Info You Can Use: Know Your Funding Rights

An event of note to be aware of is that last month the federal Office of Management and Budget said “that when governments hire nonprofits to provide services, those nonprofits legitimately need to incur and be paid for their “indirect costs”—which is government-speak for overhead and administrative expenses.”

According to Chronicle of Philanthropy, non-profits should receive at least 10%, if not more, “of the direct costs of their grant or contract to pay indirect costs.”

Given that non-profits are frequently anxious about revealing their true overhead costs for fear of having it count against them with donors and foundations, this mandate is seen as a victory because it starts to institutionalize the practice of covering those costs.

However, according to the Chronicle of Philanthropy story, the enforcement of these rules may depend on the self-advocacy of non-profits.

While the new rules are now the law of the land, the indirect-cost regulations must be interpreted and applied consistently by tens of thousands of individuals in fragmented departments, agencies, and offices at “pass through” entities (usually state and local governments and large nonprofits) that use federal funds to hire nonprofits to provide services in their communities.

The regulations are already in effect, but the multiple levels and layers of government have not learned about or communicated the existence of the new rules, let alone provided consistent training programs, to employees scattered across these pass-through entities.

Making matters worse, there has been no transition time for the thousands of jurisdictions to purge and modernize their outdated statutes and regulations to enable them to comply with the new federal requirements.
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Unless we all take concerted action, it’s quite possible that we will slide back to what had been the status quo: inconsistencies in our nation’s archaic, patchwork government-nonprofit grants and contract “system” that have left nonprofits at the mercy of often contradictory policies and practices of disconnected federal, state, and local government departments, agencies, offices, and employees. Arbitrary, unjustifiable caps on indirect costs could remain routine.

The author of the piece, Tim Delaney, chief executive of the National Council of Nonprofits, encourages foundations to lend a hand with this advocacy. He points out that often grant makers end up filling the indirect cost gap that government entities may refuse to cover. Correct practices could mean a savings for grant makers who would no longer need to provide this assistance.

As an arts organization, you may be thinking that you don’t have any government contracts so this doesn’t apply to you. However, notice that these rules apply to pass through agencies which, depending on the program, may include arts councils and other organizations receiving funding from places like the National Endowment for the Arts.

The Council of Non-Profits has put together a guide to help people know their rights and advocate for them. It presents different scenarios where you may be told these new rules don’t apply and how to respond to them.

Two points brought up in the guide that lead me to think these rules apply to state and regional arts councils: One- it doesn’t matter whether it is called a contract or grant or any other term, the rules are based on the substance of the transaction.

Two – Sub-recipient non-profits who are required to acknowledge part of the funding is received from the federal government are covered under these rules.

If you have been required to acknowledge part of the funding is received from the NEA, these new rules are applicable to that program unless specifically excluded by by legislation.

Care And Feeding of Development Directors

Hat tip to Rosetta Thurman for linking to a valuable article about the care and feeding of Development Directors on the Chronicle of Philanthropy. Carol Weisman wrote “5 Ways to Lose Your Development Director in 2 Years or Less,” decrying the poor treatment and lack of support development staff receives.

An excerpt of her list:

1. Pay a ridiculous salary. A friend recently pointed out an ad on Craigslist for a development director. The position requires an MBA and five years’ experience or a Certified Fund Raising Certificate. There is a list of 15 responsibilities, including manage all aspects of individual giving, manage Web site, lead $3-million capital campaign, design and write the newsletter, recruit and manage volunteers, represent the agency at community events, and the list goes on. Salary: $40,000. I mean, really.

2. Reward great performance with unrealistic expectations. A friend of mine works at a university. The department she works in raised $350,000 in 2011. She raised $1.2-million in fiscal 2012. The goal she was given for fiscal 2013, $2.5-million. The additional staff support, financial support for meetings and training: zero. After a highly successful year, she is reading the want ads.

3. Provide absolutely no board support.

4. Don’t provide funds or the time for developing additional streams of revenue.

5. Avoid recognizing the work of your development professional.

Weisman expounds upon points 3-5 in the article. I didn’t want to get into reproducing the whole thing here.

