The Lightning Rod M/M Blog

Why Not Full Disclosure About the United Way List To Public Sector Employees?

These days it's not uncommon for United Way campaign solicitation materials distributed to donors to not include any list of "United Way Member Charities."  Many United Ways no longer have "member" charities.  In any case, the "new United Way" paradigm is to encourage gifts to the United Way community fund and discourage gifts to individual charities.  Including a list of charities with the solicitation materials would only remind donors they have a choice.

But when it comes to at-work fund drives for public sector employees at the federal, state, and municipal level, the participating federated groups, including the United Way, are required to list their respective member charities in the campaign materials.  In the cases where the United Way has no members it nevertheless "certifies" charities that it has persuaded to apply for inclusion in the fund drives under United Way's name. 

Everyone turns a blind eye to the fact that these charities are not "members" in any commonly understand definition of the term.   When donors see the United Way list they presume those charities are somehow supported by or affiliated with the United Way.  They also presume that if they make a gift to United Way that money will be shared among the "members."  After all, that's the traditional federation model.

But nothing could be further from the truth.  United Way will not share any funds designated to it with these charities.  The only support United Way will give these charities is to pass along any gifts that have been designated by donors to these individual charities, and it will charge a 10, 15, or 20 percent service fee off the top for the privilege.

Isn't it time for this practice to be disclosed?  If a federation is not going to share gifts with the charities it lists under its name, shouldn't donors have right to know that?

Heart (less) West Michigan United Way

Heart of West Michigan United Way runs the funds distribution program for the Raymond James Investments company's United Way campaigns conducted around the country.  The company is a big United Way supporter, especially of the United Way of Tampa Bay, where the company has its headquarters.  Employees are strongly encouraged to support the United Way, but "write-in" gifts to individual charities are permitted so long as the gifts are to "organizations  whose primary mission focuses upon health and human service issues."

Guess who determines whether the intended recipient charity is a "health and human service" organization?  And guess who keeps the money if the charity is determined not to be a health and human service organization?

Last fall a Raymond James employee in Tampa Bay made a designated write-in gift to a charity the donor had supported for years.  In due course the Heart of West Michigan United Way contacted the charity and asked it to provide evidence that it met the health and human service criteria.  The charity did so.  A few weeks later the United Way wrote back, saying:  "After careful review, it has been decided that the PRIMARY mission of (charity) is not health and human services."

And what does this charity do that makes its PRIMARY mission NOT health and human service.  Wait for it...

It provides material support to orphanages and helps couples adopt orphans.

To add insult to injury, the United Way's letter pointed out that the charity's application had been reviewed by the Vice President of Resource Development -- in other words, by the executive responsible for bringing in money to the United Way.  Conflict of interest anyone?

There was no mention of an appeals process in the letter, but the charity appealed anyway and eventually prevailed.  The charity eventually got the gift, about six months after the donor had given it, with 10 percent taken off the top as United Way's "service" fee.

We asked the United Way in writing  whether the donor would have been notified had the charity not eventually prevailed and, if so, would the donor have had the option to have the gift refunded?  No response.  A month later we asked again.  What we got back was a fax of our request letter on which was a handwritten note that said:  "I've been busy."  We've heard nothing since.

Seven Questions Every Donor Should Ask United Way

Seven Questions Every Donor Should Ask United Way

1. How much money did you take in last year?  How much of that did you pay out in grants or distributions?  (The difference between those two numbers is the most accurate reflection of the United Way’s effectiveness.  You can’t rely on United Way’s self-reported number of its administrative and fund raising overhead percentage because they label much of their internal paper-shuffling as “program costs.”

2. If I earmark my gift to a specific United Way member charity, will United Way treat that gift as “first dollars” against the charity’s United Way allocation?  (This is a common practice. The United Way subtracts the amount of the donor’s gift from the amount of the grant it has pre-determined it will make to the charity.  Thus, the donor’s gift results in no net benefit to the charity.  Had that donor given to the charity directly, there would have been a net benefit.  This practice dis-empowers donors and insults their intelligence.)

3. Is this list of member charities I see in your brochure or on your web site really a list of members in the sense that if I make a gift to the United Way they will all share in that money?  (Don’t assume that the charities United Way presents are really “member” charities that are going to share in your generosity.  Sometimes the lists are just window dressing, such as United Way of the San Francisco Bay Area’s “community certified charities.”  None of these charities are necessarily going to get any United Way dollars, and few will.  Other times the lists are composed of so-called “community partners.”  These are charities that the United Way has made grants to in the past, but there is no guarantee they will get any money (i.e. your money) in the future.

