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| I have a point of view. This is my personal soapbox, my rants & my raves. All focused on our often-beleaguered nonprofit sector (meaning I promise to restrain myself and focus). See also Q&A, Downloads, and Current Developments pages. |
| Journalists & Form 990 The Fourth Estate and the Third Sector |
| If there is any doubt in your mind that Form 990 is an increasingly public document, spend some time poking around at www.fets.tv/ which is about a program called The Fourth Estate and the Third Sector (Fourth Estate = press, Third Sector = nonprofits). It is an educational program now at the University of Mississippi which teaches reporters how to understand nonprofits and how to read and analyze Forms 990; however, I note that the site doesn't appear to have been updated since 2006, so I wonder if it's still active. |
| Ethics |
| Here's a great little Ethical test I picked up from the YMCA of the USA that talks to staff about ethical issues. It would be perfect published in tandem with a good whistle-blower policy: QUICK TEST FOR ETHICAL BEHAVIOR
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| Buffett & Gates on Video! |
| The Bill and Melinda Gates Foundation has a video feed of the public session where Warren Buffett announced he was pledging the lions' share of his wealth to the Foundation. The session is full of interesting material....almost 90 minutes and well worth it. Not to denigrate Buffetts admirable brilliance in doing this but have any of you tax experts noted that it might be a POF play by Gates Fdn? |
| Do not self-insure on state unemployment ! |
| Well, I just received my third consecutive (over a couple years) call from a group facing possible bankruptcy. The group is self-insured and if it lays off all its staff the unemployment insurance bill could be staggering, precisely when the organization can least afford it, so their question (which answer apparently not clear), is whether the Board will be responsible personally for any shortfall in funds vs. the unemployment claims. The moral of the story is: do NOT self-insure. Just pay the state your 3% or whatever and be happy. |
| Too Many Train Wrecks in search of a savior |
| Guest rant: On Financial Staffing I wrote casually to a colleague I have come to admire, who is largely self-taught and new to being a finance director, in response to her shout-out for finance staff help for a local social service agency: "I have a sense that there's a true, bad, shortage of mid-scale nonprofit financial managers out there." She writes: "It certainly seems to me that you are right about the lack of qualified people. I think that so many of these places have other organizational problems and anyone who is any good learns to steer clear of them and go somewhere where they get more respect and less aggravation. So often, no one else gets the importance of the Finance function, treats it as a necessary evil and doesn't want to hear about it. Accountants also bear some responsibility for not always being able to communicate well with program people." That in turn reminds me of a list I recently ran across of twenty "Signs a Board May Be in Trouble," from "Governance DO’S & DON’TS - Lessons from Case Studies On Twenty Canadian Non-profits, Final Report" Mel Gill, April 23, 2001, available from a Canadian charity, The Institute on Governance, (very cool site!). In the excerpt I have posted here, I covered up his preamble which suggested that even one of the twenty would indicate potential trouble. Unfortunately, the Boards I know who are in trouble have most of the twenty, um, attributes. |
| Cooking the Books to Please the Press or Feeding the Hungry Beast |
| Are we all sick of the obsession of the press with Program v. Overhead expenses as the sole indicator of effectiveness of a given charity? One of my biggest concerns is that there is too much focus on, and unrealistic expectations about, the cost of Mgt&Gen+Fundraising as a percentage of total costs. I reckon 40% is a realistic number, but the public expectation, set unreasonably low by United Ways' low-balling the number for so many years, is closer to 20%. It becomes a big game where everyone works to state their supporting costs as low as possible to feed the beast of public opinion and in the meantime the number is actually higher. I don't know who is going to step forward first and say "hey, we think 40% is fair; it takes strong administration and fundraising to do our work" but it's not going to be *my* clients. We need to educate the press, the self-appointed watchdogs, and the regulators, or this is going to blow up into the major scandal of the sector. |
