines whether the organization was successful in achieving its objectives. Outcomes take the objectives and resulting data to see
if the desired result was achieved, and also includes a review of any ancillary information.
Ken John B. Asadon, CPA, CTT, is the tax partner of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines),
an institutional member of the Association of CPAs in Public Practice (Acpapp). The opinion of the writer does not
reflect in any way the opinion of PDAC.
Source: Not-for-profit Entities - Manila Times