Not-for-profits teaming up to fulfill missions
In 2007 an existential challenge at the Children’s Trust Fund in Columbia, S.C., led to a merger that shows how other not–for–profits can join forces with their peers for greater effectiveness.
More than 20 years after the founding of the Children’s Trust Fund, board involvement was nominal until newly appointed board members asked the question, “Why do we still exist?” Uncertain of its ongoing impact, the board considered distributing the balance of its endowment, which was then at $1 million, to suitable child–serving organizations.
This purposeful question is something many not–for–profits find themselves asking in a sector where a multitude of good intentions is matched by overlapping purposes and agendas. According to the most recent figures from the National Center for Charitable Statistics, there are more than 1.5 million tax–exempt organizations in the United States. Consider, for example, the enormous number of not–for–profits devoted to fighting cancer, and it’s easy to imagine that the fight could become more efficient with the benefit of consolidation.
At the Children’s Trust Fund, the answer to the existential question helped the organization fulfill goals that had been established many years earlier. In 1984, the Children’s Trust Fund was created as a quasi–governmental not–for–profit agency with a mission of preventing the abuse and neglect of children. Their board was governor–appointed and state Senate–confirmed, and it was made up of nine influential state leaders who believed in the mission and were committed to its success.
The statute that established the Children’s Trust Fund was prescriptive on required board member expertise that included three members knowledgeable in banking, finance, investments, tax laws, or business; three members knowledgeable in the organization and administration of volunteer community services and grant administration; and three members knowledgeable in child development, child health, child psychology, education, juvenile delinquency, or a related field. Its goal was to create an endowment that would provide funding for child abuse prevention programs in perpetuity. It was decided that the endowment should reach $5 million before all of the credited earnings plus all future annual deposits from contributions would be available for disbursement. In the meantime, the board managed some federal grants and distributed those funds across the state. Approximately 10 years after the Children’s Trust Fund was founded, the endowment had not reached $5 million, and there were key changes in leadership and the management of the endowment.
Nonetheless, in 2006 the organization found itself still possessing only about 20% of the original endowment goal that was established to trigger distributions. Working with a local consultant, the organization conducted a feasibility study to determine if the Children’s Trust Fund was needed and, if not, to whom the money should be distributed. The board learned from the feasibility study that there were no statewide efforts dedicated to the prevention of child abuse and neglect, and stakeholders believed the Children’s Trust Fund should not only exist but also be a strong, active entity across the state.
The consultant worked with the board to help manage the organization for a year before recommending the board collaborate or merge with another like entity (Voices for South Carolina’s Children) to create operational efficiencies and build economies of scale to improve its impact and services across the state. The initial discussions and collaboration with one agency turned into collaborating with one additional organization (Prevent Child Abuse South Carolina).
The three boards formed a merger committee, and they each appointed their chair and vice chair to the committee, along with the three executive directors. The committee, using La Piana Consulting’s Nonprofit Mergers framework, reviewed the missions, structures, and programs of each not–for–profit and concluded that there were more similarities than differences, and that each brought a unique component to a greater whole.
During the planning process, the individual agencies continued to operate independently. After a year of research and deliberation, the committee recommended that by July 1, 2007, each board would formally meet and move forward with the merger. They also determined the merged agency’s name (Children’s Trust of South Carolina), the board’s makeup, and a merger timeline.
The Children’s Trust Fund would not dissolve, so as to retain its government designation and serve as the umbrella organization of the merged entity. Prevent Child Abuse South Carolina and Voices for South Carolina’s Children were dissolved before the completion of the merger because of debt carried on their balance sheets and the potential of unknown debts.
Because each agency’s fiscal year ended June 30, all had to close their books. Once each of the other two organizations’ dissolution was approved, the assets were transferred to the Children’s Trust Fund. All merger activities were completed by December 2007.
Challenges, lessons learned, and efficiencies were gained from the merger. As noted, the merger was completed by December 2007, and a deep recession hit in 2008. As a result of the economic woes that took hold worldwide, donations and the value of the organization’s investment accounts decreased. While no one could predict the recession, the boards of the three organizations were thinking about economies of scale and persistent funding issues.
The boards of the individual organizations also wanted to ensure that the individual missions were not lost with the merger. The new organization was not focused on a single mission and still today includes missions from all three organizations. That continues to be a challenge for the organization in explaining its mission and managing the various aspects of the organization.
The boards also had to decide which board members and executive director would remain and continue the work. Difficult decisions had to be made as staff was downsized and an office location needed to be chosen. Before the books could be closed, each organization also needed to have an audit completed.
One of the organizations was committed to long–term contracts that created challenges and increased costs after the merger. The biggest challenge was learning that one of the merged organizations did not have enough cash on hand or any accounts receivable for three remaining months in the fiscal year. That meant there were no funds to cover payroll for three months.
A lack of financial expertise in the organizations also created difficulty, as there was just one finance staff member, and that employee had no formal accounting training. Having a financial consultant would have better prepared the board and management to deal with the cash shortage and work through the audits and filing of necessary tax and incorporation documents.
Despite all these operational challenges, the merger was well–conceived. Due to the nature of the three merged organizations, efficiencies were achieved in missions of advocacy, education, and bringing together interested parties to pursue and advance the cause. In addition, various cost savings and operational efficiencies put the merged organization in a stronger position to fulfill the missions of all three of the original not–for–profits.
The merger of the three organizations has helped Children’s Trust of South Carolina leverage its standing as a quasi–governmental agency. The experience also left the organization open to the idea of further resource combinations as Safe Kids South Carolina merged with Children’s Trust of South Carolina in 2010.
Before the three organizations merged in 2007, the Children’s Trust Fund had a budget of less than $2 million with seven employees. Today, Children’s Trust of South Carolina has a staff of more than 40 employees and a budget of more than $17 million. Also, this year, South Carolina achieved its highest ranking ever (No. 38) in an annual national survey of child well–being by the Annie E. Casey Foundation’s KIDS COUNT project. South Carolina rose in the rankings for the fourth straight year in the survey, which has existed for more than 25 years.
The organization still has challenges, such as name recognition and difficulty raising unrestricted contributions to build upon the endowment. However, the programs have expanded, providing greater reach across the state. Now, Children’s Trust of South Carolina is the only statewide organization focused on the prevention of child abuse, neglect, and injury. The organization provides funding, training, or technical assistance in 43 of the state’s 46 counties. Services supported by the organization include parenting education; programs that increase awareness of child abuse and neglect; and conferences for home visitors, social workers, counselors, and other child–serving professionals.
Ultimately, the merged organizations proved to be much stronger as a group than they were separately.
The challenges and triumphs experienced by Children’s Trust of South Carolina can provide perspective for other not–for–profit organizations that undergo mergers. Here are some valuable lessons learned:
It’s natural that a merger will lead to some bumps in the road. But when done correctly, collaboration can lead to a much more effective pursuit of the not–for–profits’ objectives.
About the author
Uvette Pope-Rogers, CPA, CGMA, is the CFO of Children’s Trust of South Carolina. She also served as a guest editor for this issue of the JofA.
To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA‘s editorial director, at Kenneth.Tysiac@aicpa-cima.com or 919-402-2112.
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