Transcript Episode 127 – Trust-Based Philanthropy with Kelsey Vatsaas on The Prosperous Nonprofit

Stephanie Skryzowski: [00:00:00] Welcome to the prosperous nonprofit, the podcast for leaders who are building financially sustainable and impactful nonprofits and changing the world. I’m Stephanie s Kowski, a chief financial Officer and founder, and c e o of 100 Degrees Consulting. My personal mission is to empower leaders to better understand their numbers, to grow their impact and their income.

On this show, we talk to people who are leading the nonprofit sector in new, innovative, disruptive, and entrepreneurial ways, creating organizations that fuel their lives, their hearts, and their communities. Let’s dive in.

Hello. Welcome back to the Prosperous nonprofit. Today I’m talking with Kelsey Vais, and Kelsey is a sort of like friend of mine. She works for C L A, which is an audit firm, A C P, A firm. [00:01:00] And so as you can imagine, we have all kinds of things to bond over. Finance and audit and all of the fun things that y’all probably don’t really like thinking about very much.

But Kelsey is an amazing thought leader in our sector, and so if you don’t know her, I am glad to introduce you to her. And today on the show, we’re talking about kind of two big and two different things. So the first thing that we’re gonna talk about is about the employee retention credits. You may have heard about these, and so she is going to.

Demystify the employee retention credits and explain a little bit about how your organization might be eligible and also how to avoid some of the predatory companies that are taking advantage of organizations and. Frankly putting you at risk. So we’re gonna talk about that and I’m excited about that because it has been a hot topic amongst many of our clients and I have gotten [00:02:00] myself a lot of communication from potentially predatory companies who, who are not approaching this the right way.

So we’re gonna talk about that and we’re gonna talk about. Kind of two ends of the spectrum when it comes to funding for nonprofits. She talks a lot about some trends that she sees with her clients, which are, um, her firm has over 10,000 nonprofit clients. So we talk about trust-based philanthropy and contrasting with increased compliance and oversight and pressures around federal funding.

So this is a really interesting conversation today that I think you’re going to really enjoy, and Kelsey really makes things. Interesting and easy to understand, especially when it comes to complex things like. Tax credits and federal funding. So let me read her bio for you and we will get on with the conversation.

So Kelsey Vass is the managing principal of the national nonprofit industry at C L A A top 10 professional services firm. Over her career at C L A, Kelsey has [00:03:00] been a nonprofit auditor, strategic consultant and consulting C F O. So basically she’s gotten to wear lots of different hats and have very different and interesting perspective into a lot of organizations.

In her current role, Kelsey works to bring the firm’s national resources, teams, and experiences to over 10,000 nonprofits for whom C L A provides a variety of services. So this woman has a lot of expertise and a lot of perspective, and I think you’re really going to benefit a lot from our conversation.

So without further ado, let’s go talk to Kelsey.

Hey, everybody. Welcome back to the show. I’m excited to have with me today, Kelsey VASIs. Kelsey, welcome. 

Kelsey Vatsaas: Thanks so much. Really excited to be here. 

Stephanie Skryzowski: So we initially connected with, um, through a mutual client. I think it was like two years ago now, 

Kelsey Vatsaas: I think. Something like that. Yeah. It was probably, probably early 21.[00:04:00] 

Stephanie Skryzowski: Yeah. And we’ve just really stayed connected ever since. And working with now a a handful of mutual clients. And so, um, Kelsey, I would love if you could just tell our listeners a little bit about you, where you work and what you 

Kelsey Vatsaas: do. Sounds great. So, like Stephanie said, I’m Kelsey VASIs. Um, I work for a firm called C L a or Clifton Larsson Allen.

Um, we’re a professional services firm, so we do all things from. Audit and tax to outsourced accounting and finance related work. And I lead our nonprofit industry. So at our firm, nonprofit is a huge focus of what we do. It’s the second largest industry that we serve. Uh, we work with over 10,000 nonprofits across the country, and we’ve got about 800 people who are.

Are dedicated to doing that work. Um, so a lot of my time is spent, uh, leading our team and also helping set the strategy for what we think our clients are gonna be needing in the future and how we can get mobilized to do that. Um, but I also still serve clients, so, um, I work as an outsource [00:05:00] C F O for about a dozen small to mid-size nonprofits and also have been doing a lot of work around, uh, employee retention credits as well.

Stephanie Skryzowski: Yes. Amazing. So, um, we are like, we’re definitely buddies. We do kind of the same thing. And so Kelsey is a fellow finance person like myself, um, just working, working for a much larger company than mine. Um, so yeah, like you said, we’ve worked on these employee retention credits together with a couple mutual clients, and I thought this could be one thing that we can talk about today.

Um, our listeners know that something that is sort of one of our focuses of the podcast is really on like what organizations are doing things in a new, innovative, disruptive kind of way. And while, you know, tax credits are maybe not the most like, exciting thing to talk about, it is something. Really new to a lot of organizations and kind of scary, and we don’t know what it is, but we’re hearing that there’s a lot of money here.

And so if you could [00:06:00] first just kind of explain what are these employee retention tax credits that we’ve probably all at least heard about, and how can organizations understand if they’re eligible? How do we take advantage of this? Just like tell us all the things, but tell it to us like we’re five.

Kelsey Vatsaas: Awesome. I love that. And I will start by saying, when we started working on these, these credits a couple of years ago with clients, it was the first time for me personally that I’m like, wow. As a finance person, I actually get to be a revenue generator for an organization. Like there is nothing like calling your clients saying, By the way, I just found a million dollars.

