Pulled from comments. This is a terrific point. By pulling punches on disclosure requirements, the IRS hurts charities that work hard to keep expense ratios low. Better disclosure would make these nonprofits look good on Form 990, which many donors use to direct giving. Without the relevant ratios front and center on the IRS forms, the groups' light is hidden under a bushel.

People need to understand these ratios and know where there money is going. I sit on a board of a national non-profit out of Rockville and know what sacrifices the staff, including the Exective Director, take to keep the admin and fundraising costs low. They have a clear understanding of the fact that if those costs are low, there is more going to the programs which is why anybody should be working for a charitable cause.

Posted by Jay Hancock at 10:52 AM | Permalink | Comments (0)
Categories: Nonprofits
        

The Internal Revenue Service just blew a beautiful chance to give donors the most relevant, accessible financial information about charities.

Scandals at United Way, the Nature Conservancy, the Red Cross and other nonprofits helped prompt the agency to revamp Form 990, on which charities report activities to the public. But the unveiling of the new form on Thursday shows that the IRS caved in to pressure from nonprofits to keep disclosure as full as it should be.

A draft form proposed earlier this year included statistics on a summary page giving a clearer idea about how much donations pay for executive salaries and other non-charity items. But the IRS scrapped requirements to disclose the number of employees making more than $100,000; fundraising expense as a portion of contributions; total expenses as a percentage of assets and executive compensation as a portion of total compensation.

Charities dismissed the IRS proposal to list easily accessible fundraising expenses as "value laden." You bet it's value laden. If 90 cents out of every donated dollar goes to pay some for-profit fund raiser, that's valuable information for givers.

Although the new form will require disclosure of first-class air travel and club dues for executives, the IRS rejected proposals to list all executive expense reimbursements and allowances. The agency will require better disclosure of loans, business deals and other transactions with insiders, but even this could have been improved.

The new requirements stop far short of information available on publicly traded, for-profit organizations. Donors are investing in charities no less than shareholders are investing in Merck and Exxon. The information they receive should be at least as comprehensive.

Posted by Jay Hancock at 9:15 AM | Permalink | Comments (1)
Categories: Nonprofits
        

What are endowments for, anyway? Harvard has long been pressured to invest some of its $35 billion endowment in making its tuition more affordable. Now it seems to have done so in a significant way, cutting the cost of attendance by as much as half for students in families making between $120,000 to $180,000 a year and by more for families making less. From Bloomberg:

These families [making 120k to 180k] will pay just 10 percent of their yearly earnings to send a child to Harvard, the Cambridge, Massachusetts, university said today. The payments decline on a sliding scale, with those making less than $60,000 attending for free. The school also eliminated student loans, saying students will get additional grants as needed.

The newest initiative expands a program started in 2004, when former president Lawrence Summers added a tuition-free financial aid program for students from low-income families. The program, which begins next year, will cut costs for a family earning $180,000 to $18,000 per student, compared with $30,000 this year, according to the school.

``What you see here is a real commitment to try to identify a response to the enormous stress that a particular group of families feel about the cost of higher education,'' President Drew Faust said in a conference call. The new program focuses on a ``middle-income group,'' she said.

Excluding home equity from financial aid formulas, another part of the initiative, may save some students about $4,000 a year, according to a statement from Harvard.

Here's Senator Charles Grassley, who has been pushing for this:

“This is big news. Universities hold at least $340 billion in endowments. Harvard has the biggest endowment of all. This could inspire other expensive colleges to make tuition more affordable. Choosing a college should be based more on brain power than bank account size. As a society, we need to avoid saddling families with tuition they can’t afford and students with sky-high debts. I hope the colleges that are taking steps to reduce tuition will make the costs known up-front, so families can comparison-shop ahead of enrollment and don’t get any rude surprises afterward.

"I hope Congress is motivated by Harvard’s action to continue a discussion of whether to impose a mandatory endowment pay-out requirement on well-funded colleges. Colleges are tax-exempt, and other tax-exempt entities, such as most private foundations, have a mandatory pay-out requirement of 5 percent a year. Tax-exempt organizations are supposed to provide public benefit in exchange for their special status. Helping the next generation afford college is a public benefit. It’s good to see a top college recognize that.”

Posted by Jay Hancock at 3:56 PM | Permalink | Comments (1)
Categories: Nonprofits
        

Apropos of my post on Maryland Nonprofits' Standards for Excellence, TJ Harris says:

It is generally true that the "Standards of Excellence" are a good way to minimize the chances that the organization is infested with the "incompetent, negligent, venal or larcenous."

But the Standards themselves are onerous and bureaucratic and somewhat redundent with basic non-profit state and federal laws and general corporate principles.

Meeting the Standards will guarantee that the organization has squandered hundreds of board and staff hours coming up with the pointless documentation and "written policies" required by the Standards of Excellence program.

Not to take away anything from Parks and People's achievement (and they are an outstanding organization), but smaller, but quite effective and non-larcenous non-profits will do fine work without meeting the Standards. Donors should look to a record of effectiveness rather than this particular overly-bureaucratic seal of approval.

Standards for Excellence DO overlap with "basic non-profit state and federal laws and general corporate principles." Problem is, state and federal laws purporting to keep nonprofits honest are lightly enforced, at best. Nonprofit enforcement by the IRS, which is in the best position to do so, has been a joke, although it's getting better. On a state level it takes blatant, ham-handed embezzlement to spur prosecution, and many people profiting from private inurement at nonprofits are too sophisticated to get caught doing that. (The accountant taking money from the till goes to jail while the executive director steering exorbitant contracts to his/her for-profit company gets a pat on the back.)

As for "general corporate principles," nonprofit boards tend to be disengaged, undertrained and ambivalent about enforcing ethical and financial standards. And by definition nonprofit organizations have no shareholders, so there is nobody left to watch the ball. So what's left? The nonprofit industry, if it values its reputation, must undertake to promulgate and enforce standards itself.

Posted by Jay Hancock at 10:45 AM | Permalink | Comments (2)
Categories: Nonprofits
        

I know nothing about the Baltimore Parks and People Foundation except what I just read in its press release and on its Web site. "Since 1984, Parks & People Foundation has worked to improve the quality of life in Baltimore’s neighborhoods, developing innovative solutions for restoration of natural resources and the academic enrichment and motivation of the city’s children."

But I know that Parks & People just qualified for Maryland Nonprofits' Standards for Excellence program, which reduces chances that certified organizations will turn out to be incompetent, negligent, venal or larcenous. Standards for Excellence is a bright signaling device saying, "This nonprofit is likely to use your philanthropic donations and government grants in a productive, efficient manner." Not a bad screen to use when deciding on your year-end donations. Here is a list of qualifying organizations.

Posted by Jay Hancock at 11:50 AM | Permalink | Comments (1)
Categories: Nonprofits