Balancing the Mission Checkbook

Wouldn’t every nonprofit, and the nonprofit sector overall, love to be able to increase contributions by 50%? No problem!

I don’t actually have the magic trick to make more dollars come in the door. The big increase in contributions is already in our hands in the form of volunteer labor. It’s a fact. When the value of volunteer labor is included, the total amount of contributions to US nonprofits increases by over 50%.

Here’s the data in a nutshell: The Corporation for National and Community Service just released their annual Volunteering in America study. They report that 61 million Americans volunteered in their communities in 2007, donating 8.1 billion hours of service worth more than $158 billion. The recent Giving USA survey for 2007 reported that cash contributions exceeded $300 billion for the first time. This includes individuals, bequests, corporations, and foundations. The actual value of charitable giving, when donated labor is included, is over $450 billion.

Think about that – 8.1 billion hours is roughly equivalent to 4 million full-time employees. Wow.

Where does this $158 billion calculation come from? Every year, Independent Sector calculates an hourly equivalent for volunteer time. The current value is $19.51 per hour, which is reportedly based on the average hourly earnings of all production and non-supervisory workers on private, non-farm payrolls as determined by the Bureau of Labor Statistics. Independent Sector takes this figure and increases it by 12% to estimate for fringe benefits. (I will leave for another discussion the fact that many employees of nonprofit organizations earn less than this amount.) I encourage every nonprofit with volunteer labor to calculate this value for themselves.

Unfortunately, it’s too easy for this important economic information to be lost because of accounting rules. Most of this economic value is never reported in audited financial statements or IRS 990s. The applicable accounting rule, FASB 116: Accounting for contributions, limits the recognition of the financial value of volunteers to a very narrow definition. Because of this, the actual economic profile of many nonprofits is skewed. When comparing nonprofits to for-profit enterprises, we usually dwell on the role of contributed income and subsidy. The importance of contributed labor is easily lost. I understand why the accounting profession is concerned about accuracy and reliability when recognizing the value of volunteers. However, it’s time to revisit these accounting rules. We’ve been willing to overlook this financial under-reporting for years, but I think the importance and value of volunteers is becoming too significant to ignore for much longer.

End note: There’s a bit of local pride to be found in the new volunteering study. Minnesota ranks #3 by state and the Twin Cities is #1 for large cities in the percentage of the adult population who volunteer. Learn more about how to make the most of volunteers from Hands On Twin Cities.

Eight years ago, ACORN, a national grassroots community organizing nonprofit, was the victim of an embezzlement of almost $1 million from an employee who was the brother of the organization’s founder. The fraud was never reported to their board of directors or legal authorities, but a small internal group negotiated a restitution agreement and then kept the perpetrator on staff. The situation just became public after pressure from a whistle-blower and was reported this week in The New York Times. Quoted in the article, ACORN’s president said, “We thought it best at the time to protect the organization, as well as to get the funds back into the organization, to deal with it in-house.”

Can we make a list of the problems with this scenario? Among other reactions, I want to thank the whistle-blower, though I would like to know why it took eight years for anyone to think this was not OK. Yesterday, ACORN released a statement from the president apologizing for their handling of the situation and announcing that the founder (brother of the embezzler) had stepped down. The most alarming phrase in the statement is that “The ACORN Board recently learned …” How comfortable would you be if you sat on that board – with fiduciary responsibility – and learned that you had been sitting for years on this ethical powder keg?

The statement says, “We want to assure our many friends and supporters that ACORN’s Board has taken additional steps to ensure increased transparency and accountability” (emphasis mine). It seems to me that they need to start with basic transparency and accountability. They can start with a basic accountability overview from Independent Sector.

There is a lesson here for every nonprofit organization. Public trust really is the most important asset for each individual nonprofit and for the whole sector. It’s too easy to mess it up, which is why we all get asked to answer questions and fill out forms and certifications by donors, foundations, the IRS, state Attorney General, etc, etc, etc. As long as these kind of egregious situations occur, and especially when they are mishandled, nonprofits will be subject to deeper scrutiny and misgivings about trustworthiness.

In the midst of the big fundraising season of the year, I’m wondering about how much nonprofits really want to be open and forthcoming about their financial information. With all the talk about accountability and transparency, I don’t see a lot of evidence of easily available, freely shared financial information from most nonprofits. While I realize that I have a unique (and probably unusual) interest in financial information, I think that it’s important to walk the walk of transparency.

