Webinar Slides: Perspectives from the CFO of Charity Navigator
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Transcript of Webinar Slides: Perspectives from the CFO of Charity Navigator
CBIZ & MHM Executive Education Series™ Getting the Most Value in the Public Domain:
Perspectives from the CFO of Charity Navigator Presented by:
Sandra Miniutti, VP, Marketing & CFO Charity Navigator
Mike Burns, Managing Director CBIZ MHM, LLC
June 9, 2015
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Before We Get Started…
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This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar.
External participants will receive their CPE certificate via email immediately following the webinar.
CPE Credit
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The information in this Executive Education Series course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further discuss the impact on your business.
Disclaimer
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Today’s Presenters
Sandra Miniutti Vice President, Marketing & CFO, Charity Navigator 201.818.1288 | [email protected] Sandra has been with Charity Navigator since the summer of 2002. Originally a program analyst, she is now responsible for all aspects of Charity Navigator's brand, all partnerships, media relations, communications, outreach, and data sales. She regularly appears on television, radio, and in print, commenting on the non-profit sector. And as CFO, she is also responsible for managing Charity Navigator's finances.
Mike Burns, CPA Managing Director, CBIZ MHM 617.761.0584 | [email protected] Mike, located in the Boston office, is the firm's National Not-For-Profit Practice leader and New England Not-For-Profit Practice leader. Prior to joining the Firm in 2004, he was a partner in the Boston office of a top ten firm, where he acted as the department head and the partner-in-charge of not-for-profit client services. Mike has more than 25 years of audit experience and exclusively serves not-for-profit organizations. He serves as the audit partner on colleges, universities, secondary schools, cultural and human services organizations.
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Today’s Agenda
1
2
Today’s Philanthropic Sector & the Rating Landscape
Charity Navigator (CN) & Its Approach to Rating Charities
How Charities Can Manage, Improve & Promote Their CN Rating
3
4 How Unrated Charities Can Earn the Trust of Donors
5 Evolution of CN’s Rating System
6 Questions
TODAY’S PHILANTHROPIC SECTOR & THE RATING
LANDSCAPE
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Philanthropic Marketplace is Increasingly Competitive
Donations are Not Keeping Pace with Growth
Distrust Is Pervasive In Society Donors are More Hands-On & Expect
Results Charities are Eager to Prove Worthiness
of Support
Today’s Philanthropic Sector
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Charity Watch BBB Wise Giving Alliance GuideStar GiveWell Standards for Excellence
Institute Community Foundations/
United Way GreatNonprofits Media
Rating Landscape
CHARITY NAVIGATOR (CN) & ITS APPROACH TO RATING
CHARITIES
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To help charitable givers make intelligent giving decisions by providing information on thousands of charities and by evaluating the financial health, accountability and transparency of each of these charities.
To educate donors and policymakers by providing information regarding good practices for intelligent giving.
To drive more funding to high performing nonprofits by highlighting them and providing them with objective information to leverage with their supporters and prospective donors.
CN’s Mission
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Donor Behavior 5.5 million unique visitors (7.3 million hits) 92% say evaluations affected their decision to support individual public
charities CN ratings influence decisions on billions in donations annually
Charity Behavior Begging to be Rated Stories of Substantial Gifts Proliferation of 4-Star Logo Charities Address Their A&T Shortcomings
Media Considerable media attention Endorsements - “Best of the Web,” Forbes
CN’s Impact
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Tax Status: 501(c)(3) charities Sources of Revenue: Depend on support from individual
givers Type of Programs: All types of programs and services Length of Operations: At least 7 years Location: All parts of the country Size: America's largest charities
Which Charities Do We Rate?
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Specific Types of Charities: Hospitals, hospital foundations, land trusts
Smaller Charities: Less than $500,000 in public support Churches: Exempt from filing the Form 990 (Salvation Army) 501(c) (4) organizations: Spend a substantial portion of their
revenue on lobbying, not every donation to them is tax-deductible (NRA, NOW)
Private Foundations: Receive the majority of support from only one individual, family or corporation (Bill & Melinda Gates Foundation)
Affiliates: We prefer to offer donors a consolidated rating (Alzheimer’s Association, American Cancer Society)
Which Charities Do We Rate?
