Mark Koscinski Uncategorized

NFP Horseshoes–Summer 2021

With Memorial Day right around the corner, it is time for Not For Profit (NFP) Horseshoes.  Well, actually we are not going to physically play horseshoes, nor are we going to use Zoom to watch a horseshoes game.  I use the horseshoe scoring system to rate various developments in the NFP world. As a refresher for those of you who don’t play horseshoes or haven’t played in a long time (not only has it been a year since the last Memorial Day, but who knows how many of you actually played horseshoes last year during the pandemic?), here are the scoring rules.  A “ringer” is worth two points.  A “double ringer” is worth four. A “leaner” or “closest to the stake” is worth one point.  So, here we go!

Completely missing the horseshoe pit—The impending divorce of Bill and Melinda Gates.  A divorce is a sad event for any couple. I have often been a critic of Bill Gates’ business practices and some of the gossip about the marriage becoming public is less than flattering to him.  Nevertheless, I have often said that what goes on in a marriage (or civil union)  is the private business of those in the marriage and one can’t listen to gossip about the sad situation.  This divorce could have repercussions throughout the NFP world.  I have also said Gates has done a tremendous job in this arena.  The Bill and Melinda Gates Foundation has reportedly donated $50 billion to charities since 1994. Both parties have said they will continue to cooperate after the divorce so their foundation can continue its good work.  I think it is appropriate at this time to simply thank each of them for their past generosity and wish them the best of luck. 

Closest to the stake– Pope Francis’ financial reforms at the Vatican.  I have also been critical of the Pope in the past for the way he has handled the financial scandals in the Vatican.  His actions (and inactions) included terminating Price Waterhouse before it completed the audit of the Vatican and allowing the Vatican Secretariat of State to invest Peter’s Pence (the annual collection taken up by dioceses throughout the world in support of the Vatican) in a real estate scheme in the United Kingdom. Francis has now reversed course and implemented a string of reforms at the Vatican.  Cardinal Becciu, a close assistant to Francis and who used Vatican funds for the real estate scheme and was allegedly involved in other financial scandals, was stripped of his authority and his ability to function in future papal conclaves in September 2020. Other reforms were instituted. Clergy involved in fraudulent activity in the Vatican will now be subject to the Vatican court system and not just to ecclesiastical punishment.  Contract authorization and approval has now been centralized in the Vatican. Why then only a “leaner”?  It is too soon to see if these and other reforms will go far enough, be enforced or even survive.  The Vatican has the reputation for being notoriously corrupt (sadly) so many of these reforms may not outlast the Pontificate of Francis.  Only time will tell. 

Update: It was announced on July 2, 2021 Cardinal Becciu would face a trail at the Vatican for various crimes ranging from embezzlement to extortion. Eight others were included in the indictment. The trial is due to begin on July 27, 2021.

A double ringer–All the NFP organizations that labored through the  COVID pandemic. The last year has been incredibly tough for all NFP organizations. The enforced shutdown, loss of revenue and employees have taken a toll on these organizations. The fact that so many are left standing is a testament to the goodwill and charitable nature of their management and employees. Hats off to them and our gratitude! Please find a way to show your gratitude and support to an NFP by donating, volunteering, or both!

Mark Koscinski Uncategorized

Diversity and Inclusion in NFP Management

We have long known diversity and inclusion in NFP management are moral and ethical imperatives. Recent studies have also shown powerful decision science reasons why they are important.  Professor Daniel O’Connor and I had the pleasure of being faculty advisors to Delia Geyer, who completed her senior thesis in economics with honors at Moravian College in 2021. Delia’s topic was the CEO Pay Ratio, a topic germane to publicly traded companies. As part of her project, Delia also analyzed how certain social justice aspects affected the Pay Ratio, and indirectly corporate management.  Her findings on this topic are just as relevant to NFP organizations as they are to large public companies. Delia wrote::

“McKinsey and Company (2020) found companies with the greatest ethnic diversity on executive teams outperformed those with the least by 36% in profitability. They also found companies with more than 30% women on their executive teams were more likely to outperform those with fewer women on their teams (McKinsey and Company, 2020). Another study found Fortune 500 firms with the highest percentage of women on their boards outperform those with the lowest (Women on Corporate Boards (n.d.)). Companies with higher than average diversity percentages of their management teams report higher revenue levels than companies with less diverse management teams (Lorenzo, et al., 2021).” (Geyer, 2021, unpublished thesis, quoted with permission).