That must be what development people feel like all the time. Well, maybe not all the time, but Right. Like when they have a great day. Um, and so they gave us a little taste of that, which is pretty exciting. So these credits were one of the many pandemic relief, um, opportunities. So all of you probably know and probably accessed P P P, which was kind of the.

First form of this. And, and E r C actually rolled out at the same [00:07:00] time as P P P, um, under the first act that was passed back in March of 2020. But at that time, the rules were, if you got p p P, you couldn’t get e r C. Um, the rules were pretty limiting on who could get E R C. And so candidly, other than a few of my association clients who couldn’t get E R C or couldn’t get P P P originally, nobody really looked at E R C.

It just kind of got passed under the wayside. Um, but then came December of 20. 20 and, you know, pandemic was still raging and there was need for more relief. And so the Consolidated Appropriations Act of 2020 that was passed, it was a game changer when it came to, uh, tax relief and tax credits. And candidly, initially nonprofits were like, well, it’s a tax credit.

I don’t pay taxes, so not eligible. And, you know, that was, that was my first blush upon reading it too. But then realizing, number one, it’s a payroll tax credit, and. We as nonprofits get to pay those payroll taxes. Mm-hmm. Mm-hmm. Um, and also that, you know, that that structure of it being [00:08:00] a payroll tax, it was really just the mechanism for the i r s to get you money.

It didn’t actually have to do with how much you paid in, in payroll taxes, for example. So, um, we started figuring out that those rules changed and, and made it so that you could get p P P and E R C at the same time. Um, as long as you weren’t double dipping on those wages, they made the credits much more lucrative for 2021.

Um, and they made way more organizations eligible, especially kind of mid-size nonprofits eligible to get the credits. So they really kind of flung the doors wide open to these, these credits. Um, going into 2021. And what’s nice about the credits? You know, I think a lot of people got so wound up in the P P P process that that’s just kinda how they think about all of these things.

P P P, if you remember, it was a mad rush to get the money because it was a limited pool. I know I was calling all my favorite bankers. I realized the importance of good relationships with bankers. I’m sure you did. Yes. Hundred percent. Because you were like trying to rush to get the money. [00:09:00] Well, E R C isn’t like that.

There’s not a set allocation of money for E R C. There’s time limitations on when you have to apply for it, but those, you’ll hear from a lot of people making phone calls trying to get people to work with them on e R C time’s running out, you have to do it Now, that’s not actually true. The first time limit we’re gonna hit is April of 2024.

Um, and those are for the 2020 credits. Which aren’t as good. Mm-hmm. The 2021 credits we have until April of 2025. Wow. So we still actually have a lot of time to do that. Dig in, do that analysis. At this point you’ve got all the information you need to do that work. So I would, you know, my biggest piece of advice to nonprofits thinking about this is like, Don’t get scared that you have to do it today.

You have to do it right now. You have to rush through this process, like you still have time. But a lot of nonprofits we’re running into, you know, they kind of heard about this a while ago. They maybe looked at it early in 21 and didn’t think they were eligible and just moved right on by. But [00:10:00] many of them we’re finding actually do have some or a lot of eligibility and this can rack up to quite a bit of money.

Um, so you know, even small organizations, I’ve got a client I’m working with right now who’s got seven employees and. We were able to kind of figure out their eligibility didn’t overlap with P P P and they didn’t have a lot of grant funded wages at that time. Um, and they were eligible most of 2021 and that organization is gonna get like $300,000 of credits.

Wow. Wow. Which is totally transformational, right? Yeah. 

Stephanie Skryzowski: And that’s like cash in the bank. That’s not like, that’s not like reducing payroll taxes going forward. That is like money that is landing in your bank account. 

Kelsey Vatsaas: Right. Yeah, you got it. So, to, to qualify, and there’s a couple different ways to qualify, and we don’t have to get into all of the nitty gritty on it, but basically if your gross receipts went down on a quarter over quarter basis, or if you had a shut down under a government order, um, like those are kind of the two pathways to qualify.

[00:11:00] And then you do calculate the credit based on employee wages. So that’s what you use to come up with the credit. But once you get that money, It is unrestricted, so it is cash in the bank that you can use to pay for whatever you need. Hypothetically, it’s helping you pay for that payroll cost that you paid for two years ago.

But in reality, you know it’s gonna show up on your financials and as an unrestricted government grant. Um, and yeah, you can use that however you want. Now, it does take a while to get the money. Um, you know, we’re seeing, still seeing nine to 12 months a lot of times from when you filed to when you get the cash.

So it’s not fast cash like p p P was. Um, but when that cash does come in, it is a pretty magical happy day. Yes, 

Stephanie Skryzowski: I know one organization that we, um, mutually work on together, they have already received their cash. Um, I’m thinking of one in particular. It was like a five figure amount that they received, and I think they received it quicker than 12 months.

I think maybe ’cause it was like a smaller amount. A smaller amount, yeah. That money, [00:12:00] like you said, was transformational for them. They’re an organization that is always, you know, sort of having cashflow challenges and so this, they are always waiting for reimbursements from other grants that they have.

And so this money is now like that cushion that they have always needed to, you know, support them in between while, while they’re waiting for reimbursements from their other grants. And then another organization that we worked with is anticipating I think like high six figures. In these tax credits. And so yeah, like you said, incredibly transformational.

But there are also some, um, I feel like, I don’t know if the word predator is, um, dramatic, but I think it’s kind of accurate because I’ve had a number of organizations forward me. Emails that they’ve received from these companies who are basically jumping on these employer retention credits saying like, Hey, you’re eligible for millions of dollars.

