Wednesday, November 4, 2009

Unveiling the New Accountability Standards!

Here they are!

Today, officially, the Charities Review Council unveils its new standards. These represent over a year's worth of work to find a balance of contemporary regulatory requirements and sound practices for nonprofits. In so doing, these standards also serve to modernize donors’ reasonable expectations of nonprofits.

I want to highlight a few of the changes, but, as the adage goes, sometimes a picture is worth a thousand words. So, here's a picture of words.


The above "wordle" helps highlight the changes by emphasizing words that occur more frequently in the new Accountability Standards. Some things aren't surprising. Since these standards focus on nonprofits, obviously the word "nonprofit" stands out. But what I find interesting is the fact that "board" is the next most frequent word, reflecting an emphasis on nonprofit governance.

Now, we're all familiar with the increased interest in how a nonprofit is governed. But what I think is notable is that the Accountability Standards not only try to shed some light on how a board goes about its business, but gets at the need for an engaged Board of Directors.

Among these standards related to governance is the brand new Diversity and Inclusivity standard. A whole post could be devoted to this standard, but briefly it asks two things:

  1. That a nonprofit identifies the community it serves, and;

  2. Using this information, it evaluates whether the composition of the organization reflects its community.
There are a number of reasons this standard was added. First, clearly there have been demographic changes in the sector and the country that make the case for having a diversity standard. Second, research, such as Francie Ostrower's 2007 study, finds a connection between board diversity and issues of accountability. Third, we wanted to be responsive to what we were hearing in our focus groups and town halls. Time and time again, we heard individuals tell us that it is time to include diversity and inclusivity in our Accountability Standards.

Another notable change related to governance is the addition of board term limits. When this came up at our first town hall in Mankato, I had no idea that it would become the most consistent piece of feedback we received. Overwhelmingly, people told us we needed to add board term limits to the Accountability Standards. The new standard isn't prescriptive in terms of how many terms or how many consecutive years a board member can serve, but rather simply asks that the nonprofit establish some limit. Again, I can see this being a future blog post, so keep an eye out for further conversation around this one.

The last change I wanted to mention connects to the third most frequent word in the Accountability Standards - "financial." After the Governance section, the Financial Activity section received the most revisions. Perhaps the change that got the most attention was shifting the Use of Funds standard from at least 70% of expenses going to programming to 65%. Although this change was welcomed by most nonprofits and donors we talked to, there were a number of people that worried we were getting too lax.

As Charities Review Council Executive Director Rich Cowles wrote back in July, there are a lot of reasons why this change occurred. But to sum it up in a sentence, this standard was changed in recognition that a nonprofit needs to invest in its infrastructure (i.e. administration and fundraising) in order to achieve its mission. There's been an ongoing debate about the validity of overhead ratios, so again I expect future blogs around this topic.

Thank you again to everyone who helped craft the new Accountability Standards. It was a tremendous effort by a great number of folks, and it speaks to the vitality of the philanthropic and nonprofit sectors here in the upper-Midwest. Although the standards are now finalized, we still invite comments, questions and concerns as we begin implementing them in the spring of 2010.

Monday, September 28, 2009

1,308 miles in a Toyota

We're nearing the end of the public input phase of the 2009 Accountability Standards Project. Since the preliminary standards were unveiled in June, we’ve heard from nonprofit leaders, individual donors and grantmakers. The quality, thoughtfulness and diversity of feedback has been incredibly helpful in making sure the final set of Accountability Standards the Board of Directors will vote on at the October meeting are truly the reasonable expectations for accountable nonprofits.

I wanted to briefly look back on these past few months and summarize some of what happened. All told, here are the numbers:
  • 7 town halls and 4 large group meetings across Minnesota and North Dakota
  • More than 350 people attended a town hall and gave us feedback
  • 1,308 miles logged in Rich Cowles' Toyota Corolla traveling to all the town halls.
Add this to the 12 focus groups we did this past spring, the comments on this blog, and individual feedback from people via email or phone calls and you get a healthy sized amount of data to sort through and digest. Of course, this is a fantastic challenge to address. The strong interest and general support for these standards and the work of the Charities Review Council speaks highly to the fact that here in the upper-Midwest we have a vibrant nonprofit and philanthropic sector that understands the importance of accountability and transparency.

Although there are a number of possible changes to the preliminary standards that the Program Committee and then the Board of Directors will have to look at, I wanted to highlight a few of the stronger bits of feedback that we heard. Top on this list, surprisingly to me, is the potential for adding board term limits to the Board Length of Service standard. As one town hall attendee said:
I frequently experience that nonprofits who are having board problems, regularly have no term limits and board members who have been on the board for 10+ years."
This sentiment was echoed many times over, from Fargo to Mankato to Minneapolis, and is something that will be considered as a possible addition to the Accountability Standards.

The other strong piece of feedback received was around the Financial Health standard and, in particular, the requirement of cumulative growth over the past 3 years in unrestricted net assets. Now obviously, we’re in historic economic times where many nonprofits are simply trying to stay afloat, much less grow unrestricted assets. But we also heard a number of people tell us that because of the recession, nonprofits are spending down unrestricted reserves because this is the proverbial rainy day everyone had been saving for. Done in a prudent and strategic way, this makes a lot of sense, but means that the nonprofit likely would not meet this standard. We received a lot of good suggestions on how to find a compromise on this one and will be considering them all.

