Saturday, October 20, 2012

Benetech Featured on the Giving Library

Benetech applauds the efforts of philanthropic organizations and individuals who pay special attention to improving the very practice of philanthropy. To create as much public good as possible, philanthropists need information about the performance of potential grantees: whether they have clear, measurable goals and the organizational capacity to realize them. The recently launched Laura and John Arnold Foundation Giving Library is a unique resource that provides this information about nonprofits through engaging video interviews. We’re delighted that Benetech was selected to be one of the first 250 nonprofits spotlighted on the Giving Library.

The Arnolds saw the need for the Giving Library after experiencing multiple barriers to researching nonprofits they were interested in. They felt that, in order to make informed, strategic giving decisions, it wasn’t enough for them just to read about those nonprofits via their own websites or other databases that list charitable organizations. Rather, the couple realized they improved their decision-making and got much more insight into prospective nonprofit grantee organizations by speaking to their founders and executives. The Arnolds had the resources to arrange for such meetings, but they realized that this process wasn’t practical for many funders and nonprofits.

They therefore came up with the idea to create an online archive of video interviews with the leaders of nonprofits. The resulting video library would allow nonprofits to tell their stories and reach a broader base of philanthropists and foundations, while it would also help philanthropists be strategic about and engaged in their giving. The Arnolds invited vetted nonprofits to participate in the Giving Library, and quickly filled the initial 250 slots. They worked with the participating nonprofits to improve their statements and arranged video shoots.

Benetech’s rigorous and comprehensive entrepreneurial problem solving approach aligns with the Arnolds’ giving philosophy, and we were thrilled to be included in the first round of participating nonprofits. I was filmed delivering an extensive Q&A session that provides detailed information about Benetech: our mission, our culture, our major accomplishments, objectives and success metrics, and the gaps we seek to fill as we dream big and work towards expanding our impact to see that technology fully serves all of humanity. Please check out our video interview on the Giving Library.  It's my first experience with a TelePrompter over the camera lens (so you can look into the camera).  Very cool, but I have to admit this is the most sober and serious interview I've ever given because I was trying hard to follow my notes!

We are grateful to the Arnolds for their efforts to promote engaged, outcome-based giving. The Giving Library now enables users to easily locate, study, and communicate with Benetech and other featured nonprofits that fit their giving criteria. We look forward to connecting with new supporters through the Giving Library and are excited about the prospects of working with new strategic partners.

We have so many cool things we could be doing right now with more support!

Monday, October 15, 2012

Bookshare and the Power of We

With technology, you can do incredible things, but with a galvanized community of supporters who work together toward a greater good, we can do anything. Benetech’s Bookshare library is living proof that real, transformative change happens through partnerships and by helping people unleash their talents and energies. It is the Power of We that changes the way we create transformative positive change.

Blog Action Day is today, October 15, and the international community of bloggers is blogging about this year’s theme, The Power of We. I’m excited to contribute to this topic in honor of the multitudes who work together to make a difference in the world through Bookshare, a global asset we have built with joint efforts of education, technology, publishing, student, parent, and volunteer communities.

By partnering with all these stakeholders, we reinvented the traditional library for people with print disabilities and brought modern ebook technology to this underserved community. We blew up the old approaches to converting inaccessible books into accessible equivalents. When Bookshare was first created, most people with print disabilities read printed material via books on tape or hardcopy Braille books delivered through the mail. Converting and delivering these accessible books was expensive and time consuming. With the old approaches, only a fraction of print materials was made available in accessible formats. Indeed, six years ago, experts estimated that merely 5% of print materials worldwide were produced in accessible formats. As a result, people with disabilities were left behind, facing insurmountable barriers to opportunities in education, employment, and social inclusion.

With support from the Bookshare community, we changed that reality. The Bookshare breakthrough was to put our users in charge of the collection; we created a crowd-sourced library built by and for the people it serves. Instead of deciding what people with disabilities should read, we let our users decide which books to scan and share with each other under an exception in the U.S. copyright law. Instead of people without disabilities helping people with disabilities, most of our books came from people with disabilities helping each other! Our lower cost model allowed us to invert the power structure. As a result, we quickly became the world’s largest online library for people with print disabilities.

