Fundraising

End of Multi-venue Cultural Facility Construction?

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The Nonprofiteer reports that the Kresge Foundation has decided to cease providing support for the construction of new theatres.

The Nonprofiteer’s reaction seems to imply those who hadn’t jumped to build when everyone else did are being penalized while those with established facilities will continue to benefit under the new focus.

“Granting funds instead for renovation and repair means the new Kresge posture will benefit the arts groups that got while the getting was good (or, perhaps, have some other basis for grantworthiness, e.g. re-purposing of an historic building). But arts groups which have been thinking about building from scratch are now stuck contemplating Max Bialystock’s mantra: “He who hesitates is poor!”

Yes, inevitably those who received support in their capital campaigns may not find themselves the beneficiary of programmatic and capacity building support. This is a common story as the financial situation changes for everyone from governments to families. Entities who have a need at the right time get resources that others didn’t/won’t. (And Mom loved her best too! *sniffle*) Also, the way Kresge Foundation sees it, the operating environment is shifting in a direction that can not support new construction.

“Kresge was a critical player in the 20-year cultural facility building boom that swept the arts sector.” Carle continues. “But numerous signs suggest that the building boom is over, halted by a combination of the economic recession and the staggering challenges of running capital campaigns and then covering steadily rising fixed costs. Our new grantmaking strategy is designed to assist organizations in successfully making this transition and positioning themselves for long-term sustainability.”

Their focus now will be on “Institutional Capitalization, Artists’ Support Services and Arts and Community Building.” Renovation, repair and generating a building reserve funding can be applied for under the Facility Investments and Building Reserves section of the Institutional Capitalization area. It appears to be the only area one can apply for openly. Unsolicited applications for all other sections of Institutional Capitalization as well as the Artists’ Support Services and Arts and Community Building areas are not accepted.

They do leave the door open slightly to new construction projects: “On occasion, we will entertain applications for new construction associated with exemplary sustainability practices or those that embody key principles of urban and community planning to enhance the quality of life in a place.” So perhaps if you had a project to reclaim a portion of downtown storefronts for arts use as part of a revitalization project focused on creating a walkable neighborhood, you could have a decent shot at funding.

When All Non-Profits Are Not Equal

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Stuff to think about from Gene Takagi at Non-Profit Law Blog. He links to a piece on The Chronicle of Philanthropy about the increasing scrutiny on charities. (Not that there aren’t people abusing non-profit status, but shouldn’t the hammer really be coming down a little heavier on big bank misdeeds?) A symposium was conducted earlier this month “focused exactly on the issue that is first in the minds of policymakers in Washington who are interested in the tax-exempt sector: whether there is merit to a broader review and consideration of what is a charity. More specifically, should there be an effort to distinguish between types of charities?”

The piece links to articles which examine how many companies with non-profit status seem to be operating as thinly veiled for-profit businesses. In this context, most arts organizations probably wouldn’t worry because there is little chance of anyone accusing them of making massive profits. However, writing about the symposium agenda, the writer asks:

The question for tomorrow is should we move beyond just reforming certain sectors but instead look at broader changes to the subsidies for charities? For example, should there be line drawn that would allow for greater tax subsidies to charities that provide direct support to the poor? What lines should be drawn? What lines can be drawn?

Since governments often tend to think there is a binary choice for funding non-profits- your show or dying orphans, Carnegie Hall or criminals running free and houses burning down– my concern is that creating a scale for subsidies and donation exemptions will present a clear judgment about the value of organizations in the community. How will people’s perceptions change when 100% of their donation to Juvenile Diabetes is deductible, but only 80% of the donation to the opera? True, so much of it is already unspoken or written up in editorials and blog posts, but that might solidify perceptions. I would think there is a very real chance of arts organizations ending up on an uneven footing with other non-profits. It is politically much easier to advocate for better consideration of health and human services than the some times controversial arts.

There hasn’t been a follow up post on the Chronicle of Philanthropy site so I don’t know how the discussion played out. There was a mention of one of the speakers, the chief of staff for the US Senate Finance Committee mentioning that perhaps Congress should create a “for benefit” corporate status. But I haven’t seen anything much more about the meeting.

On a semi-related topic, Takagi also linked to the IRS’ new rules dealing with “Tax on Unrelated Business Income of Exempt Organizations ” Unless you have been wondering how to find these rules and enjoy reading IRS publications, this may not be of great interest to you.

He also linked to a site addressing what to do if you are a for-profit who wants to help raise money for a charity. The answer given isn’t really extensive, but it is a starting place if you are considering partnering to create one of those programs we often hear about where a “portion of the proceeds is donated to…”

Development Is Everyone’s Job Too

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The assistant theatre manager and I had a meeting with our development officer today. I haven’t had a lot of faith in the foundation people since I took this job but today’s meeting gave me cause for optimism.

In the past, my interactions with the foundation people have mostly consisted of them telling me not to do things. I wasn’t to try contacting people, except on a very limited basis or write appeal letters, but rather give them a list of our needs and depend on the phone bank for the annual appeal. In the last six years we have had five development officers and no consistency or follow through from one to another. I have hosted four receptions in cooperation with them where there was no ask for donations. That would be fine, but there was also no follow up with the invitees to help them develop a greater investment in the theatre.

Despite all the promises and plans that were made, not only am I no closer to the endowment they keep telling me they want us to develop, but my annual contributions have been flagging every year, even before the recession. So I pointed all this out, noting that this was the fifth time I have pretty much had this meeting and asked what would be different.

