The best resources for a donor to utilize to help make the donating experience enjoyable, focused and take up the least amount of time are Guidestar and the National Center for Charitable Statistics.  The higher the dollar value of the donation, the more variables the donor may wish to utilize under Guidestar.  The higher subscription fee is worth it.  

In my recent analysis of Massachusetts human services nonprofits I found that capping the administrative costs of an organization resulted in savings of a minimum of eighteen million for nonprofits under two and half million dollars and one hundred and forty-three million for nonprofits over two and half million dollars in revenue.  If funding a nonprofit is going to be decided based on administrative costs, then restrict your donation to not be used for administrative costs or to a specific amount. 

Rather than lower its spending in the weak economy, government has leveled off the amount of money allocated for nonprofits.  Because of this level funding combined with an ever-increasing population, government has been forced to favor the more established institutional organization structures. 

pic from Fuffer

I challenge the myth of larger nonprofits being overall more efficient than the smaller organizations.  I do this to help donors better understand that statements and reality of the perception are not necessarily true.  The more something is stated and the more one remembers something does not necessarily make it true.  It is human nature to think it is true and to generalize.  The larger nonprofits would like funders and donors to believe it more.  The larger the nonprofit’s funding, the larger their ability to pay higher salaries, multiple layers of administrative costs and keep the administrative percentage lower. 

Questions a donor should ask of themselves: 

1. As a donor making choices within their day-to-day experiences what variables are important to me when making a donation? 
2. As a donor what purpose do you want my donation to serve?
3. As a donor who may donate constantly, periodically or almost never what is my motivation? 

The sample of the nonprofits below are those from the Commonwealth of Massachusetts who contracted in 2002 to provide human services and reported their full financials to the Commonwealth.

Out of a sample of 217 nonprofit providers with revenues under 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
23 providers, 25% plus admin, average revenue $701,219  
20 providers, 20% -24% admin, average revenue $1.024M
65 providers, 15% -19% admin, average revenue $1.167M
83 providers, 10%-14% admin, average revenue $1.48M
26 providers, 8%-9% admin, average revenue $1.491M

Out of a sample of 220 nonprofit providers with revenues over 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
2 providers, 25% plus admin, average revenue $8.008M 
14 providers, 20% -24% admin, average revenue $23.863M
45 providers, 15% -19% admin, average revenue $12.609M
92 providers, 10%-14% admin, average revenue $11.564M
67 providers, 8%-9% admin, average revenue $12.095M

Ask yourself what impact I as the donor would make if I required savings through outsourcing or capping administrative costs at 10%.  It was estimated that the potential savings for the entities below 2.5 million was 18 million dollars.  The potential savings for the entities over 2.5 million was 143 million dollars.  Therefore, I ask you to think about where the real savings can be realized.

Nonprofits have to think like the donor.

Pic by Twenty Questions

I am surprised by the number of nonprofits across the country that pay individuals in the organization above $400,000.  If I lower the bar to the average salary of $100,000 the number jumps off the charts.  Since these organizations are suppose to be charitable in their nature, it seems that paying individuals a salary that is less than 10% of the workforce seems to justify tying the wage to the lowest paid salary of the organization.

Nonprofit hospitals, colleges and universities have the highest salaries paid out to individuals.  These are the same two areas where costs have exceeded inflation every year.

I propose that salaries be tied to the lowest paid employee of an organization.  Since I stated that a living wage is $35,000 I would suggest that nonprofits start at this level as the entry-level salary.  If all management salaries were tied to this salary and limited to being no more than 5 times the salary of the lowest paid employee the individual would be limited to $175,000.  If the cap was 10 times the salary of the lowest paid employee that individual would be limited to $350,000.

I like what Massachusetts has done for capping salaries under a law they passed which limits reimbursement of state funds to salaries of a certain pay grade in government.  Yes, they have capped what the state will allow to be reimbursed with state funds. ”Effective July 1, 1998, the salaries of officers and managers as defined by OSD shall be non-reimbursable under Operational Services Division regulation 808 CMR 1.05 (24) as amended to the extent that they exceed an annual rate of $143,986.22. Please note: Due to budget constraints Commonwealth manager’s salaries have been frozen at FY ’08 rates.  Contractors must maintain documentation and justification for the selection of a salary reimbursement rate up to $143,986.22.  Where officers and managers devote less than full time to state programs, the level of reimbursement should be prorated accordingly.  See 808 CMR 1.05 (24).”

I think a similar system should be adopted by the federal government as a standard it will measure, consider in rate calculations for reimbursement and reporting to the public.

