Two recent articles by Stephen Donshik have crystallized why board members need to stay objective.

1. Bylaws sometimes allow for board members to receive remuneration for attending meetings.  Payments of any amount, however, erase the status of “volunteer,” essentially, destroying what the organization was hoping to achieve when it recruited this individual.  
2. Additionally, a board member can potentially win contracts from the organization in which he serves. However, this person is then tasked with critiquing his own work, a near-impossibility.

Even with the best of intentions, losing objectivity weakens the board’s ability to accomplish its primary task of governance.

Tizku Lemitzvot,

Shuey

EXPRESSDEPOSIT’s are a new feature to the site, offering 100 WORDS OR LESS on funding, finance, trends, and best practices relating to Israel’s global nonprofit sector.

Photo courtesy of Huskyte77 (Flickr)

The word fashla is Hebrew colloquial for “screw-up”. And yes, even your accountant, an Israeli charity’s best friend, can make a few.

As a banker I see this particular slip-up more often than you think. Here are two ways to avoid your accountant inadvertently putting your organization’s bank account in the red. 

PRELUDE

In Israel, the accountant fulfills a crucial role for the amutah [Israeli Charity].

It is your accountant who will point out pitfalls to avoid and best-practices to follow. Assuming you follow your accountant’s advice, s/he will defend your tax-deductible status from less-than-cooperative regulatory bodies. Additionally, many accounting firms also offer bookkeeping services, making them a one-stop-shop for all a charity’s needs.

For these reasons and more, many nonprofits in Israel will leave with their accountant a signed check book so that the s/he can pay relevant bills without having to “bother” the nonprofit.

While efficient in theory — and assuming that an organization is aware of the risks and has obtained the agreement of all relevant stakeholders — there needs to be some ground rules before deciding to put this plan into action.

1. NOTIFY THE NONPROFIT BEFORE ANY PAYMENT

Generally, the accountant’s checkbook is used for payments to Mas Hachnasah [Tax Authority] and/or Bituach Leumi [National Insurance - think Social Security], payments that potentially differ each month and whose computations are done by the accountant. The idea is to take out the middle man — the organization — and just have the accountant pay the relevant government bodies directly. Like I said, efficient.

It can happen that a nonprofit will forget to incorporate the accountant’s checkbook into its cashflow management. The age old saying of “Out of sight, out of mind” comes to mind (no pun intended) when thinking of this scenario.

Letting an organization know of any upcoming payments can avoid these “unexpected” withdrawals. Government payments, in particular, are generally not a last-minute item and can be planned in advance. It probably isn’t a bad idea to have a working agreement regarding minimum “notify” times.

2. TO THINE OWN SELF BE TRUE

The other instance where accountants tend to write their own check is when they…[wait for it]…pay themselves.

Yep.

Similar to the government agencies above, monthly payments to the accountant are not always the same. Additionally, there is the added benefit of convenience for the accountant; after all, the checks are already signed and sitting in his office.

This scenario mimics the first in terms of “Out of sight, out of mind” but has the additional element of Conflict of Interest.

While I wouldn’t say that an accountant who writes him or herself a check without first notifying the client has immediately crossed any red lines, it might be indicative that this s/he isn’t a stickler for details — and a propensity for details is severely required by an accountant.

In addition to a general Conflict of Interest policy for the nonprofit, there should be an prearranged agreement of which beneficiaries will be paid from the accountant’s checkbook and which will be paid from the organization’s checkbook.

CONCLUSION

The ultimate fiscal responsibility lies with the organization. At the same time, accountants are too important to Israeli charities for there to be doubts or misgivings.

The relationship between accountant/bookkeeper and nonprofit organization is as much about expertise as it is about personalities. If these fashlas happen more than just a few times it might be a sign that this accountant is not a good match for the organization (or vice versa).

Tizku Lemitzvot,

Shuey

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.

Photo Credit: “Empty Pockets” by Dan Moyle (Flickr)

As was mentioned in my previous post, Israel’s OFFLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 1), the June 26th Conference Organized by Guidestar Israel tantalized the attendants with many planned improvements within the government offices tasked with overseeing Isael’s nonprofit sector.

