TWEETS OF THE WEEK

Nonprofit Tweets of the Week – October 31, 2014

Baseball over black background, horizontal shot

This week: the San Francisco Giants won the World Series and Madison Bumgarner cemented his legendary status. Have a listen to Steve Perry lead the Giants’ crowd singing Don’t Stop Believing while perusing our curated nonprofit tweets of the week:

  • Pro Publica: .@ProPublica & @NPR investigate: How @RedCross botched #Sandy, put PR over people. http://propub.ca/RedCrossDisaster  Watch: http://youtu.be/WYBhkH9H7lg [Ed. Also see the American Red Cross' response here.]
  • Rick Cohen: LIVE BLOG: Exponent Philanthropy Conference – on opening plenary: Michael Smith‘s of My Brother’s Keeper #Exponent14 NPQ
  • Pete Manzo: Philanthropy vs charity – false dichotomy, good history and context by Benjamin Soskis in Chronicle of Philanthropy http://buff.ly/1svRqDv
  • Diana Aviv: Latest from our friends at @urbaninstitute: #Nonprofits are worth nearly $900B to the U.S. economy, 5.4% of GDP! http://ow.ly/Dw0pq
  • Erin Bradrick: I volunteer with nonprofits and I vote! @CalNonprofits #npstrong
  • Emily Chan: Public Charities in an Election Year – a list of do’s & don’ts on some common issues: Nonprofit Law Matters
  • BBC Capital: New to a board? Do this first http://bbc.in/1nKnzvC #CorpGov @LucyMarcus
  • Gene: Dysfunctional Levels in Nonprofit Boards & Organizations. http://wp.me/pz57p-Ur via @EugeneFram
  • Ellis Carter: Tips for Nonprofit Employers Outsourcing Payroll Duties Charity Lawyer Blog #nonprofits
  • Chronicle of Philanthropy: Opinion: Donor-advised funds are a boon to savvy charities http://ow.ly/DsQzj
  • Chronicle of Philanthropy: Opinion: Donor-advised funds let wall street steer charitable donations http://ow.ly/DsQRv
  • RWJF Commission: ‘Social Impact Bonds’ Tap Private Money for Public Health http://bit.ly/1tirXBj  #SIBs
  • Michelle Baker: Is being a ‘good’ business good for business? http://bit.ly/ZU5QXt #Bcorp
EVENTS

Nonprofit Radio: Halloween Edition

Halloween children

I’m discussing Scary Scenarios for nonprofits with host Tony Martignetti on Nonprofit Radio this Friday, October 31, at 10 am PT / 1 pm ET. We hope you’ll join us as we talk about employee lawsuits, IRS Audits, excess benefit transaction penalties, and more!

nonprofit radio

Red Flag Story: see if you can spot the potential problems …

Sara was on her way to a nonprofit board meeting when she ran out of gas on a dimly lit road. She was still 10 miles away from her destination without a building in sight. And she forgot her phone at home. The meeting would be starting in an hour and there appeared no way for her to make it in time.

 

Steadying her breath, Sara assessed the situation. It would be foolish to walk. But there were no other cars on the road, and she really had to get to that meeting.

 

The board was going to vote on a proposed contract with Sara to provide management services, as an independent contractor, operating the nonprofit’s newly launched social enterprise program, a bar whose profits would be used to fund the nonprofit’s charitable programs. A few days earlier, the board appeared to be split on the decision. Those in favor of the deal cited Sara’s experience and social network. Those against the deal cited the conflict of interest because of Sara’s position as a board member. With the other board members divided 50:50 on approval of the contract, Sara’s would be the determining vote.

 

Sara’s proposal involved her working full-time as manager of the new bar. She would be paid $10,000 per month, which was comparable to her pay as manager of one of the swankiest hotel bars in the city. In return, she would offer her services and provide to the organization the hotel bar’s contact list, which the nonprofit could use to solicit business.

 

As the meeting time approached, Sara powered on her laptop hoping for a wifi signal. Surprisingly, she found one, allowing her to send an email to the board chair stating that she was voting in favor of the contract.

 

Shortly after the meeting was over, Sara was informed by reply email that the contract was approved with 4 votes in favor (including Sara’s) and 3 against, with 3 absentee directors not voting. The next day, Sara rewarded herself with a new car.

