An overview of the NFP Sector - University of Idaho · PDF fileAn overview of the NFP Sector ... The audited financial statements are private ... that is recommended for annual reports,

NFP Sector 1

An overview of the NFP Sector

To accompany coverage of Chapters 1, 12,13 & 14

in Granof’ & Khumawala textbook

NFP Sector 2

Scope of nonprofits – charitable, educational, arts not-for-profit sector the third sector the independent

sector the philanthropic

sector the voluntary sector the social sector Civil Society NGOs

"Nonprofit is a tax status, not a business plan."

NFP Sector 3

Section 501c – 27 different typesMajor sections include:Charities 501c3 (1.4 million)

--must benefit the broad public interest.

Foundations 501c3

Social Welfare Organizations 501c4

Professional/Trade Organizations 501c6

NFP Sector 4

Charities

Nonprofits that are exempt under Section 501(c)(3) Social Services, hospitals, museums and

orchestras, “private” schools, “public” television and radio stations

1.9 million NFP orgs. in 2006

NFP Sector 5

Foundations

individuals, families, businesses, and communities also 501(c)(3) nonprofitsrequired to make grants equal to at least 5

percent of their investment assets each yearnearly 70,000 foundations in the United States.

NFP Sector 6

Types of foundations:

Private foundations

Corporate foundations

Operating foundations

Community foundations (The Internal Revenue Service (IRS) classifies community foundations as publicly supported charities, not private foundations.)

NFP Sector 7

Why are nonprofits tax exempt?

Nonprofits relieve government's burden.Private schools and hospitals, day care centers, homeless shelters, and other nonprofits provide services that government might otherwise be required to offer.

NFP Sector 8


Taxing nonprofits would be difficult and counter-productive. Lawyers and economists have pointed out problems that could arise if government attempted to tax nonprofits. These include the difficulty of determining what qualified as taxable income and the adverse affects taxation might have on the viability of many worthwhile organizations.

NFP Sector 9


Nonprofits benefit society.

• provide valuable services to society

• encourage civic involvement

• provide information on public policy issues

• encourage economic development

• make society richer and more vibrant

NFP Sector 10


Exemption for religious nonprofits preserves separation of church and state. Tax-exemption for religious nonprofits limits government's ability to use tax policy as a tool to promote one religion over another or to tax a church out of existence.

NFP Sector 11

Governance: The nonprofit Board

Community volunteersIt can be a “community of interest” rather

than geographicGenerally unpaidInterest in mission or “cause” Have something to offerSome may represent clientsIn other cases, nonprofits prefer rich people

or people who might be able to help raise $$$

NFP Sector 12

Board members responsibilitiesLegal and fiduciary.Ensure the organization meets legal

requirements and are operating in accordance with its mission Approve budgetExercise the duty of care: attend

meetings, make informed decisions, carry out their dutiesProtect the organization's assets.

NFP Sector 13

Board members responsibilities

OversightEnsure that the organization is well run.Determine mission and purposeCreate and follow strategic planHire and remove the chief executiveDevelop strength of the board, now and for

the future

NFP Sector 14


Fund-raisingactively pursue needed fundingpersonal contributionserve as an advocate with a foundation,

corporation, or government entityorganize a fund-raising event or host a benefitface-to-face solicitation of other individuals

NFP Sector 15


Representation of constituencies and viewpointsProvide experience or perspective of

organization's constituencyProvide voice for constituents in organization’s

governance

Composition of the Local U.S. Government Units

Chapter 1 Granof-4e 16

(13,051)

(37,381)

(16,519)

(19,492)

(3,033)

Over 89,500 entities!


Size and Scope 2006-2007: Number of not-for-profit organizations 1.9 million Total nonprofit sector revenues (2006) $1.1 trillion Annual contributions from private sources (2007) $306.39 billion Percentage of wages and salaries paid in the US by NFP 8.3% Percentage of NI attributed to the Indep. sector (2006) 5.3%

Giving 2007: Individuals contribution (74.8%) 229.03 billion Charitable bequests (7.6%) 23.15 billion Foundations (12.6%) 38.52 billion Corporate (5.1%) 15.69 billion

Importance of the NFP Sector

NFP Sector 18

To what causes do donors give money ?

