Teaming Up-Careful Planning is Essential in Any Alliance

There’s power in numbers, the adage goes, and countless nonprofits have partnered up for strength and survival during the last several years. Whether it’s called a “joint venture” or a “strategic alliance,” the success of such a banding together depends on careful planning and oversight. Why Join Forces? Examine your motivation for hooking up with another group. Do you want to save money by sharing operating expenses with another organization? Will the union enable you to take on a project or expand your reach in a way that you couldn’t do alone? Once you and your potential partner (or partners) have a specific alliance in mind, your accountant can perform a cost analysis to make sure that financial expectations are on track. For example, the American Institute of Certified Public Accountants (AICPA) recently teamed up with the London-based Chartered Institute of Management Accountants (CIMA). The two professional associations formed a joint venture to develop and promote a new global management accounting designation. The AICPA owns 60% of the joint venture — the new entity is the Association of International Certified Professional Accountants — and CIMA owns 40%. The board of directors is split evenly between the organization, with CIMA and AICPA leaders rotating in the role of chair. For more information on joint ventures, see the sidebar “Is a joint venture better?” Strategic Alliance — A Broad Concept “Strategic alliance” is a blanket term typically used among nonprofits to represent a wide range of affiliations, including joint ventures. Like a joint venture, a strategic alliance can involve a relationship with another nonprofit, a for-profit or a governmental entity. Consider the diversity of these strategic alliances of the last two years:

• Metropolitan Nashville Public Schools formed a strategic alliance with the for-profit Warner Music Nashville to create a student-run record label.
• Concurrent Technologies Corporation and Renewable Manufacturing Gateway, both nonprofits, drafted a “Memorandum of Understanding” combining their strengths to recruit new companies to locate manufacturing operations in western Pennsylvania.
• The Council for Christian Colleges & Universities forged a strategic alliance with Christianity Today International to offer a Christian college search website.

In another example, a Midwest homeless shelter aligned itself with a community center that offered free classes. By referring its residents to the center, the shelter expanded opportunities for the homeless. And the community center now reaches more needy people. Considerations No matter what type of alliance you make with another entity, many of the considerations are the same. Here’s a look at some of them: What’s in their wallet? Does the entity pursuing you — or the entity you’re pursuing — have means? An alliance between two nonprofits is like any business partnership. Make sure the organization has a good net asset balance and can live up to its financial commitments. There’s no synergy to be had if only one of the partners is going to bear the burden of the arrangement. What’s in their “soul”? Do the other organization’s values align with yours? Does the entity have a similar sense of business ethics — and strong internal controls? Two working as one requires a great degree of openness and trust between the two parties. You’ll be sharing credit and responsibility for initiatives. Because the reputations of both are at stake, the two entities need to be jointly accountable. How does it look from the outside? How will past donors — particularly corporate donors — feel about your alliance? Be prepared to explain your newly defined or broadened target groups and causes. Importantly, do they align with the population and causes that are of interest to the corporate donors’ customers? On the other hand, funders are often attracted to strategic alliances and joint ventures precisely because a broader base is reached — thus, there’s more bang for the buck. Smart Moves in Tough Times The number of strategic alliances involving nonprofits has increased over the last several years, according to many reports. It’s no surprise given the numerous advantages. If your nonprofit has shied away from teaming up with another organization because you safeguard your autonomy, it may be time to reconsider: Creating an alliance could be the smart move to make.

