The Lightning Rod M/M Blog

Back In The Day: A Trend Wave

"Back in the day."  That phrase is popping up everywhere.  Especially in print and especially in first person writing like columns and blogs.  I've seen it in the New York Times, the Washington Post, the San Francisco Chronicle, and even in the sailing magazine Latitude 38.   I've been seeing it everywhere, and so have you.  But the interesting thing is this:  Six months ago this phrase was nowhere to be seen.

"Back in the day" is a perfect example of a trend wave.  Trend wave is a concept we teach in our Workplace Campaign 101 training.  A trend wave is not the same as a trend.  Trends are forseeable and their life cycles are predictable.  Trend waves are more analogous to rogue waves in the ocean.  They are unexpected and unpredictable.

Almost every year we experience a trend wave in the Combined Federal Campaign and other workplace charity drives that offer donor freedom of choice.  A significant number of contributors unexpectedly select a charity or a class of charities that you would not have expected them to select given previous years' results, and they do so for no obvious or discernible reason.  Usually within a campaign season or two that support diminishes or even evaporates altogether.

Trend waves are one reason why an individual charity's workplace campaign income can fluctuate wildly from year to year.  Just when it looked like smooth sailing, a trend wave comes along and capsizes your boat.  Or speeds you to safe harbor.  Luck of the draw.

The New CFC Regulations Affect Your Cash Flow

Many of our member charities are noticing discrepancies in their monthly distributions from their CFC federations that can't be explained by changes in their gross pledges compared to previous years.  Namely, less money is coming in the door than expected  Why?

The answer is in the new CFC regulations.  Under the previous regulations, local CFC campaigns with revenues of $1,000,000 or more were required to make monthly distributions of gifts received.   Under the new regulations, campaigns of any size may opt to distribute on a quarterly rather than on a monthly basis.  The important word here is "opt."  Campaigns are not required to announce in advance whether they have chosen monthly or quarterly distribution schedules.  And when the new regulations went into effect this spring, not a single campaign did so.  In fact, most campaigns didn't decide until May 1 or later which schededule they would adopt.  Compounding the problem, in the short term, the two largest CFCs -- DC and Overseas -- botched their first distributions for the Fall 2006 campaign, resulting in lower distribution amounts than would otherwise have been available.

It doesn't take a rocket scientist to figure out that paying out a lump sum at the end of three months versus paying out monthly is going to raise bad news cash flow issues for CFC charities.  But don't blame your CFC federation.  Federations have no say in the matter.  They can't control how fast the campaigns send the money to them.  All they can do is get the money they do get in out to you as fast and accurately as possible.  And Independent Charities of America and its sister CFC federations do an excellent job of that, as OPM's Office of CFC Operations has publicly noted in praise.

Uneven cash flow from workplace campaigns is a problem that's going to get worse over time.  Corporate campaigns and many municipal campaigns are already on a quarterly schedule.  I expect the majority of local CFCs that haven't already done so to eventually switch from montly to quarterly distributions.  It's just an economic reality that it costs money to transmit money; it's cheaper for the campaigns to do it quarterly.

We have always counseled our member charities to not rely on CFC or other workplace income for liquidity because of the wild swings that can happen in workplace revenue from year to year.  With quarterly payments a reality, heeding this advise is more important than ever.            

New Kid In Town

FES - Federal Employee Support For CFC Charitable Giving Incorporated - is a nonprofit organization formed specifically to administer local Combined Federal Campaigns (CFC).  That's a contract job often taken by the local United Way.  In fact, until recently these CFC management contracts were a United Way sinecure.  Not any more.  Other CFC federations now manage CFCs in major cities across the country.

But FES is different.  It's not a CFC federation.  It's not listed in the CFC brochure, and it doesn't solicit gifts for itself from CFC donors.  In other words, FES is not a beneficiary of CFC gifts.  It is truly an independent, disinterested third-party administrator - a status that makes it inherently superior to United Way or another federation that has a stake in the campaign it is managing and thus has an inherent  conflict-of-interest.   

That conflict of interest is not just in theory.  I give most campaign managers credit for resisting temptation to use their power to favor their employer federation at the expense of the other charities.  But in real world CFC campaign situations advantage is sometimes taken; often it's taken without deliberation, but taken nevertheless.