4. If I earmark my at-work gift to a specific charity of my choice, how much of that money will United Way deduct before sending the remainder on to the charity?  Will this cost vary if I choose a charity not on United Way’s list as opposed to if I choose a charity that is on United Way’s list?  (This information should be disclosed up front on United Way campaign materials, but often it’s in the small print.)

5. If I earmark my at-work to a specific charity, will United Way honor my designation unconditionally or will United Way only honor the designation if it is to a charity United Way approves?  (The policy among United Ways to only “allow” designated gifts to “health and human care” charities is increasingly widespread.  There is no universal definition for this term – it can mean whatever the local United Way wants it to mean.  Charities are asked to “prove” their “health and human care” bona fides with documentation.  As a result, the recipient charity sometimes has to spend more to receive your gift than the amount you gave. 

6. If this United Way has a “health and human care” limitation on designated gifts, and you determine that the charity I chose didn’t meet that criteria, what will happen to my gift?  Will you return it to me or will you re-direct it to the United Way general fund?  Is that re-direct automatic, or will you re-direct only with my express permission?  (If United Way were a business or a government program instead of a sacred cow, people would be going to jail for this practice of re-directing designated gifts to the general fund.  Even in a best case scenario, where donors are notified of United Way’s decision, United Way has an unconscionable conflict of interest by putting itself in a position to benefit if it determines that the charity the donor intended to benefit doesn’t meet United Way’s criteria.)

7. How much of the United Way operating budget is spent on lobbying governments to provide more money to social welfare and entitlement programs – in other words, to raise my taxes.  (You probably won’t get a straight answer to this question, but you should understand that “networking” with government is now a key component of the “new United Way” program.  Basically, the United Way is trying to reinvent itself as “the community’s ombudsman” for public health, job creation, education, etc., joining a long, long list of other self-appointed “ombudsmen” at the public trough.)

The IRS Pushes For Nonprofit "Efficiency and Effectivenes."

As reported in the Chronicle of Philanthropy and elsewhere, Steven Miller, the commissioner of the IRS’s tax-exempt and government-entities division, has announced that the IRS intends to be “more aggressive” in monitoring the “efficiency and effectiveness” of tax-exempt organizations.  Fund-raising efficiency, compensation, and percentage of expenditures spent on programs are areas he has mentioned that need more oversight.

Good luck, Mr. Miller.  Your heart’s in the right place, but I fear you have set yourself a thankless task and probably an impossible one.  This is why:  Absent the most egregious cases of abuse of public trust, there is no consensus in the voluntary sector – or among the general public for that matter – as to what constitutes “efficiency and effectiveness” for charities.  Or how to measure it.  Or how to quantify it.  Or how to report it.  How can the IRS enforce policy when no one agrees what the policy should be?

Yes, I know it’s currently fashionable among nonprofit policy wonks to talk about “outcome-based measurement” and the like, but don’t be fooled by the jargon jockeys.  There is still no consensus, and for good reason.  “Efficient” and “effective” are adjectives inherently antithetical to the spirit of American philanthropy, as I’ll explain below.

Last year the IRS proposed that charities state up front on the Form 990 returns their fund-raising expenses as a percentage of total contributions, their compensation of top officials as a percentage of contributions, and the percentage of gifts received after paying their professional fundraisers.  The nonprofit community made such a fuss the Service had to drop the proposals. 

Why don’t charities want to publish these numbers?  It’s not because they are trying to hide inefficiencies or malfeasance.  It’s because they know that these numbers are just as likely to give a false impression of a charity’s “efficiency” as a true one.  And they fear that prospective contributors will misinterpret the numbers and forego giving as a result. 

Is that a well-founded fear?  Well, yes and no.  In our experience with at work employee charity fund drives, when prospective donors are told what the charities’ fund raising and administrative overhead percentages are, based on the 990 returns, that information does affect giving decisions.  Donors tend to choose the charities with the lowest overhead rates, even though this number has little or nothing to do with the “effectiveness” of a charity’s program.  Charities with just a few points higher rate are penalized, even though they may have superior operations.

