Year End Giving Tips and the Influence on Your Donors-Part 3

We have been looking at year end giving tips--most of which usually cite the tips from Charity Navigator.   Their discussion is much more in depth than the summary here so make sure to review their listing.  Our focus has been on how you as the charity can put your best foot forward.   The last three...

8.  Look at the charity's financial health.  Review the last three years of the Form 990.  Generally you would expect to see 75% of the expenses spent on program and 25% on administration and fundraising.   I was pleased to note that Charity Navigator affirms that well run organizations need to spend money on raising funds and the administrative functions of running the organizations.  I am always wary of charities who proclaim that 100% of your donation goes directly towards the program.  A sustainable organization spends money to continue fundraising and has a solid administrative foundation.   You should also have money saved for the future. 

We sometimes find that smaller nonprofits only allocate direct program costs to the program category.  You should have a reasonable method for allocating occupancy costs, office costs, and other costs to program, administrative, and fund raising.

9.  Concentrate giving.  If you have spent time evaluating a charity, give more money to that charity instead of spreading smaller amounts among multiple charities.  Charities spend time and money processing your gift and following up with future requests, newsletters, etc.  The cost to process a $10 gift will be likely the same as to process a $100 gift.  Overall, concentrating your gifts saves charities money.   This is an interesting perspective.  As a charity, you may be thinking that you welcome that $10 gift because you can demonstrate success in increasing that first $10 gift to a larger gift in the coming years.  If that is not the case, what can you do to engage donors so that they want to invest more with your organizaiton in the coming years?

10.  Make a long term commitment. When a donor sees the value of their partnership with the charity they will want to be engaged for the long run.  Do your donors feel like partners?  Similar to the prior point--how can you further engage your donors?

These posts have been aimed at helping you see your charity through your donor's eyes.   In the end, you are the steward of your donors funds.   By working in partnership with you, they hope to see impact in the community.   The more clearly you demonstrate this, the more they will want to partner with you.

Year End Giving Tips and the Influence on Your Donors-Part 2

In the last post we started looking at advice given to donors on reviewing charities and how you as the charitable organization can put your best foot forward.   The articles typically site this listing from Charity Navigator.    Let's continue with the next few:

4.  Commitment to Accountability and Transparency-charities that follow good governance practices-such as an approval process for the CEO salary; conflict of interest policies; a whistleblower policy; etc.--are more likely to follow good practices in accomplishing their mission.  Your potential donor can find out information about your good practices by reviewing your IRS Form 990 either by obtaining a copy from you or the online site, Guidestar.   Look at your Form 990 and read page 5 and Schedule O.    An organization following good practice will have answered affirmatively to the questions on page 5 and it will be supplemented by clear explantions of how these practices work in Schedule O.   Make sure the explanations in Schedule O can be easily understood.

5. Review Executive Compensation-compare it with counterparts in organizations of similar size, mission, and location     Charity Navigator notes that the compensation for the Executive Director for the average organization that they review is about $150,000.  Their 2012 study covers this in more detail.  Your own compensation review process should verify that your Executive Director and key staff's compensation is in line with organizations of similar size, mission, and location.   Ocassionally our clients are asked by stakeholders to defend their Executive Director's pay package.  Make sure you have the written results of your annual compensation review so you can answer any questions.

6.  Be careful of sound alike names.  Watch out for organizations that adopt the name of a reputable organization to boost their fundraising.  If there is another organization with a name similar to yours, what can you do to  ensure donors aren't confused.   In some situations, our clients have trademarked names or logos and have legally enforced those trademarks.  The legal costs might be expensive but becuase they had a national brand it was important to protect their name.

7. Don't give via phone telemarketing.  Typically telemarketers keep 25 to 95 cents of every dollar they raise.  This is considered an inefficient way of fundraising.  If you use telemarketing, look at the cost.  It may not be worth it.  If you are the exception, and this practice is cost effective (for example, volunteer students raising money for an alumni association) recognize the negative impact that this practice may have on your donors.  How can you overcome the negative perception that might be turning potential donors away?

Just three more to go and we will cover them in the next post.

IRS posts 2013 mileage rates

The new auto rates for 2013 are:

56.5 cents per mile for business miles driven

24 cents per mile driven for medical or moving purposes

14 cents per mile driven in service of charitable organizations

These rates have increased 1 cent from 2012.

