DePaul Studies Reveal Challenges In Financial Management And Fund Raising For Small Religious Non-Profits

Small religious non-profit organizations are playing an increasingly important role in delivering social services to the community at a time when cutbacks have diminished government-run human service programs. Yet, two studies by DePaul University professors have found that these organizations face serious challenges in raising and managing money for their programs. Misconceptions by philanthropy officers about eligibility for grants and a lack of financial management expertise among religious non-profit managers are financial roadblocks for the organizations, the studies found.

The studies, "Philanthropic Institutions and the Small Religious Non-Profit" by DePaul School for New Learning Assistant Professor Ellen J. Benjamin, and "Financial Management and Accountability in Small, Religiously Affiliated Non-Profit Organizations," by DePaul Associate Professor of Accountancy Denise Nitterhouse, were published this winter in a special edition of the academic journal "Non Profit and Voluntary Sector Quarterly."

In her study, Benjamin surveyed 35 small religious non-profits in the Chicago-area and 72 philanthropic organizations that make grants to non-profits. She found that the small religious non-profits have trouble obtaining grants because of their style of business operations and because grant-making officers don't understand their tax status.

For example, only 25 percent of the philanthropic organizations surveyed knew that religious-affiliated non-profits are not required to file tax returns."For many donors, submission of tax returns is a non-negotiable requirement during the grant-review process," Benjamin said. Benjamin found that another barrier for religious non-profits applying for grants is their lack of detailed budgets, often the result of a mission rather than bottom line orientation. "Donors are loathe to supply monies to an institution that cannot provide documentation of financial planning and management and are likely to reject otherwise sound proposals on this basis alone," Benjamin wrote in the study.

Religious non-profits are also at a disadvantage because foundations and corporate grant-makers often fear that a donation to a secular human service program run by a religious-affiliated organization may be interpreted as an endorsement of the religion.

"In a lot of communities, the religious non-profits may be the only service providers and advocates for social change," Benjamin said. "By declining to support these groups, the donor may fail to address critical human needs at all in those neighborhood. So then you have to ask if the donor is in fact succeeding in meeting its own mission."

Education and training of philanthropists through professional development forums may clear up their misconceptions about religious non-profit groups, Benjamin concludes in the study. She also recommends that religious non-profits establish better financial record-keeping practices and clearly explain their tax status. They should discuss the role of religion in their programs when applying for grants, meet with donors regularly to erase misconceptions, and consider establishing autonomous governing councils for their social service programs, Benjamin suggests.

Nitterhouse's study found that the financial management challenges facing small religious non-profits are similar, but more extreme, than those facing small businesses.

The challenges include a lack of financial resources and management expertise and a strong sense of ownership among founders of non-profits that can sometimes make them overprotective of their organizations.

"The pervasive lack of financial management and accountability in religious organizations was seen as a significant impediment to small religious non-profits from obtaining external funding for valuable, well-run programs," according to Nitterhouse.

Religious non-profits that are growing and seeking external funding would benefit from financial management training appropriate to their religious beliefs, the study suggests. Non-profit organizations such as United Way, the Girl Scouts, Catholic Charities and the Jewish Federation offer such training.

"Training, mentoring and networking programs targeted to managers and major volunteers of small religious non-profits could significantly improve the financial management and accountability of participating organizations," Nitterhouse concludes.