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Weekly Roundup: February 10

Shuey Fogel — Sun, 10 Feb 2013 23:33:19 +0000

Here are links to the articles I’ve reviewed and posted to Twitter recently. This week’s topics include: Jewish & Israel Sectors • NP Strategy • Funding, Budgeting & Impact • Philanthropy • Internet & Social Media • Boards • Op-Eds

As always, you can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey
@nonprofitbanker

JEWISH & ISRAEL SECTORS

NonProfitBanker: New post >> Future Trends in Israel’s Nonprofit Sector: A Review of the Top Headlines in 2012 ow.ly/1RCQF9

NonProfitBanker: The authors of this eJPhil post on Jewish innovation shouldn’t worry too much about funding ow.ly/1RX3Ao I’m the 3rd comment

NP STRATEGY

Exciting. NAFund is using profitability-impact matrix to improve upon their already gr8 work ow.ly/1RQpQz // can you use it too?

5 Things That an Eventful 2012 Taught Charities ow.ly/1RI8eo on Philanthropy via GTak

10 resolutions to bring your Social Venture to success ow.ly/1RZWcm via GTak

FUNDING, BUDGETING & IMPACT

Why Impact Sourcing is easier to implement than Impact Investing (Yes, there is a dif) ow.ly/hnBG4 by DaveBatstone on SSIReview

Bold statement >> Social Impact Investing Will Be the New Venture Capital ow.ly/1RXL4C on HarvardBiz via GTak

You realize how hard measuring impact is only after this article ow.ly/1RS9WT by andrew_zolli on SSIReview

The value of strategic financial leadership ow.ly/1RSGN9 on NAFund // sounds important enough that I might read it again

The funder’s mantra >> Those affected by a problem have to help define the solution ow.ly/1RVECZ from p2173

PHILANTHROPY

VERY important >> Philanthropy: Wealthy Young Donors Push Charities to Show Results ow.ly/1RFaeK via GailPerrync

Strategic philanthropy has a new name – Entrepreneurial Philanthropy – & 6 clear steps ow.ly/1RRrEX on SSIReview

A Case Study in Getting Nonprofit Fundraising Right ow.ly/1RSvbJ from nedgington

8 questions to make your philanthropy be more strategic ow.ly/1RHqwx via eJPhil

SOCIAL MEDIA & INTERNET

Thanx Fundraisinisfun I’m a Google+ Communities believer…almost. He makes a great argument ow.ly/1RTVD8

Can’t argue w/ the numbers >> 5 Reasons Why a Nonprofit Should Prioritize the Mobile Web NOW ow.ly/hqK6h by NonprofitOrgs

BOARDS

I’ve seen these ex w/ more than a few of my clients » Ethical Dilemmas connected w/ Nonprofit Boards ow.ly/1RX4dm on eJPhil

What 2 talk about at nonprofit board meetings? (hint: it should only be 1 thing) ow.ly/1S5SEP on npquarterly via GTak

OP-EDs

Liberating 990 Data ow.ly/1RSxrL on p2173 // amen to that!

Can the Circular Economy save our planet? (& produce nice revenues too?) blogs.hbr.org/cs/2013/01/is_… on HarvardBiz via katyaN4G

Future Trends in Israel’s Nonprofit Sector: A Review of the Top Headlines in 2012

Shuey Fogel — Tue, 29 Jan 2013 10:37:11 +0000

“We Must Look To The Past To Know The Future” – George Santayana

The headlines in 2012 were all about looking to the future.

While there were some stories with immediate consequences, the effects of most of the headlines will only rear their heads in 2013 (at the earliest). Change in the wind? Yes. On the ground, not so much.

So what’s in store for Israel’s global nonprofit sector? The following are nine of the top news stories of 2012 and their significance:

9. Charities Advocate for Israel’s Nonprofit Sector in the Upcoming Elections

The end of November saw Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] release a primer (Hebrew) on the contribution to Israel by its nonprofit sector.

The goal of the one-page summary was to educate citizens in the hopes that they would support candidates that expressed an interest in supporting, developing, and strengthening Israel’s voluntary sector.

While the effort didn’t seem to garner public support, it was defintely a step in the right direction and reminded me of the much more successful efforts in the United States.

This recent effort in Israel is very much in its infancy but with the election results showing that Israel is ready for a change, I’m very to interested to see if charities decide to band together and capitalize on it for the next elections.