| Foundations Hobble Groups with Restricted Grants |
| Small and mid-size charities have a difficult time calculating: the cost of their work on a given issue, with a given constituency, or in a given region. Foundations should pick effective groups, and make general support grants to them. The Foundation should say “we were particularly drawn to you by your important work on Z, and when you report to us at the end of the grant period, please highlight your continuing work on Z.” That will be heard loud and clear by the recipient group, and, I would argue, better advance the Foundation’s agenda and allow the group to build strength, all while making it clear that the Foundation wants to see work done on Z. How the World looks to a Foundation. Foundations see a zillion problems, and have only so many dollars; unbelievable though it may seem to a supplicant, they mostly feel constrained. “So many problems so few dollars.” As a result, funders often prefer to fund special projects, particular projects with a limited duration, projects that will become self-sustaining, and projects that might go on to leverage government funds. For this reason, they like to have policies against general support. They are trying to be strategic with limited funds. Foundation Trustees have their Passions. Your foundation says it wants to work on Marine issues; Trustee X reads a Sunday NY Times Magazine article about problems in a given fishery that are of global significance. That Trustee will support proposals for work on that fishery, but possibly not others. Foundation staff, trying to move cash to the group, lean on the group to craft its proposal in a way that will garner the support of Trustee X. They are trying to help. Temptation to Bejewel the Proposal. The natural instinct for a fundraiser is to dress up a proposal with all sorts of jewels that the funder will want, such as special conferences or publications that may not be in the workplan and budget already. These can become unfunded promises if they are used to get a grant and are not 100% paid for by the grant, and are not already in the workplan and budget. Too often at that point, the funder goes for the bejeweled proposal, the money is taken in, spent, and the jewels are not all delivered. The resulting balance sheet shows a positive balance for temporarily restricted net assets and a negative balance of unrestricted net assets: ergo, Board has violated its duty of care. Three -Way Slicing. It is difficult to do the cost allocations well. Factor in the skill level of bookkeeping talent that a group can 1) identify, and 2) afford to pay. The job is excruciatingly difficult. It requires first a “slicing” of the program work according to the priorities or strategic plan of the group, and then, secondarily, a “slicing” of the program by funding source. (Note that now we are THREE “slices” in, since we began with program-admin-fundraising…note also that the funder “slice” can conceivably cross program “slices” supporting parts of two programs). Want to see the spreadsheet? Didn’t think so. Restricted grants can in fact hobble small groups. Two “slices” is even harder than one, so all too often, groups begin to define their work as a series of grants rather than a series of initiatives, programs or projects conceived by the group based on its (presumably greater) understanding of the issues it faces. They can become permanently stuck in this “defined by grant” financial view of their work. At that point the Foundations are really in charge. The group has lost its soul, its compass, and will soon lose its spirit. Old Dogs Just Make It Up. Interestingly, the very best executive directors just estimate the numbers after the fact and focus instead on the narrative and the quality of work performed. That’s all the Foundations meant to ask for in the first place, really. (Nevermind that they cloned another Foundation’s award letter and it says ‘you must be prepared at all times to tell us how our own dollars were spent, how much you spent on the program, and how much you are spending organization-wide’.) There is even a fancy way to describe this in GAAP speak: (FAS 117, 21) “However, donor-restricted contributions whose restrictions are met in the same reporting period may be reported as unrestricted support provided that an organization reports consistently from period to period and discloses its accounting policy.” “Yeah, that” says the seasoned director. So, s/he just makes a reasonable estimate, fills in the financial report, and sends it in (sometimes without even asking the quarrelsome overworked bookkeeper who has a low tolerance for ambiguity). It is the less experienced, rising directors, who struggle