To see further feedback on these issues, and many more, please check out the summaries of the town hall forums that are posted on our website. Also, please keep an eye out for the final revised Accountability Standards later this fall. In an effort to make sure nonprofits and donors have time to adjust to these new standards, they won’t be implemented until 2010, but we encourage everyone to keep letting us know what they think and asking us questions.

Again, thank you to everyone who weighed in during these past few months. We look forward to staying connected with you and working together on this important task of improving the climate for charitable giving.

Friday, September 11, 2009

Fundraising Section Overview

The following post was written by Kelly Rowan, Outreach & Resource Manager for the Charities Review Council.

Fundraising is an essential part of ensuring that nonprofits can continue to provide their critical services to improve our communities. While nonprofits strive to proactively seek funds, they must be conscientious in following ethical practices that will ensure the upkeep of trust for the organization, and respect for the sector as a whole among donors.

Throughout this public input phase of our Standards Revision Project, we’ve been holding focus groups, town hall style meetings, and inviting input and comments here in this blog forum. The suggestions we’ve heard regarding this Fundraising section of the new draft Standards have led us to consider combining and re-drafting this section of the originally proposed Standards as follows.

Fundraising Disclosures
The responsible actions of both donors and nonprofits promote and sustain a climate
of giving. Fundraising methods should therefore be ethical and honest and
encourage the donor to give voluntarily, based on their interest and knowledge
of the purpose, programs, and achievements of the nonprofit. All information
provided in connection with solicitations is accurate and not misleading.

Print, email, and electronic solicitations clearly describe the purpose or
programs for which the contributed funds will be used and identify the nonprofit
that will receive the contribution. The donor is provided with the address or
phone number of the nonprofit.

Soliciting Practices
Donors are entitled to know
who is soliciting their gift and what portion of their gift will be received by
the nonprofit.

Solicitors who are not employees or volunteers of the
  • Identify themselves in each solicitation as professional fundraisers,
  • Upon request, provide the name and address of their employer or contracting

If the nonprofit is engaged in cause-related marketing or its name is used in
connection with an event, or the sale or marketing of goods or services, upon
request, the nonprofit or persons authorized by the nonprofit to utilize the
nonprofit’s name provides accurate information about the percentage of gross
revenue that is paid to the nonprofit.

Donor Financial Information Security
A nonprofit should protect all private financial information provided by donors.

The nonprofit provides a secure environment for collecting online and
offline donations, and maintains internal controls governing the safekeeping of
all confidential donor financial and personal information.

Donor Privacy
A nonprofit should protect the privacy of donors and disclose when information is
collected about them and how this information is used. Donor information should
not be shared outside of the nonprofit without donor consent. A nonprofit should
also offer a way for donors to have their name removed from solicitation or
other mailing lists.

A nonprofit does not share donor
information without consent and provides a privacy policy on its website or by
request that describes how donor information is collected and used and provides
for donors to "opt-out" to make their private information available. A nonprofit
has a board-approved discontinue contact policy guaranteeing that donors can be
removed from solicitation and other mailing lists.

Adhering to these basic expectations regarding fundraising lays an important foundation for establishing a meaningful, trusting relationship between donors and nonprofits. A report by Independent Sector shows the negative impact of distrust—as well as the potential for increased giving in a more trusting environment: donors who have high confidence in charities give approximately 50 percent more annually than do donors who express low confidence. In the Council’s own Public Trust survey, most Minnesotans (83 percent) said that their general trust in charities influences their charitable giving.

We hope you’ll weigh-in regarding these most recent changes to the draft Standards. Are there important fundraising expectations that are not covered here? Also, you can always view the entire list of new proposed Standards here.

Monday, August 31, 2009

Managing the Basics - Fundraising Disclosure standard

The following post was written by Kelly Rowan, the Outreach & Resource Manager at the Charities Review Council.

According to Giving USA, Americans gave an estimated $307.65 billion to charities in 2008. Although a two percent drop in current dollars over 2007, this is a staggering number, especially considering the tightening in our budgets due to the challenging economic recession. As nonprofits strive to meet growing needs in our communities, donors want to feel confident that their hard-earned contributions will do the most good. What can and should charities be doing to protect and nurture this community-minded generosity?

As stated in the Fundraising section of MCN’s Principles and Practices, “(n)onprofit organizations are responsible for conducting their fundraising activities in a manner that upholds the public’s trust in stewardship of contributed funds”.

There are many ways of honoring this responsibility, and organizations should have thoughtful and proactive conversations about which ones to implement. One of the most commonly cited lists of expectations is the Donor Bill of Rights, developed by the Association of Fundraising Professionals and others.

In the coming weeks, we will be highlighting the most essential practices that have been recommended and reinforced by the members of our board Program Committee, experts in the areas addressed, as well as focus groups.

We begin with the Fundraising Disclosure Standard, which maintains that we should certainly expect that charities will clearly identify themselves in their solicitations by providing their address or phone number. Solicitations should also describe how donations will be used. While these seem to be such simple, common-sense expectations, I am reminded of how important stating this information clearly can be for donors, as illustrated in my co-worker, Amy Sinykin’s, previous What’s in a Name? post. We must be wary of organizations taking advantage of well-respected and established charities’ names to mislead donors into supporting them. This can damage the public’s trust and be detrimental to the charitable sector as a whole.

Are there other basic expectations we should address here for what a charity discloses to donors through their solicitations? Please weigh-in, and check back here to discuss the Voluntary and Charitable Giving Standard later this week.

