Interview with Nancy Kieling of the Princeton Area Community Foundation on Donor Advised Funds

Here is my interview with Nancy Kieling, one of the most informed and connected nonprofit leaders in central NJ! The topic is Donor Advised Funds, what they are and how they are used.

Posted in Charitable Deduction, Charitable Giving, Community Foundation, Donor Advised Funds, Nonprofit Finance, Nonprofit Governance, Personal Finance, Philanthropy | Leave a comment

Geniuses st Brookdale Community College, Really!

The folks at Brookdale Community College are indeed brilliant.  I know this because they have asked me to come teach the Nonprofit Finance course as part of their Certificate in Nonprofit Management program! So you can all register for the program here. How much fun is a class in nonprofit finance?

Posted in Uncategorized | Leave a comment

We Are On The Air!

Nonprofit NJ

Non-Profit NJ, Show 1.12 from Princeton Community Television on Vimeo.

Our first show is now online. Philip Brown is a Chief Professional Officer at the United Way of Northern New Jersey. He has both an MBA and a MSW. Phil is a great guy  for a number of reasons… I like to think that he has helped make some nonprofit organizations disappear, but in fact he has been integral to three different nonprofit mergers which have turned a total of 9 nonprofits into 3!  Phil is very humble about his role in these mergers but I know that his vision and patience have been key factors in the success of those mergers.  Phil is also very generous with his time and he has kindly offered to speak with anyone who wants to know more, or who simply wants his advice!  You can reach Phil by email at:Philip.brown@unitedwaynnj.org

 

Posted in Nonprofit Governance, Uncategorized | Tagged , , | Leave a comment

Nonprofit Scandals Can Be Prevented

For organizations that are doing good, there has been a lot of bad being reported lately. I’m not talking about the political version of controversy like the recent Komen/Planned Parenthood dust-up. I’m talking about old fashioned criminal activity, people stealing from nonprofit organizations. I don’t think insider theft at nonprofit organizations is any more common than it is at other types of organizations but nor is it any less prevalent. However, the results of such thefts are perhaps more damaging because in addition to the damage that any specific organization may suffer as a result of thievery, the overall sector suffers from the incremental loss of trust that potential donors experience.

What brings this to mind was the recent scandal involving a clerk at the Archdiocese of New York who has been accused of stealing more than $1,000,000 over seven years by writing hundreds of checks for modest amounts to an account she owned and then falsified the records of where those checks went.
It seems from the outside that there were at least 4 internal procedures that could have prevented this from happening, or at least stopped it early on.

Background Checks: I know we are all doing good and committed to our nonprofit causes but the reality is that you have various levels of liability if you do not conduct some basic background checks on your staff and new hires. This is especially true if your organization does any work with children or victims of abuse. The Archdiocese did implement background checks but did not require checks of staff that were already in place, such as the accused in this instance. Had they checked her background they would have learned that she had been previously convicted of stealing more than $50,000 from a previous employer (a felony) as well as a previous misdemeanor conviction for a similar charge.

Signing Authority: The accused in the case was authorized to sign checks up to $2500 without anyone else’s approval! I recently spoke to the Executive Director of a local nonprofit with a multimillion dollar budget and she told me that only recently was she authorized to sign checks up to $1000 without a co-signature. Why a clerk was given this authority seems a mystery.

Opening the Checking Statements: When I was the Executive Director of a local nonprofit I was handed the unopened checking statements each month to ensure that I was the first person to review what was inside. At first I thought it silly that I had to go through each check in the statement, but soon realized that this simple procedure assured that I would be able to catch exactly this type of fraud. At the time I needed a co-signature on any check over $500 so while I might have been able to conduct some minor transactions, the finance director would have seen it… could we have been in cohoots and perpetrated a fraud? Perhaps, but much less likely.

Audits: It is possible that an auditor could have missed this if they had somehow managed to not look at those specific transactions. Buried in the belly of a much larger institution, the Archdiocese did eventually impose updated procedures in this department and auditors did find this fraud in December, though seven years and a million dollars too late.

