CEO Survival: Don’t Get Ahead of Your Board

(The Nonprofit Times)

The first commandment of CEO survival is to never to get too far out in front of the board of directors because they too have a responsibility to shape the future. But you do need to be a little ahead of them . . . Just not so much that they notice and get offended.

If you’re confused, you’re not alone. Most veteran nonprofit CEOs have a sack full of stories about interactions with their board. One of the mistakes that is most frustrating — and potentially damaging — is getting too far ahead of a board of directors. The result is the collapse of a seemingly promising idea or policy change, and possibly a severe dent in the CEO’s credibility.

What follows are some thinking points to help negotiate this always treacherous interpersonal whitewater. Click through to read the full detail of these various issues.

· Too far out on growth

· Too creative

· Acting before deliberating

· Too risky

It’s a structural dilemma, but most of the pathways to success are based on the second commandment of CEO survival: Lead with ideas, later talk about plans.

Full article.

Summary of Practices from the 2013 AFP Liquidity Study

by Dave Voris of Horizon Bank

Current interest rates are pretty lean in terms of what any corporation or Not-for-Profit can earn on investments. Yet, here I am a banker, obviously interested in building the Not-for-Profit business at Horizon, who is writing an article targeted toward Not-for-Profit investment activities. So, what am I to say and what is the Not-for-Profit community supposed to believe within the above context? Thus, I'll simply follow Horizon Bank?s tagline of Exceptional Service and Sensible Advice to discuss important issues exactly like I teach my undergraduate finance students at the Kelley School of Business on the IUPUI campus. Moreover, we also have some recent research called the 2013 Liquidity Study published by the Association of Financial Professionals to help complement my comments.

The summary conclusions for Not-for-Profit organizations as gleaned from 885 respondents in the 2013 Association of Financial Professionals? Liquidity Study may be helpful: 
- Safety of principal was reported as the driving principle of the respondents? investment strategies with 68 percent indicating that safety is the most important short-term investment objective.
- Liquidity, which may be defined as having access to cash based upon an organization?s need to meet either planned or unplanned obligations, actually experienced a material shift as an investment policy objective. In the 2013 AFP Liquidity Study, 29 percent of respondents indicated their organization?s most important cash investment policy objective is liquidity, which is an increase from 18 percent in 2011.
- Yield has remained a distant third as a short-term investment policy objective with only two percent of the respondents reporting this as the most important investment policy objective.

Additional Findings from the 2013 AFP Liquidity Study:
- About 75% of organizations have a written document defining their policies for short term investments, and about 84% of those organizations with investment policies review them on some type of regular basis.
- 50 percent of short-term investment balances are maintained in bank deposits, which include non-interest bearing deposits, time deposits, structured bank deposit products, and structured certificates of deposit.
- 74 percent of short-term investment balances are maintained in what is generally described as three safe and liquid investment instruments: bank deposits (defined above), Money Market Funds (MMFs), and U. S. Treasury securities.

This is the first in series of articles written to provide insights on making wise investment decisions and the tough choices your nonprofit is facing in this low interest rate environment.

Welcome Charitable Allies!

We are excited to have Charitable Allies join our sponsor team. Charitable Allies is a 501c3 nonprofit that was created to provide affordable legal services and support to nonprofits. Whether you are in startup mode, have an HR issue, are considering a merger or closure or have another legal need, we encourage you to explore what they have to offer. www.CharitableAllies.org

New Year Brings Internal Assessments for Nonprofits

By Zachary S. Kester, JD, LLM, CFRM, at Charitable Allies

Every year in January many nonprofit organizations wisely take time to regroup and assess what worked and what didn’t in the previous year. Now is also an excellent time to review compliance requirements that some nonprofits inadvertently overlook.

This checklist can be very helpful in making sure your organization is off to a good start. Taking the time to assess your organization is a valuable tool enabling you to avoid distracting inquiry letters from regulatory agencies as well as awkward conversations among nonprofit management and boards of directors.

Through this annual assessment process, many organizations find at least one issue that they need to address. But many nonprofit managers and board members don’t know where to go for cost-effective, experienced and sophisticated legal advice. They should consider Charitable Allies, a 501(c)(3) educational charity and public interest law firm for nonprofits.

With highly experienced legal, accounting and training personnel, Charitable Allies (www.charitableallies.org ) provides all manner of legal and educational services for boards, officers management and staff of myriad charities throughout the sector. From basic one-time questions about a single matter to training for boards and officers to complex reorganization or merger of activities, Charitable Allies is your go-to cost-effective provider of legal services to nonprofit organizations.

You can contact Zac Kester, Executive Director, at 317-429-1649 or zkester@charitableallies.org.

Myths and Realities of Board Member Fundraising

By Gail Perry

How do YOUR board members feel about fundraising? Not enthusiastic, I’ll bet! One of the biggest myths around is that board members should be willing and able to raise money. We wish!

But here’s the reality: Most board members have some very real challenges when they are confronted with fundraising.

Let’s look at the myths – AND then how we can build on the reality.

1. MYTH: Board members are willing to raise money, and they accept it as their job.

2. MYTH: Board members understand how to be successful at fundraising.

3. MYTH: Board members are active, enthusiastic, and ready to help.

4. MYTH: Board members’ experience on the board is fulfilling and satisfying.

Read the full article, including the “Realities” and think about how you will better support your board’s 2014 development efforts.

