Small tax-exempt organizations whose annual gross receipts are normally $25,000 or less may be required to electronically submit Form 990-N, also known as the e-Postcard, unless they choose to file a complete Form 990 or Form 990-EZ.

If you do not file your e-Postcard on time, the IRS will send you a reminder notice but you will not be assessed a penalty for late filing the e-Postcard. However, an organization that fails to file required e-Postcards (or information returns – Forms 990 or 990-EZ) for three consecutive years will automatically lose its tax-exempt status. The revocation of the organization’s tax-exempt status will not take place until the filing due date of the third year.

Complying with the IRS has never been more challenging for nonprofit organizations. Following the most extensive redesign of Form 990 in 30 years, nonprofit organizations face increased transparency, public scrutiny, and demands for good governance at a time when competition for charitable contribution dollars is fierce.

The IRS is shining an ever-brighter light on perceived abuses in nonprofit reporting. As IRS Tax Exempt and Government Entities Commissioner Sarah Ingram recently explained, " the more we [IRS] can use the Form 990 to figure out who needs our attention and who doesn't, the less likely we are to show up in your doorstep when you are a compliant taxpayer. " According to Ingram, the IRS is exploring why some organizations have failed to answer new questions or fill out new schedules on governance on the revised Form 990, stating "we [IRS] would like to look a little more closely at the patterns on blank spaces."

The IRS recently released a revised edition of Publication 598 (rev. Mar. 2010), Tax on Unrelated Business Income of Exempt Organizations. The popular publication explains the rules that apply to the taxation of unrelated business income including the types of organizations that are subject to the tax and how to figure unrelated business taxable income.

It also highlights changes that include:

increases in the maximum cost of a low-cost article and dues of agricultural organizations and business leagues,

 the expiration of the five-year carryback election for losses on total capital expenditures, and

 the expiration of qualified cash contributions for relief efforts in Midwestern disaster areas.

IRS – New Form 990 Preparation Checklist

For the first time in 30 years, the IRS has redesigned the Form 990 to reflect significant changes in the tax law and non-profit sector. To help tax-exempt organizations and practitioners prepare to file the new 990 for the 2009 tax year, below is a checklist of important activities.

      Determine whether you are eligible to file the Form 990-EZ for 2009

      Review the redesigned Form 990 released in December 2009

      Review the Form 990  instructions

      Identify the schedules that you need to complete

      Identify key internal stakeholders to involve to complete the form, including finance, program leaders, fundraisers, PR/government relations, and HR

      Identify key external stakeholders to involve to complete the form, including directors, board members, trustees, grant makers, accountants, and lawyers

      Assign an internal leader to coordinate 990 preparation

      Identify your related organizations and ODTKEs (officers, directors, trustees, key employees)

      Be prepared to answer new questions about governance, executive compensation, and insider transactions

      Determine your overseas and joint ventures activities

      Establish or modify internal systems to prepare for filing season

The redesigned Form 990, instructions, resources, and tools can be found on the IRS Web site at www.irs.gov/charities, as well as other helpful materials at www.stayexempt.org.

Publication 4740 (01-2009) Catalog Number 52754F

Form Filing requirement

     Gross receipts normally ≤ $25,000                                                               990-N (e-Postcard)

     -------------------------------------------------------------------------------------------------

     Gross receipts < $ 500,000 and Total assets < $1.25 million                         990-EZ or 990

     -------------------------------------------------------------------------------------------------

     Gross receipts ≥ $500,000, or Total assets ≥ $1.25 million                            990

     -------------------------------------------------------------------------------------------------

     Private foundation (regardless of financial activity)                                           990-PF

Most tax-exempt organizations, other than churches, must file a yearly return or notice with the IRS. If an organization does not file as required for three consecutive years, the law provides that it automatically loses its tax-exempt status. Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations.

The Pension Protection Act of 2006 requires the IRS to revoke the federal tax exemption of any organization that has failed to file three consecutive annual returns (Form 990-N, 990-EZ, 990, or 990-PF).

Six Important Facts about Tax-Exempt Organizations

Every year, millions of taxpayers donate money to charitable organizations. The IRS has put together the following list of six things you should know about the tax treatment of tax-exempt organizations.

1.        Annual returns are made available to the public. Exempt organizations generally must make their annual returns available for public inspection. This also includes the organization’s application for exemption. In addition, an organization exempt under 501(c)(3) must make available any Form 990-T, Exempt Organization Business Income Tax Return. These documents must be made available to any individual who requests them, and must be made available immediately when the request is made in person. If the request is made in writing, an organization has 30 days to provide a copy of the information, unless it makes the information widely available.

2.        Donor lists generally are not public information. The list of donors filed with Form 990, Return of Organization Exempt From Income Tax, is specifically excluded from the information required to be made available for public inspection by the exempt organization. There is an exception, private foundations and political organizations must make their donor list available to the public.

3.        How to find tax-exempt organizations. The easiest way to find out whether an organization is qualified to receive deductible contributions is to ask them. You can ask to see an organization's exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible. You can also search for organizations qualified to accept deductible contributions in IRS Publication 78, Cumulative List of Organizations and its Addendum, available at IRS.gov. Taxpayers can also confirm an organization’s status by calling the IRS at 877-829-5500.

4.        Which organizations may accept charitable contributions. Not all exempt organizations are eligible to receive tax-deductible charitable contributions. Organizations that are eligible to receive deductible contributions include most charities described in section 501(c)(3) of the Internal Revenue Code and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19).

5.        Requirement for organizations not able to accept deductible contributions. If an exempt organization is ineligible to receive tax-deductible contributions, it must disclose that fact when soliciting contributions.

6.        How to report inappropriate activities by an exempt organization. If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division by completing Form 13909, Tax-Exempt Organization Complaint (Referral) Form. The complaint should contain all relevant facts concerning the alleged violation of tax law. Form 13909 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Grassley Seeks Details on Medical Financing

A top Republican senator, Charles E. Grassley, has sent letters to the American Medical Association, the American Cancer Society and 31 other disease and medical advocacy organizations asking them to provide details about the amount of money that they and their directors receive from drug and device makers.

Jonathan Ernst/Reuters

Senator Charles E. Grassley has been studying the influence of drug and device makers on the medical profession.

Such financing amounts are often considered proprietary by the organizations and their directors, but critics contend that the industry’s sway over such groups leads them to lobby on the industry’s behalf.

Mike Lynch, a spokesman for the A.M.A., said the organization had received the senator’s letter and would respond. Mr. Lynch said industry financing made up less than 2 percent of the organization’s budget.

Steve Weiss, a spokesman for the American Cancer Society, sent an e-mail message stating that the society “holds itself to the highest standards of transparency and public accountability, and we look forward to working with Senator Grassley to provide the information he requested.”

Kate Meyer, a spokeswoman for the Alzheimer’s Association, which also received a letter from the senator, said the organization “was going to answer all of his questions,” but she would not immediately say what share of the organization’s financing comes from drug or device makers.

The letter is part of Mr. Grassley’s long-running investigation into the influence of drug and device makers on the practice of medicine. Mr. Grassley, an Iowa Republican, has also long been interested in how charities get and spend their tax-deductible contributions.

“These organizations have a lot of influence over public policy, and people rely on their leadership,” he said. “There’s a strong case for disclosure and the accountability that results.”