Even more monumental, though, are the changes that are taking place online.  Here we are seeing not only an upgrade in software, but in approach and analysis as well, whose rippling effects will be felt far beyond Israel’s shores.   

AN ONLINE TOOL FOR ISRAELI CHARITIES

Avi Shapira, CEO of NP Tech, the Public Benefit Company that develops and oversees Guidestar Israel and Techsoup Israel, stressed that his organization is aware of Guidestar’s important role in Israel’s nonprofit sector. Evidence of its increasingly crucial role, he said, is seen from the growing number of views of the site from abroad — even though the current version of Guidestar Israel is primarily available in Hebrew.

Shapira believes that Guidestar sits at a unique crossroads because it is a joint project between private and government entities. As such, he wishes that organizations would proactively use Guidestar as a Transparency tool. In this vein, Shapira believes that it is only natural that Guidestar should be the address to aggregate all available Government grants — a feature he believes will be integrated in approximately four months time. (Wow!)

Following up Mr. Shapira, was Benny Shlesinger, of NPTech, who is Guidestar Israel’s project manager. Benny opened that the new site can already be previewed at http://preview.guidestar.org.il.

ROBUST SEARCH FOR THE DONOR

The current site is available in English but only in a limited capacity. The new site, however, will exist in full in English and will incorporate English in its search functions, a feature that will allow international donors to more easily find organizations of interest. Additionally, increased search capabilities will also include the ability to search by organization type, a feature geared for the potential donor with a specific charitable goal in mind but is unaware of the players in that particular field.

In the new site, Shlesinger continued, nonprofits can add even more details to their profile, including links to their social media personalities on the various networks. (Links to donation portals already exist in the current version). This enhanced profile brings with it improved navigation and color designation to make it easier to discern if the information shown originates from certified Government sources or from the charity itself.

STREAMLINED DATA OUTPUT & TIMELIER ANALYSIS

Thanks to recent efforts to bring Israel’s nonprofit online, important data on Israel’s nonprofit sector is available faster than it was in the past.

Additionally, the available data incorporates internationally recognized definitions and categories (see pgs 18-22) to enable the data to be used beyond Israel’s borders, giving the local sector a better understanding of how it fares in the global market and vice versa.

Utilizing this shorter turnaround, Prof. Nisan Limor, Chairman of NP Tech and one of Israel’s leading researchers into its nonprofit sector, presented findings from 2010.

While not the focus of this article, it is interesting to note some of the points that Prof. Limor stressed:

The whole notion of tax-deductible status is very problematic in Israel. The data shows that only 4,280 out of Israel’s approximately 35 thousand charities actually have tax-deductible status, known here in Israel as Sei’f 46a status. Limor pointed out that no other OECD country has charities appealing to parliament to get tax-deductible status. (I shared my own opinions regarding Se’if 46 in a previous piece.)

Tracking “ownership” of nonprofits is still difficult if not impossible. There are invariably charities that are managed by local municipalities, making them extensions of local government and not really charities for the sake of sector analysis. Who these are and how many is very much a mystery.

With all the outcries against “high” salaries in Israel’s nonprofit sector, the numbers show that being a nonprofit manager is no sure ticket to riches. By law, each organization must list its five highest paid employees (assuming they even have five staff members). The average of the five highest paid employees across the entire sector amounts to 8,777 NIS a month, which Limor notes is Israel’s average monthly salary. Even the average of all highest paid employees only amounted to a monthly salary of 12,593 NIS — and all this is before taxes. (No wonder so many directors leave to enter the private sector.) Again, certainly not the point of this piece, but worthy to note.

TAKE-AWAYS FROM THE OFFLINE & ONLINE IMMENENT CHANGES

Both the global and local nonprofit sectors are changing and the word Transparency seems to be an integral part of this metamorphosis.

While it is true that most of points mentioned in the Guidestar-Israel articles are predictions for the future as opposed to hard analysis of the past — and we all know what happens when you “assume” — we should consider ourselves lucky that at last week’s conference the various Government oversight bodies were kind enough to specify the application of Transparency. The exact date these changes will come into effect is of less importance that the fact that they eventually will. Case in Point: Guidestar Israel took six years but did eventually get off the ground.