NFP Revenues

NFP Sector 19

Source – Independent Sector 2007

Annual Reports (voluntary)

NFP Sector 20

Audited Financial Statements may not be requiredRequired in some states for larger

nonprofit entitiesRequired if federal funding exceeds $500K

under the Single Audit ActUnlike business entities:The tax return is PUBLIC informationThe audited financial statements are private

information

NFP Sector 21

Form 990

Mandatory Annual filing if revenue > $25,000

(There is an EZ version for small entities)

NFP Sector 22

This is an “extra” return filed for unrelated business income

NFP Sector 23

Checking up on charities?Guidestar.org for 990 returns and other

information voluntarily provided by the nonprofitCharitynavigator.org for “star ratings” of

larger charitiesBBB Wise Giving Alliance (give.org) for

“pass/fail” evaluations based on 20 standardsAmerican Institute of Philanthropy (Letter

grades) at charitywatch.orgNFP Sector 24

BBB Wise Giving Alliance

1. A board of directors that provides adequate oversight of the charity's operations and its staff. 2. A board of directors with a minimum of

five voting members.3. A minimum of three evenly spaced

meetings per year of the full governing body with a majority in attendance, with face-to-face participation

NFP Sector 25


4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.5. No transaction(s) in which any board or

staff members have material conflicting interests with the charity resulting from any relationship or business affiliation

NFP Sector 26


6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission.7. The board most approval the above

performance evaluation & recommendations for future actions.

NFP Sector 27


8. Spend at least 65% of its total expenses on program activities.9. Spend should be no more than 35% of

related contributions on fund raising. 10. Avoid accumulating funds that could

be used for current program activities. (more than 3 years of expenses or 3 years of current budget)

NFP Sector 28


11. Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. (Audit if annual gross income exceeds $250,000, else a review by CPA)12. The financials must include statement

of functional expense

NFP Sector 29


13. Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. 14. Have a board-approved annual budget

for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.

NFP Sector 30


15. Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part.

NFP Sector 31

BBB Wise Giving Alliance16. Have an annual report available to all,

on request, that includes: the organization's mission statement,a summary of the past year's program service

accomplishments,a roster of the officers and members of the

board of directors,financial information that includes (i) total

income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets.NFP Sector 32


17. Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990.

NFP Sector 33


18. Address privacy concerns of donors by Opt-out option so name and address are not

shared outside the organization, andWebsite accessible privacy policy to tell visitors

(i) what information is being collected and how it is used, (ii) how to contact the charity to review personal information collected and request corrections, (iii) what security measures the charity has in place to protect personal information.

NFP Sector 34


19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) …Such promotions should disclose, at the point of solicitation: the actual or anticipated portion of the purchase price that will

benefit the charity the duration of the campaign any maximum or guaranteed minimum contribution

NFP Sector 35


20. Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or BBBs about fund raising practices, privacy policy violations and/or other issues.

NFP Sector 36

Let’s explore some of the links

Give.orgcharitywatch.org

GuideStar.org

NFP Sector 37

Only You Can Prevent … In a matter of days, several separate instances have been

reported where parents were caught embezzling tens of thousands of dollars from league coffers. In most instances the boards were not aware of the illegal activity for about 3 years. In Central California, a 43-year old mother and coach admitted to

stealing $24,000 from the Turlock Youth Soccer League. The treasurer of the Livonia City Soccer Club arraigned for stealing

over $100,000. In Washington, father and treasurer of the Spartan Baseball Club,

a select baseball club for teenagers, was arrested and charged with embezzling over $21,000.

In Pennsylvania, the treasurer took $12,000 from the coffers of the Coplay Sports in Allentown.


Only You Can Prevent … In a matter of days, several separate instances have been

reported where parents were caught embezzling tens of thousands of dollars from league coffers. In most instances the boards were not aware of the illegal activity for about 3 years. In Wisconsin, the former president of the Green Bay Swim stole

$47,000 over a three-year period In Michigan, the treasurer of the Marine High School Booster Club

was charged for stealing $35,000. In Ohio, the president of the Springdale Youth Boosters Inc. is

charged with stealing $76,000. In South Carolina, more than $13,000 was allegedly stolen by its

vice president/treasurer from the Pinch Elementary School PTO.


If you serve on volunteer boardConsider instituting a “peer audit” of the

activities of the organization at least once a year.A committee of at least two people (who

don’t handle any of the money) meet with treasurer to go through receipts for amounts paid, deposits, checks, etc. It doesn’t take a CPA!Knowing the audit will be done may deter a

potential fraudster!Chapter 12 Granof-5e 40

Documents

An overview of the NFP Sector - University of Idaho · PDF fileAn overview of the NFP Sector ... The audited financial statements are private ... that is recommended for annual reports,