Earlier this year, Mr. Grassley sent a similar letter to the National Alliance on Mental Illness. The group told the senator that more than two-thirds of its donations came from the pharmaceutical industry. In response to the disclosure, Dr. H. Richard Lamb resigned from the group’s board.

Dr. Lamb joined the board of the organization in 2005, when he was “shocked to learn that approximately half of NAMI’s income comes from the large pharmaceutical companies,” he wrote in a resignation letter that Mr. Grassley made public. Alliance officials assured Dr. Lamb that the situation would change. “However,” Dr. Lamb wrote, “very little has changed, right up to the present day.” In an interview, Dr. Lamb said that NAMI’s dependence on the drug industry made some actions impossible. For instance, Dr. Lamb said that NAMI should consider warning against the use of some mental health drugs with life-threatening side effects. But Dr. Lamb said the organization could not consider such a move because it could threaten much of its financing.

Michael J. Fitzpatrick, the organization’s executive director, promised that the industry’s share of the group’s fund-raising would drop significantly next year.

Mr. Grassley’s request that organizations provide details about the outside income of directors may cause some consternation. While a few large patient advocacy groups have provided general guidance about their reliance on industry, almost none have given such details about their leaders.

Nonprofit Finance & Strategy: Review Instead of Audit

Registering Your New Nonprofit

BASICS AND GETTING STARTED

Basics of Bookkeeping, Accounting and Financial Management

Your Board Treasurer -- A Critical Resource to Help You Get Started

Getting an Accountant, If Needed

Buy a Software Package to Automate Your Financial Management?

Getting a Bank and Banker

No Matter Who Does Your Finances, YOU Should Know Basic Accounting Principles

Now, to Expand Your Learning of the Basics ...
Next, look at the wonderful range of information at the site of the Alliance for Nonprofit Management FAQ's. This site provides an excellent overview of the aspects of nonprofit bookkeeping, accounting and financial management! Although links to that site are included throughout this topic in the library, the reader might best be served to review all of the FAQ information at that site. Two key links to review now are:
Click on Financial Management and scroll down to "Basic Elements of an Accounting System"
Click on Financial Management and scroll down to "Differences Between Nonprofit and For-Profit Accounting"

As nonprofits serving people and communities in these difficult financial times, we don't expect things to turn around for our communities in the near future. Many of us are wondering: how can we achieve a balanced budget in these times? When is it okay not to have a balanced budget?

A potentially harmful habit practiced in many community nonprofits is presuming that a break-even budget is mandatory. Board members and staff may be under the influence of the false but persistent ‘nonprofits can't make money' myth as they develop the year's income and expense plan. Like other conventional wisdom, the balanced budget is based on sound concepts, but can become unnecessarily constricting. Instead of "How can we make the budget balance?" the annual budgeting cycle should begin with the question, "What financial outcome does our organization want or need this year?" Different scenarios lead to different decisions about what the budget's bottom line should look like:

1. We need to increase reserves or pay down debt: adopting a surplus budget. When the organization's leaders decide that its cash and other reserves are lower than ideal, the organization can plan to generate more income than expenses, creating surplus funds that can be used in future years. A surplus may also be needed to provide funds for paying down debt or for easing cash flow. The board should direct staff to develop the draft budget by determining realistic income targets that nonetheless outpace expenses. If the organization can deliver on a surplus budget, it will have higher net assets (net worth) at the end of the year, and enjoy a stronger financial position.

2. We can't gain ground now, but we can't lose ground either: the break-even budget. Typically, organizations choose break-even budgets by default and the skin of their teeth. A first cut on the budget shows expenses much higher than revenue, so the staff then tries to figure out how to increase the revenue number (but still stay close to reality) and decrease the expenses (but not damage programs). The staff and the Finance Committee tack their way towards a break-even budget, and hope that their cautiously optimistic projections work out.

3. There are three typical reasons for adopting deficit budgets. First and rarest, the organization's leadership decides that its cash and other reserves are more than sufficient, and so spending some of those reserves in the coming 12 months is a good idea. They may choose to make one-time purchases or expenditures, or to give the staff one-year, non-permanent raises. At the end of the year they will have more expenses than income for the year, and thus a deficit for the year.

A second reason for a deficit budget is a decision to invest. For example, the organization may invest funds in strengthening its fundraising capacity, or in new programming. Leadership believes that resources from previous surplus years can be risked as investments in future programmatic or financial paybacks.

An all-too-common third reason for adopting a deficit budget is a decision that ending the year in a worse financial situation is the lesser evil. For some organizations, simply cutting costs may not be the right financial decision. For example, in an organization that relies on earned income, cutting staff will result in lowering income. The leadership will need to re-work the way its services are structured--perhaps too complicated to do in just a month or two. Or an organization may be in executive transition, and the board believes that the dip in revenue is due to the absence of an executive director, and expects that income will go up again. They decide simply to "bite the bullet" this year--and they believe they can afford it.

At the end of a deficit budget year--assuming that reality matches the budget--there wil be a lower net worth and the organization will be in a financially weaker position. But "weaker" should be in quotes because a planned loss may, in fact, be a sound, strategic fiduciary decision by a board. For example, investing in a new website may mean a deficit this year, but could reap substantial gains in fundraising in coming years.

The core issue is intentionality. An unplanned deficit reflects an error in planning and/or execution, while a planned deficit is an investment of accumulated reserves for the benefit of the organization and its constituents.

Consulting to nonprofits, I've come to see that one of the reasons executives struggle to break the break-even habit is that foundation grants and government contracts are typically break-even contracts. We must prove that we spent exactly what we raised. But while grants and contracts are designed to break even, organizations are not. Healthy organizations require cash reserves, which means they must generate excess cash in at least some of the years.

The majority of community nonprofits with whom I work need to build reserves. But especially as we head into recession--which classically means fewer resources and higher demand for nonprofit services---developing a credible surplus budget may prove impossible. We may have to settle for break-even because we don't see opportunities for income growth or expense cuts. But we'll be settling for break-even, not aspiring to it.

Seven Ways to Reduce Your Audit Costs

Too many of us think of audit costs as an expense to suffer, not to manage. CPA Dennis Walsh tells us differently:

Executive Director Blair Benson of the Mental Health Association in Greensboro, North Carolina, was hoping her audit costs wouldn't go up much. With a budget of $340,000, there isn't a lot to spare. But although she had expected an increase, she was stunned when her auditor said he would be increasing his fee by 40%. "An increase like this is something you just can't build into your budget," said Benson.

Audits are getting more expensive -- have you noticed?

A survey of 160 community-based nonprofits in Guilford County, North Carolina, showed recent average audit fee increases of 9%, and noted that audit costs remain a significant burden to organizations.

Under the new risk-based audit standards (Statements on Auditing Standards (SAS) Nos. 104-111), effective since 2007, your auditors must obtain a deeper understanding of your organization, its environment, and your internal control systems. "The burden for documentation, combined with the additional scrutiny by the AICPA  . . .  and the federal Office of Management and Budget (OMB) . . .  has required dramatic increases in both time and fees of CPAs, commented Max Mertz, CPA, a partner with Elgee Rehfeld Mertz in Juneau, Alaska.