Israel charities should consider implementing soon the suggestions “offered” at the Guidestar Israel Conference in order to be among the leaders of this change instead of lagging behind.

Tizku Lemitzvot,

Shuey

In case you missed: Israel’s OFFLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 1)

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.

The June 26th Conference Organized by Guidestar Israel — a collaborative project of the Justice Department, Registrar of Corporations, Guidestar International, NP Tech, Joint Distribution Committee (JDC), and Yad Hanadiv (a.k.a. The Rothchild Foundation) — was June’s best prediction for “The Tomorrow of Jewish Philanthropy.”

In the global nonprofit sector there is much talk of cooperation and the need to combine forces to increase efficiency and cut costs, yet this synergy is hard to find. Guidestar Israel, in contrast, is actually doing it. Local charities, international organizations, private funds and government resources have all cooperated to bring the Guidestar Israel project into fruition. (And yes, it took over six years for the parties agree and get things off the ground, but we’ll choose not to focus on that for right now.)

Like many conferences, there was the good and the less good, but for those paid attention, there was also the surprising — announcements foretelling actual progress.

THE SECTOR MUST POLICE ITSELF

Advocate Alon Bachar, Director of Israel’s Corporations Authority, which oversees the Registrar of Charities and the Registrar of Companies, was quick to declare that transparency is the foundation of Israel’s nonprofit sector. Scandals, he continued, harm the sector as a whole. Thus, he concluded – and this is where things got interesting – self interest dictates that the nonprofit sector should police itself. (It would appear from his words that he considers himself and the Government office he represents to be card-carrying members of Israel’s nonprofit sector.)

Furthermore, Bachar blames the local nonprofit sector’s lack of transparency for Israel’s lack-luster standing in philanthropy as compared to other modern countries. This is a bold statement considering other experts have pointed fingers at lax Government tax incentives as the root of the problem or Israeli charities overall lack of strategic engagement with their constituents (my personal belief, which I elaborated in a previous post, “The Real Reason Israelis Don’t Donate to Charity“).

Bachar didn’t leave much to the imagination for those that were looking to understand the criterion upon which the Registrar inspects nonprofits. Bachar stressed that organizations should pay close attention to the Nihul Takin, as it explains “our priorities and how we evaluate charities.”

INFRASTUCTURE CHANGES IN THE REGISTRAR OF CHARITIES

The part of his speech that had the most practical application was Bachar’s announcement that the Registrar of Charities is adding services to increase its own transparency. In the past, Bachar explained, Israeli charities essentially had five addresses within the Registrar of Charities — including accounting, legal, managerial and compliance — where they could address their problems, seek answers, or submit reports. Two years of analysis determined this method to be less than effective and a decision was made to revamp the entire system.

As part of the Registrar’s overhaul, multidisciplinary staffs will be created to combine the five different needs into one address. Instead of five addresses, each charity will be assigned a team that will handle any and all of their requests. Furthermore, this new type of team will allow the Registrar to further specialize its staffs by discipline — whether it be sports, education, welfare, health, environment, religious etc — to better cater to nuance, experience, and trends of the different types of causes.

In a similar vein, Bachar’s Deputy Director, Advocate Avital Shreiber, announced that charities will soon also be labeled by size.  Shreiber acknowledged the difficulty of smaller organizations — many of whom function with no paid staff — to adequately file the multitude of government initiated paperwork.  Much like a system that has existed in the United States for a few years, “smaller” organizations will face scaleddown reports.  Shreiber added that it is even conceivable for their to be specialized reporting for the different philanthropic disciplines.

Transparency, as Bachar defines it for the Registrar of Charities, is uploading information quicker so that it can be utilized in a timelier manner. Toward this end, he said, the Registrar is turning totally digital, with every form and appeal to be handled online. He also announced that the Nihul Takin will be updated soon and would probably only be released on the internet.

