You’ve probably heard it said often ‘The tone at the top sets the pace for the organization.” It’s just as true for nonprofits as it is for business.
Take, for example, the matter of clarity and transparency in the organization’s reporting internally and externally. If the Board President, and the Board of Directors, and the CEO are all pushing clarity and transparency, then that becomes the characteristic of the whole organization. And if that is not the case, then we tend to want to get away with whatever we can.
So, let’s say we’re dealing with the “cost to raise$1” standard of performance. There’s two ways to represent that: one is to report more obvious costs of fundraising, such as website and internet costs, printing costs, travel, hotels and meals, etc. The other way is to include salaries and benefits of the professionals and volunteers involved in cultivation and solicitation at all levels.
Case Study #1
George S., the ABC Charity’s grant writer sees that the I Care Foundation wants to know the organization’s overall cost to raise $1 for the application they are currently preparing to that Foundation. So George goes to his Director of Development, Mary, for that information, and she goes to the chief financial officer, Frank, in turn.
The first thing these three do is look at how the CEO, Herb T. has talked about the organization’s fundraising expenses in the past. The Annual Report had no listing for fundraising expenses at all. The narrative of that report spoke in glowing terms about the revenues raised, but not a word about expenses. The expense chart didn’t list fundraising expenses either; these were buried inside other, more general figures. Looking at the organization’s un-audited (“Too much expense!” said the CEO each year.) financial statement, one could not discern that there was anything at all expended for fundraising. It all looks like program and administrative expense.
Consequently, Mary and Frank work together to get just the figures for the upfront costs of special events and direct mail. They add in the special coffee-table brochure they made up last year and the cost of the planned giving newsletter and the corporate menu of benefits. Then they project those costs over all the money that the development department brought in: direct mail, special events, major gifts, planned gifts, grants and corporate contributions.
The result is that they come up with a cost of about $0.05 to raise $1 and look really golden. The Foundation loves it! They get the grant, because the foundation didn’t look into the details of how that cost to raise $1 was determined. And the whole thing starts at the top of the organization because Herb has repeatedly shown that he doesn’t want to tell the public how much is being spent on fundraising.
Case Study #2
Melanie Z, the grant writer for Long-Established Charity Enterprises applies for the same grant from the I Care Foundation. She goes to her D of D, Eugenia, for direction and she, in turn, goes to the CFO, Marty for help. They sit down at a similar conference table to work this out. And they all are aware that the CEO, Paula has repeatedly said that fundraising is an important, even vital, part of the organization’s work and has urged clarity and transparency in all reporting. In their annual report LECE has always separated fundraising expenses from other expenses and has included salaries and benefits there and noted them. In the pie-charts for revenue, we see fundraising revenue broken out, and we see a similar section of the expenses chart related to fundraising. Paula has set the standard that all fundraising is a “profit center” and should be accounted that way.
Consequently Melanie and CFO Marty put together a cost of fundraising that comes out at about $0.35 to raise $1 and they put that on the application to the Foundation. And they don’t get the grant, because someone at the Foundation failed to note the difference in reporting.
What’s the lesson?
Well, what it’s NOT is that Foundations are careless, so tell them what they want to hear.
The lesson is that leadership at the top determines how clarity and transparency in reporting is done throughout the organization and is reflected on things like grant applications. This in turn is reflected in how others outside view the organization. And, yes, if you hide the fundraising expenses your cost to raise $1 will look pretty good on paper and you’ll get the grant. But is that what you want to do? Is it ethical? Is it the truth?
The lesson ALSO is that, in this instance, you have to go to the foundation staff and interpret and clarify how you have arrived at that cost-to-raise-$1 figure, and make sure they are aware that there are different ways nonprofits can represent this cost. You need to tell them that while you’ve put in ALL the expense, other nonprofits may tend to skimp on clarity and put in only what they have to in the way of fundraising expenses, and help these foundation staff see the difference between the two methods of calculating this important performance index. In the application itself, you can break out all the various components and then create a commentary paragraph to explain the situation and head off unwanted and unwarranted comparisons between the reporting methods of various nonprofits.
Honesty is the best policy. And it starts at the top. AND it may take a relationship and some words of interpretation to help others understand the results of your honesty. So being honest, clear and transparent takes more work and is harder to do. But consider this, when you got into nonprofit work, was it ease of life you had in mind? Ask your CEO that question.
Thursday, July 31, 2008
Wednesday, July 30, 2008
Starting a Charity? Create a Board Handbook
A handboork for your board members can be invaluable in the process of educating then about their responsibilities and the appropriate activities in which they engage their meeting time.
Let’s say, for example, that your board is given to micro-management in its meetings. The board manual is a source of information about board duties and responsibilities to which you can refer them when the going gets tough and micro-management is at its worst.
Or board members seem to forget the kinds of programs your organization runs, or is not familiar with staff. The board manual is the place to refer them for such information.
The board manual can become the primary reference document for your governing board. Some people call it a “handbook,” but it amounts to the same thing. It is a continually evolving document
What do you want to put in your board manual? Here’s a list of possible ingredients:
1. Short version of the organization’s strategic plan
2. Charter and By-Laws
3. The board’s job description
4. Board performance standards
5. A brief version of the performance review process; what will happen, when, by whom, with what result
6. Organization’s mission, vision and values statements
9. A précis of the most major decisions the board has made in the last 5 years
10 A listing of the organizations programs of service and brief description of each program
11. Listing of staff and contact information for each
12. A board roster with contact information for each board member
13. A digest of policies the board has established over the years
14. The past year’s financial statements
15. The organization’s annual budget for the past two years
You’ll find a good model for a board manual at the following URL. Just click on “Download Attachment” and you get a PDF file you can print out. It’s a very complete model. Click here.