Ailing Programs Require Your Attention

As you review monthly, quarterly and annual financials, are you distressed by the outcomes of one of your nonprofit’s programs? Do you further suspect that the funds being poured into this program might be better spent elsewhere? Weigh Program Effectiveness It’s not uncommon for nonprofits to keep programs long after they’ve stopped being effective. But a “we’ve always done it this way” attitude can prevent your organization from meeting its mission. Community and membership needs change, and your nonprofit must change with them. Instead of relying on assumptions and anecdotes about your programs’ effectiveness, use the following tools to arrive at the facts: Surveys. Question participants, members, donors, employees, volunteers and other stakeholders about which of your not-for-profit’s programs are the most — and the least — effective and why. Demographic data. Collect and review your community’s demographic data for changes relevant to your program offerings. Community input. Ask community leaders and others with their ears to the ground, such as journalists, whether they know of unmet needs or have spotted trends that should inform your programming decisions in the future. You may get mixed responses about the same program, so consider your sources. Employees and volunteers who work directly with program participants are more likely to know if your current efforts are off target than is a donor who simply attends fundraising events once or twice a year. On the other hand, you can’t afford to alienate financial supporters. Be sure to let all stakeholders know how much you value their input, regardless of the decisions you ultimately make. Measure Outcomes via Metrics You already should have goals in place for each program and systems to measure their progress. Specific metrics will vary according to the program, but your evaluation systems should be strategic, realistic and timely. Measured outcomes can include the number of individuals or families served, the cost per participant and specific program results. A charity that, for example, provides day care to low-income, single-parent families might measure the program’s success by tracking the stability of the parents’ employment. A hospital evaluating its annual community health fair could compare year-over-year attendance and number of health screenings per fair. It’s important to apply several measures to a program, including subjective ones, before deciding whether to cut it or fund it. Numerical data might suggest that a program isn’t worth the money spent on it, but those who benefit from it may be so passionate and vocal about its success that eliminating the program would likely harm your reputation. Identify Obsolete Programs After reviewing your research, you may find that it’s easier to identify obsolete programs than to decide on new ones. If one of your programs is clearly ineffective and another is wildly exceeding expectations, the decision to redeploy funds to the successful program is simple. But what if you discover that none of your programs are particularly effective and you need some fresh initiatives? Keep in mind that new programs can be variations of old ones. But they must better serve your nonprofit’s basic mission, values and goals — while making the best use of the funding available. Be careful to avoid repeating old mistakes. Say, for example, that you failed to adequately publicize your adult literacy program’s free after-work classes last spring and, as a result, only a handful of people took advantage of them. Now, you’re developing a weekend program for learners of English as a second language. Be sure to allocate part of your budget to advertising so that this program doesn’t suffer the same fate as the last one. Join Forces Here’s another scenario: Let’s say that you’ve crunched the numbers — several times — and decided that your not-for-profit simply can’t afford to continue funding a two-year-old program that has shown promise but has yet to yield quantifiable results. Before you write it out of your budget, look around. Charities with similar missions may be willing and eager to join forces with you to keep a promising program going. Moving Ahead A not-for-profit’s programs are often near and dear to the hearts of the organization’s leaders, employees and constituents. But continuous evaluation — and knowing if it’s time to pull the plug — is a part of the process of good management.

Conflict-of-Interest Checklist

Board officers, directors, trustees and key employees must avoid conflicts of interest, because it’s their duty to do so. Any direct or indirect financial interest in a transaction or arrangement that might benefit the individual personally could result in the loss of your organization’s tax-exempt status — and its reputation. Here’s a quick checklist to gauge whether your not-for-profit is doing what it takes to avoid conflicts of interest: Do you have a conflict-of-interest policy in place that specifies what constitutes a conflict and lists exceptions? Is this policy reviewed regularly?

• Do you require board officers, directors, trustees and key employees to annually pledge to disclose interests, relationships and financial holdings that could result in a conflict of interest? Do they sign a statement once a year that discloses any “interests that could give rise to conflict”?
• Do they understand that they must speak up if issues arise that could pose a possible conflict?
• Do you provide training in conflicts of interest? For example, do you include it in your annual board retreat?
• Do you have procedures in place that outline the steps you’ll take when a possible conflict of interest arises to determine whether the transaction is reasonable and in the best interest of your organization? Are outside experts consulted when appropriate?
• In regard to the transaction in question, is the individual with the possible conflict asked to make a presentation of only the facts, and then to remove himself or herself from the discussion, so as not to influence other board members or employees? And is the individual required to abstain from voting on these issues?
• Do you keep minutes of the meetings where the conflict of interest is discussed, noting those members present and voting, and indicating the final decision reached?
• Do you put projects out for bid — with identical specifications — to a number of vendors?
• Do you supply a written contract to each vendor that details the service the company will provide, specific deliverables, cost estimates and a time frame for delivering all materials or services?

