Blueprint 2014 – Using Private Resources for Public Benefit:

2014 Blueprint PictureThe 5th Annual Industry Forecast, Blueprint 2014 – Philanthropy and the Social Economy, was recently released by Lucy Bernholz. Bernholz is known as the “philanthropy game changer” by The Huffington Post and was named to The Nonprofit Times’ annual list of 50 most influential people. Bernholz breaks down the information into several chapters: Expanding Horizons; Insight: Big Shifts that Matter; Foresight: Predictions for 2014; Hindsight: Previous Forecasts; and Glimpses of the Future.

Within the Insight: Big Shifts that Matter chapter, Bernholz states, “There are three areas where the adoption of digital practices is changing the root structure of work in the social economy. The first has to do with the nature of voluntary association which requires a degree of privacy and freedom that may be in jeopardy online. The second has to do with the nature of ownership and governance, two ideas experiencing a cycle of reconsideration in our digital era. And the third takes us back to data and the way they might become a backbone resource for the social economy.” Bernholz goes on to say, “While there are major efforts underway to collect better information about nonprofits and foundations and the revenue that supports them, we still have a long way to go before this information becomes a valuable resource of and for the work of the social economy.”

Like Bernholz stated, there are efforts underway to use data collected on nonprofit organizations. For example, the IRS has begun to use the data collected from Form 990s to develop potential indicators of noncompliance for their exam process. They are using data to help them focus in on certain aspects within compliance, such as charitable spending, compensation, and unrelated business income tax.

The chapter I was most curious about was Foresight: Predictions for 2014. Here are some predictions that caught my attention:
• We will experience a major scandal in the crowdfunding marketplace.
• A nonprofit standard for data privacy will develop.
• Nonprofit organizations or consortia will take over city functions such as managing transportation infrastructure. Nonprofits will become the savior for financially strapped cities.
• Proposals for moving oversight of American nonprofit organizations out of the IRS and creating a new charities regulatory authority will come to pass.

Out of the 12 predictions Bernholz made for 2013, she was right on 67% of them. I am in agreement on the development of a nonprofit standard for data privacy. Large corporations are currently under fire for breach of personal data – what makes nonprofits any different? Blueprint 2014 provides interesting insight into the philanthropic sector. I encourage you to browse the report and think about your predictions for 2014.

How Much Profit Do You Really Need?

profitHow Much Profit Does a Nonprofit Need?  This is the question addressed in an article published in the NonProfit Quarterly.  Woods Bowman, author of Finance Fundamentals for Nonprofits: Building Capacity and Sustainability, provides some general guidance on how to calculate the profit rate your organization needs to maintain “status quo.”  Bowman notes, “Some organizations try to avoid steady erosion of quality by investing an amount equal to depreciation, but this is not enough. This tactic only maintains the value of assets at their original cost, which is insufficient, because inflation constantly pushes up replacement cost.”

Therefore, Bowman advises that a rate of inflation be part of the equation.  Here is the formula he gives:

Status quo profit rate = (A / S) * r

A = Assets

S = Spending on Operations

r = rate of inflation

Note that this is for those who use accrual accounting; cash accounting organizations and endowed organizations should check out the article for Bowman’s application to the formula.

The resulting number, Bowman says, is the percentage of an operating budget that managers should set aside for investment.  He is also quick to point out that this number is for status quo and that those organizations with growth goals in mind will need more profit and larger investments.

Bowman also notes this about non-profits looking for more profit: “They can reduce their need for profit by squeezing more productivity out of their assets.”

Check out the article for additional information about capital campaigns and investments, as well as how to determine inflation rates.



New Procedures for Reinstatement of Tax Exempt Status are Introduced

Last week the IRS released Revenue Procedures 2014-11, providing four options for reinstatement of tax exempt status. These procedures are effective for applications filed after January 2, 2014. Please see New procedures for reinstatement of tax-exempt status are introduced by the Journal of Accountancy for a summary of the procedures, including how these apply to pending and previously filed applications.