Another good source for information about the appropriate contents of a board manual is available and can be found at this
link.
Why is it necessary to have such a manual? The reason is simple, it provides a written source of important information that every board member should have ready to hand. It is an orientation and reference point. It is a reminder of the board’s governance past and it points the way to the board’s responsibilities in the future. It also directs their attention primarily to strategic issues and turns them away from the tendency to micro-manage.
It is entirely appropriate to stop a micro—managing board session and suggest that board members refer to the board manual. They should bring the manual to every session, so they have it with them. One of the sections you will find you use most often is the one on the board’s job description. In the midst of the fray, I’ve found that many board members forget what they’re supposed to do at board meetings. They tend to get bogged down in the minutiae of business and forget to take a strategic view.
I’ve also found that many board members not only don’t know much about strategic planning but don’t like to do that very much. Consequently, they find almost anything else to get into that diverts their attention from the planning task. They also don’t know much about program evaluation or setting policies that delimit the executive’s work. Consequently, again, they gravitate to things they’re more familiar with. But the board manual is a way to bring them back to their essential function and help them find the handles that help them center down on their appropriate tasks.
Let’s say, for example, that your board is given to micro-management in its meetings. The board manual is a source of information about board duties and responsibilities to which you can refer them when the going gets tough and micro-management is at its worst.
Or board members seem to forget the kinds of programs your organization runs, or is not familiar with staff. The board manual is the place to refer them for such information.
The board manual can become the primary reference document for your governing board. Some people call it a “handbook,” but it amounts to the same thing. It is a continually evolving document
What do you want to put in your board manual? Here’s a list of possible ingredients:
1. Short version of the organization’s strategic plan
2. Charter and By-Laws
3. The board’s job description
4. Board performance standards
5. A brief version of the performance review process; what will happen, when, by whom, with what result
6. Organization’s mission, vision and values statements
9. A précis of the most major decisions the board has made in the last 5 years
10 A listing of the organizations programs of service and brief description of each program
11. Listing of staff and contact information for each
12. A board roster with contact information for each board member
13. A digest of policies the board has established over the years
14. The past year’s financial statements
15. The organization’s annual budget for the past two years
You’ll find a good model for a board manual at the following URL. Just click on “Download Attachment” and you get a PDF file you can print out. It’s a very complete model. Click here.
Another good source for information about the appropriate contents of a board manual is available and can be found at this
link.
Why is it necessary to have such a manual? The reason is simple, it provides a written source of important information that every board member should have ready to hand. It is an orientation and reference point. It is a reminder of the board’s governance past and it points the way to the board’s responsibilities in the future. It also directs their attention primarily to strategic issues and turns them away from the tendency to micro-manage.
It is entirely appropriate to stop a micro—managing board session and suggest that board members refer to the board manual. They should bring the manual to every session, so they have it with them. One of the sections you will find you use most often is the one on the board’s job description. In the midst of the fray, I’ve found that many board members forget what they’re supposed to do at board meetings. They tend to get bogged down in the minutiae of business and forget to take a strategic view.
I’ve also found that many board members not only don’t know much about strategic planning but don’t like to do that very much. Consequently, they find almost anything else to get into that diverts their attention from the planning task. They also don’t know much about program evaluation or setting policies that delimit the executive’s work. Consequently, again, they gravitate to things they’re more familiar with. But the board manual is a way to bring them back to their essential function and help them find the handles that help them center down on their appropriate tasks.
Tuesday, July 29, 2008
Starting a Charity? Whistle-Blower Policy is Needed
What if you have a research associate or a database entry person who gathers information that leads him/her to the conclusion that something untoward and possibly illegal is going on in your nonprofit organization? What are you going to do about that if this person decides to “blow the whistle” on whatever practices are being observed? Whatever you do, you can't ignore it.
I don’t know about your situation, but in all the situations in which I have worked, and in the organizations of many clients over the past twelve years, the answer would have been simple: They would have been fired on the spot, and their concerns would have been buried, the issues forgotten and whatever the questionable practices that were done would be continued.
Sad, but true. Let's face it: many nonprofits are just as stubborn as businesses in publicly admitting fault. Everything they do has got to seem like it’s just the very best thing that could, should or ought to happen. But we know a different story: board members and executives of nonprofits, seeing no directly imposed standard of public accountability, have come to feel as if they operate independently and without accountability. What they do is “nobody else’s business,” right? Organizations, whether business, government or nonprofit, just don't get their knuckles rapped.
That’s the attitude from the top that I have experienced in many nonprofits over the years. Therefore, whatever they do is “right.” The fact that they do it makes it so. And their public face will always seek to justify whatever’s going on as being the truest, best and most appropriate action that could be done. In other words, the boards and executives of charities, just like businesses and units of government, tend to paint themselves as correct and infallible at all times.
But this situation is changing, gradually. And it’s being helped along by the Sarbanes-Oxley Act. One of the sections of that Act has to do with whistle-lowers, i.e. those who “blow the whistle” on bad or harmful or illegal practices. Often they have been fired for their trouble. But no more. Now the organization must listen to these harbingers of trouble and must act properly on their statements and accusations, whatever they are. And this is coming to nonprofits, too, and not a moment too soon, in my opinion.
Sarbanes-Oxley is raising the issue of public accountability for nonprofits for the first time really since the Senator Joseph McCarthy era. In the 1950s and 1960s there was considerable unrest in Congress about foundations and how and why they were set up an managed. Today we’re seeing a broadening of that accountability concern about nonprofit public accountability.
So, what is your organization’s whistle-blower policy? What would you put in one if you decided tomorrow you should create one? How does a nonprofit organization publicly declare that it has made a mistake?
Here’s some recommendations from Board Source and from Independent Sector in their report entitled “The Sarbanes-Oxley Act and Implications for Nonprofits.”