But in those workplace drives where this information is not presented automatically, but is available to donors if they ask for it, the data is irrelevant to the selection pattern of charities by the donors.  Why?  Because the donors never ask for the information.

In my entire career I have never once been asked by a donor to provide a 990.  My federation clients go well beyond IRS-required disclosures in their 990 filings, and they post the returns publicly on their web sites.  In their annual reports, also posted, they go so far as to reveal the specific amount they raised for each member charity and how much each charity received after expenses, data their competitors never release. 

Total disclosure!  Good for them!  Except nobody visits those web pages.  All the traffic goes to the member charity human interest stories and the “click here to give” pages instead.   

That’s the irony here.  The IRS wants charities to report more and better information to the public in the interests of transparency.  The charities are concerned that if they do so the public will draw false assumptions from the data.  But the public doesn’t care about accessing the data.  All they can find in the statistics are reasons not to give.  Where’s the hopefulness and joy in that?

Voting with their feet, and their wallets, the public has shown they are willing to take the risk of making “inefficient” gifts rather than taking a “read carefully before you invest” approach to their philanthropy. 

And maybe that’s all for the good.  As I’ve said before on this blog, the most important contribution the voluntary sector makes to society is not program but experimentation.  The sector is vibrant not because is it well-organized and “efficient” but because it is adventurous and entrepreneurial.  Meaning it’s going to fail a lot, and post lousy numbers a lot, albeit with the best of intentions.

So I say, Go get ‘em, Mr. Miller.  Find the bad guys and take them down.  But in so doing, don’t make “effectiveness” and “efficiency” touchstones of public policy for the charity world.  For to do so risks getting…

“Organized charity, scrimped and
iced,
In the name of a cautious, statistical
Christ.”

--John Boyle O’Reilly 

Purchase Email Addresses? ICA Members Say Don't Do It

Recently I surveyed the 1,000 members of Independent Charities of America asking them if they had any experience with prospecting for contributors via email using 3rd party lists (i.e. lists purchased from email list brokers).  The response to my inquiry was overwhelming.  More than 400 members replied.

And the answer to my question was – overwhelmingly – DON’T DO IT!

The majority of respondents had not tried 3rd party email lists, but they had thought about maybe trying them in the future and wanted to know what I learned.  Those who had tried them had nothing but tales of woe:  Too expensive, poor response rate, lots of bad addresses, and internet service providers threatening to cut off their service for spamming.

Example:  Email solicitation sent to a targeted list of 150,000 addresses, with a repeat of the solicitation to the same addresses one month later.  Total response clicks:  57.  Revenue from the 57:  $0.00.

This experience explains why the list brokers want their fees up front and not based on percentage of dollars raised or on number of responses.

Some member charities reported they had experimented with services that “append” email addresses to postal addresses the charities already have on file.  Again, the results were not promising.  It seems lots of folks don’t like the idea of you getting their email address if they didn’t send it to you themselves.

Several members had experimented with www.care2.org.  It’s a social networking site organized around causes.  You can post a petition there which people can sign if they wish, and they may also opt-in your email list.  You can also buy targeted lists from the site.  The consensus was that the site works pretty well for getting your word out but not so well for raising money.  Signing your petition is one thing.  Sending you money is another.

Swapping lists with another organization?  Also a no-no.  Trading links with another organization on your respective web sites?  Don’t bother.

A couple of respondents have very sophisticated postal direct mail operations in addition to their email fund raising.  Often when one uses postal mail the cost is not recouped by the initial solicitation but is amortized by repeat donors over time.  Email, these charities told me, generally doesn’t work as well as postal mail in this regard.  (I have no data to prove this assertion or not; I’m just passing it on).

Some members mentioned www.papilia.com.  It works like this:  You send your postal house list a postcard asking them to go to the papilia site, where they make an online gift and get a tax receipt immediately.  The site claims this technique results in a higher response rate than postal mail alone and at the same time allows you to collect the email addresses of your supporters so you can solicit them by (cheaper) email in the future.

***********
OK, so what DOES Work?

ICA members reported much, much more success using their “house lists” – that is, lists assembled from people who have asked to be contacted for one reason of another.  Members, newsletter recipients, web site visitors who sign a guest book or who made a previous donation using your “give now” button, etc.  Soliciting these people via email is a no-brainer PROVIDING you craft your message carefully and don’t go to the well too often.

So how do you build your house list?