The development officer acknowledged the foundation hadn’t really done well by us and then proceeded to talk about how the focus of the donor cultivation would move from her to us. We would take more ownership of the process so that if she was hit by a car tomorrow, the effort would still move forward. We aren’t going to depend heavily on gala events and chasing corporate money. We are going to clearly define giving opportunities and the case for giving to the theatre. Then we are going to start cultivating people on an informal basis.

I was glad to hear this because I figure I am already ahead in the game. I started actively cultivating relationships with people about a year ago. I was talking to a person I had specifically targeted as a prospect just last Friday. After a number of years of discussion, I am finalizing the arrangements for the donation of new carpeting for the lobby and seating areas. I had also started sending out targeted solicitation letters on the theory people give to people they know, not anonymous phone banks representing institutions. I decided if there was a foundation person to take umbrage, there was a good chance they wouldn’t be here in a year to prevent me from doing it again anyway. Yes, it might be a cynical outlook, but it has doubled my donor base. (Admitted, not a hard thing to do at this point.)

Since I regularly echo the idea that marketing is everyone’s responsibility, I am certainly on board with the idea that development requires everyone’s investment as well. When the topic of creating a case for what makes us worthy of donations came up, it was quickly decided we needed to include the technical director in some of the encounters with potential donors. He has been with the theatre for over 30 years. He has a great institutional memory and is probably the best qualified to talk about what has made us special over the years. I took it as a positive sign that the foundation was ready to give up some control when everyone quickly saw the value of having the guy with sawdust in his mustache talk to potential donors.

My suspicion is that the impetus for ceding some control and involvement is a result of the economic downturn. With staffs being shrunk, it probably became clear that the foundation couldn’t sustain the level of engagement with donors they needed to with those who remained. (The “small staff” motif was frequently mentioned by the development officer.)

I don’t know if they will be promoting the same sort of dynamic with everyone in the system. I’ll be the first to admit, not everyone is suited to advocate on behalf of their program. There are situations that really are best to defer to the professionals. The chancellor knows I have been chafing under the restrictions imposed on us and may have had a hand in getting the reins loosened a little. It may have helped that the theatre staff and I worked together to gain the donation of the new carpeting and some lighting instruments independent of the foundation.

So we will see how things unfold. The assistant theatre manager is pretty energized. Partially I think, because he hasn’t sat through this same meeting multiple times before. I am obvious still a little cautious and skeptical about the whole thing. I didn’t lay all my cards on the table in terms of possibilities I have been pursuing and after this meeting, there is less of a need to do so until the time is right.

Who’s Auditing The Auditors?

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Credit where it is due, Peter Hansen of NJPAC posted a link on the Performing Arts Administrator’s group on LinkedIn about the £2.3 million judgment entered against former London Philharmonic Orchestra (LPO) General Manager Cameron Poole for financially defrauding that organization.

Even though it was supposed to take 4 people to issue a check, Poole was able to take advantage of operational distractions to perform all the required functions himself, included forging countersignatures. The executive director, Tim Walker, admits some negligence on his part, but is amazed that not only did he and the board not catch it, but the auditors from Deloitte missed it on three separate audits. LPO is currently pursuing a negligence suit against Deloitte.

It raises the question of whether you can really be certain you have proper controls and diligence in place. Deloitte missed, or at least didn’t comment on something that became apparent to Poole’s successor in a couple weeks. Four of the biggest accounting firms in the country never made a sound about the suspicious nature manner in which Bernie Madoff financial reports were generated. (An entirely separate issue from the strangely superior returns his fund was generating.)

One would think that after Arthur Andersen’s accounting arm lost credibility following the Enron scandal, reducing the Big Five accounting firms to the Big Four, greater attention would be paid. But I think people may attribute more competence and honesty to organizations of great size and prestige than is warranted. Even on the non-profit front, I was aware of a number of scandals in the United Way, but I had no idea that there has been large scale mismanagement and embezzlement at four or five locations and alleged smaller scale fraud at over 20 others. One of the Spanish members of the LinkedIn group cited a case similar to LPO’s at Barcelona’s Orfeó-Palau de la Musica Catalana where the general manager embezzled millions of euros (some stories I have seen claim 23 million in over 30 years).

The piece I linked to above about the United Way claims “The nonprofit world has accepted that multi-million embezzlements are a cost of doing business.” As much as I am dismayed by the idea that making great efforts at due diligence may not guarantee security, I would hope no one hiring me would do so assuming there was a good chance I will make off with some of the money.

There is a price for lack of scrutiny when people begin to lose faith in you. About a year ago, there was a piece in the Washington Post about 21 Washington DC area non-profits withdrawing from the local United Way, which had been the subject of one of the larger scandals, in favor of another emerging charitable organization.

I am encouraged by the news that it didn’t take long for Poole’s replacement at the LPO to notice something was strange. It means that misappropriations can be spotted with a little healthy scrutiny that makes no personal judgments about the individual holding the books when you ask to see the raw data rather than the summary reports.

Still, most of us don’t have three weeks to pour over ledgers sorting through it all. So the real question becomes, how do you know you can trust your auditor to be meticulous enough on your behalf? I am sure I could find editorials about how the big firms are so big and so motivated to process as many audits in a year as possible, companies aren’t getting the competence and effort they deserve. I am also pretty sure that laziness and incompetence afflicts the small operations as well as the big ones.

There was an argument back during the Enron scandal that rotating accounting firms would help avoid the conflicts of interest that develop over a long term relationship and cause auditors to look the other way. That was countered by the idea that is wastes a lot of time and money when you have to get a new auditor up to speed about the way your business runs.

I am pretty much on the side of rotating. I don’t think most arts organizations and non-profits in general are so big that it will take too much longer to explain their operations to a new group every few years. That way you avoid any conflicts of interest and lack of rigor.