And it's not just the auditors whose hours on the job are increasing. Staff time on the audit has expanded as they're forced to respond to more in-depth audit inquiries concerning internal controls and the presence of risk.

Easing the cost burden

1. Consider not having an audit. The 2005 Panel on the Nonprofit Sector convened by the national organization Independent Sector recommended that audits be undertaken by organizations with $2 million or more in total annual revenues. Alternatively, would users of your audit report accept your IRS Form 990 as a substitute? Considerable resources are spent preparing the annual 990 and it is submitted to the IRS as correct and complete under penalties of perjury.  It includes a good deal about activities and governance, and in most respects the financial information mirrors data reported under generally accepted accounting principles (GAAP).

When determining whether you need an audit, the first question you should consider is: Who's asking for the audit?  If your audit isn't mandated but you're wondering if one might be expected anyway, refer to an earlier Blue Avocado article "Is it Time for an Audit?" for a good discussion on this point.  If you're still unsettled, seek advice from a second CPA, your legal counsel, or your nonprofit associations. 

2. Instead of an audit, consider using a different kind of CPA report. CPA services are classified by the level of assurance provided to the user of the report. And fees for these services are set accordingly; one rule-of-thumb is that a review costs about 1/3 of an audit.

• In an audit, the CPA expresses an opinion as to the legitimacy and completeness of the financial statements. The CPA bases his or her opinion on the results of test procedures and an evaluation of internal control.

• A review, in contrast, is a lower level of assurance on the reliability of the financial statements. The auditor applies analytical procedures coupled with inquiries of management.  The CPA attests that he is not aware of any material modifications needed for the financial statements to be in accordance with GAAP. The Panel on the Nonprofit Sector recommended that organizations with annual revenues of more than $500,000 but less than $2 million obtain reviews rather than audits.

   For one attorney's advice to a nonprofit to have a review rather than an audit, see here.

• For a compilation, the CPA takes information supplied by management and prepares financial statements.  The accountant does not perform any procedures to verify management's information and therefore does not provide any assurance. The accountant's duty is to determine that they are free from obvious material error.

• In a lesser-known service, known as agreed upon procedures (AUP), the accountant performs audit-type procedures on limited subject matter and reports on the results without expressing an opinion on the findings.  The procedures are selected by the user of the report and agreed to by the parties in advance.  For example, if the main reason for your audit is that one foundation wants evidence that  you used their grant funds appropriately, the AUP would look only at the use of those grant funds. For an AUP engagement to be effective, the user of the report must be comfortable accepting responsibility for the adequacy of the procedures and for evaluating the findings.
  For more about agreed upon procedures and a real life example of how small nonprofits benefit from such a service, see our sidebar "An AUP Success Story."

3. Talk to your auditor about modifications, such as having the audit performed on the cash basis of accounting.

For example, a North Carolina nonprofit with a $200,000 budget received a $50,000 pass-through grant from the Department of Health and Human Services.  The audit requirement was absolute, but the audit firm was able to obtain permission to perform the audit on the cash basis of accounting, rather than the accrual basis as required by GAAP.  This saved the nonprofit approximately $2,000 in fees.

4. Negotiate with your auditor. Blair Benson of the Mental Health Association was successful in getting an 11% reduction from the requested fee increase.

5.   Also, be sure that your board and staff are working to correct any weaknesses in your systems of internal control as set forth in the auditor's SAS 112 management letter.  As a general rule, the weaker your systems, the more time the auditors will need to spend.

6. Consider changing auditors.

And, if you must, identify potential successors and submit a request for proposal to each. A smaller firm or a sole practitioner may be a better fit for your organization than a large firm. (See a sample audit RFP here.)  But be aware of the 'grass is always greener' syndrome -- a successor will usually need to spend substantially more time in the first-year engagement and the disruptive effects of changing practitioners will complicate matters as well.

7. A longer range strategy:

Work with other nonprofits to change state-mandated audit requirements for nonprofits. In Connecticut, passage of PA No.09-102 raised the legal requirement for nonprofit formal audits from $200,000 to $500,000, effective July 1, 2009. The Connecticut Society of CPAs, the Connecticut Council for Philanthropy, and the different state regulators all supported the wisdom of helping an estimated 500 nonprofits save $3 million in audit fees. In Minnesota, HF1298 (sec.191.34) increased the audit threshold from  $350,000, where it was set for the last twelve years, to $750,000, effective for nonprofits with a fiscal year ending July 1, 2008 or later. Nonprofits in Massachusetts and California have also succeeded in moving audit thresholds to higher levels, saving important dollars for thousands of nonprofits.

[Our thanks to National Council of Nonprofits for above paragraph.]

Concluding thought

The board has a duty to assure transparency and accountability by selecting an appropriate level of independent review, but it also has a duty not to consume resources unnecessarily in the exercise of its governance.  While you want to demonstrate good governance by supporting the most appropriate level of accountability, the important point is to become aware of your options before deciding on the type of CPA services that best fit your needs.

The Nonprofit Entrepreneur

Trends & Predictions

Fifteen years ago, who would have guessed that not only would e-commerce be so prevalent, but that a leading web moneymaker would be a non-profit (Consumer's Reports On-Line), that over 350 hospitals would be owned by a single for-profit hospital chain, that a few select nonprofit employees would earn $20-30 million per year (some Harvard University investment managers), or that a few select nonprofit executives, such as William Aramony and the Rev. Jim Bakker, would serve time in prison.

What big nonprofit changes will the next decade bring? To put it in historical perspective, let's quote a reliable source. "And Joseph made it a statute concerning the land of Egypt unto this day, that Pharaoh should have the fifth (of produce), only the land of the Priests alone became not Pharaohs. Genesis 47:26. This basic concept of tax-exemption has not really changed.

Given this extended time frame, it's difficult to claim that a few years on either side of a millennium will make much difference in exempt organization practices. Yet within the next twenty years, an estimated 2 trillion dollars will be passing from one generation accustomed to thinking about nonprofits in certain ways to a new generation of potential donors.

Donors themselves are by and large becoming savvier consumers. Solicited relentlessly, they are demanding more for their charitable dollar. Less willing to give to large umbrella organizations, they want accountability, more control, and even active participation in the use of their charitable dollar. Among other things, this will likely lead to the formation of many more operating foundations, i.e., organizations that actively provide nonprofit services which are closely controlled and/or operated by their founding donors.

What will nonprofit organizations look like another decade from now? Herewith a sampling of predictions.

1. Overriding Trend of Trends. Nonprofits will continue to become more complex and diverse, leading to the following simultaneously contradictory trends:

2. Grasp of the "Nonprofit" Idea. There will be increased understanding of nonprofits, as more business-like management approaches are adopted, advanced nonprofit degree programs are further formalized, and the industry is further professionalized.

   At the same time there will be increased misunderstanding of nonprofits as the public, still vague about the negative and inaccurate connotation of the word "nonprofit", finds more of them in different settings, some with huge wealth. Media portrayals, often misleading or simply wrong, will add to the confusion.

3. Nonprofit Business Practices. Legislators and government officials will call on nonprofits to become still more financially self-sufficient.

   At the same time, legislators and government officials will increasingly criticize nonprofit revenue generating ideas.

   Likewise, legislative and regulatory demand will continue to grow for nonprofits to behave more like businesses in their financial and accounting practices.