Just let us, like, let us [00:13:00] handle it for you, and then you pay us a percentage of what you’re going to be eligible for. But here’s the catch. You have to pay us before you get the money. And I’m like, Wait a second, something’s not right here. And so I went through this whole process with this one organization and went with this company and said, okay, do the analysis.

And they came back with some like, Hey, you’re eligible for $2 million now. Just pay us 10% upfront. We’ll get the money from the government and then we’ll pass it along to you. And I’m like, wait a second. This seems fishy. So like what have you seen in terms of like, I don’t know if this is a. A total scam or if they would’ve gotten the money, the organization, the nonprofit would’ve gotten the money eventually.

But like what are you seeing and what’s your advice to nonprofits if they’re getting some of these same messages and are totally like 

Kelsey Vatsaas: freaked out? Yeah, no, it’s, I I think predatory is pretty spot on in terms of, um, what we’re seeing out there. No, I mean, there are some firms out there doing great work, um, so I don’t want to belittle that, but we are seeing a lot of these groups that [00:14:00] kind of popped up out of nowhere.

They have no history prior to a year or two ago. Um, and like you said, they’re, they’re charging a percentage fee. Um, it’s often 20, 25%, um, is kind of what we’re seeing pretty standard right now. And, um, You know, the way I think about that, Stephanie, is like they are highly incentivized to be very aggressive about your eligibility.

Mm-hmm. Right? Mm-hmm. Because they’re gonna make more money if you’re eligible for more. Mm-hmm. Some of them that we have seen, it’s been really interesting because our firm also has a big group that does audits of nonprofits. And so if you’re sitting on this receivable over your year end, your auditor is going to say, is that a material receivable?

Well, we need to see if it’s legit. And so they actually end up having to kind of audit. The whole e r c eligibility and calculation process. And so we’re seeing some of our clients who did work with some of these firms we’re doing the audit. And in the audit we’re like, there’s no documentation of a shutdown.

There was not a single order. There’s no, oh, their, their analysis of gross receipts. They, [00:15:00] they didn’t accurately combine the foundation with the nonprofit, um mm-hmm. Or they didn’t tie out to their nine 90. Um, And then a big one that we’re seeing is that some of these firms, they don’t really know nonprofits, so they’re not backing out wages paid for by restricted grants and things like that.

And I’ll say the guidance is super squishy on this. Um, our firm takes a quite conservative stance when it comes to what do you need to back out? Um mm-hmm. Um, but part of that is because we’re seeing not necessarily the i r s, but we’re seeing funders on the other side. So if you have a statement, we’re seeing that state funder come back and say, we want you to certify.

You didn’t have e r c pay for wages that we had reimbursed you for already because mm-hmm. Now we’ve paid for it and you got paid back for it. Um, and so we’re seeing a lot of these firms, they’re not doing those things and so they’re way inflating what that credit should be. They’re getting paid for it.

We’re now having that nonprofit. If we’re the auditor, we’re saying, we gotta reverse that receivable. You gotta write some of this down. Like it’s not [00:16:00] actually eligible. Um, and unfortunately, you know, Those predatory firms, they have, they have smart lawyers who write those contracts because, you know, typically those contracts you, you can’t go back to them and say, Hey, actually our auditor said we’re only eligible for half of this refund us half our fee.

You know? Mm-hmm. They’re pretty locked in with whatever you filed. I also, I have worked with a few, um, organizations who they, they got kind of pressured into, they signed a contract with one of these predatory len or firms. They then kind of heard about us and, and we had a conversation and they’re like, oh, you guys are way more knowledgeable.

We wanna work with you. And we said, did you already sign that other contract? Let me look at that contract. And they’re like, yeah, we did. And we look at the contract. Then contract basically says that even if they choose to work with, Or someone else to do the, the credit and the filing. They still have to pay that original firm who’s now doing none of the work.

20% of that credit. And so we’re like, you’re better off to just stick with them. Mm-hmm. [00:17:00] And if you want, like we can just review their work or something so that you feel better about it. But, um, so that’s kind of my biggest, we actually did a blog recently and we kind of said, here’s 10 questions to ask if you’re talking to a firm.

Um, because there are some. Very good, legitimate ones out there. Um, but make sure you’re asking about things like when do I sign the contract and what does it lock me into? Um mm-hmm. Also ask about what their deliverables are. A lot of them, the last step in this process is you file what’s called a 9 41 x, which is basically an amended payroll tax filing where you’re telling the i r s, Hey, I paid in $50,000 of payroll taxes in this quarter.

I’m eligible for $200,000 of credit. Gimme back the $50,000 and an additional 150. That’s effectively what that, that form does. Um, and so some preparers will actually prepare that 9 41 x tax form for you, and they sign it as the paid preparer. Mm-hmm. A lot of these firms, they won’t do that step mm-hmm.

Because it kind of [00:18:00] puts them in a hook a little more than they want to be. Mm-hmm. So they’ll like, They’ll give you a step by step tutorial for how you can do it yourself and plug in their numbers, but they won’t sign as the paid preparer. And that’s always like a little bit of a red flag to me. Um mm-hmm.

As well. So, yeah, I think it’s, it’s unfortunate because I have so many nonprofits I talk to who are like, I. Look, I get phone calls. I get 10 to 12 phone calls a week from these predatory firms. I’m getting my LinkedIn gets spammed. I know I get them all the time and I’ll reach out to people and be like, you’re talking to the wrong person.

