Author Archives: Carol Barnard

The New Overtime Rule and Its Impact on Nonprofits

overtime work“It is highly misleading to suggest that most nonprofits will not need to worry about the revised [overtime] rule. Nonprofit tax status has no bearing on whether an employer is required to pay its employees overtime,” states Michael Eastman, an attorney with NT Lakis in Washington, D.C. Eastman also is counsel to the Society for Human Resource Management (SHRM).

SHRM reports, “Nonprofit organizations that think the overtime rule doesn’t apply to them need to think twice, and may have to either redouble their fundraising efforts or brace for possible cuts in the services they provide. Despite the fact that these businesses engage in charitable activities, which would  exempt them from overtime pay requirements as enterprises, individual employees may still be eligible for overtime pay.”

The Department of Labor released a fact sheet to further clarify when nonprofits are impacted by the Fair Labor Standards Act (FLSA). Under the FLSA there are two types of coverage: enterprise coverage (which is limited for nonprofits) or individual coverage.

Enterprise coverage applies to businesses with annual sales of at least $500,000. For a nonprofit, this applies only to the organization’s activities performed for a business purpose beyond their mission function, such as merchandise sales or other unrelated business income. Income from contributions and membership fees  are not counted toward the $500,000 threshold.

Individual coverage applies to employees engaged in interstate commerce activities. This includes employees that make out-of-state phone calls, receive out-of-state emails or mail, purchase or receive goods from an out-of-state vendor, or handle credit card transactions including the accounting and bookkeeping to record the transactions.

The main impact of the FLSA is the increase in the exempt threshold. The overtime rule increases the exempt salary level from $455 a week ($23,660 a year) to $913 a week ($47,476 a year) which many nonprofits cannot afford that jump in pay or the sudden addition of overtime. SHRM points out the main concern is that the offset will be a reduction in services that a nonprofit can provide.

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Nonprofits Sued for Return of $2.1 Million in Donations

questionMore than two dozen local, state and national nonprofit agencies are being sued for the return of $2.1 million in donations in a Waco, Texas based lawsuit. A trustee for Life Partners Holdings claims the donations were made by the CEO from funds he fraudulently received from the company before it filed for bankruptcy last year. The alleged scheme appears to have been going on for seven years according to the claim.

The suit claims that donations from the CEO were fraudulent because the funds were obtained through an excessive fee structure that bilked investors out of returns.

Life Partners Holdings was recently investigated by the U.S. Securities and Exchange Commission for their practices involving the sale of investment contracts. According to the suit, Life Partners hid the amount it charged in fees and that only about 20% of the proceeds from investors were actually used to acquire policies while the remaining 80% was divided between future premiums and commissions to licensees and Life Partners. The Texas financial firm is accused of defrauding investors out of $1.3 billion according to the bankruptcy trustee representing creditors.

The attorney that filed the suit notes that no one believes the defendants were involved in the fraud, however, the CEO stands accused of evading taxes and steering millions of dollars to his alleged mistress, the founder of one of the local animal welfare groups in the list of defendants.  A lawyer for the CEO said the suits filed by the bankruptcy trustee have “little, if any, validity” according to the Chronicle of Philanthropy. The suit is seeking to recover as much of the funds as possible.

Several of the recipients are animal welfare organizations but funds were also donated to renovate a building on a college campus in East Waco. The issue, of course, is that the majority of the funds received have been spent and many of the organizations are not in a position to be able to pay back the donation.

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Sham Cancer Charities Shut Down

gavelThe Cancer Fund of America and Cancer Support Services raised approximately $75 million in donations for the fight against cancer, the problem was that less than 5% was actually being used for the intended mission while the remaining funds went to the charities’ organizers and their friends. According to articles in the Washington Post and the Chronicle of Philanthropy, the Federal Trade Commission announced a major victory on March 30, 2016 in its crack down of the sham organizations. As part of a settlement with the FTC, the charities agreed to be permanently dissolved and all of their remaining assets liquidated. Unfortunately, about 85% of the funds raised were already spent, mostly on keeping the scam going through ongoing fundraising efforts. The leader of the alleged nonprofits, James Reynolds Sr. will also have to surrender an unspecified amount of his personal assets and be banned for life from managing a charitable organization’s assets or being part of any charity’s board of directors.