   Yet, legislative and regulatory demand will continue to grow for nonprofits not to behave so much like businesses in their commercial and sales practices. After much grandstanding and vows of tighter controls to appease business claims of unfair competition, no truly significant legislation will pass. A surprisingly small number of lawsuits concerning nonprofit business practices will be filed. Some judges will have, shall we say, a less complete understanding of the "nonprofit" concept (see #2 above), leading to some confusion and conflicting legal opinions. But in the end, the law will remain substantially unchanged.

   This scenario will allow for-profit/nonprofit distinctions to blur further. There will be both for-profit and nonprofit corporations in most areas of human endeavor (for instance, in the provision of food, clothing, housing, health care, education, scientific research, the arts, travel, consumer products...). More nonprofits will form subsidiary for-profit companies while more for-profits form controlled nonprofits. And limited partnerships between nonprofits and for-profits operating in the same industry will flourish. This will lead to some tax and reporting issues, but will also enable social problems to be addressed by a new array of innovative entities.

   Finally, at that point, tax-exempt status will be increasingly understood for what it truly is under the law: not a moral end in itself, but a value neutral tax classification - simply a tool that is helpful in conducting certain endeavors.

4. Lobbying. A number of bellicose but key legislators will again decree nonprofit lobbying and hold committee hearings. Nonprofit lobbyists will lobby for continued nonprofit lobbying.

   In the end, the law will remain substantially unchanged.

5. Mergers vs. Independence. There will be greater emphasis on providing comprehensive community services, controlled and focused at the local level.

   There will be continually greater pressure for local and larger organizations to merge.

   It will be found that most nonprofit mergers produce no real economic efficiencies or program value. Many mergers will then be undone through complex corporate spin-offs, which will become the next nonprofit legal trend du jour, much to the delight of idle merger lawyers. Spinning-off will then be overly proscribed as an organizational cure all, leading to many nonprofit bankruptcies and dissolutions, much to the delight of idle spin-off lawyers.

6. Governance. Boards will be better. Through increased attention to effective governance, many more organizations will become truly mission-driven. More organizations will develop a "corporate culture" and internal momentum that instills the following: the organization is a business; its business is the effective delivery of specific nonprofit services; its board is not a constituent-benefit assembly and will not tolerate other agendas; however, all avenues of frank and open discourse in pursuit of the organization's core business will be encouraged.

   Boards may get better, but people will still be people. Nonprofits will more easily lose focus due to the temptations of power, prestige, and potential self-benefit from nonprofit board service. Nonprofit abuse and self-dealing will increase as nonprofits control more money and play an even larger role in society. A few high profile cases will shock the conscience, leading to bandwagoneering for legislative action but in the end...(see #3 and #4 above).

7. Tax Exemption. Federal standards for tax-exempt qualification will expand into newer, more broadly defined areas.

   State standards for sales and even income tax exemption will tighten.

   Local property tax abatements and exemptions will be much more difficult to obtain.

8. Liability. The corporate protection against liability of officers, directors, employees and volunteers will be breached more frequently.

   New impediments to liability (new state immunity statutes, increased indemnification, and expanded insurance coverage) will be developed.

9. Conclusion. The economic realities of providing nonprofit services, low salaries, and legal complexities will deter many from nonprofit careers. Even so, we have applications for tax-exemption pending with the IRS for a dozen new organizations. Each founder has a vision of how to improve society. The U.S. tax code supports this type of private initiative, entrepreneurship, and citizen and community participation in both the business and nonprofit sectors. This fosters innovation, social and economic stability, and a dynamic and continually advancing society. In the end, nothing will deter either for-profit or nonprofit entrepreneurs from seeking their goals.

By Christopher Quinn

The Atlanta Journal-Constitution

Local nonprofits are unimpressed by economists' prognostications that the recession is ending.

Donations are falling, and agencies are looking for creative ways to find new donors and dollars. If they don't succeed, half think they will have to cut services when people are needing it most. Seventy percent of them reported requests for help are up in a recent poll by the Georgia Center for Nonprofits, while 61 percent said donations were down.

In the economic scramble, many nonprofits are seeking  new ways to raise money, such as through Web sites and electronic social networking, and they are trying to find more grassroots donors to  give small amounts.

United Way of Metro Atlanta, for example, will hold a new tennis tourney fund-raiser Nov. 7 featuring Pete Sampras, and it is pushing to connect online to hundreds of thousands of potential donors who don't work in the large companies where the nonprofit conducts its annual drives.

"We have created what I call the coffee cup strategy," said Milton J. Little Jr., United Way's Atlanta CEO.

"Many people are thinking that if I can't give a big gift of money that it won't make a difference. We let them know something as modest as $5 a week [the cost of a daily cup of coffee] will make a difference."

United Way had to cut some community grants to nonprofits earlier this year, and it missed its $82 million fund-raising goal in 2009 by $1.5 million.

Lauren Welsh, a vice president with the Community Foundation for  Greater Atlanta, said local nonprofits are trying to be more efficient to make up for the financial losses that most are feeling. She pointed to a grant the foundation gave to help organizations serving girls in Atlanta work together on common goals.

"In addition, mergers are still a popular possibility for nonprofits in the region," Welsh wrote in an e-mail.

She pointed out Inner Harbour and Youth Villages, who help young people, merged recently, and that Samaritan House is working on a merger with American Enterprise Communities to better serve the homeless.

Timothy Seiler, the head of the fund-raising school at the Center on Philanthropy at Indiana University, is also hearing of nonprofits trying strategies such as cutting expensive mail appeals and going after loose change by putting small donation boxes near cash registers  in cooperating retailers.

He said nonprofits hunting cash are splitting their efforts on large and small donors. Even though corporations give grants in the hundreds of thousands of dollars, small donors such as families still give about 75 cents of every dollar donated in the U.S.

Wayne McMillan, CEO of the Bobby Dodd Institute, which trains and places the disabled in jobs, said everybody is trying the same strategies as competition for the available dollars gets tougher.

"And there just not money there," he said. "Some [nonprofits] are really suffering. It's hard."

Corporations and foundations are hearing the cries of pain from nonprofits and are also getting creative. Some are looking for ways to make their donations stretch further.

Wachovia, recently bought by Wells Fargo, implemented a new grant program in Atlanta. Next week, it will give 208 grants of $1,000 each to grassroots nonprofits across region.

Jerome Byers, the Atlanta regional president, said he wanted local bankers to choose charities they know are doing good work in their communities.

"Our strategy was getting into those local small foundations who do good things,that we don't have time at my level to visit and get to know," Byers said.

McMillan said, "It is the toughest economy since the Great Depression."

"I  believe there will be some casualties along the way. So, now is a good time to make even a modest contribution and not to give up on it. Times are tough, but still, a couple bucks here and there will make a difference."

Going Down

The Georgia Center for Nonprofits polled 130 local nonprofits about their second quarters of 2009:

70% reported requests for services increased.

53% reported corporate gifts were down.

43% reported cash donations of less than $1,000 were down.

23% report no operating reserves.

29% reduced staff.

Six Things Every Board Member Should Know About the NEW 990

Amaze Your Friends with these Nonprofit Factoids

When we believe something to be true but don't have the data to support that idea, what happens when we do find the hard evidence? Two things: either we find out we were wrong after all or . . . we were right and now we have the facts to put into a grant proposal.