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1. Financial Health
2. Accountability & Transparency
Existing Star Rating System
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CN 1.0 Launched in 2002 with 1,100 charities, 0 to 4-
star rating Financial Health : Efficiency & Capacity Difficult to obtain 990s from the charities
which were surprised at what they had reported to IRS and others on their 990s
CN 2.0 Launched in 2011 with 5,500 charities; Same
star system Includes 17 Accountability & Transparency
metrics Charities were surprised at how their
accountants/ auditors answered governance questions
From 1 to 2 Dimensions
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Methodology
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7 Financial Metrics 1. Program Expenses: Percent of total
functional expenses spent on programs and services (higher is better) =Program Expenses/ Total Functional Expenses
2. Administration Expenses: Percent of total functional expenses spent on administration (lower is better) =Management & General Expenses/ Total Functional Expenses
3. Fundraising Expenses: Percent of total functional expenses spent on fundraising (lower is better) =Fundraising Expenses/ Total Functional Expenses
4. Fundraising Efficiency: Amount a charity spends to raise $1(lower is better) =Fundraising Expenses/Total Contributions
5. Average Annual Growth of Operating Revenue: Measures growth of grants and contributions, revenue generated from programs and services, and membership fees and dues over 4 years. =[(Yn/Y0) (1/n) ]-1 Y0 is the value measured in the first year Yn is the value measured in the last year n is the length of the interval in years (3-5)
6. Average Annual Growth of Programs and Services: Measures growth of program expenses over 4 years.
7. Working Capital Ratio: Determines how long a charity could sustain its level of spending using only its net liquid assets, as reported on its most recently filed Form 990. =Net Available Assets/ Total Expenses (including payments to affiliates)
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12 Metrics from 990 Deduct as much as 15 for the first three Deduct 7 if material diversion of
assets within the last two years, with a satisfactory explanation
Deduct 7 if audited financial statements are prepared or reviewed by an independent accountant, but that accountant is not selected and overseen by an internal committee
Deduct 4 for the rest
17 Accountability & Transparency Metrics
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5 Metrics from Website Deduct 4 points for Board, Audited Financials, No privacy policy
Deduct 3 points for staff, 990, opt-out privacy policy
17 Accountability & Transparency Metrics
HOW CHARITIES CAN MANAGE, IMPROVE & PROMOTE THEIR CN
RATING
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1. Establish a Registered Representative Suggest Basic Info Updates (contact, mission, tag line)
and Notify Us About A&T Improvements Post a Comment Access Charity FAQs Add your charity to “My
Charities” to be alerted when we change your rating
4-Star Charities Can Access Promotional Tools
How Can Charities Improve their Ratings?
See our blog for more details & instructions on how to sign up http://goo.gl/2fI7RZ
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2. Address A&T Shortcomings Website Metrics (staff, audit …)
Send us links, we review and update accordingly 990 Metrics
Updated without a new/amended 990: Independent Board members, minutes, Conflict of Interest, Whistleblower, Records Retention, Process for setting CEO pay, Compensation of Board member
Requires new/amended 990: Material diversion of assets, Loan(s) to or from related parties, Audited financials prepared by independent accountant with an audit oversight committee, Copy of Form 990 provided to organization's governing body in advance of filing, CEO listed with salary.
A&T Updates Published Monthly
How Can Charities Improve their Ratings?
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3. Clearly Articulate Programs on Form 990
How Can Charities Improve their Ratings?
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4. Read up on our Methodology
How Can Charities Improve their Ratings?
www.charitynavigator.org/methodology
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Promoting 4-Stars
Press Releases Social Media Boilerplate Newsletters Websites Grant Proposals Annual Reports Appeal Letters
and Envelopes Banners Job Postings
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Take time to understand the areas in which your charity is underperforming & share that information with the board and upper management
Develop a strategy to improve your evaluation As you improve, be sure to file your 990s in a
timely manner/communicate with CN staff on A&T changes
Don’t deny the accuracy or relevancy of the rating Build trust and confidence with your donors by being open and
honest about your shortcomings Communicate your plan for improving your rating
Highlight your programmatic successes and any improvements you’ve made in your fiscal operations
How to Deal with a Poor Rating
HOW UNRATED CHARITIES CAN EARN THE TRUST OF DONORS
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Be Transparent Be upfront with the public about your finances Explain how you spend your money, how efficient you are,
how you're growing Be honest about how much your CEO makes
Follow Best Practices Use CN’s A&T metrics as a guide to implement policies and
procedures to help ensure ethical behavior
If Your Charity Isn’t Rated…
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Promote, Don't Harass Adopt a donor privacy policy, put it in writing, and share it with
your donors Don’t solicit on the telephone, at least not with non-employees Use a professional, informative, and up-to-date website to
promote your charity
Show Results Let donors know your track record of success Evaluate your success against quantifiable program goals Acknowledge mistakes and discuss course corrections
If Your Charity Isn’t Rated…
EVOLUTION OF CN’S RATING SYSTEM
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Results Reporting
Changes to Financial Metrics
Evolution of CN’s Rating System
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Letter to the Donors of America
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A Segment of Donors Want Impact Data
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90%
87%
78%
76%
62%
59%
46%
41%
34%
31%
30%
28%
24%
0% 20% 40% 60% 80% 100%
Org's Effectiveness
How the Org will Use my Donation
Quality of Leadership
Percent of Costs to Overhead
Ease of Donation
Not Being Asked for Money Too Often
Ability to Direct Donation's Use
Regular Progress Reports
Endorsements by Person I Trust
Prompt and Sincere Thank You
Ability to Get Involved
Org Approach - Novel / Innovative
Contact with the End Beneficiaries
That Segment is Huge!