It is not just lowly clerks who take advantage of the sometimes lax controls at nonprofits. The former administrative director of the Albert Ellis Institute, a nonprofit psychotherapy organization in New York is accused of stealing more than $2,500,000 through a series of more than 80 wire transfers. In the words of Manhattan district attorney Cyrus Vance Jr., “Thefts from nonprofits divert funds meant to support the goals and missions of the organizations, and erode the trust of donors and volunteers.”

You do not want to be a Board member answering the press inquiries as to how such a thing could have happened at your favorite charity. Make sure your organization has procedures documenting how money moves and also documents how the staff complies with those rules. If you already have an independent auditor for your organization they can help assess your procedures and propose improvements.

Why the Archdiocese took so long to implement these procedures, is a mystery. Are you involved in nonprofits in some way? Are you on a Board? Do you know if you have the correct procedures?

Posted in Nonprofit Finance, Nonprofit Governance, Nonprofit Scandal, Uncategorized | Tagged , , , , , , , | Leave a comment

The End (of charitable giving) is Near!

It often seems that we are worrying about something we can see but then get blindsided by something we never saw coming.  So it is with the demise of charitable giving as we know it.

Many folks are focused on Congressional ineffectiveness in dealing with our budgetary morass, and fear (perhaps rightly) that the current version of the charitable deduction will either go away or be severely altered, thereby doing away with a substantive reason for charitable donations. People are not wrong to have this concern I just think we might be missing the bigger threat.

The New York Times recently reported on two distinct trends in philanthropy and when these trends join hands, charitable donations as we know them will shrivel, if not disappear.

Donor Advised Funds

The first trend is the enormous growth in Donor Advised Funds. These funds allow people to set aside money (into the “fund”) and receive an immediate charitable deduction.  The money however can remain in the fund without actually being distributed for any discernable charitable purpose for years and years. Companies like Fidelity, Schwab and T.Rowe Price offer such funds. You can read more about Donor Advised Funds in the New York Times article here.

You can also read an interesting and enlightening response to Times article by the Princeton Area Community Foundation (which offers its own versions of Donor Advised Funds) here.

Program Related Investments

The second trend is something called Program Related Investing. This means that rather than giving money to a 501(c)3 charity the money is invested in profit making companies (or hybrid Public Benefit Corporations) that in some way address a societal need that traditional charities may not be adequately addressing. It used to be that a foundation might invest some of their corpus into such “do-gooder” investments while conducting traditional philanthropy from earnings.

The new twist is that some foundations have made such Program Related Investments as part of their required annual 5% disbursement funds. This implies that a foundation (or donor advised fund?) need not make any actual charitable “donations” at all. You can read more about Program Related Investments in the Times article here.

When Donor Advised Meets Program Related…

Very soon, some savvy marketers will figure out how to package pools of “do-gooder” investments, and sell them to people who have money in donor advised funds. Then folks will get the joy (and deduction?) of charitable giving with the fun of investing in potentially profit-making enterprises while never having to actually hand money over to organizations doing silly things like feeding the poor or helping the sick or aged.  Instead they will be bankrolling start-up corporations that plan to create profitable items that “improve the environment,” or other potentially lucrative ideas. Once the companies start generating profits, our donor advised investments will grow and we can do it all over again, without ever having to actually “donate” to a charity. 

Of course we know these investments will be profitable because it is unimaginable that someone on Wall Street would create products that generate fat fees, sell them to people who may not fully understand the investments, and stand by and watch the investments tank… that couldn’t happen, could it?

Posted in Charitable Deduction, Charitable Giving, Donor Advised Funds, Nonprofit Finance, Nonprofit Governance, Philanthropy, Program Related Investments | Tagged , , , , , , , , | Leave a comment

Shameless Self Promotion

My new book, The Finance Arts Guide To Nonprofit Cash Flow, was recently featured in the Nonprofit Times Blog!

Posted in Nonprofit Finance, Nonprofit Governance, Personal Finance | Leave a comment

Shameless Self Promotion

With the publication of the Finance Arts Guide to Nonprofit Cash Flow I have been out and around promoting the book.  I am thrilled to have been asked by the Geraldine R. Dodge Foundation to submit a guest blog article which you can access here.