Why is this so? Several reasons come to mind.  James Surowiecki,in his bestselling book the Wisdom of the Crowds, noted that more information brought to bear on a situation results in better decisions but only if  the information from each source is independent from other sources. Having a diverse board and management helps ensure many independent viewpoints and information are considered in the decision making process.  

Another reason why diversity is important on the board is it minimizes the possibility of groupthink.  This phenomenon occurs when members of a group place harmony and agreement ahead of good decision making.  In such a situation, issues and information  are not adequately explored and silence is often taken as agreement. One cause of groupthink is a highly cohesive (read “non diverse”) decision making group.  A more diverse board will bring more and varied opinions to the fore, resulting in better decisions.  Diverse opinions are important, even if they only force the majority of the board and management to sharpen their reasoning about why their proposed decision is correct. 

NFP management take heed.  Diversity and inclusion initiatives are not only the right thing to do, but will also improve the operation of your organization!

Mark Koscinski Uncategorized

The Colonial Pipeline Cyberattack

The cyberattack on May 7, 2021 shutting down the Colonial Pipeline caused gas shortages throughout the Southeastern United States This ransomware attack is a stark reminder of how important technology is in the modern world.  In the most recent semester that just ended I spent a considerable amount of time with my students studying critical new  technologies such as  Blockchain, the Cloud, VR/AR, AI,  and RPA.  These and  other new technologies will permanently impact how  organizations operate.  

It is also a reminder  cyberattacks against NFP organizations and governmental entities have continued unabated.  At the same time the pipeline cyberattack was occurring, the District of Columbia police department systems were hacked.  The hackers began releasing the personal information from 22 police officers.  Obviously, this can be a life threatening situation for these officers.   

NFP organizations that ignore the new technological reality and the “New Normal” risk failure in carrying out their vision and their mission.  At the same time, organizations must ensure cybersecurity is still a major concern.  It is inconceivable an NFP can operate in the modern world without adequate technology. Yet, many ignore the risk of cyberattack.  Perhaps they believe they are too small or inconsequential to be of interest to a hacker.  That is a dangerous assumption.  A client of mine, a small church, suffered a devastating cyberattack.  

 At the end of the day, technology can be a great boon for the efficiency of an organization’s operations.  With increased return though, there is often increased risk.  One of management’s core functions is to manage and balance risk and return. Cyberattacks are a risk to the mission critical new technology.  A management that ignores this risk is simply not doing its job. 

Mark Koscinski Uncategorized

On the Horizon

As summer approaches, it is time to take a look and see if any large issues are on the horizon for NFP organizations.  Of course, the biggest one will be how to cope with reopening after the COVID pandemic.  Many NFPs have been financially weakened by the enforced shutdowns and social distancing.  Finding employees and volunteers may prove to be difficult in the “New Normal”.  The final accounting for the Payroll Protection Plan (PPP) loans will also be looming on the horizon.  Nevertheless, as NFPs fight for their survival in the post pandemic era, there are some other interesting developments on the horizon management may wish to keep an eye on. .  

The first is the United States Supreme Court has recently heard oral arguments in a major NFP case, Americans for Prosperity Foundation v. Rodriquez.  The State of California requires NFP organizations to disclose major donors.  The petitioner is backed by a large donor to the Republican Party  causes and opposed the Constitutionality of the California law, claiming it is a restriction on the freedom of association and could put a chilling effect on donors to potentially unpopular causes.  California has responded by claiming the collection of this information is one way to combat fraud.  What makes this case so interesting is not only its implications for NFPs but the unusual alignment of groups for or against this particular law.  For instance, the ACLU has come out in support of the petitioner, a group largely composed of Republicans. It is difficult to predict how the Court will rule on this case and a decision is expected by June, 2020. 