“Nonprofits must start by protecting themselves. They must eliminate careless and irresponsible accounting practices and benefit from an internal audit that brings to light weak spots and installs processes that are not vulnerable to fraud and abuse.
“Written policies that are vigorously enforced by executive staff and the board send a message that misconduct is not tolerated. These policies should cover any unethical behavior within the organization — including sexual harassment.
“Each organization must develop procedures for handling employee and volunteer complaints, including the establishment of a confidential and anonymous mechanism to encourage employees and volunteers to report any inappropriateness within the entity's financial management. No punishment for reporting problems — including firing, demotion, suspension, harassment, failure to consider the employee for promotion, or any other kind of discrimination — is allowed. Even if the claims are unfounded, the organization may not reprimand the employee. The law does not force the employee to demonstrate misconduct; a reasonable belief or suspicion that a fraud exists is enough to create a protected status for the employee.
“RECOMMENDATIONS
Nonprofits must develop, adopt, and disclose a formal process to deal with complaints and prevent retaliation.
“Nonprofit leaders must take any employee and volunteer complaints seriously, investigate the situation, and fix any problems or justify why corrections are not necessary.”
Here’s the link.
I don’t know about your situation, but in all the situations in which I have worked, and in the organizations of many clients over the past twelve years, the answer would have been simple: They would have been fired on the spot, and their concerns would have been buried, the issues forgotten and whatever the questionable practices that were done would be continued.
Sad, but true. Let's face it: many nonprofits are just as stubborn as businesses in publicly admitting fault. Everything they do has got to seem like it’s just the very best thing that could, should or ought to happen. But we know a different story: board members and executives of nonprofits, seeing no directly imposed standard of public accountability, have come to feel as if they operate independently and without accountability. What they do is “nobody else’s business,” right? Organizations, whether business, government or nonprofit, just don't get their knuckles rapped.
That’s the attitude from the top that I have experienced in many nonprofits over the years. Therefore, whatever they do is “right.” The fact that they do it makes it so. And their public face will always seek to justify whatever’s going on as being the truest, best and most appropriate action that could be done. In other words, the boards and executives of charities, just like businesses and units of government, tend to paint themselves as correct and infallible at all times.
But this situation is changing, gradually. And it’s being helped along by the Sarbanes-Oxley Act. One of the sections of that Act has to do with whistle-lowers, i.e. those who “blow the whistle” on bad or harmful or illegal practices. Often they have been fired for their trouble. But no more. Now the organization must listen to these harbingers of trouble and must act properly on their statements and accusations, whatever they are. And this is coming to nonprofits, too, and not a moment too soon, in my opinion.
Sarbanes-Oxley is raising the issue of public accountability for nonprofits for the first time really since the Senator Joseph McCarthy era. In the 1950s and 1960s there was considerable unrest in Congress about foundations and how and why they were set up an managed. Today we’re seeing a broadening of that accountability concern about nonprofit public accountability.
So, what is your organization’s whistle-blower policy? What would you put in one if you decided tomorrow you should create one? How does a nonprofit organization publicly declare that it has made a mistake?
Here’s some recommendations from Board Source and from Independent Sector in their report entitled “The Sarbanes-Oxley Act and Implications for Nonprofits.”
“Nonprofits must start by protecting themselves. They must eliminate careless and irresponsible accounting practices and benefit from an internal audit that brings to light weak spots and installs processes that are not vulnerable to fraud and abuse.
“Written policies that are vigorously enforced by executive staff and the board send a message that misconduct is not tolerated. These policies should cover any unethical behavior within the organization — including sexual harassment.
“Each organization must develop procedures for handling employee and volunteer complaints, including the establishment of a confidential and anonymous mechanism to encourage employees and volunteers to report any inappropriateness within the entity's financial management. No punishment for reporting problems — including firing, demotion, suspension, harassment, failure to consider the employee for promotion, or any other kind of discrimination — is allowed. Even if the claims are unfounded, the organization may not reprimand the employee. The law does not force the employee to demonstrate misconduct; a reasonable belief or suspicion that a fraud exists is enough to create a protected status for the employee.
“RECOMMENDATIONS
Nonprofits must develop, adopt, and disclose a formal process to deal with complaints and prevent retaliation.
“Nonprofit leaders must take any employee and volunteer complaints seriously, investigate the situation, and fix any problems or justify why corrections are not necessary.”
Here’s the link.
Monday, July 28, 2008
Starting a Charity? Writing an Ethics Policy for Fundraising
Have the leaders of your nonprofit organization written an ethics policy or a “Code of Ethics” for the group? Not yet? Better get started. You want to be able to assure your donors that your fundraising practices follow strict ethical guidelines set down by a reputable international organization of fundraisers.
A good place to start is with the Association of Fundraising Professionals Code of Ethics developed for fundraisers. Here’s the code that we all subscribe to when we become members of the AFP:
Code of Ethical Principles
Adopted 1964; amended October 2004.
The Association of Fundraising Professionals (AFP) exists to foster the development and growth of fundraising professionals and the profession, to promote high ethical standards in the fundraising profession and to preserve and enhance philanthropy and volunteerism.
Members of AFP are motivated by an inner drive to improve the quality of life through the causes they serve. They serve the ideal of philanthropy; are committed to the preservation and enhancement of volunteerism; and hold stewardship of these concepts as the overriding principle of their professional life. They recognize their responsibility to ensure that needed resources are vigorously and ethically sought and that the intent of the donor is honestly fulfilled. To these ends, AFP members embrace certain values that they strive to uphold in performing their responsibilities for generating philanthropic support.
