The Nonprofit Banker » Philanthropy

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

Israel’s “10 Golden Rules for Donors” is a Secret “How-To” Guide for Charities

Shuey Fogel — Wed, 07 Nov 2012 20:03:59 +0000

In mid-October of this year, Israel’s Registrar of Charities issued “10 Golden Rules for Donors” (Hebrew). While the document is meant as a guideline for individuals, it holds immense value for the Israel’s charities, as well.

Here’s why:

Governments equate the tax-deductible rebate on donations to a donation by the government (via the tax authority) to the nonprofit sector as a whole. In essence, the government views itself as a donor. Israeli Charities, or amutot, can be sure that Israel’s Rasham Ha’amutot (Registrar of Charities), as an extension of the government, will be heeding its own advice when it vets charities for compliance.

Below are The 10 Golden Rules (in English) and its implications for nonprofits operating in Israel.

THE 10 GOLDEN RULES FOR DONORS

1) Check the status of the amutah

“Visit the Rasham‘s site (Hebrew) to see if the charity actually exists and it’s current status (current, erased, or in the process of involvement).”

Charities:

The above site lists the charity’s name, status, registered address, and status of Nihul Takin for current and upcoming year. The site also allows people to search by name.

So…

Check the page from time to time to ensure that what appears is accurate; what you see, the donors see. This is otherwise known as Reputation Management 101. (More about this in rule #3.)

Additionally, it is advisable to test-search your organization by inputting its partial name or nickname. This is a great way to observe the competition or help choose a unique name when registering your charity.

2) Confirm that the charity has a Nihul Takin [Certificate of Proper Management]

“The Nihul Takin is a certification issued by the Rasham every year to charities that fulfill the reporting requirements as dictated by the Registrar. Please note that in years when a charity was audited by the Registrar, the Nihul Takin is also a good judge that the organization’s activities are sound. As this is not the case in most years, donors are recommended to carry out their own investigations.”

Charities:

Withholding an organization’s Nihul Takin status is the Registrar’s most powerful and effective tool in its arsenal. Organizations seeking a government grant or contract must have this status. Additionally, many foreign funders will also only give to nonprofits that have a Nihul Takin. (See previous post, Defining an Amutah.)

In simpler terms, having a Nihul Takin lets donors know that an objective third party — in this case the Registrar and/or its sub-contractors — has reviewed a nonprofit’s activities.

Furthermore, the above website lists the date that the Nihul Takin was granted, meaning that viewers will know if an organization submitted their forms on time or were delinquent.

It is important to note that only charities that have two years of financial reports are eligible for the Nihul Takin. The above site, however, will not list “not eligible” rather “none.” Young organizations should proactively warn their constituents so current and potential donors aren’t left wondering why “their” organization is lacking this important certificate.

3) Check the charity on the site Guidestar Israel

“Guidestar Israel contains information from the Rasham [official] and other sources [less official]. The site contains financial and narrative reports, certifications, summaries of activities, and other relevant information on a charity.”

Charities

Moving onto Reputation Management 201.

Has your organization verified that the material listed on Guidestar Israel is accurate and up-to-date? Organizations can obtain a login password to update and supplement the material that appears on the Guidestar site, including adding text in English.

It is also possible to upload a link to a fundraising site so that impressed individuals can donate directly from Guidestar. Has your organization availed itself of this function?

Has your organization uploaded its logo for brand recognition?

4) Ask the amutah for details about the purpose and destination of your donation

“Do not hesitate to ask the receiving charity for details or for documentation regarding the intended purpose of the donation. Some of this information can be found in the yearly Narritive Report that the charity submits to the Registrar or in the Board protocols [meeting minutes] pertaining to the charity’s goals for that year.”

Charity:

Does your organization make it easy for donors to navigate its website? Perhaps, creating a unique “landing” page for the specific drive; don’t make it hard for your donors to find the answers to the questions you know they are asking.

In general, what was considered good practice a few years ago is now the norm. Organizations should expect that would-be funders will conduct their own investigations and act accordingly.

5) When receiving a request for a donation by telephone, clarify before giving

“In the case of receiving a request by telephone, you can certainly ask the caller to either wait or to call back later so that you can properly check the request via the organization’s website or other means.”

Charities:

Continuing on the previous point: Has your organization equipped its telephone staff with the proper background information to make the ask seem legitimate and answer basic questions?

6) Avoid donating to temporary kupot tzedekah [donation boxes or pushkas]

“It is best to avoid putting donations in these boxes, unless it is in a permanent location or well kept and connected to a organization you know well. Donation boxes are likely targets for theft or fraud. Regardless of familiarity with a particular organization or donation-box locale, it is best never to give large gifts via these pushkas.”

Charities:

The Registrar is essentially telling donors that those nonprofits that have temporary collection plates are not as careful with their funds — or else they wouldn’t collect money in ways susceptible to theft or fraud!

After all, these boxes are not monitored 24/7. Certainly in today’s day and age, organizations can think of more efficient and safer ways to collect funds.

7) Request a receipt from the recipient for your donation

“A receipt is an essential tool for internal and external monitoring of the integrity of the organization. By law, a charity must offer a receipt for any donation. The receipt should minimally include the name of the amutah, the amutah’s registration number, and amount of the donation.”