Friday, August 28, 2009

Travel and Entertainment Reimbursement Policy standard

Over the last couple years there has been no shortage of egregious examples of lavish travel by board members or executives on the organization’s dime. Now, let’s be honest, most nonprofit organizations aren’t going to be sending its board members or staff on wildly expensive junkets. But nonetheless, reimbursement for travel or entertainment is one of the areas where waste, or worse, fraud can occur.

For that reason, we decided to add a new standard speaking to this issue. Like many of the other standards related to policies, we intend to provide a sample policy for organizations to download and pass at the board level. One example that we’re considering is the sample policy found on the Minnesota Attorney General’s Office.

For the last couple weeks we’ve been holding town hall forums and yesterday we were in Fargo. One piece of feedback we’re hearing is that some standards feel like busy-work and, especially for smaller organization, to pass multiple policies can take a lot of time away from the work of the nonprofit. What is your opinion? Is requiring a travel and reimbursement policy helpful in upholding accountable practices? Or is it just another policy that takes time away from getting the work of the organization done?

The Travel and Entertainment Reimbursement Policy standard is the last standard in the Financial Activity section. Starting next week we begin blogging about the last section, Fundraising.

Next post: Fundraising Disclosure

Monday, August 24, 2009

Prohibition of Loans standard

This new standard, along with several others, was added in connection to the new IRS Form 990. Although the IRS doesn’t prohibit loans to employees or board members, it does ask about it. However, in reviewing our Accountability Standards, the Council felt it was important to address this issue.

Now some could argue that providing loans to employees is a way to attract top talent and to ease the cost of moving to a new city or state. We’ve also heard from some organizations that they provide very small loans (less than $500) to employees in times of need. In both instances, these practices wouldn’t be allowed under this new standard since it makes a blanket statement that no loans or loan guarantees will be provided. Our feeling is that although there may be good reasons to offer loans to employees or board members, the funds raised by a nonprofit should be in support of its mission and solely used for that purpose.

For those that have been following this blog, you know by now that we want your opinion on this topic. By making a blanket prohibition on loans to employees, board members and trustees are we going too far? Or did we hit the mark?
Next post: Travel and Entertainment Policy standard

Monday, August 17, 2009

Hoarding vs. Prudent Saving - Balanced Reserves standard

The following post was written by Helen Ng, Marketing and Communications Manager at the Charities Review Council.

You never know what may happen to your job, family, or health, and that is why it is important to save some money to plan for the unexpected. Just as you would have a rainy day fund to be used when absolutely necessary, charities maintain a reserve fund to safeguard against unexpected financial challenges. There's a good interview with the Urban Institute's Thomas Pollak about this and the results of a recent study about nonprofits and reserves.

While a nonprofit should maintain a reasonable level of cash to safeguard against unexpected financial challenges, maintaining excess unrestricted reserves indicates the nonprofit is not maximizing the use of its resources in pursuit of its charitable mission. In such cases, it may not be appropriate to continue soliciting from the public unless it is clear that the fundraising could be used for a reserve fund.

What do you think? How much is too much for you?

Thursday, August 13, 2009

Weathering The Storm - Financial Health standard

We’re all too familiar by now of nonprofits having to shut its doors because of lack of funds. Although we in the nonprofit sector know that it’s always a struggle to keep enough money coming in to make sure the work continues, the recent tough economic times put even more pressure to make ends meet.

At the Council we often say that trust is the life blood of a nonprofit. If a donor trusts that a nonprofit is accomplishing worthy results and is sustainable, they are more likely to give. The Financial Health standard is meant to help donors get a handle on whether or not an organization has the financial base to weather an economic storm. There are a lot of ideas around about what are the key indicators to gauge this. Because of that, we brought together financial experts to help us think this through and came to a compromise that focuses on unrestricted net assets. Specifically, the standard looks at whether a nonprofit has had 3 consecutive years of unrestricted net asset losses and whether the cumulative unrestricted net asset balance over 3 years is positive.

Now this standard doesn’t take into account how a nonprofit invests its unrestricted net assets and we have gotten feedback that this matters. If a nonprofit has a sizeable portion of its assets invested in a risky portfolio, one could argue that it isn’t “using its resources prudently” as the philosophy states. This argument has gotten even more credence in the aftermath of the Madoff scandal.

So our questions are twofold. First, is it a good enough indicator of financial health to be tracking unrestricted net assets? And is there a need to bolster this standard with something that addresses investment policies?

Monday, August 10, 2009

Board Fiduciary Oversight standard

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

This standard relates to the one highlighted in last week’s post, Federal Tax Filing Review. Both emphasize the importance of a board being aware of the organization’s formal documents and the nonprofit’s overall financial standing. The Board Fiduciary Oversight standard is one that we currently utilize in the review process and has not changed with the new Draft Standards.

As the philosophy states, the governing board is responsible for supervising the finances of their organization. Management, described in the standard, is two-fold: initially creating a budget and then monitoring how effective and appropriate, the year’s budget has been. Frequent and detailed financial oversight assures board involvement in the financial realm of the organization. Additionally, it serves as a form of accountability. It is easiest and most common for misuse of funds to occur in nonprofits where boards are not overseeing the budget and financial statements. In our experience, the majority of charity fraud cases (which are often highlighted in the media) are the direct result of financial information being withheld from boards or insufficient oversight. The standard aims to promote transparency and prevent financial deception.

What are your thoughts on this. Is it enough to ask that the board review at least quarterly financials or should it be more often? Less often?

For the next few posts we will be highlighting the Financial Activity section of the Accountability Standards. The next post will be on the Financial Health standard.

