Wednesday, December 23, 2015

Favorite Nonprofit Reads of 2015

This year we have seen many key issues of the nonprofit sector come to center stage, and have seen a wealth of great research and writing on these subjects. Below I provide a summary of my favorites.

Red Cross
The ongoing examination of the Red Cross, its operations, its leadership, and its finances by ProPublica and NPR has been incredible. While some have sought to critique the perspective it has brought, there is no doubt it has had a large impact on public perceptions and will surely impact the organization going forward.

Chan/Zuckerberg Pledge
The pledge by Priscilla Chan and Mark Zuckerberg of 99% of their Facebook holdings toward charitable causes sent shock waves through the nonprofit sector, both for the scale of the pledge and its nontraditional form. Initial reactions were extreme, either heavy criticism or heavy praise (my roundup is here).  Amidst such extreme reactions was a well-informed and nuanced piece by Gillian White in The Atlantic that told the big picture story.

Donor Advised Funds
Debates over regulation of donor advised funds (DAFs) took hold in 2015, rightly so given the continued growth and prominence of DAFs as a philanthropic tool.  There were excellent perspectives among critics such as Ray Madoff and Alan Cantor, and supporters such as Howard Husock and Jack Shakely.  One piece in particular that stood out to me was Alan Cantor's look at the structure of Fidelity Charitable and its ties to Fidelity Investments.  The perspective was unique, pointed, and gutsy.

You would think the sudden fall of an enormous nonprofit service provider would garner more attention than it did.  Beyond the initial headlines, few dove into the details.  An excellent exception to this is the continuing coverage by Josh Nathan-Kazis. His thorough look into the leadership failures, financial troubles, and risky choices at FEGS was an eye-opener.

Rick Cohen
It's hard to discuss excellent nonprofit writing without thinking of Rick Cohen and his impact.  In Rick Cohen, the nonprofit sector lost an incredible advocate and excellent writer.  The thing about him is that he was both unbelievably prolific (just take a peek at his writing this year for Nonprofit Quarterly) and extremely careful.  The breadth and depth of his knowledge and coverage are hard to overstate, and highlighting one piece does not to him justice.  But, if I must do so, this one comes to mind as an exemplar.  It brings together his perspectives on housing, inequality, politics, nonprofits, and advocacy, and also shows his willingness to examine issues at the local level.

Thursday, December 10, 2015

Proposed Nonprofit Onion Headlines 2015

As "America's Finest News Source," The Onion needs to boost its coverage of nonprofits and issues facing the nonprofit sector. In an effort to nudge such coverage, and despite a complete lack of popular demand, below is a compilation of proposed nonprofit headlines for 2015 offered up free of charge to The Onion. Feel free to add your own in the comments.
  • Skeptical Public Relieved to Find their Donations Used to Raise Awareness
  • Local Child's Lemonade Stand Fundraiser Closed after Criticism for Excessive Spending on Sandwich Board
  • Nonprofit Leaders Worry that Plan to Solve World's Ills Will Lead to Changes in the Charitable Deduction
  • Nonprofit Leader Inspired by Twitter Feed Filled with Airline Complaints & Baseball Updates
  • Tech Mogul Not Entirely Confident his Silicon Valley Approach could Transform Philanthropy
  • Inspired by Dan Pallotta TED Talk, Draft Kings Executives Set Out to Change the World With Advertising

Thanks to The Whiny Donor, Tony Martignetti, and some anonymous contributors, we have many great additions to the list:

  • Nonprofit Leaders Urge Congress to Simplify Private Foundation Excise Taxes and Payout Requirements by Eliminating Them
  • Donor Advised Fund Sponsors Rush Madly at Year-End to Ensure that Charitable Donations Do Not Go to Charity
  • IRS Demands DNA Swab to Prove Your Charitable Deduction
  • Philanthropist Donates to Charity CEO Excessive Compensation Fund
  • Research Shows that Most Donors Respond Poorly to Good Stewardship
  • IRS Mulls Plan to Call April 15 Giving Friday
  • After New IRS Ruling Charity Leaders Eager to Sell their Donors' Social Security Numbers to Each Other
  • Giving Tuesday Sets New Record for Number of Email Solicitations Sent to Spam Folders
  • Unknown Donor Gives Major Gift to Athletic Department to Name New Stadium "Anonymous Field"

Monday, December 7, 2015

Nonprofit Writing Roundup: Zuckerberg/Chan Edition

With the news of the $45 billion Zuckerberg/Chan pledge came a wealth of writing and opinions. Here's a roundup of some that stood out in my view.

