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New Data – Nonprofits, Benchmark Against Your Peers and Push Your Mission Forward

This week we’d like to share a blog written by the Nonprofit Practice Leaders of the global accounting firm, BDO, and the BDO Institute for Nonprofit Excellence. Interestingly, BauerGriffith was founded after the financial crisis of 2008, at a time when it became clear that nonprofits must not only operate with a clear view of their mission, but also a clear business strategy. Successful nonprofits have made that shift, which has, we believe, allowed many to achieve stability in their operations, if not thrive, in the wake of the economic challenges brought on by the pandemic. This survey report fleshes out this concept and presents some very helpful information for any nonprofit as they plan for the next 12-18 months — and beyond. We thank our friends at the BDO Institute for Nonprofit Excellence for their service to the sector.

By Nonprofit Practice Leaders | June 17, 2020   

From the global pandemic to growing economic uncertainty in the midst of an election year, nonprofits are being called upon—and challenged—like never before. Unsurprisingly, these organizations are rising to the occasion, adapting their programs and delivering aid to critical areas of need. But the journey is far from over, and now more than ever, nonprofit organizations need to be able to sustain their critical work.

The BDO Institute for Nonprofit ExcellenceSM is proud to announce its fourth annual benchmarking survey, Nonprofit Standards. The survey is intended to help nonprofit leaders prepare for the future, balance a nonprofit heart and business mindset, and gauge their well-being across key areas of focus, including crisis response, technology, downturn preparedness, policy and funding.

To learn how your nonprofit measures up, download the full report.

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Nonprofit Compliance Reporting Checklist

In representing small, mid-size, and even larger nonprofits, we often find the array of periodic compliance reporting can get lost. Sometimes this occurs because an individual is named the contact person for notifications, and that staff person or volunteer is no longer working. While most delinquent filing issues are fairly easy to fix, a pattern of noncompliance can cause issues over time, especially if you find yourself faced with other legal issues. Here’s a handy, though not absolutely comprehensive, checklist to help keep you on track, designed with 501(c)(3) public charities in mind.

  • IRS Form 990. Every 501(c)(3) organization must file a 990 in some form or another, even if you have no activity at all during a tax year. Larger organizations will file the full 990, and this rarely slips through the cracks. This is a big, complicated form, and we strongly recommend using a tax professional to complete or at least review prior to filing. Smaller organizations can file the 990EZ, which is much easier to complete and can be done by competent staff. Organizations with less than $50,000 in receipts during any year can file the 990-N, sometimes referred to as the 990 postcard. It is a very simple form, with just a few questions, and is filed on line. IMPORTANT NOTE: Even if you have $0 in revenues, you must file the 990-N every year. No exceptions. Failure to do so will result in loss of your 501(c)(3) tax exempt status. Our friends at the IRS are completely on top of this, so don’t think they’re not watching!
  • State Attorney General Filings. Nonprofit organizations are governed in most states by the state attorney general’s office, with powers arising out of their general authority over consumer protection. The reasoning here is that nonprofits are custodians of charitable funds for the benefit of the public, so the attorneys general oversee the nonprofits on this basis. In Ohio as in several other states, there is an annual filing regarding fundraising, which is required regardless of whether or not you do any fundraising. The attorney general’s office will also get involved if you seek to remove or change donor restrictions or designations on gifts.
  • Secretaries of State. You should also be aware of the need periodically to file a statement of continued existence or similar filing with your secretary of state’s office, confirming you are still in business at some level. Changes in your structure, including mergers or dissolutions, are also dependent on approval by the secretary of state.
  • Other State Compliance. Depending on the type of fundraising you do, you may have filings with your state department of insurance for charitable gift annuities, or with your state tax authority for certain types of charitable trusts.
  • Sales Tax. Yes, you may need to collect, remit and and report sales tax on items sold in your gift shop or cafeteria if you sell to the public on a regular basis.

State attorneys general are taking a greater interest in the management of nonprofits, with Ohio being among the most proactive in compliance and enforcement. Particular areas of interest include adherence with board fiduciary duties, conflicts of interest, self dealing and related party transactions, investment management, and accurate/adequate disclosure of the use of charitable funds.

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A Note from BauerGriffith

We are living in difficult times – the coronavirus pandemic, wildfires, global warming, racism, and a lot of rancor, political and otherwise. This year, 2020, can’t be over soon enough. Please know that what is important to you is important to us. We are here for you.