USE GUIDESTAR OR ELSE…

Bachar also encouraged amutot to take advantage of Guidestar Israel and upload as much information as possible — even more than is necessary — so as to increase transparency of the organization and the sector as a whole. While some might see this recommendation of Guidestar as mere self-promotion, it should be taken much more seriously considering these two statements:

Bachar’s claim that the Registrar of Charities will be increasing cooperation with various Government agencies, specifically the Tax Authority & Anti Money Laundering Compliance, so as to decrease overlap.

This declaration was preceded by statements from Dr. Guy Rotkopf, CEO of the Justice Ministry which overseas Bachar’s Registrar of Corporations, in which he boldly claimed that Israeli charities that choose not to participate in Guidestar Israel have something to hide.

Definitely hints of trends to come.

Tizku Lemitzvot,

Shuey

Don’t Miss the Next & Final Post in the Series: Israel’s ONLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 2)

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.

After years of rumors, here-say, and unwritten code that outlawed the use of credit cards by Israeli nonprofit organizations, the newest version of the Nihul Takin [Certificate of Proper Management] from Israel’s Rasham Ha’amutot [Registrar of Charities] clearly permits the use of credit cards by Israeli charities…kind of.

Unfortunately, vague unwritten guidelines have now been replaced by confusing and unrealistic written rules. Progress?

So should your amutah [Israeli Charity] use a credit card? As no two charities are the same, that answer is best left to your organization’s board, accountant, and/or lawyer.

What I can do, however, is share the research I have done and practices I have witnessed from countless nonprofits, which will hopefully save your organization precious time. 

WHAT’S  THE PROBLEM WITH CREDIT CARDS?

Israel’s Registrar of Charities takes issue with credit cards, as written in the Nihul Takin:

“Use of credit cards by an amutah [Israeli Charity] constitutes a problem because it does not enable the signature of two authorized signatories as is required, and it therefore adversely affects control over the way in which the amutah’s funds are handled.” – Nihul Takin (See below for links to the full text.)

(In short, proper financial oversight is practiced when transaction are signed by at least two signatures, but a credit card transaction can be executed by just one person.)

HOW SHOULD MY AMUTAH USE ITS CREDIT CARD?

The Registrar acquiesced in its newest version of the Nihul Takin (the third and final draft was released in June of 2010) to the use of credit cards by Israeli charities.  Israel’s Registrar of Charities lists two options whose lack-of-clarity and wordiness, unfortunately, require me to translate its instructions and has led various experts unsure as to what to recommend:

Option #1

“A credit card that is limited to the amount permitted for use as petty cash, and uses it solely for permitted petty cash expenditure…which contains a restriction on the amount of a one-time item of expenditure (such as charged card) or a monthly limit of expenditure (such as a card with a credit facility limit of a small amount).” - Nihul Takin

Translation: A credit card can replace petty-cash, used for similar purposes.

Pro: Some consider this option to be the simplest and most straight forward because it allows for a credit in the organization’s existing bank account.

Con:  Regulations (specifically those issued by the Income Tax Authority) do not specify the proper types of petty cash expenditures nor the monthly limit for petty-cash, the optimal credit limit for this kind of card is hard to know.

Con: If the Registrar is still, indeed, worried about the possibility of executing transactions by a lone signatory, this solution doesn’t address this dilemma.

 Option #2

“A credit card, as to which the payment thereof is subject to the existence of a monetary balance in a designated account opened for the purpose of use of such a card. The use of a card of this type will be subject to transfer of funds to the designated account following a signed instruction by two authorized signatories of the amutah, for the purpose of a particular item of expenditure, noting the purpose of the transfer…for example in order to make payments that can only be made through the internet, payment of a fee to the Registrar, expenses incurred during travel abroad etc.” – Nihul Takin

Translation: Open a separate account that is designated strictly for credit card. The card’s limit will be backed by cash that will be transferred from the organization’s main account. The instruction to transfer the money that will serve as the card’s collateral will be signed by at least two people.

Pro: Even though the card is used by a single individual, the usage is pre-approved and the transfer of the collateral is authorized by the magic number of two.   Those in favor of this option feel that with two signatures approving the transfer, the amutah is better protected should its governance and financial practices be audited in the future.

