It was a full house at the PKF Texas office for the first official seminar of the year! We partnered with the Houston chapter of Financial Executives International (FEI) for this joint seminar.

Titled, “What’s Happening in the State of Capital Flow?,” the seminar hosted a panel of three speakers, moderated by PKF Texas Audit Director, Chip Schweiger, CPA, CGMA. Chip filled the hour with a compelling discussion between:

  • Michelle Lewis, Principal at CapStreet
  • Sammy Desai, Managing Director, Head of New York Investment Banking at Needham & Company
  • Alex Somers, Executive Director, Investment Banking at Tudor Pickering Holt & Co.

Every speaker offered their expertise and insight to the CFOs, controllers and other financial executives in the room about what’s going on in the public markets and the outlook for 2019. Topics discussed included non-traditional sources of capital, the exit environment when looking to IPO, impact of regulations on capital markets, the nature of buyers today, technology, cyber security and more.

For more information and to stay updated with future events, visit our website and subscribe: www.PKFTexas.com.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back once again with Annjeanette Yglesias, one of our tax managers and a member of our not-for-profit team. Annjeanette, welcome back to the Playbook.

Annjeanette: Thanks, Jen. It’s nice to be here.

Jen: So, we’ve talked before about the Donor Bill of Rights and how it really wasn’t a legal thing for nonprofits to follow, but I know there’s organizations out there that are considered “watchdogs.” Can you tell us a little bit about some charity watchdogs?

Annjeanette: Charity watchdog organizations are out there, and they’re basically on the Internet and such. And they’re out there to provide donors information. A lot of nonprofit organizations have tax filings and financial information that’s already made available to the public, and these watchdog organizations basically make that information available in one spot for donors to look at.

Jen: So, kind of like a search engine for charities?

Annjeanette: Basically yes.

Jen: What are the main charity watchdogs that people typically go to?

Annjeanette: There’s three that come to mind. So, first of all, there is Charity Navigator, and Charity Navigator is pretty popular. They basically collect tax returns, copy of tax returns and financial information, as well as annual reports that nonprofit organizations might have on their websites. And what they do is they take that information, analyze it and provide a star rating. So, they have a star rating system, and they have a formula that goes behind their star rating system.

And then there’s Charity Watch; Charity Watch is very similar. They get financial information, tax return information that’s already out there to the public collected, and they have their own method of rating organizations and they provide a letter rating A through F.

And then there’s GuideStar; GuideStar doesn’t necessarily analyze a nonprofit organization’s performance. What they do is they’re just a repository for information: the tax returns, financial reports, annual reports, things like that. But what they do have is a seal of transparency rating that they provide each organization based on how much information the organization itself voluntarily provides to customers.

Jen: So, you’ll want to kind of maybe look at all three but then also do your own due diligence as just part of when you’re making a decision whether or not to contribute to a not-for-profit.

Annjeanette: That’s correct. The important thing for nonprofit organizations to know is that these watchdog organizations are out there, and so, it’s important for the nonprofits to understand what they’re looking at, what the grading methodology is and what the donors are seeing from that aspect of it. That way when they field questions from potential donors, potential supporters they’re aware of what’s out there, and they can respond appropriately.

Jen: Well, that’s good to know. Perfect, we’ll get you back to talk a little bit more.

Annjeanette: Sounds good.

Jen: To learn more about how PKF Texas can help your not-for-profit organization, visit PKFTexas.com/notforprofit. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

Auctions have long been lucrative fundraising events for not-for-profits, but these events come with tax compliance responsibilities.

Acknowledging Item Donations
If you auction off merchandise or services donated to your charity, you should provide written acknowledgments to the donors of the auctioned items valued at $250 or more. You won’t incur a penalty for failing to acknowledge the donation, but the donor can’t claim a deduction without substantiation, which could hurt your ability to obtain donations in the future.

Written statements should include your organization’s name and a description — but not the value — of the donated item. (It’s the donor’s responsibility to substantiate the donated auction item’s value.) Also indicate the value of any goods or services provided to the donor in return.

Other Rules
Donors of services or the use of property may be surprised to learn that their donations aren’t tax-deductible. Alert these donors before they make their pledges. Also inform donors of property such as artwork that tax law generally limits their deduction to their tax basis in the property (typically what they paid for it).

If you receive an auction item valued at greater than $500 — and within three years sell the property — you must file Form 8282, “Donee Information Return,” and provide a copy to the original donor. Form 8282 must be filed within 125 days of the sale.

Substantiation for Winning Bidders
A contribution made by a donor who also receives substantial goods and services in exchange — such as the item won in the auction — is known as a quid pro quo contribution. To take a charitable deduction, winning bidders at a charitable auction must be able to show that they knew the value of the item was less than the amount paid. So provide bidders with a good faith estimate of the fair market value of each available item before the auction and state that only the amount paid in excess is deductible as a charitable donation.

In addition, your not-for-profit is required to provide a written disclosure statement to any donor who makes a payment of more than $75 that’s partly a contribution and partly for goods and services received. The failure to provide the disclosures can result in penalties of $10 per contribution, not to exceed $5,000 per auction.

Plan Ahead
If you plan to hold a fundraising auction, don’t wait until the last minute to think about tax compliance. Contact us: We can help.

The amount of money your not-for-profit raises in fundraising campaigns is meaningful, but so is how efficiently you’re able to raise it. Such costs can be measured using two metrics: Cost ratio and return on investment (ROI). Let’s take a look.

Find a Formula
These two metrics can be used to evaluate both fundraising activities as a whole and individual events or campaigns. Concentrating not only on the big picture, but also on specific fundraising activities, allows your organization to identify stronger strategies to use more frequently and weaker ones to consider improving or ending. Ultimately, the goal is to determine which activities generate the highest return.

Cost ratio (also known as cost-per-dollar, which is fundraising expense / fundraising revenue) focuses on the expense of fundraising, while ROI focuses on the returns. The formula for ROI uses the same inputs as cost ratio but flips them; the fundraising expense, of course, is the “investment” ROI is referring to:

ROI = Fundraising revenue / Investment in fundraising

Some not-for-profits use gross revenues in the ROI formula. However, many others use net revenues (revenues minus the related expenses). Either option is acceptable, but you must be consistent and measure revenues the same way for every year and campaign. After all, these metrics are meaningful only when you compare fundraising activities or trends from one year to prior years.

Calculate Inputs
Fundraising expense data should include the direct costs of the initial effort, as well as later activities. Initial costs might include an investment in online advertising or a phone campaign, while subsequent costs might relate to maintaining that relationship, such as a renewal mailing.

As for indirect and overhead costs, exclude those that you would incur with or without the monitored activity (such as website or donor database costs). And make sure they’re excluded from every campaign metric. For both costs and revenues, use rolling averages that cover three to five years. This will reduce the effect of “one-offs,” whether in the form of a significant donation or an economic downturn. You’ll also avoid penalizing activities, such as a major gift campaign, that require some time to show results.

Allocate Resources
Calculating metrics will help you make better decisions when it comes to allocating limited resources. But keep in mind that ROI can vary greatly by activity, and a lower ROI doesn’t necessarily mean you should cut the activity.

Contact us for more information.

Corporate matching can double the value of donors’ gifts — a bonus no not-for-profit organization can afford to pass up. Are you doing everything you can to educate your financial supporters and their employers about matching gifts?

Encourage donors and employers

Most matching programs are managed by HR departments, which provide employees with matching gift forms. Typically, the employer sends the completed forms, along with the matched donations, to the charity the employee has chosen. Dollar-for-dollar matching is most common among participating corporations, but some companies offer more, others less. Many match donations to any nonprofit, but some are more restrictive.

To encourage increased matching gifts, draw up a list of employers in your area that offer matching. Typically, you can find this information in annual reports, on company websites or by calling companies’ HR, PR or community relations departments. If the company operates a foundation, its matching program may run through that entity.

Once you have a comprehensive and accurate list, post it on your website’s donation page. Also use the list to reach out to existing donors you know work for those companies. All of your nonprofit’s solicitations should encourage supporters to check with their employers about the availability of matching.

Set up your own program

If, despite your nonprofit’s best efforts, matching gifts only occasionally trickle in, consider creating your own matching pool. Ask board members and major supporters to match donations during a certain time period, for certain populations or for a minimum donation amount. For instance, your board might match all donations from new contributors in February or a major donor might commit to match gifts made at your annual gala.

Also keep in mind that some charitable foundations will match gifts to jump-start a fundraising effort or major campaign. Such an arrangement might be easier to set up than securing a large employer to donate to your organization.

Be persistent

Gift-matching enables donors to make larger contributions than they can manage on their own. Knowing their gift will be matched, they might even bump up the amount. Therefore, do everything you can to foster matching gifts. Contact us for more information.

After a flurry of year-end fundraising, you and your not-for-profit’s staff are probably ready for a little break. Your supporters may be tired, too. At some point, even the most philanthropic individuals experience donor fatigue and start saying “no” — even to their favorite charities.

Here’s how to remain engaged with donors and keep your fundraising efforts from eroding relationships and causing donor fatigue.

Stagger your attention

When you do a mass mailing for donations, do you blanket your entire donor base each time? Doing so can lead to donor fatigue. To avoid this, stagger your solicitations. Solicit your most significant donors in person, for example, but contact the next tier of donors with a personal letter or email. Follow up both communications with a phone call. Solicit all other donors by mass mailing.

Also, consider scaling back the number of donation requests you make. Donors may be annoyed by monthly appeals (especially in the form of mass mailings). But if they know you only ask once or twice a year — or in the event of emergencies — they’re more likely to be there when you need them.

Think of alternatives

Consider forgoing soliciting your major donors for money every year. A corporate sponsor’s nonmonetary donation — such as the use of a venue for an event — may be just as valuable. Or, instead of returning to the same event sponsor every year, seek new sponsors, but keep the established sponsor engaged by asking for support in another form. For example, request the donation of an auction item or gift basket.

The same holds true for individual donors. While you’d hate to miss out on a donation by simply not asking, consider requesting that significant donors contribute in ways besides writing a check. Your biggest supporters are likely well-established community members and have friends and colleagues who are charitably inclined. Ask major donors to donate their time by chairing a committee, emceeing an event or hosting a fundraising function on your nonprofit’s behalf. As a result, they’ll likely introduce your organization to others.

Be sensitive

A dedicated donor base is critical to your nonprofit’s continuing operation. To avoid alienating your biggest fans and creating donor fatigue, be sensitive to possible donor fatigue and know when to use a lighter touch.

Visit us at www.PKFTexas.com/NotforProfit/.

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and back again with Nicole Riley, one of our Audit Senior Managers on our Not For Profit team.  Welcome back to the Playbook Nicole.

Nicole:  Thanks, glad to be here.

Jen:  Not for profits do fundraising in a whole variety of ways, what are some common issues you see when they do fund raising activities?

Nicole:  One of the most common things is there are some requirements; they call them quid, pro, quo donations or arrangements.  That’s where if you go to a dinner and the ticket is $100 you actually get a dinner in exchange for that ticket, so the organization is required, if the amount paid is more than $75, to tell the donor how much they received back in exchange for that ticket.

Jen:  I think Annjeanette a few episodes ago talked with us about that.

Nicole:  Yeah, there are definitely some requirements about that.  Another thing we see with nonprofits is when they do raffles, those are not donations.

Jen:  Really?

Nicole:  Really.  For the taxpayer themselves, it’s not a charitable donation.

