Bravo to the IRS, they’ve recently revised the 25-year old 990, the form required by organizations wishing to file under nonprofit status. And they’ve made some strides in the last quarter century, quite adequately taking into account the most important issues affecting and influencing nonprofits today – efficiency, effectiveness and transparency. 

According to this article in the Chronicle, the agency is going to be much more aggressive in its efforts to monitor nonprofit efficiency and effectiveness.  By creating standards to hold organizations against, the IRS hopes to help ensure nonprofits spend according to the money they have coming in and the mission they support. Considering the purpose of the tax exempt subsidy, these standards are probably a good idea.  Not that they should be telling an organization how to run, but the IRS can show a little support to the country’s nonprofits to help keep them running responsibly.

And apparently the House Oversight and Government Reform Committee is also jumping on the effectiveness bandwagon – showing interest in nonprofit revenue reports and encouraging organizations to reveal to donors how money spent supports their mission. Isn’t it great that after all this talk among our own nonprofit community that we finally have some big politicos lending an ear?

With good intentions, the IRS hopes this new and improved form will help organizations be more transparent and accountable to donors.  Not that all organizations needed the water wings, but hopefully those that do (the ineffective and unaccountable) will appreciate this effort by the government. After all, accountable, efficient, effective organizations - as we always preach - are going to be the nonprofits best supported and those that make the biggest impact.  IRS, thanks for the lifesaver.

IRS, 990, nonprofit, effectiveness, accountability, efficiency, Chronicle of Philanthropy, House Oversight and Government Reform Committee

A couple of weeks ago we heard the news that Harvard Law is waiving third year tuition for law students who commit five years of work with a nonprofit or in public service.  Looks like another school is following Harvard’s path. 

This week, Tufts University announced a new program that will repay loans for students who enter nonprofit or public service work depending upon their loan burdens and and income levels.  The program also applies to Tufts alumni who are already working in public service jobs. Tufts alum and founder of eBay, Pierre Omidyar, made the program possible through the Omidyar-Tufts MicroFinance Fund.  It will be interesting to see if loan forgiveness programs for public service work becomes a trend with additional schools following suite. 

Over at Philanthropy Action, blogger Tim Ogden points out that today’s credit crunch affects not just homeowners but students who are financing their educations through loans, potentially leading to higher costs for private loans or even the inability to secure a loan at all. In today’s economy, loan forgiveness programs might be even more enticing to students and may be the boost they need to seek employment in nonprofits.  And this is the kind of boost we like to see.

Its pretty obvious that nonprofits will be affected as we encounter this economic downturn.  The question is, how much?  Many articles have detailed the fact that donors will be likely to give less, less often, and that although the effect might not be drastic, nonprofits will see a change.  And even if the economic climate doesn’t outright cause donors to give less, it might cause them to think they should – a great excuse for nonprofits to make an even more compelling case for their need.

An article in the NY Times today discussed a similar issue – the plummeting of stocks affecting corporate giving. For large companies that give based on their assets, this could might be the change in charity everyone is predicting. Layoffs, bad news and tough times – how could it not? It’s mentioned that nonprofits might have to look to other large donors, whose 10 percent of the donor population provide about 90 percent of funds, in order to meet their needs.  Will this change in the market really affect nonprofits in the long run? Or is it a premature prediction, an overreaction to the economic situation?  It will be interesting to keep an eye on the situation to see affects – benefits of not. 

We're seeing a lot of attention paid to nonprofit hospitals this week.  A state legislator in Boston is proposing that caps be put in place on executive pay at nonprofit hospitals in the Boston-area.  According to today’s Boston Herald, fourteen top executives at nonprofit hospitals raked in million-dollar-plus pay packages, a sharp increase from just a few years ago.  The article outlines a handful of CEOs at local hospitals who have received over $1 million salary, whereas only one executive in 2004 received a salary  of comparable weight.  State Senator Mark Montigny is raising this issue, proposing that salaries are capped at $500,000 at nonprofit charities whose annual revenues exceed $1 billion.  Nonprofit executive pay has been a part of discussions on accountability for years—regardless of the industry. 

Executive pay isn’t the only being discussed this week when it comes to nonprofit hospitals.  The Wall Street Journal addresses the controversy surrounding the revenue nonprofit hospitals bring in, where the money is being spent, and the tax breaks they receive.  According to the paper, the net income of the 50 largest nonprofit hospitals nationwide was more than $4 billion in 2006, up from less than $1 billion in 2001.  So why the extraordinary growth?  And where is this new-found money going?