Con: There is an additional headache and possible additional fees (depends on your bank) for opening/managing an additional account.

Con: The Registrar actually envisions a flexible card limit that will change according to the needs and approval of the organization.  Very few cards will actually allow this and the charity might find itself in the defensive position vis-a-vis the Registrar despite having the magic “two.”

Not only are some experts unsure as to which option is the best to recommend, other professionals actually advise not use a credit card at all.  As one lawyer put it, “This language is purposely confusing, telling me without a doubt that the Registrar really doesn’t want charities to use credit cards.”

And this lawyer is probably right.

Conversations I have had with lawyers and accountants hint that the Registrar of Charities only approved the use of credit cards by Israeli charities due to public pressure and that (not-so) deep down, it hasn’t changed its belief that a credit card is dangerous.

BUT THE SECTOR NEEDS MORE

This last suggestion, while not one of the options suggested by the Registrar, does play it safe.  The logic of that last lawyer is pretty sound, that is, except for one thing: today’s businesses NEED a credit card.  Internet purchases, certain standing orders, and corporate accounts — just to name a few — won’t accept another type of payment.

But maybe more importantly, by opting out of using a credit card, a charity is allowing the Registrar to dictate unfair and unrealistic business conditions that can cost the nonprofit valuable money and time.

(For example, take one client that is forced to shop at the local mini-mart because he can’t open a corporate account at a neighborhood supermarket since his lawyer recommended against using a credit card.)

Furthermore, if a credit card isn’t allowed for the organization then often employees or board members are forced to use their own personal cards.  Not only can this be an incredible burden on the individual that needs to be reimbursed (especially with bigger expenditures like airline tickets), but this method actually exhibits less control, transparency, and fiduciary responsibility than a credit card owned and managed by the charity.  (And I say this last point even knowing that the Registrar has accepted reimbursements as a valid payment method for years.)

Instead of being intimidated by the Registrar’s awkward wording, I would like to see charities push back, using the cards in a responsible and financially-smart manner — and defending this usage should ever and whenever it be called into question.  Only by showing the Registrar the impractical nature of the current guidelines can Israel’s nonprofit sector garner enough public support to force the Registrar of Charities to rewrite these inadequate “suggestions.”

Tizku Lemitzvot,

Shuey

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.

The Nihul Takin: For a link to an English version of the Nihul Takin can be found on the Registrar’s website here or can be directly downloaded from my site here (the relevant paragraphs about a credit card are on page 34).  The Hebrew version is also available from my site here (with the relevant paragraphs on the bottom of page 25).  To learn more about the document and why it is a must-read for anyone thinking of joining the board of an Israeli charity, please read my previous post, “Israel’s Nihul Takin Manual Now Available in English!.”  Links to the Nihul Takin are in that post, as well.

Life Before the Update: If you’re wondering what Israel’s Registrar of Charities’ response used to be, you can read one of my earliest posts from July 2009, “Can My Israeli Nonprofit Have a Credit Card?”

Photo Credit: “Credit Card Debt” by DebtCovered

Chana Mason was born in Colombia and grew up in South Florida. She has a degree in Theatrical Directing and Engineering from Dartmouth College. She has worked in management consulting, high school education, and high-tech. Since moving to Israel in 2003, she has been involved in a number of Israeli non-profits.

Recently, within a matter of months, I opened and then proceeded to close a amutah [Hebrew referring to a registered charity in Israel] here in Israel.  I wanted to open up a seminary [school focusing on religious studies] and, with the advisement of experts in the field, decided it would be best for the seminary to run under its own administrative body.  Unfortunately, we did not come to this understanding until late into the process of developing the seminary, which meant that we were rushed to register the amutah, file in the tax authorities, and open a bank account.  I learned many things in this process that perhaps can help others looking to start their own non-profit organizations.

1.  Work Through a Fiscal Sponsor

Though it can be an administrative hassle, I recommend working under the auspices of another charity until you have your organization strongly in order.  Opening up an amutah and all it comes with can cost up to 2000 shekels (around $550) and takes a lot of your energies away from creating a strong organization and getting to know how the various government bureaucracies work.

