Tag Archives: foundations

Transparency and Financial Oversight

Reposted from eJewish Philanthropy – January 24, 2012

“We think that the foundation should have glass pockets.”
Russell Leffingwell, Chair, Carnegie Corporation, 1952

Effective oversight of financial systems in nonprofit organizations is key to their proper and effective functioning. This philosophy, however fundamental, has not always been universal practice nor have donors always expressed more determined expectations about the transparency of organizations they support.

In today’s marketplace, nonprofits that watch over finances and share financial, programmatic and other information with their constituents build stakeholder confidence and are thus far better suited to fulfill their missions, deliver effective services and adequately address donor concerns. Nonprofit finances not only include fiduciary elements but also address reporting of capital, personnel and programmatic expenditures.

But no organization is immune from the high standards of financial transparency. Within the last few months, two rabbis were accused of mishandling precious donor dollars for organizations they headed, and the headlines in various media and across the internet were, well, ugly.

Therefore, in today’s fast-paced and accessible environment, the landscape is changing and standards are rising. In fact, while we eschew “gotcha” scenarios, we do encourage every one of our client organizations to establish a financial oversight committee – apart from the agency’s treasurer and CFO – for major campaign efforts and ongoing operations, especially to assure donors at all levels of proper procedures and practices!

At the heart of increased transparency and accountability is the widespread belief that, in return for public support, nonprofits have a special responsibility to the public: a responsibility to earn and maintain trust instilled by donors to properly utilize funding to fulfill their stated mission. Today, no nonprofit leader, professional or volunteer, could be considered exempt from scrutiny; and we suggest that nonprofits today must be diligent in setting policies and adhering to best practices to assure donors that they are in force and the guide organizational decision making at all times.

Media reports abound with the financial shenanigans undertaken by some nonprofit staffs and boards. And we know that the Jewish community is not immune from various recent horror stories that validate the importance of nonprofits establishing formal policies to promote transparency. In this context we are often stunned to hear that some people claim that they do not want to receive information even when agencies produce extensive annual reports or other detailed materials.

Here is a review of only a few recent examples of alleged bad practices:

Excessive spending on luxury travel, jewels and clothing appear to be the habits of a New York-based educational and charitable organization in the Orthodox community.

A Birmingham, Alabama, nonprofit that provides computers to needy kids was treated as a “personal piggy bank” by the founding board member who traveled, gambled and lavishly spent charity money for years. During this time, this nonprofit did not even file the requisite IRS nonprofit forms.

Embezzlement of nearly $1 million by an outside accountant was treated as an internal matter by the CEO and other high level staff of a nationally known community organizing operation. Neither the Board nor law enforcement was initially notified as the CEO sought to cover up the misuse of funds. The outside accountant also happened to be the CEO’s brother so the drama continued unabated.

A Chicago-area nonprofit providing affordable housing dedicated nearly $700,000 to the director’s salary, three times as much what other nonprofit housing leaders in the region made.

Clearly, no sector, whether Jewish or not, is immune from scandal. So what should nonprofits do?

  1. Damage to the public perception of the organization and the loss of the public trust is often irreversible, rendering an organization incapable of functioning. Nonprofits rely on the trust and good will generated through fulfilling compelling missions that advance the public good to cultivate and sustain support from donors and clients. Contributors are less likely to support an organization with a history of poor financial oversight or worse.
  2. Today’s donors demand greater transparency; they want a financially accountable and open organization. The legacy of the rubble of Enron and financial deals crafted in “quiet rooms,” at the outset of the latest economic recession is a societal push for accountability and transparency. We hold our schools accountable and we expect our government to be open in how it operates and more accountable for its actions. Now, donors view their charitable contributions less as a gift and more like a strategic investment. Therefore, they demand more honest information about how their investment is utilized. It will not take much for sophisticated donors to be turned off by an information vacuum or the perception that the business side of the organization is being handled improperly. The more you share, the more your stakeholders will understand, and the more likely they are to support you.
  3. Rules governing charitable organizations, namely from the IRS, require honesty and compliance. IRS Form 990 requires annual reporting on a nonprofit’s mission, governance, programs and finances as well as the organizational compliance with relevant state laws. In addition to the Federal reporting, most individual states require annual reporting of finances and governance. Oversight by local government also ensures tighter controls over nonprofit organizations. After a local charity providing low-income housing and facing mounting financial problems received hundreds of thousands of dollars in grant funding, the city of Glendale, California, approved the requirement for two years of financial statements and audit reports for any nonprofit organization competing for social service funding from the city.
  4. Transparency is the basic foundation for collaboration. Openness fosters collaboration with staff, donors and volunteers and the efficient use of resources to fulfill the organization’s mission and increase giving.