8. Private-Philanthropy Database to be Initiated by the Statistic Bureau and Yad Hanadiv

While a Yearbook is great for organizational statistics (see below number 4), it does nothing to analyze those that are actually doing the giving, the donors. Thus enters Yad Hanadiv (The Rothchild Foundation) and Israel Statistics Bureau who announced in late October (Hebrew) about a joint project to establish a database of giving statistics.

Currently, the numbers are gleaned from a hodgepodge of places, including: automatic reports generated from incoming money from foreign sources; data submitted by the Tax Authority on private and business donations; and various surveys done by private and government bodies.

The new initiative will gather data from three primary sources: data submitted by the Tax Authority on private and business donations (a previous contributor); information transferred from Guidestar Israel (see below number 4); and a survey to be conducted on 300 sample charities. Building the database will take a year from when they first pieces of information will be transmitted (approximately towards the end of 2013).

The new initiative database will:

map donations from individuals and businesses, originating from both within and outside Israel
and will provide information on the sources, amounts, and destinations of the philanthropy received by Israeli charities.

It could be that the goal of this project is to mimic the Giving USA Report published yearly, whose vast data is used to “track reports of similar types of charity, train board members, assist in setting organizational strategy, identify funding gaps, and teach about current trends.”

With the continuous complaints about Israel’s lack of formal philanthropy, this is an important initiative indeed.

7. Acknowledgement that it’s Time to Explore New Organizational Structures for Charities

Two announcements from the Israeli government signaled that the powers-at-be are realizing that charities come in all different shapes and sizes; something that other countries have known for quite some time. (In America, the B Corporation and L3C legal entities are great examples.)

With traditional fundraising drying up, alternative funding sources and the entities that can support them are crucial.

In late November, The Third Sector Roundtable run by the Prime Minister’s Office expressed its support (Hebrew) for the creation of Socially-Minded Businesses in Israel. The directive will provide the basis necessary for legislation, regulations, and a the fiscal structure necessary for the success of such an entity. (Similar strides were recently made in the States when the IRS declared that social investments or PRI’s would be considered tax-deductible.)

This headline followed an earlier one in September that announced that the Israeli government had created an official Request for Information (RFI) on the establishment of a Social Entrepreneurship Fund.

As exciting as this sounds, with the recent Israeli elections and reports of overspending, deficit explosions, and subsequent looming budget cuts, all this great talk might be just that: talk.

6. Interior Ministry to Reward Local Authorities on Social Activities

Real change needs to come from within, despite the sometimes much-needed external push.

Misrad Hapnim (Israel’s Interior Ministry) announced (Hebrew) that they would give financial rewards to those Local Authorities that instituted social programs that meet eight predetermined criteria. Officials were quick to point out that type of programming they are looking for is attainable even for smaller and more cash-strapped local authorities and wouldn’t require infusions of large capital.

In addition to changes how local governments approach and prioritize social programming (hopefully), this announcement will hopefully galvanize charities into researching further ways to collaborate with the municipalities in which they operate.

Could this actually usher in a new era of government and charity collaboration? (And yes, I’m ever the optimist.)

5. Midot: Acting More Like a Regulator than a Social Cause

The Israeli nonprofit organization Midot made headlines a few times in 2012.

None more explosive than in September after its CEO in an interview with Haaretz / TheMarker, one of Israel’s leading business dailies, called the majority of Israel’s charities ineffective. The article was subsequently used to confirm the public’s worst fears in the countries’ nonprofits.

This story followed Midot’s pilot program with Israel’s Chashav Haklali (Hebrew) where Midot essentially served as the gatekeeper to the government’s coffers. A program that many feared would be misused by the government as an excuse to refuse allocation of grants.

Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] and the Hitarginut Hamankalim [The Organization of Nonprofit CEOs] banded together in September to issue a letter (Hebrew) defending against the claims of lack-of-effectiveness. The letter was followed by a call for Midot to act more like a “social cause and less like a regulator.”

In the past years, Midot has made inroads with big companies and Israel’s elite (in addition to the government as was demonstrated above), convincing them of the organization’s critical mission.

Recent headlines seem to suggest that the organization’s effectiveness is not universally accepted. Midot is at a fork-in-the-road and only time will tell which path they will choose and how Israel’s nonprofit sector will be affected accordingly.

4. Creation of Israel’s First Nonprofit Sector “Yearbook”

At the June Guidestar Israel conference, a “yearbook” (or Shnaton as its referred to in Hebrew) of Israel’s nonprofit sector was released.

Using the 12 internationally recognized nonprofit classifications (see pages 18-22), the report allows Israel to analyze its own sector, as well as, compare it to others around the globe. The hard numbers (many of which were unattainable until now) shed light on many important statistics and were used by one reporter to combat the myth that high salaries are prevalent among Israel’s charities.

