An overview of the NFP Sector To accompany coverage of Chapters 1, 12,13 & 14 in Granof & Khumawala textbook NFP Sector 1
Scope of nonprofits charitable, educational, arts not-for-profit sector the third sector the independent sector the philanthropic sector the voluntary sector the social sector Civil Society NGOs "Nonprofit is a tax status, not a business plan." NFP Sector 2
Section 501c 27 different types Major sections include: Charities 501c3 (1.4 million) --must benefit the broad public interest. Foundations 501c3 Social Welfare Organizations 501c4 Professional/Trade Organizations 501c6 NFP Sector 3
Charities Nonprofits that are exempt under Section 501(c)(3) Social Services, hospitals, museums and orchestras, private schools, public television and radio stations 1.9 million NFP orgs. in 2006 NFP Sector 4
Foundations individuals, families, businesses, and communities also 501(c)(3) nonprofits required to make grants equal to at least 5 percent of their investment assets each year nearly 70,000 foundations in the United States. NFP Sector 5
Types of foundations: Private foundations Corporate foundations Operating foundations Community foundations (The Internal Revenue Service (IRS) classifies community foundations as publicly supported charities, not private foundations.) NFP Sector 6
Why are nonprofits tax exempt? Nonprofits relieve government's burden. Private schools and hospitals, day care centers, homeless shelters, and other nonprofits provide services that government might otherwise be required to offer. NFP Sector 7
Why are nonprofits tax exempt? Taxing nonprofits would be difficult and counter-productive. Lawyers and economists have pointed out problems that could arise if government attempted to tax nonprofits. These include the difficulty of determining what qualified as taxable income and the adverse affects taxation might have on the viability of many worthwhile organizations. NFP Sector 8
Why are nonprofits tax exempt? Nonprofits benefit society. provide valuable services to society encourage civic involvement provide information on public policy issues encourage economic development make society richer and more vibrant NFP Sector 9
Why are nonprofits tax exempt? Exemption for religious nonprofits preserves separation of church and state. Tax-exemption for religious nonprofits limits government's ability to use tax policy as a tool to promote one religion over another or to tax a church out of existence. NFP Sector 10
Governance: The nonprofit Board Community volunteers It can be a community of interest rather than geographic Generally unpaid Interest in mission or cause Have something to offer Some may represent clients In other cases, nonprofits prefer rich people or people who might be able to help raise $$$ NFP Sector 11
Board members responsibilities Legal and fiduciary. Ensure the organization meets legal requirements and are operating in accordance with its mission Approve budget Exercise the duty of care: attend meetings, make informed decisions, carry out their duties Protect the organization's assets. NFP Sector 12
Board members responsibilities Oversight Ensure that the organization is well run. Determine mission and purpose Create and follow strategic plan Hire and remove the chief executive Develop strength of the board, now and for the future NFP Sector 13
Board members responsibilities Fund-raising actively pursue needed funding personal contribution serve as an advocate with a foundation, corporation, or government entity organize a fund-raising event or host a benefit face-to-face solicitation of other individuals NFP Sector 14
Board members responsibilities Representation of constituencies and viewpoints Provide experience or perspective of organization's constituency Provide voice for constituents in organization s governance NFP Sector 15
Composition of the Local U.S. Government Units (16,519) (19,492) (13,051) (3,033) (37,381) Over 89,500 entities! Chapter 1 Granof-4e 16
Importance of the NFP Sector Size and Scope 2006-2007: Number of not-for-profit organizations 1.9 million Total nonprofit sector revenues (2006) $1.1 trillion Annual contributions from private sources (2007) $306.39 billion Percentage of wages and salaries paid in the US by NFP 8.3% Percentage of NI attributed to the Indep. sector (2006) 5.3% Giving 2007: Individuals contribution (74.8%) Charitable bequests (7.6%) Foundations (12.6%) Corporate (5.1%) 229.03 billion 23.15 billion 38.52 billion 15.69 billion Chapter 1 Granof-4e 17
To what causes do donors give money? NFP Sector 18
NFP Revenues Source Independent Sector 2007 NFP Sector 19
Annual Reports (voluntary) NFP Sector 20
Audited Financial Statements may not be required Required in some states for larger nonprofit entities Required if federal funding exceeds $500K under the Single Audit Act Unlike business entities: The tax return is PUBLIC information The audited financial statements are private information NFP Sector 21
Form 990 Mandatory Annual filing if revenue > $25,000 (There is an EZ version for small entities) NFP Sector 22
This is an extra return filed for unrelated business income NFP Sector 23