  • Best Debate: Many opposing views arose about the intentions and potential impact of the pledge, but the debate I found most informative was between Felix Salmon and Jesse Eisinger. Two polar views arose, but its clear both were seeking understanding in forming and conveying them.
  • Oops Award: The pledge brought much quick speculation and incorrect assertions, particularly about taxation and the LLC formation of the Chan Zuckerberg Initiative, but this one in Daily Beast stood out for me.
  • To a Hammer Everything is a Nail: The news of the pledge also brought many who saw the event as an opportunity to inconspicuously promote their ingrained views. This by Dan Pallotta deserves credit for doing so most conspicuously.
  • Best in Show: For my tastes, the best piece to accurately portray the facts and provide needed nuance is this Atlantic piece by Gillian White, summarizing where things stand as "it's too early to criticize the Chan Zuckerberg Initiative – just as it's too early to praise it."

Monday, November 30, 2015

Giving Tuesday Deals for Central Ohio

Giving Tuesday has now cemented its place (along with Black Friday, Small Business Saturday, and Cyber Monday) as an important post-Thanksgiving spending day. Unlike the other days, however, Giving Tuesday has seen little attention paid to deals that help stretch the dollars of those participating. In this spirit, below I have collected a list of "deals" in Central Ohio that help donors make their charitable dollars go further.

Matching Gifts:

Gifts for Giving:

Reduced Credit Card Fees:

Know other deals? Please share them in the comments.

Monday, October 5, 2015

Why Accounting Students Should Care About Nonprofits

I often talk here about how accounting can inform nonprofits and those who evaluate them, but have said little about how accountants can play a better role in this.  The Accounting Path recently gave me an opportunity to do just that, and plug nonprofit accounting to current and potential accounting students in the process. Here is the outcome of that interview.

Monday, September 28, 2015

Why Doesn’t Carly Fiorina Tout her Leadership of Good360?

During Carly Fiorina’s rise to the top tier of GOP Presidential candidates, much discussion has centered on her time at the helm of HP and whether that tumultuous experience was an example of success or failure as a leader.  Given all of this discussion, I have been perplexed as to why she has done little to tout her role as board chair at Good360, particularly given the organization’s size and solid reputation.

For the uninitiated, Good360 is a nonprofit organization focused on facilitating corporate donations of goods to charities.  In a sense it is a middleman, but it serves a particular role by developing corporate partnerships and helping direct corporate donations to operating nonprofits whose needs match the goods provided by corporations.  The focused mission is an admirable one that has seen substantial success.  In numbers terms, the over $319 million in program expenses and a program expense ratio above 99% in its most recent financials are equally impressive.

With all of this to brag about, why haven’t we heard much from the candidate on this leadership role?  A look at the financials reveals a few possible reasons.
  • Despite a strong revenue stream and success in demonstrating program spending, the Fiorina years do not reflect growth but, if anything, stagnation.  Below are the average revenues and program expenses for Good360 in the five years prior to Fiorina taking over as board chair as well as the two since then (as reported in the organization’s Form 990; the 2014 financials have not yet been released).

  • The organization’s financial cushion (reflected in the “net asset” balance) has also shrunk since Fiorina took center stage.  Though there are good reasons (much of their net assets reflect as-of-yet-received pledges rather than investment funds), the trend nonetheless makes it hard to tell a story of a leader emphasizing financial conservatism.

  • Last but surely not least, the Good360 financial filings indicate that in her role as board chair, Fiorina devoted about 2 hours a week.  While also easily explained by those aware of the operations of nonprofits, this figure makes it hard to reconcile with any claims of hands-on leadership.  The numbers instead suggest that the CEO, who herself dedicates 45 hours a week, is more likely to be one to be deserving of such credit.
Am I saying that the evidence indicates a failure of leadership? No. What I am saying is that if one wants to tout Fiorina's leadership success at Good360, it will require a look beyond baseline metrics – a deep dive into the organization's operations and its nuances – something not particularly well-suited for a political campaign.

Thursday, August 13, 2015

The Clinton Foundation Accounting Issue that Remains under the Radar

In recent months, we have seen many criticisms of the Clinton Foundation and its finances. For various reasons, many of them have failed to stick. However, there is one issue (highlighted here by Jonathan Allen of Reuters) that has potential to linger even though it has thus far largely escaped the public eye. That issue is how the foundation has chosen to account for funds received and spent through the Clinton Health Access Initiative (CHAI) in partnership with UNITAID.

The Issue
First, some background on the issue at hand. When a nonprofit receives funds (or, alternatively, inventory) that it then subsequently sends along to another organization, there is a question as to whether those funds are revenues when received and then expenses when sent along or whether they are just temporary holdings not to be reflected on the nonprofit’s statement of activities. This distinction matters because if the funds are treated as revenues and then expenses, the organization’s reported program expenses (and thus its program expense ratio) are higher, and the organization appears both larger and more efficient. The rule governing this treatment boils down to a question of whether the nonprofit receiving the funds retains any discretion over what to do with them (“variance power”) or whether they are merely serving as an agent of the ultimate recipient. In the former case, they are recorded as revenues and then expenses when passed along, whereas in the latter they merely sit as liabilities until distributed.