Read on for a list of the potential problems … (more…)

EVENTS

Highlights from the Stronger Together Conference

StrongerTogetherFINALWeb

On Friday, I had the privilege of attending the Stronger Together conference, organized by Nonprofits Insurance Alliance Group (NIAC), CompassPoint, and CalNonprofits. The sessions aimed to empower nonprofit leaders, with topics such as the overhead challenge, the economics of the nonprofit sector, legal issues for nonprofits, and other ideas for innovation and collaboration within the nonprofit community.

Here are some highlights from the sessions I attended:

  • Morning Program- Jeanne Bell of CompassPoint noted her frustration with the notion that it is weak for charities to depend on philanthropy. Rather, the relationship should be viewed as symbiotic and mutually reinforcing, as private foundations are obligated to make distributions of their funds, while charities are charged with dispensing those funds through programs and services to communities.
  • Nonprofit Overhead Challenge (Hydeh Ghaffari, Ann Goggins Gregory, Jan Masaoka)- Understanding each organization’s true costs is essential to determining the proper amount of overhead—one size does not fit all. Action should be taken to discern what overhead expenses actually are, to change the dialogue, and to stop relying on charity ratings.
  • Economic Look at California’s Nonprofit Sector (Jan Masaoka)- Nonprofits account for 15% of California’s GSP, generate $208 billion in annual revenue, and make up the 4th largest industry by employment. Of those surveyed in the Causes Count: The Economic Power of California’s Nonprofit Sector Report, 73% of nonprofits met with public officials or staff, and 53% testified to a government body, indicating the force of nonprofits as policy advocates.
  • Legal Issues for Nonprofits Changing the World (Rosemary Fei and Nayantara Mehta)- While private foundations may not engage in lobbying, a private foundation may make a general support grant to a charity that engages in lobbying, or a project specific grant, as long as the grant is not earmarked for lobbying. (See Analyzing Activities: Is it Lobbying?). Additionally, on the topic of fiscal sponsorship and lobbying, a Model A sponsor’s lobbying limit (either the Substantial Part Test or the 501(h) Expenditure Test) applies to all projects the sponsor houses. Although some sponsors authorize specific and equal lobbying amounts for each project, others may negotiate with advocacy projects for larger lobbying budgets that would not be permitted if the project was independent.

 

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – October 24, 2014

Global Peace

Erin and I were in Burbank yesterday to to talk governance at a foundation’s board retreat. Have a listen to Amy Adams sing Happy Working Song while perusing our curated nonprofit tweets of the week:

FISCAL SPONSORSHIP

National Network of Fiscal Sponsors – Hot Topic Call: Legal

dog on the phone

Yesterday, I had the pleasure of hosting a Hot Topic Call on legal issues for the National Network of Fiscal Sponsors. If you’re interested in viewing the accompanying slide deck, you can download it by clicking Hot Topics in Comprehensive Fiscal Sponsorship (pdf).

Preview:

The focus of the call was on comprehensive fiscal sponsorship (also referred to as Model A) and it covered intake, exits, and the existence of a separate entity operated by a project’s leaders. The call also touched on a new model of fiscal sponsorship involving a single member LLC owned by a fiscal sponsor (also referred to as Model L).

In a comprehensive fiscal sponsorship, generally, the fiscal sponsor owns the project and the sponsor is responsible for any project liabilities (including any that the sponsor was unaware of until the project leaders disappeared). Additionally, the sponsor is responsible for how the project fundraises and raises earned revenues. Sufficient due diligence must be exercised at the front end to help assure that the project will further the sponsor’s exempt purpose and not jeopardize the sponsor’s overall operations. And, as an internal project, the sponsor must exercise reasonable oversight over it (e.g., regular financials and program reports prepared by the project leaders at least annually but possibly more often, and combined with site visits and interviews, depending on the circumstances).

Sponsors must be absolutely clear themselves on what comprehensive fiscal sponsorship is if they expect the project leaders to understand it. Sponsors must be particularly careful of marketing too aggressively by promising not to interfere with management of the project; sponsors may have to interfere if there’s a compliance problem.