I do this work. Um, yeah. But you know, so people just like, at that point you just don’t numb to it. Right. And you’re like, move on. We’re, we’re not doing this. Um, but there are, you know, there are a lot of dollars out there for nonprofits who truly are eligible. So, you know, would really encourage folks, you know, put on the earplugs to the predatory folks, take a look at it.

And we’ve got a lot of materials and there’s a lot of good stuff out there from others too, on like just some of the initial analysis you can do yourself to see, mm-hmm does it look like maybe [00:19:00] I’m eligible? And then reach out to someone that you trust. And if they don’t do the work, like we’ve had a lot of really reputable firms who are like, you know what?

We just don’t have the expertise in-house to do this, so we’re gonna refer that work to you guys. So if your trusted accountant or whomever you work with doesn’t do this work, they probably have somebody they can refer you to who can help you out as well. Yeah, it’s, 

Stephanie Skryzowski: this is so interesting because I really, I have seen both sides.

I was initially introduced to the employer retention credit through a mutual client that we both work with, and then I was, you know, got my wheels turning. Wait a second. What other clients do we, I have that might be eligible? Because, like you said, there’s nothing better than being that person who’s like, here’s a million dollars for your organization.

Right. And so, you know, I was able to, to do that. But I’ve also seen, like I said, I went through the process all the way up to contract signing with one of these other firms and I asked the questions, um, with the sort of knowledge of like, okay, this is what it’s like to work [00:20:00] with a c p a firm on this. So I knew my experience with you and I asked the questions of this other firm and.

They were just like non-responsive. They just kept sending me the link to like, sign the contract, sign the contract, sign the contract. It would not answer any of my questions. And so that’s when I was like, okay, major red flag. And I think your point about like, You may not be jeopardizing yourself with the I R S at this point.

Maybe they’re not doing the I R Ss is not doing a bunch of audits of this employee retention credit right now, but you may be jeopardizing yourself with your existing funders and. There’s nothing worse than having to repay a funder money. That wa was yours, that was awarded to you. And, um, I, yeah, there, there’s nothing worse than that.

That’s like, that could be hugely detrimental for your organization. So if anybody listening is like, okay, now I’m curious about these employer retention credits. I wrote it off, but now I’m interested in pursuing further. [00:21:00] What would you say would be like a couple steps that somebody could take? I mean, I would think that, you know, like you said, potentially reaching out to your accountant, reaching out to your audit firm would be a great first step.

Is there anything else that you would recommend organizations do? 

Kelsey Vatsaas: Yeah, it’s a, it’s a good question. I mean, I do think the other thing you can do is the, the gross receipts. So like, did I, was my revenue impacted by, by Covid? That is definitely the more clear cut way to get to eligibility. And while the analysis for nonprofits is not as straightforward as for for-profits, it’s not that complicated.

Um, in terms of kind of looking at quarter over quarter, How were my revenues and gross receipts impacted? And so I would just like spend 30 minutes in your general ledger, have your team do that just to see, does it look like maybe there’s a quarter? Um, and the reason for that is there’s, there’s benefit if you qualify under gross receipts when you.

When you qualify in one quarter, you automatically get another [00:22:00] quarter. Um, in 2021 it was only a 20% drop. And so lots of nonprofits, we just have really wonky funding cycles, right? So a lot of clients who are like, oh yeah, I forgot in Q two of 2019, I got that million dollar multi-year pledge. Well that all got booked in Q two of 2019, so now my denominator’s, you know, much higher.

Mm-hmm. Mm-hmm. Um, so even if your revenues were flat or up on the year, which is where a lot of people are like, Nope, I’m not gonna qualify. I’ve actually been working with this independent school for six months who, um, was really trying to qualify under shutdown. And so they put together this whole robust analysis of all the ways their school was impacted by shutdowns, but it still was like our national tax office looked at it and they’re like, yeah, this is kind of borderline.

The rules aren’t clear. And they had told me off the bat, they said, well, our revenues are up. We got a couple big contributions, like we’re not gonna qualify. And so in my last call with them last week, I’m like, I know you told me you looked at gross receipts, but like, can you just pull the numbers and send them to me?

Because if it was a couple big gifts, that might be [00:23:00] certain quarters you might qualify. Well, they sent it back and it looks like we’re finalizing it today. They’re gonna qualify for all three quarters of 2021 under gross receipts, which is where all the money is, that those are the big credits. Mm-hmm.

Mm-hmm. Um, you know, after we went through all this work to figure out the shutdown piece, Which probably isn’t gonna happen. So that would be my suggestion. Start with the gross receipts. See if you can tie it out to your nine 90. That’s really important. If you can’t call somebody in to help, but that, that should be kind of that first step to see are we, are we maybe eligible here?

Mm-hmm. 

Stephanie Skryzowski: Yeah, I think that’s a great place to start too. Yeah. Start with your numbers, see if that works. Um, and then I have a couple organizations who. Don’t qualify in our grocery seeds, meaning their 2021 and 2020 were all higher. Every single quarter was higher than 2019. So that like Xes them out there.

And also they’re an entirely remote organization in the us. That works overseas. [00:24:00] Um, like their main programs are overseas and so yes, their work overseas was impacted, but they’re entirely remote in the US and so there were really no like US government shutdown orders impacting them. So that would kind of like cross them out on that side as well.

Right. 

Kelsey Vatsaas: Yeah. Yep. For the most part, that’s true. Unfortunately, the shutdown side of things is just a lot more complicated to navigate and there’s just a lot more uncertainty, um, for how you would apply that. But typically, yes, if, if you’re in that sort of situation, and, you know, these are, this is the United States i r s, so they are looking at United States, states-based activities, um, which certainly, you know, complicates things for some of our N G O clients.