Rules for Entering a Joint Venture Arrangement with a For-Profit

By Michael Wolf, CPA, Manager at Sikich LLP

For decades, non-profit organizations have been looking for ways to increase revenue in order to better achieve their charitable purpose. One way they have found to do this is by entering into a joint venture arrangement with a for-profit entity. The joint venture arrangement provides details on the creation of a partnership of limited liability company that is owned by a non-profit organization and a for-profit entity. Some reasons for forming a joint venture agreement are to raise capital or take advantage of tax credits such as federal Low-Income Housing Tax Credits. An example of a joint venture agreement would be a zoo contracting with a gift shop operator to sell items unrelated to the zoo’s exempt purpose. The revenue earned by the non-profit organization from the joint venture could be tax exempt if the joint venture arrangement follows these guidelines set in Revenue Ruling 98-15:

1. The joint venture member's participation must further a charitable purpose.
2. The joint venture agreement explicitly provides for the furtherance of the charitable purpose and only incidentally for the benefit of the for-profit owners.

According to various court cases, the proper question is simply who has effective control, regardless of whether it is based on a majority of the governing body or on powers granted in the partnership agreement. Before entering into a joint venture (or general partnership or limited liability company) arrangement with taxable partners, please consult a tax professional to help determine if the joint venture satisfies the requirements of Revenue Ruling 98-15. The non-profit partner could lose its exemption if a private party can control or use the non-profit's activities or assets for the benefit of the private party, unless the benefit is incidental to the accomplishment of exempt purposes. More information on this topic can be found on the Sikich Blog.

Read the full article.

Government Contracting and Payment: Lingering Problems (Urban Institute)

A study released by the Urban Institute, conducted in partnership with the National Council of Nonprofits, examined the government contract and grant experience of nonprofits in 2012 compared to 2009. The release included an expert panel discussion. Article summarized from www.nonprofitquarterly.org.

Though there is certainly a contrast between the state payment environments of Illinois and Indiana, the study both confirms and identifies important issues for nonprofits who contract with the government at all levels. This is an important read for both board and staff leaders.

- The average among of money owed by state government to nonprofits has declined by 17.7 percent from 2009 to 2012.
- Human service nonprofits report that grant and contract payments typically do not cover the full costs of services.
- Roughly two-thirds of nonprofits surveyed found problems with differing government agency applications, reporting formats, outcome requirements, and financial or budget categories.
- More than half of nonprofits reported problems with differing definitions of services and target populations.
- Nonprofits report significant limitations placed on administrative expense recovery.
- Government grants and contracts increasingly require nonprofits to front the costs of service delivery.
- A troubling issue is governmental agencies requiring nonprofits to come to the table with matching funds – a government-mandated form of cost sharing.
- The nonprofits best able to weather these grant and contract challenges and obstacles are the larger nonprofits.
- Government grant and contract procedures are increasingly "rigged" to favor for-profits who can meet working capital and other requirements and that for-profits are not ask to do things such as cost sharing.

Read the full article here. 

Read the study here.

Time for a Financial Check Up

From Alerding CPA

Beyond the holiday festivities that will take place during the month of December, many of our clients view December as the time to gear up for the close of another fiscal year. Other nonprofit clients are hitting their fiscal year’s halfway mark and are now ready for a mid-year checkup.

Organizations may spend hours preparing budget reports and plans at the start of their fiscal year. They may not maintain the same level of effort in managing and evaluating that budget throughout the year. Various factors may have altered how they would prepare their budget today versus how they prepared it six-to-seven months ago. Budgets should be used as operating tools and updated as factors change.

Finance Committees should be evaluating cash flows and anticipated spending for the second half of the year to understand shortcomings and how to invest additional cash that may not have been in the original budget. (I know many of you are thinking, “that’s a problem I’d love to have.”) Are there any expenditures that have been incurred that weren’t expected? Many organizations that own a building or utilize equipment for day-to-day operations face this at least once a year.

How has accounting personnel changed this year and are controls still adequate to prevent and detect instances of fraud? Oftentimes a change has taken place and Management does not adjust vendor contacts or authorized signers in a timely manner. It’s prudent to evaluate any documented internal control procedures to ensure they are still accurate.

It’s always good to maintain open dialogue with the Organization’s bankers, accountants, investments advisors, and any significant vendors. Meeting annually with these providers helps ensure you are maximizing the benefit of the respective relationships. The ever-changing economy makes investment advisors very useful in ensuring that your organization is getting the best possible return.

Lastly, what goals did the Organization establish that may have fallen by the wayside? We all know the next six months will speed by in much the same way. Take a high level view of the Organization and ask the question “how is our year really going?” Utilizing committee meetings over the next couple months to answer this question will help the Organization zero-in on those important elements that will help make 2014 a great year.

For further assistance in evaluating the progress of your Organization and assessing Board Development needs, please contact Natalie Hopkins, Audit Manager for Alerding CPA Group, at 317-569-4181 ext. 244 or nhopkins@alerdingcpagroup.com. Check out our website to view our firm’s commitment to nonprofit organizations and our community.