Checking up on charities? Guidestar.org for 990 returns and other information voluntarily provided by the nonprofit Charitynavigator.org for star ratings of larger charities BBB Wise Giving Alliance (give.org) for pass/fail evaluations based on 20 standards American Institute of Philanthropy (Letter grades) at charitywatch.org NFP Sector 24
BBB Wise Giving Alliance 1. A board of directors that provides adequate oversight of the charity's operations and its staff. 2. A board of directors with a minimum of five voting members. 3. A minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation NFP Sector 25
BBB Wise Giving Alliance 4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer. 5. No transaction(s) in which any board or staff members have material conflicting interests with the charity resulting from any relationship or business affiliation NFP Sector 26
BBB Wise Giving Alliance 6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission. 7. The board most approval the above performance evaluation & recommendations for future actions. NFP Sector 27
BBB Wise Giving Alliance 8. Spend at least 65% of its total expenses on program activities. 9. Spend should be no more than 35% of related contributions on fund raising. 10. Avoid accumulating funds that could be used for current program activities. (more than 3 years of expenses or 3 years of current budget) NFP Sector 28
BBB Wise Giving Alliance 11. Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. (Audit if annual gross income exceeds $250,000, else a review by CPA) 12. The financials must include statement of functional expense NFP Sector 29
BBB Wise Giving Alliance 13. Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. 14. Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration. NFP Sector 30
BBB Wise Giving Alliance 15. Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part. NFP Sector 31
BBB Wise Giving Alliance 16. Have an annual report available to all, on request, that includes: the organization's mission statement, a summary of the past year's program service accomplishments, a roster of the officers and members of the board of directors, financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial NFP Sector 32 statements, and (iii) ending net assets.
BBB Wise Giving Alliance 17. Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990. NFP Sector 33
BBB Wise Giving Alliance 18. Address privacy concerns of donors by Opt-out option so name and address are not shared outside the organization, and Website accessible privacy policy to tell visitors (i) what information is being collected and how it is used, (ii) how to contact the charity to review personal information collected and request corrections, (iii) what security measures the charity has in place to protect personal information. NFP Sector 34
BBB Wise Giving Alliance 19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) Such promotions should disclose, at the point of solicitation: the actual or anticipated portion of the purchase price that will benefit the charity the duration of the campaign any maximum or guaranteed minimum contribution NFP Sector 35
BBB Wise Giving Alliance 20. Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or BBBs about fund raising practices, privacy policy violations and/or other issues. NFP Sector 36
Let s explore some of the links Give.org charitywatch.org GuideStar.org NFP Sector 37
Only You Can Prevent In a matter of days, several separate instances have been reported where parents were caught embezzling tens of thousands of dollars from league coffers. In most instances the boards were not aware of the illegal activity for about 3 years. In Central California, a 43-year old mother and coach admitted to stealing $24,000 from the Turlock Youth Soccer League. The treasurer of the Livonia City Soccer Club arraigned for stealing over $100,000. In Washington, father and treasurer of the Spartan Baseball Club, a select baseball club for teenagers, was arrested and charged with embezzling over $21,000. In Pennsylvania, the treasurer took $12,000 from the coffers of the Coplay Sports in Allentown. Chapter 12 Granof-5e 38
Only You Can Prevent In a matter of days, several separate instances have been reported where parents were caught embezzling tens of thousands of dollars from league coffers. In most instances the boards were not aware of the illegal activity for about 3 years. In Wisconsin, the former president of the Green Bay Swim stole $47,000 over a three-year period In Michigan, the treasurer of the Marine High School Booster Club was charged for stealing $35,000. In Ohio, the president of the Springdale Youth Boosters Inc. is charged with stealing $76,000. In South Carolina, more than $13,000 was allegedly stolen by its vice president/treasurer from the Pinch Elementary School PTO. Chapter 12 Granof-5e 39
If you serve on volunteer board Consider instituting a peer audit of the activities of the organization at least once a year. A committee of at least two people (who don t handle any of the money) meet with treasurer to go through receipts for amounts paid, deposits, checks, etc. It doesn t take a CPA! Knowing the audit will be done may deter a potential fraudster! Chapter 12 Granof-5e 40