More good stuff for charities and board members

Articles on warning signs that a charity’s financial processes aren’t working well, the debate on DAFs, and a way-out-there charity.

4/10 – GuideStar – Ten Signs of Financial Trouble for Board Members – If you are on the board of a larger-sized charity, might be helpful to check out this list of warning signs that something is wrong in the financial function. Applies to any charity in New York.

Just a few tidbits:

1.FINANCIAL INFORMATION IS LATE–

Author suggests that 30 days is the outside time to prepare financials, even for the largest charity. That means June 30 info should be available by July 31.

I would suggest that for small organizations, a week or two ought to be sufficient. If you are on the board of a charity with half a million or two million of revenue, I suggest you look at the strength of the finance staff if you can’t get reports by your mid-month board meeting.

4.VARIANCES FROM BUDGET CANNOT BE REASONABLY EXPLAINED–

For small and medium-sized charities, you ought to have a budget and your financial statements ought to show budget to actual variances.

In addition, management ought to have a handle on the major variances. If not, ponder what weakness is leaving management not knowing why the organization is missing its plan.

6.FINANCIAL STAFF NEVER TAKES A VACATION–

It is a warning sign in every organization when there is someone who never takes a vacation. Possible causes could be the training and staffing is so poor that the organization really cannot run without a person, someone thinks they are that important, or someone is hiding something. Regardless of the cause, there is probably something wrong.

9.BOARD DOES NOT REVIEW IRS FORM 990–

My guess is most charity boards don’t really study the 990. I’ll guess a lot of boards don’t even look at it.

Keep in mind the 990 is easily available to any potential donor or potential critic. If you ever get a call from a reporter, I will guarantee you the reporter has analyzed your 990s for the last 3 or 5 years.

3/13Mark Hrywna at The NonProfit TimesThe Great DAF Debate: Timing of payouts continues to spark discussion – Great discussion of all sides of the debate over Donor Advised Funds. There are a lot of issues involved. One intriguing observation is that if DAFs were given a required minimum payout, say 5%, that likely would become the de facto maximum payout. My perception is that has happened in the private foundation world; the attitude is those charities only need to distribute 5%.

Here is a suggestion I’ve not seen before (but then I don’t get out much):  Set a timeline, perhaps 5 or 7 years, at which point all of the funds placed in a DAF must be paid out. That is a great idea.

4/1 – New to Seattle – Murky Florida fundraiser falsely invokes good name of Seattle nonprofitWilliam Barrett finds another charity that has sketchy financial reports. He contacted one of the organizations that is specifically listed as a grant recipient. The PR rep from the charity indicated they had received no grants and were not a program partner with the charity who was claiming that relationship.

I had thought the use of acquired GIK that is unrelated to the organization’s purpose had fallen off in popularity with the recent publicity focused on that practice.

Apparently that is not the case. In 2013, this organization raised $5.9M of medical GIK ($0.2M was blankets and hygiene) out of $9.8M total revenue.

Interestingly, note 2 of the financial statements indicate the GIK was obtained by a contracted third-party and asserts the GIK was received with variance authority.

Mr. Barrett points out the charity has no staff; they contract out all management services.

If you are really interested in this topic, you will want to read the full post.

Mr. Barrett’s post is also a great example of how to explain detailed financial stuff to a non-accountant audience so that it is understandable.

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