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What the Watchdogs Are Watching

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Presentation by Tate & Tryon offering detailed information for exempt organizations on how people monitor their organization, filings and effective use of donations

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What the Watchdogs Are Watching

  1. 1. What the Nonprofit Watchdogs areWatchingJanuary 13, 2012 Douglas A. Boedeker, CPA, CMA Partner (202) 419-5106 dboedeker@tatetryon.com
  2. 2. Agenda Do watchdogs matter? Who are the watchdogs? Discussion of specific approaches:  BBB Wise Giving Alliance  Charity NavigatorJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  3. 3. Do Watchdogs Matter? According to recent research*:  77.7% of donors do not use any watchdog rating when making a decision to donate money.  57.9% do not obtain information from any Internet- based source. A 2001 BBB Wise Giving Alliance study reported that 79% had not used the internet for charity information.**Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, andSalomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  4. 4. Do Watchdogs Matter? However, the same study also had the following findings*:  “We found that in both groups, donation size is significantly associated with use of the watchdog organizations’ ratings. As was discussed earlier, when the donation size is high, the loss is more meaningful; many such high-level donors plan strategically to make an impact, and as a result, they are more careful when making a donation……”  “Surprisingly, the stronger explanatory variable was advocacy engagement. In both sample groups, those who engage in advocacy were more likely to use the internet and more likely to search the watchdog organizations’ websites.”*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, andSalomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  5. 5. Where to find watchdogs Google:  CharityWatch (American Institute of Philanthropy)  Charity Navigator  Charity Evaluator (watchdog watcher)  Charity Watchdog® Consumer Reports:  Charity Navigator  CharityWatchJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  6. 6. Where to find watchdogs District of Columbia Government website:  Refers readers to Federal Trade Commission website Maryland State Government website:  Guidestar  Charity Navigator  Federal Trade CommissionJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  7. 7. Where to find watchdogs Virginia Government website:  AARP  American Institute of Philanthropy  BBB – Wise Giving alliance  Consumer Federation of America  Direct Marketing Association  GuideStar  LifeSmarts  National Association of State Charity Officials  National Better Business Bureau  National Fraud Information CenterJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  8. 8. Where to find watchdogs Federal Trade Commission website:  BBB Wise Giving Alliance  American Institute of Philanthropy (Charity Watch)  Charity Navigator  GuideStar  For military relief societies, www.militaryhomefront.dod.milJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  9. 9. Where to find watchdogs Academic research found that donors used the following sources*:  Organization’s website: 61.1%  Better Business Bureau: 40.2%  Charity Navigator: 11.5%  Amer. Inst. of Philanthropy: 6.8%  GuideStar: 5.5%  Network for Good: 3.1%  Other 19.3% *Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  10. 10. BBB Wise Giving Alliance Centers around the BBB Wise Giving Alliance’s Standards for Charity Accountability Mostly voluntary process  Charities can apply for the right to display the BBB Seal. (Requires an annual license fee.)  “The Alliance continues to report on national charities that have been the subject of recent inquiries regardless of whether a charity…intends to apply for the national charity seal.”January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  11. 11. BBB Sample ReportJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  12. 12. BBB WGA Charity Accountability Standards “The standards seek to encourage fair and honest solicitation practices, to promote ethical conduct by charitable organizations and to advance support of philanthropy.”January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  13. 13. BBB WGA Charity Accountability Standards- Highlights Governance and Oversight  Board should provide adequate oversight.  Board should be largely independent.  No material conflicts of interest.Measuring Effectiveness  Board policy to assess organization’s performance and effectiveness at least every two years.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  14. 14. BBB WGA Charity Accountability Standards- Highlights Finances  At least 65% of total expenses on program activities.  No more than 35% of related contributions can be spent on fundraising.  Unrestricted net assets should be no more than three times anticipated expenses.  Audit if revenues are greater than $250,000.  Prepare a statement of functional expenses.  “Accurately report the charity’s expenses, including any joint cost allocations, in its financial statements.”  Board-approved annual budget.