2.  Foundations for Success: A Good Lawyer & Accountant

Having a great accountant and lawyer make a huge difference.  They can explain the process along the way.  A smart accountant will prepare you ahead of time for tax issues you could have never imagined in your wildest dreams.  My accountant wanted to read every contract I signed and wanted to know about every person I had an interaction with in regards to the amutah.  He is incredibly sharp and honest and let me know what was legal and what was illegal but unnoticeable.  A good lawyer wont charge you for every little thing and will charge an honest fee for his work.  When opening a charity in Israel, a lawyer in mainly just a notary, so getting a notary you know for a small amount of money is a great place to save.

3.  Never Underestimate the Importance of Your Banker

I never thought that in Israel my bank would be my greatest ally and asset, but it truly has been.   In a process where the learning curve is steep, having good advisement and support means a great deal.

While having staff that is pleasure and helpful is a definite plus (maybe even a must), there were other aspects of the bank’s service that were important to my small non-profit: (1) explained the types of accounts available; (2) provided a minimal-hassle process for opening and closing the amutah’s bank account; (3) worked openly with my accountant; (4) negotiated an appropriate fee structure; and (5) agreed to meet at a convenient location (outside the bank) for the charity’s signatories to sign the paperwork.

4. Budgeting: Reduce Costs and Seek Advice

Make sure you have squeezed every shekel you can out of your budget.  Fundraising in this economic climate, especially for a novice like me, can turn out to be a disappointment.  Reducing costs to an absolute minimum can make a huge difference.  This is where getting advice from people in the know and having lots of people analyse and churn through your budget is also useful.  For my non-profit it is clear looking back that my fundraising expectations were too high and my budget was also too high.  We relied quite heavily on one main donor, who in the end could not afford to support the institution and we also budgeted to offer the best to our students.  It would have been better to offer lower salaries, smaller spaces and a smaller scale program at the beginning to create a safer budget.

5. Make the Tough Decisions Earlier Rather Than Later

We also saw that though many people were to be disappointed by our closing the amutah, it was better to close the organization as early as possible.  Otherwise higher debts would have been incurred over the long run.  Looking back, we are incredibly happy with our decision.  Accruing debt is no small matter and is counter to the mitzvah of tzedakah [charity] that we are aiming for when creating a non-profit institution.

Wishing all of us much success in working to improve the lives of people everywhere!

Chana Mason

“What do you mean that Israeli charities can be registered as companies?”

That was the question someone asked me last year that that had me thinking to myself, yet again, that Israeli charity legal/tax structure is a language onto itself and should require its own Ulpan.

Towards this end, I hope to clarify in this post the somewhat contradictory concept of a Chevrah LeTo’elet Hatzibur [Public Benefit Company].

TERMS

A charitable organization has a choice of registering in one of two ways: (1) with the Rasham Ha’amutot [Registar of Charities] as a amutah [charity] or (2) with the Rasham HaChavarot [Registrar of Companies] as a Chevrah LeTo’elet Hatzibur [Public Benefit Company].

In Hebrew, the Chevrah LeTo’elet Hatzibur [חברה לתועלת הציבור] is more commonly called by its acronym, Chalatz [חל"צ].

REGISTRATION & DOCUMENTATION

As the name implies, a Chalatz [Public Benefit Company] is formed as a company, complete with definitive shares and rights of ownership. This is one of the reasons why a nonprofit might choose to register as a Chalatz, as opposed to a charity (the exact pros and cons are beyond the scope of this piece).

Once registered as such, this company must adhere to the same standards, protocols, and certifications if it wishes to be recognized as a nonprofit organization. This means, that a Chalatz must apply to the Registar of Charities for Nihul Takin [Certificate of Proper Management] to receive government grants and obtain a Se’if Arba’im VeSheish [Paragraph 46a] from Mas Hachnasah [Tax Authority] to be considered tax-exempt.

