Philanthropy Front and Center - Washington, DC

Glasspockets Find: The Annual Conference Goes Digital

The explosion of social media is having a multiplier effect on the reach of the traditional annual conference.  Long gone are the days when only those lucky enough to travel to the host city were able to attend a few sessions, network with peers, and grab as many handouts as possible to share with the folks back home.  With today’s social media, everyone in attendance can be a virtual fly on the wall, able to connect with everyone on the outside—in real-time—via text, audio and video.  A new window—transparency—is coming of age, bringing with it the potential for increased participation.

As a case in point, take the 2012 Annual Conference of the Council on Foundations that concluded in Los Angeles in May.  Here are some of the topics of discussion that have emerged which you can explore, or even add to the dialogue:

• Challenges and Opportunities for Foundations Communicating in a Digital Age
• Do IRS Nonprofit Media Rules Need a Digital-Age Update?
• The Power of Storytelling

A rich media archive of tweets, blogs, recordings, and images is now available, opening up new possibilities for more and more people to learn and interact than ever before.  As one of two Strategic Partners for the 2012 conference, The James Irvine Foundation asked three of its grantees who participated in panel discussions to share some of their thoughts.  It’s yet another example of our world becoming ever more transparent, with multiple points of entry.

-- Mark Foley

Too Many Nonprofits?

Last week, the Urban Institute hosted a fascinating panel discussion, "Are There Too Many Nonprofits?". You can watch the archived video here. Moderated by Elizabeth Boris of the Urban Institute, panelists included David La Piana (consultant), Mark Pacella (Pennsylvania Office of the Attorney General, but speaking for himself), Pat Read (consulant), and Washington DC's own Glen O'Gilvie (CEO, Center for Nonprofit Advancement). See more bios at the links and see the handout that went along with the program here (pdf). Here were my top takeaways from the discussion- with a few thoughts of my own added.

Are there too many nonprofits? It depends on who is asking, and why.

Funders think there are too many nonprofits asking them for money. Nonprofits think there are too many other nonprofits competing with them for money. Politicians (particularly the local ones) think there are too many nonprofits depriving them of needed tax revenue. Regulators, often focused on the "problem" nonprofits, see too many nonprofits accomplishing too little good.

Then again, as David La Piana pointedly noted, there are many underperforming, scandal-ridden and ineffective for-profit businesses, and no one's asking if we have too many of those. Ultimately, we may have too many nonprofits, but we don't have too many services. We need more resources in the nonprofit sector to solve the challenges facing our society today- regardless of the actual number of nonprofit organizations.

Any discussion of too many nonprofits, of course, leads to talk of mergers (or, in corporate speak, M & A- Mergers and Acquisitions).

"Merger" is a loaded word. Instead, say "conserve, collaborate, and consolidate". Still, it is an extremely difficult discussion- for three basic reasons.

1.  Every nonprofit believes it has unique approach and/or serves a unique need; therefore, if they go out of business the needs of their audience will not be addressed effectively, or a unique need will not be addressed at all.

I would add this is not simply the result of inflated egos. In seeking funding, nonprofits are almost always encouraged to think of themselves as unique, continually asked questions such as: How is your approach different? How will you solve the problem where others have failed? Why should we fund you, rather than a similar organization? What is your "unique value proposition"?

Additionally, there are always more needs than resources, so every nonprofit can be addressing a need, even if most of us would agree that there is a more pressing need elsewhere.

In this environment, it is no wonder nonprofits have a hard time imagining a merger that doesn't hurt their organization/clients/constituency. And uniqueness is closely tied to the next issue...

2. Control. This issue comes up more at the start-up stage, both for traditional nonprofits and interestingly, foundations. Very small foundations may in fact be better served by a donor-advised fund or community foundation, but everyone wants control of the assets- in perpetuity.

Individuals looking to start nonprofits see their ideas as so unique, they can't imagine taking it to an existing nonprofit or giving up an iota of control over the idea's implementation. It is their idea, and they will be the ones to see it through (we see this every day with customers in the Foundation Center library).