AFP members aspire to:
• practice their profession with integrity, honesty, truthfulness and adherence to the absolute obligation to safeguard the public trust;
• act according to the highest standards and visions of their organization, profession and conscience;
• put philanthropic mission above personal gain;
• inspire others through their own sense of dedication and high purpose;
• improve their professional knowledge and skills, so that their performance will better serve others;
• demonstrate concern for the interests and well being of individuals affected by their actions;
• value the privacy, freedom of choice and interests of all those affected by their actions;
• foster cultural diversity and pluralistic values, and treat all people with dignity and respect;
• affirm, through personal giving, a commitment to philanthropy and its role in society;
• adhere to the spirit as well as the letter of all applicable laws and regulations;
• advocate within their organizations, adherence to all applicable laws and regulations;
• avoid even the appearance of any criminal offense or professional misconduct;
• bring credit to the fundraising profession by their public demeanor;
• encourage colleagues to embrace and practice these ethical principles and standards of professional practice; and
• be aware of the codes of ethics promulgated by other professional organizations that serve philanthropy.
View the Standards of Professional Practice that accompany this Code of Ethics.
A good place to start is with the Association of Fundraising Professionals Code of Ethics developed for fundraisers. Here’s the code that we all subscribe to when we become members of the AFP:
Code of Ethical Principles
Adopted 1964; amended October 2004.
The Association of Fundraising Professionals (AFP) exists to foster the development and growth of fundraising professionals and the profession, to promote high ethical standards in the fundraising profession and to preserve and enhance philanthropy and volunteerism.
Members of AFP are motivated by an inner drive to improve the quality of life through the causes they serve. They serve the ideal of philanthropy; are committed to the preservation and enhancement of volunteerism; and hold stewardship of these concepts as the overriding principle of their professional life. They recognize their responsibility to ensure that needed resources are vigorously and ethically sought and that the intent of the donor is honestly fulfilled. To these ends, AFP members embrace certain values that they strive to uphold in performing their responsibilities for generating philanthropic support.
AFP members aspire to:
• practice their profession with integrity, honesty, truthfulness and adherence to the absolute obligation to safeguard the public trust;
• act according to the highest standards and visions of their organization, profession and conscience;
• put philanthropic mission above personal gain;
• inspire others through their own sense of dedication and high purpose;
• improve their professional knowledge and skills, so that their performance will better serve others;
• demonstrate concern for the interests and well being of individuals affected by their actions;
• value the privacy, freedom of choice and interests of all those affected by their actions;
• foster cultural diversity and pluralistic values, and treat all people with dignity and respect;
• affirm, through personal giving, a commitment to philanthropy and its role in society;
• adhere to the spirit as well as the letter of all applicable laws and regulations;
• advocate within their organizations, adherence to all applicable laws and regulations;
• avoid even the appearance of any criminal offense or professional misconduct;
• bring credit to the fundraising profession by their public demeanor;
• encourage colleagues to embrace and practice these ethical principles and standards of professional practice; and
• be aware of the codes of ethics promulgated by other professional organizations that serve philanthropy.
View the Standards of Professional Practice that accompany this Code of Ethics.
Friday, July 25, 2008
Starting a Charity? Be Aware of Sarbanes-Oxley Legislation
While many nonprofits have probably heard of the federal Sarbanes-Oxley Act by this time, some four years after its enactment, apparently few have implemented changes in response, according to a new survey.
The following information was reported by the Association of Fundraising Professionals on its website:
“In an electronic survey of 300 nonprofit executives and board members, 57 percent were familiar with the Sarbanes-Oxley Act. However, only 38 percent of respondents said they have had any discussions concerning the act, and only 20 percent have made changes because of the act, according to the survey, The 2003 Grant Thornton National Board Governance Survey for Not-for-Profit Organizations. Grant Thornton, based in Chicago, is one of the largest international accounting and business advisory organizations.
"Of the 20 percent that have made changes, 24 percent instituted a conflict of interest policy, 20 percent developed organization-wide polices and procedures for internal controls, 17 percent wrote a code of ethics statement, 16 percent created an audit committee charter and 11 percent instituted a 'best practices' for board governance, according to the study.
"Only 16 percent of respondents said they had a whistle-blower policy, and of those without a policy, only 21 percent were considering instituting one. Answers were more promising when asked about a records retention policy or a policy on the destruction of documents. Seventy-seven percent said they do have such a policy, while 23 percent said they did not. However, only 41 percent without this policy were considering adopting one.”
So the question is, how’s your nonprofit doing on Sarbanes-Oxley? Here are the items you’ll want to review:
1. Conflict of interest policy
2. Policies and procedures for internal controls
3. Code of ethics statement
4. Creation of separate audit committee
5. Change auditors periodically
` 6. Written “best practices” for board governance
7. “Whistle blower” policy
8. Policy on records retention and destruction of documents
I recently surveyed a class of 30 fundraisers I was teaching in mid-Michigan. Only five of the thirty organizations said they were working on or had worked on any of these 8 points.
Sarbanes-Oxley, in one form or another, is coming to nonprofits. And it is likely to be sooner than later. Why? Congress has been more concerned in recent years with the lack of public accountability for the rapidly growing “Volunteer Sector” of our society – our nonprofits and other voluntary organizations, tax exempt organizations.
There are now about 2.5 million of these organizations and they are or tremendous help to our society, while accounting for something on the order of 20% of the GDP. But there is no established public accountability for nonprofits except the IRS Form 990, and a huge percentage of nonprofits do not file that form either due to ignorance or because they have fewer than $25,000 in assets. Consequently, Congress is going to be taking a look at nonprofits in light of the Sarbanes-Oxley accountability standards, and this is likely to affect our sector greatly.