Because it is registered with the Rasham Hachavarot [Companies], a Chalatz will have a different registration prefix than an amutah. The registration number for amutot, registered with Rasham Ha’Amutot [Charities], begins with a “58.” In contrast, a Chalatz will start with a “51.”

Additionally, the names of these corporations in English will generally end with (or contain in parenthesis) the acronyms of PBC (Public Benefit Company) or CC (Charity Corporation).

UNITED STATES COMPARISON

For those readers familiar with United States law, the best comparison to a Chalatz is the newly established L3C type company:

“The L3C’s primary purpose is to conduct activities that further a charitable or educational purpose. Earning a profit is its secondary purpose…the L3C statutes require the managers to pursue the accomplishment of a charitable or educational purpose. They can earn a profit while pursuing their mission, but earning a profit can’t be a significant purpose.” – CharityLawyerBlog

However, while L3C is not eligible for tax-deductible gifts, a Chalatz certainly can be.

STATUS CHECK

Again, it is important to stress that a charitable organization designated as an amutah or a Chalatz does not automatically qualify for tax-exempt status.

With that said, there is a way to check if a company is at least defined as a Chalatz…as long as you understand one basic concept: The databases for amutot and PBCs are separate. Thus, any person doing research must first know with which government body – Rasham Ha’amutot [Charity] or Rasham Hachavarot [Company] – the organization is registered.

Assuming that the said organization is registered as a company, basic information can be found at the Ministry of Justice site for the Registrar of Companies: http://ow.ly/2GAk7. Information can be found through either the company’s name in Hebrew or its mispar chevrah [company number].

1. When found, after the company’s name in Hebrew will be the acronym חל”צ, generally in parentheses.
2. When clicking on the company’s number, the reader will be taken to another page that provides additional details of the company. The lowest row of the table lists תיאור החברה [Company Description]. The description will start with the words: מטרות ציבוריות בלבד [Public Purposes Only] and will then be followed by the now familiar phraseחברה לתועלת הציבור [Public Benefit Company].

While any of these two pieces designates a charitable company, having both there will seal the deal. Item #2 is copied from the description that the company submits to the Registrar of Companies upon opening and is both helpful and telling.

If you’re already on the net, here are some other good links to try:

Rasham Ha’amutot [Registrar of Charities] (Hebrew) - Basic information about Israel’s charitable organizations registered with the Registrar of Charities.

Rasham Hachavarot [Registrar of Companies] (Hebrew) - Basic information about Israel’s companies (including PBCs) registered with the Registrar of Companies.

Guidestar Israel (Hebrew and English) – FOR CHECKING AMUTOT ONLY. The site has yet to incorporate those organizations registered with the Registrar of Companies as PBCs. Here you can find scanned financial statements and other basic information about Israel’s charities.

Mas Hachnasah [Tax Authority] – Tax Exempt Status, Donations (Paragraph 46a Status) – Ability to check if an amutah or chalatz has tax-exempt status.

Tizku Lemitzvot,

Shuey

Disclaimer: This document is intended to summarize and provide basic information and should not to be considered advice. This document should not replace nor supplant recommendations by licensed professionals; such as accountants and/or lawyers. Additionally, this summary might not reflect updates to the Ministry of Justice and/or associated internet sites.

Obtaining government funding seems to be every nonprofit’s goal, at least in Israel. I have heard countless lecturers, founders, and foundation representatives preach the Darwinian virtues of incorporating government grants into an Israeli charity’s fundraising strategy; after all, the nonprofit is servicing the Israeli public. It is to the Government’s benefit – if not its outright duty – to ensure that this charity’s program continues to exist

Not bad on paper. In practice, however, these Israeli government grants can sometimes be more trouble than they are worth.

For the purpose of this post, as a banker I would like to restrict my focus on the budgetary challenges associated with these grants.  Specifically, the two disadvantages that arise because grant monies are dispersed only after expenses are incurred.

1. Cash Flow Problems

Simply put, grants can be released before expenses have been incurred or after expenses have been incurred. Unfortunately for recipients of Israeli government grants, the Government releases grants anywhere from three to nine months after a project has been started (and as long as the appropriate paperwork has been filled out). Many times, the needed funds arrive after the organization has already started to dip into its own cash reserves.