Thursday, August 6, 2009

Federal Tax Filing Review standard

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

This standard requires boards to have a hand in the 990 filing process. It is a type of internal accountability. One way we like to approach the standards is by asking, what could happen if this was not in place? Making sure that boards review the document is another way to check for accuracy. Moreover, we hope that boards would want to take part in this process. The Form 990 is a significant public disclosure document for nonprofits; it’s a resource for donors as well as the community at large. Board oversight displays the leadership’s involvement as well as familiarity with and support of the completed 990.

It may also be interesting to note that the redesigned IRS Form 990 gives a great deal of attention to governance issues, consequently it moves beyond simple financial data. The new 990 asks if the board has seen and reviewed the submitted 990 document (see Part VI, Section A, line 10). The government doesn’t go as far as requiring approval or attention to the 990 by the nonprofit’s governing body, it simply requests the information.

Here’s our question to you: Is it really feasible (and/or necessary) for the full board to review the completed IRS Form 990?

Coming Next: Board Fiduciary Oversight

Tuesday, August 4, 2009

Whistleblower Policy & Document Retention Policy standards

This post was written by Heidi Neff Christianson, a Board Member of the Charities Review Council and a Partner at Moore, Costello & Hart, P.L.L.P.

The Charities Review Council decided to add standards regarding Whistleblower and Document Retention Policies mainly because the IRS is now asking tax exempt organizations to report whether they have adopted the policies on the revised 2008 IRS form 990. The IRS got the idea from the Sarbanes-Oxley Act of 2002 - a federal law passed in reaction to major corporate scandals. It's important to note that Sarbanes-Oxley does not require that exempt organizations have these policies. Sarbanes-Oxley is relevant to tax exempt organizations because it establishes penalties for retaliation against an employee for reporting (in good faith) suspected wrongdoing, and for destruction of documents that an organization should know will be relevant in a government investigation or litigation.

In my practice I have seen more than one nonprofit suffer the consequences of a workplace culture that suppressed employees from raising questions regarding bad behavior. I happen to like the sample policies found on the Charities Review Council website (and not just because I helped to write them). I like them because they describe simple processes to be followed in sticky situations - and having a process is better than nothing. That said, I highly doubt that the existence of a Whistleblower policy, without more, would have ever prevented the bad behavior. I actually believe that if the culture of those organizations had encouraged questioning leaders, the behavior would have stopped despite the lack of any policy.

What do you think? Do policies influence behavior? Or are these policies just two more pieces of paper taking up room on the old policy shelf?

Next post: Federal Tax Filing Review standard

Friday, July 31, 2009

Nonprofit "Overhead"--Much ado about nothing or a legitimate measure of efficiency? – Use of Funds standard

The following post was written by Rich Cowles, Executive Director of the Charities Review Council.

For a long time the Charities Review Council has been known for its Use of Funds standard - that 70% of expenses should go toward program and no more than 30% should be expended on administration and fundraising combined. Aware of the limitations of this measure, the Council has tried to discourage donors from ranking or rating charities based on just their overhead ratios. But we are a society that likes quick, measurable answers, and the standard has taken a life of its own.

As the Council approached revising this standard, with the assistance of a number of sector experts, there were a few core beliefs that we took into account:
  1. Well-managed nonprofits strengthen their ability to further their missions over the long term by investing in their infrastructure;
  2. There's no uniformity in how organizations categorize expenses, and;
  3. There’s no ideal program expense ratio for all organizations in all situations.

For these reasons, we shifted the Use of Funds standard slightly to reflect these realities and to help foster a better understanding of how effective nonprofits operate. We developed a range, starting at 60% program expenses, and asked charities on the low and high ends of the range to provide information to donors to help them decide if they want to support the charity.

Despite the short-comings of overhead ratios and a growing interest in WHAT a nonprofit accomplishes (including a recent blog by Kate Barr at the Nonprofits Assistance Fund), this ratio does provide some insight about HOW the nonprofit gets there.

We invite people’s comments about this standard. Do you think that the public and the media have put too much emphasis on overhead ratios? Or given that there’s a finite amount of money to be donated, if two nonprofits achieved similar results, but one required twice as many contributions to do so, is it important for a donor to know?

Next post: Whistleblower Policy & Document Retention Policy standards

Thursday, July 30, 2009

Where Are We Going - Part 2? - Governing Document Review standard

Along with the previous standard, Monitoring Mission and Strategy, the Governing Document Review standard deals with the unfortunately all-too-common occurrence of nonprofit leadership not really knowing the key documents that ought to help guide the nonprofit organization. I wish I could say I’m exaggerating, but it’s happened where we’ve reviewed a nonprofit whose board members are in the midst of a 5 year term when the bylaws call for re-election every year.

Now, a lot of times these are honest mistakes with no ill intentions. But it serves up a sobering point, if the leadership of a nonprofit isn’t at least somewhat familiar with the organizational bylaws, it may be time to pause for a moment, dust them off, and take a look. The point of this standard is not about forcing board members to read page for page the nonprofit bylaws every three years, as it is about taking time to revisit the relevance of the governing documents and make adjustments as needed. The assumption in this standard is that if a board takes time to make sure that not only the governance practices are being followed, but makes sense for the nonprofit, then this will lead to a more engaged board and effective organization.

We’d be interested in hearing from others on this. Does your organization regularly revisit its governing documents? If so, how often? Is this standard just making more busy work for board members or does it add value?

Next post: Whistelblower & Document Retention Policy standards

Monday, July 27, 2009

Where Are We Going? - Monitoring Mission & Strategy standard

The following post was written by Mac Ryerse, who was the Project Manager for the Charities Review Council Standards Revision project and is a member of the Charities Review Council Board Development Committee.