Manifestation in the Clinton Foundation
CHAI is a controlled affiliate of the Clinton Foundation that (among other things) partners with UNITAID to procure pharmaceuticals at discounted prices and distribute them to beneficiary countries. In this activity, CHAI receives funds from UNITAID, procures pharmaceuticals, and distributes them to the chosen recipients. The key question is: are these funds revenues and expenses for CHAI or are they merely funds held as an agent?

The question is surely a nuanced one, but CHAI and Clinton Foundation present a unique case of a public disagreement. CHAI and its auditors have concluded that these are agency funds and do not record them as revenues/expenses. However, the Clinton Foundation and its auditors, when compiling consolidated financial statements, have concluded the opposite and reclassify these funds as revenues/expenses.

Before one dismisses this as just an esoteric point, note that these amounts accounted for over $28 million of the Clinton Foundation’s expenses in 2013, which is over 14% of their reported program expenses. The distinction was even more critical in 2012 and 2011, when these expenses were over $67 million and $108 million, respectively (making up over 33% and 46% of program expenses, respectively).

In short, the decision of how to treat these pass-through funds is an important one for the Clinton Foundation. And, while the treatment choice is a judgment call, the fact that it has played out as a public spat between the auditors of CHAI and the Clinton Foundation means this accounting disagreement may have staying power.

Friday, May 15, 2015

Rose Colored Finances and the Fall of FEGS

The venerable New York City nonprofit, Federation Employment and Guidance Service (FEGS), abruptly closed its doors earlier this year and subsequently filed for bankruptcy. The move shocked many and has threatened to seriously disrupt social services throughout the city. Its bankruptcy filings, coupled with its most recent financial statements, provide a painful case study of an organization whose troubles were clouded by persistent growth and excessive optimism about revenues.
  • Though the organization now says its programs faced declining revenues in 2103 and 2014, its (consolidated) financials didn't show these trends thanks to continued growth in its portfolio of programs. In fact, overall program revenues and total revenues increased even in its most recent fiscal year (up 5.1% and 4.1%, respectively).
  • Not only did revenues grow, the organization even showed positive change in net assets (i.e., profits) in 2013. It wasn’t until 2014 that the losses finally appeared -- a staggering $21.4 million loss before considering one-time insurance proceeds and $19.4 million loss after considering the insurance proceeds.
  • In 2014, persistent growth caught up to the organization, with expenses rising drastically, most notably salaries (up 13.5%) and bad debt writeoffs (up 440.1%).
  • The bad debt writeoffs in 2014 ($7.7 million, up from $1.4 million in 2013), coupled with the disclosure of an audit that revealed it had received estimated overpayments of $20.7 million in previous years (through its subsidiary, Home Attendant), suggests in hindsight that the organization’s recorded revenues in previous years were overly optimistic. In other words, the problem that their operating costs exceeded their potential reimbursements may have been festering for a while, but it wasn’t until 2014 that this bubbled up in their financials.
  • In the end, the organization's problems led to mounting cash flow troubles, which ultimately forced its sudden closure. These cash flow troubles too were tied to the organization’s growth mentality. Their net loss in cash in over the two years 2013-2014 was not due to operating losses (they had increases in cash from operations of $4.7 million and $1.0 million in 2013 and 2014, respectively), but rather due to cash used up elsewhere including purchasing new fixed assets ($7.5 million and $4.9 million in 2013 and 2014, respectively). That is, it was persistent growth, not operations alone, that was eating into their cash balances.

Tuesday, May 12, 2015

About the Claim that the Clinton Foundation only Spends 10% on Charity

Legitimate concerns about the Clinton Foundation's reliance on funding from foreign governments and the organization's mixed record of disclosures have, in recent weeks, given way to more outlandish claims about the organization's failures. Most notable among these is the oft-repeated claim that only 10% of its money goes toward charity.

This claim reflects a fundamental misunderstanding about nonprofit accounting. Nonprofits disclose how much of their expenses are on the mission ("programs"), and how much are on fundraising and administration ("supporting services"). From the Clinton Foundation's most recent (consolidated) financial statements, a full 88% of its expenses are classified as program expenses, meaning 88% of spending can be attributed to current efforts to achieve its mission. The dichotomy between this and the claim that only 10% is spent on charity arises because only a small subset of the program expense figure represents grants to other charities – if only such grants are considered "program" expenses, then the figure drops from 88% to 13%. Since the Clinton Foundation is not primarily a grant provider but rather a direct service provider, however, the latter is hardly a figure worth noting.

To get some perspective, consider the Clinton Foundation's closest peer, the Carter Center. In its most recent financials, the Carter Center showed 91% of spending on programs and only 5% on grants.