The Panel on the Nonprofit Sector, convened by Independent Sector, just released their report, Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations. The report lays out 33 practices “that should be considered by every charitable organization as a guide for strengthening its effectiveness and accountability.” Number seven on the list reads:

A charitable organization should make information about its operations, including its governance, finances, programs and activities, widely available to the public. Charitable organizations also should consider making information available on the methods they use to evaluate the outcomes of their work and sharing the results of those evaluations.

In the longer description of ways to implement this practice, the panel suggests an annual report and using websites to make available information such as the IRS 990 and other financial statements.

I would strongly suggest that nonprofit organizations make the effort to make usable financial information available on their website. The IRS 990 is already a public document, so it seems like the obvious tool for financial disclosure. However, I think we should go past the 990 to share better information, especially since everyone seems to agree that the current version of the IRS 990 is overly complex, confusing, and very difficult to use. A better solution would be having the audited financial statement easily available on the website. Many nonprofits already do this, but most do not. I checked the websites of six organizations in Minnesota that I have supported financially in the last few years. Of these six, one had their audit posted, three had a detailed annual report but no audit or 990, and two had no financial information that I could find. Why not post the audited financial report?

I recommend a look at the financial section from the website of The San Diego Lesbian, Gay, Bisexual, Transgender Community Center. In addition to posting their annual report and audit, The Center devotes a page to describing their financial management commitments and policies what a great a model of financial transparency.

In just a few days the comment period will end for the IRS proposed changes to Form 990. Since these proposed changes will impact every nonprofit organization that is required to file a 990 (nonprofits with revenues over $25,000) it will be worthwhile to pay attention to the comments and the IRS’ process for considering and responding to the input received. IRS hopes to have the changes finalized and a new 990 form in place for the 2008 tax year and they have a mountain of comments to digest if they want to stay on schedule. Many commentators, in fact, are urging the IRS to delay the implementation date of all or parts of the new form to allow time for more review and discussion of the impact of this major change. Comments are available for review on the IRS web site. Many state and national organizations have convened their members and constituents to analyze the draft and submit thorough comments, including Independent Sector and the National Council of Nonprofit Associations. Read these comment letters to get a sense of the analysis and feedback to the IRS.

Form 990 has not had a major overhaul in many years. The need for a change is widely accepted, and summarized well in the IRS background paper on the redesign: “The current 990 has not kept pace with changes in the sector and the law. Because of its history of ad hoc revisions, the current form neither adequately describes the filing organization nor provides a basis for comparing an organization with its peers.” The proposed redesigned Form 990 consists of a 10 page core form for all filers, and 15 separate schedules that will be required only of those nonprofits for which the information applies. This format will hopefully be much easier to read and keep related information together instead of scattered on different pages and schedules. It is very different, though, and will require learning a new structure and format.

The core form begins with a summary page with the organization’s mission and activities and several key points about activities, governance, and key financial information. While comments are generally positive about the summary page, there are concerns throughout the proposed form about questions that reach into what might be called best practices. Management and governance practices are developed to respond to an individual organization’s structure, community, financial situation, and activities and any simple yes and no questions can easily be misinterpreted without sufficient context. The comments reflect this concern over and over again, on questions about compensation, conflicts of interest, and audit committees.

The 15 proposed schedules range from supplemental financial information that will be required for most filers to schedules for tax-exempt bonds or foreign activities that would apply to a small percentage. There are several proposed schedules that will require new reporting for many organizations such as non-cash contributions and gaming and fundraising events. Some of these will necessitate additional recordkeeping and could be onerous. Hospitals have commented en masse requesting a delay of the implementation for a new schedule regarding community benefits and charity care.

I suggest you pay attention to this change as it goes through review and any further drafts or discussion. A clearer, more easily understood Form 990 will be good in the end, but will require much effort along the way.

In late November, I wrote an entry about the deluge of year-end appeals for individual contributions. As promised, I kept all the solicitations we received at my house between Thanksgiving and December 31. Here’s my report. We received 66 solicitations for funds in the mail from 55 different organizations (we got more than one each from nine organizations). The nonprofits range from arts, housing, international relief, youth and health care. I know why we’re on some of the mailing lists while others baffle me. My best guess is that I know someone who knows someone who volunteers or is on the board of directors. As I said in November, we responded with a check to a select number of the requests and put the others aside. I saved them all in a show box.

