Most people involved with nonprofit organizations are familiar with the concept of “conflicts of interest.” Generally, nonprofit board members should have a high standard of care and undivided loyalty to the nonprofits they serve. There should be no instances of self-dealing for themselves, people, or businesses related to them. For example, if a nonprofit is interested in purchasing a board members’ piece of property to expand their organization, they should be made aware of any costly problems beforehand. If the board member does not disclose this information, they will have violated their fiduciary duty by transferring their problems to the nonprofit.
Most board members generously donate their time, talent, and money with no expectation of return other than the satisfaction of being involved with a significant cause. However, nonprofits should be proactive by enforcing a conflict of interest policy, in the event a conflict of interest arises. Potential conflicts of interest could end up destroying both the public and donors’ trust in the organization. A sample conflict of interest policy can be found on the IRS website.
One of the greatest case studies on conflicts of interest is the Bishop Estate Trust controversy.
At the time of her death in 1884, Princess Pauahi Bishop was considered to be the most affluent landowner in Hawaii. In total, she owned approximately 10 % of the land in the state. Detailed in her will, Princess Bishop established a trust where all income from the land would be used to erect and maintain two schools on the Hawaiian Islands. The citizens were extremely enthusiastic for the Kamehameha Schools that would educate their children in the years to come. Since 1884, the Hawaii Supreme Court justices have appointed numerous groups of trustees to oversee the trust. The new board of trustees in combination with the increase in land and development values, which have driven up the trust’s worth to be billions, have created a high probability for conflicts and self-dealing to occur.
In August 1997, a Honolulu Star-Bulletin article outlined some of the conflicts of interests regarding the trust. These types of conflicts went beyond the board members’ relationship with the organization:
These conflicts were considered so corrupt that the IRS threatened to revoke the trusts’ tax exempt status. Ultimately, the allegations were resolved through private settlements and jail time. A full account of the case is detailed in the nonprofit management book, “Broken Trust: Greed, Mismanagement & Political Manipulation at America’s Largest Charitable Trust.”
Conflicts of interest are an important topic for many organizations. If you have any questions or would like to discuss any issues specific to your organization, please contact Aronson’s Nonprofit & Association Services Group at 301.231.6200.
The 2016 Giving USA report, which is researched and written by the Lilly Family School of Philanthropy at the University of Indiana was recently issued; view the report here. Typically, the report is the most comprehensive data on charitable giving released each year. Despite being an election year, Americans continued to be generous giving a record $390 billion in 2016, an increase of 2.7% over 2015.
Similar to prior year’s 95% of giving ultimately originates from individual donations, which breaks down to 72% from individuals, 15% from foundations, and 8% from bequests; and, 5% from corporations. The sectors that benefitted the most from charitable dollars were Religion (32%), Education (15%), Human Services (12%), Foundations (10%), Health (8%), Public – Society Benefit (8%), International Affairs (6%), and Arts, Culture and Humanities (5%). Although not a big sector in total, giving to the Environment and/or Animals increased by 7.2% in 2016, making it the largest gain of any subsector.
As has been consistent throughout the last 20 years, giving as a percentage of gross domestic product is about 2% – 2.1% for 2016. Giving to donor-advised funds continues to increase as we have discussed before, exceeding $20 billion in giving as of late. Average household giving reached $2,240 in 2016, which is very generous. One interesting item to note, is that around 50% of donors do not continue to give after their first year of support. Typical reasons why donors choose not to donate a second or third time include forgetting that they donated; not being reminded to give again; lack of, or irrelevant communication by the organization(s) they donate to, or inappropriate asks. These are generally correctable by the charity through better customer service. Another trend highlighted is that charities are receiving larger donations from a limited pool of high-income households, while seeing a smaller number and dollar amount of gifts from lower income households.
Interested in updating your organization’s fundraising program? Please contact Aronson Partner Craig Stevens at 301.231.6200, to discuss your individual fundraising efforts.
Most associations are involved in advocacy work; as such, association leaders and staff members spend time meeting and educating congressional members or their staff on the issues important to their membership. Being able to contribute to Congressional member’s campaigns provides a higher level of access if coordinated with related events that offer an opportunity to speak directly to the member. Many organizations form a separate segregated fund, commonly referred to as a Political Action Committee (PAC) to achieve this purpose. Corporations by themselves are not able to make political contributions pursuant to the Federal Election Campaign Act.
However, by establishing a PAC, associations can receive contributions from their members that can be used to contribute to a candidate’s campaigns. Some of the rules for establishing a PAC can be found here. Not sure how to form a PAC, visit this article and check out the National Association of Business Political Action Committees’ website.
PACS are considered by many to be the cleanest form of campaign donation, as specific records of donors and contributions are required to be maintained by the Federal Election Commission. On websites like this, you can find all sorts of publicly available information on candidates, donors, and other relevant information. As might be expected, many of the largest PACs in the country are Association PACs. Here is a list of current PACS, including the two largest.