All NFP development personnel need to keep an eye on the Biden Administration tax proposals.  The proposed increase in the capital gains rate for wealthy Americans as well as the proposed change in the inheritance tax law (elimination in the stepped-up basis)  would make gifts of appreciated property significantly more attractive to potential donors.  There are  a lot of things that can change between now and Congress adopting the new taxes and there is no certainty the proposed changes will even be adopted given the slim Democrat majorities in both houses of Congress.  Nevertheless, the effective dates of any new tax legislation will probably be January 1, 2022. Therefore, NFPs have to be ready to discuss these possibilities this year in order to generate additional donations. Wealthier individuals will need to do tax planning this year to minimize future taxes. NFPs will have to get up to speed very quickly in order to take advantage of this fundraising opportunity. 

The third development is the pending divorce of Bill and Melinda Gates. While I have been critical of his business practices, I have also applauded his charitable work. It is truly sad that anyone would get divorced, but we are all happy to hear the soon to be former couple will still cooperate and continue to run their foundation. It has done a lot of good for a lot of people. I wish them good luck in their personal lives.

Mark Koscinski Uncategorized

Pink Week!

The Zeta Tau Sorority of Moravian College does its major fundraising for Breast Cancer Awareness during this week. It is truly a worthy cause undertaken by a remarkable group of students here at Moravian College. Despite the ravages of COVID, breast cancer still occurs at an alarming rate and we can’t forget that. One out of eight women are diagnosed with breast cancer, so sadly, the odds it will afflict someone we know is pretty high. Please consider giving generously to help contain and hopefully eradicate this scourge.

I reminded my classes this week it is important to be involved and to give back to your community. It doesn’t matter what cause you champion or what not-for-profit group you join. The important thing is to help change and improve the world. The good work may only effect one person at a time today, but sustained good work will ripple through the years like the “Butterfly Effect”, impacting more people in a positive way than you could possibly imagine.

Mark Koscinski Uncategorized

Assistance to NFP Organizations

Even though this is being sponsored by NJ, the discussion is about grants to NFP organizations from the federal governments. What NFP doesn’t need financial help these days from COVID? The seminar is on Oct 22, so you don’t have much time to register!

Non-Profit Assistance from USDA Rural DevelopmentRegister now to Learn about Grant, Loan andTechnical Assistance ProgramsThursday, October 22, 2020, 9:00 a.m. to 10:00 a.m. 
COVID-19 magnified ongoing challenges to non-profit sustainability including maintaining income, finding funding, and reducing costs while enhancing community services.    Join an informative webinar, sponsored by the Hunterdon Chamber of Commerce and Sussex County Chamber of Commerce, on USDA Rural Development grant, loan and technical assistance programs for non-profits.  Michael Thulen, Jr. New Jersey State Director, USDA Rural Development adds, “Non-profits are the foundation to many communities they serve and the demand for help seems to increase constantly these days.  The USDA can be a resource to provide working capital for carrying expenses while income has dropped during the pandemic and provide assistance with real estate, equipment purchases, or renovations to existing space to make them safe.  

 We hope you can participate in the webinar sponsored by the Hunterdon and Sussex Chambers of Commerce on October 22nd at 9:00 to 10:00 a.m.”Find out how USDA Rural Development Community and Business Programs can help your organization fund its critical projects to recover from the pandemic and grow the organizational mission.   Here’s a sample of projects

USDA can fund:·     
 Technologies and equipment needed to improve operations or services·      
 Vehicles for transportation or deliveries ·   
    Building improvements to make safe places·      
   Heating and Air Conditioning upgrades·      
   UV disinfecting or lighting·      
   Touchless entrances, lighting, and voice activated equipment·       
  Working capital·       
  Acquisition and renovation of real estate