Transparency is not easy. In the hectic world of nonprofit management, transparency and financial oversight are often relegated to non-urgent status as staffs and boards may view these as “chores” as not advancing the mission. But as the notable examples consistently show, time well spent on creating and implementing financial oversight systems and a culture of openness are significantly beneficial in the long run. To maintain relevance and stability (or growth), nonprofits should act now and consistently to be more open, compliant and diligent. Below are some recommended steps for openness:

  • Nonprofit boards should institute formal policies and procedures to ensure the prudent and responsible management of all financial documents (e.g. budgets, audits, expense reports, compensation, petty cash and invoices). Board members and relevant staff should review, approve and track budget and organizational financials on a monthly basis.
  • Accurate and complete financial records should be maintained at all times. Nonprofit organizations should undergo annual audits or reviews by an independent and qualified financial expert.
  • Clear policies for reimbursement of documented business and travel expenses should be created.
  • Board members should question patterns of spending that seem at odds with stated organizational policies and objectives.
  • Boards should create or enhance their audit or finance committees and recruit directors or committee members with relevant professional experience.
  • Charitable organizations should use the Internet and other electronic media (e.g. blogs, Twitter, Facebook, website, Flickr, YouTube, Linked In, e-newsletter) to disclose information such as an annual reports, names of board members, as well as mission and vision statements.

Clearly, the nonprofit sector has come under increased scrutiny by the government and private contributors. Establishing consistent and transparent financial oversight systems will go a long way in maintaining the public trust and cultivating financial support.

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Twelve Insights About Giving in 2012

Reposted from eJewish Philanthropy – January 4, 2012

2011 has ended and, while true challenges remain, dire predictions of especially troubled times in the nonprofit world never seemed to materialize. What lies ahead for 2012? We predict another year of growth in philanthropy and another year for more giving.

As we look at our crystal ball for the coming year, however, we find certain predictions difficult to make. The never-ending roller coaster rides in the U.S. and world economies, compounded by an election year likely to impact on policies, taxes, and other factors that directly affect nonprofits and charitable giving, will continue to shake things up regularly. We certainly hope that an improving economic landscape may help push charitable giving to an even more positive direction but recovering from the Great Recession will not be easy.

One prediction about which we can be certain is the content of our bi-weekly contributions to eJewish Philanthropy. Here is a preview of what we will address:

  1. The Modern Jewish Woman Donor
    The evolution and new-found power of the MJWD are often overlooked. Studies confirm that women are increasingly influential in decisions relating to charitable giving and they routinely give better and more passionately than do men. While Judaism honors women, we will identify ways that women address philanthropy and why women are such good donors.
  2. Networking: The Key to our Giving Future
    Although we have written substantially in the past about the benefits of social networking, we cannot stress enough the importance of face-to-face contact between nonprofit leaders and potential donors in the Jewish community. We will look at approaches other than social media, largely because fundraising campaigns succeed as they cultivate and draw upon the strong sense of community and interpersonal relationships. Why do people give and what impacts on their decision-making? The interests and emotional connections of Jewish donors to the agencies/projects they support and the way that they support, are changing along with our Jewish communities, so giving patterns are likely to continue to change in the times ahead.
  3. Planned Giving
    While every gift is a planned gift, testamentary giving through wills, trusts and estates accounts for about $30 billion annually in the U.S. We will examine how donors can efficiently plan legacy gifts that ensure their charitable intent lives on after death. With a focus on our synagogues, we will question why we have seen a very slow development of “legacy programs.” How do we encourage deferred giving in the synagogue world, enabling them to catch up to other nonprofits that continuously advance in this arena? Why do Jewish congregations tend to shy away from talking with their members about estate gifts?
  4. Dressing Up Your Campaign
    Just in time for Purim, we will talk about changing the face of a nonprofit. Experts contend that rebranding should be done every 10-12 years. While people will dress up like their favorite Purim characters, nonprofit leaders need to consider serious questions relating to presenting their agencies as contemporary organizations with crisp and meaningful messages. What does your logo convey? How can we keep the stakeholders and potential contributors “on the same page?” We will examine the many ways to make your mission and vision stand out and reach the right audiences. While successful fundraising begins with a compelling story and good packaging, we will ask some experts to address what approaches have worked in the past and what may work even better in the future.
  5. What Donors are Really Thinking
    With personal tax deadlines front-and-center in April and with Passover approaching, we will talk with several philanthropists and ask a number of key questions that every nonprofit professional would like to know: how do they choose where to donate? How can a nonprofit get the attention of major donors? What are the “do’s and don’ts” when approaching a major philanthropist?
  6. The Ideal Development Director
    We are familiar with the fundamental roles of an organization’s development officer, “one who implements a strategic plan to raise funds for their organization in a cost-effective and time-efficient manner.” But what sets apart the successful ones from the others? Which ones survive in the tangled webs of annual campaigns, foundation research, grant-writing and stewardship of major donors? We will dive into what we believe are the characteristics of the most ideal development director.
  7. Engaging the Board
    We often wonder why so many people want to volunteer for a cause bigger than themselves. In so many JCC’s, Federations and synagogues, we hear board members discuss the importance of the Jewish community. Yet sometimes the message and direction from the organizational Boards are not always “in sync” with the organization’s mission and vision. This post will examine the role of governance, leadership and strategy.
  8. The Results and Trends in Giving in 2011
    In June, The Giving Institute will confirm the annual figures on the levels of philanthropy during 2011. The annual report will include key facts and analyses of the 2011 numbers and we will use the report to highlight innovations that Jewish organizations are taking to enhance philanthropy.
  9. A Jewish Look at Foundations
    An essential principle in nonprofit work is that operational costs are limited but programs are limitless. Our goal in this article is to consider how important foundations and donor advised funds (DAVs) can serve the nonprofit world. While some critics contend that these funds are warehouses for dollars, we contend that Jewish donors are especially good at securing the future through their strategic decisions and that their intentions live on beyond their years.
  10. The Anatomy of a Synagogue
    As we approach the High Holidays, we will look at American synagogues and how they are addressing fundraising in new and effective ways. But are our congregations truly transparent and are they being operated as well as other types of nonprofits? Although we will not identify any one specific congregation, we will offer some insights on how a modern synagogue might and should operate in 2012.
  11. Jewish Volunteer and Professional Leadership
    Strengthening and fostering volunteer leadership has taken on a new emphasis, but salary studies of nonprofit executives seem to favor men over women. What are the profiles of both volunteers and paid executives and how are they impacting philanthropy? We will focus on some provocative findings.
  12. A Light Unto the Nations
    Israel-focused philanthropic support by Americans is changing, especially as research validates that younger Jewish donors look at Israel differently than did their parents and grandparents. How should Israel-based agencies actively seeking charitable support in the U.S. adjust their efforts to be more successful and relevant? As we consider social media efforts such as Facebook and Twitter and other types of technological methods to secure funds and build support, we will talk with some Millennial donors who are truly making an impact.

Because the Jewish philanthropic world is constantly evolving, we will sprinkle other topics into our bi-weekly contributions. We hope that 2012 brings growth, stability and strength to every Jewish organization. We are honored to offer our knowledge to thousands who subscribe to eJewish Philanthropy and always welcome comments, questions and suggestions.