That’s where the controversy lies.   The article questions how much money is being spent on free treatment to those in need, or what the hospitals are expected to provide in order to qualify for the tax breaks.  The WSJ points out Northwestern Memorial hospital, that, in 2006, spent $20.8 million on charity care or less than 2% of its total revenue.  Ironically, the hospital’s former CEO received a $16.4 million payout.  The article points out that other hospitals in the same area spent roughly 14% of their revenue on charity care.

The article continues to discuss the tax breaks hospitals receive and the disparities over executive pay and how the revenues of hospitals are distributed, leading to the ultimate question—if nonprofit hospitals bring in so much revenue, receive millions in tax breaks, and don’t deliver on the requirements of benefiting the community—why are they nonprofits?  That question, of course, is left open-ended as there are many hospitals who are providing charity work and the benefit to community requirement set forth for tax reasons is loosely defined, it is hard to say who isn’t making a difference.  

What do you think of the news relating to nonprofit hospitals this week? Should salary caps or tighter restrictions on tax breaks be in place?

As we encounter popular, visible fundraisers, such as this week’s American Idol: Idol Gives Back, we must not forget the importance of measurement in the effectiveness of an organization.  Many people and viewers alike assume an organization is credible, and therefore effective, because they see it on TV or because it is advocated by a celebrity (or talked about in today's NYT). Although these organizations often are able to raise significant funds due to visibility, unfortunately, it is not often the case that they are better just because they are bigger or flashier.

Through our own research, we've found that the organizations supported by this year’s Idol Gives Back represent reputable and moderately effective organizations. But although they are decently efficient at raising as well as allocating funds as compared to other organizations in the space - we must not take this as the norm, we as donors must still be careful to investigate before we pledge money to a cause.  We must seek out organizations using measurement tools to evaluate programs because as with any nonprofit, measurement will only help enhance the good the organization is already doing and help ensure that the organization will meet is goals and ideals.

As donors, we must be smarter than to take tear jerking stories as proof that an organization is using funds as wisely as it should. If we hold these organizations accountable, ask them what they are using the money to do, ask them to show us their measurement system and proof that the programs are working, out money will be better spent.  As a society, if we continue to give blindly, to donate based on photo montages of hungry children we see on TV, we will continue to idle if not take a step backward.  But if we do our homework as donors and support the organizations who are measuring their efforts and relating them to their outcomes, increasing their effectiveness and making the most social change, we will advance the mission of the organization and thus improve the society in which we live.

In a time when hundreds of thousands of nonprofits are asking for support, we must take our job as donors seriously.  We must demand transparency from the social programs we care about both in our communities and across the airwaves in order to foster the effectiveness that will benefit those causes that need it most.

American Idol, Idol Gives Back, measurement, nonprofit, effectiveness, transparency, donors

It’s not whether you win or lose, it's how you play the game.  Sure, try telling that to a Boston Red Sox fan who just lost to the Yankees.

In baseball, there is a reason why a coach benches a star player when the team, who has clinched a play-off spot, is down and the post-season is just a few weeks off.  A win tonight doesn’t make a difference—its the success of the team down the road.  

So, what does this mean for nonprofits?  Like baseball, sometimes the best results for nonprofits aren’t necessarily immediate.  We tend to think of success in terms of a win or loss, and either way, we want it now.  Rarely is a situation that simplistic or our demands met. 

In nonprofits, many factors can determine an organization's success.  Is an after-school program considered a success because every seat in the room is full?  Or is it a success because the kids who are in great need of being off the streets are attending?

It’s the struggle in making that determination where measurement plays a significant role.  Measurement is more than knowing what works and what doesn’t.  It’s taking that knowledge and applying it to programs, to events, to fundraising, to whatever your challenge is, and making it work--without the fear of admiting a setback or failure.

For nonprofits that need to meet the demands of boards, funders, donors and those who they are serving, applying measurement can be a tiresome task and getting over the fear is a challenge.  Yet, it's this change in thinking that can unlock an organization's success.

Interesting concept.  Focus on the "getting there" than just the there.  It's not usually how one thinks of success.  But as many of us know well, success is rarely achieved without experiencing the long-haul.  Maybe that’s why there are 162 games in the baseball season.  

It’s not whether you win or lose, it's how you play the game.  Sure, try telling that to a Boston Red Sox fan who just lost to the Yankees.

In baseball, there is a reason why a coach benches a star player when the team, who has clinched a play-off spot, is down and the post-season is just a few weeks off.  A win tonight doesn’t make a difference—its the success of the team down the road.  

So, what does this mean for nonprofits?  Like baseball, sometimes the best results for nonprofits aren’t necessarily immediate.  We tend to think of success in terms of a win or loss, and either way, we want it now.  Rarely is a situation that simplistic or our demands met. 