The #1 way is obvious.  Put your “give button” front and center on your web site.  When you collect a donation you collect the email address of a web-savvy giver who now has a relationship with you.

Another obvious method is to invite your web visitors to sign up for your online newsletter or for email “alerts.”

Some members also reported success with “viral marketing” techniques – such as giving visitors to your web site an opportunity to send email messages to their friends, directly from your web site, encouraging them to join in supporting you as well.  In the process, you’ve captured those friends’ addresses.  (Caveat:  Personally, I would suggest you never write those addresses independently unless they respond back to you to make a gift or otherwise engage you.  Just because you harvested an address doesn’t mean you should use it without at least implied consent.)

Some members also reported success purchasing electronic display ads on commercial web sites (usually news sites) to drive traffic to the charities’ own web sites.  That can be expensive but it may be worth testing for those who can afford it.  What we have learned from managing the federations’ web sites is the more online traffic we get the more online gifts we receive.

I anticipate some of the federations may experiment this fall with other email-based venues.  Possibly Google.  I’ll keep you posted.

Kudos To These Regulators

"I'm from the government, and I'm here to help you." 

Actually, sometimes that's true.

The annual process of registering to do business and/or obtaining a license to solicit in multiple individual states is a requirement for many charities.  And -- with each state having different rules and different forms (many of which are truly confusing and opaque) -- the process is an administrative nightmare.  Indeed, there are a number of law firms whose main book of business is assisting their charity clients with this chore.

We'd do well, however, to keep in mind that the state staffers administering these programs aren't the ones who make up the rules and aren't the ones who designed the forms.  In fact, it's been my experience that if one calls these offices and politely asks for assistance, the staffers will go out of their way to assist you. 

I hear "state regulator" horror stories from charities all the time.  I know that dealing with bureaucracy can be frustrating.  But I don't hear commendations when state staffers act like advocates, not enemies.  I witnessed two examples of that last week, in the states of Washington and Virginia. 

In the interests of privacy I won't name names, but here are the stories.  I had a client member charity come to me with a problem.  The charity's executive director had mis-read the due date on the annual registration form; she had confused last year's due date with this year's new and different date.  She was facing a penalty, and worse, she was going to miss the due date for applying to the state's own employee fund drive, for which state registration was a pre-condition.  This is a small charity.  The penalty and the campaign loss would have hurt.  I told her I couldn't help her, but that she should call the regulators office and explain the situation.  She did, and guess what?  They gave her an extension so she could avoid the penalty, even though the availability of an extension was never mentioned in the registration instructions.  Then they fast-tracked the issuance of the registration so the charity wouldn't miss out on the fund drive.

In the other case, the charity asked me to explain how to answer a question on a registration form.  I read the question several times.  I had no clue what it meant.  So the charity called the regulator's office.  "Oh, dear," said the pleasant lady who answered the phone.  "We've told 'them' nobody understands this question."  She proceeded to explain in plain English what the question intended; then she asked a few questions about the charity's operations and offered pointers on how to answer the question.  Simply.

Kudos to these staffers and their states.  Keep hiring people like that, please. 

If you have any stories about regulatory staff that have gone out of their way to help you, please share them here.

 

Workplace Campaigns Require SIGNED Copies of the IRS Form 990

The majority of workplace fund drives that screen for eligibility requirements require a paper copy of the most recently filed IRS Form 990 return signed by the certifying officer of the nonprofit.  Copies that do not include this signature are never accepted.

At least one state employee fund drive – Texas – has decided that if a third party, such as a CPA, prepared the return then the copy submitted for eligibility review must also have the preparer’s signature.  The certifying official’s signature by itself is deemed to be insufficient.

The state’s theory is that its rules call for an identical copy of the return as submitted by the nonprofit to the IRS.  Since the IRS requires the third party preparer, if there is one, to sign the return, then, the campaign reasons, if it gets a 990 to review without this signature how does it know that this is the same return that was submitted to the IRS?

Don’t count on other states not following Texas’s example.

Unfortunately, preparers generally do not sign multiple copies of the returns they prepare.  They sign the original return only.  When they send file copies of the return to the nonprofit client the preparer’s signature box is simply stamped “copy.”

What to do:

If you are responsible for workplace campaign applications for your organization, make sure you have a copy of the organization’s 990 that includes both the certifying official’s signature and the preparer’s signature (if there was in fact a preparer).  Make sure your finance people understand that providing you with a 990 stamped “copy” will not be sufficient.  They should have a photocopy of the original return, with signatures, on file.  No preparer’s signature can put your eligibility at risk.  Both signatures make you bulletproof.

