Budgeting for nonprofits is never a simple exercise. Uncertainty about government funding, rising costs, and other economic factors beyond your control only complicate matters. But organizations that use scenario planning as part of their regular budgeting process can increase their odds of making the right decisions — and promptly responding if conditions later shift. Here’s what you need to know to include scenario planning in this year’s budget decisions.

What is it?

Scenario planning is a type of financial modeling that provides nonprofit leaders with valuable guidance during evolving circumstances. It simulates how various assumptions are likely to play out. Nonprofit leaders make the ultimate budget decisions, yet scenario planning gives other stakeholders input.

Members of your board finance committee, your executive director and finance and accounting staff are obvious participants. You’d be wise, too, to include some staff members who are in the daily trenches working with clients and donors. They may notice impending issues that will affect finances long before those higher up in the org chart will.

How do you construct scenarios?

Participants construct budgets for multiple operational scenarios to ensure your nonprofit can cover projected expenses. There’s no rule of thumb for the number of scenarios you should consider. But many organizations use three: best-case, worst-case and most likely scenarios. The variables that change among the scenarios should reflect a handful of factors most likely to affect your revenues and expenses (such as a significant drop in funding levels or a jump in demand for services).

A best-case scenario, for example, might assume a highly successful fundraising campaign, favorable replies to all grant applications and a large gift from a major donor. A worst-case scenario might assume loss of all government funding, a substantial economic downturn and the departure of your long-time development director. The most likely scenario or “base case,” is essentially a regular annual budget based on historical trends, confirmed grants and similar factors.

For each scenario, you’ll determine the impact on the underlying budgetary assumptions. You can also identify indicators that trouble might be brewing and metrics that suggest it’s time to re-evaluate and adjust (for instance, a 5% increase in operating expenses or a 10% drop in corporate giving).

What do you do with the results?

From there, you can begin to brainstorm the types of measures you might implement in response — such as increasing annual dues or delaying a planned technological upgrade. You’ll also want to test these assumptions for viability and effectiveness. The last thing you want is to discover in the middle of your budgetary period that your plan is inadequate.

Once you’ve determined the optimal response to a particular scenario, you can develop an appropriate budget for it. This gives the ultimate decision-makers a wealth of information from which to develop the budget’s final figures.

Why use modeling?

Scenario planning may seem like an added layer of budgeting burden for resource-strapped nonprofits. However, it facilitates more informed decision-making and long-term strategic planning. Rather than risk being driven by overblown fears or misplaced optimism, your decisions will be grounded in reality.

Moreover, scenario planning can be persuasive when making your case to those who hold the purse strings, reassuring stakeholders that you’re keeping your eye on the horizon and preparing action plans for different developments. For example, if rising costs or loss of a major donor threaten operations, you’ll be able to respond with greater agility.

Your nonprofit likely has an operating reserve fund. So you might think you’re already prepared to handle financial emergencies. Scenario planning, however, is different. It positions you to act from a solid, thought-out foundation rather than react haphazardly.

Getting started

If you’re just beginning to explore scenario planning, you don’t need to go it alone. We can help you, your executives, and your board identify appropriate scenarios, develop and validate response plans, and craft budgets that will support them.

How does your community view your nonprofit? Your organization’s governance likely plays a big role in its public perception. Strong governance, supported by a well-crafted board governance policy, is essential to every nonprofit’s accountability and reputation. By outlining fiduciary duties, ethical expectations and oversight responsibilities, a governance policy helps boards operate effectively while reducing the risk of conflicts and compliance issues. Here’s what your governance policy should include.

Purpose and people

The beginning of your board governance policy should explain your organization’s purpose. You might state your mission and explain that board members are responsible for making decisions that support that mission. Also state that directors are committed to the highest ethical standards and are aware of their fiduciary duties under state law and obligations related to your nonprofit’s federal tax exemption.

The next section in your policy should describe board member responsibilities and obligations, emphasizing that the board has the authority to oversee all organizational operations. This is a fitting place to differentiate between board and staff responsibilities. For instance, you might say that the board doesn’t directly manage your nonprofit’s day-to-day operations. However, it’s responsible for exercising reasonable and prudent oversight of executives, staffers and others who carry out daily operations.

The policy should also advise board members that they may rely on executive- and staffer-provided information and reports they believe to be accurate. The same holds true for board members’ reliance on professional advisors, such as attorneys and CPAs.

2 core duties

The heart of your governance policy should explain board members’ core fiduciary duties, starting with the duty of care. This relates to board members exercising reasonable care in all decision-making. They should avoid excessive risk and act in good faith when performing their duties.

Duty of care implies reasonable inquiry. Your board must ask questions and demand information that allows them to make informed decisions. For example, not every board member must be a financial expert. But every board member should understand basic financial terminology, be able to read financial statements and recognize red flags of financial distress.

The other major duty is duty of loyalty. Board members, as stewards of public trust, must always act for the good of your organization. In other words, board members are required to exert their powers, not in their own interests or that of another person or entity, but in the best interests of your nonprofit and its charitable mission.

The duty-of-loyalty section of your policy should state that board members must fully comply with your organization’s code of ethics and conflict-of-interest policy. And it should require that board members refrain from taking advantage of business or personal opportunities that become known because of their position as directors of your organization.

Separate committee

Some organizations have governance committees. Such committees can, according to nonprofit BoardSource, be considered the “conscience of the board.” Their responsibilities usually include:

• The review and updating of governance policies,
• Oversight of board compliance with such policies as your nonprofit’s bylaws, conflict-of-interest rules and code of ethics,
• Recruitment of new board members, and
• Engagement of current board members.

A governance committee can operate effectively without a formal policy as long as it’s able to coordinate the board’s manner of governing.

