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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 http://www.fetsnews.com/ 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 read and analyze Forms 990. |
| 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. |
| More Corruption in the Bush Administration: A Faith-Based Initiative story |
| I found the following entry on a nonprofit forum (2005): "On a separate funny and awful note, our time in Washington D.C. for the grantee conference for our faith based initiative grant was like nothing I’ve ever experienced – I went expecting lots of prayer and anti-abortion talk but found no prayer and endless overt campaigning for Bush and the Republican Party – I’ve been steeped in the tax exempt prohibition against political activity for so long, that I found myself dumbfounded by the overt campaigning and repeated calls to help President Bush prove that his critics are wrong (that came after the hushed revelation that the President has critics – an astonishing news item for some of the grantees). I ended up liking my fellow grantees from every evangelical project on earth a whole lot better than the endless stream of Bush appointees who are feeding at the trough in D.C. after brilliant careers as Texas beauty queens and campaign managers. Can’t wait to get started helping the President silence his critics." |
| 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? |
| 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 IRS poking its nose into this particular tent. I hope to post a copy of an upcoming article by Silk soon. 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 I'm looking forward to what Silk has to say. |