Charities:

This is really ABCs of Israel charity management. If your organization isn’t providing receipts for every type of donation, I strongly suggest the manageent of the charity read the Nihul Takin, Israel’s guide for proper management of nonprofits. [Click for Hebrew & English versions of the Nihul Takin.]

8) Plan your donations

“If you donate regularly, once a year, at least, you should plan out your donations. This planning should include the total amount you plan on donation for the upcoming year, including the purposes of said donations so you can come to an informed decision on where you might want to give. If you have personal information about the activities of a favorite charity, or you were and have been pleasantly impressed by this nonprofit’s activities, there is preference for a contribution to this organization after the aforementioned tests have been executed.”

Charities:

Listen up and listen well: Nonprofits that help their donors create such a plan — even one that includes donations to other charities — are providing a much-needed service and proving added value. Such an organization is engaging and connecting to its donors in a much more intrinsic and personal manner than by simply receiving a check. This type organization will be remembered by the donor for a long time to come.

On a more basic level, this is why a nonprofit organization must invest in its branding. Does your charity clearly state its goal and how it plans to accomplish said goals? Do you make it easy for donors to understand how you fit into the social-service stratosphere? Has your organization focused on causation to prove it is worthiness?

9) When necessary, view the charity’s file at the Registrar or request a copy of it on CD

“When necessary you can request to view an organization’s file at the office of the Registrar or to request a CD copy to be mailed to you, for a fee.”

Charities:

There is always a paper-trail. Almost everything filed is available. The exceptions are documents or sections-of-documents that relate to board members or staff on a personal level. Nuff said.

10) Report an organization’s improper or illegal activity

“If you notice something that seems wrong or illegal about the organization, please contact the offices of the Registrar of Charities by email at: RashamA@justice.gov.il. It is important to note that public inquiries are an integral ingredient used by the Rasham Ha’amutot to monitor the conduct of nonprofits and, thus, to ensure that donations are used for their intended purposes.”

Charities:

Scoff at constituents at your own risk. Moreover, recent scandals have shown that wrongdoing was first noticed by Friends Of charities, those tasked with financially supporting the organization!

The above point includes staff, as well. A recent lecture quoted an international report that the primary source of fraud detection in charities are internal tips.

To quote popular culture: you can run but you can’t hide.

I join Israel’s Registrar of Charities in wishing that a smarter donor and a more transparent sector will hopefully lead to greater participation and support of Israel’s charities.

What do you think: Good Rules to Live By or Too Oppressive?

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: Courtesy of Timo Studios (Flickr)

The Carmel Fire & Haiti: No Need to Reinvent the Wheel

NonProfitBanker — Tue, 07 Dec 2010 23:06:29 +0000

Jews around the globe are mobilizing to donate to help fight the effects of the recent fire in Israel’s Carmel Forest.

One of the outcomes of the Haiti Earthquake (January 12, 2010) is an in-depth case study in disaster-relief giving. Hence, those donating to Carmel Fire relief efforts need not reinvent the wheel and can rely on the many lessons learned just 11 months ago.

Money is not the Impediment

In response to the Haiti disaster in January 2010, The Stanford Social Innovation Review (SSIR) wrote in an article entitled, “Don’t Give to Haiti Now”:

Money is not the impediment to getting aid to Haiti right now…they need military and security forces to help organize rescue, logistics and transport and security operations.

While on a much smaller scale, the same logic holds true for Israel.

The recovery and rebuilding efforts do not exist in a vacuum; without certain guarantees and logistics in place, money alone will not be effective. (Just look at the Interior Ministry’s refusal to accept fire trucks from certain charities. The money was there but the trucks were never bought.)

Plan for the Long Term

With nearly half of the Carmel Forest destroyed (about 37,000 acres) and rehabilitation efforts expected to take years — if not decades — donations will be needed for far longer than just the upcoming months.

SSIR went on to write that

The rebuilding effort survives over the long term, donors need to stagger their funding and guarantee it over many years, instead of sending the money all at once…For Haiti, my advice is this: set aside money now for what you would give Haiti this year and for at least the next 3 years. Give money when aid can logistically get there, when efforts get coordinated, when you can get reports on which nonprofits are doing what and which ones are actually on the ground making an impact.

Research Before Giving

1. Prior Experience

Prior experience working in a particular geographic area or a particular field is crucial in making sure that donors get the biggest bang for their buck (or shekel) — whether on the island of Haiti or in the State of Israel.

After the Haiti Quake, for example, The Miami Herald provided a link to a database that listed the charities assisting after the disaster and if these organizations had prior experience working in Haiti.

2. Needs Most Dire

Additionally, with a country as small as Israel, popular news outlets can provide the necessary research into what needs are the most dire — and there will be many. For, example, The New York Daily News article, “How to Make Donations to Haiti Wisely” stressed that large disasters will required both “disaster relief and extensive assistance to rebuild.”

3. Donor Advisers

It is important to mention that the Haiti disaster also saw consultants play an important role; likewise, donors to the Carmel Fire relief shouldn’t shy away from advisers to help them “structure effective support.” (Investment News)

Give Cash, Not In-kind Donations

If a donor has taken the time to vet a charity, he or she should trust the organization to use the donations as it deems wise.