The most interesting way to analyze them, I decided, was to categorize the appeals into four types.

• First, and most compelling to me, were the thirteen requests that told a great story about their work.
• Second are the nine appeals that shared clear numbers and statistics about services and impact – numbers of meals served, children taught, small business financed, etc.
• There is a third group that I call “neutral”. These seventeen letters describe the organization and their work but fail to tell a story or to give much detail.
• The last category – ten letters – are the needy letters. “We need money to pay our rent!” “We face cuts in our budget without you!” “We can’t get enough in grants!” This type of request might make the case for some people but it doesn’t work for me. I want to know what the nonprofit does, not about how bad off they are.

The Chronicle of Philanthropy reported that 2006 was a good year for fundraising, with some organizations exceeding their goals. Anecdotal reports indicate that giving from IRA accounts made possible by tax law changes in August 2006 account for some of the surge, as well as a strong stock market and economic stability. The tax law change is a short-term opportunity so learn about it from Independent Sector for 2007 fundraising. Recent research conducted by Harris Interactive for the Wall Street Journal revealed that 83% of Americans donated to a charity in the last 12 months. These reports are good news for everyone who understands the role that nonprofits play in the community and the world.

I also wrote in November about recent research and trends in donor relationship management. Donors want to have more say about how they hear from organizations they support and what kind of information and solicitations they receive. I was pleased that three of the letters offered us some choices about communications, and one was clearly customized based on our attendance at a specific performance. Now I need to get back to all the other organizations and either get off their lists and save them some postage or start the kind of relationship that I - the donor - want to have.

October was conference month for me. I attended four annual conferences of statewide or national organizations. I started with the joint conference of the Minnesota Council of Nonprofits and MN Council on Foundations followed by the MN Association of Community Health Centers, Independent Sector and ended with Opportunity Finance Network. One conference each week in a single month – why does everyone have to meet in October? I attended five plenary sessions, three keynotes, two awards dinners, and (I think) eleven topic sessions. I also presented three of the sessions at two different conferences.

I heard many smart and experienced people talk about important, urgent issues. I learned about technical and financial topics and policy and economics. After all of my conference experiences this month, I have one burning question: what’s the point of PowerPoint? Many of the conference sessions included a PowerPoint presentation, but in very few cases, did the visuals add anything of value. I hate to admit it, but the PowerPoint that I created for one of my sessions was a case study in dullsville. We all complain about it, but when are we going to stop mistreating our audiences and improve the practice?

The typical use of PowerPoint at the conferences was a number of slides with 4 to 8 bullet points containing 40 to 70 words. Most used no visuals except the logo of the presenter’s organization or a Microsoft design template. In many sessions the presenter also distributed printed copies of the slides as a handout. The best of the presentations used the slides as a focus point for the audience with key phrases and issues. Less effective presentations used slides with every word of the information, lots of data and detailed descriptions, and lists of the names of the panel members and topics for the session. The worst users included slides with complex charts that were unreadable both on the screen and on the printed page. Unfortunately, the audience can end up frustrated, confused, bored, or insulted.

Despite my complaints, I don’t hate PowerPoint. Research about learning styles shows that many people learn through visuals, and PowerPoint can be a great communications tool. Here are a few suggestions to improve your use of PowerPoint:

• Learn how to use PowerPoint. It’s not a difficult program but there are features that need practice and testing.
• Good presentations don’t just happen, they require planning and preparation. The problem with templates is they make it easy to take shortcuts and create a bad presentation.
• PowerPoint is a visual tool – make it visually interesting and engaging with pictures and graphics that build on your message. This includes both the pictures and the slide design.
• Get a copy of the book “Why Bad Presentations Happen to Good Causes” published by Cause Communications. This terrific book, less than 100 pages long, is full of practical information to improve presentation content, delivery, and use of PowerPoint. Most nonprofits can get a copy for free.
• Visit David Canfield’s 8 Mistakes of Microsoft PowerPoint Presentations for a list of common mistakes we have all made at one time or another.
  

I’m back from conference-land. Next week I’ll be back with thoughts about financial issues for nonprofits.