Year End Giving Tips and the Influence on Your Donors-Part I

At this time of year when the focus is on giving, I have seen a number of articles in local and national magazines on selecting charities for giving.   The one that I read recently sited Charity Navigator's post Top 10 Best Practices of Savvy Donors    As I read through the points I thought about how charites can be prepared for these savvy donors.

Here are the tips (in italics) and what you can do to put your best foot forward this giving season.

1.  Be proactive--identify what results are most important to you and be specific about the goals you expect by giving   Make sure your mission and your community impact are obvious to people who may not know you well.  Look at your website, your facebook page, any recent newspaper articles.   Can a donor easily see what you do and the impact you deliver?   Do they have to read through information or click onto other pages?  Most organizations communicate clearly what they do but is your impact obvious?  

2. Engage in dialogue-talk to the staff to learn about the group's accomplishments, goals, and challenges.  How easy is it for a donor to reach someone who can answer these questions?  Do you have several staff they could speak with?  Are there opportunities for people to volunteer with your work so that these conversations happen naturally in the course of the volunteer experience?   Are your Board members equipped to have these conversations?  The more opportunities that someone has to learn about your organization from a number of different contacts, the easier it will be for them to engage as a donor.

3. Confirm nonprofit status.  Make sure the organization is registered as a nonprofit charity.  You can check your organization's status here on the IRS website at Publication 78.  The IRS revoked the status of a number of small nonprofits that had not filed tax returns.   We have also come across older organizations that were filing tax returns with the IRS but were not registered.    Better for you to check and make sure than to be surprised by an inquiring donor.

The next few posts will continue to look at the other points.

Board Members & Fundraising

It is probably one of the top 5 questions our nonprofits have in relation to their Boards--how can we help our Board Members feel comfortable with fundraising?   This post by Claire Axelrad at her blog Clarification answers that question in an insightful memorable way.

My favorite quote from the post:

No one is asking for money merely for the sake of money. They’re asking to serve a greater purpose and are engaging others in a compelling story; then matching folks who are interested in this story with a cause they value and a solution they can endorse.

Not as Anonymous as You Thought

This post from Jim Ulvog reminds us that if the nonprofit knows the name of its donor, they can’t be listed as Anonymous of Schedule B of Form 990.  Schedule B is an attachment to your Form 990 that lists the names of all contributors and the amount they contributed.  Generally the listing is for donations over $5,000 or over 2% of total contributions for certain circumstances.

This can be disconcerting to nonprofits who want to honor a donors request to be anonymous.   However there are a few things a nonprofit can do.   Schedule B is only required to be submitted to the IRS.  It should not be submitted as part of the return copy that goes with your state registration.

Schedule B is not published on Guidestar.   If you provide others with copies of your Form 990 make sure to extract Schedule B.  A practical tip—when you receive a PDF of your Form 990 from your accounting firm extract Schedule B.   Keep the full copy in one location on your network that is only available to the Executive Director or Finance Officer and make sure that the copy that does not include Schedule B is the copy that is available to everyone.  

If a donor approaches you and wishes to make an anonymous contribution, advise them of the need to report their name to the IRS on Schedule B and inform them of the steps you take to keep Schedule B confidential.  You can also let them know that they can make the contribution through a third party so that you would not be aware of their identify and therefore they would truly be anonymous.   

Nonprofit Compensation Report for 2012 Now Available

PANO has announced that The Nonprofit Compensation Report: An Analysis of Pennsylvania Nonprofits 2012 is now available.   Based on the results of 109 nonprofit participants, this report will help nonprofits comply with IRS compensation setting documentation requirements and stay compettive in the labor market.

The report can be ordered here and there are reports available for other states besides PA.   The survey was conducted by the National Council of Nonprofits.  The report includes average and median salaries for over 100 positions with infomration based on nonprofit type, position title, staff size, and budget.   The price for the report is $150 but PANO members can receive a 50% discount.  PANO members will have received an email with the discount code.  Find out more infomration about PANO membership here.

Government Accounting Standards and the Nonprofit World

Yesterday the Government Accounting Standards Board, passed a new standard that will require governments to disclose their unfunded pension liabilities on their statements.  More details here.  So what does this standard have to do with nonprofits?  