Many nonprofits spend countless hours and dedicate resources to develop thoughtful and poignant mission statements and related strategies. Why, then, do these important guiding documents sometimes languish on bookshelves until a crisis compels their review?

This standard encourages nonprofits to annually review their mission and the strategies developed to accomplish the mission. Together with the Impact on the Community standard, both support regular monitoring of community impact and program effectiveness in the context of organizational strategies and overall mission.

The Independent Sector Principles for Good Governance and Ethical Practice notes that effective nonprofit boards should extend beyond routine monitoring of program activities and instead focus on a “more rigorous periodic evaluation of the organization’s overall impact and effectiveness in light of goals and objectives.” This activity also helps assure that donor resources are being used in ways consistent with the organization’s mission.

How often does your organization critically review its mission and strategy? How do you determine program effectiveness and your organization’s impact on the community?

Next standard: Governing Document Review

Wednesday, July 22, 2009

How Much Is Too Much? - Chief Executive Assessment & Compensation standards

The following post was written by Mac Ryerse, who was the Project Manager for the Charities Review Council Standards Revision project and is a member of the Charities Review Council Board Development Committee.

We have all read sensational headlines about compensation packages paid to big company CEOs and wondered aloud (or shouted) “WHY?” Sometimes we even have that response regarding nonprofit CEO compensation. In either case, boards typically struggle to justify the link between the executive’s performance and their compensation.

The new IRS Form 990 includes questions for nonprofits about their compensation practices and procedures and encourages boards to take what I call a “3-D” approach to determining CEO compensation:

  • Data-driven……(use compensation survey data or retain a qualified consultant)
  • Disciplined……(establish procedures to review data; directors are not conflicted)
  • Documented…..(memorialize and retain compensation deliberations)

The Council’s Compensation standard follows the principles outlined in the new IRS Form 990 and encourages nonprofit boards to adopt a similar “3-D” approach.

In addition, the Council’s Chief Executive Assessment standard supports nonprofit boards establishing performance goals and expectations for the CEO and annually assessing the CEO’s performance against those goals and expectations. Such an assessment identifies areas of strength and opportunities for improvement, as well as provides data that supports the board’s compensation decision. (For more information on this, Boardsource has a great topic paper on things to know about chief executive assessment.)

Does your organization conduct a performance review of the CEO? Can your organization affirmatively answer the new IRS Form 990 compensation questions?

Coming up: Monitoring Mission & Strategy

Monday, July 20, 2009

Would You Pass the Board Pop Quiz? - Board Orientation, Education and Assessment

The following post was written by Mac Ryerse, who was the Project Manager for the Charities Review Council Standards Revision project and is a member of the Charities Review Council Board Development Committee.

Take the following quiz on the attributes of effective and engaged members of nonprofit boards of directors (think of your organization; check all that apply)

My organization’s directors…..
□ believe in and support’s the organization’s mission;
□ prepare for and regularly attend board meetings;
□ draw on their professional and personal experiences to guide their decision-making
□ are not afraid to challenge assumptions and plans when warranted
□ possess a sound knowledge and understanding of the organization’s operations and finances
□ desire feedback on their collective performance and seek to improve

While this list is neither exhaustive nor authoritative, many organizations are discovering that the last two items (sound knowledge of the organization and a process to gather performance feedback) may contribute more to board effectiveness than all the others.

The Independent Sector Principles for Good Governance and Ethical Practice suggests nonprofit boards adopt systematic processes for orienting new directors to the organization and for providing regular “education” to all directors on topics that enhance their knowledge of the organization. Further, a regular process of self-assessment helps boards identify strengths and weaknesses that may have an impact on overall organizational and mission effectiveness.

This standard is intended to encourage nonprofits to provide orientation to directors within one year of their commencement of board service, to provide ongoing education on important organization- or mission-specific topics to all directors at least annually, and to provide a survey instrument to their boards for purposes of their self-assessment at least annually. The Council will provide sample documents and technical assistance to nonprofits seeking to adopt these practices.

Would your organization benefit from adopting a board orientation and education program? Would a self-assessment of the board be viewed as “intrusive”? Besides a time burden, do you see any drawbacks to adopting these practices?

Next post: Chief Executive Assessment & Compensation

Friday, July 17, 2009

How Long is Too Long? - Board Length of Service

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

Individual board members can be passionate and effective, everything your organization needs, or they can be focused on one, limited objective and a source of frustration. How can nonprofits make sure there is some turnover of leadership (but not too much) and a fresh flow of ideas, without losing long-term vision and consistency?

This Standard is one that has received some of the most responses so far. Unfortunately, it’s not uncommon for organizations to face Founder's Syndrome. At the Council, we have interacted with nonprofits that are led by charismatic founders who are so strongly tied to the organization that donors think of themselves as giving to the individual, rather than the nonprofit. Some founders become so attached to their project that they become resistant to change and other’s input. They do not allow the organization to develop away from their original ideas and when they finally do leave, the organization is left to flounder.

The main idea behind the Standard is that organizations can avoid Founder’s Syndrome by bringing on new board members with fresh insights. Re-election appears to be the best way to determine who goes and stays while retaining the most effective contributors and not enabling others to stay on needlessly. According to the Standard, the number of consecutive board terms is not limited, thus, it is possible for a director to serve on the board for three, even four, decades. Such long-standing board membership has the potential to bring both good and bad results. It can be especially helpful in rural communities where recruiting a new batch of committed board members every few years can be a heavy burden. We hope that re-election prevents the board from becoming stagnant and allows the most valuable members to stay on as long as possible.