Two prominent organizations in the fundraising field, Board Source and Independent Sector have combined to produce a report that may well prove helpful to your nonprofit. It’s called “The Sarbanes-Oxley Act and Implications for Nonprofits.” Here’s a short quote from that report:
“The Sarbanes-Oxley Act has now been in force for several years. The legal climate has intensified in the nonprofit sector as Congressional committees and state legislatures are actively proposing new legislation to regulate organizations. Individual nonprofits have begun to identify loopholes - and figure out how to eliminate them. Watchdog agencies and other nonprofit field-building organizations are reconsidering assumptions and standard operating procedures in an effort to identify guidelines, standards, and best practices in the sector.
“Regardless of the present scope of existing and potential new legislation at the state and federal level, nonprofit organizations have heard the wake-up call. For all of us in the sector, the Sarbanes-Oxley Act spearheaded a renewed realization that nonprofit organizations rely on - and must protect - the indispensable and unequivocal confidence and trust of our constituents. Self-regulation and proactive behavior will always prove more powerful than compulsory respect of laws.”
Here’s the link to the Board Source Report
Get ready, it’s coming!
The following information was reported by the Association of Fundraising Professionals on its website:
“In an electronic survey of 300 nonprofit executives and board members, 57 percent were familiar with the Sarbanes-Oxley Act. However, only 38 percent of respondents said they have had any discussions concerning the act, and only 20 percent have made changes because of the act, according to the survey, The 2003 Grant Thornton National Board Governance Survey for Not-for-Profit Organizations. Grant Thornton, based in Chicago, is one of the largest international accounting and business advisory organizations.
"Of the 20 percent that have made changes, 24 percent instituted a conflict of interest policy, 20 percent developed organization-wide polices and procedures for internal controls, 17 percent wrote a code of ethics statement, 16 percent created an audit committee charter and 11 percent instituted a 'best practices' for board governance, according to the study.
"Only 16 percent of respondents said they had a whistle-blower policy, and of those without a policy, only 21 percent were considering instituting one. Answers were more promising when asked about a records retention policy or a policy on the destruction of documents. Seventy-seven percent said they do have such a policy, while 23 percent said they did not. However, only 41 percent without this policy were considering adopting one.”
So the question is, how’s your nonprofit doing on Sarbanes-Oxley? Here are the items you’ll want to review:
1. Conflict of interest policy
2. Policies and procedures for internal controls
3. Code of ethics statement
4. Creation of separate audit committee
5. Change auditors periodically
` 6. Written “best practices” for board governance
7. “Whistle blower” policy
8. Policy on records retention and destruction of documents
I recently surveyed a class of 30 fundraisers I was teaching in mid-Michigan. Only five of the thirty organizations said they were working on or had worked on any of these 8 points.
Sarbanes-Oxley, in one form or another, is coming to nonprofits. And it is likely to be sooner than later. Why? Congress has been more concerned in recent years with the lack of public accountability for the rapidly growing “Volunteer Sector” of our society – our nonprofits and other voluntary organizations, tax exempt organizations.
There are now about 2.5 million of these organizations and they are or tremendous help to our society, while accounting for something on the order of 20% of the GDP. But there is no established public accountability for nonprofits except the IRS Form 990, and a huge percentage of nonprofits do not file that form either due to ignorance or because they have fewer than $25,000 in assets. Consequently, Congress is going to be taking a look at nonprofits in light of the Sarbanes-Oxley accountability standards, and this is likely to affect our sector greatly.
Two prominent organizations in the fundraising field, Board Source and Independent Sector have combined to produce a report that may well prove helpful to your nonprofit. It’s called “The Sarbanes-Oxley Act and Implications for Nonprofits.” Here’s a short quote from that report:
“The Sarbanes-Oxley Act has now been in force for several years. The legal climate has intensified in the nonprofit sector as Congressional committees and state legislatures are actively proposing new legislation to regulate organizations. Individual nonprofits have begun to identify loopholes - and figure out how to eliminate them. Watchdog agencies and other nonprofit field-building organizations are reconsidering assumptions and standard operating procedures in an effort to identify guidelines, standards, and best practices in the sector.
“Regardless of the present scope of existing and potential new legislation at the state and federal level, nonprofit organizations have heard the wake-up call. For all of us in the sector, the Sarbanes-Oxley Act spearheaded a renewed realization that nonprofit organizations rely on - and must protect - the indispensable and unequivocal confidence and trust of our constituents. Self-regulation and proactive behavior will always prove more powerful than compulsory respect of laws.”
Here’s the link to the Board Source Report
Get ready, it’s coming!
Thursday, July 24, 2008
Starting a Charity? Check for Conflict of Interest in the Board
If you're starting up a new nonprofit organization, you're probably thinking about prospective board members you want to recruit for your new charity. In that process, it's wise to consider potential conflicts of interest.
What does it mean for a member of the board of directors of a nonprofit organization to have a “conflict of interest?” I’ve heard this discussed in a number of board meetings over my years of working with nonprofits, and usually the kinds of things people have to say about it indicate that they don’t really understand what this is or know how to helpfully deal with it.
Most everybody has the general idea that a “conflict of interest” has to do with a situation where, for example, the board member in question is leading the charge for an action that will stand to benefit him/her personally. So there does seem to be that common understanding. After that the deiscussion tends to deteriorate.
So let's confirm that a conflict of interest exists when there could be an opportunity for an individual to benefit from, or might have a business interest in, an action by the board on which that person serves.
But what to do about it?
First, conflicts of interest are not “bad.” They happen. Nobody’s fault. Often times they can be helpful. Let’s say, for example, that the nonprofit organization is looking for a way to get its parking lot paved. On the board sits the owner of a construction business that just happens to do paving work for a lot of their customers. He’s willing to heavily discount the paving job for the benefit of the charity. So there’s a conflict of interest. The business owner sits on the charity’s board, the board is about to make a decision to pave the parking lot, and this businessman stands to benefit from the positive decision to use his company.