As you might imagine, this is a sore subject with fund raisers. There were many comments on the article. One of the first, by a person using the sobriquet “helpfor501c3s,” related the following:

“When I have interviewed for Director of Development positions, I do my homework and read the organizations’ 990s prior to the meetings, anticipating the question about salary expectations. I have found that seeing the previous years’ compensation paid to CEOs and VPs is a helpful guide to preparing for a realistic response. Quite often when a CEO asks me for salary requirements, I am met with a response “That’s almost what I make!”

CEOs and Executive Directors have to get over the notion that they are the only employees that should make a high salary. When the Director of Development is the one responsible to raise the support to pay the CEO, a bit more consideration should be given to amply compensating an experienced and skilled Director of Development.”

I quote “helpfor501c3s” first to advocate for using 990 filings as a pre-interview preparation tool or for pre-application research if you are uncertain if an organization can meet your salary needs. I also cite “helpfor501c3s” for making the point that the development office is frequently responsible for raising the funds that pay the CEO and should therefore be highly valued by those in the C suites.

More than just a pleas to be nicer to Development Directors, both the article and the commenters talk about the importance of including fundraising in board training and education. There was a sense of letting the development office help the board get better at helping them rather than a declaration of “give, get, or go.”

As I read the article there seemed to be this feeling that development offices were expected to go out and raise money without depending on anyone else in the organization. Almost as if the marketing and promotions people were expected to gather information about a play or musical piece and all the artists without asking the artistic staff.

If you don’t think that is an apt comparison of the conditions in development offices, read some of the examples given in the article and the comments. It will probably be difficult to avoid seeing at least some similarities to your organization.

Every department in an arts organization suffers some injustices that need to be corrected, that is no surprise. You may not think about what they might be in relation to your development people that often.

Please, Don’t Donate To Us

I got a little reminder about the need to shepherd your resources and occasionally refocus yourself on your core business last week when I did my semi-annual stint as an on air guest for the public radio stations.

I am really proud of them because not only have they raised enough money to erect transmitters in all but one major population center in the state, they have done so while reducing the number of days of their appeal from 10 to 8. I think they were inspired to shorten the fund drive by the fact they have generally reached their goals a day or so early the last few years.

Every time I go on, I usually bring some tickets to a show to give away as a thank you gift. I had suggested some appropriate shows when we were making the initial arrangements and was told it wasn’t necessary to offer tickets because they were de-emphasizing gifts in return for donations this year.

I know the stations has been using the message that the premium was the programming rather than the thank you gift for a number of years now. Actually, most public radio stations I have listened to take that approach. The idea is that you are giving so that you can continue to enjoy programming throughout the year, not so you can get a nifty t-shirt.

Thinking they had adopted a purist approach to the programming is the premium philosophy, I was eager to see how successful they might be. Turns out, they aren’t abandoning thank you gifts altogether, just scaling back a great degree.

I was told that because they have such a small staff to help with the gift fulfillment operations, they decided to stop soliciting gifts to give away because it requires so much tracking of where items have come from, if the stations have received the item or if there is a certificate to be exchanged for the item.

If you have ever tried to run an auction fundraiser yourself, you know what can be involved in this sort of activity.

Instead, they have elected to focus more on station branded shirts and tote bags and CD/DVDs associated with local and national radio shows. This way they had a standard group of items that could be processed in the same manner. The gifts provided by the local community tended to be a limited number of higher ticket items like celebrity chef dinners and spa weekends that required $500+ donations.

This new approach for the fund drive is a little new to everyone I guess. The on-air host during one of my segments asked me what goodies I had brought causing one of the coordinators to gesticulate madly indicating that I didn’t have anything. I covered by talking about the season brochures I had brought to help remind me about dates and times.

We often talk about how chasing grant money for programs and services outside your mission and capabilities can be detrimental to your organization. Sometimes you are also in a position where it is better to say no and refuse the gifts of well meaning people if doing so will strain your resources.