Yeah. 

Stephanie Skryzowski: Well I think this is a great conversation. ’cause again, like I’m getting even text messages on my phone. Oh really? That was crazy. Random numbers. I know. And they’re not identifying themselves as a person, so it’s like, you know, of course like a bot of some sort. Um, but like you did, you know you’re eligible for X amount.

And I’m like, no, [00:25:00] I’m not. Stop, stop texting me. Um, so I’m sure that people listening are getting inundated as well, but I think this is a very clear path to figuring out, okay, is this for real for my organization? And the first stop is looking at your numbers and then. Talking to your auditor or your accountant, somebody that you trust that can, you know, help you determine your eligibility.

So thank you so much for going into that because it is like kind of a scary area, but one with some massive potential for a lot of organizations.

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The other thing that I wanted to chat about because you, I mean, I didn’t know that C l a works with, uh, over 10,000 nonprofits. That is amazing. I did not know that, that you worked with so many and over oversee that practice. You see a lot. Of different organizations. You see a lot of trends in the nonprofit sector, I think with federal funding, with philanthropy in general.

So I would love if you would share like something that you’re seeing, um, [00:27:00] kind of across the board when it comes to different types of funding, different types of, um, pros and cons and pressures of way, the ways that money is coming into organizations. 

Kelsey Vatsaas: Sure. Yeah. You know, it was interesting. We were doing kind of a reflection.

We have a, a nonprofit innovation blog we call it, where, where we’re putting out a ton of content. Some of it’s super technical, some of it not at all. I tend to be one of the not at all writers. Um, and so I was doing kind of a year-end reflection in what’s ahead and, um, as we did, so I’m like, wow, I find myself being.

Very negative, but there are some positive things to spotlight here. And, and maybe I’ll start with that on the positive side, which was, you know, as we look at the trends in, in philanthropy and funding for nonprofits, I think we all saw the spike in 2020 that was so amazing of, you know, individuals going above and beyond to support nonprofits.

Um, a lot of philanthropies, one of our clients is the Council on Foundations, and they led this awesome pledge where, think six or 700 different foundations committed to releasing restrictions, you know, renewing multi-year funding, [00:28:00] all sorts of things to just make that funding easily accessible to organizations.

And so we actually saw nonprofits like doing pretty well in 2020 and 2021. When you pair that with some of the, the economic relief from the government. In 2022 and kind of going into this year, I think one of the big hot topics we’ve all seen is around, um, you know, these, what I would call kind of transformational gifts.

So, um, some certain philanthropists might come to mind when I say that, and it’s been actually a trend. We’ve started seeing more of them do this, but the concept being. These very large unrestricted gifts that organizations do not have to work super hard to get and do not have to have all these strings attached to how they spend it.

And I know Stephanie, we were chatting, we each have clients, um, I think C L A, we had 135 clients thus far who have gotten gifts from this one funder. Um, wow. Which is amazing. And for some of ’em, that was a million dollars. But you know what? Their budget is $750,000 a year. So a million dollars is a big.

Yeah, yeah. Deal. And others. I think the largest one got 12 million. [00:29:00] Um, and, you know, that kind of funding is, it does change an organization. It allows them some breathing room. Um, it’s been really fun to come alongside some of those clients to think about how they want to use that money and to see the creative things that they’re doing.

But that kind of funding that just, it doesn’t have all the reporting requirements, it doesn’t have all the restrictions. Um, Is, you know, something our sector has really never seen before. Um, so I think on the positive, yeah. We are seeing the trend of more and more of that happening. There’s kind of this trust-based philanthropy is kind of the catchphrase mm-hmm.

That’s being used. But this idea of like, let’s make sure an organization’s a good organization, but then let’s trust their leadership to do what they need to with that money. I love that. 

Stephanie Skryzowski: I agree with you. How are you seeing, um, I that’s amazing that you’ve got 135, um, clients that have received that money.

How are you seeing them use it in maybe ways that are sort of different or they’re not just like, okay, well now we could pay for [00:30:00] salaries for the next five years. Like, what are they doing that is unique or innovative? How are they dreaming bigger? 

Kelsey Vatsaas: Yeah, it’s a good question. One of my clients, um, actually on Friday we have their board meeting where they, they kind of have this allocation committee they called it, um, who basically is saying like, what do we wanna do with this?

And so they’re looking at some really cool ways. They’re a national networked organization and. So they’re really going to all of the affiliates within the network and saying, what do you need more of? What has been really hard for you? Um, and for them, a, a lot of it was around recruitment. Like these affiliates are struggling to recruit the people they need to go do the work.

Um, and that’s not really a space that this national organization’s ever. Been able to support the affiliates. Um, and so they’re looking at, you know, putting a lot of money into that space. Um, less creative and innovative, but we are seeing a lot of folks say, a, do we bolster our rainy day fund? ’cause maybe we’ve never had one.

Similar to what you talked about before. Mm-hmm. Do we build some sort of board designated endowment? Um mm-hmm. Which, you know, I think I always have kind of mixed feelings on that, but [00:31:00] I like the board designated concept. You can always und designate it that way. Mm-hmm. Um, and I actually think in today’s market environment, our firm, actually on Thursday, we’re doing a session on, um, investment and reserve strategies.

