Importance of good nonprofit management controls in neighborhood groups

For years Minneapolis has had very active neighborhood organizations for years. A few years ago, the city decided to support them by allowing them to administer projects funded by the city (primarily crime prevention, arts, small scale community development and housing improvement). This resulted in neighborhood groups being formed in areas that hadn't had groups in the past and groups dealing with a lot more money than in the past. All these groups did become Minnesota Nonprofit Corporations with 501.c.3 IRS status.

The problem was that the city program that was responsible for working with neighborhood groups decided to concentrate training on neighborhood organizing. Beyond making some resource material available on their website, very little emphasis was placed on basic nonprofit management and very little training was provided in basic nonprofit management issues. Management issues like financial practices and board duties just were not a priority.

So, can it be any surprise that there have been a number of neighborhood groups that have had major financial problems? The most recent case was a group where grant money that was to be used for housing programs was used to pay staff. (The grant did provide money for staff to administer the program but the organization kept using money from the grant long after the administrative line-item was used up.)

Board members have said that there was no way for the board to know this; that it was done by the Executive Director and Treasurer without board knowledge; that the board never asked for the detail that would allow them to see this problem. It appears that this problem had been going on for a number of years. Clearly, adequate audits or controls should have caught this problem quickly (it finally discovered was in an audit).

So, how much did Minneapolis save by not providing the management training. Lets assume that the training would have cost $2,000 per organization. There are 70 neighborhoods in the Minneapolis program. That totals $140,000. In the one neighborhood I've written about, the amount mis-appropriated was around $150,000. This doesn't include the organizations that have went out of existence due to major financial problems.

Capacity building is low cost insurance.