Emily Chan – Butts In the Seats

Info You Can Use: Fundraising Must Benefit The Group, Not The Individual

December 19, 2012 by Joe Patti

The approach of the holidays provides me with a little more free time so I have been catching up on my “come back to and read” list. I got to reading a piece by Non-Profit Law blogger, Emily Chan addressing activities athletic booster clubs engage in that may endanger their non-profit status.

Since these clubs are organized under 501 (c) (3) just like arts organizations, I became a little concerned because I see similar things happening with some arts organizations.

The potential conflict Chan addresses is in making the amount of money a person raises directly correlate with the benefit to an individual like crediting against the payment of tuition/dues or travel expenses.

Furthermore, such a credit system still raises private benefit concerns regardless of whether a parent is considered an insider or even involved in the booster club. Lois Lerner, the Director of Exempt Organizations at the Internal Revenue Service, recently affirmed that crediting amounts raised by a participant against that participant’s costs (e.g., dues, travel expenses) is a private benefit violation that may jeopardize the organization’s exempt status.

What immediately came to mind is that a lot of dance schools have their students sell tickets, Entertainment coupon books, etc., keep track of what each person sells and rewards the kids. I don’t think there is any problem with one child only getting to choose glitter stickers because she sold less than the child who was able to claim a stuffed animal.

However, if those sales determined who got to perform or helped one person defray more of the cost of going to see a show in New York than another, there could be a problem. If it defrays the cost of everyone equally, or even a specific class within the group like sending the cast of a show to perform at a festival, then it isn’t problematic.

Really, it is mostly a matter of benefits specific to individuals. This also likely includes fund raising to benefit a specific individual, say the medical expenses of a musician who was in a car crash.

Individuals should not be soliciting contributions from donors with any suggestion or intention that the contribution will be directly used for that individual who solicited the gift. Additionally, the booster club should not accept any contributions that have been earmarked by the donor for a particular individual. Not only would such contributions not be tax-deductible for the donor, the booster club would likely be acting as a conduit in violation of the federal tax laws regulating private inurement and private benefit by allowing such money to pass through the organization to the individual without having exercised any control, oversight, or discretion over those funds

I wonder how this might apply to organizations that try to forge a deeper connection with donors by having them sponsor a student. Keeping in mind that I am not a lawyer, my guess is that if the organization is selecting the student being sponsored, there isn’t a problem. The money went into a general pot with no specific expectation of which student would benefit.

But what happens if the student drops out and the donor has taken a shine to another student and wants the sponsorship applied to her as a replacement? This is a tricky situation if you are hoping for the long term, continued support of the donor.

I also wonder if something changes with the student’s status that requires more funding than for any other student, say their place of residence changes so they must pay higher out of state tuition, can the donor be solicited or even direct additional money to benefit a specific student without endangering the non profit tax status?

Info You Can Use: Let Me Take Vacation, Or You’re Gonna Pay!

May 30, 2012 by Joe Patti

Hat tip to Non Profit Law blogger Emily Chan for providing a link to an article on a subject near and dear to my heart — vacation time.

There are some problems non-profits can run into regarding vacation and over time pay, but reading further is only necessary if people in your organization work a lot of overtime and don’t take all their vacation.

Hmm, nobody clicked away.

I wasn’t entirely joking when I said problems related to the accrual of vacation and over time were near and dear to my heart. Putting aside the number of vacation and comp time days I forfeited last year, I am regularly told about the guy who retired and wiped out most of the next season’s budget.

That is one of the hazards covered in the piece on Olive Grove Consulting’s blog. While most of the laws discussed are specific to California, there is a pretty good chance your state has similar labor laws.

For instance, in relation to accruing a lot of vacation time:

One law that often catches employers off guard is California’s requirement that employees be paid all vested vacation wages at the time of termination. As a result, an organization should ensure that it has sufficient reserves to pay out all accrued vacation. If an organization has a vacation policy that does not cap the amount of vacation an employee may accrue – and if employees do not regularly draw down their balances by taking vacation – then, the potential liability on the organization’s books can become significant.