Um, kind of tailored at like, Hey, you got all this money, at least while you figure out what to do with it. Like, there’s some good things you can do. Um, I will say my one client, um, who, who got this, we, we convinced them, we’re like, we can put this in treasury bills. Those are really safe and you can get some good returns on them.

And right now they’re getting $18,000 a month in, in interest and returns from T-bills while they figure out what to do with the large transformational gift. Um, free, free money. But that’s something free we’ve never battled with before. Right? Yes. So I do think, I think those are some of the trends. I mean, definitely some like employee wellness things, so mm-hmm.

A lot of groups who like, hey, we’ve never been able to do a retirement match, we’ve never been able to Wow. Offer more holistic benefits. Um, we want to make being remote, um, or, you [00:32:00] know, having this hybrid workforce, uh, a long-term reality for ourselves, but we need to make some capital investments to do that.

Um, so we are seeing. Folks, um, tend to focus there. Um, and then I do think this kind of like innovation fund, so a lot of my clients are saying maybe we don’t have that big transformational idea today. ’cause right now we still have been getting out of this fight or flight mode. But we know we wanna set aside some money to be able to do those things as they come up in the next couple of years.

And to not always be in that scarcity mindset. So kind of setting aside some money and maybe even like making a, a process for. Employees can come up with these new ideas of things they think clients need, and then they can tap, you know, they can propose for how they’d use those funds and they can tap into it.

Um, so a lot of things like that, that just most of these nonprofits have never been able to do. I 

Stephanie Skryzowski: love that. You know, I’ve had a lot of conversations, um, with this podcast and talking to nonprofit leaders and those that work with nonprofits and really focusing, like thinking [00:33:00] about how people are so central to our organizations and nonprofit, like leadership Burnout is just so rampant in this sector, and so I love that you’re seeing that organizations when presented with this large, unrestricted gift are choosing to.

Invest it back into the organization, back into their people. And the other thing I feel like I don’t see often enough is like innovation and, and, and failure and trying new things in nonprofits. And I think there’s a lot of reasons for that, but one of ’em being like, Well, we don’t really have like a pot of money that we can use to try new things or to, to potentially risk failure, um, in being innovative.

And so I love that you’re also seeing that there’s money now to be able to do this because I feel like the only way to make those leaps and bounds of advancement in the work that we’re doing is to try, but often we don’t have the wiggle room. Um, In terms of like, in terms of funding to [00:34:00] be able to do that.

So that’s really exciting that some of these, that something that you’re seeing is that we have this like innovation fund. That’s so fun. I love that idea. Okay. I’ll let you, I’ll let you keep going. So I love this trust-based philanthropy. Are you seeing anything like on the flip 

Kelsey Vatsaas: side? Oh, you know, there’s always a flip side, right?

So, um, yeah, we, we certainly are. So, I, I am based outta Minnesota here, so we’re just coming out of the most recent blizzard, um, which I know you know well as well based on where, and, um, here in Minnesota, this has been a huge hot topic. That. Um, so we talked about the pandemic relief funding. I think most nonprofits know, or we’re part of, you know, there was a lot of government funding that came out through primarily the CARES Act to.

Do all sorts of things to just help everybody survive. Um, and one of those was through the u ss d a. There was a major food program, um, primarily targeted initially at kids who their only source of, um, getting food was at [00:35:00] lunch at school, and now they weren’t in school. And so, um, there was a really rapid distribution process to try and scale up efforts to be able to feed these kids and families.

Um, and so a lot of money went out, uh, pretty quickly. And in the last six months in Minnesota there was an F B I investigation into an organization called Feeding Our Futures that, um, is alleged to have stolen $250 million, um, of that funding, like pretty much straight up fraud. Um, and that’s all still going through the process.

It hits the headline. And let’s be honest, the first thing I do is like, is this our client? Do we know any of these people? Um, because it’s a little scary and there’s a whole affiliated network of things going on there. And thankfully we, we weren’t involved with any of the organizations, but um, I. But what it’s done is, you know, it hits the headline of the paper.

It’s, I listen to a lot of podcasts that have nothing to do with nonprofits that are talking about this situation. Mm-hmm. And what does that do? That raises everybody’s skepticism about all [00:36:00] nonprofits. So it’s like mm-hmm. Now nonprofits, which you and I, Stephanie know, How much compliance there is around mm-hmm.

Government funding for nonprofits and how many hoops we have to jump through. Um, and I mean that compliance is there for a reason, right? We are trying to make sure that that money is spent in the best way. Um, but I know in Minnesota as kind of a reaction to the situation at the state legislature, there were introduction of a number of bills that would increase the compliance requirements even more.

For every nonprofit, for all state funding, you know, and our clients are sitting here like, I’m an outsource C F O, right? I’m sitting here looking at my clients and saying, we get 10% overhead on this grant, and now you’re asking us to do twice as much compliance work. Mm-hmm. Like how, who’s gonna pay for this?

Mm-hmm. We can’t afford this. And what it’s gonna mean is for a lot of those nonprofits, they’re not gonna be able to afford to run those programs anymore. They’re gonna have to turn away that funding and stop doing that important work in the community unless they can go find philanthropy, who’s gonna subsidize [00:37:00] it And mm-hmm.

Um, you know, so we’ve seen some of that also at a national level. Now, thankfully, none of this has passed yet in Minnesota. Um, and there’s been some great conversations, some great dialogue we’ve seen of nonprofit leaders coming out, um, both in the state and nationally saying, We are all with you that we need to make sure that this kind of thing doesn’t happen again.