Michael Thulen, Jr. New Jersey State Director, USDA Rural Development, and Directors, Christine Schmelzle and Maryann Tancredi, will highlight new and current programs to help your non-profit:·     
    Business and Industry Cares Act·        
 One RD Guarantee Program effective 10/1/20·       
  Community Facilities Programs·     
    Rural Business Development Grant Program

Through these programs, USDA Rural Development has funded charter schools, health care facilities, group homes, fire trucks and police vehicles, community centers, and many more essential building and equipment projects.  To register, go to https://attendee.gotowebinar.com/register/5896776926929735696
Mark Koscinski Uncategorized

Decision Making: Essentials You Always Wanted to Know

I am proud to say my book on Decision Making is now available from Vibrant Publishers. The website is http://www.vibrantpublishers.com. The book is part of their Self-Help Series but can also be used in undergraduate classes on decision analysis. I have actually field tested the contents in both an undergraduate and graduate class, and it was well received.

I have previously contributed an article on Commercial Lending to their Financial Management book, also part of the Self-Help Series. I look forward to working with them in the future!

Mark Koscinski Uncategorized

Vatican Financial Scandal Provides Lessons for NFP Managers—Sadly…

The Vatican recently announced Giovanni Angelo Cardinal  Becciu has resigned as prefect of the Congregation for the Causes of Saints (the Vatican department overseeing investigations into the lives of potential saints) and his rights as a cardinal.  What the latter means is unclear at this moment, but presumably tCardinal Becciu will not be able to participate in any conclave for the election of a new pope. If so, he becomes the third cardinal stripped of such rights under Pope Francis. This his is a rare public rebuke, especially since Cardinal Becciu is 72 years old and could have participated in papal conclaves until the age of 80.  To be fair, the Cardinal has maintained his innocence, claiming he should be judged by the norms in place at the time, and not retroactively.  Sadly, he has overlooked the fact legal action always has the benefit of hindsight. 

This blog has previously reported on the use of Peter’s Pence funds (the world wide collection taken up for the Vatican) for the purchase of a warehouse property in London that would eventually be converted into luxury apartments. The purchase price was purportedly somewhere in the vicinity of $225 million, but that also remains unclear at this point.  Cardinal Becciu’s name has been prominently connected with this transaction while he served as sostituto, the deputy to the Vatican Secretary of State (papal prime minister) and functioned as the Pope’s chief of staff.  There are also claims of nepotism in the form of payments to relatives. 

What can an NFP manager learn from this debacle? Not only was the use of the funds apparently not authorized  by Pope Francis, the books and records of the transaction were also tampered with.  The loan for the financing of the property was netted against the asset on the balance sheet of the Vatican. As any student of accounting will tell you, this is a major no-no in accounting.  Transactions must be shown “broad” with no netting so important details such as the true amounts or even the existence of the debt in this case could not be concealed. Netting the loan value against the asset value is simply an outright attempt to conceal liability. Even more importantly, this serves as a reminder for the management of any not-for-profit organization the accounting for transactions must be separated from the personnel initiating and conducting the transaction.  If this is not possible because of limited personnel,  there must be a robust review of the accounting records to make sure “entrepreneurial” accounting of this type will be detected. 

To Pope Francis’ credit, he had prohibited netting in accounting some time ago, instituted new controls on contract approvals and has punished the apparent wrong-doer.  This is all good. However, what about the more general question of the control environment?  How did the Vatican Secretary of State (the Pope’s prime minister) not know his deputy Becciu was involved in some very shady dealings? The Church is a hierarchical structure.  It would seem there should have been some effective detective controls in place.  Apparently, there were not.  Also, segregation of duties  seem to have been very poor since one would not think a chief of state would be involved in such a major acquisition or access funds in the manner he did. 

Update: On July 2, 2021 Cardinal Becchiu was indicted for fraud, embezzlement, and a host of other crimes. The trial is scheduled to begin on July 27, 2021.