Based on the Money for Good donor research of Hope Consulting
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The Reality
The vast majority of charities are not measuring and
reporting on their results.
Instruction to Donors
Don’t use overhead as the primary metric for charitable giving
decisions. Instead focus on impact.
The Dilemma
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THE OVERHEAD SOLUTION
Letter to the Nonprofits of America
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Launched in 2013 with 5 Elements Alignment of Mission, Solicitations and Resources Results Logic and Measures Validators Constituent Voice Published Evaluation Reports
Results Reporting
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Dispelling the Myth:
Results Reporting is NOT… An assessment of the quality of your results A comparison of your specific results or metrics against other
charities A complex and lengthy set of metrics An evaluation system that requires your organization to meet all
standards to get a high rating
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An assessment of how charities come to know, use, and share their results with stakeholders, including donors
We are looking to see that you are reporting on demonstrably important measures, and showing how your organization learns and improves based on those measures (i.e. learning and improving over time is more important than a ‘snapshot’ of results)
Results Reporting (RR) is..
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When Will RR Impact Your Rating?
Not anytime soon because…
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Results Reporting – On Hold
Research into 3,000 charities with all types of missions reveals: Most Charities are not yet tracking their
results Those that do tend to not publish their
results Different types of charities are
progressing at different rates Even within a ‘cause’ there is much
inconsistency Our methodology was too advanced for
the state of RR
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Results Reporting – On Hold
What we plan to do: Take our time to get it right Analyze the data that we have collected Continue to ask for feedback from:
Charities we evaluate Industry and cause specific experts Donors
Re-evaluate the types of questions we ask Possibility of cause specific metrics
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Mission Related Ideas General Ideas
We Welcome Your Suggestions
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Changes to Financial Metrics
Coming 2016 Years in the works Financial Advisory Task Force of Industry Experts, Charity
Representatives, Staff, Board, Academics Feedback from Rated Charities
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Changes to Financial Metrics
Possible changes include: Three Year Averaging Elimination of Revenue Growth Assignment of different weights to the remaining six factors Adding a new metric to replace Revenue Growth Elimination of Deficit Adjustments Calculation of Program Expense Growth based on all available
data rather than just two points in time
FINAL THOUGHTS & RESOURCES
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Send us your Suggestions Establish a Registered
Representative (See our blog for more details & instructions on how to sign up http://goo.gl/2fI7RZ)
Take Steps to Measure your Results
Advocate for Funding to Measure Results
Publically Share your Results (990 and elsewhere)
Final Thoughts
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Additional Resources
Principles of Good Governance and Ethical Practices, by Panel on the Nonprofit Sector
Charting Impact, by the Independent Sector Money for Good project, by Hope Consulting The Nonprofit Outcome Toolbox, by
Dr. Robert Penna The Performance Imperative,
www.performanceimperative.org
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Website Twitter Facebook CN Blog Get in Touch!
CharityNavigator.org twitter.com/CharityNav facebook.com/charitynavigator blog.charitynavigator.org/ help.charitynavigator.org/home
Thank You!
To Stay Connected & Learn More
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Questions?
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Save-the-date for these courses: 9/17 and 10/6: Controlling and Managing Healthcare Costs – Practical
Guidance to Maximize Value 12/8 and 12/11: Not-for-Profit Update – Lobbying, Political Activity and
Other Considerations
Read these related publications: Delay of New Revenue Recognition Standard: Effect on Nonprofits Not-for-Profits Brace for Enhanced Disclosures and Reporting
Requirements Safe Harbor expanded for 501(c)(3) Bond-Financed Buildings Seven Resources to Identify New Board Members
If You Enjoyed This Webinar…
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