As we celebrate Bookshare’s 10th Anniversary this year, we are grateful to all the individuals and groups who have joined us over the past decade and made these tremendous accomplishments possible. Together with our members and partners, we scaled Bookshare to serve over 200,000 members nationwide (the majority of whom are students) with a collection of over 150,000 (and counting) accessible titles. Each month, we add more than 2,000 new books to the Bookshare collection, and we now deliver an accessible book to a student for less than one-fifteenth of the cost of the previous approach. It is the nature of technology to realize immense economies when scale is achieved, but it is the Power of We that drives scale and makes success possible for ultimate social impact.

Valuing partnership over going alone is one of the Seven Benetech Truths that I shared in a recent blog post. This core value means that we include our partners and user communities in planning our products, collaborate with them as we develop our technology solutions, and therefore provide services that are responsive to the real world needs of real people. Succeeding through partnerships is a recurring theme that runs through all of Benetech’s programs and that informs our activities as we work to deliver the next generation of innovative software solutions for social good. For example, through our DIAGRAM Center, we are now advancing tools and best practices to tackle the next big challenge in book accessibility: making the increasing numbers of pictures and graphics accessible. Leveraging the strong community of Bookshare volunteers, we are building a crowd-sourced platform for creating affordable, high-quality image descriptions and tactile graphics in accessible textbooks.

We look forward to sharing in future blogs the success stories of this and other partnerships. Here’s to the Power of We, and Happy Blog Action Day to all!

Friday, October 12, 2012

The Story in the Numbers

On Financial Narratives and Financial Footnotes: The Truth Is in the Fine Print

Guest Beneblog by Teresa Throckmorton, Benetech's CFO and VP, Finance

In a previous blog post, we shared the Seven Benetech Truths: the core values that define our identity and culture, that guide our work, and that tell our story. As Benetech’s Chief Financial Officer, I’m pleased to take this opportunity to give you some insight into what these core values mean to me when it comes to our daily financial management and to setting up overall financial direction for a sustainable social enterprise. Let me focus here on two of our Truths: Right Stuff Right and Open Over Proprietary.

From my perspective, to do what’s right in the right way means not only to conduct business ethically or to get the accounting done to the highest standard. It also means to get the narrative that emerges from our financials right, to communicate that narrative effectively to our stakeholders, and to help other social enterprises better convey their own financial stories. Valuing open over proprietary then means not only to make our financials available for anyone to peruse, but also to be transparent about our financial story and to help others interpret it correctly. The blog you are reading now is the result of putting these principles into practice!

Our financials are more than numbers: indeed, they tell our story. It’s a story that connects mission, capacity, and capital. It’s a story that reflects the turning points in our past, describes where we are at present, and indicates where we are positioned to go in the future. Without a solid financial story, the impact our programs have made, and will continue to make, would not be possible.

Our financial story begins with Benetech’s forward thinking funders: our users, individuals, foundations, corporations, partners, and government agencies. Those who envision what could be possible by having Benetech apply innovative technology to the areas of Literacy, Human Rights, and the Environment, and who enable us to explore new opportunities for creating social good. As a nonprofit, different types of funding fuel our work. This, in part, is why a nonprofit’s financial statements can raise significant questions about its financial story. Recurring questions funders have asked us about our own financial story are: Why do some years show Benetech to be profitable and other years show a loss? Why do your net assets seem to be small for an organization with a budget of over $10 million – is there something we’re not seeing?

In fact, the answers to almost all of questions are found in our financials. But it takes more than just the bottom line of the consolidated standard statements in order to glean our true financial story in its entirety. Benetech’s financial statements are carefully prepared in accordance with generally accepted accounting principles (GAAP) and are rigorously audited annually. However, the standard financial statements alone don’t contain all the information needed to understand the underlying operational and financial realities of an organization; important data is cited in the statements’ footnotes. These are a treasure trove of information that, if overlooked, might mislead one into developing an inaccurate financial story.