3. No nonprofit leader in their right mind wants to merge/collaborate/consolidate their financially healthy organization with another nonprofit that is soon to go out of business. Yet this is nearly always the point when the ED/board of a struggling nonprofit starts thinking about a merger.  And in many cases, a severely struggling nonprofit has a demoralized workforce or dysfunctional culture that no other organization wants to take on. Therefore, merger discussions must happen before there is a dire financial need, and- critically- funders must realize that mergers cost money and an enormous amount of time.

Ultimately, it is asking a great deal for nonprofit leaders to enthusiastically embrace mergers when it often means a loss of control, a loss of services, and a loss of jobs. There may have to be a stronger force to persuade nonprofits to collaborate/merge- i.e. funders, both private and public. Or we'll just have to tolerate the many nonprofits limping along on reduced funding.

Q and A- But what about diversity of ideas and the grassroots?

The question and answer session included several questions that boiled down to this:
Small and grassroots nonprofits allow for a diversity of ideas and approaches that create real solutions. If everything is consolidated into larger structures, we'll be a less effective sector as a whole. What do you say to that?
The panelists hastened to state that they were all in favor of small, grassroots organizations doing meaningful work (though I have to say the audience can't be faulted for thinking otherwise, given the tenor of the conversation to that point). What many panelists seemed to agree about was that we don't necessarily have too many nonprofits, but we do have too many of the wrong kind of nonprofits.

And this led- as these conversations often do- to the third rail of nonprofit discussion: the tax exemption. Should all nonprofits receive the same tax exemption? Should certain types of nonprofits (human services, for example) receive a greater tax exemption than others (arts, for example). It is a tough call and a tough discussion.

What do you think?  Should nonprofits be "persuaded" to collaborate and consolidate more often? Who would do the persuading? Would having fewer nonprofits increase impact and provide better outcomes?

The IRS Releases New Search Engine for Charities and Other News

Revocation of tax-exempt status and reinstatement... a revised Form 990 for 2011... a new Search Charities tool! There is a lot happening in the Exempt Organizations Division of the Internal Revenue Service, and Lois G. Lerner, director of the division, explained some of it during her January 26 webinar, A Conversation with Lois Lerner. The program was hosted by the department of Public Policy and Government Affairs of Independent Sector and featured a brief presentation and an extended Q&A.

Here is what we learned:

2011 Form 990
The 2011 Form 990 and instructions have been released online. They contain changes to several schedules - find out what the re-designs are here. (Use "Revision Date" to toggle to 2011 changes.)

Ms. Lerner urged listeners to provide comments on the new 990 and let us know that the Form 990 will continue to evolve. Send an e-mail to form990revisions@irs.gov or comment online.

Where Is Search Charities?
If you've been wondering what happened to Search Charities on the IRS web site, Ms. Lerner explained. That quick look-up tool has been replaced with Exempt Organizations Select Check, a more flexible and efficient search engine released a few days ago. Select Check allows users to choose among three databases of organizations -- that 1) "are eligible to receive tax-deductible contributions", or 2) "were automatically revoked", or 3) "have filed Form 990-N (e-Postcard)".

The three databases allow for searching by EIN (an added search field), name, city, state, ZIP code, country, and revocation posting date (in the case of organizations on the automatic revocations list). Use the Exempt Organizations Select Check – Search Tips page for good advice on finding the data you need.

Backlog on Determination Applications
For those that use the IRS web site to gage when their application for tax-exempt status will be reviewed, there's good news, at least for some.

If you look on the site today, you'll see, "Currently, we are assigning applications received in June 2011." June?! Ms. Lerner explained that to be absolutely accurate, the IRS chooses to post the longest "wait time" for the assignment of applications instead of the shortest. The longest corresponds to problematic applications; the shortest to complete and accurate ones. To find out for sure where your application is in the review process, Ms. Lerner suggested that you contact the IRS directly.

Revocations
The push to clean up the IRS master file of tax exempt organizations appears to have worked, according to Ms. Lerner. As you probably know, in mid 2011, after alerting nonprofits since May 2010 that they would lose their tax-exempt status if they did not file their required annual information returns, the IRS published an initial automatic revocation of exemption list. We learned today that of the close to 400,000 organizations that lost their tax-exempt status, only about 9,500 of them applied for reinstatement.