FES started with administering the Pike's Peak CFC.  Then it added Pittsburgh's Three Rivers CFC to its list.  And for 2007 it has added San Francisco Bay Area.  FES is governed by (mostly) retired federal employees themselves, people who have had significant experience with the CFC.  They know what they're doing.  FES gets rave reviews for its service.   You can  bet that  campaigns will sign up as fast as FES can scale up.

When the US Office of Personnel Management (OPM) circulated drafts of the new CFC regulations for comment last year, I suggested they open up the management contracts to the private sector so there would be more competitive bids.  Right now only nonprofits are permitted to bid.  OPM did include that idea in its potential change list at one point, but the howl of opposition from United Way and other federations, fearful of losing their lucrative contracts, caused OPM to withdraw the idea in the final draft of the regulations.   How ironic that a nonprofit corporation organized by federal employees themselves is accomplishing the same thing.

OPM Strikes Back

You may have heard about Senator Charles Grasley's letter to President Bush regarding the new CFC regulations and numbering system.  The story was in the Chronicle of Philanthropy. Here is OPM's response.  Articulate and well-reasoned I think.  What do you think?

FOR IMMEDIATE RELEASE                                                                              CONTACT: Mike Orenstein

March 13, 2007                                                                          202-606-2402 or michael.orenstein@opm.gov

OPM Director Linda M. Springer’s Statement on the Combined Federal Campaign (CFC)

Washington, D.C.:

“As Director of the Office of Personnel Management (OPM) and administrator of the Combined Federal Campaign (CFC), I am today expressing my assurance that the CFC remains a program that Federal employees can support with confidence.

“OPM has taken steps to strengthen our ability to ensure CFC accountability.  Each charity which participates in the CFC must meet stringent eligibility and public accountability requirements.  A participating charity must:

1.     Certify and demonstrate that it is an IRS recognized 501(c)(3) tax-exempt public charity.  OPM compares applicants against an IRS database to verify this certification.

2.     Certify and demonstrate that it prepares and submits to the IRS a Form 990, the annual tax form for non-profits.

3.     Certify and demonstrate that it provides or conducts real services, benefits, assistance, or program activities in 15 or more different states or a foreign country over a three year period prior to the annual CFC for which it is applying.

4.     Certify and demonstrate that the organization is a human health and welfare organization.

5.     Certify and demonstrate that it accounts for its funds in accordance with generally accepted accounting principles (GAAP) and has an audit in accordance with generally accepted auditing standards (GAAS). A copy of the most recent annual audited financial statement must be included with the application for all national and international charities or those charities with over $250,000 in revenues.

6.     Compute the organization's percentage of total support and revenue spent on administrative and fundraising to determine an administrative and fundraising rate (AFR).

7.     Certify that the organization is directed by an active and responsible governing body with no material conflict of interest and a majority of which serve without compensation.

8.     Certify that the organization's fundraising practices prohibit the sale or lease of its CFC contributor lists.

9.     Certify that its publicity and promotional activities are based upon its actual program and operations, are truthful and non-deceptive, and make no exaggerated or misleading claims.

10.  Certify that contributions are effectively used for the announced purposes of the charitable organization.

11.  Certify that it is in compliance with all statutes, Executive Orders, and regulations restricting or prohibiting U.S. persons from engaging in transactions and dealings with countries, entities or individuals subject to economic sanctions administered by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC).

“Concerns have been raised about the elimination of the 25% administrative and fundraising rate (AFR) requirement.  In the past, numerous organizations have participated in the CFC with AFRs in excess of 25% with an accepted explanation and plan to reduce the AFR.

“OPM will continue to calculate AFRs for all participating charities and publish this information in the annual catalog, thereby allowing Federal employees to make informed decisions about how they contribute their money.  The transparency in this process enables employees to draw distinctions between the charities and their operational practices and promotes control over fundraising and administrative costs.

“Combined with the eleven requirements listed above, we believe that CFC charities are receiving appropriate scrutiny.

“Regarding the requirement of financial audits, the submission of financial data did not change for national and international applicants.   Local charities must meet these same standards, with a few exceptions.  For example, charities with less than $100,000 annual revenue do not need an audited financial statement but still must certify that they have adequate controls in place to ensure that funds are properly accounted for. Local charities with revenue between $100,000 and $250,000 must certify that they account for their funds in accordance with GAAS/GAAP procedures, but they do not need to submit the audit unless requested to do so by OPM or the local Local Federal Coordinating Committee (LFCC).

