By Soraya Joonas, Finance Director, Inyathelo
Every year Inyathelo publishes its financial audited statements in full, unabridged and publicly, in the annual report.
We are aware that this is an important form of financial governance in showing transparency, accountability and building trust. However, we notice that sometimes it is a struggle to locate the financial statements of other nonprofit entities on their websites or in their annual reports, and this can present a governance dilemma for stakeholders.
That said, the interpretation of financial statements of nonprofit entities can sometimes be based on inaccurate assumptions, given that there are no common standards globally across the board on the presentation of financial statements. I presume this is sometimes why entities choose to show summary pictorials of their financials or only a snippet of their financials.
The financial story of a nonprofit is varied and nuanced and isn’t always represented in what current accounting standards require. For example, a simple assessment of operational and sustainability reserves is sometimes a guessing game when reading financial statements, as every entity reports these differently. Each entity may have a different makeup and allocation of how they account for these savings, sometimes lumping them all together with funds that are already earmarked or allocated.
International developments
Inyathelo has continued its cross-border initiatives over the past year, working with over 30 African countries on their financial sustainability and budgeting programmes.
We have also been active in international nonprofit financial developments that affect our South African entities, by providing input into greylisting and Financial Action Task Force (FATF) Recommendation 8 for nonprofits, around the unintended consequences on nonprofit finance. We have provided submissions on exposure drafts on International Financial
Reporting Standards (IFRS) for NPOs, the International Nonprofit Accounting Guidance (INPAG) project spearheaded by the UK-based Chartered Institute of Public Finance and Accountancy (CIPFA) and Humentum. This attempts to synthesise common reporting for nonprofi t organisations (NPOs) across the globe, a multi-phased, multi-year global project intended to meet three objectives:
(SOURCE: INPAG – IFR4NPO)
However, in the latest iteration of feedback, it seems that the majority of voices shaping this project have leaned more towards donors, financial standard setters and auditors, and less so on nonprofit financial practitioners working within nonprofit entities themselves, who are most affected and best understand the nature of their work in balancing the subtleties of how their activity is financially reported and the consequences thereof.
The movement has done a good job in trying to be inclusive and promoting developments and input required to far-reaching corners, but the fact remains that the financial profession within the nonprofit sector is often overstretched, focusing on their respective core requirements, to dedicate such time to these developments. The nonprofit finance sector is also probably less represented, presumably because financial professionals seek higher-paying salaries elsewhere in the private sector where they are justly compensated, and receive benefits such as retirement and healthcare packages, rather than taking up a fulltime job in finance at a nonprofit entity. We aspire to change this and grow financial expertise in the sector. Nonprofits often outsource their financial functions, which has its own benefits and challenges.
Building capacity
Inyathelo has made great efforts to increase nonprofit financial capacity through various engagements and capacity building initiatives and information dissemination over the past year. This has been achieved through financial sustainability strengthening programmes, and workshops in financial governance compliance. The demand for this work continues to grow. Financial sustainability is often presented in tandem with our fundraising programme: strengthening governance for financial sustainability, how funds are secured, how funds are planned for and managed, and ethically governed, all go hand in hand.
Through our clinic services, we are also exposed to key challenges with financial governance issues on the ground, where nonprofit leaders have nowhere to turn in the form of a sector ombudsman in the event of financial governance mismanagement and issues of compromised financial governing ethics. Our efforts to support them and provide them with tools and mechanisms to handle, report on and resolve these issues play an important role in the financial education and value-add that Inyathelo provides.
As Inyathelo, a nonprofit itself, has its own financial journey tracked over two decades, we are able to apply an inside lens on practical day-to-day financial management and challenges of an NPO.
Income generation
For Inyathelo’s financials for the year 2023-24 we monitored donor trends that are changing for infrastructure organisations such as ourselves. Having formerly attracted philanthropy funding in the form of grants, we are finding ourselves pivoting towards continued support of philanthropies and their beneficiaries, by partnering on consultancy
programmes rather than grants. This shift in funding vehicle is becoming more and more commonly experienced through other financial mechanisms like impact funding.
This presents a challenge for nonprofit entities which have to fund their undertakings upfront. They have to manage their cashflows tightly, in order to deliver, yet be financially compensated only after conclusion. This is evident in the transition from donor grant funding to increased cost recovery and income generation. That said, grant funding is still required to supplement income to carry on mission work, and is why there is an uptick in such funding. This will be reflected in the upcoming financial year, having been achieved by Inyathelo’s transitional leadership over the past two years.
Inyathelo continued to streamline costs where possible over the past year and grew its delivery of home-grown capacity building initiatives. This saved contracting and programme costs and deepened inhouse knowledge.
Robust reserves
General reserves have continued to grow over the past decade, with growth of R1.5 million in 2023-24, despite a decrease in grant funding, and supported by increased programmatic work. The establishment of a reserve, and dedicated strategies to continue to grow financial security so that the organisation is financially sustainable, reaching a reserve of R58.4 million, has been a continual strategy over several years. It is heavily contingent on operating a mixed social entrepreneurial model and a steadfast internal approach to growing income generation. Inyathelo is accordingly able to embark on research and development in relevant advocacy spaces and adopt new programmes, as its grant support gains traction, allowing the organisation to be nimble, proactive, adaptive yet innovative, to remain relevant and create impact. This agility allows Inyathelo to serve sector needs optimally, while supporting nonprofit leadership and encouraging compliance, within a constantly evolving legislative environment. Advocating for a mixed funding model and increasing diversification of income has been a gospel that has served us well through challenging times.
I would like to thank the Inyathelo Finance Sub- Committee members for their continuing belief in Inyathelo’s mission and careful custodianship of Inyathelo’s financial assets. I would also like to thank Nedbank Private Wealth, our trusted partner, which has worked alongside Inyathelo while delivering beneficial results in maintaining a growth trajectory towards our financial sustainability plan. Finally, our acting Executive Director Feryal Domingo, and our Inyathelo team members, who have a shared mindset where everyone plays a role in growing our organisation and continuing to ensure its financial sustainability.
In a world where trust is the bedrock of a nonprofit organisation, financial governance is the cornerstone. By prioritising fi nancial transparency, accountability, and above all, ethical practices, nonprofits can continue to safeguard the integrity of the sector and be empowered to commit to building a better society for everyone. We, at Inyathelo, are on a stable foundation and will continue on this path.
This article was first published in the 2024 Inyathelo Annual Report.