I also recently appeared on the internet radio program, the Not For Profit Exchange, being produced by a dear colleague, Pat Bohse. We talked about the book and how to get nonprofits to budget more responsibility.  You can download the interview here, and learn more about Pat and her excellent consulting firm here.

Posted in Arts, Marketing, Nonprofit Finance, Nonprofit Governance | Leave a comment

Can You Pitch Planned Giving When The Donor Is Stoned?

The New York Times reported on groups that grow medical marijuana and use the proceeds to support cultural projects, avoiding the need to seek donations. (Read the story here.)

I generally don’t care much what people do in the privacy of their own homes as long as everyone involved consents, etc… but there is something about this that concerns me greatly, and I inherited it from my Mother.  My Mother was a nurse and taught nursing for many years. She believed very strongly that our system of funding healthcare was seriously flawed (she’d still believe it but she died a few years ago).

One of her criticisms of our system of healthcare was that the profit motive should not be applied to people’s suffering. She had no problem with paying people decently for working in the field, doing research, etc., but to see people dying because the cost of medicine was too high while pharmaceutical companies declared billions in profits, she felt, was unconscionable.

I’m no expert on medical marijuana but I am under the impression that many of the folks who use it are suffering from serious, often terminal conditions.  I would think that if I required medical marijuana to relieve my suffering and maintain my appetite that the profits from that marijuana might go to researching the cures to these diseases.

And if you’re not opposed to using the profits generated from very sick people to further arts projects, then why not talk about planned giving with these self-declared prospects?

Posted in Arts, Excess Compensation, Medical Marijuana, Nonprofit Finance, Planned Giving | Leave a comment

Let Us Celebrate Failure!

One of the things we seldom admit to in the nonprofit world is that a project or idea failed. We talk about changing demographics, altered priorities, or changes in the funding landscape, but we don’t want to admit that something we put a lot of time and other people’s money into just simply failed.

So I was very impressed and amused to read in The New York Times about a group that gets together to talk about how some technology projects created by international development and aid groups have failed.  The goal is to spread the learning among folks who do this kind of work because we don’t just learn from each other’s successes.

The sponsoring group, Fail Faire, brings a sense of humor to the event, something I find often lacking in the nonprofit sector. I know we are all trying to do good works, but would it really be so awful if we laughed at ourselves now and then too (Lord knows the funding community is laughing at us every time they read our applications!).

The Fail Faire folks are also very open-minded and they even provide instructions about how you can conduct such an event for your organization or field.  Check out their instructions here.

Admitting failure is a lot like therapy, sometimes it is more effective and lasting when conducted in a group setting.

Posted in Assessment | Leave a comment

The Nonprofit Sector may be shrinking… without even trying!

For those of us who study the nonprofit sector it sometimes appears that there are just too many nonprofit groups. Too many groups addressing similar issues, more groups than can be sustained by the available pool of users, subscribers, buyers or funders… and too many groups that can’t seem to afford to build a professional infrastructure or a sustainable organization.

This has led to a lot of effort in the nonprofit community, at least among funders and consultants, to advocate for consolidations, mergers and other efforts to improve efficiency and sustainability.

Well it turns out that maybe we didn’t need to work so hard after all. A little known provision in a piece of legislation enacted in 2006 makes it mandatory for the IRS to revoke tax exempt status from groups that fail to file their required forms with the IRS.

Now, in a report issued by Guidestar, written by Linda M. Lampkin, (available here) it is estimated that as many as 355,000 nonprofit organizations may soon lose their tax-exempt status due to their failure to submit appropriate forms to the IRS over a period of 3 years.

If New Jersey has 1/50th of these it means that we could lose 7,100 nonprofit organizations in the next year simply due to neglect.  More likely, because of New Jersey’s sizable populations (nearly 3% of the US) our share of soon-to-be-defunct nonprofits may be closer to 10,500!

So you can stop worrying about whether there are too many nonprofits, we may soon be losing quite a few.

Posted in Nonprofit Governance | Tagged , | Leave a comment