This is not okay. And also there are ways to do that in a way that isn’t, you know, so reactionary that isn’t gonna swing that pendulum so far. So that’s kind of what we’re thinking about. I mean, we’re in the business of compliance, so, um, You know, we’re trying to monitor to see what else is gonna be required.

But we’re also trying to make sure that the voices of the nonprofits, the voices of those who are saying it already takes us four full-time accountants to run a $10 million organization. Because every penny has to get split four ways. Like, do you really want more accountants in, these are, no, we want more people doing direct service, right?

Mm-hmm. Um, so [00:38:00] that’s kind of, Like you were saying, we’re seeing trust-based philanthropy and this money that you can really be innovative with over here. But I think there’s certainly some concerns that, um, on the, the government funding side, because of some of this fraud that did happen because good controls weren’t in place, uh, that we’re gonna see that compliance go, go the other direction.

Stephanie Skryzowski: And for those, um, I have two questions. For those organizations that already have government funding, is there anything that you would recommend that they do or like additional processes or procedures that they put in place or anything like additional that we should be thinking about or take care to make sure that we’re doing with those people that have existing federal grants?

Kelsey Vatsaas: Yeah, it’s a good question. I mean, anyone who’s getting federal funding like should have this set of policies and procedures that align with uniform guidance, that have all these things you have to do. I think one of the things I often see will be like, okay, we, we came up with that policy and procedure [00:39:00] manual.

’cause we had to submit it to that funder when we got government funding. Are we actually abiding by that? Yes. Are we actually following it? And people will say, oh, well we have an audit and the audit should catch that. Well, audits do sampling. Audit doesn’t look at everything. It’s, you know, certain thresholds.

So if it’s a smaller program or you’re not getting a single audit, That may not be evaluated. So almost doing an internal process audit to say, here’s what our policy says. Are we actually doing those things? Where do we think there might be an opportunity for appropriation of funds, et cetera. Um, so I think doing a process like that, which doesn’t have to be super robust, um, could be a really great next step.

Stephanie Skryzowski: Yeah, I think that’s a great, I think that’s a great point. I, I know that with our clients, we do like a read through of the policy manual every single year to make sure like, Are, are we actually doing what we said we’re supposed to be doing? ’cause I know that’s what the auditors are looking at. Making sure that like, are you actually abiding by your own policies, updating it as necessary, and making sure that any comments [00:40:00] from the prior year audit have been like attended to and policies are updated and whatnot.

So I love that idea of doing like, You know, a review, make sure your processes, your policies are good. And then on the flip side from organizations that do not yet have any federal funding, um, I remember, like I was talking to this organization, I don’t know, probably in the last six months, they’re like, we’re not ready for federal funding.

And maybe like a few years from now maybe then we’ll be ready. But they couldn’t really pinpoint like, why aren’t you ready? Like you could. Why couldn’t you have a federal grant right now? They just, it felt so scary and so overwhelming that they were like, maybe someday, like when we’re grown up, like when we’re bigger, we’ll have, you know, we could have a federal grant.

Is, is there anything that you would recommend that organizations do or think about or put in place maybe before they start thinking about the world of federal grants? 

Kelsey Vatsaas: Yeah, no, it’s a good question. We actually have a team who they do kind of grant preparation and it, it’s basically for [00:41:00] that reason, right?

Like, mm-hmm. Hey, we think we wanna get into this, but a, we don’t even know what it, what we’re getting into, right? So help us understand what all of those, those compliance requirements would be. Um, and B, help us get the things in place that we need. I think there’s two big things that if, if your organization doesn’t or can’t do it today, um, are really important to look at.

Again, speaking from the finance side of the house, one is like, do you have a system that you can use to track and report against these grant budgets? Because you know, especially if you’re gonna be allocating a bunch of stuff to these grants, as you know, Stephanie and these federal funding, I mean, you have to send so much documentation to support and being able to have a system that can do the tracking is really important.

Or just that your system’s set up correctly to be able to do that. Yep. Because if it’s maybe set up, assuming you have a bunch of unrestricted funding, It maybe can’t handle that. So kind of one would be that system assessment and to say, do we just need to redesign this? Do we need to look at moving? And when I say system, I’m mostly talking about like your general ledger accounting system, um, is kind of the most [00:42:00] important.

And, and the second would be related to that is payroll. So a lot of times with federal grants, you gotta be tracking allocation of time or actual hours of effort. Um, Being able to have a system that can do that. So you can do time tracking within the system. You can do allocations within the payroll system.

You can easily get that information into your general ledger system. Um, that one probably is even more important because a lot of times those federal, federal and state grants are, are pretty personnel heavy. Um mm-hmm. And that’s where I see a lot of organizations get tripped up in their first couple years, having them, if they haven’t done the hard work to maybe implement a new, um, time tracking system or, or payroll system prior.

Stephanie Skryzowski: Oh, that’s such good advice. ’cause I’ve seen things on both sides where an organization has all that stuff already. So just bringing a federal grant like into the mix is not really a big deal. ’cause we already have, like, we’re already tracking our time. We already have an accounting system with the right like classes and designations set up.

And so it’s very easy. [00:43:00] It’s just like, yeah, it’s not really a big deal. But I’ve also seen organizations take on a federal grant. Without having those systems in place. And so then it’s like backtracking, oh my gosh, now we need to like wait. We need to go back and like figure out time sheets for the last three months and set up systems after the fact.

Like that’s not fun. So I think that’s excellent advice. Like if you are thinking about getting into the world of federal grants and there’s a lot of money available and it can be like really transformational for your organization, just make sure you have the right systems in place first so that you’re not having to go back and like.