California law prohibits employers from adopting “use-it-or-lose-it” vacation policies where vacation is forfeited if an employee does not take it. But, employers are permitted to place a reasonable cap on the amount of vacation that an employee may accrue. Thus, for example, if an organization allows employees to take 80 hours of vacation per year, the organization may cap the maximum vacation accrual amount at 140 hours. That way, even if some employees do not regularly take vacation, they will never accrue more than 140 hours, which will allow the organization to avoid having a significant amount of vacation liability on its books. To do this effectively, the organization must clearly articulate its vacation policy, including all applicable caps, in its handbook or in a stand-alone vacation policy.

Note: I edited answers for two question on this topic together. Also, my emphasis- Joe

The article also covers over time pay and discusses the California definition of employees who may be classified as exempt. This definition, which is very close to the federal definition, is based on spending more than 50% of your time performing certain types of duties or belonging to certain learned professions like lawyers, doctors, accountants (but not bookkeepers), clergy, registered nurses (but not LPNs).

Creative and artistic professions are considered exempt. The Olive Grove blog doesn’t expound, but the federal Fair Labor Standards Act says that:

Some employees may also perform “creative professional” job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis.

So even if your imagination is working over time, you won’t get paid extra for it.

The Olive Grove blog also has some informative material about laws regarding comp time in lieu of pay, disciplining employees who do not record their over time and whether a non-profit can consider over time to be volunteer work.

Just in case you like the idea of voluntary over time but don’t read the article, let me just tell you–DON’T DO IT!

“However, the DOL (U.S. Dept of Labor) also takes the position that individuals may not “volunteer” to perform work for their employer that is the same as or similar to their normal work duties. Instead, this is compensable work time. The DOL is also likely to take this same position regarding time an employee spends performing dissimilar services, if those services occur at the employer’s request, under its direction or control, or during the employee’s normal working hours.”

Again, because the laws of your locality may vary from these, just take this information as a guide to the sort of questions you should be asking about labor laws in your state

Info You Can Use: Correct Organization Of Personnel Files

August 9, 2011 by Joe Patti

Hat tip to Emily Chan at Non Profit Law blog for sharing a link to a Blue Avocado piece on how personnel files should be maintained. More specifically, what information should not be stored in a personnel file, if retained at all, and what should be kept in separate files.

Some of the prohibitions made sense given the need to maintain privacy of medical records and the fact that some documents must be released to federal inspection and it is inappropriate to provide access to the details of an entire employment history. It makes sense that nothing should be placed in the file that employees aren’t aware of.

There are some other factors I don’t know I would have ever considered when setting up a system of personnel records.

Following are the most important items to exclude:

* Any writing regarding the employee’s performance that the employee has not seen should not be in the file. For example, while the performance evaluation that was presented to the employee should be in there, a complaint memo from a department manager about an error the employee made that was never shown to the employee should not.

* Working notes or logs that a supervisor has kept for her own benefit, usually to assist in the drafting of a performance evaluation. The notes should be destroyed after documenting anything of importance in the annual performance evaluation.

* Any medical information (including drug testing information) about the employee from any source should never be in the employee’s personnel file, but rather in a separate, more restricted confidential medical file. This separate medical file could also include any medical-related information such as documents related to Workers’ Compensation, FMLA and ADA.

* Complaints or investigation reports (harassment, discrimination, ethics, licensing etc.). Any complaint about an employee that is subject to an investigation should not be in the employee’s personnel file, but in a separate complaint file. For example, if an employee is accused of sexual harassment, the only thing that should be lodged in the personnel file is any disciplinary action taken against the employee or a substantiated report of wrongdoing — but not the original complaint or investigation notes.

* These items also should not be kept in a personnel file, but in separate, confidential files:
o Hiring Documents, such as letters of reference, background investigation reports, or I-9s
o EEO Statistical Information for the EEO-1 Report
o Payroll records

In short, to manage all of this personnel information we suggest four sets of files:

1. A personnel file for each employee
2. A separate medical file for each employee
3. One folder that has Forms I-9 for all employees
4. A file (or set of files) for all employee payroll records

Ellen Aldridge, who wrote the Blue Avocado piece, also provides a downloadable check list of items to include. She follows the material cited above with information about what things employees can add to their files, how long you need to keep information, how to store the files and suggested policies and protocol for accessing and reviewing files.