The natural follow up question is if the organizations aren't spending the majority of the program costs on grants, where are they going? The next two charts reflect the breakdown of "program" expenses for the two organizations.

What does this tell us? By and large, the Clinton Foundation's limited grants are in line with what we should expect of a charity of its sort. The notable differences in Clinton Foundation spending are (i) the smaller share of costs that reflect donated medical supplies and (ii) the higher share of costs spent on personnel. As it turns out, both of these reflect broader trends of the organization.

In short, it is fair game to ask why donated medicines have taken on less importance in the Clinton Foundation’s work and why personnel costs have taken on more importance, but dismissing all program expenses that are not grants to others as waste fails to recognize the nuance of charitable activities.

Wednesday, April 29, 2015

The Proposed New Accounting Standards for Nonprofits

The Financial Accounting Standards Board has now released an exposure draft of proposed changes to accounting rules for nonprofit entities. Many in the nonprofit sector are wondering what it means for them but perhaps not enough to read the entire 261 pages. If that is your circumstance, I did my best to summarize what I see as the primary changes here for the Chronicle of Philanthropy.

Is the Clinton Foundation Leading the Pack in Transparency?

In response to critics of the Clinton Foundation, supporters have begun promoting it as ahead of the curve in terms of transparency. Leading the charge is a notable nonprofit voice, Tom Watson, who wrote in Forbes that "the Clinton Foundation is among the most forthcoming of major charities and nonprofit foundations – especially those headed by public figures." While I am of the view that the foundation has strengths that have been overlooked in the midst of political criticism, I don't think the evidence supports the perspective that it leads the way in disclosure. The reasons:
In short, though the Clinton Foundation may have the best of intentions with respect to financial disclosures, the evidence indicates the implementation has been spotty.

Monday, March 9, 2015

Charity Telemarketing Makes Strange Bedfellows

Attorney General reports about charity solicitation efforts by for-profit fundraisers never fail to disappoint. The latest of these is the 2014 Pennies for Charity report by the New York Attorney General. The report details a record level of telemarketing by for-profit fundraisers, totaling $302 million in 2013. On average, less then 50% of donations reached the intended charities (though this percentage increased from 37% to 48%, which is progress).

It is interesting to note that this report also brought together some unlikely kindred spirits. In the report's ranking of nonprofits based on the percent of funds received from professional solicitors I noticed this gem.

Where else are these groups all aligned? For the record, their gross fundraising receipts and percent reaching the nonprofit are:
  • Greenpeace, Inc: $ 363,782 (40.93%)
  • National Rifle Association of America: $ 12,002,317 (40.59%)
  • National Right to Life Committee Inc: $ 630,479 (40.52%)
  • Religious Coalition for Reproductive Choice Inc: $ 44,928 (40.06%)

As one moves further down the list, another unlikely pairing appears.

What brings the Tea Party Patriots and Planned Parenthood together? In this case, it's professional fundraising that yields a mere 31% to their organizations. In particular, the gross receipts and percent reaching the nonprofit are:
  • Tea Party Patriots, Inc: $ 1,650,488 (30.95%)
  • Planned Parenthood Federation of America Inc: $ 4,021,902 (30.62%)

Say what you want about professional telemarketing efforts, but you have to admit that the willingness to use telemarketers as part of nonprofit solicitation knows no political bounds.

Monday, February 23, 2015

Things You Can Learn about The Clinton Foundation from Its Financial Statements

As Hillary Clinton and her presidential aspirations begin to take center stage in political discussions, some of the attention has focused on the Clintons' family foundation – many are already speculating about whether the foundation will prove to be a political asset or liability for Secretary Clinton.  While I can't speak to the politics angle, I do think it's worth considering what one can learn about the foundation and its activities from its financial statements. The following observations come from a review of the Clinton Foundation's GAAP financial statements (that reflect a consolidation of the Bill, Hillary, & Chelsea Clinton Foundation and its controlled entity the Clinton Health Access Initiative).

Monday, February 2, 2015

For Nonprofits, it Pays to be in the C-Suite

Not a week goes by that we are not told that nonprofits should learn to be more like their for-profit counterparts, or at least be treated like them.  For those who see charities as offering something unique to society, this call seems particularly odd. Yet, the refrain repeats.

There is one dimension, however, on which the refrain has been widely adopted.  Where once Executive Director was the chosen title of most nonprofit leaders, more and more have switched to the popular for-profit moniker of Chief Executive Officer (CEO).  It hardly seems like a critical difference, but the change  (even if merely semantic) is often seen as necessary to gain credibility and grow an organization.  With this in mind, I decided to conduct a mini-experiment, looking at the pay of the highest-paid executive at each of the 100 largest charities in the US.  Looking at the data with an eye on whether pay varies between those who are called CEOs and those who are not reveals a striking contrast.