Rick Cohen mined metric tons of data to bring us some newly published, meaningful facts about the nonprofit sector that we should be aware of . . . and use.

1. It's official: we're underpaid.

Nonprofit managers make $34.24/hour on average, compared with $36.18 in comparable state government positions, $39.75 in federal government, and $41.86 in private sector positions, according to the Bureau of Labor Statistics National Compensation Survey. Office and administrative support staff in the nonprofit sector also come up short: average hourly earnings of $15.46 compared to $15.53 in the private sector, $15.92 in state government, and $16.76 in local government. On the other hand, the relative gap among positions is smaller in our sector. So . . . should we be demanding more from our funders -- not because we're greedy but for the sustainability of our work?

2. Maybe I should look for a job in local government: Nonprofit human services workers are paid about the same as in the for-profit sector, but considerably less than in government. So . . .  With so much of nonprofit human services supported by government money, why don't government contracts provide for wages that are comparable to what they pay their own staff for similar jobs? And, why don't we in the nonprofit sector pay more attention to low-wage employees, themselves the crucial, person-to-person mission delivery systems?

3. More than one-third of the nonprofit sector are not 501(c)3s: The Teamsters Union, the National Football League, the Chamber of Commerce and the Board of Realtors are all nonprofits of the "other c's" such as 501(c)6 and 501(c)4. While only (c)3s can can receive donations that are tax-deductible to the donor, these other nonprofits don't pay corporate income tax. Since these organizations benefit from tax-exempt status, why don't we do more to make their finances transparent, and hold them accountable to the public purpose?

4. There are more 501(c)3s than most people realize: According to the Internal Revenue Service Data Book there are 1,186,915 501(c)3s, up 13.5% since 2005. So . . . Is the potential power of so many organizations being realized? And word is that despite the recession, the rate of formation of public charities hasn't declined much in recent months. So . . . perhaps nonprofit creation isn't driven by the availability of funds, but by seeing a need?

5. But many registered nonprofits are either miniscule in size or no longer exist. The Internal Revenue Service estimates that 222,600 nonprofits with revenues under $25,000 will file the 990-N e-postcard in 2009, but it's possible that just as many are no longer in business. Nonprofits with revenues under $25,000 are now required to file the 990-N, a sort of "proof of life" annual form that should help adjust inflated numbers of nonprofits to more accurate figures. Failure to file for three years running gets you kicked off the IRS rolls of registered nonprofits. So . . . if you're a small nonprofit, be sure to file your 990-N!

6. And hospitals and universities have most (55%) of the nonprofit sector's money: Nonprofit hospitals are only 1% of 501(c)3s, but have 41.5 % of our sector's revenue! While there are only 2,640 higher education institutions, they have average revenue of $159 million each, totaling 13.8% of the sector's revenue.

And funding for hospitals doesn't include funding that goes to mental health, disease-related charities, or medical research. So . . .that leaves 35.4% of all nonprofit revenues to be shared by the remaining 625,193 reporting nonprofits engaged in arts, culture, and humanities, environmental quality and protection, diseases and disorders, crime reduction, legal advocacy, employment and jobs, food, agriculture, and nutrition, mental health, medical research, housing and shelter, public safety, recreation and sports, youth development, human services, civil rights and social action, community improvement and development, science and technology research, public and society benefit, religion and spiritual development, and mutual and membership benefit work.

Source: National Center for Charitable Statistics Dataweb

7. Part Timers R Us: Almost one in four (22 - 24%) of nonprofit employees are part-time, a much higher rate than the overall average of around 18% of all U.S. workers. So . . . is it a reflection of  flexibility that nonprofits provide their willing staff, or does it reflect a lack of funding to afford them as full-time staff?

Sources: the nonprofit number is from unpublished Current Population Survey (CPS) data from the U.S. Bureau of Labor Statistics; the overall part-time workforce numbers come from published CPS information.

8. There are twice as many employees in the nonprofit sector than in the construction industry . . . and we need health insurance, too. There are 15.4 million workers employed in the tax exempt sector, more than twice as many as in construction (6.4 million), according to the Department of Health and Human Services. The tax exempt data doesn't distinguish between (c)3s and other 501's), but Lester M. Salamon of the Johns Hopkins University Center for Civil Society Studies suggests 9.4 million workers (of his lower estimate of 12.8 million total) comprise the "charitable" part of the nonprofit sector.

Although national health reform has moved toward giving tax benefits to small business employers who provide their employees with health insurance, nonprofits have been unassisted by this effort since we don't pay corporate income taxes. Nonprofit advocacy efforts resulted in the insertion of some benefits for small nonprofit employers in the draft Senate bill, but legislators and policy-makers are more prone to ignore nonprofit employers and their 12 to 15 million workers.

9. United Way donations are shrinking:  57% of United Ways reported declines in donations from last year, while just 32% showed increases. The largest loser was the Erie County, Pennsylvania United Way, which saw donations plummet 67.5%. So . . . the United Ways' role of providing substantial, unrestricted funds to human services continues to decline . . . as even more people apply for help.

10. Community foundations -- the highest growth area in philanthropy -- have a lot less money, too. Investment returns decreased by 27% (median) in a survey by the Council on Foundations.  So . . . they'll have less money to put into grants for the next year or more.

11. And total charitable giving has decreased by the largest percentage in five decades. According to Giving USA, giving by individuals, corporations and foundations has decreased by 5.7% between 2007 and 2008. So . . . because of the lag time between financial changes at foundations and grant award dates, and the likelihood of a "jobless recovery," things won't be turning around any time soon.

12. Kansas City here I come . . . they got some crazy little donors there and I'm gonna get me some . . . Individual giving in Kansas City, Missouri increased by 128% . . . compared with the national average of 30% from 1997 to 2007. Kansas City donors -- the nation's most generous -- gave $3,375 in 2007, compared with $2,247 nationally. So . . . Fats Domino was right (again).

Blue Avocado columnist Rick Cohen appears in every other issue (that is, monthly). The former Executive Director of the National Committee for Responsive Philanthropy, he also writes The Cohen Report and is National Correspondent for Nonprofit Quarterly. He is underpaid.

Giving down for 2009

October 21, 2009

Charitable giving is down in 2009 so far, but the fourth quarter, typically the busiest for charitable donations, could provide much-needed cash, a new poll says.

More than half of fundraisers say their totals raised so far this year are lower than the same period last year, says a poll conducted by the Association of Fundraising Professionals on its website.

More than one in four fundraisers say giving is flat, and slightly more than two in 10 report raising more this year than last.

"In many respects the response is not surprising given the many challenges charities have faced this year in their fundraising," Paulette Maehara, president and CEO of the association, says in a statement. "Hopefully we'll see a strong uptick in giving over the last three months of the year, so I expect the number of organizations raising more money will increase dramatically."

Most charities receive a third to a half of their fundraising totals in the fourth quarter of each year, the association says.