Resources:

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – October 17, 2014

2014-10-14 14.05.00

My week started in Houston speaking at the Grantmakers in the Arts Conference and visiting the awesome dinosaur exhibit at the Museum of Natural Sciences. Have a listen to Was (Not Was)’s Walk the Dinosaur while perusing our curated nonprofit tweets of the week:

  • CompassPoint: What’s your “problem?” Moving past mission statements to a deeper #nonprofit strategy: http://ow.ly/CRUza
  • Foundation Center – San Francisco: Need $$$ for your #arts program or organization? Fiscal sponsorship may be right for you. Find out 10/20 http://ow.ly/CLkst [Ed. I’m looking forward to being on the panel!]
  • Independent Sector: “Why pit charity against strategic philanthropy & systems change? Let’s meld them into a force for good.” — @Diaviv http://ow.ly/CJNiX
  • Sandra Feinsmith: 20% of Grant Makers Pay Trustee Fees, Study Finds http://shar.es/1mtj2e via @Philanthropy
  • Debra Beck: Lurking, learning w/@BoardSource Leadership Forum backchannel. A few favorite tweets from yesterday http://bit.ly/1vWsJ9l #blf2014
  • Debra Beck: Board Leadership Forum: Favorite insights, highlights from day 2 http://bit.ly/1xCXgbi #blf2014
  • Council of Nonprofits: Good Qs for all board members to bring w/ them into the board room, courtesy of @nhnonprofits http://buff.ly/1xSw3S4
  • Nonprofit Quarterly: A scary trend of gov’ts isolating #civilsociety from international #donors & advocacy networks is gaining momentum http://hubs.ly/y0ddPs0
  • TIME: Malala Yousafzai: Survivor, activist, Nobel Peace Prize winner. http://ti.me/1nfNc7g
  • Fast Company Co-Exist: Has microfinance lost its mission? http://f-st.co/m8cHyd9
  • McKinsey on Society: “Case studies, global surveys, + reports offer proof that using business as a force for good is good for business” http://ow.ly/Cwcjv
FISCAL SPONSORSHIP   PRIVATE FOUNDATIONS / PHILANTHROPY

Fiscal Sponsorship: A Valuable Option for Grantmakers and Grantees

 Houston

Yesterday, I had the honor of participating on a panel discussing fiscal sponsorship at the 2014 Grantmakers in the Arts 2014 Conference in Houston. Frances Phillips (Walter and Elise Haas Fund), Melanie Beene (consultant, former CEO of Community Initiatives), and Ian David Moss (Fractured Atlas) were my co-panelists, and we were joined by a very vocal group of attendees who made the session one of my favorites. The following post is from a handout we distributed at the session.

Fiscal sponsorship describes a number of varying contractual relationships that have through custom and practice developed between “sponsors” and “projects,” making it possible for charitable projects to receive grants and deductible contributions without having their own 501(c)(3) status. These relationships can help facilitate grantmakers’ support of worthy arts projects that are not suited for independent legal existence as public charities. But the health of the sponsor and the structure of the fiscal sponsorship agreement are critical to ensuring that your grants are made appropriately and in compliance with applicable laws.

Most common forms of fiscal sponsorship

The two most common models of fiscal sponsorship are referred to as comprehensive (Model A) and the pre-approved grant relationship (Model C). The National Network of Fiscal Sponsors (NNFS) provides the following definitions:

Comprehensive

In a Comprehensive Fiscal Sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor, and is a fully integrated part of the fiscal sponsor that maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities. This model of fiscal sponsorship is particularly valuable when a project has employees.

Pre-approved Grant Relationship

In a Pre-Approved Grant Relationship Sponsorship, the fiscally-sponsored project does not become a program belonging to the sponsor, but is a separate entity responsible for managing its own tax reporting and liability issues. In addition, the sponsor does not necessarily maintain ownership of any part of the results of the project’s work—ownership rights may be addressed in the fiscal sponsor agreement and could potentially result in some form of joint ownership. The sponsor simply assures that the project will use the grant funds received to accomplish the ends described in the grant proposal. This is the model of fiscal sponsorship primarily utilized in the arts.

 
Model A
Model C
Project is housed in sponsorYesNo
Project is housed in separate legal entityNoYes
Project employeesEmployees of the sponsorEmployees of the project (sub-grantee)
SolicitationsBy agents of the sponsorBy agents of the sponsor
GrantsTo sponsor for purposes of the project (housed in sponsor)To sponsor for purposes of the project; sponsor may, but is not required to, regrant to project (sub-grantee)

An alternative to forming an independent charity

Having a charitable project fiscally sponsored by a sound and reputable fiscal sponsor may be an attractive alternative to starting a nonprofit, especially when:

  • An idea is being tested or incubated.
  • The project involves the work(s) of a single artist or collaborative group.
  • The project leaders are inexperienced or otherwise not well prepared to manage the administrative needs of a charity.
  • The project and/or funding is time sensitive.

Tips and traps for grantmakers

Tips

  • Carefully vet the fiscal sponsor (your grantee), not just the project leaders.
  • Check the fiscal sponsor’s articles/bylaws (consistency with grant purposes).
  • Check the fiscal sponsor’s financials (e.g., negative unrestricted net assets).
  • Review the fiscal sponsorship agreement (variance powers in Model C).

Traps

  • Directing a grant to the project in a Model C fiscal sponsorship.
  • Sending grants to Model A project leaders instead of the fiscal sponsor.
  • Granting to a fiscal sponsor that acts as a mere conduit to another entity.
  • Placing too much weight on overhead (incl. fiscal sponsorship fees).
TWEETS OF THE WEEK

Nonprofit Tweets of the Week – October 10, 2014

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Congratulations to the Nichi Bei Foundation (publisher of the Nichi Bei Times) on its Fifth Anniversary! And many thanks to the board and staff for honoring me with the Fukkatsu (Resurrection) Award. I’ll be in Houston on Monday speaking at the Grantmakers in the Arts Conference. Have a listen to Tighten Up by Archie Bell & the Drells while perusing our curated nonprofit tweets of the week:

  • Gene: Don’t Just Sit on a Board: Stand for Your Mission … @BoardSource @AFJBeBold @buildnpcapacity #BLF14 #advocacy
  • Emily Davis Consulting: Create agenda that inspire critical thinking from board members. #BLF2014
  • Jan Masaoka: CalNonprofits Takes Stands on November Props
  • Rob Reich: Fantastic @raymadoff op-ed in @nytimes: increase foundation payout, pay smaller excise tax. NY Times
  • Foundation Center – SF: Ever wondered about #fiscalsponsorship? We’ve got the inside scoop, from all angles http://bit.ly/1qOHQQb [Ed. I’ll be on the panel - October 20, 1 - 2:30 pm]
  • For Purpose Law: Admit it. You’ve done it. http://bit.ly/1qil7am – “Breach of Fiduciary Duty by Ogling the Doughnuts”
  • Bridgespan Group: If you’d like a copy of today’s #mergers & #collaboration presentation #BLF14, find it here: http://bit.ly/1xud3Jz
  • Olive Grove Consulting: When do #nonprofit mergers work? Scott Schaffer from Public Interest Management Group weighs in. PIMG Consulting
  • Gene: Risks in making foundation grants to organizations awaiting their tax exemption Lexology
FISCAL SPONSORSHIP

Fiscal Sponsor Due Diligence

Due Diligence

Fiscal sponsorship describes a relationship between an individual or group who have initiated a charitable project, and an existing tax-exempt organization that has agreed to support said project. In the most common form of fiscal sponsorship, “Model A” or comprehensive fiscal sponsorship, the sponsor brings the project in-house. The project has no separate legal existence and, instead, is owned and operated by the sponsor. The sponsor is vested with control and administration of the project, and project staff are employees or volunteers of the sponsor.

All of the assets of the Model A project are the sponsor’s assets, and, conversely, all of the liabilities associated with the project are the sponsor’s liabilities. Accordingly, the sponsor may be held liable for the actions of a project employee acting within the scope of his or her employment. Similarly, the sponsor may be held responsible to the extent that the project has engaged in any unlawful conduct such as infringing a copyright or violating a restriction described in Section 501(c)(3) of the Internal Revenue Code (IRC). Thus, fiscal sponsors should be careful to ensure that each project is legally compliant and financially viable throughout the relationship.

