Audits and Monitoring Are Improvement Tools

In the nonprofit sector, audits and monitoring are a crucial part of the quality improvement process and are not viewed with the same level of suspicion and fear that they are in other sectors. Audits and monitoring are used to help assess risks, ensure that the board of directors and upper-level management are following best practices in the operations of the organization, and identify potential conflicts of interest. These tools are especially important for organizations like us that have stewardship over tax-payer dollars and provide programs and services to the community.

Auditors play an important role in evaluating and verifying that good accounting practices are followed, evaluating and verifying financial records and transactions to ensure accuracy, verifying compliance with laws and regulations, and evaluating internal controls. They provide independent assessments of financial statements and processes and procedures to help the board of directors make informed decisions, and they provide recommendations for improving financial and operations processes based on their findings. Organizations like Community Partnership who oversee tax-payer dollars are required to have a special kind of independent financial audit, called a “yellow book audit,” conducted every year.

Monitoring, on the other hand, is an ongoing process to ensure that processes are working as they are intended to work. Auditors, boards of directors, and the management of organizations use monitoring tools and processes to verify that policies and procedures are working and that risks to the organization are identified and addressed. Occasionally, monitoring can also identify when there are conflicts of interest. Agencies like Community Partnership who receive tax-payer funds are overseen by state and federal departments, who regularly perform monitoring activities and work with organizations to develop improvement plans when risks are identified.

As mentioned in the Sunday, August 10th edition of the Butler Eagle, until 2022 Community Partnership operated under the umbrella of another nonprofit organization. Community Partnership was considered a “related party”. Related parties are organizations that are in a defined relationship with another entity, and that relationship can include shared management personnel that have control or a significant influence over the reporting entity. Many of the administrative services that we need were performed by that organization. Additionally, we also shared many of our policies and procedures as well as our upper-level leadership. During the course of a regularly scheduled monitoring in the spring of 2022, the state department that was performing the monitoring activities identified a significant conflict of interest in this “related party relationship”.

Agencies who receive federal funding are required to follow set procurement guidelines, and in our case, these guidelines were not followed when the related party relationship was established. The common management structure and the sharing of administrative services was determined through the monitoring process to be a special conflict of interest called “self-dealing”. Self-dealing is an illegal activity, and the monitoring process determined that this relationship presented a significant risk to our organization and the clients we serve.

2022 Quality Improvement Steps

When audits and monitoring activities identify risks and areas for improvement, auditors work with organizations to develop improvement plans that are intended to strengthen the organization and lessen any identified risks. These improvement plans are developed and shared with the state or federal agency, or through the annual yearly audit. in a formal process called a corrective action plan. The state agency performing the monitoring identified three immediate key steps we could take in 2022 to lessen the risks posed to the organization through the related party relationship: separate from our parent organization, update and adopt a procurement policy that was consistent with federal guidelines, and search for new administrative service providers. Community Partnership was instructed to immediately dissolve the common management relationship, which was done at our May 2022 board of directors meeting.

Later in the summer, we updated our procurement policy to match federal guidelines, and we conducted a public bid process for our administrative and support services. We outlined these steps in the corrective action plan we wrote in 2022. Our board approved the updated procurement policy, and we developed and issued requests for proposals for key administrative and support services (fiscal, human resources, information technology, and transportation).

Our board also determined that our offices should move, as we were still a tenant of our parent company. We moved into new, temporary location in the beginning of November. At our November 2022 board meeting, our board of directors selected the most appropriate bids submitted by service providers and we spent the remainder of 2022 transferring those administrative and support services to our new vendors.

2023 Quality Improvement Steps

Breakups can be extremely hard, and sometimes when this happens, you’re forced to start over from scratch. You have to regroup, assess your situation, and determine the best path forward. This was true in our case. Recovery from a self-dealing incident can be complicated and can take several years. Self-dealing can result in significant financial losses and decreased market confidence. In our case, both of these were true.

We took immediate steps in the beginning of the year to secure new providers for health insurance, worker’s compensation, and staff retirement benefits. We also began a review of the staff human resources manual to identify updates which were necessary. It also became clear very early in 2023 that we had suffered significant financial losses from the relationship. We took steps to identify outstanding debts, contact those vendors, and notify appropriate state departments who had oversight of contracts, when necessary. In some cases, payment arrangements needed to be made in order to settle the outstanding debts. We also needed to re-build relationships with vendors associated with some of our programs.

We developed a new program code, which was necessary to rebuild our financial infrastructure. We moved to a simplified accounting system more appropriate for a very small non-profit using QuickBooks, an accounting software system that is used by thousands of small businesses and nonprofits.

In the middle of these challenges, we also experienced growth. We added two new staff members in 2023, and managed a dramatic growth in our food pantry network attendance due to post-Covid inflationary pressures and the loss of pandemic food benefits. We received a grant to support the Veterans in Agriculture program, and to purchase a refrigerated truck which will support our food programs.

During the fall and early winter of 2023, we began working with our auditing firm to complete the FY2022-2023 audit. By the end of 2023, we had paid off all but one outstanding debt that was left over from our separation. Unfortunately, we also came to the conclusion that the fiscal vendor the board chose in 2022 wasn’t a good fit for our organization, and the board voted to move to a month-to-month contract beginning in January of 2024 and re-issue the RFP for fiscal and accounting services.

2024 Quality Improvement Steps

Unfortunately, very early in 2024, we became aware that another person very close to our organization, had also developed a conflict of interest, which was not disclosed as our organization requires. This conflict eventually was resolved when the person resigned their position in the late spring.

Also in the spring, our state technical assistance provider provided board trainings for our board of directors and revised our bylaws to ensure they were consistent with federal CSBG guidelines. Throughout the early spring of 2024, we also worked with our auditing firm to complete what we now know was our first truly independent financial audit. The audit was completed and filed with the appropriate state and federal departments at the end of March 2024. That audit is publicly available through the Federal Audit Clearinghouse, and we will be publishing it here as well. That audit did show findings, or areas where we needed to continue to improve, and we identified corrective action steps that were necessary to move forward in the recovery process. We also re-issued our fiscal and accounting services RFP, and our board of directors chose a new vendor, whose contract started July 1, 2024.

Unfortunately, we were informed in May of 2024 that we would be losing our contract to manage Butler County’s food programs, but out of lost opportunities, new ones often arise. We moved into what is now our permanent location, just outside of the City of Butler, in July of 2024, and we hope to be there for many years to come. We began to build our vision for the Artisan Resiliency Center, and for the remainder of 2024 we worked to clear, clean, and re-open the once vacant restaurant to the public.

We also worked with our fiscal vendor to refine our internal processes and procedures to address the 2022-2023 audit fundings, and segregate duties among staff as much as our small size allows us to do. We also significantly reduced the balance on our one remaining debt from the 2022 separation.

2025 Quality Improvement Steps

We’re proud to say we’ve mostly moved forward from the events of 2022 and 2023. We still have some debt, but we were also able to secure a major federal grant towards the purchase of the Artisan property. We’ve added programs and continued to improve our property. Although we do have some empty board seats, we also have a functioning board who is invested in our success and is passionate about our mission. We’re working to diversify our funding base. Have we faced some criticism this year? Yes, we have, but this has allowed us to finally be able to tell our story to the public and increase our transparency. We’re passionately committed to creating beauty from adversity, and we hope to create a space where our neighbors can learn to do that as well, for themselves and for their communities.