According to the Washington Post, the director of the FTC’s Bureau of Consumer Protection, Jessica Rich, called the scam “a pernicious charity fraud” and continued in a statement to note that the groups “syphoned hundreds of millions of dollars away from well-meaning consumers, legitimate charities, and people with cancer who needed the services the defendants falsely promised.” The charities’ remaining assets will first go to repay states’ litigation fees and, after that, to legitimate charities that the states select.

According to the Chronicle of Philanthropy, “two other charities in the largely family-operated network, the Children’s Fund of America the Breast Cancer Society, agreed to close last year after federal and state authorities charged the four groups with collectively bilking some $187 million from donors.”

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$95 Million Investment Scam Hits Environmental Charity

handcuffsAccording to recent articles from Business Insider magazine and the New York Post even highly sophisticated investors are not immune to potential investment fraud against their non-profits. The Moore Charitable Foundation, an environmental charity established to protect land, water, and wildlife was the recent victim of an alleged investment fraud. The Foundation founded by hedge fund billionaire Louis Bacon,  put approximately $25 million of its endowed funds toward the fraudulent investment. Along with being a well-known environmentalist, Bacon is known to be one of the most successful hedge fund managers out there and doubtless represents one of the most knowledgeable and sophisticated investors in the market.

Investment banker Andrew W. W. Caspersen was arrested on Saturday and charged with securities and wire fraud for his involvement in the alleged $95 million scam. Business Insider states: “According to the complaint, Caspersen solicited investments from two institutional investors in late 2015 for a shell company he called Irving Place III SPV LLC. Irving Place sounded similar to Irving Place Capital Partners III SPV, a legitimate private equity fund that’s not associated with Caspersen. Caspersen falsely told investors that their investment would be secured by the $900 million of assets of Irving Place Capital Partners III SPV…Caspersen’s Irving Place had ‘no legitimate business operations,’ the complaint said. Instead, of investing the money, Caspersen placed it in a brokerage account for his ‘personal use.’ He lost most of it from ‘aggressive options trading.'”

Questions started coming up in early March when Caspersen tried to solicit an additional $20 million from the Foundation. Based on their suspicions of perceived irregularities, the Foundation contacted the general counsel of the investment bank. According to the New York Post, of the original investment, “all but $40,000 of the money is gone, the feds say.”

Read more about the case here:

and here:


Minimum Wage Battle Grounds

pink piggybankThe debate surrounding minimum wage issues has been around for a very long time. Some argue that minimum wage increases would allow employees to be able to provide more for their families. Others however, argue that minimum wage increases can be difficult, especially for small businesses.  Recently the International Franchise Association (IFA) has taken Seattle’s minimum wage case to the Supreme Court. Their argument is not against minimum wage but rather if franchises should be considered “corporations” or “small businesses”.  Small businesses do not fall under the fast track guidelines geared towards large corporations and would have a longer time to phase in the $15 per hour minimum wage required by Seattle.

Seattle is not the only battle grounds of the minimum wage argument. Walmart is believed to have decided to not build 2 of the stores in poor neighborhoods that it had said it would in Washington D.C. as the result of an increase in  proposed minimum wages in the District  and concern over profitability (part of Walmart’s broader strategy of closing 269 stores).  Part of the deal with D.C. was that they would let Walmart build 5 stores as long as 2 of the stores were in poor neighborhoods, so the late decision by Walmart to pull out of building the 2 stores had D.C. outraged.  In a turn of events, Walmart has recently announced they will be taking a huge step towards increasing their employees’ minimum wage. The following is a list of some of the changes that will be taking effect:

  • Employees hired before January 1, 2016 will be earning at least $10/hr.
  • Those employees hired after January 1, 2016 will be earning $9/hr. and will receive $10/hr. after completing training.
  • Employees who are already earning more than $10/hr. will receive an annual pay increase in February. This is new as the employee will not need to wait until their anniversary date to receive the pay increase.

When all of the changes are made, full-time Walmart employees will receive $13.38/hr. and part time employees will receive $10.58/hr. Walmart’s culture and work environment changes will provide employees with a better opportunity to better themselves and their families. These developments provide an insight into the rapidly changing and challenging minimum wage environment and its importance to the workers as well as the complexities for employers.


Written by Melissa Musser and Ilan Bronwasser

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