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  15. 15. BBB WGA Charity Accountability Standards- Highlights Fund Raising and Informational Materials  Accurate solicitation and informational materials.  Annual report should be available upon request.  Provide mailing address & electronic link to Form 990.  Address donor privacy concerns.  Disclose how the charity benefits from the sale of products or services.  “Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or local BBBs about fund raising practices, privacy policy violations and/or other issues.”January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  16. 16. BBB WGA – “Charting Impact” A new concept, based on self-reported answers to five questions:  What is your organization aiming to accomplish?  What are your strategies for making this happen?  What are your organization’s capabilities for doing this?  How will your organization know if you are making progress?  What have and haven’t you accomplished so far?January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  17. 17. “Charting Impact” – Sample ReportJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  18. 18. Charity Navigator – “Your Guide toIntelligent Giving” To be evaluated:  Must be a 501(c)(3).  Must file a Form 990 (not a 990-PF or 990-EZ).  Public support must be at least $500,000.  Total revenue must be more than $1,000,000.  Must have at least four years of Form 990.  Must be based in the U.S.  Charities that report $0 in fundraising expenses are excluded from evaluation.  Excludes charities receiving most of their funding from government grants or program service fees.January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  19. 19. Charity Navigator – Rating SystemJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  20. 20. Charity Navigator – Rating “FinancialHealth” Based on 7 key metrics:  Program Expenses  Administrative Expenses  Fundraising Expenses  Fundraising Efficiency  Primary Revenue Growth  Program Expenses Growth  Working Capital RatioJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  21. 21. Charity Navigator – Rating“Accountability & Transparency” Data pulled from the 990:  Independent Board.  Material diversion of assets.  Audited financial statements and oversight committee.  Loans to or from related parties.  Documented Board meeting minutes.  Form 990 provided to the Board.  Conflict of Interest, Whistleblower, and Document Retention & Destruction Policies.  CEO is listed with salaries.  Process for determining CEO compensation.  Is the Board compensated?January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  22. 22. Charity Navigator – Rating“Accountability & Transparency” Data pulled from the charity’s website:  Board members listed.  Key staff listed.  Audited financial statements are listed.  Form 990 is listed.  Is there a written privacy policy published on the website? Best is one that “states unambiguously that (1) it will not sell, trade or share a donor’s personal information with anyone else, nor send donor mailings on behalf of other organizations or (2) it will only share personal information once the donor has given the charity specific permission to do so.”January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  23. 23. Charity Navigator – Calculating the ScoreJanuary 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  24. 24. Charity Navigator – CN 3.0 Charity Navigator is working on a “results” dimension to add to its rating system. Looks to garner “rigorously collected feedback” from a charity’s constituents. The results dimension will become the largest portion of the total rating score. Goal is to evaluate 10,000 charities each year via the use of volunteer raters. (Currently, 5,500 charities are rated.)January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  25. 25. Thank you for your time!January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants
  26. 26. Speaker BiographyDouglas Boedeker , is a partner within Tate & Tryon’s Auditand Assurance Services unit and is also actively involved inthe Firms exempt organization tax services group. He has20 years of experience providing an array of audit, tax, andconsulting services to a variety of nonprofit organizations andemployee benefit plans. He takes particular pride that hisfamily has contained at least one CPA every year since 1923.Doug graduated summa cum laude from SusquehannaUniversity in Selinsgrove, Pennsylvania with a Bachelor ofScience degree in accounting while simultaneouslycompleting the coursework for a second major in artsadministration. He was also named as the University’srecipient of The Wall Street Journal Outstanding BusinessStudent Award. Doug is a frequent speaker on a variety of exempt organization tax issues and the Form 990. He recently presented a session on easing the 990 preparation process for CFOs and auditors at the 2011 AICPA Not for Profit Industry Conference. Doug is a coauthor to Guide to the Newest IRS Form 990: Interpreting and Complying with the New Tax Reporting Requirements for Transparency and Accountability, (published by ASAE).January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

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