As 2021 gets underway, many not-for-profit organizations are taking a look back at 2020 to reflect on the challenges they faced as well as their accomplishments, to help them define strategies and opportunities for the new year. 

It is no surprise that the COVID-19 pandemic forced many organizations to do more with less and to create new workplace strategies and business practices to sustain their missions, in many cases creating permanent change. Here is a look back on how some tax-exempt industry sectors handled the challenges of 2020, plus our thoughts on what will remain top considerations for the industry for 2021.

A look back at 2020

Higher education

In 2020, the higher education sector pivoted and responded to the needs and safety of students and the painful decreases in revenue and increased costs of operations brought forth by COVID-19. This included pivoting to remote learning platforms; enhancing diversity, equity, and inclusion policies and procedures; expanding existing technologies; increasing safety and health protocols; providing refunds for room and board; and more. Fortunately, funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act for the Higher Education Emergency Relief Fund (HEERF) provided some direct support for both students and institutions, and there is hope for additional allocation from the Education Stabilization Fund in 2021. This additional funding will be key to institutions as they continue to have to offer discounted tuition rates as students are hesitant to enroll in a school where in-person instruction is limited.

Community Development Financial Institutions (CDFI)

As many not-for-profit organizations had to close or reduce programs or convert to remote programming, CDFIs had to respond to the skyrocketing need for community funding. In response to the COVID-19 pandemic in 2020, over 300 CDFIs made approximately $7.5 billion in loans under the CARES Act’s Paycheck Protection Program (PPP), according to the CDFI Fund. Correlating with their COVID-19 relief efforts, CDFIs were also able to take advantage of certain provisions of the CARES Act that allowed for the suspension of certain accounting rules (ASC 310.40 - Troubled Debt Restructurings) related to loan modifications. A banking group interagency statement issued in March (and revised in April) provided certain interpretations to the accounting rules for lender modifications in response to the pandemic. While these provisions provided a mechanism to help CDFIs continue to fulfill their mission, the need for CDFIs to evaluate and account for the credit quality of their loan portfolios will become more critical than ever before in 2021. 

Foundations

During 2020, the foundation sector had to respond to the escalating need for social services while maintaining pre-pandemic giving commitments and investment returns. As COVID-19 shattered the economic security of many not-for-profit organizations and individuals, foundations were faced with balancing the foundation’s own financial health while supporting both not-for-profits that had lost funding and the growing basic needs of the community, including unemployment and food insecurity. Not long after the onset of the pandemic, the calls for social justice that exploded throughout the country highlighted the need for funding social justice initiatives, placing further demands on foundation reserves.

Social service organizations

Due to COVID-19, revenue streams for social service programs that were primarily funded with donations or fees were disrupted. As a result, organizations, especially larger ones that were ineligible for CARES Act relief, created new alternatives to restore or replace lost revenue, or quickly adjusted their expenses to protect cash flow. Additionally, many were immediately faced with the need to transition to delivering programs remotely, which required expansion of existing technologies, implementing new technologies, and training staff and program participants on these new systems. Fortunately, many social service organizations have been the recipient of CARES Act funds to help address some of the community’s critical needs, such as unemployment, housing, and food insecurity. 

Associations

The association sector dealt with the effects of the global pandemic on three primary fronts: business continuity, member representation, and liquidity management. Associations had an opportunity (and an obligation) to showcase their value to their members by advocating for COVID-19 relief to government and other stakeholders. Communication and member engagement through the use of social media and virtual event platforms were essential. Associations accomplished this while addressing business continuity issues and transitioning to a remote workplace environment. Managing liquidity became a daily exercise, especially for those with significant revenue-generating tradeshows and conferences that were canceled or postponed. Furthermore, until only recently with PPP 2.0, the exclusion of 501(c)(6) associations from PPP loans in 2020 was disheartening and, in many cases, debilitating. However, innovative association leaders proved they were up to the challenges, demonstrating that this vibrant and important sector of our economy can get through these dark times.

A look ahead at 2021

In 2021, not-for-profits will continue to address many challenges brought forth by COVID-19. However, there will be opportunities for them to innovate, grow, and support their mission. 

Cybersecurity is a major challenge that will remain in 2021 for all not-for-profits. As organizations store sensitive data such as donor, student, and participant information, cyber theft is a major concern. If this sensitive data is stolen, it could be a significant threat to the organization and its stakeholders. As not-for-profits continue to operate remotely, the threat of cyber breaches increases, and organizations must put the proper controls in place to mitigate cyber risks. 

Liquidity and innovation are key among the challenges and opportunities 2021 will likely bring. As the long-term impact of COVID-19 on not-for-profits remains unknown, organizations will need to regularly evaluate their short- and long-term liquidity positions and make appropriate adjustments as needed. The organizations that will succeed and grow in the longer term are the ones that strategize and invest in innovative ways to deliver their missions. 

Additionally, leveraging technology and data to better identify the needs of stakeholders and evaluate the results of programs will create an opportunity. These efforts should create new forms of measurement, spurring innovation and delivering a greater positive impact to the public. 

What does CohnReznick think?

The COVID-19 pandemic created positive change in many organizations as it forced them to change processes to increase efficiencies and better prepare for long-term sustainability. Not-for-profits should continue to conservatively manage financial resources, innovate fundraising strategies and programs of work, and evaluate their systems and processes to take advantage of new operating norms and achieve efficiencies. As a result, CohnReznick will continue to support the not-for-profit and education industry as we move into 2021 with a series of articles, webcasts, and roundtables that will delve into these issues in further detail and respond to changes in the industry throughout the year.

Contact

John Alfonso, CPA, CGMA, Partner, Not-for-Profit and Education practice leader

646.254.7415

Patricia McGowan, CPA, Partner, Not-for-Profit and Education practice

959.200.7007