The yearbook released in June was Israel’s first. Coming years will not only continue to deliver critical data but will provide the basis for trend-watching and true analysis.

More articles on the Yearbook can be found on NPTech’s (the organization that manages Guidestar Israel) site, here (Hebrew). Don’t miss this one either: Aren’t You Tired of Suspecting Charity CEO’s? (Hebrew)

3. Supreme Court Rules that Charities Need to Pay Tax on Land Sales

The city of Ashkelon sold 53 plots of land to private individuals. The city charged the individuals VAT (Value Added Tax) but didn’t transfer the VAT to the Tax Authority because it was granted a VAT exemption by the Tax Authority — as most Israeli charities do. Even though the exemption was granted to the municipality because of its “social” status, the Tax Authority claimed that the transaction was a commercial and not social, thus not included in the exemption.

In October, Israel’s Supreme Court ruled in favor of the Tax Authority (Hebrew), in essence ruling that all charities will need to pay VAT (currently 17%) when they sell property they own. Until then, it was a “Don’t Ask, Don’t Tell” policy that allowed those institutions that didn’t report tax they had collected as free from VAT payments to the Tax Authority.

In Israel, many organization received land from the government or from bequeaths — land that is not needed by the charity. Many have already sold portions of their property, while most still maintain this “extra” real-estate.

The multitude of charities and other exempt organizations affected will now have to take VAT into consideration and rethink their plans.

2. One Year for the Tax Authority to Rethink Tax-Deductible Eligibility

Many people, including myself, have complained about the lack-of-clarity facing charities that are seeking tax-deductible status in Israel, known as Se’if [Paragraph] 46.

In addition to the basic requirements associated with applying to become a Mosad Tziburi [Public Institution], the Minister of Treasury prepares a recommendation to a Knesset sub-committee that must approve the organization’s request. The problem, as Prof. Nissan Limor pointed out, is that applicants do not know beforehand what is exactly required of them. Furthermore, Limor notes that the procedures are gathered as guidelines that have not been incorporated into any legislation.

In August, Israel’s Supreme Court ruled (Hebrew) that the Treasury has one year in which to formulate clear criteria for receiving Se’if 46.

According to Guidestar’s Yearbook released in June of this year, only 12% (4,280 out of 34,398) of charities have tax-deductible status.

It is hopeful that new, clearer guidelines will both encourage more charities to apply for tax-deductible status and give those organizations struggling to get an approval the boost they need to finally be granted their well-deserved eligibility.

1. Corporations Authority Releases for First Time Instructions for Business Activities by Nonprofits

The world of nonprofit financing has been changing for a while, especially after the global economic. However, regulations here in Israel haven’t been keeping pace. Actually, they’re trailing far behind.

But maybe not anymore?

A funding method making headlines in recent years is business related income generated by the nonprofit itself, as opposed to strict reliance on donations.

Maybe saving the best for last, Israel’s Corporations Authority (CA), which governs the Registrar of Charities, released in November (Hebrew) for the first time instructions for “business” activities by charities. The guideline’s four sections cover:

How decisions should be reached
Relevant considerations concerning business activities
Collaboration with other nonprofit or for-profit entities
Restrictions of business activity

While not perfect, the guidelines are a work in progress. More importantly, they are signal that the regulators are realizing that charities are multifaceted, complex, economic organisms and not simply operational sub-contractors.

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I’ve got high hopes for 2013. Looking forward to joining everyone for the ride.

What were your impressions? Which headline will reverberate the most for years to come? Can you suggest a headline that wasn’t included in the list?

Tizku Lemitzvot,

Shuey

Thank you to the team at Zavit Hashlishit (@zavit3) headed by Eilat Navon that supplies me (and most of Israel) with the latest news affecting Israel’s nonprofit sector. This list wouldn’t be possible without their hard work.

Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

9 Steps to Recovering from a 30% Deficit

Shuey Fogel — Thu, 29 Nov 2012 09:54:05 +0000

The following is a “nice” story. An example of a charity’s CEO showing fiscal responsibility and financial leadership. It is the kind of story we all-to-often don’t hear about as the media chooses to focus more on misleading reports about the lack of financial know-how in nonprofit organizations rather than on organizations that “get it.”

Recently, I had the pleasure of getting together with the aforementioned strategic CEO for coffee.

Two year ago, this female colleague applied for an Executive Director (ED) position at a particular charity knowing that the organization was facing a 500 thousand shekel (approximately $130 thousand) deficit. After about nine months on the job, the nonprofit was back on track and on the road to a surplus for the following year.