It can be very difficult to say no to a heart-felt offering. Many charities which help the poor and dispossessed would rather receive donations of cash rather than food and clothing because the latter requires items to be inspected, evaluated, sanitized and often discarded, all of which diverts staff time and energy.

Groups can be afraid of the ill-will they might generate by appearing ungrateful and refusing the donations and feel obligated to accept. However, there are some alternatives according to a Chronicle of Philanthropy article recently reprinted on Guide Star. Some of the options include redirecting people to groups who will take the donation, a move that can help bolster the creditability of your organization.

Of course, that probably won’t satisfy the ardent long time supporter that wants their gesture to benefit your organization. The Chronicle of Philanthropy article mentions that many charities have disaster plans which outline how they will deal with the out pouring of generosity that may result from a disaster. These plans include responses to donations they are not willing or able to accept.

It may be worthwhile to develop a similar plan to respond to the undesired generosity of a strong supporter so you are prepared for that situation as well.

Tweet Me Your Gift Now

Non-Profit Quarterly (NPQ) had a piece today encouraging people to pay attention to the fact that Chinese are using social media service Weibo to give directly to the needy. The NPQ piece is in reaction to a Washington Post article about how recent charity scandals had turned a lot of Chinese off from giving to the state approved charities. Now people are using services like Weibo (China’s Twitter/Facebook hybrid social media service) to give to people directly, even though it is illegal to do so.

The scandals have shaken public confidence so badly that the Chronicle of Philanthropy reported in June that giving in 2011 was down to $7.9 billion from $9.5 billion in 2010. The Chronicle’s numbers come from a story on the state run China Daily which attributed the drop to a number of factors in addition to the scandals, including the economic downturn and general giving practices in China.

“In China, people’s willingness to give is ‘disaster-driven’ while in the US, donating is a habit.”

He added that the Chinese philanthropic sector’s over dependency on corporations could be another possible explanation to understand the dramatic changes in donations.

“Our research shows that companies, especially private companies, are dominant contributors. Last year, many export companies suffered from the global economic downturn, so they didn’t have much money to donate,” said Deng.”

What interested most about these stories wasn’t so much that people are using social media to give. We already know that is becoming a bigger factor in giving in the U.S. and recent laws are making it easier to crowd fund projects.

What I was paying attention to was that people were giving via social media even though they acknowledged that it is no more transparent and just as ripe for exploitation as giving to an official charity. In fact, some Chinese observed that personality and good looks seemed to motivate giving more than need in a few cases.

There seemed to be a psychological factor inherent to giving to someone directly that gave people a higher degree of confidence in the act of donating.

The US doesn’t have scandals the size of those in China, but there is still a lot of conversation about administrative overhead and Non Profit CEO salaries. Even though these criteria are generally unfair, they can still motivate giving decisions.

There is an old adage that people don’t give to organizations, they give to people. Based on these stories about China and some general observations I have had about the way people generally behave in the US, non profit arts organizations may find they need to provide giving mechanisms that give people a much more immediate sense of connection and response than in the past.

In addition to the ability to give online, an arts organization may need to allow people to give via their smartphones so that patrons can donate during a performance and immediately gain the sense that they are supporting that actor/singer/dancer that just came onstage. If the person walks off stage before they can give, it may be too late.

Two years ago during a public radio fund drive I was so moved by the quality of the show I was listening to, I pulled over into a parking lot to make my pledge because the show was almost over and I felt like I needed to make my pledge before it ended. There wasn’t really any reason not to wait until I got home because the money was going to the station and not the show directly and I already knew I was going to give again that year—But I just had to show my support for that show!

As people become accustomed to giving to things like Kickstarter projects, non profit arts organizations may find themselves having to solicit donations specifically for each project they plan to do rather than based on a general promise to do quality work as has been typical.

Arts organizations may be faced with the dilemma of positioning their programs this way. Restricted donations have always been a problem for non-profits. Do you want to be faced with having every $25 donation restricted to a specific project because people are more motivated to give to something to which they feel a direct connection?

You might as well have a for-profit structure if you are going to have market demand dictate what is funded, eh?