Try and redo work and recreate things, um, after you already have this money. So, excellent advice. And before we wrap up, one question that I like to ask all of our guests is, what does a prosperous nonprofit look like to you? 

Kelsey Vatsaas: Oh, that’s a really great question. So I’ll buy some time while I think about it.

Um, you know, I would say I think that a prosperous nonprofit, I think I, [00:44:00] you can tell it when you look at their leadership team and how they interact, I. So when I look at a prosperous nonprofit, it’s one where they are having healthy debate among the leadership. They are, um, not afraid to bring new ideas.

They’re not just status quo rolling things forward. Um, because the, the needs of our community, which is what most nonprofits are so supporting, are changing all the time. And so having an organizational culture that allows for that. Um, and I’ll give a quick example and I’ll be honest. It’s, it’s a client that is sometimes very hard to.

Serve. So I’m the outsource C F O, and I’ve worked with this client for years and we have what we like to call a real healthy tension between finance and development, because development is very optimistic about what they’re gonna be able to bring in. And program wants them to bring in all that money so they can do all this new stuff.

And finance is like, Hey, we’ve seen this happen before. It didn’t shake out how you wanted last year. And you know, so we’re a little bit more conservative about what [00:45:00] we wanna forecast. But even though those meetings are painful and that finance committee is really challenging ’cause they ask all the hard questions, I would actually say it’s one of the healthiest organizational cultures that I work with because people are willing to battle it out and to say, no, we really need to do this.

And so here’s what we have to do on the development side to make that happen. And finance will say, okay, well that’s, that didn’t work last time. Let’s try and do it this way. And um, but I would so much rather have that than have kind of a complacent organization who’s like, well, Okay, we kind of did this last year, so we’ll just do more of that again this year and we’ll just kind of keep it going and nobody’s gonna fight.

And, you know, I’m a good Midwest earner. I don’t, I’m, I’m a little conflict averse, but I think it’s helped me learn working with this client. It has helped me learn, like, you know, to truly be a prosperous nonprofit, you need to be able to have those hard conversations to do what’s right for the community that you’re serving.

I 

Stephanie Skryzowski: love that. I love that idea of the way that the leadership team works together. We’ll show you a lot about it. ’cause I’m thinking about some like [00:46:00] very dysfunctional leadership teams I’ve been, you know, a part of before and I’m like, oh yeah, no, that’s not a prosperous nonprofit. So I think that’s so huge and I think that that like, Conflict and that conversation allows us to like elevate and dream bigger and think bigger versus kind of the opposite.

Like you said, well, okay, this is, you know, how we’ve always done it and we’ll just kind of do what we did last year that keeps you on this level. Whereas that, um, you know, that conversation and that healthy conflict allows you to elevate. So I love that. That’s so good. You know, I get a different answer every single time and that’s, this is my favorite question to ask ’cause I get a different Yeah, that’s great answer from.

Everyone. Um, Kelsey, well thank you so much for chatting with me today. I just really admire you and your work and your thought leadership. I follow you on LinkedIn and you’re always, um, you know, really posting interesting things in your blog at c l a. So, um, if our readers want our readers, are listeners, want [00:47:00] to find you, find out more about you or about your work at C l A, where can we go?

Kelsey Vatsaas: Sure. So probably easiest place would be Bcls website ’cause that kind of connects to all the things, which is c L A Connect, c o n n e c t.com. I have a whole section on nonprofit links to our blogs, links to bios of, of our 800 and some team members, et cetera, which can also get you to our LinkedIn and things like that from 

Stephanie Skryzowski: there.

Awesome. Yeah, thank you so much. There is a ton of great content on that blog and we will definitely link it in the show notes as well. And um, yeah, I just appreciate you and all that I have learned from you over the past couple years and working together on our mutual clients. So thank you again so much for being here.

Kelsey Vatsaas: Yeah, thanks Stephanie. I appreciate the opportunity. Hey everybody. 

Stephanie Skryzowski: I hope you loved this podcast episode as much as I loved recording it for you. You probably heard earlier in the show that this episode was sponsored by Grants Works, and I just wanted to pop in [00:48:00] here and give you my 2 cents on the Federal Grants Simplified Bootcamp.

Patrice Davis is a genius at literally simplifying federal grants, which can be so scary and so confusing. But she gave me access to her bootcamp so I could check it out for myself and oh my goodness, there are just six modules. They are super simple and super clear. I loved how she walked us step by step through the federal websites, which are so confusing to make sure that everything is set up right on the backend to be able to apply for federal grants.

She goes over the application, including the budget and all of the like wonky federal rules. She goes over what in the world uniform guidance means and what’s inside. Basically, all of the rules that come along with federal grants. She also has this amazing federal grant application checklist and the Ultimate Grant workbook, and there’s so much info inside.

I love that I could pause. Take in the slides, [00:49:00] take notes, and then hit play again. So I just wanted you to hear it directly from me that I actually went through the bootcamp myself and it was fantastic. So the link again is www.grantsworksacademy.com/federal-grants-simplified, and that is where you can get all of the info on this amazing bootcamp.

And don’t forget to use the discount code degrees, you know, like 100 degrees consulting degrees to get 10% off your registration. Okay, friends, this is the end of our podcast episode for today. As always, thank you so much for being here. I appreciate you so much. We have our little community of loyal listeners, and I really just appreciate you.

So if you wouldn’t mind sharing this podcast with a friend, I would love it. I would love if another nonprofit leader is able to listen and get all of the information that we drop in each episode. So alright friends, I will see you next time. Bye.[00:50:00]