“And to those who express concern with the CFC’s replacement of its numbering system, the number of charitable organizations participating in the CFC continues to grow and we are simply running out of four-digit numbers.  The assignment of new, unique five-digit code numbers will also enable OPM to improve the efficiency and effectiveness of the CFC through the use of electronic giving technology.”

Controversy At Federal Government's Charity Drive

Dear Editor:

Thomas G. Bognanno, president of Community Health Charities of America, couldn't possibly be so misinformed about the Combined Federal Campaign as his quotes in your article make him appear to be (Controversy At Federal Government's Charity Drive).

http://philanthropy.com/free/update/2007/02/2007020701.htm

There was never a requirement that CFC charities have fund raising and administrative overhead of 25% or less, only that if overhead was higher than 25% the applicant charity had to summit a plan for eventually coming under 25%. Charities with 25% plus overhead were routinely admitted year after year -- including charity members of the CFC federations now complaining. Those federations weren't crying "accountability will suffer" when their own members with 25% plus overhead were asking to be included.

Mr. Bognanno and his colleagues claim CFC donors will be "confused" by the new 5-digit numbering system that is replacing the previous 4-digit system. The truth is that even those givers who give to the same charities each year look up their names and associated code numbers in the campaign's givers guide first. Why? Because the old code numbers were subject to change each year, and often did. (The new ones will be permanent). A couple of years ago OPM without advance notice changed the codes for every single member charity in the Christian Charities USA federation, one of the most popular federations in the CFC. There was no confusion and no complaint from givers whatsoever -- not a single phone call -- and the charities raised just as much money as they had raised before the change.

The complainers also allege that their charities "have no time to react" to the new numbers because they have already prepared their marketing materials for the Fall 2007 CFC. If they have done so they have no one to blame but themselves. The government gave several years advance warning about the coming change. Wait -- I take that back. The charities do have someone to blame -- Mr. Bognanno, who was supposed to be keeping his member charities up-to-date on CFC matters but apparently dropped the ball.

As for chastising the government for not being more "sensitive to what the world of philanthropy is saying," Mr. Bognanno surely cannot be suggesting he and his three fellow naysayers represent a majority or even a significant plurality of CFC charities, much less the entire nonprofit sector. There are twenty-seven national CFC federated groups. All of them had a full and fair opportunity to participate in the deliberations that eventually led to the new regulations. The majority of them support the government's actions.

I suspect that Mr. Bognanno and his colleague's real issues have nothing to do with campaign integrity or donor confusion. This all about competition. They've had less of it. They're going to get more of it. And they don't like it. One important fact they don't seem to comprehend, however, it that the CFC is not "their" campaign. The federal fund drive is an employee benefit, not a sinecure for select charities.

Even with the new regulations in place the CFC remains a very exclusive fund drive, far more so than, by comparison, many corporate workplace fund drives, where employees are free to designate their gifts to any charity in the country. In fact, it's ironic that Mr. Bognanno is fighting the government's plan to give its employees more freedom of choice in selecting other charities besides his own members. He and his members bitterly complain when local United Ways try to deny participation in corporate employee fund drives to only United Way charities. There's a word for that.

Maguire Vs. Sodo On The New CFC Regulations

Follow the link below to the Chronicle of Philanthropy's article about the controversy over the new CFC regulations eliminating the former 25% or lower overhead eligibility requirement. The irony here is that Don says it's "job one" for employers to "eliminate the possibility of unscrupulous or badly managed charities from participating in a campaign in the first place," and then the article continues to recall that one of those charities that ran afoul of the 25% rule was Make-A-Wish Foundation of America, one of Don's own members.

Which is MAWFA, Don: Unscrupulous or just badly managed?

http://philanthropy.com/free/update/2006/11/2006112201.htm

CFC Code Numbering Proposals

Q: Dear Patrick,

EarthShare and some other CFC federations are expressing concerns about OPM's proposed "universal, unique & permanent" code number system. These federations want to somehow keep or incorporate their members' "old" 4-digit code numbers to reflect their members' relationship with their federations. Do you share their concerns?

A. Absolutely not. The premise of their concern is that there is some "equity" in the present CFC code numbers. That is not the case and never has been. Even if there were such equity, having a unique, permanent identifier number assigned to your organization is much more valuable.

