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

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

The Answer

The answer should hopefully be “yes,” nonprofit organizations can use credit cards.  Credit cards have become an integral part of running any kind of business; whether it be a not-for-profit or a for-profit corporation.   Credit cards are safer than cash and are the preferred method of payment when shopping on the internet.  Not to mention, the ease of an itemized monthly billing statement.  Nonprofit governing agencies should love credit cards and promote their use whenever possible.

But, alas, in Israel the answer is no…kind of.  Cryptic, but true. That is to say that in my experience as a banker, I have both ordered credit cards for charities that wanted them and canceled credit cards for charities that were told it was “illegal” to have them.

Why is it so Complicated?

Khok Ha’amutot [The Nonprofit Law] in Israel does not restrict a charity from ordering or using a credit card.  The law details that the default by-laws of an organization require at least two authorized signatories to sign on all transaction requests.  The law also allows for changes in the organization’s by-laws.  Examples of common changes include requirements for certain combinations of signatories that are dependant upon the amount of a transactions, as well as, permission for less than two people to sign.  This last one is pertinent as credit card transactions are viewed by the Rasham Ha’amutot [Israel's Registrar of Nonprofits] as having been approved by only one signatory.

Included in the law are the various subcategories or licenses that an Israeli nonprofit can obtain (for a full list and description please view my previous post “Defining an Israeli Nonprofit”).  Among these statuses is the Nihul Takin, or Proper Management status.  As the name implies, this license is provided to organizations that are viewed as being run well; and the Rasham has its own definition of what “being run well” means (the determination is currently left up to the complete discretion of the Rasham).  The Registrar believes that all decisions should be approved by a minimum of two signatories.  While the State law allows for only one, those organizations that want to earn their Nihul Takin status are forced to adhere to the ultra-amutah standards of kosher behavior set by the Registrar of Charities.

As previously discussed, the Israeli government and many foreign foundations use the Nihul Takin as the benchmark to determine if an Israeli nonprofit is eligible to receive a grant.  So while the State law allows for credit cards decisions, the Rasham frowns upon them.  Frowning upon, of course, is not the same as outlawing them.  And since the audits done by the Rasham are subcontracted out to a wide variety of accounting firms there seems to be no set rule.  I, personally, know of charities that the first thing they were required to do was destroy any existing credit cards while a few nonprofits seem to have not been asked at all.  Go figure.

Current Possible Solutions

I have seen organizations adopt the following solutions:

1. Create an Israeli “Friends of” organization.  Being as only the “main” amutah is concerned with obtaining a Nihul Takin, some organizations have started a brother/sister organization in Israel.  This organization absorbs the expenses and practices that are frowned upon for Nihul Takin status; thereby allowing the main amutah to avoid any troubles when applying for its Nihul Takin.  Recent auditing laws and practices designed to combine all financial statement of “related” amutotare making this option less workable.  A licensed accountant can advise if this option is relevant and feasible. 
2. Having the foreign “Friends of” organization apply for a credit card.  For this option to work, the foreign supporting charity would have to operate a bank account in Israel.  Even though this organization operates in Israel, it is not subject to Israeli charity laws (this is true even for foreign charities registered in Israel).  As such, this account can absorb the expenses and practices that are frowned upon for Nihul Takin status.  Just remember, this account must reported to the United States and should conform to IRS standards.  Somewhat simpler.  Still ask an accountant.

Hopeful Signs

I was meeting with a colleague who is a partner of a leading accounting firm in Israel.  This individual is an expert in the area of amutah financial matters and has been invited to participate in various Knesset committees concerning amutot.   In one such meeting a few months ago, the issue of credit cards for amutot arose.  The matter was supposed to be covered over a short time but ended up taking up the next hour and a half.  This person presented to the committee an article that delineated the reasons why a credit card is important and numerous ways how an organization can provide proper oversight for credit card usage; for example, one idea presented was that two signatories sign on every credit card statement.  He told me that after heated debate a few MKs were even asked to join.  It was made clear that credit cards are a way of doing business in modern times and that the Nihul Takin should reflect this.  The Rasham Ha’amutot promised to take this under advisement and provide a solution.  Let’s hope we see something sooner rather than later.

Conclusion

So how do we proceed in the interim?  Like I said, credit cards in Israel are cryptic.  Ask your accountant for the final answer and he or she will let you know if it is worth ordering a card or not. 

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

Shuey

For those individuals or corporations familiar with nonprofit organizations in the United States, any analysis of the status of an Israeli charity should begin with a comparison.  This contrast will shed light on the many differences that exist in the two countries’ legislation and definition of a nonprofit organization.

American Nonprofit Organizations

In the United States, all for-profit and nonprofit organizations are companies.  Each company is registered in the state where it is headquartered; the definition and governance of these companies differs slightly from state to state.  In the United States the title of nonprofit is a federal one, referring to any organization that is exempt from some federal income taxes (although many states use the federal guidelines to exempt similar organization from state taxes, as well).  All organizations that fall into this category are labeled as 501(c).  While there exist 28 categories, only those organizations belonging to the 501(c)3 category will allow an individual’s donation to be tax-exempt.  This group is divided into public charities and private foundations.  For the purpose of this article, the definitions of the two groups are not relevant.  In short, it is these 501(c)3 organizations that have been colloquially dubbed “nonprofits” in the United States.

