Monday, August 31, 2009
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
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
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
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
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
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
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
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