The one thing I questioned, (literally-I ask about it in the comments section of the article), is the suggestion that notes a supervisor has been keeping to base a performance evaluation on be destroyed. The supervisor might be documenting incidents of absence, mishandling of cash or even episodes when customers praised an employee to a supervisor or were witnessed using exceptional judgment and initiative. Wouldn’t you want to retain this evidence if the employee challenged a poor evaluation or to defend the employee against potential layoffs?

There hasn’t been a response to my comment as of publication time. Perhaps the the advice will be to formally include these records as part of the evaluation and the destruction advice refers to informal handwritten notes versus a spreadsheet the supervisor has been maintaining.

If anyone has insight or wants to share their own best practices, I would be interested to learn the answers. My guess is that a modified version of these practices should be applied to volunteer records as well.

Info You Can Use: Board Minutes

March 1, 2011 by Joe Patti

Emily Chan over at Non-Profit Law Blog has written a two part series on board minutes. Both entries comprise a fantastic resource for anyone who has questions about the format and content of board minutes and the laws surrounding them. I was fortunate enough to be working on my most recent board minutes when part 1 was published and made some changes in response to the suggestions she makes. I am also a big arts administration geek and excitedly awaited the second installation of the series so I could post about it.

Part One is mostly about the format and content of the minutes. In it, she enumerates some common mistakes that are made.

* Failing to document a quorum was present;
* Failing to document or provide a clear description about a board action taken;
* Drafting a transcript of everything said at the meeting, including information that might be harmful to the organization if read by someone with access to the minutes (e.g., employees or members) or by a court reviewing a board action;
* Drafting and distributing minutes to directors after a lengthy period of time has passed;
* Waiting to approve minutes from past meetings until a substantial period of time has passed, decreasing the likelihood that mistakes will be caught and corrected; and
* Failing to maintain a reasonable document management system, resulting in the loss of minutes from past meetings.

The format of the minutes can vary, but a person unfamiliar with the organization and the issues it faces should be able to easily understand what happened in a meeting and what decisions were reached. Chan outlines what specific information that should appear in the minutes. She also discusses what information should be kept confidential, how a board should proceed into executive session to keep that information confidential, how the minutes should reference the executive session and how the minutes of the executive session should be kept.

The format should be standard from meeting to meeting, including the detail in which decisions are recorded. Minutes should be issued before the next meeting or within 60 days of the last meeting and kept forever. I always wondered about that last part. Minutes are among the items the IRS advises a non-profit keep for ever.

Which provides a segue to Part 2 of the series which deals with the legal aspect of board minutes. Directors and members both have a right to access the board minutes. The rules relating to access vary from state to state, Chan deals with California’ laws.

The IRS also has an interest in seeing the minutes. The bulk of the entry is devoted to discussing what practices are important to stay in compliance with rules and regulations for non-profits related to governance, tax code and audits.

Different agencies of your local and state government may also want access to minutes, especially if the organization is involved with legal actions associated with decisions made by the board. In the course of the merger my presenters consortium is seeking to pursue with a sister organization, the secretary of state requires copies of board minutes where different decisions and resolutions were discussed and passed.

Stuff To Ponder: Alternatives To Forming A Non Profit Org

January 10, 2011 by Joe Patti

If your new year’s resolution is to do good this year, go for it! But if you are thinking of starting up a non-profit, you should be aware of the challenges you face. Both the normal processes to follow when starting a new organization as well as emerging scrutiny by the federal government. The Non-Profit Law blog has been packing a lot of informational goodness in their posts over the end of last year and the transition in to this one. Among their tweets of the week for last week was news of extra scrutiny of non-profits by the IRS.

The Gene Takagi and Emily Chan who write Non-Profit Law Blog also linked to a piece they wrote for the American Bar Association outlining the considerations a lawyer and their clients should use to evaluate whether they should actually form a non-profit organization. Many of the suggestions made are just good sense for forming any business including evaluating the need, whether it duplicates the efforts of another group, if there is sufficient clientele and a support base present in the community. They make suggestions of alternatives to consider.