Furthermore, in-kind donations — food, diapers, clothing etc — cannot always be used or might have already been purchased. Donors outside of Israel should also realize that Israeli charities are charged import tariffs even on donated goods. Not to mentioned the trouble sometimes with getting goods through customs. (Read this JPost article for more information on Israeli nonprofits and import tax.)

Additional problems connected with in-kind donations were elaborated upon by these international aid bloggers after the Haiti Earthquake: Good Intentions & Aid Watch.

Closing Words…

The Haiti Disaster, observed Tactical Philanthropy, marked a “turning point in American philanthropy where donors are now expected to ‘give smart,’ not just give.”

It is my hope that this still holds true — not just for Americans, but for donors worldwide.

Tizku Lemitzvot,

Shuey

Related Posts: NonprofitBanker Video Blog: Haiti & Relevant Donor Strategy

N.B. The articles in The Miami Herald, The Daily News, Good Intentions, and Aid Watch are credited to the Tactical Philanthropy post, where I first read of them and found their links.

MANDATORY Compliance with the I.R.S.' VOLUNTARY Best Practices

NonProfitBanker — Tue, 27 Jul 2010 22:20:19 +0000

A charitable foundation’s worst fear is that its grant will be used for non-charitable purposes. The U.S. Internal Revenue Service (IRS) stresses that this risk increases drastically when dealing with foreign grant making and expenditures.[1] The U.S. Department of the Treasury released its third and final version of its “Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S. Based Charities” (VBP) in September of 2006 to help charities implement procedures that will reduce the risk of unintended diversions of funds to terrorist causes.

As the name suggests, the VBP is exactly that, voluntary; the VBP has neither the force of law nor can compliance “constitute a legal defense against any civil or criminal liability.”[2] However, the document’s legality should not detract from its importance. Firstly, the VBP provides insight into how law enforcement officials view the responsibilities of the nonprofit sector in the new, post 9/11 environment. Simply put, the Treasury Department wants to see the nonprofit sector enlisted directly in its efforts to combat terrorism.[3]Secondly, other government agencies are adopting the recommendations put forth in the VBP (the Combined Federal Campaign stated as such in a 2006 memorandum).This is important for two reasons. One, nonprofit advocates fear this is a signal that the VBP will become de facto law. Two, the Treasury maintains that this speaks to the “usefulness and practical advice”[4] of the VBP and “encourages consistency across the U.S. Government.”[5]

The message of the VBP is clear: any support for terrorist activity, irrespective of an organization’s intentions, can have potential enforcement consequences. The Treasury hopes the VBP will reduce the chance (a) that an organization unwittingly makes problematic expenditures or (b) that an organization will be found liable if it does so unwittingly.[6] The hard line adopted by the Treasury department seems to be a combination of two things: one, intelligence information hinting “to the effect that international charities are the second principal source of money that underwrites terrorist activity”[7] and ; two, a general feeling by the U.S. Governmnet that nonprofits need to provide more oversight for their funding.[8] Punishments can include fees, civil and/or criminal prosecution; and revocation of tax-exempt status.

The “Voluntary Best Practices” offers many new suggestions covering topics such as: fundamental principles; governance accountability and transparency; financial accountability and transparency; programmatic verification; and practices to protect against misdirection of funds to terrorist persons. While the exact guidelines are beyond the scope of this article, it is important to note that the VBP:

Holds the governing board of a charitable organization legally responsible for the charity.
Believes that charities should maintain records identifying all board members and influential personal of any subsidiaries, affiliates or grantees. This includes checking all pertinent bodies against known terrorist lists.
Maintains that charities should account for all domestic and international funds received and disbursed; salaries paid; and expenses incurred. This includes knowing all the sources of income and commercial activities of the grantee.
Prefers all disbursements to be made by check or wire transfer rather than in cash.
Asserts that the terms of the grant should be reduced to a written agreement signed by both the charity and the grantee. In addition to requiring periodic reports, charities should perform routine, on-site audits of grantees.
Insists that charities must demonstrate that it exercised an independent decision about the use of its donations and that the funds sent abroad further the charities’ own purposes.[9]

The due diligence described in the VBP is tedious and costly. Many have therefore argued that this extra screening will funnel money away from legitimate programs and into excessive administrative costs. The Treasury Department is standing by its suggestions, thus, signaling to all that “life is simply more expensive and inconvenient as a result of global terrorism, and everyone is expected to bear a share of the new costs of doing business.”[10]In short, the Treasury Departments “Voluntary Best Practices” aims to equate the due diligence required of nonprofits to that recently put inplace at financial institutions and companies with dealings abroad.

As these “voluntary” guidelines become more accepted, U.S. based charities and donors will need to adopt practical steps to ensure the transparency and compliance. With the writing on the wall, nonprofit organizations can take preemptive measures to ensure that their charity continues to operate full-speed-ahead during these times of increased scrutiny, skepticism, and change.

Tizku Lemitzvot,

Shuey

Author’s Note: As we have been seeing the I.R.S. and other governmental agencies stepping up their scrutiny of US charities (not necessarily a bad thing), I decided to repost the above article that I had written originally in 2007. A quick look at The Independent Sector will show the reader that the post is still relevant and up-to-date.

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.

[1] Day, Berry & Howard Foundation Handbook on Counter-Terrorism Measures: What U.S. Nonprofits Need to Know (2004): pg. 18.

[2] U.S. Department of the Treasury U.S. Department of the Treasury Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities (September 29, 2006): pg. 2.