dangerously with grant restrictions. Creating Fiduciary Exposure. Accepting too many restricted grants raises needless fiduciary exposure for boards of directors, and creates friction between the development side of the “house” and the finance side of the “house.” Violating fiduciary duty means that board members are individually exposed to Attorney General action for violating the charitable trust, and possibly to action by grantors and donors. I recently received a call from an important group considering Chapter 7 bankruptcy because of a $200K restricted balance and a $<200>K unrestricted balance (i.e. “misspent funds). “But that’s only if they’re not doing their work and not keeping good records!” say the funders, feeling so wronged by the implication that they have led to this problem, just like so many Visa card issuers encumbering the working class. Might be a good time for those funders to help the group’s staff figure out how to fill out a timesheet so we can figure out what discrete portion of their time is spent on the funder’s pet project. Once everyone’s trained up on the timesheet then we can begin to figure out how to account for payroll, benefits, benefits administration, rent, dial-tone, supplies, insurance, legal fees, accounting fees and other expenses not directly attributable to the pet fishery. |
| Screeds / Opinion |
| IRS on Good Governance Are they out ahead of their skis? |
| Update Dec 2009: see my 990 page for discussion of the IRS' new governance "guide sheet" (towards the bottom of that page on my site. IRS has begun publishing material on what constitutes good governance, joining Charity Navigator, Wise Giving Alliance and who knows how many other self-appointed watchdogs. The IRS clearly feels that if there are good governance practices, that exempt purposes are more likely to be adhered to. I heard legal scholar Bruce Hopkins suggest that they are way beyond their legal authority (and competence) (apologies if I've mischaracterized what he said) and had another conversation with former boss and legal scholar Thomas Silk, who has a more sanguine view of growing regulation of nonprofit governance generally, as reflected in this article. What do I think? (like it matters?). I agree that this is not really IRS' area of authority - governance is a matter of state law; for example, California requires most charity boards to meet at least annually, and what it takes to do their jobs prudently and in good faith is a matter of seasoned legal advice - some charities should meet monthly, while annually is fine for others. Wise Giving Alliance/Give.org requires 3 meetings a year of which one must be face to face (nice that they're willing to give mass legal advice (!)). IRS going off on governance is a bit like that. But...I also thought their document, linked above, was short enough, readable, and if practiced would generally have good results. So while I'm interested in what Silk has to say, I'm afraid my smaller groups, while not at all corrupt, will be made to look as if they are cavalier or wasting public resources. |
| (1-23-2011 and updated...see the very bottom for the latest across my desk) First of all, at 183 pages, the decision is going to take some time for experts to fully digest. I recommend progressive nonprofits keep their eye on the Alliance for Justice Advocacy Blog and get on their mailing list. At first glance, it is a horrifying decision, and the Republicans should never again be allowed to portray themselves as being "originalists" or "strict constructionists" in judicial matters. Make no mistake: this is a putsch by the Court that will loom larger in history than 2000's Bush v. Gore travesty, and Anthony Kennedy has ruined his judicial legacy (and the lives of his grand-children). OK, enough ranting, what does it really mean? Background: tax [exemption] law says that 501(c)(non-3) organizations (mostly 501(c)(4), (c)(5), (c) (6) organizations) may engage in electioneering for candidates for elected office so long as that activity is 1) legal and 2) not the primary activity in any one tax year. Under this Court's decision, gutting much of the law and the Court's own decisions going back to 1907, the definition of "legal" will now change. Since issue-based c4/5/6's are corporations (and (c) (5)'s are usually labor unions not incorporated but covered by this law), they have long been hamstrung from direct intervention in electioneering unless done through a political committee, properly formed and funded in compliance with FEC and state and local equivalents. (At a State level, in CA that's the Fair Political Practices Commission, in OR the Secretary of State, in WA the Public Disclosure Commission, and