But another person they link to in their tweets of the week really does a great job of providing these alternatives. Allison Jones makes suggestions for 6 alternatives with links to more information about pursuing these options.
I had never heard of an intrapenuership myself.

* Free agent: More and more people are affecting social change outside of an organization. Harnessing social media, you can mobilize your network to take action or support a cause without the hassle of incorporating….

* Informal group/club: If the issue you are addressing is small or very specific (cleaning up a local park or stacking shelves in a local food pantry) you may just be able to round up a group of friends and get to work….

* Giving circle: … In giving circles you pool money and resources together to support an organization you all select. The focus is usually on a local organization, often extends beyond giving financial support, and the circles can be formal or informal….

* Local chapter of a national organization: … You can build on existing resources, support, and guidance to make a difference. Organizations that focus on professions, such as Young Nonprofit Professionals Network, Grant Managers Network, or Emerging Leaders in the Arts, tend to have chapters across the country. However other organizations in different causes, like the Reeve Foundation are open to supporters launching local chapters as well….

* Intrapreneurship: Do you work or volunteer for an awesome organization? Maybe you noticed a need because of the work you do? This can be tricky as many organizations are pressed for resources and time. However, you can harness your organization’s infrastructure to make small steps in addressing the need you have identified. Organizations are more willing to support innovation if there is someone (i.e. YOU!) willing to take the lead. Start by collecting information on the need and presenting it to your organization….

* Fiscal sponsorship: In fiscal sponsorship a nonprofit will allow you to operate under their 501c3 status….You should find an organization whose mission and work align with what you want to do and reach out to them directly….

Five Rs of Success

October 5, 2010 by Joe Patti

So I am beginning to think that adding the Non-Profit Law Blog to my Google reader was one of the best things I have done in terms of keeping myself informed on stuff to blog about. Not to send everyone abandoning my blog to hang out there, but they offer a lot of worthwhile information. (In case you haven’t been reading my blog for very long.) Last week Emily Chan did an entry on social media policy resources for non-profits.

Among the links she lists are pieces by Beth Kanter, one of which deals with the question of whether your organization needs a social media policy. Chan also links to a piece by Sharlyn Lauby on Mashable about 10 things that should appear in your social media policy. I found both of these helpful, but there are a number of other good links Emily Chan lists and then Beth Kanter has a slew of other related links in her article.

Kanter’s article has some good links for developing policy, case studies and cautionary tales about how posting the wrong sentiments and pictures can get you fired. The one that really caught my eye because of its constructive approach was a slide show by Sacha Chua, “The Gen Y Guide to Web 2.0 at Work” Chua created a hand drawn slide show aimed at Gen Yers which warns them about treating co-workers like college buddies and not applying themselves to their work.

Her tips for success at work are to Read, Write, Reach Out, Rock and Repeat: Read as much as you can; Write and Share What You Have Learned; Reach Out to others (help, get mentors, as questions); Rock at what you do and work at strengthening your weakness; and of course, repeat all those steps.

It’s more exciting and informative with her illustrations, trust me.

I don’t think it takes much effort to realize these are good guidelines for every worker, regardless of what generation they have been categorized in. I especially take it to heart because like Chua, my blog helped me get my job. While I do share links that are of interest, I don’t do it as often I want to because I don’t want to be that guy who sends a lot of links that have little relevance to the recipient. I am thinking maybe I don’t need to send more links as expand the list of those to whom I send really relevant ones.

Info You Can Use: So You Wanna Join A Board?

September 29, 2010 by Joe Patti

I believe I have covered the subject of considerations to make when joining a non-profit board before, but Emily Chan did a terrific entry on the topic on Non-Profit Law Blog this week. She links to the BoardSource page on this topic at the end, but she reminds us of additional things to think about.

Among her suggestions are to research on the organization you have been asked to join by reviewing the financials, bylaws, ensuring they have board liability and evaluating the personality dynamics on the board and their work process. Chan also mentions one of the areas I think is often overlooked–education. People who are familiar with boards on a basic level will know there are fiduciary and legal responsibilities to attend but may not really push to receive a thorough education in these areas and about the organization in general.