[3] Handbook: pg. 21.

[4] U.S. Department of the Treasury Response to Comments Submitted on the U.S. Department of the Treasury Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities (September 29, 2006): pg 3.

[5] Ibid.

[6] Handbook: pg. 21.

[7] Ibid: pg. 22.

[8] As described in a letter dated June 28, 2007, by the IRS to Senator Charles Grassley, ranking member of the Senate Committee on Finance.

[9] Handbook: pgs 18-19.

[10] Handbook: pg. 22

Insight Not Accuracy: Why The New York Times is Important

NonProfitBanker — Thu, 15 Jul 2010 17:18:54 +0000

A recent New York Times’ article attacked American charities that help build communities in Israel’s West Bank and IRS policy that enables donations to these organizations to be tax-deductable. As with any piece about the Palestinian-Israeli conflict, many people have been quick to attack or defend the veracity of the article.

To nonprofit organizations, the value of the article is not the accuracy of the authors’ claims, but rather the article’s insight into current concerns and trends influencing the nonprofit sector. These can serve as warnings and guidelines to US charities that operate internationally.

Towards this end, I have highlighted themes in the article through blocks of text.

Charity Law as an Extension of US Policy

Using tax-exempt donations to help Jews establish permanence in the Israeli-occupied territories – effectively obstructing the creation of a Palestinian State.

Mr. Obama has particularly focused on them as obstacles of peace.

As the American government seeks to end the four-decade Jewish settlement enterprise…the American Treasury helps sustain the settlements through tax breaks on donations to support them.

Washington has consistently refused to allows Israel to spend American government aid in the settlements.

The article hints to a link between United States charity regulation and governmental policy. While there necessarily shouldn’t be a connection between the two, the facts on the ground seem to hint otherwise. More because of increased scrutiny by the governmental department tasked with overseeing nonprofits rather than because of changes in law.

It would behoove organizations operating overseas to consider this growing link (at least during President Obama’s tenure) and to consider US policy when formulating strategy and governance.

Board Members and Officers Should Not Be A Rubber Stamp

It [Shuva Israel, a US tax-exempt charity] has two volunteers who double as board members. “I’ve never been to the board,” said one of them, Jeff Luftig.

Independence and control: two running themes in nonprofit legislation, regulation, and audits.

Volunteers who agree to serve as a board member should understand that this voluntary service comes with mandatory responsibilities. The same holds true for a nonprofit searching for potential candidates. The United States Government and the public look to a Board of Directors as the brains and power behind a charity; as such, the board is expected to actively participate in the running and planning of a nonprofit.

Local Charity, Local Board

Although IRS rules require that American charities exhibit “full control of the donated funds and discretion as to their use,” Shuva Israel [a US tax-exempt charity] appears to be dominated by Israeli settlers.

The IRS does not want an American charity to be a puppet, subservient to the wishes of another organization or individual — local or foreign. While foreigners are allowed to sit on the boards of American charities, the nonprofit should never appear as if it has lost its American identity and independence.

Silence Speaks Volumes

Settlements violate international law…

In some ways, American tax law is more lenient than Israel’s.

Asked whether it had ever filed a tax return, he responded, “I’m not in a position to answer that.”

Records from the group [Manhigut Yehudit] say a portion of the $5.2 million collected has gone to Israeli “community facilities”…neither man would answer questions about the nature of the “community facilities.”

Silence can sometimes be the worst answer an organization can give as it hints that perhaps no employee knows the answer or, even worse, that the organization has never bothered to ask the question. Conferencing with lawyers, accountants, and other professionals can often turn up most of the potential challenges facing the charity. It is to the benefit of the organization to prepare responses to expected Frequently Asked Questions and designate employees and volunteers best equipped to answer them.

The organization’s reputation demands an answer better than silence.

Filing with the IRS: The Best Defense is a Good Offense

Religious charities are still more opaque; the tax code does not require them to disclose their finances publicly.

Religious groups have no obligation to divulge their finances, meaning that settlements may be receiving sums that cannot be traced.

Religious organizations – like many of the charities that support Israel – that expect to come under government or general scrutiny should consider filing relevant IRS paperwork even though they are not required. Entering background, managerial, and financial information information ahead of any “investigative piece,” is convincing evidence that the nonprofit’s intentions are noble, as well as legal.

Conclusion

As the United States Government loses millions of dollars from noncollectable donations to tax-exempt organizations, charities will always be subject to public and governmental scrutiny.

After reading the excerpts from the Times article, one can certainly understand more of the public and regulatory sentiment towards US registered charities operating abroad, especially those supporting Israel. This said, American nonprofits can still fulfill their mission, operating at their peek capacity.

Among the many DON’Ts mentioned by the authors were also some excellent DOs, which, if followed, can prevent the very accusations highlighted in the article:

The [US] tax code encourages citizens to support nonprofit groups that may diverge from official policy, as long as their missions are educational, religious or charitable.

The Time’s review of pro-settler groups suggests that most generally lie within the rules o the American tax code. Some, though, risk violating them by: (1) by using the money for political campaigning and residential property purchases, (2) by failing to file tax returns, (3) by setting up boards of trustees in name only and (4) by improperly funneling donations directly to foreign organizations.