Any attempt to tie a code number to charity's CFC "relationship" history (local campaign area, certifying federation, national vs. local list, etc.) will only complicate matters. Any system except random number generation will be obsolete the moment it is implemented. Local CFC campaigns will merge, charities will change federations, local charities will go to national status, national charities will go international and vice versa, new federations will be admitted, former federations will be disbanded, etc. Once any of those events happens the code number's former relationship value becomes extinct and a new number must be assigned. That defeats the whole purpose of having a permanent number.

There is nothing in our experience or research to suggest that a change in code numbers, especially a one-time change, will "confuse" CFC contributors. Despite the large number of our clients' member charities that have had code number changes over the years (as they have changed federations or been reassigned numbers by OPM), we have never had a contributor express any confusion. As a matter of fact, as a Sports Charities USA board member, a retired Marine Corp colonel, told a group of CFC charities meeting recently, in her 20+ years experience with the CFC she found that the great majority of contributors couldn't even remember which charities they gave to in the previous campaign, much less the code numbers.

CFC Kick Off Events: Why Are They So Hard To Sign Up For??

Dear Charity Executive:

I'm writing in my capacity as business agent for Local Independent Charities (LICA), the federated group that certifies (Local Charity) for participation in various workplace fund drives in the greater National Capital area, including the CFC and the United Way of the National Capital Area. I gather (Local Charity) has some dissatisfaction with the number of CFC events to which it has been invited. If that is indeed the case, I can assure you that yours is not the only organization to be dissatisfied with how the events invitations are being accomplished this year. We are hearing complaints not only from our own member charities but from all the federated groups participating in the campaign.

Here is what is going on: The National Capital Area CFC is not publicizing as many events as in the past. There is a new procedure this year designed to allocate the scarce invitations evenly among the charities that have signed up for events, but we're not sure how well it is working. I am meeting directly with the CFC campaign manager next Tuesday to express that our concern and discuss how the procedure can be improved.

The reality, however, is this: The CFC is at the point where there are more charities that want to participate in events than there are event slots to accommodate them. Because of ongoing security concerns, federal offices are scheduling fewer events (a trend that has been going on for several years and is accelerating) and/or scheduling smaller events, with fewer charities invited. At the same time, many local campaign coordinators (the people who actually conduct the campaign in their respective federal agencies) are choosing to implement their events without going through the CFC campaign headquarters; that is, the coordinators themselves choose which charities to invite based on their previous experience or on what they think will be the most interesting to their colleagues and then invite those charities directly. Thus, they bypass the organized, official system. Another popular alternative is for coordinators to ask their colleagues at work if anyone who has a personal connection with a CFC charity would be willing to speak at the "kickoff." (One of the techniques we encourage LICA member charities to use is to write the CFC givers who have released their names and addresses and ask those givers to serve as "ambassadors" in the subsequent campaign. Many givers are pleased to do so.)

To its credit, the CFC has addressed this trend proactively. For example, the campaign publishes an insert in the Washington Post tabloid "Express" which contains the "get out the vote" type messages that CFC campaign speakers would normally deliver at live events. (An aside: Sometimes charities fail to realize that, from the campaign's point of view, charities are ancillaries to CFC events, not the main purpose for the events. The main purpose for the events is to generate employee enthusiasm for the campaign itself. The charities are invited, if at all, for "color"). The campaign also encourages greater use of the internet. All participating charities have their internet addresses prominently displayed in the campaign donors brochure listings. (BTW: I was happy to see that (Local Charity’s) web site has the CFC and UWNCA logos and code number on its front page; that's smart).

LICA also has programs to help prospective CFC givers discover LICA members online. Please visit www.bestcfc.org. to see what I mean. About 32,000 CFC givers will visit the site this year. That presents a far greater opportunity for contact than CFC events do.

I see, however, that ((Local Charity) is not taking full advantage of other LICA marketing services. I suggest you go to your LICA online portfolio (www.lic.org, password XXXXX) and do these three things:

1. Add keywords for the web search engines.

2. Add a "human interest" story that illustrates your work. When you do that the story automatically pops up with your listing on both the LIC web site and the bestcfc.org web site.

3. Download and execute the "Best In America" seal of excellence license and then post the seal on your web site next to the CFC and UW logos.

These services are designed to help you stand out from the competition, and they are free.

Right now the most effective thing you can do to encourage gifts to (Local Charity) in the present Fall 2006 campaign is to implement suggestions 1-2-3 above.

Regards,

Patrick Maguire