Nonprofits

Accounting for In-kind Gifts

/ The Old Crank

It’s not surprising that some nonprofits exaggerate the value of in-kind donations in order to make themselves look bigger and better than they really are. There is a lot of pressure, especially at large organizations, to increase financial efficiency ratios because that’s part of the criteria that sophisticated donors use when evaluating a charity.

But in my experience, small nonprofits tend to do the opposite—they are more likely to undervalue their in-kind donations—or worse, they don’t account for some of them at all (I’ve been guilty of this myself). Between donated goods and volunteer time, many small nonprofits are actually bigger and more efficient than their financial documents would lead you to believe.

Nonprofits Need to Educate Policymakers on Importance of Federal Programs

/ The Old Crank

(Updated below)

Rick Cohen, writing for NPQ about the ever-present danger of further government program cuts:

Whether the cuts come in the lame duck session of Congress wrestling with the fiscal cliff or down the road as government begins to shrink more, nonprofits had better step up their explanations of what they do with the delivery of federal programs. The alternative? Even if the nation avoids the hammer of across-the-board sequestration cuts, the nonprofit sector will be fighting for its life—and for the lives of future programs—as more programs end up on the federal chopping block.

I’m a lot more worried about further non-defense discretionary program cuts than I am about a cap on charitable deductions. Putting aside the significant absence of evidence that the deduction has much effect on giving to begin with, individual donations to adult literacy programs tend to be relatively small on average, and come from middle-to-low-income donors who are often deeply committed to the issue. I don’t think these donors are going anywhere if the charitable deduction is reduced.

More importantly, many adult literacy organizations depend quite heavily on government support—as do many organizations that provide services to poor and disadvantaged people. If sequestration moves forward, the roughly 8% cut to adult education funding provided by Title II of the Workforce Investment Act is likely to have a far greater impact on adult education services than a 28% cap on the charitable deduction for high-income taxpayers. Alternatives to sequestration could be even worse. For example, as Cohen notes, the Heritage Foundation, in a proposal designed to shelter defense spending from sequester cuts, has proposed complete elimination of several specific programs that many adult education programs rely on for support, including the Community Development Block Grant program and national community service programs.

There is a big pushback right now on the charitable deduction issue, led by Independent Sector, the Philanthropy Roundtable, among others—including the Hill visits planned by the Charitable Giving Coalition in early December.

Nonprofits that rely heavily on federal programs to fund services for the poor and other disadvantaged individuals need to organize a similar effort that educates policymakers on the critical role of government support for this work.

UPDATE 12/02/12: A November 30th article in The Chronicle of Philanthropy suggests that I may not be the only one wondering why the groups claiming to representing the nonprofit sector are pressing so hard on the charitable deduction and not so much on stopping potential cuts to federal programs that support nonprofits:

Some nonprofits have been critical of leaders for not spending more time pushing Congress to avert the $55-billion in spending cuts that are scheduled to go into effect automatically on January 2 along with tax increases unless Congress makes a deficit-reduction deal.

Those cuts could hurt the operations of nonprofits that deliver services with government grants; nearly one-third of nonprofit financing comes from government sources.

Nonprofits will still be hurt even if the automatic cuts, called sequestration, don’t take place, charity experts say, because Congress will most likely slice spending on domestic programs.

“Even if there is a deal to avert the sequester, it’s going to include substantial cuts to human-service programs, just maybe not as bad as the sequester,” said Steve Taylor, senior vice president for public policy at United Way Worldwide. “Part of the reason we’re fighting so hard on the charitable deduction is that we know cuts are coming. We need to be able to raise private funds to continue to deliver human services.”

I agree that there is a significant danger that a new round of cuts to non-defense discretionary human-service programs that could be part of the deal to avert sequestration. But it’s really not inevitable that this will happen. If United Way and others are worried about the challenge of raising additional private funds to cover for a potential loss in government funding, it might make sense to spend at least part of their time on the Hill this week arguing against making those cuts to begin with. There are other groups working very hard to make that case. Perhaps United Way, Independent Sector, and Philanthropy Roundtable could join with them.

In fact, NDD United, the coalition working to save nondefense discretionary (NDD) programs from more cuts, is holding a briefing on December 4th, just as nonprofits leaders are arriving here in Washington for the Charitable Giving Coalition’s “Protect Giving” event.

Here is information about the NDD briefing:

Planning for “The Plan”
Guest Speaker: Senator Patty Murray (D-WA)
SD-G50, Dirksen Senate Office Building
RSVP to CRDFellow@dc-crd.com

Some Nonprofits Are Terrible, But What’s the Solution?

/ The Old Crank

Not sure there is an easy answer is to this, even if part of the problem is that the IRS and state regulators are too understaffed to provide sufficient oversight (the author of the article didn’t pursue this suggestion, although it doesn’t sound implausible).

All nonprofits are businesses. It’s a common misperception that nonprofit organizations aren’t supposed to make a profit, or aren’t allowed to. But that’s not the case. The difference between a nonprofit and a for-profit company is in what they do with those profits. Nonprofits, in return for a tax exemption, are restricted in terms of what they can do with the money they make: they are supposed to reinvest all it back into the organization in order to advance their mission. But that doesn’t mean it can’t pay high salaries or provide perks to employees. There is purposefully broad (though not unlimited) leeway given to organizations to determine what is necessary to spend (or hold) in order to further that mission.

When most people think of nonprofits they think of charities, religious organizations, hospitals and schools, but they also include trade associations, unions, governing bodies, and social welfare groups. I assume that no one quoted in the article would argue for changing the tax code so that these kinds of organizations can no longer operate as nonprofits. And it’s not as if squirreling away profits and paying large salaries is unheard of at charitable or educational institutions: Harvard sits on an endowment of over $25 billion, and prestigious university presidents can make over a million dollars a year.

Too Soon?

/ The Old Crank

I was surprised—as I was after Katrina—to receive an e-mail from a certain very large nonprofit asking for donations to help “restock school and home libraries” so soon after Hurricane Sandy’s wake. I think I would have waited another week or two before sending it out. Kids need books for sure, but many storm victims are still facing immediate, life-threatening situations. If a charity’s Sandy-related pitch doesn’t seem to be related to the most urgent relief efforts underway right now, there is a danger that some potential donors will view it as exploitive.

Related:

The Atlantic posted a powerful photo gallery of the storm’s aftermath.

How to Help:

The Village Voice has a good list (look about half way down, under the heading, “DONATE + VOLUNTEER”), as does Time Out.