But the IRS does allow deductions for donations to American nonprofits that support charitable projects abroad, provided the nonprofit is not simply a funnel to another group overseas.

Truly, good advice to follow.

Tizku Lemitzvot,

Shuey

Homeland Security Scrutinizing New Nonprofits: What Can We Expect & How Can We Adjust

NonProfitBanker — Wed, 30 Jun 2010 12:57:02 +0000

And the hits just keep on coming…

Nonprofit organizations have yet another hurdle to cross when applying for tax-exempt status.

A while back, a colleague of mine, a director of a nonprofit organization, applied for tax-exempt status in the United States. The IRS had questions for him, which was to be expected. What was not expected, however, was that after answering the IRS’ questions, his file was then forwarded to the Department of Homeland Security [DHS].

That’s right, the U.S. Government Department that oversees (no pun intended) counter-terrorism, border security, disaster response, and immigration is also an integral part of the tax-exempt approval process.

Why is the Department of Homeland Security Scrutinizing Charities?

The DHS investigating is no random act. As explained in a previous post:

The U.S. Internal Revenue Service (IRS) stresses that the risk that a grant will be used for non-charitable purposes increases drastically when dealing with foreign grant making and expenditures…intelligence information hinting “to the effect that international charities are the second principal source of money that underwrites terrorist activity”

Questions asked by Homeland Security

1. IRS Type Questions

Similar, if not exact repeats, of questions asked by the IRS.

2. Nature of Activities – Lobbying/Advocacy

The nature of the activities of the charities abroad that would be receiving the money. Specifically, if the receiving charity participates in lobbying and/or advocacy. In the United States, certain types of lobbying/advocacy label the organization 501(c)4 tax-exempt charity. Donations to (c)4 charities are not tax-deductible. If an organization is worried if they fit this category, they might want to look into the 501(h) test.

3. Control Measures

Control measures in place to ensure that the money will be used strictly for charitable purposes.

4. Legal Status of the Recipient Organizations

The DHS asked if the recipient charity is considered a 501(c)3 charity in its respective country. This question is a little tricky because countries have different definitions of what it means to be a nonprofit organization.

In Israel, for example, is the DHS referring to the Nihul Takin [Certificate of Proper Management] given out by the Registrar of Charities [Rasham Ha'amutot] or Seif 46a [Paragraph 46a] certification given out by the Tax Authorities [Mas Hachnasah]?

5. Independence

My colleague stressed that the DHS was very interested to know that the funds sent abroad were not limited to only one recipient. It is crucial for the IRS that the American entity be an independent, self-governing body that is not subservient to any other foreign or local individuals/organizations. And yes, this is a running theme in my blog posts. (A previous post, “Reasons Why Not to Establish an ‘American Friends Of’ elaborates on this Independence.)

Conclusion

What lessons can we learn from this organization’s experience?

1. Longer Process

US registered nonprofits who are applying for tax-exempt status can expect the process to take longer. This is not necessarily a must – maybe no red flags will be raised and it will be smooth sailing. However, I wouldn’t count on it.

2. Treat the DHS Seriously

Even though it might seem that the DHS shouldn’t be in the picture or that their questions are repetitive (maybe even ludicrous and pointless), don’t belittle their role. Whereas the IRS has control only over your tax-exempt status, the DHS can freeze your assets. The Patriot Act allows the U.S. Government to freeze assets first and ask questions second, if they should think that the accounts are connected to terrorism. As of today, the DHS has a big mandate. Don’t mess with them.

3. Adjust Accordingly

The right experts can help you write your By-Laws (including mission and mandate) in a way that raises less flags. I am not advocating lying, fibbing or stretching the truth. Just the opposite: Good charities shouldn’t suffer simply because they wrote their By-Laws in a way that doesn’t accurately describe the activities of the organization.

4. Plan in Advance

If you can theorize the types of questions that your organization’s application will elicit, then you should also being able to prepare answers in advance.

When fundraising, acquiring 501(c)3 tax-exempt status quickly can make-or-break attracting that big, elusive donor. Why unnecessarily lengthen the process?

Tizku Lemitzvot,

Shuey

The Real Reason Israelis Don’t Donate

NonProfitBanker — Sun, 20 Jun 2010 22:00:33 +0000

There is debate raging in the United States about tax incentives and the Nonprofit Sector. The U.S. government, by allowing donations to be tax-deductible, is surrendering money “owed” to it for the sake of encouraging charity. Many believe that the two – the rate of deductions and the amount donated to charity – are directly linked. Any decrease in the rate of deductions will lead to a decrease in the aggregate amount of charity donated to nonprofit organizations.

A recent study in Israel advocates the same theory, claiming that Israel’s poor standing in charitable-giving is directly related to the Israeli Government’s comparatively lower tax-deductible incentives.

However, by placing the blame squarely on the Israeli Government – instead of sharing the burden with the nonprofit organizations operating in Israel – these researchers are causing the Israeli Nonprofit Sector to leave a huge well of potential-donors untapped. The charities in Israel are failing to engage would-be donors, and it is this lost opportunity that should really be addressed.

Study: Israelis Don’t Donate

A recent article in Haaretz quotes two studies that highlight Israelis’ lack of charitable nature and provides some hard-to-ignore numbers:

Support for nonprofits in Israel — from outside and inside Israel — stands at 1.34% of GDP, second only to the United States (1.85% of GDP). If donations from abroad are not counted, the rate plunges to 0.8% of GDP, less than in most of the West.