Ethical leadership

With a strong governance policy, you can build a culture of transparency and ethical leadership that’s apparent to stakeholders inside and outside your organization. Clearly outline fiduciary duties and standards of conduct — and hold all board members accountable to them. Whether governance responsibilities are handled by your full board or a dedicated governance committee, be sure to review and update policies to accommodate the rapidly evolving regulatory and financial environment of nonprofits. Consult legal and accounting experts for the latest information.

Occupational (employee) fraud remains a persistent threat to nonprofits of every size and mission. It’s capable of quietly draining funds your organization needs to support programs and services. So for nonprofit leaders, investing in antifraud training is one of the most practical and cost-effective ways to reduce both the likelihood and impact of fraud.

Statistical support for concern

According to the Association of Certified Fraud Examiners’ (ACFE’s) Occupational Fraud 2026: A Report to the Nations, both for-profit and nonprofit organizations lose an estimated 5% of annual revenue to fraud. Nonprofits experience lower median losses per fraud scheme than other types of organizations ($69,000 vs. $120,000 for private businesses). Even so, few charities can afford to lose as much as $69,000!

Fortunately, the ACFE’s report shows a strong connection between fraud awareness training and lower fraud losses. Organizations that provide antifraud education to both staff-level employees and management generally experience lower fraud losses. Training also increases the likelihood that fraud will be detected early, which is important because the longer fraud schemes run, the more costly they tend to be. For example, the ACFE has found that frauds detected within six months cause a median loss of $40,000, while schemes that persist for more than five years result in median losses exceeding $1.1 million.

In addition, employees who receive fraud awareness training are more than twice as likely to report observations or suspicions (generally using an anonymous reporting mechanism such as an email address or web portal). This is critical because whistleblowing is the most effective occupational fraud detection method. It uncovers fraud in 43% of cases.

Best strategies for effective training

Fraud awareness training should go beyond providing a brief presentation once a year. The most effective programs help staffers recognize risks and understand reporting procedures. They also need to be confident in speaking up when something seems wrong.

Your organization can strengthen its antifraud training efforts by:

• Using real-world nonprofit fraud scenarios,
• Teaching staffers to recognize common red flags, such as unusually friendly vendor relationships, missing documentation and requests to bypass established procedures,
• Clearly explaining how to report concerns via phone, email or web-based tools, or by directly reporting to supervisors, HR staffers or designated ethics contacts, and
• Training managers on how to respond appropriately if they receive fraud or ethics complaints.

Provide an initial antifraud session when onboarding new staffers. Then refresh the memories of all workers throughout the year with short reminders, team discussions and staff newsletter or Intranet content.

Promoting a culture of vigilance

The ACFE’s report found that all antifraud controls are associated with lower losses and faster detection. In particular, management review, proactive data monitoring and surprise audits have been shown to yield measurable results.

Nonprofit board members can help ensure that fraud prevention remains a governance priority by including funds for internal controls and antifraud training in operations budgets. Executives can reinforce a strong culture of accountability by communicating a zero-tolerance approach to fraud and demonstrating that concerns will be taken seriously and investigated promptly. This can mean that anyone caught committing fraud or theft is terminated from employment and referred to law enforcement.

Equipping staffers with knowledge

Nonprofit organizations can significantly reduce their exposure to fraud by equipping staffers with the knowledge to recognize suspicious activity. Antifraud training not only improves detection but also helps limit losses if misconduct occurs. That investment can protect both your organization’s financial assets and your reputation. Contact us with your questions and for help with internal controls.

Corporate sponsorships can help cover costs for your nonprofit’s events, programs and other initiatives. But before accepting sponsorship dollars, you should understand the tax implications. Although many sponsorships qualify for an exception from unrelated business income tax (UBIT), if any part of the payment is for advertising, that can trigger UBIT.

Defining terms

Generally, qualified sponsorship payments your organization receives aren’t considered income from an unrelated trade or business. A qualified sponsorship payment is cash support, a property transfer or a performance of services with no expectation that the sponsor will receive substantial “return benefit.” Return benefits can include advertising, goods, facilities, services and exclusive provider arrangements.

The aggregate fair market value (FMV) of all benefits provided to a sponsor during the year may be disregarded if it’s less than 2% of the amount of the sponsor’s payment to the nonprofit. If the total benefit exceeds 2% of the payment, the entire FMV of the benefits is a substantial return benefit.

Avoiding promotional activity

Avoid UBIT risk by using a corporate sponsor’s name for acknowledgment purposes only. Promotion, marketing or endorsement of the sponsor, on the other hand, constitutes a substantial return benefit.

In addition to supporters’ names, you can use their logos and slogans as long as they contain no qualitative or comparative descriptions. In general, value-neutral descriptions are usually acceptable. You can also list sponsors’ physical and online locations and phone numbers, and their brand or trade names and product or service listings. At the sponsored event, you may include a sponsor’s product as long as there’s no agreement to provide it exclusively.

Allocation of sponsor payments

When a sponsorship includes a substantial return benefit, only the part of the sponsor’s payment that exceeds the substantial return benefit is considered a qualified sponsorship payment. The remainder is unrelated business income.

Say, for example, you receive a large sponsorship payment and recognize the support by using the sponsor’s name in promotional materials. You also host a dinner for the sponsor’s executives, and the FMV of the dinner exceeds 2% of the sponsor’s payment. The use of the sponsor’s name constitutes a permissible acknowledgment. However, the dinner is a substantial return benefit. Only the portion of the sponsorship payment that exceeds the dinner’s FMV is exempt from UBIT.

Reducing risk

In some situations, the difference between qualified sponsorship payments and advertising isn’t as clear. Contact us for help reducing UBIT risk.