Thursday, March 24, 2011
Oregon's Attorney General John Kroger has introduced a bill that would strip the tax-deductible status from donations made to charities that spend less than 30% of their annual budget on services over the course of a three-year period. The law is intended to weed out scams.
And that's a problem. The fact that a charity spends less than 30% of donations on services doesn't mean it's a scam, and the fact that it spends more than that doesn't mean it's not one. The proposed law could not be more dysfunctionally designed: It has a blind spot for real fraud and puts a spotlight on potential innocence.
Here are six reasons why anyone who cares about social progress should contact Mr. Kruger's office and ask him to withdraw this proposed legislation:
1.It uses a false theory of transparency. It assumes — and makes the public think — that disclosure of overhead is transparency. Nothing could be further from the truth. Many reported overhead ratios distort and obscure the truth. They cloak the underlying accounting that goes into calculating the overhead percentage. Reporting a high rate of overhead probably signals a kind of innocence: It means the charity isn't using accounting shenanigans. The law drives right past real fraud (in the form of fraudulent accounting) — misses it completely, every time. Charities using aggressive, unethical accounting practices to mask high overhead get a free pass — or worse, they're made to look good. This practice is widespread. The Nonprofit Overhead Cost Project at Indiana University reported that, of 126,956 tax forms they studied, half of the organizations reported a hard-to-believe 0% fundraising cost, and one-quarter of charities with revenues between $1 million and $5 million reported a 0% fundraising cost.
Read more here.
Tuesday, March 15, 2011
First, know the process for reviewing the annual compensation of the executive director. Second, be aware of the downside of NOT engaging in an annual compensation review. (Bad press, lack of donor confidence, and potentially IRS penalties….need we say more?)
Background: Under federal law, a charity may not pay more than "reasonable" compensation for services rendered. Although the Internal Revenue Code does not require charities to follow a particular process for determining the appropriate level of salary and benefits, it is clear that compensation for board members, officers, key employees (and others in a position to exercise substantial influence over the affairs of the nonprofit) should be determined by persons who are informed about what comparable nonprofits pay their employees, and who have no financial interest themselves in approving the compensation. (Source: IRS, Governance and Related Topics - 501(c)(3) Organizations 3-4 (2008)). These are the general guidelines offered by the IRS – but the IRS Form 990 offers specifics.
Demonstrating that your nonprofit has approved the compensation of the executive director/CEO in a thoughtful, deliberative process is a basic fiduciary responsibility of every nonprofit board. Here are some pointers:
- The process of reviewing executive compensation should recur whenever there is an adjustment to the executive director/CEO’s compensation.
- Having a written policy can help keep the process on track. ( See sample policy).
- The "executive compensation review" should be conducted by persons who are "independent" (not paid by the nonprofit). Many nonprofits use a sub-committee, such as a "compensation committee" made up of board members and volunteers, or the executive committee, to conduct the initial review and then make a recommendation to the full board.
- Having the full board approve the compensation of the executive director/CEO is consistent with being a transparent and accountable organization.
- Documentation of what the board’s decision was based on (such as comparability data) and of the fact that the board carefully deliberated and approved the CEO’s compensation is critical. Minutes of the meeting should include enough details so that if the board’s decision is questioned, the process the board used to determine that compensation is "reasonable" will be clear.
- "Compensation" means both salary and benefits, so if an executive director receives a salary but also other fringe benefits such as insurance, or a car or housing allowance, all those elements must be totaled together to determine the annual compensation.
Read about additional governance policies that your nonprofit’s board should be aware of.
Thursday, March 3, 2011
Join us for three days of practical tools to create successful nonprofit shared space and services.
Building Opportunities 2011 is the largest event in North America dedicated to creating and managing shared nonprofit workspace, administrative services, technology, and programs. Learn from The NonprofitCenters Network's ten years of collected best practices. Join leaders from the nonprofit, philanthropic, business, and public sectors as we discuss WHAT WORKS in shared space and services.
Gather comprehensive information on:
- Nuts and bolts of creating and operating multi-tenant nonprofit facilities
- Proven models of success for sharing administrative services, technology, and programs
- Commercial and nonprofit financing options
- Cost-saving solutions for quality, efficient operations
- Tools to evaluate and amplify the impact of your collaborative space project
- Successful strategies for community-building, ownership and governance, and cross-sector partnerships
What to expect:
- Significant networking opportunities
- Over 20 new workshops and discussions covering diverse topics, incuding community-building and facility operations
- Dynamic speakers from across the design, real estate, and financial sectors, as well as nonprofit sector leaders
- New conference ambassador program to foster peer-to-peer learning
- Thought-provoking plenaries exploring proven impact and future directions for the shared space and services movement
- Tours of nonprofit center facilities in the Los Angeles area
- Valuable resource materials to take home
May 9 - 11, 2011
Center for Healthy Communities at
The California Endowment
1000 North Alameda Street
Los Angeles, CA 90012
Early Bird through April 1
NCN Members: $295
After April 1
NCN Members: $375
10% off total amount with 2+ registrants from an organization
- Because of the administrative responsibilities involved, it is best to memorialize fiscal sponsorship arrangements in a formal written agreement.
- There are other reasons to consider a fiscal sponsorship relationship in addition to fundraising. Many organizations rely on their fiscal sponsor for other functions, such as bookkeeping, human resources, and various administrative roles.
The IRS will soon release a list of nonprofits that have had their tax-exempt status automatically revoked for failure to file 990s with the IRS for three consecutive years. If a nonprofit loses its tax-exempt status but still wants to fund its operations on a temporary basis while it reapplies for tax-exempt status with the IRS, it will need a way to continue to attract deductible contributions in order to deliver its mission in the community. Fiscal sponsorship may be one answer.
- Looking for a fiscal sponsor or willing to serve as one? Search or sign up using the Fiscal Sponsor Directory. Local community foundations and State Associations may also be helpful resources for finding fiscal sponsors. Some organizations that serve as incubators/fiscal sponsors are listed on our website.
- Stay out of trouble with this post by NonprofitLaw Blog author Gene Tagaki, Esq., that offers advice about what to avoid when engaging in fiscal sponsor relationships: Fiscal Sponsorship – Six Ways to Do it Wrong.
- If your organization is considering becoming a fiscal sponsor, or using one, read about recommended best practices for fiscal sponsors developed by the National Network of Fiscal Sponsors.
- Put it in writing! Suggestions for what to include in a written agreement or memorandum of understanding between a fiscal sponsor and the sponsored organization are set forth on page 5 of this monograph: On Comprehensive Fiscal Sponsorship, by Joshua Sattely, Third Sector New England (2009).
- Debunk the myths and learn about the untapped potential of fiscal sponsorships from this report, More than Money- Fiscal Sponsorship’s Unrealized Potential, BTW Consultants, (May 2007).
- Before you take the plunge, learn from others: The experiences of 200 fiscal sponsors are described in the Fiscal Sponsorship Field Scan, a report based on the first-ever survey of fiscal sponsors conducted by the Tides Foundation (2006).
- More fiscal sponsorship resources from CompassPoint.
- Read about risky activities that – when engaged in by a nonprofit – could jeopardize tax-exemption.
- Most tax-exempt organizations, other than churches, must file an annual return (Form 990) with the IRS – if they do not, they face automatic revocation if they fail to file annual reports for three consecutive years.
- Check the at-risk list. The IRS website provides a state-by-state list of organizations at-risk of losing their tax-exempt status. In some states there are over 12,000 organizations (just in that state) listed!