In 2006, revenues of nonprofit organizations [in Israel] totaled NIS 6.6 billion, of which only NIS 590 million originated with Israelis, while NIS 3.5 billion came from abroad. The rest came from the income the organizations generated themselves and from the government.

The 6,377 foundations in Israel dish out a combined $150 million a year. Compared to the 1500 foreign philanthropic funds operating in Israel, which donate a combined $1.5 billion a year.

The Johns Hopkins study found that only 6% of Israelis volunteer, slightly more than in emerging markets but well below the roughly 15% rate in the West.

The government provides 51% of the funding to nonprofits. That rate is far above the Western norm: the average proportion of government support among the other 22 nations surveyed stands at 37%.

The Israeli research team, all big names with “facts on their fingertips” – Dr. Nissan Limor, Prof. Benny Gidron, Raanan Dinur, Zvi Ziv, Ahuva Yanay, and representatives of Israel’s Tax Authority – noted that Israel’s tax-deductible policy does not encourage charity.

One way to measure this is the lost tax-revenue from claimed donations to nonprofit organizations; this number stood at NIS 170 million in 2009, which was 0.08% of total tax-revenue of that year. In the United States, the equivalent cost stood at 2% and in Canada at 0.4%. In other words, percentage-wise, less tax-deductible donations are made in Israel than in other countries.

Are We Selling Israeli Donors Short?

The article continues:

Why don’t Israelis donate more? Because the government doesn’t encourage it, says the team. “It isn’t a question of culture, but of policy,” says Limor. “Philanthropy needs encouragement. The Israeli government never did encourage it. Incentives for donors are quite limited.”

In other words, Dr. Limor points the finger solely at the government, not at the Israeli people and not at the nonprofits operating in Israel. If ind it hard to believe that there is nothing more that can be done by the charities to encourage more donations and by the donors to get more involved. Thus, this explanation, sells the Israeli people short. The grim numbers shown above cannot be easily dismissed by blaming it all away on the Israeli government.

Israelis Want to Give, They Just Don’t Know It

I attended an event organized by Shiur Acher [A Different Lesson] on April 25th. This Israeli charity encourages companies to donate manpower to teach classes in schools located in underprivileged neighborhoods.

At their event, Shiur Acher unveiled the findings of a survey sent out to the 1,600 past-and-present Israelis who have volunteered their time to the organization; 275 volunteers, or 17%, responded. (The survey had a dizzying, 40 questions. Additional answers can be found after the post marked *)

Highlights:

59% Reported that they do not volunteer outside of Shiur Acher.

67% Replied that their time at Shiur Acher awakened in them a desire to become more socially involved.

89% Recommended or plan to recommend Shiur Acher to others

Conclusion

With only 270 people answering the Shiur Acher survey, it can hardly be seen as decisive proof. However, the evidence shows that the Israeli non-giving culture can be changed when donors are properly engaged.

The study showed that volunteering for the organization was, for a majority of the volunteers, their first encounter with charity. Additionally, a majority noted that volunteering had “awakened in them a desire to become more socially active.” In other words, those that have been successfully engaged, those that had a chance to volunteer at a place that made them excited, actually want to do more charitable acts and want to encourage their friends to do the same.

The Nonprofit Sector in Israel needs to look within itself how to inspire the population to become more socially involved. Yes, the government can improve its tax-deductible incentives. But this will only increase the amounts given to charity. The desire to initially give lies within the donors themselves. So too, the responsibility to stoke that desire, to transfer that yearning into action, lies within the organizations themselves. Let us not be complacent. Donor relations is not a job title, it is a challenge. It is a call to arms.

Tizku Lemitzvot,

Shuey

* Additional highlights from the Survey:

How many years have you been volunteering with Shiur Acher?

44% 1 yr

44% 2-3 yrs

12% 4 or more

Would you recommend volunteering at Shiur Acher to your colleagues?

89% Have recommended or plan to recommend volunteering with Shiur Acher to their peers

74% Of the above 89% would recommend volunteering with Shiur Acher to their colleagues

What motivated you to volunteer? (Can choose more than one reason)

68% The desire to help educate children and help a community in need

22% Breakup routine, pleasure, curiosity, interest, satisfaction

15% Volunteering is an integral part of working in my company

14% Recommendation from a colleague

14% Request from the coordinator working for the charity

10% A chance to try out teaching

7% Existed an expectation in the company that I would volunteer

3% Other reasons

Do you volunteer outside of Shiur Acher?

59% Reported that they do not volunteer outside of Shiur Acher

41% Reported that they do volunteer. Of which 47% of those, belong to neighborhood watch, PTA, youth movement or give charity.

Other Survey Highlights:

67% Replied that their time at Shiur Acher awakened in them a desire to become more socially involved

77% replied that their volunteer work was very, very important to them.

50% Believe that volunteering is important to their company

47% Appreciate/value their employer more because of their participation in the Shiur Acher Project

57% Reported that participation in the project brought them closer to their coworkers

Weekly Must-Reads: June 6

NonProfitBanker — Sun, 06 Jun 2010 19:53:35 +0000

A list of great articles I’ve read and posted to Twitter between May 23 – June 5, 2010. This week’s topics include: I.R.S.; Sector Trends; Social Media & Internet; Finance & Economy; and Potpourri.