Israeli Nonprofit Organizations

In Israel, traditional nonprofits are called amutot (or amutah in singular) and have their own governmental oversight body, called the Rasham Ha’amutot (Registrar of Nonprofit Organizations).  Companies have a separate federal group tasked with overseeing them called the Rasham Hata’agidim (Registrar of Companies).   Both registrars can contain organizations that would be considered non-profit and for-profit under American standards.

Further investigation reveals that within each registrar are subcategories that will be referred to as licenses or statuses for the purpose of this article.  As most nonprofits are registered with the Rasham Ha’amutot (Registrar of Nonprofit Organizations), it is logical to start the analysis from here.

1. Mispar Ha’amutah [Nonprofit Organization Number] – This is simply a number that the charity receives letting the public know that this organizations is registered with the government under the Registrar of Charities; as such, this charity is subject to government scrutiny under the Amutah (Nonprofit) Law.  This number will function like an I.D. number (for Israelis) or like a social security number (for Americans).  This number is for identification purposes only and does not label donations the charity receives as tax-exempt.  The process for receiving a nonprofit ID number takes approximately a month, according to the staff at the Registrar of Charities.   
2. Nihul Takin [Sound Management] – This is a certificate awarded to organizations that follow an additional set of management guidelines as decreed by the Registrar of Nonprofits.  This status is assigned to organizations that have been in activity for no less than two years.  For the first two years, there is an interim document that can be obtained called “Certification of Validity of Presentation of Documents.”  An organization will not be able to obtain grants or contracts from the government without the nihul takin status.  For better of for worse, many institutions outside Israel are using the nihul takin as their benchmark, as well. 
3. Mosad Tziburi [Public Institution] – This status is given by the Ministry of Finance and declares the organization’s funds are to be tax exempt; for example, profit earned from investments made with a bank or financial institution would be tax exempt for this kind of organization.  This status does not brand the donations that the charity receives as tax deductable.  A nihul takin license is required when applying to be a “public institution.” 
4. Se’if 46 [Paragraph 46] – This status is granted by the Finance Committee of the Knesset on the recommendation of the Finance Committee to organizations that have obtained status as a public institution.  It is the “Paragraph 46” status that is comparable to the nonprofit 501(c)3 status in the United States.  Individuals that donate to charities that have Paragraph 46 status can get up to a 35% refund on their taxes.  An expert accountant in the field estimated the minimum time required to receive Paragraph 46 status as six months.  Practically speaking, this means that two and a half years of existence is the absolute earliest an Israeli nonprofit can expect money donated to them to be tax-exempt.  It is important to note that only approximately a third of the charities operating in Israel have this status. 
5. Malkar [Institute Not-Intended for Profit] – This license is granted from the Ministry of Finance and can be interpreted as “additional level of fiscal approval.”[1]  Organizations with this status can sell goods and services without charging VAT [Value Added Tax], or sales tax.  Purchases made by the charity, however, are still subject to VAT. 

A small fraction of nonprofit organizations exist as Chevrot Leto’elet Hatzibor [Companies for the Benefit of the Public].  These organizations are governed by company laws and are registered with the Rasham Hata’agidim [Registrar of Companies].  These institutions can also apply for all of the above licenses, if they are founded “for the promotion of commerce, arts, science, religion, charity, or any other social function with the aim of benefiting the public.”[2]

While the Amutah (Nonprofit) Law established by the Knesset is quite clear and concise, the guidelines managing nonprofits in Israel are murky, cumbersome, and confusing; this is due to the Israeli Government having created additional licenses and leaving them in the control of different branches of the government.  Those individuals or institutions looking to make a comparison between organizations registered in the United States and Israel will, thus, find their compass missing its needle.  The simple charity ID number does not tell a donor or oversight committee anything about the organization.  The additional steps of obtaining public charity, tax-exempt, or malkar status are less an evaluation of the management of the amutah and more of an internal argument to the Israeli Government that the organization has earned to right to be tax-exempt.  This leaves the general public with only the nihul takin (albeit its own deficiencies and stringencies) as the only fair judge of an organization’s true nonprofit status.

 ________________________________________________________________________________________________________________

Works Cited 

[1]  Eliezer David Jaffe “The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” (Giving Wisely, The Internet Directory of Israeli Nonprofit
and Philanthropic Organizations), http://givingwisely.org/State.htm

[2]  Ibid

Bibliography

To supplement my own knowledge and experience, I drew upon the following resources:

“501(c)” (Wikipedia, The Free Encyclopedia), http://en.wikipedia.org/wiki/501(c)

“Application to be Recognized as a Public Institution” (Israeli Tax Authority), http://www.finance.gov.il/taxes/docs/malkar_2006-09-20.pdf

“Presentation of Documents to Obtain Certification of Sound Management for 2010” (Israeli Ministry of Justice) http://www.justice.gov.il/NR/rdonlyres/AA0674DA-C669-4242-B2A2-448BAE3257B2/14849/2012.pdf

“The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” Eliezer David Jaffe, (Giving Wisely, The Internet Directory of Israeli Nonprofit and Philanthropic Organizations), http://givingwisely.org/State.htm

Translations of Hebrew words to English were done through Morfix @ http://milon.morfix.col.il