Blackbaud Learn Provides Training Options for Ongoing Skill Development

New training subscription includes role-based curriculum and nonprofit strategy sessions

Charleston, S.C. (Vocus/PRWEB ) October 28, 2009 -- Blackbaud, Inc. (Nasdaq: BLKB), announced the availability of Blackbaud Learn™, a subscription-based training program that provides ongoing skill development and job knowledge training to nonprofits. With new classes every month, a role-based curriculum, and exclusive sessions on strategy and best practices, Blackbaud has made training more accessible to the nonprofit organizations it serves. Blackbaud is offering a free training session, Query Essentials for The Raiser's Edge, as a sample of the instructor-led courseware from Blackbaud Learn that explores basic querying techniques.

Blackbaud Learn empowers nonprofits to fulfill their missions with courses tailored to their specific needs

With the introduction of Blackbaud Learn, we are providing nonprofit professionals the training they want and need to do their jobs better and be more productive, while keeping staff members engaged in active, lifelong learning.

It was refreshing to know that when I joined the organization, I was not only provided the initial training I needed to do my job well, but will also have an ongoing resource to constantly improve

Blackbaud Learn is extremely valuable, because it offers so many classes on a range of topics to help our staff continuously evolve in its professional development.

Training is definitely not an optional expense, it is a smart investment

It is the fastest, most effective way for us to get new curriculum to our customers

Sylvia Hrbek recently joined the Cancer and Leukemia Group B (CALGB) Foundation as the organization's accounting manager and immediately started training through Blackbaud Learn. "It was refreshing to know that when I joined the organization, I was not only provided the initial training I needed to do my job well, but will also have an ongoing resource to constantly improve," she said. "Blackbaud Learn is extremely valuable, because it offers so many classes on a range of topics to help our staff continuously evolve in its professional development."

CALGB Foundation is an organization with four staff members who need to learn about allocation management, budget management, exporting and importing, and queries. With these online and classroom courses, the organization plans to increase productivity and effectiveness while streamlining what staff members currently do manually. "Training is definitely not an optional expense, it is a smart investment," said Hrbek.

Blackbaud Learn is available as a renewable annual subscription, starting at $1,000 to best meet the needs and budget of any organization. Training packages are offered at three different levels with classes spanning fundamental skills development to advanced coursework. All three Learn packages include access to exclusive nonprofit strategy sessions, on-demand software skills lessons, and role-based classes. Blackbaud Learn is available in three different subscription levels:

Blackbaud's staff of educational consultants provides individualized attention to nonprofits, examining the long-term goals of the organization and recommended learning tracks based on needs and job functions. Small class sizes promote interactivity among students and instructors, and learning objectives are introduced and reinforced through practice. In addition, monthly access to experts for live question and answer sessions is available. With hundreds of online, self-paced, and on-demand classes, new and fresh classes every month and resources available 24/7, Blackbaud Learn offers employees the ability to learn when and where it is convenient for them.

Nearly 95 percent of the coursework offered through Blackbaud Learn is delivered through an interactive online classroom. "It is the fastest, most effective way for us to get new curriculum to our customers," said Banning. Watch a video about Blackbaud's online classroom training on the company's YouTube Channel, www.youtube.com/blackbaudinc.

Blackbaud online and classroom training is recognized by Certified Fund Raising Executives International (CFRE) as qualifying for CFRE Education points. Blackbaud is also a registered sponsor of the National Registry of Continuing Professional Education (CPE) Sponsors, a program offered by the National Association of State Boards of Accountancy (NASBA).
For more information about Blackbaud Learn, visit www.blackbaud.com/Learn.

About Blackbaud
Blackbaud is the leading global provider of software and services designed specifically for nonprofit organizations, enabling them to improve operational efficiency, build strong relationships, and raise more money to support their missions. Approximately 22,000 organizations -- including University of Arizona Foundation, American Red Cross, Cancer Research UK, The Taft School, Lincoln Center, In Touch Ministries, Tulsa Community Foundation, Ursinus College, Earthjustice, International Fund for Animal Welfare, and the WGBH Educational Foundation -- use one or more Blackbaud products and services for fundraising, constituent relationship management, financial management, website management, direct marketing, education administration, ticketing, business intelligence, prospect research, consulting, and analytics. Since 1981, Blackbaud's sole focus and expertise has been partnering with nonprofits and providing them the solutions they need to make a difference in their local communities and worldwide. Headquartered in the United States, Blackbaud also has operations in Australia, Canada, the Netherlands, and the United Kingdom. For more information, visit www.blackbaud.com.

Media Contact:

Melissa Dodge
Blackbaud, Inc.
melissa.dodge (at) blackbaud (dot) com
843.216.6200 x3209

Source: Blackbaud

Forward-looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements that involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: general economic risks; uncertainty regarding increased business and renewals from existing customers; continued success in sales growth; management of integration of acquired companies and other risks associated with acquisitions; risks associated with successful implementation of multiple integrated software products; the ability to attract and retain key personnel; risks related to our dividend policy and share repurchase program, including potential limitations on our ability to grow and the possibility that we might discontinue payment of dividends; risks relating to restrictions imposed by the credit facility; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organization; technological changes that make our products and services less competitive; and the other risk factors set forth from time to time in the SEC filings for Blackbaud, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from Blackbaud's investor relations department. All Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc.

Amazon Payments, Inc., a subsidiary of Amazon.com, Inc. (NASDAQ:AMZN), today
announced that leading nonprofit organizations are accepting Amazon Payments
just in time for holiday giving, making it just as easy to donate to your
favorite charity as it is to shop on Amazon. Organizations such as American Red
Cross, UNICEF, Greenpeace, Nature Conservancy, Feeding America, Heifer
International, Autism Society of America, International Federation for Animal
Welfare, Children`s Miracle Network and United Way of King County now allow
Amazon customers to make donations quickly and securely using information from
their Amazon.com account. Customers can visit www.amazon.com/holidaygiving from
now through January 10, 2009 to learn more about "Holiday Giving with Amazon
Payments." 

"As the holiday season approaches, we`re pleased to be able to provide Amazon
customers a convenient way to support a range of nonprofit organizations," said
Mark Stabingas, General Manager of Amazon Payments. "With Amazon Payments,
nonprofit organizations now have a simple and cost efficient way to process
online donations while leveraging the fraud detection and risk management
controls that Amazon Payments provides as part of the service." 

"With a significant percentage of consumers making purchases online, it is a
priority for Children`s Miracle Network to incorporate online giving into our
fundraising efforts. Children`s Miracle Network has raised $3.8 billion for
children`s hospitals over the past 26 years by making the donation process as
simple and straight-forward as possible," said Brian Hazelgren, Chief
Development Officer for Children`s Miracle Network. "Working with Amazon
Payments allows us to build upon our successful `low-dollar, high-volume`
fundraising efforts in a time- and cost-efficient campaign." 

"The U.S. Fund for UNICEF and Amazon Payments are working together to make it
easier for people to donate," said Esther Choi, Assistant Director of
Interactive Marketing for the U.S Fund for UNICEF. "We are glad that Amazon
customers are easily able to make online donations and help continue the mission
of saving the lives of thousands of children around the world." 

"When emergencies strike, whether it affects your neighbor next door or someone
halfway around the world, people want to quickly put their need to give into
action to help people in crisis. A simple and efficient way to help people
through the Red Cross is by making an online donation. Amazon Payments empowers
our donors with a convenient way to channel their compassion and make donations
online quickly and easily," said Jeff Towers, Chief Development Officer,
American Red Cross. 