In nonprofits, many factors can determine an organization's success.  Is an after-school program considered a success because every seat in the room is full?  Or is it a success because the kids who are in great need of being off the streets are attending?

It’s the struggle in making that determination where measurement plays a significant role.  Measurement is more than knowing what works and what doesn’t.  It’s taking that knowledge and applying it to programs, to events, to fundraising, to whatever your challenge is, and making it work--without the fear of admiting a setback or failure.

For nonprofits that need to meet the demands of boards, funders, donors and those who they are serving, applying measurement can be a tiresome task and getting over the fear is a challenge.  Yet, it's this change in thinking that can unlock an organization's success.

Interesting concept.  Focus on the "getting there" than just the there.  It's not usually how one thinks of success.  But as many of us know well, success is rarely achieved without experiencing the long-haul.  Maybe that’s why there are 162 games in the baseball season.  

We talked about ethics in our last post – it’s quite the issue these day in the world of nonprofits. Tuesday’s topic du jour - fraud. 

A recent NYT piece outlined a report by the Certified Board of Fraud Examiners which estimated that the overall cost of fraud to nonprofits was at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year.  The piece states that if in fact $40 billion was lost to fraud, then the corporations and foundations who gave in 2006 might have just as well burnt their benjamins – it was the same amount.

And we know this report lumps all the organizations together.  But does one bad apple spoil the bunch? In this case, maybe.  How do nonprofits expect donors to give when 13 percent of the donation ends up paying for some employee’s vacation or sports car?  Who do they know who to give to when the report tells us that almost all nonprofits encounter some fraud. The report also told us that ethics or no ethics, most givers don’t have very much faith in the way charitable organizations spend their money.

In the case of all this fraud, accountability might just hold us over. If we don’t have faith in these organizations, why don’t we question them? If we ask them measure their efforts and clearly show us the outcomes, and we like what we see, we might just take that leap and hand over the cash.  Rather than tattling, let’s be the bigger guy . Let’s show nonprofits what they can do to stay good apples and show donors what they need to demand in order to feel good about giving.

We talked about ethics in our last post – it’s quite the issue these day in the world of nonprofits. Tuesday’s topic du jour - fraud. 

A recent NYT piece outlined a report by the Certified Board of Fraud Examiners which estimated that the overall cost of fraud to nonprofits was at $40 billion for 2006, or some 13 percent of the roughly $300 billion given to charity that year.  The piece states that if in fact $40 billion was lost to fraud, then the corporations and foundations who gave in 2006 might have just as well burnt their benjamins – it was the same amount.

And we know this report lumps all the organizations together.  But does one bad apple spoil the bunch? In this case, maybe.  How do nonprofits expect donors to give when 13 percent of the donation ends up paying for some employee’s vacation or sports car?  Who do they know who to give to when the report tells us that almost all nonprofits encounter some fraud. The report also told us that ethics or no ethics, most givers don’t have very much faith in the way charitable organizations spend their money.

In the case of all this fraud, accountability might just hold us over. If we don’t have faith in these organizations, why don’t we question them? If we ask them measure their efforts and clearly show us the outcomes, and we like what we see, we might just take that leap and hand over the cash.  Rather than tattling, let’s be the bigger guy . Let’s show nonprofits what they can do to stay good apples and show donors what they need to demand in order to feel good about giving.

A somewhat disturbing study today out of the Ethics Resource Center that brings up a whole other topic of accountability in nonprofits.  We talk about making programs effective, using measurement and evaluation to really know what is going on in your organization.  But what happens when accountability is lacking in the people—not just the organization?

Along with government and business, the Ethics Resource Center has researched rates of observed misconduct at nonprofit organizations since 2000, and the most recent numbers are show the highest rates of misconduct in 2007 than in any other year.  Over half of respondents reporting that they have witnessed an act.  We need to say it again.  Over half.  The study also fond that nearly a quarter of respondents observed their co-workers putting their own interests above those of the organization.  Just over 20% reported observing managers or executives lying to employees.  When it comes to ethics, nonprofits are usually held in a better light than corporations and government.  However, these numbers put nonprofits in the same ballpark.

This study isn’t the only popping up lately showing holes in accountability.  As The Chronicle on Philanthropy points out, recent findings that nonprofits lack the ability to deter theft and fraud and that insider deals with boards are becoming more prevalent, are pointing out holes all over the place.

We talk about accountability in many forms.  But regardless of the form, accountability starts from the bottom up.  Its a shift in culture.  A new way of thinking.  And based on this study, a new way of acting.  

We’d be interested in hearing your thoughts.  Do this recent studies have you concerned for the future of organizations?