Author Archives: Nathan Berch

Americans are Becoming Less Charitable

Charitable donations have decreased since the 2008 economic recession and its subsequent recovery. Interestingly, during periods of economic downturn lower and middle class Americans give substantially larger proportionate amounts of their income to charity than those earning greater than $200,000 per year. Economists at Texas A&M University analyzed the amount of charitable giving itemized on Americans’ tax returns from 2006 – 2012 and indicated that Americans who earned less than $100,000 in annual income donated about 4.5% more money than average during the 2008 economic recession. Comparatively, Americans who earned greater than $200,000 in annual income donated about 4.6% less money than average during the same period. Based on this research, it is appears that those who benefit from charitable contributions are more likely to donate. However, donations from wealthy Americans still encompass the majority of the total dollars donated as charitable contributions.

In addition to this economic research, fewer Americans believe that their volunteerism is effective in their communities. Previously, volunteers believed that it was their responsibility to improve their communities; an increasing number of volunteers have shifted to the mindset that community improvement is the joint responsibility of themselves and their families, governmental groups, nonprofits, faith-based organizations, and educational institutions. This may represent a growing fatigue among Americans regarding volunteerism. Between 2010 and 2014, the percentage of people who planned to volunteer dropped from 57% to 41%.

Although the recession of 2008 has since recovered, lingering uncertainty may reduce the likelihood of charitable donations. A similar phenomenon occurred following the Great Depression. However, charitable giving is not solely dependent upon income levels. Rather, charitable motivations may stem from social pressure, sympathy, or guilt. Similarly, charitable giving has proven to stimulate the same regions of the brain as food, cute babies, and romantic partners. To maintain a stable, steady donation stream, charities must be able to prove to the American public that their work is highly beneficial to their local respective communities and show the personal, economic, and social benefits that their respective work encompasses.

Find out what others are saying about this trend here, here, and here.

New IRS Form 990 Audit Selection Methodology

The IRS has recently improved its audit selection process shifting from a subjective selection to a data-driven selection. Previously, subjective audit selection indicated that audits were driven by issue-specific determination. For example, following an IRS study on hospitals, more hospitals were selected to be audited compared to previous years. Similarly, following an IRS study on colleges and universities more audits of colleges and universities were performed.

The IRS has developed a data-driven approach that incorporates nearly 150 analytics based on nonprofit organizations’ Form 990 data in an effort to eliminate subjectivity. In doing so, the IRS intends to expand the number of organizations that could potentially be audited. If an organization “fails” too many analytical evaluations, it is more likely to be audited by the IRS. While no specific analytics have been published, industry experts anticipate the IRS to focus on the following sections of Form 990:

  • Inconsistent information
  • Reporting amounts in column (C) of Part VIII, but not reporting that a Form 990-T was filed on Part V, Line 3.
  • Preparing Schedule L to report an insider transaction, but reporting on Part VI, Line 12 that the organization did not implement a conflict of interest policy.
  • Responding affirmatively to a Part IV inquiry, but not completing the applicable Form 990 schedule.

Although the IRS’s method of audit selection was updated, its budget has not increased for nonprofit organizations. Despite the budget stagnation, the new data-driven audit selection method has increased return change rates to over 90%, which represents a substantial increase in change rates compared to the 70% seen with subjective audit selection. Furthermore, there has been a 20 -day reduction in average audit completion since the implementation of data-driven audit selections – from 233 days in 2015,when subjective audit selections occurred to 213 days in 2016.

For more information on this new approach, click here.

What Is a Joint Activity?

checklistA joint activity is the combination of fundraising and another function incorporated into a single activity. When accounting for joint activities, the criteria of purpose, audience, and content must be met to allow for the fundraising and other program to be accounted for separately. If these three criteria are not met, the entire joint activity must be accounted for as a fundraising activity.

To achieve the purpose criteria, the joint activity must accomplish either program or management and general functions. Program functions are those that call for a specific action by the audience that will help accomplish the organization’s mission. Comparatively, management and general functions are those that support the continued operation of the not-for-profit organization, apart from fundraising.

The audience of a joint activity must have a reasonable potential for the use of the specific action established by the joint activity or can assist the organization in achieving the goals of the joint activity. Provided that the audience is not targeted exclusively based on its fundraising potential, the audience criteria should be met.

A joint activity’s content may also be fulfilled through either program or management and general functions. To fulfill the organization’s program function, joint activity must call for specific action that will help accomplish the organization’s mission. Similarly, the fulfill management and general functions may be fulfilled through the joint activity to accomplish the content criteria.

The following is an example of a joint activity to meets all three criteria:

The Clean Street Foundation’s (CSF) mission is to limit the abuse of alcohol within the city of Thornville. CSF’s annual report states that one of its objectives in fulfilling that mission is to assist parents in preventing their children from abusing alcohol. As such, CSF mails brochures to the parents of all high school students in Thornville that explain the dangers associated with alcohol abuse. The brochures encourage parents to speak with their children about the dangers of alcohol abuse but also include a request for contributions.

In this example, asking parents to speak with their children about alcohol abuse is a call to action that satisfies the purpose criteria. Additionally, the parents of high school students are a reasonable audience for CSF. Finally, the content of the brochure helps to accomplish the organization’s specific mission through a specific call for action. CSF is able to classify the brochure program as a joint activity because it fulfills the criteria of purpose, audience, and content, while also soliciting contributions.

The Maverick Collective

please giveIt is natural for nonprofit organizations to seek contributions from wealthy individuals as a means to further achieve their organizational goals. Often, however, these nonprofits will allow their wealthy donors a targeted glimpse into the organization – only showing the donors what they want to see. In response to this donor-organization relationship structure, several affluent women sought the opportunity to provide relevant personal experience, as well as financial support, for their cause of interest by establishing the Maverick Collective through Population Services International (PSI).

The Maverick Collective seeks to build a global community of strategic philanthropists and informed advocates who use their intellectual and financial resources to create change. The women involved are required to invest a minimum of $1 million over a three year period with the ultimate focus of the Maverick Collective striving to eliminate extreme poverty in the developing world. To achieve this mission, there is a strong emphasis placed on the health of women. When healthy, girls and women are able to receive a better education, find better jobs, and spend more of their income on their families.

Board members of nonprofits often find it difficult to refrain from becoming too involved in the routine organizational activities of their respective organizations. Additionally, the organizations themselves want to keep the donor involved but also want to keep their operations running without significant interruptions. Additionally, when working internationally, it is especially important to build trust between all parties. In doing so, effective communication is maintained which creates an environment more receptive to proposed strategic solutions. PSI works hard to communicate its vision so that donors can become integral team members; working actively alongside PSI staff to achieve a common goal. As a result of its initiatives, the Maverick Collective has helped more than 300,000 women live healthier lives across 13 countries.

Read more about it here:

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