We are watching a state pension crisis unfold across the country.  In our state of PA, the pension plan annual contributions are expected to increase from $1 billion to $4 billion in just 3 years.   There is only so much money in the state budgets.  And taxes can only be raised to a certain extent before hurting the economy and threatening business growth.  So the nonprofits are likely to see state funding reductions.

We are already seeing this in our state.  Initially a 20% reduction was proposed for a segment of state funding that is passed through the local Counties.  While we recognize that the state will need to cut expenses, 20% in one year is too large.    Some nonprofits can cover the reduction with other revenue sources but most nonprofits that receive this funding will have to cut services and lay off staff. 

About a month ago we had the privilege of standing alongside our area nonprofits for a press conference speaking out against the proposed funding cuts.   The effect on the local economy is eloquently expressed by my colleague, Liz Vibber in this video clip of her part of the press conference.  The good news is that the state is revisiting these initial redcutions.  While it is likely that the full County funding will not be restored, the reductions will not be as significant as originally feared.

So back to our pension issue,  pension reform is critical.   The ripple effects of the pension crisis will not only affect businesses and individuals but nonprofits.  In January 2011, the PICPA Fiscal Responsibility Task Force published a report recommending policy options on a number of different issues including pension.  The pension policy options address some very hard choices that state legislators would need to consider including freezing the current system and even challenging the concept and judiciary decision that prospective benefits for current employees cannot be changed.   The full report can be viewed here.

Doing Well by Doing Good Part III

In my last two posts, I shared some insights from the Main Line Chamber of Commerce’s panel discussion Doing Well by Doing Good.  A member of the audience asked the question-“ how do you decide which charity to invest in?”  The answer from Jay Coen Gilbert the Co-Founder of B-Lab was right in line with many of these blog postings—measure!   He looks for nonprofits who relentlessly measure their performance.  An organization that demonstrates measurable results attracts more support.

Doing Well by Doing Good Part II

In my last post, I talked about the great panel discussion Doing Well by Doing Good presented by the Main Line Chamber of Commerce.   In a previous post here I had discussed why I am not in favor of paid time off for employees to volunteer.   I was pleased to hear Mandy Cabot, the CEO of Dansko discuss their employee volunteer plan.  Dansko will accumulate the time that an employee volunteers and then donate the value of that time to the charity of the employee’s choice.  This program preserves the true spirit of volunteerism and still provides the employer a way to financially support an employee’s charity.

Doing Well by Doing Good

Thank you to Susan Bishop with Wells Fargo Bank for inviting me to the Main Line Chamber of Commerce panel discussion Doing Well by Doing Good.    The panel of corporate leaders inspired the audience with ways they serve both their community and their employees.     Kevin Nolan President of Nolan Painting, Inc. strongly encourages all employees to be involved in the community.  It is one of the interview questions at the hiring stage and it become part of their life.  

Volunteering impacts the life of the volunteer probably as much as it impacts the charity.  Statistics show that volunteers are generally healthier, report greater job satisfaction, and develop new skills.  They are able to meet more diverse people and build satisfying relationships.     Encouraging your employees to serve the community actually serves your employees by enriching their lives.

Relationship vs. Roles?

This thought provoking article from Nonprofit Quarterly starts off:

It is a pervasive and deeply held belief that clarification of roles and responsibilities between an organization’s board chair and executive director is the primary means for building an effective partnership.

The article then makes the case that focusing on roles and responsibilities has very little to do with a working partnership between the Board Chair and the Executive Director—the key is really relationships.

Key characteristics of successful relationships included:

1. Flexibility in negotiating roles

2. Trust between the Board Chair and Executive Director

Where there was a high trust level there was no need to draw distinct lines of responsibility as both parties were comfortable with the other’s roles. Where there was a low level of trust the Organization needed to rely more on prescribed structures to function.

The article is right on target. As with any interactions—relationships are the key to success. It is important for the nonprofit to seek to improve the relationships as their primary focus. However when the relationship is strained or dysfunctional, a clear understanding of roles and responsibilities can provide a framework that can lead to a restored relationship or at very least, a functional relationship. The issue isn’t really relationship vs. roles but relationships and roles.

