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:
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.
A 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.
It 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.