so on.) This law will allow unlimited "free speech" by such organizations (since corporations are now even more fully "human," per this so-called originalist court, (may the founders rest in peace), and so probably c4,5,6's can now directly intervene using general funds (there may still be a 527(f) tax that requires planning for if an organization has much investment income). While the Court's decision is only about Federal races, since it is very broadly written and about "free speech" it is likely to rapidly invalidate similar bans on corporate money directly in electioneering at lower levels of government as well. The FEC, FPPC et al may still be able to limit direct contributions to candidates, but so long as a campaign intervention communication is done "independently" there is unlikely to be any limits. NPR's Nina Totenberg says that the only thing necessary to conduct an independent expenditure campaign is to copy the favored candidate's message. This is why the press calls it opening the "floodgates" because big money will now rush in like we have not seen. The public will need to think very critically about messages it hears. FEC et al may also still be able to force accurate attribution of ad sponsors, but we've seen how hard that is to track already ("Citizens for this or that" - in the case at hand, "Citizens United" is really the organization which wanted to run a movie about Hillary Clinton. The Court used a limited set of facts and leaped to a much large decision in a very classically activist judge fashion.) So what does it mean for 501(c)(3)'s? Well, they will find big lies being told about issues that concern them, and will need to be very clear about truth and falsehood. There may be a big "market" created for even-handed thoughtful treatment of issues as reporters (if there are any left) hopefully look for rational voices to fact-check the lies that the corporate interests will promote. It could be an important time for issue-advocacy (c)(3)'s to staff up in the "institute" fashion with good researchers and fact-checkers so they can be ready tor respond quickly. In the near term, 2010 could easily be a Republican tidal wave as the money hits politics, and the best hope for the public may be in 2012. My own guess is that this is the end for any sort of carbon limits or cap and trade, as well as any real controls on the financial industry. Health care could still be reformed since corporate interests will benefit from broadening coverage and payment for coverage. If you want to see/hear a true screed from the screed-master on this, MSNBC's Keith Olbermann did one, which I had linked initially, but I think more rational voices have provided better material below. Still, you might consider YouTubing him. (Disclaimer: as one friend writes: "[Olbermann] has gotten a lot of flack for his histrionics...[ref: Jon Stewart on Olbermann's attack on MA Scott Brown]...that kind of hysteria I think only turns people off". I say: maybe it turns them off, maybe they're in denial.): A possibly optimistic take on the situation (I think it's naive) by David Kirkpatrick in the NYTimes. And the Chronicle of Philanthropy logs in with a prediction by prominent exempt-org tax expert Fran Hill that C3's will now sue for the same rights. IMHO this will lose charities any remaining "halo effect" of being charities (if successful). Regan v. Taxation With Representation was essentially on the same question, under a different Supreme Court, and concluded that it wasn't about free speech it was a limit on what charities could do with their tax-subsidized monies. So presumably the case would fail. But then with this Court, who knows? 1/26/2010: Gail Harmon's firm (and many others, including Beth Kingsley and John Pomeranz) have published their in-house "Navigator" take on Citizens United, the best piece I have seen so far sorting out the meaning for nonprofits. (Note for the future: I can see that this link doesn't have shelf life, so it's their 2010 Issue 2. 1/23/2011: One year later. Greg Colvin, a former boss of mine and a partner at Adler & Colvin who is an expert in "political tax law" has proposed a solution via constitutional amendment. This remains a serious problem. I also believe the IRS should be auditing some of these (c)(4) and (6) electioneering stalking horses, but perhaps that should be a separate screed. Colvin's blog post entitled Only People Can Vote—Only People Should Finance Campaigns is here. |
| Citizens United v. FEC What does it mean for nonprofits? |
| Rethinking Overhead as THE key metric Signs of hope! |