If you answered “no” to any of these questions, confer with your CPA. He or she can help you make sure that you have an adequate conflict-of-interest policy in place and a full set of procedures to support it.

News for Nonprofits

This issue’s “News for Nonprofits” discusses a current Federal Communications Commission proposal that would allow charities to be able to raise funds on NPR and PBS shows; an IRS programming error that may have resulted in failing to identify thousands of not-for-profits whose tax-exempt status should have been automatically revoked; and how to add a personal touch to thank-you letters to donors. Raising Funds on Public Radio and TV Charities may be able to raise funds on NPR and PBS shows — if a current Federal Communications Commission (FCC) proposal becomes rule. The FCC is weighing comments on the proposed rule, “Noncommercial Educational Station Fundraising for Third-Party Non-Profit Organizations.” Issues to be resolved include whether:

• The new rule would apply only to stations that receive no Corporation for Public Broadcasting funding, and
• The kinds of causes and organizations that could get air time should be limited.

Currently, public radio and TV stations are permitted to raise money for themselves. They also can raise money for big disasters — Hurricane Katrina was one — after obtaining an FCC waiver. The proposed rule could allow them to devote up to 1% of their annual broadcast time to on-air fundraising appeals for other charities. The IRS May Have Missed 15,000 for Revocation The IRS is fixing a programming error that may have resulted in failing to identify thousands of not-for-profits whose tax-exempt status should have been automatically revoked. During 2011, 279,500 nonprofits were notified that their tax-exempt status was revoked because they had failed to file a tax return for three consecutive years. According to a recent Treasury Inspector General for Tax Administration (TIGTA) audit report, however, perhaps as many as 15,000 more groups should have been notified of tax-exempt status revocation. If your nonprofit has failed to file the required returns for three years, file a Form 990-EZ as soon as the issue is identified for each year from 2007 through 2010 and a Form 990-N if you qualify for 2011. You may receive follow-up correspondence from the IRS with instructions to reapply for exemption. Add Personal Touches to Your Thank-you Letters Even if your nonprofit uses a standard thank-you letter format for acknowledging donations, you should add personal touches to make your donors feel like you know — and, thus, appreciate — them:

• Address the letters to individuals by name.
• Weave in information you might know about them, such as how long the donors have been involved in your organization, or how pleasing it was to see them at a recent event.
• If a particular campaign prompted the donation, make that connection in your letter — for example, by providing specific information on how you’ll use these donations.
• Hand-sign the letters, adding a handwritten note.

Of course, none of these gestures count for much if you don’t get the letter to the donor promptly. Consider setting a policy for acknowledging donations within 48 hours of their receipt.

For Further Information

If you have any questions, please contact Michael L. McNee, Partner-in-Charge, Nonprofit and Government Services Group, at 212.503.8954 or mmcnee@markspaneth.com. You may also contact one of the following members of the group: Partners

• Hope Goldstein hgoldstein@markspaneth.com
• Joseph J. Kanjamala jkanjamala@markspaneth.com
• Warren Ruppel wruppel@markspaneth.com
• Anthony J. Tempesta ttempesta@markspaneth.com

Directors

• Howard Becker hbecker@markspaneth.com
• Robert Lyons rlyons@markspaneth.com

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Treasury Regulations require us to inform you that any Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © Marks Paneth LLP MANHATTAN | LONG ISLAND | WESTCHESTER | CAYMAN ISLANDS

About Michael McNee