To keep nonprofits in the loop about tax policy and other important information, the Exempt Organizations Division puts out a newsletter, EO Update, which also gives updates on new forms, guidance, and training opportunities. Subscribe here.

Originally posted by Inés Sucre, Reference/Outreach Librarian at the Foundation Center-New York office. Thanks, Ines!

Glasspockets Find: Beyond the Grant Dollars, Hewlett Foundation Explains Tools Available to Support Grantees

As we continue to showcase examples of foundations' transparency, Paul Brest, retiring president of the William and Flora Hewlett Foundation, provides a nice window into the thinking behind the foundation's work. Grants aren't the only way the foundation seeks to solve social and environmental problems. In Beyond the Grant Dollars, his opening essay of the recently released 2010 Annual Report, Brest pulls back the curtain to explain the added value of the program staff in magnifying and maximizing impact.

He writes, "The Beyond the Grant Dollars project has two primary objectives:

• To improve the Foundation staff's and Board's decisions about the mix of strategies and the allocation of financial and human resources that can best achieve our goals.
• To determine the skills, experience, and other qualities we should look for in new staff members and ways to improve the development of Foundation program staff."

Brest does a fine job detailing a number of ways that funders like the Hewlett Foundation employ staff to get the biggest bang for the buck, all the while trying to keep their eyes on the prize. With solid examples from the foundation's own experience as a highly engaged philanthropist, he thoughtfully presents the rationale for the various tactics mobilized for mission achievement. And, as in the best instances of lessons learned, he does not only discuss successes. In his own words, "potentially high returns also involves a significant risk of failure."

Finally, Brest mentions the desire to capture the substantive knowledge that program staff acquire in their fields and in their various activities and disseminate it for internal use as well as externally "when it has the potential to inform nonprofit organizations, foundations, and others."

View the President's Statement and the full Annual Report, or see past Annual Reports dating back to 1966.

Originally posted by Mark Foley on the Glass Pockets Transparency Talk blog.

Catalogue for Philanthropy 2012-2013 Application Period: Jan. 3 - Feb. 13, 2012

Shine a Spotlight on Your Nonprofit!

How, you ask? Apply to be included in the next edition of the Catalogue for Philanthropy: Greater Washington!

The Catalogue is a trusted resource providing information on over 300 small nonprofit organizations in the DC area. Since 2003, this annual publication has helped charities in our region raise more than $15 million.

The Catalogue introduces people (maybe future donors!) to high impact, carefully evaluated nonprofits with budgets below $3 million. Though these smaller organizations comprise the great majority of all charities, the public rarely hears about them because most cannot afford to make themselves heard. Yet they are right here, working hard to make life better in every arena of our lives: protecting our rivers, keeping the arts alive, teaching our children to succeed in school, healing the uninsured, protecting our vulnerable citizens.

You can find guidelines and more details on the Catalogue's web site. The deadline for the first part of the application is   Monday, February 13, 2012.

This post is a revision of one posted by Trina Brown in February 2011.

Living with the Gates Foundation

The Bradley Center for Philanthropy and Civic Renewal of the Hudson Institute hosted a panel discussion,"Living with the Gates Foundation," on the impact of the Gates Foundation on philanthropy.  The panel  discussion was based on a series of articles that ran in the September issue of Alliance Magazine. It's worth the time to listen to the recording even if you are not currently being funded by the Gates Foundation because there is a high probability that you are only "six degrees of separation" away from an organization that is!

One set of perceptions that were particularly thought-provoking were delivered by Edward Skloot, Director of Duke University's Center for Strategic Philanthropy and Civil Society.  He observed that, while Gates is following all the "best practices" of the field of grantmaking, it is also getting criticized for exerting undue influence on the field.  What best practices is the foundation following? Skloot listed:

• focusing their grantmaking,
• relentlessly advocating for their causes,
• using the media,
• collaborating,
• committing for the long haul,
• looking for impact and scale,
• leveraging their assets,and
• having leaders who are politically savvy and ubiquitous.