The following are a few ways a fiscal sponsor can exercise due diligence before and after entering into a Model A fiscal sponsorship relationship:

  • Mission Alignment- A fiscal sponsor’s initial consideration in taking on a project is whether that project’s mission is consistent with the sponsor’s own exempt purposes. As a tax-exempt 501(c)(3) organization, the fiscal sponsor must be operated primarily for a stated charitable purpose. If the project’s activities stray away from the sponsor’s stated purpose, the sponsor may be acting beyond its power and authority (ultra vires). Sponsors should be thorough in questioning the project’s mission, leadership, and planned activities to properly assess whether the two missions are, and will remain, aligned.
  • 501(c)(3) Restrictions and Limitations- While the project is housed within the fiscal sponsor, any project activities are activities of the sponsor. Therefore, the project is subject to the same 501(c)(3) rules and restrictions as its sponsor. A sponsor should vet the project’s leaders to have comfort that they will not engage in any prohibited or restricted activities such as electioneering or substantial lobbying, and will not enter into any transactions that violate the private benefit and private inurement A sponsor should consider providing training materials to project personnel at the beginning of their relationship and periodically (e.g., annually) thereafter.
  • Minimum Level of Engagement- The level of engagement between a sponsor and a project may vary from case to case. However, at a minimum, the sponsor must retain control and discretion of the use of funds, maintain records demonstrating that the funds were used for 501(c)(3) exempt purposes, and limit distributions to projects that further the sponsor’s exempt purposes. (See Rul. 68-489, 1968-2 C.B. 210). A fiscal sponsor that fails to meet these requirements could have its tax exemption revoked. Thus, sponsors should take and keep accurate records of all sponsorship activities, question any compliance issues, and intervene when necessary.
  • Sufficient Resources- Fiscal sponsor should examine whether each project is viable with respect to financial, human, and other resources. Fiscal sponsors generally charge a fee to a project based on a percentage of project revenues. However, such fees may be insufficient for the sponsor to recoup all the costs associated with sponsoring a project that is having trouble generating income or engaging in activities that significantly drain a sponsor’s time, energy, and finances. Since fiscal sponsors assume liability for each project, they should be prepared to lay off employees and terminate inactive or waning projects if future funding and viability is in doubt.
  • Fundraising- Commonly, a project’s personnel takes the lead in soliciting donations and grants. Any project employee or volunteer making representations in this fundraising role should be doing so as an agent of the sponsor. Fiscal sponsors should take steps to assure that such representations are accurate, including training project personnel to avoid any misrepresentations of the project as a separate legal entity. Although all funds raised are the property of the sponsor, the sponsor could be restricted on how to use or distribute those funds because of charitable trust principles. Sponsors should ensure that project personnel are in compliance with fundraising laws and internal policies, and that they are properly documenting any restrictions they have agreed upon or created, by nature of a solicitation (e.g., capital campaign).

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – October 3, 2014

Huntington

I returned from a week in Southern California where I enjoyed the work of several nonprofits, including the San Diego Zoo (Safari Park), the Huntington (Botanical Gardens), and Lamb’s Players Theatre (Les Miserables). Have a listen to Albert Hammond‘s It Never Rains in Southern California while perusing our curated nonprofit tweets of the week:

  • Tony Martignetti: What’s next for the @alsassociation after the #IceBucketChallenge? Join #NonprofitRadio 10/3 for a Google+ HOA
  • Stanford Social Innovation Review: #Feminism in the mainstream @ClintonGlobal and the #SocialGood summit http://ow.ly/C8cqq @CauseGlobal
  • Gene: Will the Council on Foundations Be a Change Agent or Just a Trade Group? Chronicle of Philanthropy #philanthropy
  • Rick Cohen: Politico’s Lois Lerner Interview Misses the Really Important Issues – #IRS @Politico @IRSnews Nonprofit Quarterly
  • Sandra Feinsmith: Invent A Church, Skip Taxes, Enrage IRS, Go To Jail  via Forbes
  • Gail Perry: Important! What’s the Math? 3 Questions Your Board Members Really Need to Know http://ow.ly/BCJdM
  • Council of Nonprofits: #nonprofit advisory boards vs governing boards: a distinction w/a difference http://buff.ly/1nGf19m
  • Nonprofit Law News: Perspectives – Trends and topics in not-for-profit management – September 2014 http://bit.ly/1vye3vY | by @beneschlaw #nonprofit #law
  • Foundation Center – SF: Is #fiscalsponsorship right for you, your #nonprofit, your #arts collaboration? We’ll help you decide http://ow.ly/CdVDD
  • Gene: Jessica Alba and the Impact of Social Enterprise http://bit.ly/1nA6yo8 @SSIReview
  • Emily Chan: California’s flexible purpose corporation renamed the social purpose corporation + other changes signed into law: http://bit.ly/CASB1301