We’d like to point out here some of that additional footnote information that is integral to our audited financial statements. By doing so, we hope not only to help our stakeholders better understand Benetech’s financial story, but also to encourage other nonprofits to better communicate their own financial narratives.

Our bare standard financial statements might create the appearance of declining reserves. Yet we emphasize that we have not run deficits, nor have we had declining reserves. Let me explain why this is so.

There are two GAAP issues that create the appearance of declining reserves. The first issue is multi-year grant funding, which might create the illusion of a profit in the initial grant year and an offsetting deficit of the same amount spread over the later years of the grant. For example, our 2008 major human rights grants from the Oak Foundation and the John D. and Catherine T. MacArthur Foundation led to an apparent gain of $1,569,623 in the first year followed by average apparent deficits of roughly $500,000 annually for the years 2009-2011. The two grants, however, were intended to cover multiple years of activities, and we charged each grant with expenses over its lifetime. Thus, following GAAP created the illusion of a big gain followed by losses. The entire multiple years of funding are listed as part of our restricted assets. In such cases, as we satisfy the restrictions and use the funds, these assets move off our balance sheet from restricted to released.

The second GAAP issue is the accounting method of capitalization, which delays the recognition of an expense by recording it as a long-term asset and then depreciating or amortizing it over its expected lifetime. As an example, in 2008, we accounted for $1,772,761 in capitalization of a major website upgrade for our Bookshare library. As with multi-year grants, this created an illusory surplus in 2008 and contributed to an illusory deficit of over $500,000 in each of the years 2009 through 2011. These expenses, however, were reimbursed in their entirety by a major funder in 2008, so that meeting the capitalization accounting standard had no impact whatsoever on our financial reserves or cash. Footnote 6 of our 2011 audited financials (“Intangible Assets”) explains this matter. When you control for these two GAAP issues, it becomes clear that our actual reserves increased in 2011. Thus, what appears to be a story of declining reserves is, in fact, a story of reserves growth. But you see this story only if you read the fine print in addition to the core income statements, balance sheets, and statements of cash flow.

The financial statements in an annual report are supposed to be clean and easy to follow. This means that crucial information, including revenue, doesn’t appear on the balance sheet. Such is the case with a major portion of Benetech’s revenue. Over 80% of our revenues are structured as “pay-as-you-go” contracts, rather than grants. This form of revenue is typically booked at the same time as the associated expenses. For example, our largest single funding arrangement is a competitive award by the U.S. Department of Education that enables us to provide the Bookshare library services for free to all qualifying U.S. students with print disabilities. To consider another example, one of our largest human rights funders is the U.S. Department of State, which similarly structures our award as a cooperative agreement, not a grant. The government makes cash available to cover our actual expenses within three days of when they are incurred. At the end of 2011, Benetech had over $14 million in funding commitments of this type, over $10 million of which is available for spending in 2012. Under GAAP, however, these funding commitments cannot be recognized on our balance sheet (or elsewhere on our financial statements), because we can't recognize revenues due to providing services before we render the services. To see the big picture, one needs to read the financial statements’ footnotes and understand the major activities of an organization, which explain the practices and reporting policies of our accounting methods and disclose additional information that can’t be shown in the statements themselves. When this additional information is taken into account, it is clear, once again, that what might seem to be a story of deficit spending is, in fact, a story of significant revenue.

Pick up any financial report and you'll always find footnotes to the financial statements. These expand on the quantitative financial statements by providing qualitative information necessary for understanding a nonprofit’s true financial performance over a certain time period and for establishing the organization’s true financial story. Informed investors and donors dig deep into the data. Ask questions that arise from digging in!  I encourage each of you to read the fine print of Benetech’s financials that are always available on our website, dive into the financial notes and auditor statements, and then read about our accomplishments – together, they’re a great story.

Teresa Throckmorton, CFO