What should this board member do? Well, obviously, the first thing he is going to do is to state openly to the rest of the board members that he has a conflict of interest in the matter of paving the parking lot. On the one hand he has a interest in the board’s doing its fiduciary work diligently, and, on the other hand, he has an interest in promoting his business. So he first needs to say that to his fellow board members. Second, he will abstain from voting in any decision, action or contract approval for that paving project.
What’s harmful is when such a business owner refuses to make plain his interest in having the nonprofit choose and pay his firm to do the job. Especially if this kind of thing happens regularly, so that the nonprofit uses this business owner’s firm to construct the new office building, then to pave over the parking lot, then to build the finance tower, then to provide a satellite office, and so forth. That kind of repetitive use, or “mis-use,” of the position of board member is where the “conflict of interest” goes sadly wrong and benefits the individual board member personally.
Second, when we choose members for our boards of directors for nonprofits, we often include people with strong business interests. For one thing, we need their networking ties and relationships in the community. For another, we need their resources for financial support. So conflicts of interest are bound to arise. Therefore our responsibility is to have these stated publicly and to have the board member(s) in question abstain from voting on matters in which he/she/they have a personal or professional interest.
The term “nonprofit” is not a business plan, it means that the profits of the business will not be used for private inurement -- that is, to benefit individuals materially. The excesses of revenue over expenses will not be doled out to the individual board members for their use. That’s all “nonprofit” means: no private inurement. So this is what we want to avoid. Openness and transparency are the best policy in dealing with conflicts of interest.
What does it mean for a member of the board of directors of a nonprofit organization to have a “conflict of interest?” I’ve heard this discussed in a number of board meetings over my years of working with nonprofits, and usually the kinds of things people have to say about it indicate that they don’t really understand what this is or know how to helpfully deal with it.
Most everybody has the general idea that a “conflict of interest” has to do with a situation where, for example, the board member in question is leading the charge for an action that will stand to benefit him/her personally. So there does seem to be that common understanding. After that the deiscussion tends to deteriorate.
So let's confirm that a conflict of interest exists when there could be an opportunity for an individual to benefit from, or might have a business interest in, an action by the board on which that person serves.
But what to do about it?
First, conflicts of interest are not “bad.” They happen. Nobody’s fault. Often times they can be helpful. Let’s say, for example, that the nonprofit organization is looking for a way to get its parking lot paved. On the board sits the owner of a construction business that just happens to do paving work for a lot of their customers. He’s willing to heavily discount the paving job for the benefit of the charity. So there’s a conflict of interest. The business owner sits on the charity’s board, the board is about to make a decision to pave the parking lot, and this businessman stands to benefit from the positive decision to use his company.
What should this board member do? Well, obviously, the first thing he is going to do is to state openly to the rest of the board members that he has a conflict of interest in the matter of paving the parking lot. On the one hand he has a interest in the board’s doing its fiduciary work diligently, and, on the other hand, he has an interest in promoting his business. So he first needs to say that to his fellow board members. Second, he will abstain from voting in any decision, action or contract approval for that paving project.
What’s harmful is when such a business owner refuses to make plain his interest in having the nonprofit choose and pay his firm to do the job. Especially if this kind of thing happens regularly, so that the nonprofit uses this business owner’s firm to construct the new office building, then to pave over the parking lot, then to build the finance tower, then to provide a satellite office, and so forth. That kind of repetitive use, or “mis-use,” of the position of board member is where the “conflict of interest” goes sadly wrong and benefits the individual board member personally.
Second, when we choose members for our boards of directors for nonprofits, we often include people with strong business interests. For one thing, we need their networking ties and relationships in the community. For another, we need their resources for financial support. So conflicts of interest are bound to arise. Therefore our responsibility is to have these stated publicly and to have the board member(s) in question abstain from voting on matters in which he/she/they have a personal or professional interest.
The term “nonprofit” is not a business plan, it means that the profits of the business will not be used for private inurement -- that is, to benefit individuals materially. The excesses of revenue over expenses will not be doled out to the individual board members for their use. That’s all “nonprofit” means: no private inurement. So this is what we want to avoid. Openness and transparency are the best policy in dealing with conflicts of interest.
Tuesday, July 22, 2008
Starting a Charity? Fund Development Planning -- Cultivation and Solicitation of Contributions
We're working our way through a Fund Development Plan for a new charity start-up. We descrived the use of the strategic plan and the development of the case for support. Then we saw how projects need to be selected to focus donors' attention, and how prospect pools are created to provide potential donors to our cause. We also saw how volunteers can be used to cultivate and solicit prospective donors in ways that expand the capabilities of staff far beyond what they otherwise could do. Today we delve into the various methods of cultivating and soliciting the gifts we need to assure our new charity has the financial resources to carry out its mission.
Cultivation through marketing efforts
The new charity’s donor cultivation effort starts with our marketing and advertising materials and media. We will deliver our Case for Support to prospective donors through our newsletter, our website, our direct mail program, our special events, and any other media we can use. Further details of our marketing and public relations program can be found in our Strategic Plan and in our marketing and public relations plan.
Cultivation through personal relationships
Each volunteer and each staff person will be asked to provide a list of their family members, friends, colleagues, associates and business acquaintances who might be likely prospects for giving gifts to our new charity.
The sequel to providing this information is that each volunteer and staff member will also be assigned one or several donor prospects for cultivation and solicitation. It is likely, but not necessarily the case, that a prospect whose name appears on the list provided by a specific volunteer or staff member will be assigned to that person. Assignments will be made on the basis of criteria such as the following:
As we are able, we will provide training to both staff and volunteers so they will know how to do this fundraising work.
Cultivation through direct mail efforts
We will use our direct mail efforts to deliver our Case for Support to donors, friends and prospects in a variety of ways. This would include our newsletter that goes out to interested people, as well as our direct mail solicitation any time during the year.