Do you think there is good reason to cut off the amount of time even really great and effective board members can serve? In other words, do you think there is a risk in making the number of terms that an individual can serve unlimited?

Next at bat: Board Orientation

Wednesday, July 15, 2009

Link Between Board Composition and Madoff Scandal? - Board Composition standard

Recently the Bernard Madoff scandal has gotten a lot of press across the country for obvious reasons. The scale and the sheer audacity of the crimes not only affected individuals across the country, but had an enormous impact in the nonprofit and philanthropic sectors as well. 105 of the nonprofits caught in the Ponzi scheme lost 30% to 100% of their assets.

So what does this have to do with board composition? An interesting report by the National Committee for Responsive Philanthropy (which was later picked up by the New York Times and the Chronicle of Philanthropy in this article) showed the majority of the nonprofits and foundations hit hardest in this scandal lacked adequate board size or diverse board leadership.

“The major lesson is pretty clear,” said Aaron Dorfman, the committee’s
executive director. “Small, homogeneous boards were much more likely to fall
prey to Madoff’s Ponzi scheme.”

In other words, to paraphrase from the Philosophy statement, these boards didn’t have the needed diverse expertise gained through professional or personal experiences to effectively govern the organization.

Now, this Standard is not telling a nonprofit who should sit on its board. Rather it is setting out a process by which a board of directors can assess how it represents its constituency, identify gaps in terms of expertise or experience, and evaluate its capacity to achieve the mission.

We’d be interested in hearing from folks in nonprofits or on boards how (or if) the board of directors looks at itself. How does your organization ensure that it has the varied experience and expertise to govern effectively? How do you go about identifying the constituents you serve and how the board of directors can best reach the community?

Next post: Board Length of Service

Monday, July 13, 2009

Checks and Balances - Separation of Roles standard

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

At the core of this standard are checks and balances as a means of accountability. A conflict of interest is avoided when a staff member is prevented from acting as a board chair or treasurer. It also assures that key board positions are filled by individuals outside of the organization; thus bringing in valuable perspective, insight, and a unique network. The difficulty comes when this standard is applied to small or new organizations. Minnesota law requires that nonprofits have a minimum of three board members, if a board of three individuals includes one paid employee that translates to 33%. Members of focus groups that met in the spring voiced concern to the Council that this may be too high of a proportion.

What are the dangers or risks that you see if too many paid staff serve on a board or in key board positions? Do you think one out of three is too large of a proportion? If so, how do we account for smaller nonprofits?

Explored Next: Board Length of Service

Friday, July 10, 2009

It is Better to Give Than to Receive - Voluntary Board Service standard

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

Nonprofits, as the name implies, are by nature meant to serve the community that their mission statement highlights. Resources (financial and otherwise) should go towards supporting that mission, not towards enriching the lives of its leaders. As the philosophy states, donors expect that “board members serve without compensation.” Thus, board membership is a voluntary position where members give of their time and share their insights as a gift to the organization.

There is no doubt however that serving on a nonprofit board is a time-consuming commitment that can be draining and even a sacrifice. And recently there was an interesting blog post, with an international perspective, that even questioned whether a volunteer board is of value to a nonprofit.

Is it too much to ask skilled individuals to provide leadership on a board without monetary compensation? If this is a general rule, do you think there are any reasonable exceptions? Furthermore, does offering compensation allow an organization to recruit a more diverse group of board members?

Up Next: Separation of Roles

Wednesday, July 8, 2009

"Regularly and consistently..." - Conflict of Interest standard

As nonprofits that have filled out the new 990 have found out, the IRS has started asking about a number of governance policies – a conflict of interest policy being one of them. Just having a conflict of interest policy isn’t enough, though, as the Form 990 also asks whether:

  1. Officers, directors or trustees, and key employees annually disclose interests, and;

  2. An organization regularly and consistently monitors and enforces compliance with the policy.

Now, it’s important to state that the IRS isn’t requiring a conflict of interest policy that meets these two points – they’re just asking about it. However, the new Accountability Standard around conflict of interest policies has been tweaked to reflect both of these points. To meet the new standard an organization would have to have an annual disclosure and consistently enforce the policy.

This, of course, begs the question, what does “regularly and consistently monitor and enforce compliance” mean? This is something we’re wrangling with and thought it might be interesting to get other people’s opinions on. Comments?

Next post: Voluntary Board Service

Monday, July 6, 2009

Engaged or Distant Leaders - Board Meetings standard

This post was written by Shelley Heil, who has been interning at the Charities Review Council this summer. Shelley is pursuing degrees in Sociology and Spanish at Wheaton College in Illinois.

This blog post marks the start of the Governance section of the Charities Review Council’s Accountability Standards; up to this point all standards have been part of the Public Disclosure section. Governance standards aim to provide a framework and accountability for an organization’s leaders: its Board of Directors, officers, and key employees.

This standard is a modification of the Council’s current Board Meetings standard. The primary change in the current draft of the new standards is that boards are required to meet four times per year, instead of three. Thus far, feedback on this standard has been varied. The goal is for boards to remain engaged and active with their organization. (For more about good governance and the importance of an engaged board, see Nonprofit Governance – The View from the IRS, remarks by Sara Hall Ingram, IRS TE/GE Commissioner) Only meeting every 6 months has the potential to create a distance between board members and the interworking of the nonprofit and the community it serves. On the other hand, some claim that requiring boards to convene four times a year is too prescriptive and doesn’t take into account how cultural differences may affect the number of annual board meetings for organizations. An earlier draft of the Standards stated that meetings needed to be “evenly spaced.” Negative responses to the phrase resulted in its removal.