I recommend that boards of nonprofits use three measures for setting the floor and the ceiling for executive compensation.  For nonprofits $500,000 and above the floor should start at 8% of the revenues for the salaries of administrative staff.  The first ceiling for salaries should be tied to the Massachusetts salary cap with no further due diligence by the board.  If the board wishes to go beyond this cap, it should be required to show what benefit is being obtained for the additional compensation being given.  Yes, this means that the additional salary is tied to outcomes.  Under no circumstance can justification be made that any nonprofit should pay an individual more the President of the United States salary.

Pic by Docpop

Are you an executive at a nonprofit avoiding communication due to debt? 

A simple pattern emerges for those nonprofits who are struggling and which ones ultimately succeed in surviving .

Those that overcome the struggles have been more forthcoming and communicating with all parties and trying to work things out. 

The nonprofit that goes into silent mode and ignores creditors and concern entities closes.  It’s called complete failure.  A failure to communicate. 

 So instead of waiting for a miracle, put a plan together that is workable and present it.  Otherwise the nonprofit will be gone and forgotten soon.  Good intentions and good faith efforts work in most cases.

Photo by:  Andrey

The U.S. government has filed a lawsuit against a non profit out of New York that aimed at promoting Persian philanthropic causes, but it turned out to be a front for the Iranian government.  The U.S. attorney for that district is seeking forfeiture of a Manhattan office building tower used by the Alavi Foundation.  For two decades their operations have been controlled by Iranian officials and recent accusations have caused this lawsuit to come about.To read the entire article, please follow the hyperlink to the UPI web-page.

The best way to avoid such a problem is good governance that provides clear controls and accountability within the organization. 

Photo by:  cliff1066

The FBI is looking into the spending practices at Centro Familia, a Wheaton nonprofit group that runs a bilingual preschool, trains day-care providers and receives about $450,000 annually in contracts from Montgomery County, the organization’s executive director has acknowledged.

A bureau agent visited the organization’s office last week and interviewed at least one of its staff members. Centro Familia, which is well-connected in Montgomery political circles, has also been under scrutiny by the county’s independent inspector general and the county’s health and human services department. FBI Special Agent Richard Wolf of the Baltimore field office said he could not comment.To read the entire article, please follow the hyperlink to The Washington Post webpage.

Photo by: Thomas Hawk

SBA`s Deadline for Physical Damage Disaster Loans for Private Non-Profit Organizations is November 25. 

The U.S. Small Business Administration reminds eligible Private Non-Profit Organizations (PNPs) of the November 25 deadline to submit disaster loan application for damages caused by severe storms and flooding that began September 18. PNP’s located in Carroll, Catoogsa, Chattooga, Cherokee, Cobb, Crawford, Dawson, DeKalb, Dooley, Douglas, Fulton, Gwinnett, Heard, Houston, Newton, Paulding, Peach, Rockdale, Stephens, Taylor and Walker counties in Georgia are eligible to apply to SBA.  Examples of eligible non-critical PNP organizations include, but are not limited to, food kitchens, homeless shelters, museums, libraries, community centers, schools and colleges. To read the entire article/notice, please follow then hyperlink to the Reuters web-page.

Photo by: AMagill 

A Kentucky non profit group which is funded largely by tax payer dollars was found to have been using that money on sports tickets, alcohol, and even strippers.  The Kentucky state auditor found the officials from the non profit group Kentucky Association of Counties blowing the money for their own personal enjoyment.  The total of the money spent was just over $3 million in a three year period.  After these accusations came out, one of the board members resigned his position.

To read the article, please follow the hyperlink to the WHAS11 web-page.

Photo by: tiarescott

Here’s another great article to add to the collection about non profit CEOs and their salaries.  The only thing with this story is that its actually is one with good news.  Back in early August when Jane McIntyre was a candidate for the CEO position of the United Way of the Central Carolinas, the only question they were really asking was how much would she want to be paid?  What she told them was a number a lot lower than what they would want to pay her.  She said she would ask for a salary of $150,000 a year, compared to her predecessor who received $365,000 a year plus a $2.1 million pension package.  As we can see here, not all the nonprofit CEOs are asking for and receiving such huge salaries.  I guess there is still some good left out there.

 To read the entire article, please follow the hyperlink to the Chicago Tribune page.

Another high paying salary has been uncovered in the nonprofit world. This time it comes from the all ready discussed Individual Development Inc., a Washington D.C. nonprofit that provides housing and care for many of the local developmentally disabled. It has been reported a David W. Wilmot, a well known lobbyist has been paid as much as $300,000 by the nonprofit to help turn them around. He also has been allowed to borrow an additional $300,000 from the organization. Now, IDI is funded about $12 million per year from Medicaid, a government agency that is already paying out extremely high amounts of money every year. The big problem here is that basically, Wilmot is getting his comfortable yearly salary from Medicaid, of which more of that money should be going to the individuals in need.

To read the entire article, please follow the hyperlink to the Washington Post page.