Phil Chang's List: Nonprofit Governance

• Rethinking the Potential of Advisory Groups
• "I am deeply concerned that the connection to community of larger nonprofit organizations providing services . . . may be more rhetoric than reality," said Saidel in a recent interview. "These organizations may once have had strong ties to families and communities, but growth in size, bureaucratization, and professionalization risk diminishing the vitality of, or even severing, the linkage.
• Advisory groups can keep nonprofits closer to the people they serve by acting as ambassadors, legitimators, and advocates for nonprofits.
• Through the advisory group, "our community knows about us, and we know that we are a part of them and we're not just an institution that is physically located in this community but has no connection to the community," he said.
• Boards of directors may also gain a valuable shift in perspective from an advisory group.
• In order for an advisory group to work well, it is vital that it have a clear and substantive mission and that its role in relation to other decision makers is understood.
• Establish and Maintain a Clear and Substantive Mission
• Understand the Advisory Group's Role in Relation to Other Decision-Making Bodies

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• The Dirty Little Secret of NonProfit Boards

• Fact:

   

  On virtually every board of every NonProfit throughout  the world, there are board members who do not understand how to read a balance  sheet, a profit & loss statement, or any of the other financial data boards  typically review and vote on.
• 1) Among your organization’s financial policies  (you do have financial policies, don’t you?) should be a policy that all  board members will evidence a knowledge of basic financial information. They  should evidence that they understand what a balance sheet is, what a profit and  loss statement is, what a budget is.
• 2) Financial training should be part of your orientation  program - with a test at the end.
• 3) Consider changing your bylaws to prohibit anyone from  voting if they haven’t evidenced basic financial understanding.
• Economics has more to do with understanding how the world works and  how decisions affect other decisions, than it has to do with numbers.
• The  balance sheet is a snapshot of your organization’s financial status TODAY,  describing the relationship between what you own RIGHT NOW vs. what you owe  RIGHT NOW.
• The  question answered by the balance sheet is simple: As of this very moment, how  stable is our organization? If we were to put all the facets of our  organization on one of those old-fashioned scales, would it tip over towards  the side with the debts on it, or would it tip to the side of what we  own?
• The  Profit and Loss Statement is like a summary of your checkbook, broken down by  category. The P&L answers this question: What did we spend money on, and  where did that money come from? One of the most important things to  remember about this report is that it looks at the past.
• There  are, in fact, good reasons to examine the expense side of this report. One of  those is to examine areas where proactive policies could prevent future  problems.
• But the  area of real value for this report is one most boards ignore - the income side.  Most boards miss the opportunity to examine, for example, whether the organization is receiving  its funding from diverse sources, or whether all its eggs are coming from one  basket - perhaps government funding or grants.
• The  budget is evidence of the board’s priorities. A budget that changes little  from year to year is often proof of a board with few priorities for what the  organization should be accomplishing in the community. A budget that shows  marked change from year to year is often evidence of a board with aggressive  priorities for making a real difference in the community.

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• Standards for Charity Accountability
• These standards replace the separate standards of the National Charities Information Bureau and the CBBBs' Foundation and its Philanthropic Advisory Service that were in place at the time the organizations merged.
• The Standards for Charity Accountability were developed with professional and technical assistance from representatives of small and large charitable organizations, the accounting profession, grant making foundations, corporate contributions officers, regulatory agencies, research organizations and the BBBs

• Organizations that comply with these accountability standards have provided documentation that they meet basic standards:

   
   
  • In how they govern their organization,
  
  
   
  • In the ways they spend their money,
  
  
   
  • In the truthfulness of their representations, and
  
  
   
  • In their willingness to disclose basic information to the public.

• In addition to the specific areas addressed in the standards, the BBB Wise Giving Alliance encourages charitable organizations to adopt the following management practices to further the cause of charitable accountability.

   
   
  • Initiate a policy promoting pluralism and diversity within the organization's board, staff, and constituencies. While organizations vary widely in their ability to demonstrate pluralism and diversity, every organization should establish a policy, consistent with its mission statement, that fosters such inclusiveness.
  
  
   
  • Ensure adherence to all applicable local, state and federal laws and regulations including submission of financial information.
  
  
   
  • Maintain an organizational adherence to the specific standards cited below. The BBB Wise Giving Alliance also encourages charities to maintain an organizational commitment to accountability that transcends specific standards and places a priority on openness and ethical behavior in the charity's programs and activities.
• STANDARDS FOR CHARITABLE ACCOUNTABILITY  

   

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   GOVERNANCE AND OVERSIGHT
• MEASURING EFFECTIVENESS  

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  An organization should regularly assess its effectiveness in achieving its mission. This section seeks to ensure that an organization has defined, measurable goals and objectives in place and a defined process in place to evaluate the success and impact of its program(s) in fulfilling the goals and objectives of the organization and that also identifies ways to address any deficiencies. To meet these standards, a charitable organization shall:
• 6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission.
• FINANCES  

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  This section of the standards seeks to ensure that the charity spends its funds honestly, prudently and in accordance with statements made in fund raising appeals. To meet these standards, the charitable organization shall:
• Spend at least 65% of its total expenses on program activities.
• Spend no more than 35% of related contributions on fund raising.
• Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher.
• Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities.
• Accurately report the charity's expenses, including any joint cost allocations, in its financial statements.
• Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.
• A fund raising appeal is often the only contact a donor has with a charity and may be the sole impetus for giving. This section of the standards seeks to ensure that a charity's representations to the public are accurate, complete and respectful. To meet these standards, the charitable organization shall:

• 16. Have an annual report available to all, on request, that includes:

   
   
  1. the organization's mission statement,
  
  
   
  2. a summary of the past year's program service accomplishments,
  
  
   
  3. a roster of the officers and members of the board of directors,
  
  
   
  4. financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets.
• Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990.
• 8. Address privacy concerns of donors by
• 19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation:

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• Nonprofit Resources

• Is your nonprofit in need of resources and solutions?

   

  Small and midsize nonprofits are the face of the nonprofit sector.

• Unrelated Business Income
• sponsorships (which, as opposed to advertising, can only show the contributor’s name and/or logo, but cannot advertise products or services. Only when a person buys and controls the content of a certain amount of space does the IRS consider it to be advertising.)

• Sponsorship versus advertising
• Defining Sponsorships
• When an organization provides money and receives an “insubstantial” amount of benefit for it, that is considered a sponsorship. An insubstantial benefit would be something along the lines of “Made possible in part by [Sponsor Name]” or a small logo.
• Defining Advertising
• If the organization providing money receives a “substantial” benefit from their relationship with the nonprofit, then this is considered advertising. Some advertising is obvious – paid ads in the back of a nonprofit’s newsletter, for instance, or a big banner at a special event. Basically, any time an organization buys and controls a certain amount of space or time, that is advertising.
• Endorsing a funder, no matter how well deserved, is quite beneficial to that organization, and thus considered advertising.
• ” Allowing a funder to put brochures into grab bags would also be considered a form of advertising.
• A sponsorship is considered something akin to a donation.
• advertising is considered Unrelated Business Income (UBI) and will be subject to UBI tax if it is not a one-time occurrence. This is not to say that non-profits should not accept advertisements. Some do, all the time, with great success. But non-profits do need to be aware of the accounting and tax implications of doing so.

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