"Feeding America depends on the generosity of donors to help our network members
supply food to more than 25 million Americans each year, including 9 million
children and 3 million seniors," said Elizabeth Nielsen, Online Fundraising
Manager. "It`s important that we provide our donors with an easy and secure
online experience. By enabling Amazon Payments, we are offering donors a simple
and familiar way to make a contribution online." 

Additionally, Convio, a software and services provider to the nonprofit
community has integrated Amazon Payments into its software platform. "Convio
works with a number of nonprofits who are looking for ways to cut costs and
streamline fundraising efforts," said Fred Waugh, Vice President of Convio. "By
leveraging Amazon Payments, we help our clients focus more on their fundraising
efforts as opposed to the infrastructure required to accept donations." 

Nonprofits can take advantage of Amazon Payments solutions to make it easy for
millions of Amazon.com customers to donate via a trusted payment experience on
their website. They can choose from a portfolio of easy-to-integrate, cost
effective, and reliable Amazon Payments solutions to enable one-time and
recurring donations or sell goods for fundraising. Nonprofits can sign up and
start using Amazon Payments today at www.amazonpayments.com/nonprofits. 

About Amazon.com

Amazon.com, Inc. (NASDAQ:AMZN), a Fortune 500 company based in Seattle, opened
on the World Wide Web in July 1995 and today offers Earth's Biggest Selection.
Amazon.com, Inc. seeks to be Earth's most customer-centric company, where
customers can find and discover anything they might want to buy online, and
endeavors to offer its customers the lowest possible prices. Amazon.com and
other sellers offer millions of unique new, refurbished and used items in
categories such as Books; Movies, Music & Games; Digital Downloads; Electronics
& Computers; Home & Garden; Toys, Kids & Baby; Grocery; Apparel; Shoes &
Jewelry; Health & Beauty; Sports & Outdoors; and Tools, Auto & Industrial. 

Amazon and its affiliates operate websites, including www.amazon.com,
www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca,
and www.amazon.cn. 

As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com,
Inc., and its subsidiaries, unless the context indicates otherwise. 

About Amazon Payments

Amazon Payments provides consumers, merchants, and developers the simple and
trusted way to pay and get paid online. Amazon Payments enables consumers to
send and receive payments for goods or services by using the payment methods
already associated with their Amazon.com accounts. Merchants and developers can
also take advantage of a portfolio of payment and checkout solutions, such as
Checkout by Amazon, Amazon Simple Pay and Amazon Flexible Payments Services, to
enable tens of millions of Amazon customers to complete purchases on their
websites and applications. Go to http://www.amazonpayments.com for more details.


Forward-Looking Statements

This announcement contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results may differ significantly from management's
expectations. These forward-looking statements involve risks and uncertainties
that include, among others, risks related to competition, management of growth,
new products, services and technologies, potential fluctuations in operating
results, international expansion, outcomes of legal proceedings and claims,
fulfillment center optimization, seasonality, commercial agreements,
acquisitions and strategic transactions, foreign exchange rates, system
interruption, inventory, government regulation and taxation, payments and fraud.
More information about factors that potentially could affect Amazon.com's
financial results is included in Amazon.com's filings with the Securities and
Exchange Commission, including its most recent Annual Report on Form 10-K and
subsequent filings.

Amazon Media Hotline
206-266-7180 

Copyright Business Wire 2009

 Donor-advised funds -- the popular charitable-giving vehicles -- are slashing fees and expanding the range of donations they'll accept.

Strong investment returns and a growing interest in philanthropy have boosted gifts to many donor-advised funds this year, and the funds are maneuvering to capture as much of the windfall as possible. They're also starting to offer more-exotic investment options, such as hedge funds, and giving donors the ability to have their own independent investment adviser manage the money.

In a donor-advised fund, an individual typically contributes at least $5,000 in cash, stock or other assets, gets an immediate tax deduction for the contribution and recommends how the money should be distributed to charitable organizations. The donor can postpone for years the task of choosing which charities to support, while selecting investments from a menu that may include mutual funds, more-customized separately managed accounts and other options.

FUNDS FOR GIVING

 Donor-advised funds are growing increasingly popular. Here's how they work:

• Donors get an immediate tax deduction for gifts to the fund, but can parcel out grants over many years.
 
• In many cases, donors can advise how contributions should be invested.
 
• Investment options may include mutual funds, separately managed accounts or even hedge funds.
 

The funds are offered by charities set up by major financial institutions like Fidelity Investments and Vanguard Group, as well as community foundations and other groups. The Vanguard Charitable Endowment Program recently accepted gifts of hedge-fund shares for the first time, while Charles Schwab Corp.'s Schwab Charitable Fund expects contributions of real estate to double this year.

Catastrophes like Hurricane Katrina, and recent high-profile gifts like Warren Buffett's multibillion-dollar pledge to the Bill & Melinda Gates Foundation, have helped inspire people to increase their level of giving. Last year, the country's largest donor-advised funds held assets of $15.5 billion, up 22% from a year earlier, according to the Chronicle of Philanthropy. The funds granted $3.3 billion to charity last year.

When Mary Frisk Loken began contributing to a donor-advised fund set up by the Sangamon County Community Foundation in Springfield, Ill., two years ago, the vehicle's simplicity was a big selling point. While "there's a good bit of work" involved in starting a private foundation, "somebody else is doing the work here for us," says Ms. Loken, a retired assistant superintendent of schools who is now an education consultant.

She has already used the fund to make five grants to local organizations, including a recent gift to the local YMCA. And when her husband died suddenly in September, she didn't have to think about where memorials should be sent. The fund "made it easy for the friends and relatives who wished to contribute," Ms. Loken says.

Besides their ease of use, donor-advised funds offer other benefits: Most give donors great leeway in recommending charities, requiring only that the money go to a legitimate group recognized by the Internal Revenue Service. Additionally, donors can make one contribution and let the donor-advised fund handle sending the checks to 10 separate charities. The funds are also easier to set up than some other charitable vehicles, such as private foundations, and often more cost-effective, advisers say.

For financial-services companies, donor-advised funds are a way to attract and retain sought-after high-net-worth clients. They can also help boost the bottom line: Though donor-advised funds are technically offered by nonprofit organizations set up by the financial institutions, fund assets are often invested largely with in-house mutual funds, bringing the firm investment-management fees.

As major players tinker with their funds -- introducing a complex array of fees, investment options and services -- donors could face a number of potential pitfalls. While some funds offer extensive assistance in researching and selecting charities, others offer very little hand-holding. What's more, rules governing the funds are changing as lawmakers attempt to crack down on past abuses, and some funds have been tripped up by the shifting regulatory landscape.

Here's what potential contributors need to know before they give to a donor-advised fund:

• Contributions. Many funds say they're taking more contributions in the form of real estate, privately held stock and more-exotic holdings. Citigroup Inc.'s donor-advised fund is now working with a client who wants to donate "gemstones the size of baseballs," says Melanie Schnoll-Begun, managing director of Citigroup Philanthropic Services. Over the past year, the Community Foundation Serving Richmond and Central Virginia has for the first time accepted contributions of bags of silver and even prize cattle, and is talking with a donor about a contribution of timberland, says Darcy S. Oman, the organization's president and chief executive.
Some funds are also aiming to attract a wider pool of donors by slashing the minimum contribution. Fidelity Charitable Gift Fund -- the country's largest donor-advised program -- recently cut its minimum to $5,000, from $10,000. Funds typically require a minimum of $10,000 to $25,000. hile the expanded options may simplify giving, donors need to select their contributions carefully, advisers say. Rules for deducting contributions of noncash property can be tricky, and individuals might want to seek advice from a tax professional before making these gifts. When donating investment holdings, donors should be sure their remaining portfolio is well-diversified.