As you can imagine, this can have a negative impact on an organization’s cash flow.

While sometimes nonprofits can float expenses and re-prioritize suppliers, many expenditures, like salaries for example, must be paid immediately. In other words, nonprofit organizations are forced to spend money that they do not have.

These charities are then forced to turn to donors, banks, foundations or suppliers to help them during these tough times, exhausting tremendous resources and favors in the process.

This is, of course, assuming that the organization can find this help.

2. Increased Cost

If the charity is successful in procuring either a line of credit or a bridge loan, increased fees are sure to follow. And the fees are not negligible – even with benefits and discounts. Generally, they include a processing fee and interest fees; additional costs that could have been avoided if the grant had arrived before the program started and not after.

Thus, not only is the Israeli government causing organization’s to waste resources, it is causing these charities to waste hard-earn money, as well.

And the more you receive from the Government, the more credit is needed.

Two Short Examples

Example #1: A nonprofit I was speaking to has a 500,000 NIS budget, totally provided through a government contract. The CEO told me that he occasionally requires a 65,000 NIS line of credit to float him until his next grant payment from the Israeli government. The line of credit stands at 13% of the yearly budget, a percentage that does not sit well with banks and is hard to explain to potential donors. To secure the line of credit, the CEO has put his personal account/money as collateral.

Example #2: Another nonprofit I met with will soon be signing a contract with the government that will increase their yearly operating budget from 10 million NIS to 15 million NIS. In order to absorb the government grants into its cash flow and fundraising strategy, the organization is looking to increase its standing credit at the banks from 300 thousand NIS to 500 or 600 thousand NIS. Assuming the organization can procure a credit line of this size, it can easily cost it upwards 8,000 NIS a year, even as much as 20,000 NIS. .

Conclusion

As mentioned at the beginning of the post, there are other factors to consider that I am not addressing.

From a budgeting perspective, these two consequences raise red-flags and serious doubts about the overall benefits of grants from the Israeli government.

With that said, government aid can be an important part of an organization’s fundraising strategy – particularly for those organizations that have the cash reserves to weather the money’s inherent delayed arrival.

Tizku Lemitzvot,

Shuey

Know of any stories that prove or disprove? We could all benefit from hearing them.

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

I was greeted by a wonderful surprise on the Zavit Shalosh website when I returned on Monday from a very nice vacation in the United States (hence the hiatus).  There, one of their main articles, related that the Rasham Ha’amutot [Israel's Registrar of Charities] released an updated version of the Nihul Takin on the Rasham’s website.  Furthermore, the Rasham has invited all interested parties to email comments until September 30th.

Additionally, the article added that the organization Manhigut Ezrachit is inviting all those interested to email their comments to them so that the organization can coordinate and research the comments in order to present a more powerful and unified voice.  On a personal note, this seems like a pretty good idea.  Manhigut Ezrachit has been represeting Israeli NPOs for a long time.  They have the connections and expertise to get the biggest bang for their buck.

I have yet to read the beta version of the new Nihul Takin (it’s 35 pages) but am looking forward to the task at hand.  As explained in an earlier post (“Can My Israeli Nonprofit have a Credit Card”), the Nihul Takin is one of the main instruments that confuse and muck Israeli nonprofit regulations.     I am excited at the prospect of the Rasham updating some of its regulations that might allow amutot (Israeli nonprofits) to run a little smoother.

(In short, the Nihul Takin is an additional piece of legislature beyond the khok ha’amutot [Israeli's nonprofit law].  Those organizations wishing to receive government funding need to comply to both the law and the Nihul Takin.  Many foreign organizations have adopted the standards of the Nihul Takin, as well.  Many people, at all levels, have disagreements with various aspects of the Nihul Takin and have been asking the Rasham to update the legislation for years.)

In conclusion, for all those people that have complained about Israel nonprofit regulations, this is the time to put your money where you mouth is.  Read the draft and email a comment or two.  If not directly to the Rasham, then to Manhigut Ezrachit.  Like any other charity work, if you want things to change you have to take an active role in making it happen.

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey