Presentation by Tate & Tryon offering detailed information for exempt organizations on how people monitor their organization, filings and effective use of donations

1. What the Nonprofit Watchdogs are
Watching
January 13, 2012
Douglas A. Boedeker, CPA, CMA
Partner
(202) 419-5106
dboedeker@tatetryon.com

2. Agenda
 Do watchdogs matter?
 Who are the watchdogs?
 Discussion of specific approaches:
 BBB Wise Giving Alliance
 Charity Navigator
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

3. Do Watchdogs Matter?
 According to recent research*:
 77.7% of donors do not use any watchdog rating
when making a decision to donate money.
 57.9% do not obtain information from any Internet-
based source.
 A 2001 BBB Wise Giving Alliance study
reported that 79% had not used the internet
for charity information.*
*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and
Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

4. Do Watchdogs Matter?
 However, the same study also had the
following findings*:
 “We found that in both groups, donation size is significantly
associated with use of the watchdog organizations’ ratings.
As was discussed earlier, when the donation size is high, the
loss is more meaningful; many such high-level donors plan
strategically to make an impact, and as a result, they are
more careful when making a donation……”
 “Surprisingly, the stronger explanatory variable was
advocacy engagement. In both sample groups, those who
engage in advocacy were more likely to use the internet and
more likely to search the watchdog organizations’ websites.”
*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and
Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

5. Where to find watchdogs
 Google:
 CharityWatch (American Institute of Philanthropy)
 Charity Navigator
 Charity Evaluator (watchdog watcher)
 Charity Watchdog®
 Consumer Reports:
 Charity Navigator
 CharityWatch
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

6. Where to find watchdogs
 District of Columbia Government website:
 Refers readers to Federal Trade Commission website
 Maryland State Government website:
 Guidestar
 Charity Navigator
 Federal Trade Commission
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

7. Where to find watchdogs
 Virginia Government website:
 AARP
 American Institute of Philanthropy
 BBB – Wise Giving alliance
 Consumer Federation of America
 Direct Marketing Association
 GuideStar
 LifeSmarts
 National Association of State Charity Officials
 National Better Business Bureau
 National Fraud Information Center
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

8. Where to find watchdogs
 Federal Trade Commission website:
 BBB Wise Giving Alliance
 American Institute of Philanthropy (Charity Watch)
 Charity Navigator
 GuideStar
 For military relief societies,
www.militaryhomefront.dod.mil
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

9. Where to find watchdogs
 Academic research found that donors
used the following sources*:
 Organization’s website: 61.1%
 Better Business Bureau: 40.2%
 Charity Navigator: 11.5%
 Amer. Inst. of Philanthropy: 6.8%
 GuideStar: 5.5%
 Network for Good: 3.1%
 Other 19.3%
*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and
Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals,
Inc.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

10. BBB Wise Giving Alliance
 Centers around the BBB Wise Giving
Alliance’s Standards for Charity
Accountability
 Mostly voluntary process
 Charities can apply for the right to display the BBB
Seal. (Requires an annual license fee.)
 “The Alliance continues to report on national charities
that have been the subject of recent inquiries
regardless of whether a charity…intends to apply for
the national charity seal.”
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

11. BBB Sample Report
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

12. BBB WGA Charity Accountability Standards
 “The standards seek to encourage fair and
honest solicitation practices, to promote
ethical conduct by charitable organizations
and to advance support of philanthropy.”
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

13. BBB WGA Charity Accountability Standards
- Highlights
 Governance and Oversight
 Board should provide adequate oversight.
 Board should be largely independent.
 No material conflicts of interest.
Measuring Effectiveness
 Board policy to assess organization’s performance
and effectiveness at least every two years.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

14. BBB WGA Charity Accountability Standards
- Highlights
 Finances
 At least 65% of total expenses on program activities.
 No more than 35% of related contributions can be
spent on fundraising.
 Unrestricted net assets should be no more than three
times anticipated expenses.
 Audit if revenues are greater than $250,000.
 Prepare a statement of functional expenses.
 “Accurately report the charity’s expenses, including
any joint cost allocations, in its financial statements.”
 Board-approved annual budget.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

15. BBB WGA Charity Accountability Standards
- Highlights
 Fund Raising and Informational Materials
 Accurate solicitation and informational materials.
 Annual report should be available upon request.
 Provide mailing address & electronic link to Form 990.
 Address donor privacy concerns.
 Disclose how the charity benefits from the sale of
products or services.
 “Respond promptly to and act on complaints brought
to its attention by the BBB Wise Giving Alliance
and/or local BBBs about fund raising practices,
privacy policy violations and/or other issues.”
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

16. BBB WGA – “Charting Impact”
 A new concept, based on self-reported
answers to five questions:
 What is your organization aiming to accomplish?
 What are your strategies for making this happen?
 What are your organization’s capabilities for doing
this?
 How will your organization know if you are making
progress?
 What have and haven’t you accomplished so far?
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

17. “Charting Impact” – Sample Report
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

18. Charity Navigator – “Your Guide to
Intelligent Giving”
 To be evaluated:
 Must be a 501(c)(3).
 Must file a Form 990 (not a 990-PF or 990-EZ).
 Public support must be at least $500,000.
 Total revenue must be more than $1,000,000.
 Must have at least four years of Form 990.
 Must be based in the U.S.
 Charities that report $0 in fundraising expenses are
excluded from evaluation.
 Excludes charities receiving most of their funding
from government grants or program service fees.
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

19. Charity Navigator – Rating System
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

20. Charity Navigator – Rating “Financial
Health”
 Based on 7 key metrics:
 Program Expenses
 Administrative Expenses
 Fundraising Expenses
 Fundraising Efficiency
 Primary Revenue Growth
 Program Expenses Growth
 Working Capital Ratio
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

21. Charity Navigator – Rating
“Accountability & Transparency”
 Data pulled from the 990:
 Independent Board.
 Material diversion of assets.
 Audited financial statements and oversight committee.
 Loans to or from related parties.
 Documented Board meeting minutes.
 Form 990 provided to the Board.
 Conflict of Interest, Whistleblower, and Document Retention &
Destruction Policies.
 CEO is listed with salaries.
 Process for determining CEO compensation.
 Is the Board compensated?
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

22. Charity Navigator – Rating
“Accountability & Transparency”
 Data pulled from the charity’s website:
 Board members listed.
 Key staff listed.
 Audited financial statements are listed.
 Form 990 is listed.
 Is there a written privacy policy published on the
website? Best is one that “states unambiguously that
(1) it will not sell, trade or share a donor’s personal
information with anyone else, nor send donor mailings
on behalf of other organizations or (2) it will only
share personal information once the donor has given
the charity specific permission to do so.”
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

23. Charity Navigator – Calculating the Score
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

24. Charity Navigator – CN 3.0
 Charity Navigator is working on a “results”
dimension to add to its rating system.
 Looks to garner “rigorously collected
feedback” from a charity’s constituents.
 The results dimension will become the
largest portion of the total rating score.
 Goal is to evaluate 10,000 charities each year
via the use of volunteer raters. (Currently,
5,500 charities are rated.)
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

25. Thank you for your time!
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants

26. Speaker Biography
Douglas Boedeker , is a partner within Tate & Tryon’s Audit
and Assurance Services unit and is also actively involved in
the Firm's exempt organization tax services group. He has
20 years of experience providing an array of audit, tax, and
consulting services to a variety of nonprofit organizations and
employee benefit plans. He takes particular pride that his
family has contained at least one CPA every year since 1923.
Doug graduated summa cum laude from Susquehanna
University in Selinsgrove, Pennsylvania with a Bachelor of
Science degree in accounting while simultaneously
completing the coursework for a second major in arts
administration. He was also named as the University’s
recipient of The Wall Street Journal Outstanding Business
Student Award.
Doug is a frequent speaker on a variety of exempt organization tax issues and the
Form 990. He recently presented a session on easing the 990 preparation process
for CFOs and auditors at the 2011 AICPA Not for Profit Industry Conference. Doug
is a coauthor to Guide to the Newest IRS Form 990: Interpreting and Complying
with the New Tax Reporting Requirements for Transparency and Accountability,
(published by ASAE).
January 13, 2012 Copyright © 2012 Tate & Tryon CPAs and Consultants