Jen:  Oh my gosh, well we need to make sure that some of these boards that I’m on know that.  Is there anything else?

Nicole:  One other thing is in fundraising you see a lot of organizations get free things; either free advertising spots, free flowers.

Jen:  Like some in-kind donations?

Nicole:  Right.  They often forget to track those.  Those are required to be recorded as contributions in expenses in the financial statement.  So it’s important to keep track of what you got and how much it’s worth.

Jen:  So as an auditor when you’re looking at those financial statements are those the types of things that you guys are looking at?

Nicole:  It’s always something that we look at.  It’s an area that because it’s a donation and it’s an expense it’s important to have the financials stated properly, so of course we always look at those lists.

Jen:  Sounds good.  Well, we’ll get you back to talk some more about some of the nonprofit activity that we do.

Nicole:  Thanks.

Jen:  To learn more about how we can help your not for profit visit PKFTexas.com/notforprofit.  This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.

You’ve probably heard it before: People don’t give to causes — they give to those asking on behalf of a cause. That’s why a personal appeal continues to be such a powerful not-for-profit fundraising tool. In fact, requests from friends or family members typically drive most charitable donations. By appealing to their networks, board members can be particularly effective fundraisers.

4 strategies

Here are some time-tested strategies for improving the effectiveness of your board’s outreach:

  1. Humanize the appeal. Say that your charity raises money for cancer treatment. If board members have been impacted by the disease, they might want to relate their personal experiences as a means of illustrating why they support the organization’s work.
  2. Emphasize benefits. Even when appealing to potential donors’ philanthropic instincts, it’s important to mention other possible benefits. For example, if your organization is trying to encourage local business owners to attend a charity event, board members should promote the event’s networking opportunities and public recognition (if applicable).
  3. Meet face-to-face. Letters and email can help save time, but face-to-face appeals are more effective. This is especially true if your nonprofit offers donors something in exchange for their attention. For instance, they’re more likely to be swayed at a coffee hour or cocktail gathering hosted by a board member.
  4. Present a wish list. Your organization should provide board members with a wish list of specific items or services needed. They can offer supporters the opportunity to donate a purchased item or make an in-kind donation.

Never-ending challenge

Fundraising is a never-ending challenge for most nonprofits. Contact us for more information on effective fundraising strategies.

Whether you’re planning to raise funds for your not-for-profit with a simple bingo game or raffle, or with a more elaborate casino night, you need to understand and follow the federal rules that govern these kinds of activities. Gaming activities can open the door to unexpected taxes and trigger requirements for specific IRS filings.

Filings and special taxes

If you regularly conduct a gaming activity, you may be required to report it to the IRS. For example, nonprofits that gross more than $1,000 in unrelated business income from regular gaming fundraisers may need to file Form 990-T, “Exempt Organization Business Income Tax Return.”

Your group also may be subject to a wagering excise or occupational tax, depending on:

  • The type of wagering you engage in,
  • How it’s structured, and
  • How your organization benefits from the proceeds.

Generally, this tax applies to lotteries or wagering pools that involve a sporting event or a contest that’s conducted for profit.

Winnings and withholding

Depending on the type of game and the amount won by an individual, you might be required to report winnings to the IRS. This applies if your fundraiser includes a single instant/pull-tab prize of $600 or more (if more than 300 times the amount of the wager), a single bingo or slot machine prize of $1,200 or more, or a single Keno prize of $1,500. You’ll need to obtain the winner’s name and Social Security number.

Regular income tax or backup withholding is necessary for some games with winnings over a certain threshold. No withholding is required for bingo prizes up to $1,200. But withholding is necessary when raffle and some other types of winnings are $600 or more. Your organization is required to pay these amounts, regardless of whether you get the withholding from the winner.

Tip of the iceberg

These are just some of the federal rules surrounding gaming. In addition, many states and municipalities impose their own regulations on gaming activities, including requiring licenses or permits. To ensure your fundraiser complies with complex IRS rules, contact us.