A Little Goes a Long Way-Micro Volunteering

A Facebook post by my fellow blogger Liz Vibber alerted me to Sparked.com, the world’s “first micro-volunteering network” In a fun, engaging way, this site finds out what you are interested in and offers you options (challenges) that use your talents to help nonprofits in meaningful ways--all online.

After reading this article-Would You Volunteer More If you Could Do So in Your Pajamas? by Jessica Roy, I had to check out the site for myself.

In less than 3 minutes, I had selected my interests and entered my talents and was choosing between 2 challenges (both in the research area) to either help a youth organization find potential grantors or to recommend education apps to a school. Both challenges were clearly written and already had three useful responses from micro-volunteers. I felt that I could invest 30 minutes to an hour researching information and be able to provide something of value to the nonprofits.

Across the challenge selection page are four examples of success stories and it is evident that the “group think” process is helping these nonprofits with research, brainstorming ideas, social media, technology, marketing, blogging, etc.

This friendly email is an example of the site's appeal:

We want to be the first to high-five you for becoming a microvolunteer. You may not be able to leap tall buildings in a single bound, but you're using the power of your unique skill-set to help nonprofits. And that's an awesome super-power.

If your organization is looking for ideas, wants to test out a tag line, or needs help in areas related to social media or technology it is worth checking out Sparked.com.

Instructors: Employees or Independent Contractors?

In the past year, we have heard that the IRS is more strictly enforcing employee status for instructors of art and recreational programs.   In many cases, municipalities or arts organizations will offer classes and pay the instructors for the classes as independent contractors.  However, if the organization sets the time of the class, pays the instructor an hourly rate, and provides the class materials, the IRS is likely to classify the the instructor as an employee.   Even if the organization has a contract with the instructor and it seems like they have clearly defined their position, the IRS could still classify the worker as an employee.

The case of the City of Dana Point California is a good study of this situation.   You can find more details about the case here.   What is important to note is that city had the following items already in place, and the IRS still said the workers were employees:

1.  There was a written contract.
2.  The city had no control over the class curriculum or the way it was taught.
3. The instructor determined the number of classes offered each session; the length of the class; and the minimum/maximum number of students.
4. The city did not provide training to the instructors.
5. The instructors could provide training (and did) in other venues.
6. The instructor had to find and pay for their own substitutes or assistants.
7.  The instructor had to provide their own materials & supplies.
8. The instructor received a percentage of the revenue-not an hourly rate or payment per class.  (This demonstrates risk of loss.)

The City had to challenge the IRS in court and ultimately prevailed.  However, the IRS has contiuned to take the same position with other organizations and classify the workers as employees.

It is also important to note that even though the City of Dana Point prevailed with the IRS, other organizations cannot point to that situation in their defense.  If the IRS classified workers as employees and another organization disagreed, they would have to challenge the IRS on their own given their own situation and how they structure their relationship with their instructors.

Furthermoe, the 8 items noted above strengthened the City of Dana Point's position but many organizations do not have all 8 of those points existing in their current independent contractor situations, and actually have an even weaker case before the IRS.

So, what should you do?

1. Review the IRS site and the issues that the IRS considers.
2. If you decide that the worker is a contractor, document why and make sure you have a contract between the instructor and your organization.  Make sure the contract and your agreement is at least as strong as noted with the City of Dana Point.
3.  Recognize that even with the documentation and the contract, the IRS still might decide that your instructors are employees and if you will have to remedy the situation and pay related back taxes and possible fines or challenge the IRS in court and pay related attorney fees.  Determine if your organization is willing to take this risk.
4.  If you decide to classify the worker as an employee---as of the date of this post (2/6//12) the IRS has a Voluntary Classification Settlement Program.  You can go to this link to see Form 8952 that needs to be filed as well as related instructions.

Caution:  As with any tax or accounting advice on this blog (or any other blog) you should always contact your own tax or accounting advisor for their guidance on your specific situation before taking action.

Behind the Scenes of the Upcoming Super Bowl

Right now T-Shirts are being printed celebrating the victory for both Super Bowl teams.  The T-Shirts for the losing team will go to a foreign country.  This always sounded good to me until I came across this (older) article here.   The article raises some good points.  There are no easy answers.

And speaking of donated items, this post at the blog Nonprofit Update by Ulvog CPA notes the need to be careful when valuing gifts in kind on your financial statements.  He does a great job outlining the considerations.