| Technology Network (NTEN) (www.NTEN.org) called The Overhead Question: The Future of Nonprofit Assessment and Reporting which was a follow-up to an important joint press release in January, that I'd only read about secondarily. The press release, and even more so the webinar's panel members, raises the question of why "overhead" is such an obsession in nonprofit ratings (program / admin / overhead). Most hopefully, Charity Navigator has announced they are dropping it as their key metric (over time). NTEN has posted a transcript and a recording of this webinar; if you're interested you can get to them here (registration required, but it is free). You might also be interested generally in their blog. The panel was: Bob Ottenhoff, Guidestar Ken Berger, Charity Navigator Lucy Bernholtz, Blueprint R & D Peter Campbell, TechCafeteria Christine Egger, Social Actions David Geilhufe, NetSuite Sean Stannard-Stockton, Tactical Philanthropy Holly Ross, NTEN The call's best sound bite was Ottenhoff saying that the "popular" approach to overhead is like choosing an airline based on which one spends the least on maintenance. :) [To be fair, Berger did suggest that it might pay off to examine the outliers: very high or very low reported overhead. Someone else more or less said that the numbers are too varied in practice.] Another fascinating sound bite / factoid is that 6% of nonprofits get 94% of the money. (And I think someone said that 0.2% of nonprofits get 60% (?) of the money !) This was in re: who should be expected to really track and report effectiveness measures. |
| The Death of Manners What has happened to common courtesy in hiring? Is it bad manners, tactical stupidity, or a toxic brew of both? |
| I recently went through the process of seeking a new job. Business practice in the nonprofit world confounds me. It's a small world; you don't want to burn applicants to your organization because in ten years you may be in a position where you need their respect. Let me say again: SMALL world. I've done plenty of searches myself. In my opinion, perhaps no acknowledgment is needed of every resume that comes rushing in from a Craiglist post, but as soon as you've taken someone's time in even a phone interview, let alone face-to-face, IMHO you owe it to them to tell them if you've hired someone else. Likewise, if you're the applicant and get a different job but are an active candidate somewhere (have been interviewed), you owe it to them to tell them. Here's one story from a close friend that rings all too true: "It totally sucks that companies are so ill-behaved that you don't get feedback on whether you are a live or dead candidate. I had a similar experience in Nov/Dec where I thought I'd nailed a lunch interview (this was following a 30 min phone screen) where the woman I was meeting with ended our conversation with explicit next steps ("I think you'd be a great fit for this job. Would you mind doing a series of phone interviews as a next step since the team is back East?"). She never even replied to my thank-you email and I've not heard a peep." All I have to say is even if your Mama raised you badly and you have no manners, on a tactical level at least, it's plain stupid to treat serious candidates this way; I don't care how busy you think you are. It is a very small world in any given industry or field and one doesn't build for success by burning their way through a rolodex. Enough. I daresay the results are obvious enough, and weakness is evident where it is found. |
| [Dashed] Signs of Hope: [once] fascinating new developments in the world of political 501(c)(4)'s Is IRS going to get a spine on this stuff? Hope springs eternal. [Sprang eternal!] :-) |
| Unfortunately (IMHO) this did not go anywhere: In the words of Greg Colvin: "The IRS just announced that it will not pursue gift tax audits of donors to 501(c)(4) organizations, and close the outstanding examinations. Further, it is coordinating prospective only and after notice to the public." Greg, like many tax lawyers, I suspect, welcomes this, since surprise enforcement, uneven enforcement, and arbitrary enforcement ultimately weakens our laws. I haven't a clue how he feels about the substantive matter. The IRS' retreat letter of 7.7.11 is here. ## Background: For some time it has been technically true that large gifts to 501(c) organizations other than 501(c)(3)s are subject to a gift tax on the donor, with an annual exclusion currently at $13,000 and a lifetime exemption currently at $1M (which includes the donor's estate). Gifts to 527 organizations are not gift taxable (same as with (c)(3) orgs) but are not tax deductible either. Back in the day this gave rise to the "527 organizations" so called because they were sufficiently political to be beyond (c)(4) and into 527 yet stopped short of express