While it has been two weeks since my last Must-Read, don’t worry about overload. Between my daughter running into a door and needing stitches and my internet being on the fritz for four days, its been a slow couple of weeks. Well, here’s hoping for a better week that last…

Tizku Lemitzvot,

Shuey

I.R.S.

New online tax form for small US charities: Good. IRS deadline-extension of new form: Bad.http://ow.ly/1ODte via @philanthropy

The misleading reality created by the IRS 990 & 2 ways to change it (Harvard Business Review)http://ow.ly/1SGhi via @bethsteinberg

Which lines in IRS 990 give snapshot of org’s financial health? http://ow.ly/1SFDt via@NAFund @FollowMCF // G8 resources 4 NPOs/Foundations

Dangerous assumptions of volunteerism by US Gov’ harm volunteers & paid staff of #nonprofitsector http://ow.ly/1Ti4V via @NonprofitSRQ

Sector Trends

Study shows widespread innovation among NPOs & efforts to measure programs effectiveness, on @eJPhil http://ow.ly/1STDm

RT @Philanthropy: British charities are getting hurt by a real-estate slump:

Social Media & Internet

RT @avinashkaushik: [For Bloggers, Twitterers] 5 Ways To Manage Your Critics http://zqi.me/d5oFu6 >> Great advice 4 online & offline critics

Cute (& true) >> RT @bkmacdaddy: Everything You Need to Know About Social Media You Should Have Learned in Pre-school http://bit.ly/cLvHz0

RT @nptechblogs: Six tips for managing an international workforce, on @wiserearth http://bit.ly/aVAZyg // Crucial for NPOs operating abroad

RT @GuyKawasaki: 7 tools to back up your social media content http://ow.ly/1Tige

Finance & Economy

Bank of Israel Governor: #Israel dodged property bubble when government intervened in mortgage sector http://ow.ly/1TETK

#Israel Banks using new rules as excuse to raise mortgage rates http://ow.ly/1RXAs

Good summary of influences on the Shekel with predictions for the future. http://ow.ly/1TfrF #israel #currency

4 accurate ways to quantify the state of jitters in financial markets. http://ow.ly/1RXJ8 // Interesting, fear is quantifable

Potpourri

RT @davidcorman: Headline of the day: Woman Follows Google Maps “Walking” Directions, Gets Hit, Sues http://selnd.com/92ipOH

Weekly Must-Reads: May 23

NonProfitBanker — Sun, 23 May 2010 18:19:19 +0000

A list of great articles from around the web that I posted to Twitter from May 16 – May 22, 2010. This week’s topics include: Strategy & Governance; US Tax Tidbits; Social Media & Fundraising; Economy & Finance; and Potpourri.

Tizku Lemitzvot,

Shuey (@nonprofitbanker)

Strategy & Governance

Guidestar CEO stresses that good metrics help nonprofits attract (strategic) deep-pocket donors http://ow.ly/1LFba #philanthropy

US Tax Tidbits

RT @NAFund & @aznonprofits: 6 Important Facts about Tax-Exempt Organizations http://bit.ly/9n8Qcz // The ABCs of donating money to US NPOs

New online tax form for small US charities: Good. IRS deadline-extension of new form: Bad. http://ow.ly/1ODte via @philanthropy

Social Media & Fundraising

6 Ways Board Members can fundraise w/out having them solicit peers, by @GailPerrync http://ow.ly/1LDdY via @npmaven @PamelaGrow

Engaging consumers about their social/environmental concerns? 75% believe you should (by @andrealearned) http://ow.ly/1NQkP via @elainecohen

Real-Life stories from nonprofits on incorporating social media into marketing strategy http://ow.ly/1OAyg via @nptechblogs @reedstockman

The mantra for all who work with social media >> The Cornerstone of Social Media Strategy is Clarity, by @askdebra http://ow.ly/1OD3d

Intro in “What the Hastag,” a wiki hash directory & metric analyzer, by @jewishagency http://bit.ly/bskHmx via @eJPhil

Economy & Finance

Rethinking the metric of a good economy, maybe the G.D.P. isn’t the best judge. On @nytimes http://ow.ly/1LFvj

Haaretz: European crisis could cause #Israel exports to fall by $1 billion http://ow.ly/1LWi7

Haaretz: Why gold is spiking & why it matters to the Bank of #Israel http://ow.ly/1LWoM // Good summary of currency fluctuations & inflation

Potpourri

ATM-style vending machine that dispenses GOLD! http://ow.ly/1LSTh Not to be confused with ATM-style vending machine that dispenses French Fries http://ow.ly/1LSXX

Who says Britons don’t have a sense of humor? >> RT @johnhaydon: Man loses licence after drunk driving in toy Barbie car http://ow.ly/1NQxP

Weekly Must-Reads: May 16

NonProfitBanker — Sun, 16 May 2010 19:46:35 +0000

A list of great articles from around the web that I posted to Twitter from May 2 – May 15, 2010. This week’s topics include: Strategy & Governance; Social Media & Internet >> Fundraising; Social Media & Internet >> Recreation; Israel; Banking & Economy; and Potpourri.

I didn’t have so much time last week, forcing me to combine 2 weeks worth of links. Man, oh man. I hope you’ve got some time, there are some great articles below. Not to mention some really funny ones, as well. Enjoy them both.