What about electronically filed 990s? 

The IRS now requires larger nonprofits to file their 990 returns electronically.  Thus, the “original returns” don’t contain signatures.  What to do?  Make sure you have a signed copy of IRS Form 8453 EO – Exempt Organizations Declaration and Signature for Electronic Filing.  This form provides the paper trail that certifies the 990 return copy to which it is attached is identical to the one that was filed electronically.  It is accepted by all workplace campaigns.    

    

Direct Mail Study Mirrors Workplace Giving Trends

As reported today today in the Chronicle of Philanthropy, a new study finds that the number of people giving via direct mail is declining but those who are still giving are giving more.  The study was conducted by Target Analysis Group, a Boston-based consulting firm.  A summary of the findings is posed on the company's web site, www.targetanalysis.com.

That same trend has been evident in employee at-work fund drives for more than a decade.  The percentage of employees participating has been decreasing, but the average gift has been increasing.  So far the increase in gift size has offset the decrease in number of givers.  As a result, overall revenue has actually increased.  In the long term, however, fewer givers giving more is an unsustainable trend.  Everyone in our business is worried about it, but nobody has been able to reverse it.  That's not for lack of trying.  The United Ways, the Combined Federal Campaign, the workplace federated groups, and many companies have tried various techniques designed to increase campaign participation.  None of them have worked.

For both direct mail and workplace giving, the cause of the decline of the number of people giving appears to be the same --  those who have traditionally responded well to direct mail/workplace appeals (that is, older people) are moving out of the pool of givers while younger people are not replacing them.  (It is unclear whether younger people are in fact giving less or just giving differently).

The conventional wisdom is that direct mail is not as effective with younger people in our brave new online world.  There are fewer likely theories as to why the fewer givers/larger gifts trend is happening at work.  The integration of web-based, online solicitation in at-work fund drives, which presumably is more effective with younger workers, is well established in private sector corporate fund drives.  So why isn't it working to increase the percentage of employee participation?

If you think you know the answer, I'd sure like to hear it.

Online Giving Is The New Direct Mail

"GiveDirect" is the online credit card gift processing system my company developed for Independent Charities of America/Local Independent Charities of America.  462 charities use it on their respective web sites.

In calendar year 2006 the GiveDirect system raised $9,364,446.  In 2007 it raised $12,399,546, a 32.4% increase.  What's really interesting is not the revenue increase per se.  It is that the increase came about with only a 20% increase in the number of contributors and only six more charities using the system in 2007 than used it in 2006.   Yes, there is a healthy increase in the number of people giving online, but there's an even greater increase in the size of their gifts.  The average gift in 2006 was $164.  In 2007 it was $180.

Another interesting trend.  Every year the number of recurring gifts increases, too.  Recurring gifts are those where the giver instructs us to automatically deduct a specified amount from his or her credit card each month or each quarter.  Recurring gifts now account for seven percent of the total amount GiveDirect raises.

If our experience with GiveDirect is indicative of growth in online giving for the nonprofit sector as a whole  --  and I believe it is --  we are in for a sea change in how contributions are solicited and collected.  Online giving is the new direct mail.

Another Day, Another United Way Cookie Jar

Earlier this week the Atlanta Journal-Constitution (www.ajc.com) reported that Mark O'Connell, the former CEO of United Way of Metropolitan Atlanta, received nearly $1.6 million in cash as a pension supplement.  There followed the usual and customary howls of outrage.

I say, give Mr. O'Connell a break.  If his corporate masters on the United Way board thought he was worth it, who are we to second-guess them?

Just one problem:  Nobody told the board.  They did not vote on this increase.  According to AJC's story, although leaders of the compensation committee claimed they informed the board, board members AJC contacted said they didn't know O'Connell was on track to receive this supplement.

Sound familiar?

I wonder how many other UW execs out there have similar retirement packages their boards don't know about.

Defenders of the payout said they did it so as to not lose a valuable chief executive.  Huh?  According to its most recently available IRS 990 return, for the year ending June 30, 2005, United Way of Metropolitan Atlanta operated at en effective overhead rate of 27.6 percent.  That is to say, they paid out to charities only 72.4 percent of what they took in.  That's poor management, even by United Way standards.