Stacy and Nancy

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A Guide to Standing Committees for Nonprofits — The Development Committee

I may be biased, since I’ve been both a professional and volunteer fundraiser at various points in my career, but I think the Development or Fundraising Committee is, next to the Governance Committee, the most important standing committee of a nonprofit board. After all, if nobody is raising money, none of the other committees have anything to do! But while this committee is vitally important to the financial sustainability of your organization, it can also be the most challenging committee to manage and implement.

In developing a strategy to mobilize an effective Development Committee, I suggest we start with two premises or principals. The first premise is that fundraising is the responsibility of the whole board; every member, without exception, should play some role in raising funds for your organization. The second premise is that the primary responsibility of the Development Committee is to create and foster a culture within your organization that allows your full board to feel empowered, confident, and (dare I say) comfortable with their role in the fundraising process.

To me, this means the Development Committee is not created to be the small group of board members who do all of the asking during your various campaigns and initiatives. At the end of the day, they may be those people, but that shouldn’t be the primary reason people are asked to sit on the Development Committee. A structure like this will likely give the impression that the rest of the board isn’t needed in the fundraising process. Rather, consider these primary areas for your Development Committee to assist staff:

  • Create a development plan that is reflective of the goals and needs of your the organization
  • Communicate and cultivate buy in for the organization’s case for support among the full board
  • Create tools and resources for the board to use in their own individual fundraising efforts
  • Allow each board member to identify the specific tasks and roles they will play in the fundraising process
  • Create a sense of accountability for achieving those tasks and roles

Consider this sample description of the Development Committee:

Development Committee

The Development Committee shall: (a) review, approve, and support goals and strategies for, and oversee the progress of, the Corporation’s fundraising initiatives, including the Annual Fund, major and planned gifts, capital, endowment, and comprehensive campaigns, and events, in consultation with the Finance Committee; (b) support and assist the Development Office in its efforts to engage members, donors and supporters in the activities of the Corporation, and to cultivate, solicit, and steward donors; and (c) work with the Governance Committee to ensure that new Directors understand and accept their responsibilities in fundraising and development.

Some things to note:

  • I encourage you to state specifically the relationship between the Development Committee and the Governance Committee, to ensure fundraising is part of the recruitment, training, and board evaluation process.
  • I also encourage you to state specifically the relationship between the Development Committee and the Finance Committee, so that the contributed revenue goals in your budget are well thought out, well supported numbers informed by the needs of the organization and the donor resources available.
  • Remember that solicitation is only one relatively small part of the donor cycle. Encouraging and empowering board members to cultivate and steward donors can increase board involvement in fundraising and open the door to more good opportunities for staff to solicit.

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Competitions and Contests — Legal and Practical Considerations

Competitions, contests, drawing, raffles, auctions — all are frequently used tools in a nonprofit organization’s fundraising arsenal. What we may forget, though, is that both the IRS and state governments have laws and regulations applicable to these types of activities, which must be considered before launch. In addition, like campaigns or other fundraising initiatives, there are practical considerations to be addressed to ensure your efforts achieve the desired results.

The benefits of competitions, contests, drawings, raffles and the like include:

  • ability to reach new markets, raise visibility, create excitement
  • tapping into a revenue source other than philanthropy
  • for competitions, the opportunity to seek new ideas or creative input to address issues related to the organization’s mission

Challenges to watch out for include:

  • need for comprehensive, explicit rules, which you cannot change midstream
  • ability to publicize to the right audience to ensure your pool of entries will achieve your desired goal
  • no ability to cancel
  • requirement that all prizes be awarded, regardless of ultimate quantity or quality of entries
  • requirement of a public benefit (i.e., fundraising for your charitable mission or the development of a response to an issue of broad consequence)
  • conflicts of interest between competition applicants and judges
  • limitations on employee and related party participation

Rules relating to contests and competitions, where winners are selected based on merit or skills based criteria, and raffles or drawings, where winners are selected based on chance, will be subject to different rules and regulations by state and local governments. Those rules and regulations can include required disclosures, as well as registration and reporting requirements.

If your organization wants to consider a contest, competition, drawing or other event of this type, be sure to allow three to four months for planning. Also be sure to include a marketing and communication strategy, as well as clear goals and objectives for your event.

McKinsey and Company authored an excellent article on competitions and philanthropic prizes, which we commend to your reading. You can find it by clicking here.

For a good analysis of the considerations behind charitable auctions, check out this article from Blue Avocado, a magazine of the Nonprofits Insurance Alliance.