What was this ED’s technique and how could other nonprofits benefit from her experience?

To put things in perspective, the organization’s budget was 1.5m shekel or $385k. This means that the impending deficit stood at approximately 30% of the charity’s budget. Yikes.

This ED’s financial challenge was twofold:

Entering the position at the beginning of the fourth quarter, she first had to make sure the organization finished the year without a deficit.
In the slightly longer term, she needed to return the charity to sustainability.

I asked this ED to delineate on some of the key decisions that helped get the organization back on track and that might be of assistance to nonprofits facing a similar budget crisis:

1) A Deficit Isn’t a Temporary Problem

Credit of any sort is only a band-aid that doesn’t address the source of the budget problem. Budget problems require budget solutions – expenditures must be adjusted for reduced income. Even meeting next year’s budget does not solve a current year’s cash crunch. Expenses need to be cut, even if only temporarily.

2) Cutting Staff is Sometimes the Hardest but Quickest Solution

There was no avoiding the fact that more than a third of the 1.5m shekel budget was comprised of salaries. With only four months left until the end of the fiscal year and facing a 500k shekel deficit, drastic action was required. The quickest way to address the organization’s insolvency problem was to reduce the staff, which it did,shrinking to a staff of two from a staff of five. The hope was that the reduction would be temporary until the charity once again stabilized the budget.

3) Get the Board on Board

The director was quite explicit that she couldn’t have pulled off the recovery by herself; the board of director’s support was critical. The board was very aware of the precarious financial state of the charity and was looking for a CEO that was just as self-aware, willing to make the hard choices. The board then supported the director 100% during the recovery period.

4) Be Patient When Re-Hiring Staff

The director made the decision to rehire back the staff to their original jobs only after (1) all debts were covered (2) funds for the reinstated budget were promised and (3) there were no cashflow problems in the horizon. (And in case you’re wondering, it has been seven months since the re-hiring and there have been no additional cashflow glitches.)

5) Government Grants Might Be Good for the Budget but are Bad for Cashflow

As of my coffee conversation, this charity had yet to accept any government grants. While secure in their funding (when an organization is accepted, of course), Israeli government grants arrive only after expenditures have been made and can wreak havoc for cashflow (see previous post, Israeli Government Grants: The Broken Promised Land). The CEO made the decision that having a more stable cashflow was better than extra padding for the budget. A serious consideration for charities with budgets below the 2 million shekel mark.

6) Understand the Benefits and Limitations of Funding Sources

To prevent future budget and cashflow problems, this director rethought the organization’s funding sources. Specifically, in the future to rely more on smaller local (Israeli) funders and less on restricted funds. While this approach diversified the sheer number of donors, making the organization less in danger should a supporter choose to pull out, the fundraising process was more labor intensive. On the other hand, a more local approach allowed the organization to consider — and secure — in-kind donations, a source that had yet to be utilized. It should be noted that the charity is a grassroots organization and this local-donor-approach appealed very much to its inherent character.

7) Prestige Can be Just as Important as Cash

The organization didn’t drop foreign grants altogether. It was more strategic about whom it approached and secured a very well-known foundation grant. More important that the money was the prestige associated with getting a grant from this particular foundation. Simply receiving the grant opened doors with local foundations. For this charity it was a double-win (money and connections) that made the pursuit of this foreign grant worth the effort.

While the next two items weren’t used to help this organization climb out of the hole, the director did tell me that these tips are critical to helping the charity stay on-track:

8) Create Two Budgets

Hope for the best but plan for the worst, or more accurately, the less-than-best. The first plan reflects a fully funded budget and the full execution of the nonprofit’s activities. The second plan reflects more modest expenditure should promised funds not materialize. Essentially, this director was putting into practice what the Nonprofit Assistance Fund refers to as a Rolling Financial Projection (Paragraph 1.2).

9) Prepare Early

At the time of this meeting in early November, this CEO had more than 70% of the following year’s budget promised. While this is a tad early, this is certainly the right thinking. No organization wants to be caught fundraising to cover the current year’s expenses, ideally not past the first quarter and most definitely not passed the second quarter. Otherwise, the charity is forced to focus on immediate needs and incapable of developing a more long-term financial strategy.

While there is certainly no one-size-fits-all solution for financial management, these tips certainly strike me as a skeleton key capable of opening most doors.