advocacy and escaped FEC reporting and donor disclosure. That was fixed in 2000 so now such an organization discloses donors on a tax form (8872). In turn, major donors seeking secrecy then flocked to 501(c)(4)'s especially after the awful Citizens United decision of the Supreme Court (discussed below on this page). A 501(c)(4) organization is required to be operated primarily for social welfare purposes, not political (electioneering) ones, in EACH year. The most high-profile of these was Karl Rove et al's "American Crossroads" a tandem of a (c)(4) and a 527. There was always a risk that donors would owe the gift tax, although that had not been enforced, and there may be some ways that donors will litigate if IRS really tries to enforce this. IRS announced in its current workplan that it was going to begin looking into certain 501(c)(4,5,6) matters. (There is a parallel problem of giant corporate gifts into political funds at the US Chamber that also flooded the airwaves in 2008). Citizens United unleashed all these organizations because in the past they were somewhat hampered, as corporations, from direct intervention in candidate elections, but now those corporations have been granted corporeal "free speech" by the Right Wing Thomas Court. Going in to the 2012 cycle, Obama's team threw over their much vaunted values about special interest money and announced that well-connected former aide Bill Burton and one other were going to start a similar (c)(4)/527 tandem to play in 2012. One hook is that to work and escape FEC limits (not just disclosure which is still on 527s) they must spend money without coordinating with the candidate committee or party ("independent expenditure.") About two weeks ago, on 5/10/11 as I write on 5/25/11, news broke on Politico.com that certain donors had gotten letters inquiring about gift tax on large contributions to C4's. Later, NYTimes covered it and quoted Greg Colvin, my old boss, on the left, as having gotten at least one of these to one of his clients, so it's clear that as usual the IRS is balancing itself politically, although the Right Wing has abused this stuff far worse. And now, as of this morning, Huffington Post ran a great story that the American Crossroads C4 may not be granted which could lead to a huge tax bill for it. Some history is in order on this: some years ago (10?) they tried to argue that Ralph Reed's Christian Coalition was not a genuine C4 and was primarily political and the IRS never seemed to get traction on that and eventually lost. It would be great if they'd enforce 1) the primarily social welfare rules on C456 orgs, 2) the gift tax, and 3) the non-deductibility to business of political expenditures (i.e. through the Chamber). Readings: Politico's coverage, the letter from IRS to an unknown client that a tax lawyer source made available to Politico, a great newsletter on the topic that Harmon Curran Spielberg & Eisenberg, LLP sent out which discusses the arguments litigants might make in resisting IRS (and links to many of the other docs discussed here), the NYTimes story on 5/12, another Politico piece on 5/18 about Republican Senators push-back on IRS :-) and this morning's seemingly well-researched Dan Froomkin piece in Huffington Post on the story about whether the Crossroads C4 application is in trouble. Newer developments. Rep. Dave Camp, Republican (of course) Chair of the House Ways & Means committee wrote a public letter to IRS demanding all sorts of information about how decisions were made to send the C4 gift tax letters and who made them. Decide for yourself if it is a naked attempt to intimidate IRS. IRS: be strong! If I find a way to express this sentiment to IRS I will post it here. Kathleen Ronayne writing on the Center for Responsive Politics' OpenSecretsblog, described a subset of so-called Super PACs" (Independent Expenditure PACs not limited in expenditures) where donor gives to C4, C4, as a newly-unleashed corporation, gives to PAC, and donor remains unknown. Curiously, they led their list with longtime community organizing stalwarts Kentuckians for the Commonwealth at $130K for this sort of "play" - chicken feed I say. The lists finishes with a 7-figure play by the National Association of Realtors. I assume this is to avoid charges of bias leveled against CRP. I first read about this in a short post on Politico.com. If any of these links are broken, please write me - I have saved PDF's of them. |
| Aggravations: Press coverage on issues one knows about: the supposed IRS scandal on conservative groups scrutiny, May 2013. |
| Instead of a mere single Screed on this one, I posted a whole page - in place of the outdated "new" 990 page. See Comment: IRS Uproar. |