Once you have decided to form a PAC, Craig Purser of the National Beer Wholesalers Association suggests one of the critical areas to address is who will your PAC contribute to. Consider the following:
Many groups regularly bombard members of Congress and their staff, establishing a PAC may elevate your voice above the fray. Please contact Aronson Partner Craig Stevens at 301.231.6200, if you would like to discuss your specific situation.
In August of 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update: ASU 2016-14 Presentation of Financial Statements of Non-for-Profit Entities. This is effective for fiscal years beginning after December 15, 2017. Nonprofits should start working now with their internal and external accounting teams to prepare for the changes related to liquidity disclosures outlined in this new standard.
Per FASB, the goal of ASU 2016-14 with respect to liquidity is to improve deficiencies in the transparency and utility of information that is useful when assessing an entity’s liquidity, which can be caused by confusion about the term unrestricted net assets; and, how restrictions or limits imposed by donors, grantors, laws, contracts, and governing boards affect an entity’s liquidity, classes of net assets, and financial performance. For the full ASU update, visit here.
As has always been required, the Statement of Financial Position shall sequence assets and liabilities based on their relative liquidity. However, unlike in the past, cash and cash equivalents and contributions receivables restricted by donors to investments in land, buildings, and equipment will be sequenced closer to those items. Cash and cash equivalents of donor-restricted contributions held temporarily until suitable long-term investments are identified, are included in the classification long-term investments.
In addition, for the first time nonprofits must include a footnote in their financial reporting that shows how much of their financial assets are truly available to meet cash needs for general expenditures within one-year. They must also provide qualitative information communicating how they manage their liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date.
This will necessitate a hard look at an organization’s financial assets to determine how much is truly free to pay general obligations. Amounts generally not available to meet general obligations that would be excluded from the calculation are:
Keep in mind that certain nonprofits, who on the surface appear to have a large amount of financial assets might actually have little accessible liquidity because their assets are restricted, designated, or set-aside for specific purposes as noted above. The now required disclosure may force nonprofits to allocate assets to a liquidity reserve to show donors and stakeholders a positive liquidity position. Additionally, having to describe qualitatively how your organization manages liquidity should foster positive changes for internal and external stakeholders, as groups are forced to address the amount of financial assets they have available.
Organizations should pay close attention to ASC 958-210-50-1, which provides information about disclosures required around liquidity, and ASC 958-210-55-5 through 55-8, and 958–205-55-21, which provide examples of the disclosure requirements.
For more information or questions about the changes ASU 2016-14 will bring, please contact Aronson’s Nonprofit and Association Industry Services Group at 301.231.6200.
Many nonprofits are involved in advocacy work on issues relevant to their membership or specific purpose. As a Board Member and Treasurer with the Shenandoah Valley Battlefields Foundation and National Park Foundation donor, Aronson Partner Craig Stevens was invited to participate in a lobby day on May 23, to advocate on behalf of funding for deferred maintenance in our National Parks. The effort was put together as a joint project of the National Trust for Historic Preservation, The Pew Charitable Trusts, and the National Parks Conservation Association.
The specific issue the group addressed was the nearly $12 billion in deferred maintenance in the National Parks. The backlog includes crumbling roads and bridges, run-down trails, rotting historic buildings, and outdated utility systems. Moreover, half of the backlog is comprised of transportation-related repairs. In addition to being a source of great national pride and identity, the National Parks are proven economic boosters. In 2016, over 300 million known tourists visited the parks; additionally, the parks directly and indirectly employ almost 300,000 people, and add $32 billion to the national economy.
Virginia’s delegation for the event included many well-known and passionate community leaders. Rebecca Knuffke from The Pew Charitable Trusts who works full-time on this issue guided the group for the day. Other group participants included John McCarthy of the Piedmont Environmental Council and former county manager for Rappahannock County, Virginia, which borders Shenandoah National Park; Zann Nelson who ran a friends group for the Fredericksburg and Spotsylvania National Military Park; and, Mark Andrews the Executive Director of Therapeutic Adventures, Inc., an organization from Charlottesville that develops programs and services to provide greater access to the outdoors for persons with differing abilities.
Throughout the day, the Virginia delegation met with staff representatives of US Senate Committee on Energy and Natural Resources Chair and Senator Lisa Murkowski from Alaska, and staff from four Virginia congressional offices – Representative Morgan Griffith (Virginia’s 9th District), Representative Don Beyer (Virginia’s 8th District), Representative Bob Goodlatte (Virginia’s 6th District), and Representative Barbara Comstock (Virginia’s 10th District). Their mission was to educate on the issue and recommend support for S. 751, National Park Service Legacy Act of 2017, which was introduced by Senator Mark Warner of Virginia, and a companion House Bill H.R 2584, introduced by Representative Will Hurd of Texas. Without proper attention and support for this legislation, park infrastructure may collapse hurting visitors to the parks and the economic activity around them.
For more information about the issue at hand, please contact Aronson’s Craig Stevens at 301.231.6200.