What do you think? There’s no magic number of how many times an “engaged” board meets, so is 4 meetings a year too much, not enough? Additionally, is physical presence valuable? Should the standard require that meetings occur face-to-face?

Up Next: Conflict of Interest

Wednesday, July 1, 2009

Do Audits Help Build Public Trust? - Financial Transparency standard

We’ve made it to the last standard of the Public Disclosure section, the Financial Transparency standard.

At the Council we often talk about the importance of public trust. Without trust in a nonprofit, donors are much more unlikely to support it with time or money. This isn’t just common-sense, but has been supported by empirical analysis, including a study done by the Independent Sector that showed donors who have high confidence in charities give approximately 50% more annually than do donors who express low confidence. A key tool in building this public trust is yearly audited financials or, for smaller organizations, a board-approved Form 990, hence the focus on these two documents in the standard.

While we were testing the preliminary Accountability Standards in the focus groups, we heard a need to include education for smaller nonprofits about the value of an audit. We’re committed to building some resource into the Accountability Wizard to help with this, but we’d be curious to hear from smaller nonprofits about whether or not they choose to have a yearly audit, even if it isn’t required.

Next up: Board Meetings

Monday, June 29, 2009

The Program Effectiveness Dilemma - Impact on the Community

More and more, nonprofits are being asked to demonstrate program effectiveness. To paraphrase Phil Buchanan, President of the Center for Effective Philanthropy, who spoke at our Annual Forum just a couple weeks ago – nonprofits are being asked to show what it’s trying to change, how it’s going about doing that, and how will it know when it accomplishes it.

Of course, although donors and funders are looking for measurements of program effectiveness, the challenge with having a standard about this is that every nonprofit is different – with different goals, constituents, services, and outcomes. We heard this loud and clear in the focus groups we held from both people in the philanthropic sector and in the nonprofit sector. Recognizing this challenge, the Impact on the Community standard focuses on the process of a nonprofit communicating to the public its mission-related accomplishments. The intended outcome of this standard is to start a dialogue between the nonprofit and donors.

The Council believes that knowing whether a nonprofit has accomplished or is making progress toward its mission-related goals is crucial in making a giving decision. The Council also believes that communicating future program goals allows donors to evaluate the nonprofit's alignment with their giving philosophy.

The nonprofit tells the public in its annual report or on its website, using specific objective information, what it accomplished in the previous year in relation to its mission and how it has impacted the community. The nonprofit also relates its goals for the next year.

In addition to hearing from people their thoughts about this preliminary standard, we’d like to hear how your organization evaluates its work. How do you tell the story of what, how and how will you know?

Next up: Financial Transparency

Thursday, June 25, 2009

How Do You Tell Your Story? - Public Information and Annual Reporting Standard

As was mentioned in the previous blogs, we're highlighting one of the new, preliminary Accountability Standard unveiled at the Charities Review Council's Annual Forum on June 17th. Check back every 2 to 3 days for a new post and please give us your comments.

The Public Information and Annual Reporting standard takes the current Financial and Annual Reporting standard and builds upon it. At the heart of this standard is the idea that to build trust with donors, a nonprofit needs to share its story in a clear, meaningful manner. The philosophy picks up on this notion with more detail:

Nonprofits that provide information to prospective donors and other constituents promote informed and responsible philanthropy. Donors are better able to make decisions when they can learn what a nonprofit’s purpose is, who governs it, how they manage their financial resources, who the nonprofit serves, and what progress it has made towards its mission.

The nonprofit complies with the legal requirements for public disclosure of the following:

  • 3 years of the nonprofit’s IRS Form 990, 990-EZ or 990T;
  • The nonprofit’s IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

The nonprofit also provides the following information in an annual report, by request, or as part of its website:

  • The nonprofit’s mission statement.
  • A list of the nonprofit's board of directors.
  • Annual financial statements prepared in conformance with Generally Accepted Accounting Principles (GAAP).
  • A summary of the total cost of each major program and the nonprofit’s fundraising and administrative costs as defined by either GAAP or as defined by IRS guidance for completing the IRS Form 990.
  • Descriptions of its program, activities, accomplishments and achievements in relation to its mission for at least the most recent fiscal year
  • Description of the communities or populations served, and the geographic area served.

If the nonprofit has a web site, the above information should be found on the nonprofit’s web site, preferably in one place so that the same content can be reliably printed and mailed upon request.

Although the list of things required by the standard may seem longer than the current standard, it’s actually not that much different. What is different is how a nonprofit can share this information. Whereas before the printed annual report was the main vehicle for sharing with donors and constituents a nonprofit’s story, more and more organizations are moving away from that to save costs. The standard recognizes this and the role a nonprofit’s website plays in conveying information.

If your organization has moved away from a printed annual report, we’d like to hear from you. Why was the decision made? How has it changed the way you communicate with your constituents?

Next up: Impact on the Community

Monday, June 22, 2009

Legal Compliance

As promised in the last blog post, today is the first post of the new preliminary Accountability Standards. Just to recap, we’ll be highlighting every two to three days one of the new standards and inviting you to comment on them. Since the standards are broken up in to the same four categories as before – Public Disclosure, Governance, Financial Activity and Fundraising – we’ll take the sections in that order. In addition to getting feedback about the new standards through this blog, we’ll also be heading out for a series of town hall forums across throughout the summer. Keep checking out the Accountability Standards page on our website for updates.