Tizku Lemitzvot,

Shuey (@nonprofitbanker)

Strategy & Governance

Protect your #Nonprofit: 3 critical manuals all NPOs should create http://ow.ly/1JQRl via @NonprofitSRQ @npa_online @PamelaGrow

IRS interim report “Exempt Organizations – Universities Compliance Project” http://ow.ly/1Jdeq – focus on unrelated income & executive comp

4 Reasons Why IRS Interim Report “Exempt Orgs – Universities Compliance Project” is an Important Read http://ow.ly/1JheM

RT @socialcitizen: Is the $5 Donor a Philanthropist? http://ow.ly/1Grmq >> Great question raised. I weighed in, interested in your feedback

Koret CEO Jeff Farber shares: “It’s time #Jewish #philanthropy stop operating like a charity” http://ow.ly/1GN3Z

Well said! >> RT @nptechblogs: With great market share comes great responsibilityhttp://bit.ly/c5QwgE (via @socialsignal)

How to tell if your brand is useless (2 min VIDEO) on @jeffbrooks http://ow.ly/1KJmA // @CharlieKalech reminds me of speech you gave @ GBN

Great resource for boards >> RT @HeidiEKMassey: RT @npmaven: Creating online ‘readings’ handout 4 #nonprofit boards.http://is.gd/c2Lsh

Social Media & Internet >> Fundraising

Dan Brown of @eJPhil gives highlights from 2010 eNonprofit Benchmarks Study.http://bit.ly/94DYxy >> important numbers for email campaigns

NPTimes: Charity apps combine education & fun & translate into $ w/o limits of text-2-give-campaigns http://ow.ly/1GNor

To Mama With Love: Social Network Fundraising succeeding in Engagement & Conversation, by @askdebra http://bit.ly/cqNwuz via @shoshanak

Social Media is NOT about jumping on the bandwagon >> 10 Trends in SUSTAINABLE Social Media, by @askdebra http://ow.ly/1Lxm8 via @lblumenthal

Crucial Message! >> RT @PaulDunay: Social media is not a campaign: It’s your customerhttp://ff.im/-k6khS by @travismurdock

RT @nonprofitorgs & @askdebra How@EnvDefenseFund created its social media guidelines, by @kiramarch http://is.gd/c4D6v

RT @PaulDunay: 7 Things Your Organization/Company Must Do Because Of Social Media, by @augieray http://ff.im/-kif9L

Holy smart-bomb Batman! US Airforce has awesome Social Media Response Plan flowchart! http://ow.ly/1JQiP via @nptechblogs @wildapricot

It’s all about making it personal! >> RT@askdebra @bfholmes: NGO thinks outside-the-box to give homeless a voice (VIDEO) http://ow.ly/1Jidw

Social Media & Internet >> Recreation

RT @GuyKawasaki: How to make your Facebook profile more private [2 min VIDEO]http://is.gd/c8eNj // Facebook privacy settings are in 5 dif places!

RT @HilzFuld @Minervity: Top 5 Social Blogging Tools http://su.pr/2QpKQd by @RuhaniRabin

RT @askdebra: Very interesting – FB backlash. Diaspora: an antidote 2 FB? Http://bit.ly/aoubb0 via @pampelmoose

RT @lblumenthal: 8 kinds of websites we need to stop building, by @oatmeal http://ow.ly/1KQj7 // Funny. Hard 2 agree w #6, need of more secure FB

RT @mayerreich: This is funny and why I hate Facebook. http://bit.ly/dbSyHs // Facebook intrudes just a tad, doesn’t it

Are social networks hurting or helping children develop emotionally/socially? http://ow.ly/1GnIg via @power2b @dovemerson @rabbigreen

RT @GuyKawasaki: “How do I delete my Facebook” query growing http://is.gd/c4Iif

Israel

RT @inwnews: Globes: CITI mulls retail banking in #Israel http://ow.ly/1GnlC >> more competition & lower fees? I hope so

RT @ISRAEL21C: OECD accepts Israel as member http://su.pr/2Joo35 #Israel #economy #business

RT @Israel_News: Euro drops sharply vs Shekel as IMF judged EU’s emergency fund as a temp solution. http://ow.ly/1Js4A

Banking & Economy

The New Poor: Even w/ rebounding economy, many jobs – tnx to tech advances – won’t be coming back ever http://s.nyt.com/u/wuwm

US Crisis Panel to probe how big banks routinely – and legally – fudge their quarterly books. http://ow.ly/1Hb8q

US Treasury Sec urged Congress 2 impose 10-yr $90 billion bank-tax 2 recoup 2008 bailout-costs http://ow.ly/1Hbbr

As stimulus $ dwindles down, expect States to make deep cuts http://ow.ly/1IQwd via @NAFund @PANONonprofit @robertegger

RT @askdebra: Social media and the banking industry, by @davidfinch http://is.gd/c6YkI // Essential services made easier, free advice & more

Thanks for the referral Debra >> RT @askdebra: Mobile banking set to soar, courtesy of @emarketer http://is.gd/c5ZPJ

Potpourri

RT @Neil_Hamburger: Another “world’s oldest person” died today. Clearly, a dangerous competition that should be stopped. http://ow.ly/1GUIC