Given the practices and financial capacity of the Gates Foundation, will other foundations change?  Will nonprofits change their strategies in the face of its enormous funding capacity?  One panelist asked who will "speak truth" to Gates?

When the Internet first appeared on the scene, many referred to it as a tool, but now we see how it has gone beyond its function as an information delivery system. It has changed human behavior and communication. Clearly, the Gates Foundation is not simply a dispenser of grants. How far do you think they will get as a global change agent?  How are you connected to the Gates Foundation?

 

 

 

 

 

 

  

2011 Grantee Community Call Hosted by Bill and Melinda Gates Foundation

Glasspockets is the web site created by the Foundation Center that focuses on transparency in philanthropy. Transparency Talk is its blog where this piece was originally posted.

As part of our "Who Has Glass Pockets" transparency and accountability assessments,the Foundation Center regularly scouts for mechanisms that allow grantmakers to receive ongoing grantee feedback, as well as ways in which grantmakers are using technology to build networks and learning communities.

How does the nation's largest foundation encourage two-way communication and engage with its global grantees? One method is through its second annual Grantee Community Call. I had the opportunity to listen in on the first of two one-hour conference calls (12 hours apart) that were hosted by the Bill & Melinda Gates Foundation on November 21. With more than 600 participants on this call, the session began with CEO Jeff Raikes citing the importance of understanding the perception and the reality of working with the Gates Foundation and the critical role of "smart collaboration" between the foundation and its grantee partners and with other funders. He repeated the foundation's commitment to grantees based on three concepts: quality interaction, clear and consistent communication, and opportunities to provide feedback that will be used to make continuous improvements. Indeed, this Grantee Community Call was a means to put this philosophy into action—and may serve as a good example for other grantmakers with a lot of ground to cover.

Grantees were reassured that the foundation's priorities will not be changing, despite two new leadership additions and the melding of the Global Health Program with the Global Development Program. The foundation also remains committed to the evolving process of breaking down silos in order to integrate and better coordinate the sharing of information across multiple sectors, both internally and with its grantee partners.

The first half of the community call featured presentations by three program directors: Gary Darmstadt, director, Family Health; Vicki Phillips, director, College Ready; and Sam Dryden, director, Agricultural Development. Each, in turn, reinforced the foundation's commitment to constructive, effective relationships by:

• encouraging grantees to challenge the foundation to strive for continuous improvement at various levels;
• working together as thought partners;
• breaking down internal silos to encourage cross-sectional integration; and
• promoting transparency and welcoming accountability.

The second half of the session was a time for questions and answers. Participants were able to submit questions before the call via an e-mail address and during the call via a special Twitter hashtag and by queuing up with the conference call operator. There was time for nearly a dozen questions from a representative assortment of grantees, including callers from Asia and Africa.

What was perhaps the most impressive take-away was the seemingly genuine and sincere effort of the Gates Foundation to display respect and gratitude to its grantee partners. As Mr. Raikes said in conclusion, [we strive for] "greater impact together." With multiple opportunities for feedback, grantees should not hesitate to engage with the foundation in their mutual goal of improving lives. One very interesting, and rare, feedback mechanism allows grantees to anonymously report issues that raise ethical concerns to EthicsPoint, a service provided by an independent third party.

Finally, the foundation plans to conduct its next Grantee Perception Report, working with the Center for Effective Philanthropy, in the first quarter of 2013.

Recorded versions of the 2011 Grantee Community Calls are now available on the foundation’s web site.

-- Mark Foley, Foundation Center-Washington, DC

If your organization participated in this call, let us know what you thought of it!

Expert Answers to Tough Financial Questions

Last month we hosted a special program titled Introduction to Nonprofit Financials with guest speaker Adam Tenner, Executive Director of Metro TeenAIDS. During his 20 years of experience in the social sector, Adam has developed a strong, practical knowledge of nonprofit finances, and his presentation provided valuable information for the audience.

To follow up on the presentation, and for those who couldn't attend, Kim Patton, our Training Coordinator, asked Adam some financial questions that we've heard from nonprofits. Here are Adam's answers.

In tough economic times when we’re all on a tight budget, what’s a good strategy for building a cushion or cash reserve?

Saving money is great, but the first thing for organizations to do is to be realistic about the potential for putting money away for a rainy day. For many of us, it’s already raining cats and dogs. And while the economy seems to be picking up in some sectors, raising money is not easy right now and probably will only improve very gradually.

If your organization is trying to put some money away, then building those cash goals into your budget is the best place to start.  I have a mantra when it comes to budgeting -- “under-estimate revenue and over-estimate expenses.”  If you can do that and still plan for money at the end of the year, I think you’d be on the right track.

The “experts” tell us that best practice is to have three to six months of cash in the bank that could be used in difficult times.  But when I came to Metro TeenAIDS in 2001 and we had a deficit of $150,000 and a maxed-out line of credit, I can tell you that building cash reserves was not top of my list. That said, we put our nose to the grindstone and after a few years, as we paid off our bills, we did begin to save. 

Along those lines, do you think every nonprofit should try to establish an endowment? If so, how?

Endowments are funds that are put away for the VERY long term, usually with the idea that the interest from that money will help to pay for programs or infrastructure. Endowments are primarily used by very large institutions. But some innovative organizations have started to build endowments very early by asking donors to identify a portion (or all) of their donations to go to endowments. If an endowment is the gold ring you’d like to grab, you should make sure that you have a good plan to get there. 

For most nonprofits, we need our cash as “liquid” as possible, meaning that access to our cash needs to be easy.  But as we grow our organizations, we need to consider moving towards saving our money for a rainy day -- building those cash reserves. And as organizations build cash reserves, it begins to make sense to consider how to make our money work for us by investing it.

As a new or small nonprofit, your biggest challenge is likely to be managing your cash flow. What’s the most effective strategy for doing that?

I like to use a cash flow projection worksheet. It allows me to really know when cash is coming in and when it’s going out. You start with the actual amount in the bank and then track revenue and expenses each month or quarter to best understand the ebbs and flows of your cash. For most organizations, the summer months are slow when it comes to donations. Using a cash flow projection can help to plan for the dry times.
[Adam provided a Sample Cash Flow Projection Worksheet.]

To be most attractive to funders, what is the ideal ratio between your administrative costs and direct services or program costs?

The United Way has set the standard. Ideally, 75% of the organization’s expenses should be program expenses. That is to say that for every dollar you’re given, at least 75 cents will go towards programming.

There have been many articles debating whether or not it’s reasonable for nonprofits to run all their fundraising and administrative costs at under 25%, but so far the 75-25 ratio has stuck. 

There are some things that folks can do to help make sure expenses are being accounted for properly.  As the executive director, I do spend some of my time talking about, planning and working with programs. When I do, my time sheet reflects this. Also, if your organization does a newsletter, some organizations put those expenses to fundraising. But smart organizations look at the newsletter and decide what percent is truly fundraising and what percent is sharing your program results with your stakeholders. It may be that you can charge some of your newsletter to programs!

Do you have any suggestions for low cost or, better yet, free financial management software?

TechSoup has many options for low cost financial management software. There are also online courses available that can help groups get started.

I do have two pieces of advice for folks who are trying to get their financial house in order.

The first, and best, advice is to find someone who knows what they’re doing to help. I’ve been doing this work for nearly 20 years –- 10 in my current job –- and I’m convinced that good financial recordkeeping and management must be the cornerstone of nonprofit “business” practices. I have often said that the best leaders are those who are honest about their strengths and who truly understand (and compensate for) their weaknesses. 

The truth is that if you’re making a commitment to run a nonprofit, you’re going to be running a business. Now you don’t need an MBA to do this, but there are some basics, like bookkeeping, that can make a big difference. 

The good news is that there are bookkeepers out there that specialize in nonprofits and who charge as low as $25 per hour. I promise that a good bookkeeper is a worthwhile investment. At a minimum, consider getting a professional to help you set up your accounts and to give you a tutorial. Then pay them 1-2 hours per month to review your work. You won’t be sorry.

The second piece of advice is that once you have someone you trust doing your books, let as few people as possible touch the database.  One of my mentors always used to say, “Well begun is half done.”  If you get someone to set up a beautiful set of accounts, you don’t want folks messing with it. Cleaning up a screwy database is nearly impossible. So keep mistakes to a minimum –- or at least consistent -– by allowing as few folks as possible to enter data. Do that and have the bookkeeper review each month, and you’ll keep your financial house is good order.

Got more questions? Stop by the Foundation Center's library! We have a variety of books on our shelves with information on bookkeeping, accounting and finance for nonprofits.

IRS Revokes Tax-Exempt Status of Organizations Not Filing Annual Returns

After alerting nonprofits since May 2010 that they would lose their tax-exempt status if they did not file their required annual information returns, the IRS has just released its initial automatic revocation of exemption list.

Automatic revocation of status occurs as a consequence of not filing either a Form 990, 990-EZ, 990-PF or Form 990-N (the e-Postcard filing for small organizations with gross receipts of under $50,000) for three consecutive years. Automatically revoked organizations are not eligible to receive tax-deductible contributions and will be removed from the cumulative list of tax-exempt organizations, Publication 78. They may also have to pay federal income tax.

Nearly 20,000 nonprofit organizations in New York State appear on the IRS's revocation of exemption list. For easier access, The Chronicle of Philanthropy has created a searchable database of this list. An article in the June 8 Chronicle of Philanthropy outlines the details of the issue.

The automatic revocation of exemption list also alerts donors and foundations that the organizations included are no longer eligible to receive tax-deductible contributions. Donors are also reminded not to rely on an IRS determination letter dated before the date of revocation or on a prior listing in Publication 78.

What Can You Do If Your Organization Loses Its Tax-Exempt Status?
The IRS spells it out:

• Since the revocation of status is automatic, there is no appeal process. Thus, an organization must re-file the Form 1023 (or 1024, if applying for other-than a public charity) to reinstate its tax-exempt status.
• Apply using the EIN assigned previously to your organization.
• If the IRS determines that the organization meets the requirements for tax-exempt status, it will issue a new determination letter.
• Pay a user fee based on the organization's annual gross receipts.
• Direct the application to its correct destination by writing "Automatically Revoked" at the top of the application and envelope.
• Mail the application to:
  Internal Revenue Service
  P.O. Box 12192
  Covington, KY 41012-0192
• An organization may request a retroactive reinstatement, if it can claim a reasonable cause for not filing its annual information returns.

Smaller Charities Get Some Relief
Small organizations that have lost their tax-exempt status because they failed to file a Form 990-N e-Postcard beginning in 2007, 2008, and 2009:

• Will be able to claim a reasonable cause for failing to file, if they submit to the IRS an application for reinstatement of tax-exempt status.
• Should write "Notice 2011-43" at the top of their application and on the mailing envelope.
• Will pay a reduced user fee of $100.

On the IRS web site, you will find a list of frequently asked questions, a fact sheet and a news release on this matter.

-- Ines Sucre, Reference/Outreach Librarian, Foundation Center-New York

Not a Financial Whiz?

Then don't miss the opportunity to learn from one!

We invite you to attend a special free program Introduction to Nonprofit Financials on Thursday, June 2, from 10:00am - 12:00 pm. Our guest speaker will be Adam Tenner, Executive Director of Metro TeenAIDS, and he will provide an overview of nonprofit financial information for non-accountants.

Feel like just the mention of accrual accounting or budgeting makes you start yawning? Well, this is not your accountant’s idea of financial oversight -- it’s an “every person’s” approach that includes plain English definitions, practical ways to read financial reports, and budgeting. 

Adam has worked with a variety of HIV prevention and adolescent health programs for over 20 years. When Adam came to Metro TeenAIDS in 2001, he dramatically improved the organization's finances and refocused its direction. In 2006, Adam won the Gelman, Rosenberg & Freedman EXCEL Award for excellence in chief executive leadership. So he can offer a real world perspective when it comes to effectively managing the money for a nonprofit.

Register now for this valuable class to help you keep a handle on your organization's finances!