Tizku Lemitzvot,

Shuey

Photo courtesy of OneCog2Many (Flickr)

USA State Solicitation Regulations Are Fierce & Far Reaching

Shuey Fogel — Wed, 03 Oct 2012 10:13:35 +0000

With such as significant portion of donations to Israel’s charities coming from the United States, changes in American legislation can have a profound impact on Israeli nonprofit organizations.

For this reason, I was excited to co-host (along with Charlie Kalech of J-Town Productions) Laura Solomon, an attorney based in Philadelphia who specializes in nonprofits. Laura was a powerhouse, leaving me and the other attendees racing to take notes fast enough.

Most revealing was what Ms. Solomon had to say about individual States’ severe rules governing fundraising registration, specifically the broad definition of those required to register and the consequences of failing to do so.

Below are my notes from the event. Please remember that many of the things mentioned only scratch the surface and proper council should be consulted before acting on anything.

BACKGROUND TO U.S.A. STATE SOLICITATION REQUIREMENTS

Nonprofits are subservient to two forms of regulations, Federal and State. While the focus since 9/11 has been more on the Federal level – Patriot Act, Sarbones-Oxley 990 changes, etc – recent rulings in the State level are forcing charities to pay close attention to the additional guidelines (and penalties) emanating from this sphere, as well.

Federal law regulates how organizations use and report funds. In contrast, State law regulates how funds are raised, which States call Solicitation (and what us normal folk call Fundraising).

As far as States are concerned, Solicitation is anything that leads to a request for a donation or collects data. And yes, organizations are held accountable to this broad definition. Any solicitation requires registration & annual reporting in the State where the nonprofit is soliciting donors. (Though Laura estimates that only 20% of charities register with the State where they solicit.)

The recent push is a result of the tremendous pressure that States are under – even more than the Federal government – to shrink their vast deficits. Within the States, it is most often than not the Attorney Generals who are spearheading the efforts to examine tax exemptions and compliance by nonprofit organizations.

FILING REQUIREMENTS

40 out of 51 states, including Washington D.C., regulate solicitation of charitable funds.

Laura stressed that the filing requirements can be quite tricky. Unfortunately, there is no master registration form that applies to all 51 jurisdictions. However, there are instruments that try to ease filing requirements. The Unified Registration Statement (URS) claims to offer one form for 37 participating States. Though, the site notes that even participating States may require supplemental forms.

Ms. Solomon stressed that it is best to ensure that the in-house employee or external firm tasked with organizing the solicitation registration have a propensity for detail, with a law degree being very helpful if not critical.

WHO NEEDS TO REGISTER?

An important point to remember is that even if the charity is using a fiscal agent (a.k.a. intermediary) the benefiting charity still needs to register at the State level. The exception to this would be when a fiscal agent or fiscal sponsor lists the benefiting project in its own filings with the State. In such a case, it could be possible that the benefiting charity would then be exempt from submitting its own paperwork.

Along the same lines, independent solicitors (individuals or companies) that are hired by a nonprofit to fundraise must also register. Failure to do so will affect the recipient charity.

In contrast, grassroots volunteers or community-based (unpaid) “fundraisers” do not have to register. However, charities are ultimately responsible for the conduct of the volunteers and must register if volunteers are collecting donations on behalf of the organization. Laura suggested that charities should have a written agreement with their volunteers to create a paper-trail that can prove or deny any official connection / responsibility between the volunteer and the nonprofit.

Most relevant for Israeli charities is the need for foreign nonprofits to register, as well. Much like a fiscal agent, it is also possible that a “Friends of” organization in the States can list it’s Israeli nonprofit as a benefiting charity, thus, enabling them to avoid registration. Again, please consult with legal counsel to determine if and how this can be done.

CONSEQUENCES OF FAILING TO REGISTER

The fines for noncompliance are pretty steep, with 5 to 10 thousand dollars being the norm. It could very well be that the decision whether or not to register in a particular State might just boil down to simple math: $125 to register vs. $5,000 if fined. But of course, the ultimate decision resides with the charity and its licensed advisers.

Non-registration can have operational side-effects, as well. Laura reported that foundations are starting to require proof of registration when potential recipients apply for grants.

POINTS OF INTEREST

Most States prohibit fundraisers from receiving a percentage of the money they raise.
Merely having a website might not be considered Solicitation. However, a “donate” button can change this perception.
While slightly out of date, the Charleston Principles listed on NASCONET.org, provides a great working definition of Solicitation.

Do you have experience with State solicitation that you think others can learn from?

Tizku Lemitzvot,

Shuey

Photo Credit: “Paperwork” by Curtis Gregory Perry (Flickr)