Cultivation through the new charity’s website
We will create a donation portal on the new charity’s website and will provide articles and other information relative to how donors can achieve their objectives through our programs of service to the community. We will describe our programs, show what measureable results we are getting, and will suggest to viewers that their assistance is not only needed, but will produce good results in the community. The website will be one of the primary ways we get our Case for Support to donors and prospects, and also one of the ways we deliver key program and results information to the public.
Cultivation through Special Events
One way that we anticipate cultivating major gift donors is to use our special events program to generate new prospects and bring older prospects closer to us. Volunteers and staff will be assigned to follow-up each special event with donor prospects by personally phoning them and asking three questions: 1. “What did you think of the event last night?” and 2. “Are there other people you know who should have the opportunity to learn about what we do and how they can serve the community through our program?” and 3. “Can you see yourself becoming closer to our organization in the next few years?”
The responses we find to those questions will guide us in our approach to our donor prospects. We will encourage donor participation in a variety of ways, and will remain flexible in our ability to use volunteers both in fundraising and in our mission accomplishment and service to the community. In this way, the people we are cultivating will have a motivational, hands-on relationship to our new charity and its programs of service.
Determining when donors are “ripe” for solicitation
Part of the responsibility of the volunteers and staff of our new charity will be to determine when the people on their list for cultivation and solicitation are ready to be asked. It is important that we not ask too early in the relationship, before the prospect has had a chance to grow in their enthusiasm for what we are accomplishing in the community. But it is equally important that we not pass up opportunities to request significant donations from our prospects when they are ready.
Individual volunteers and staff will not be required to shoulder this responsibility alone, however. We will make an effort to provide training, help and assistance to each person so that we are making these judgments as a group when this is appropriate and necessary. If, and as, individuals are comfortable proceeding on their own, they are encouraged to do so.
Soliciting donors by direct mail
As we are able to afford to prepare and send solicitation mailings to people we think will support us, we will use this method of requesting donations. We will be judicious in selecting the names and address of those to whom we want to mail, so that we can be as efficient as possible in our direct mail effort.
We are aware that mass mailings to a large group of otherwise unqualified donor prospects is very inefficient and a waste of money. Therefore, we will attempt to gauge each direct mail prospect’s ability and motivation to give. We will also prepare as many letters as we need in order to meet the fairly wide variety of individual behavioral styles and personal needs for information of the people on our mailing list. We acknowledge that this is somewhat time consuming, but we know that it will bring us better responses and more money in the final analysis.
Soliciting donors by website
We will prepare the donation portal of our our new charity’s website in a way that is inviting and motivating to prospective donors, so that they are compelled by the information we share to identify with the community’s need and make generous donations to our work.
We will attempt to gather as much contact information about our Internet donors as we can, in order that we may provide more information that they will use, and in order that we can provide further personal follow-up where this is appropriate.
Soliciting donors through personal requests for donations
We anticipate that one of the primary sources of significant revenue to the our new charity’s operation will be that of major gifts from individuals. The volunteer and staff who are assigned to individual donors will have this goal in mind, so that we have a growing and fruitful major gifts cultivation and solicitation effort.
Soliciting donors through special events
As we are able, we will create a series of special fundraising events that both call attention to community need and provide our friends, prospects and donors with opportunities to give in support of our work. Annual dinners, auctions, awards presentation, chicken dinners, and a wide variety of other special events will help us join fun and fundraising in ways that will attract and motivate our donors.
For further information on the approach to special events donors, the reader is referred to the section on “Cultivation through Special Events” above.
Soliciting corporate and foundation donors through proposals
We will research a variety of local businesses and corporations, and regional foundations, in search of those who are interested in supporting the kind of mission our new charity seeks to accomplish in our community. We will make a list of these prospects, and will attempt to qualify them in terms of the extent of their interest and the likelihood that our programs fall within their scope.
When we have created this list of prospective grantors, we will assign volunteers and staff members to create, maintain and enhance relationships with the contact persons in each prospective institution or business. Over time, we anticipate that these relationships will demonstrate that the our new charity’s programs of service are both relevant and attractive to these prospective large donors. Out of these relationships we will devise a set of strategies of approach, cultivation and solicitation that we will use with each of these prospects. These strategies will be written down and entered into our donor database for further use and adaptation as we move forward.
When the time is right, we will approach each corporate or foundation prospect with a grant request or proposal that is appropriate to their style of operating. In this proposal we will give the prospect the information they need to make a positive decision to make a grant to our new charity. This will be in accord with their specifications as to what they require and how they wish us to proceed.
Soliciting corporate marketing sponsors through personal contact
Using our research on corporations, we will also approach marketing and advertising departments to see if there is interest in using our organization and the special events we put on as a means of advertising the products and services of these businesses throughout the community.
We will create a menu of benefits for our corporate and business partners, and will generally proceed in much the same way we will do for grants. We will form relationships with the contact persons in these organizations, and will attempt to involve them in our organization as volunteers, or to by inviting them to come to our various functions. As our relationship grows with each prospect, we will prepare short proposals to them for sponsorships and offer them the opportunity to give in support of our work in our community.
Cultivation through marketing efforts
The new charity’s donor cultivation effort starts with our marketing and advertising materials and media. We will deliver our Case for Support to prospective donors through our newsletter, our website, our direct mail program, our special events, and any other media we can use. Further details of our marketing and public relations program can be found in our Strategic Plan and in our marketing and public relations plan.
Cultivation through personal relationships
Each volunteer and each staff person will be asked to provide a list of their family members, friends, colleagues, associates and business acquaintances who might be likely prospects for giving gifts to our new charity.