To start off, we’re going to be highlighting the Legal Compliance standard. Like all the standards that will follow, it’s actually two parts – a philosophy statement that gets at “why” this is important, followed by the standard which gets at “what” the standard is looking at.

To uphold the public’s trust in nonprofits and support regulation of charitable solicitations, a nonprofit should at a minimum carry out its actions in the accordance with applicable state and federal charity law. Federal and state regulation of nonprofits is essential to protecting charitable assets and safeguarding the public against charity-related consumer fraud.

For the previous three years (including the year under review), the nonprofit has not violated applicable provisions of state law in which the nonprofit is registered to fundraise or any federal law. If the nonprofit is actively fundraising outside of its home state, it is taking steps to monitor and ensure compliance with other states’ laws regarding charitable registration.

Unlike many of the other Accountability Standards that focus on reasonable expectations of accountable nonprofits that is often a higher bar than what law requires, this standard is strictly focused on whether or not the nonprofit being reviewed has violated any applicable laws. Despite this being what some might view as a relatively easy standard to meet, a lot of times a nonprofit doesn’t register (or doesn’t know that it has to register) in a state where it’s fundraising. (39 states and the District of Columbia require nonprofits to register). We’d be interested in hearing from people what they think of this. Is it too much to expect a nonprofit to register in every state it has a donor, even if it may cost more to register in that state then they get back in donations?

To quickly find out which states require nonprofit registration, check out the Unified Registration Statement website, which is a joint project of the National Association of State Charities Officials and the National Association of Attorneys General.

Next up: Public Information & Annual Reporting

Wednesday, June 17, 2009

Announcing The New Preliminary Accountability Standards

For the last twelve years, the current Accountability Standards of the Charities Review Council have helped strengthen the nonprofit sector and to mobilize informed donors. But a lot has changed economically, demographically, legally, and socially during this period of time and the time had come to update and revise the standards to reflect this.

Over the past year, the Council’s Program Committee has led a process that brought together donors, institutional funders, academics, nonprofit leaders and community representatives to craft a fair set of standards that are sensitive to a wide variety of constituents and will further strengthen an already vital and indispensable nonprofit sector. A preliminary set of the new Accountability Standards were just unveiled today at the Council’s Annual Forum, and we are now embarking on a four-month public input phase where we’ll be heading out across Minnesota and up to Fargo, North Dakota hosting town hall forums to get more feedback before finalizing the new standards this fall.

In addition to these town hall forums, we are going to be blogging too. Starting next week, every two to three days we’ll be highlighting one standard at a time in a new blog post and inviting people to comment and give us their thoughts. We’ll be starting with the standards in the Public Disclosure section first and then moving onto the Governance, Financial Activity and Fundraising sections after that.

Please keep coming back to the Accountability Wizard Blog regularly and we appreciate your comments. Thanks in advance.

Next Up: Legal Compliance

Monday, June 1, 2009

Free Wizard Webinar - June 10th

For nonprofit organizations thinking about going through the Accountability Wizard, I'll be hosting another free Accountability Wizard Webinar next week. Come learn how your nonprofit organization can work with the Charities Review Council’s Accountability Wizard to help build public trust and improve the visibility and reputation of your nonprofit.

Here are the details:

Accountability Wizard Webinar - Free
Wednesday, June 10th
10:00 - 11:00 am CT

There is no cost to attend the Webinar but registration is required. Seats are limited. Register now.

Monday, May 18, 2009

Accountability Wizard Scholarships Available

The Charities Review Council is pleased to announce that it recently received approval from the Marquette Financial Companies to award full scholarships to cover the cost of nonprofits interested in going through the Accountability Wizard. In today's tight economy when organizations are competing more than ever for public support, the Charities Review Council's Accountability Wizard provides nonprofits an opportunity to stand out and demonstrate its commitment to accountability and transparency to those who support them with donations and grants.

Scholarships are available on a first come, first served basis and are limited to organizations with annual expenses less than $2 million (as reported on its most recent IRS From 990). To take advantage of this limited opportunity, please click here. A Charities Review Council staff member will notify you shortly if you are awarded the scholarship.

If you have questions, please contact Martin Wera, Nonprofit Services Manager, at or 651-224-7030 x17.

Monday, April 27, 2009

Free Wizard Webinar - May 5th

I'd like to introduce myself. I'm Martin Wera, and I recently started at the Charities Review Council as the Nonprofit Services Manager. I’m here, along with the rest of the Council staff, to provide accountability-related technical assistance to nonprofits participating in the Accountability Wizard and ensure the fair and consistent application of the Council’s standards in the review process.

Speaking of the Accountability Wizard, I'm hosting my very first webinar for nonprofits thinking about going through the review process. For those interested, here are the details:

Accountability Wizard Webinar - Free
Tuesday, May 5th
2:00 - 3:00 pm CT

You can sign up for the webinar on our website at

Monday, March 23, 2009


The Charities Review Council has joined twitterverse. Hope you'll follow along:

Friday, January 23, 2009

Sweat the Fundamentals

Check out Rich Cowles' guest posting on Nonprofit SOS blog. This week, Rich talks about how sweating out the small stuff such as maintaining and practicing a conflict of interest policy can keep your organization out of an uncomfortable spotlight.

Tuesday, January 13, 2009

Tips for Nonprofits on Being More Transparent

Check out Rich Cowles' guest posting on Nonprofit SOS blog featuring tips for nonprofits on being more transparent.