Education: Will you have the tools necessary to succeed at this organization?

Incoming directors at an organization may have different educational needs for creating the right environment to thrive on the board. Factors such as past board experience or work experience in the nonprofit sector can be useful in quickly adapting to a director role and executing those responsibilities. Likewise, an organization’s investment in or opportunity for board development and mentorship may be an important factor of an ideal work environment for individuals who are first-time directors or new to the nonprofit sector. For those seeking board education, a few topics to consider are:

* Orientation: What information will be covered? What are you expected to take away? What type of resources will be provided? Will you need more help or information after this?
* Training programs: Are they offered? If so, do they address the skills and areas you need the most help with? Are they pre-scheduled or provided as needed? Will you need more training and education down the road?
* Job description: What is being asked of you? Are your responsibilities and duties understandable and realistic? Can you fulfill this role?

I also really like Chan’s comments on how to evaluate the personality dynamics of the board, but I didn’t feel I could copy that much of her entry and offer so little original insight of my own. Obviously, the article can also serve as a guide for the materials, information and education non profits should be prepared to present to a potential board member so that a well informed decision is made.

Merging Administrative Functions

July 21, 2009 by Joe Patti

On occasion I cite consolidation of administrative functions as a method by which arts organizations in a community can cut costs by cooperating with one another. However, if pressed, I would have to admit that I wasn’t aware of any examples of such a thing working in practice.

So I was extremely pleased to see that the Nonprofit Law Blog has been running a series on this very subject. They cite four options that can be pursued, “an administrative collaboration, administrative consolidation, MSO (Management Service Organization), or external service provider.” The most recent entry gave an impression the series was finished but it hadn’t covered external service providers. If it does continue, I will post an update link here.

The first entry, Administrative Consolidations and Management Service Organizations covers those structures and outlines what situations they work best in.

The second entry, Joining Forces in the Back Office – Administrative Collaboration and Consolidation, talks about the collaboration and consolidation formats and presents some case studies. This is also the entry in which they define the different structures.

“According to La Piana Associates, Inc., an administrative collaboration is an informal, not necessarily enduring, arrangement to share services or expertise while each organization retains its individual decision-making power; an administrative consolidation is a more formal agreement that involves shared decision making (without changing the corporate structure) and the sharing of specific functions; an MSO is a newly created organization for the purpose of integrating administrative functions; and an external service providerinvolves the outsourcing of certain administrative elements.”

One thing I found interesting about the case study presenting in this entry was that the organization, Chattanooga Museums Collaboration achieved things you might expect- cut costs, leveraged their purchasing power, improved productivity and increased unearned income through joint fund raising activities. But the partnership also made them more competitive in the larger business landscape.

“Although the “immediate reaction is that it’s the smaller guys who are getting the benefit,” Kret corrects this misconception stating that through CMC, the Tennessee Aquarium benefits as well by generating revenue from typically nonrevenue places like accounting, increasing retention by offering key employees a higher level of compensation, and offering their employees a much more rewarding and challenging work environment.”

The third entry, Joining Forces in the Back Office – Management Service Organizations, contained a case study of an MSO formed by five social service organizations which now serves 13 groups. While MSOs are separate organizations formed to provide these services, unlike commercial payroll and human resource companies, MSOs are formed for the benefit of specific entities.

The MSO in the case study, MACC CommonWealth, has an auditor appointed by multiple boards. If that sounds like a recipe for disaster, you will want to read the case study which acknowledges that serving the interests of multiple boards and CEOs is potentially fraught with peril. So far, it seems to be working.

The most recent entry notes there are many successful collaborations among non-profits across the country. The main thrust of the entry are observations of why a cooperative effort funded by the The Lodestar Foundation, was unsuccessful.

The Lodestar Foundation provides grants for collaborative efforts and their website can give you a sense of the scope of the efforts being made in this direction.

Emily Chan who wrote the series on Nonprofit Law Blog cites a number of studies and books on the subject so the entries themselves provide a good starting place for exploring the possibilities offered by one of these avenues.