• Investment Options. While donor-advised funds have traditionally offered a basic menu of mutual funds, many are now aiming to attract donors and boost returns with more complex investments.
 

The Greater Kansas City Community Foundation added funds that invest in hedge funds as an option early this year, while the California Community Foundation recently boosted the alternative-investment allocation in one of its investment pools and may add private-equity investments.

Some donor-advised funds are also allowing donors to have their own independent financial adviser manage the money. In July, Fidelity gave this option to donors with accounts of $1 million or more. Schwab allows independent advisers for accounts of $250,000 or more. The funds, which maintain responsibility for the assets, must approve the recommended adviser.

• Fees. The funds' rapid growth has paved the way for fee reductions at many major providers, including Fidelity, Schwab, Vanguard and T. Rowe Price Group Inc. But there are still big fee differences from fund to fund. At Vanguard, total fees average about 0.79%. At Citigroup, fees range from 1.55% to 2%.
 

In some cases, the addition of more-exotic investment options is driving up fees. At the California Community Foundation, the move to add managers and alternative investments is boosting investment costs by about 0.2%, says Peter Dunn, vice president for philanthropic services. The fund's total fees are now 2% to 2.2%. Advisers say a fund's total fees should amount to about 1% or less.

• Regulations. As donor-advised funds have grown, they've also attracted more regulatory scrutiny. This year's pension legislation contained rules designed to curb abuses, including ones that aim to prevent donors from making grants that ultimately benefit their own families.
 

Some funds have run afoul of the new rules. One provision, which said that a fund supporting just one organization may not be considered a donor-advised fund, caused problems for the newly launched Domini Fund for International Giving, which directed grants exclusively to the United Nations Foundation. Domini has stopped accepting new accounts for the fund, but hopes to restructure and relaunch it next year, says Jean Moon, the fund's director.

Would-be donors should also note that donor-advised funds are specifically excluded from an important provision of the new pension law. The law allows individuals over 70½ to make tax-free charitable donations of up to $100,000 from their individual retirement accounts this year and next, but those gifts can't go to donor-advised funds.

“More trust means more funding. More funding means more services” nonprofits can offer, the chief operating officer of the Boys & Girls Clubs said. He’s right. If South Carolina’s 11,000 nonprofits want needed financial support, they must earn the trust of donors by being transparent, effective and accountable.

That’s why the South Carolina Association of Nonprofit Organizations, called SCANPO, is asking all nonprofits to improve the way they do business. The trade group has published a pamphlet, “Guiding Principles & Best Practices,” aimed at helping nonprofits operate more efficiently, professionally and responsibly.

The seven guiding principles, which collectively offer 67 best practices, are: mission and planning; governance; human resources; financial management and stewardship; accountability, transparency and legal compliance; fundraising; and information management.

The best practices are grounded in sound business principles. For example, the federal government doesn’t require nonprofits to have regular audits. But SCANPO suggests regular audits, with smaller organizations getting audited less often than larger ones.

The guidelines and best practices aren’t just for the staff at nonprofits but for board members as well. Board members need to fully accept their fiduciary and other responsibilities. Board members need to have job descriptions and regularly evaluate their performances as well as those of their organization’s administration.

The push by SCANPO and others for nonprofits to improve the way they do business is part of an overall effort called “Preserving the Public Trust.”

Mason Hardy, executive director of SCANPO, said nonprofits became concerned following the Enron debacle and new rules under Sarbanes-Oxley legislation meant to eliminate corporate abuses. Some provisions, such as rules surrounding document retention and whistle blower protection, included nonprofits.

Nonprofits are trying to get ahead of the game and police themselves before the federal or state government does. SCANPO created a blue ribbon task force of leaders from nonprofits, foundations and the business community to direct South Carolina’s effort. In addition to making the guidelines and best practices available, beginning in May, SCANPO will start offering training for nonprofits in Charleston, Columbia and Greenville.

SCANPO is going to such lengths because if even one nonprofit gets taken advantage of or acts inappropriately, it will reflect on all nonprofits, Mr. Hardy said. All nonprofits — from Oliver Gospel Mission to Sister Care to local soup kitchens to the United Way — need to know what’s required so they can measure up.

They should take advantage of the new guidelines, best practices and trainings. Once they know better and do better, donors might even give better.

Sometimes it's necessary for a board to fire the executive director. Occasionally the decision is clear to everyone, such as in instances of embezzlement or unethical behavior. But more often, board members get indications over time that the director is either not doing the job or causing problems for the organization.

The prospect of open conflict with the executive director is so dismaying that many board members who are dissatisfied with the director's performance often choose to resign or drop off the board, rather than take on the issue. Others try to look the other way for as long as possible. Dissatisfaction with the executive director often appears first as rumblings, such as a staff member complaining to a board member about morale, or committee members confiding their concerns to one another.

When such rumblings appear, the board should hold an executive session and establish an investigative committee to clarify the content and extent of the dissatisfaction, and determine what general approach is appropriate. If, for example, there are rumors of sexual harassment, the committee (or a consultant) can interview staff and volunteers and determine whether the rumors are frivolous or whether they require a more formal investigation. In another example, the committee may find that the executive director simply doesn't understand the administrative approach the board wants to see taken; in such an instance the board may choose to set up a series of meetings with the executive director to clarify directions and improve communication.

One way to put the issue on the table is to call for a "vote of confidence or no confidence" in the executive director. For example, board members may be asked to vote for one of the following resolutions: a) "I am confident that the executive director is doing a satisfactory job;" or b) "I have lost confidence that the executive director is doing, or will be doing in the near future, a satisfactory job." By doing so, board members can express their concerns without having to vote immediately on a "fire" resolution.

If the board has strong reservations about whether the executive director's performance is satisfactory, it should establish a committee to work more closely with the director in a supervisory capacity. Beginning with letting the executive director know the extent of dissatisfaction on the board, the committee can document the problems and take steps to improve the director's performance. If performance doesn't improve over time, and the director is fired by the board, the ongoing documentation can help deter a lawsuit against the agency by the former executive director. No level of documentation can guarantee that a lawsuit won't be brought, but an agency holds a stronger position in court and in the community if personnel policies have been followed, if steps have been taken to improve performance, and if those steps are documented as having failed.

If, after appropriate investigation and deliberation, a board feels that the executive director should leave the organization, it may choose first to have the board officers approach the director and suggest that a resignation would be welcomed. Many executive directors under pressure prefer resignation to being fired, and some board members feel that a resignation leaves the organization in a better light than termination does.

Whichever is chosen, board action to terminate or to accept a resignation, should be put into the minutes. The board should document whether there is any severance pay, any remaining tasks to be completed by the departing executive director, and close any other financial relationship. The board should develop a straightforward explanation for the resignation which can be communicated to staff, volunteers, funders, and others in the community.