The sequel to providing this information is that each volunteer and staff member will also be assigned one or several donor prospects for cultivation and solicitation. It is likely, but not necessarily the case, that a prospect whose name appears on the list provided by a specific volunteer or staff member will be assigned to that person. Assignments will be made on the basis of criteria such as the following:
- Who is closest to the prospect in a way that promotes giving?
- Who is most clearly able to form the kind of relationship that motivates the prospect?
- Who has the personality and behavioral style most appropriate to a given prospect?
As we are able, we will provide training to both staff and volunteers so they will know how to do this fundraising work.
Cultivation through direct mail efforts
We will use our direct mail efforts to deliver our Case for Support to donors, friends and prospects in a variety of ways. This would include our newsletter that goes out to interested people, as well as our direct mail solicitation any time during the year.
Cultivation through the new charity’s website
We will create a donation portal on the new charity’s website and will provide articles and other information relative to how donors can achieve their objectives through our programs of service to the community. We will describe our programs, show what measureable results we are getting, and will suggest to viewers that their assistance is not only needed, but will produce good results in the community. The website will be one of the primary ways we get our Case for Support to donors and prospects, and also one of the ways we deliver key program and results information to the public.
Cultivation through Special Events
One way that we anticipate cultivating major gift donors is to use our special events program to generate new prospects and bring older prospects closer to us. Volunteers and staff will be assigned to follow-up each special event with donor prospects by personally phoning them and asking three questions: 1. “What did you think of the event last night?” and 2. “Are there other people you know who should have the opportunity to learn about what we do and how they can serve the community through our program?” and 3. “Can you see yourself becoming closer to our organization in the next few years?”
The responses we find to those questions will guide us in our approach to our donor prospects. We will encourage donor participation in a variety of ways, and will remain flexible in our ability to use volunteers both in fundraising and in our mission accomplishment and service to the community. In this way, the people we are cultivating will have a motivational, hands-on relationship to our new charity and its programs of service.
Determining when donors are “ripe” for solicitation
Part of the responsibility of the volunteers and staff of our new charity will be to determine when the people on their list for cultivation and solicitation are ready to be asked. It is important that we not ask too early in the relationship, before the prospect has had a chance to grow in their enthusiasm for what we are accomplishing in the community. But it is equally important that we not pass up opportunities to request significant donations from our prospects when they are ready.
Individual volunteers and staff will not be required to shoulder this responsibility alone, however. We will make an effort to provide training, help and assistance to each person so that we are making these judgments as a group when this is appropriate and necessary. If, and as, individuals are comfortable proceeding on their own, they are encouraged to do so.
Soliciting donors by direct mail
As we are able to afford to prepare and send solicitation mailings to people we think will support us, we will use this method of requesting donations. We will be judicious in selecting the names and address of those to whom we want to mail, so that we can be as efficient as possible in our direct mail effort.
We are aware that mass mailings to a large group of otherwise unqualified donor prospects is very inefficient and a waste of money. Therefore, we will attempt to gauge each direct mail prospect’s ability and motivation to give. We will also prepare as many letters as we need in order to meet the fairly wide variety of individual behavioral styles and personal needs for information of the people on our mailing list. We acknowledge that this is somewhat time consuming, but we know that it will bring us better responses and more money in the final analysis.
Soliciting donors by website
We will prepare the donation portal of our our new charity’s website in a way that is inviting and motivating to prospective donors, so that they are compelled by the information we share to identify with the community’s need and make generous donations to our work.
We will attempt to gather as much contact information about our Internet donors as we can, in order that we may provide more information that they will use, and in order that we can provide further personal follow-up where this is appropriate.
Soliciting donors through personal requests for donations
We anticipate that one of the primary sources of significant revenue to the our new charity’s operation will be that of major gifts from individuals. The volunteer and staff who are assigned to individual donors will have this goal in mind, so that we have a growing and fruitful major gifts cultivation and solicitation effort.
Soliciting donors through special events
As we are able, we will create a series of special fundraising events that both call attention to community need and provide our friends, prospects and donors with opportunities to give in support of our work. Annual dinners, auctions, awards presentation, chicken dinners, and a wide variety of other special events will help us join fun and fundraising in ways that will attract and motivate our donors.
For further information on the approach to special events donors, the reader is referred to the section on “Cultivation through Special Events” above.
Soliciting corporate and foundation donors through proposals
We will research a variety of local businesses and corporations, and regional foundations, in search of those who are interested in supporting the kind of mission our new charity seeks to accomplish in our community. We will make a list of these prospects, and will attempt to qualify them in terms of the extent of their interest and the likelihood that our programs fall within their scope.
When we have created this list of prospective grantors, we will assign volunteers and staff members to create, maintain and enhance relationships with the contact persons in each prospective institution or business. Over time, we anticipate that these relationships will demonstrate that the our new charity’s programs of service are both relevant and attractive to these prospective large donors. Out of these relationships we will devise a set of strategies of approach, cultivation and solicitation that we will use with each of these prospects. These strategies will be written down and entered into our donor database for further use and adaptation as we move forward.
When the time is right, we will approach each corporate or foundation prospect with a grant request or proposal that is appropriate to their style of operating. In this proposal we will give the prospect the information they need to make a positive decision to make a grant to our new charity. This will be in accord with their specifications as to what they require and how they wish us to proceed.
Soliciting corporate marketing sponsors through personal contact
Using our research on corporations, we will also approach marketing and advertising departments to see if there is interest in using our organization and the special events we put on as a means of advertising the products and services of these businesses throughout the community.
We will create a menu of benefits for our corporate and business partners, and will generally proceed in much the same way we will do for grants. We will form relationships with the contact persons in these organizations, and will attempt to involve them in our organization as volunteers, or to by inviting them to come to our various functions. As our relationship grows with each prospect, we will prepare short proposals to them for sponsorships and offer them the opportunity to give in support of our work in our community.
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