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Nonprofits Alerted to Issues That Could Impact Finances in 1998

Postal reform, if it happens, and its effects on mailing rates are not the only significant issues that threaten the finances of nonprofits across the country.

Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association, and Lee Cassidy, executive director of the National Federation of Nonprofits, said nonprofit groups should be aware of several issues coming up this year.

Last year saw several significant national and state legislative issues and judgments (see 1997 Regulatory Review, pages 32-33). According to Cerasale, a few states are trying to pass legislation that will affect nonprofits and direct marketing agencies that participate in any type of teleservices activity.

“They are looking to have legislation passed that would call for all organizations to have each person working for them as a telemarketer registered with the state,” he said. “Now the cost could be only $50 or so to register them, but if you have a large number of telemarketers working for you, that is going to increase your administrative costs dramatically.”

With the expansion of business on the Internet, Cerasale warned nonprofits that, beginning in March, the Federal Trade Commission would be looking to ensure that all organizations have posted a privacy policy that states how the organization plans to use information from donors and to whom that information will be made available.

“If they don’t have a policy on their site, the DMA has set up the tools on their Web site [www.the-dma.org] that will allow a nonprofit organization or any other agency without a policy to create one and then download it onto their own site,” Cerasale said. “The FTC just wants to make sure that the organizations are giving the people making donations the opportunity to say yes or no to whether or not they want their information to be given to anybody else.”

Other possible legislation could include a bill restricting the trading of children’s marketing information. Cerasale said congressional support for this bill has waned because more members now “understand the full ramifications of the proposed legislation.” The bill would call for all organizations — nonprofits as well as academic organizations and family marketers — to have written parental consent to trade a child’s marketing information.

A new accounting process for nonprofits also will go into effect later this year. Statement of Position-98-2, introduced by the American Institute of Certified Personal Accountants (AICPA), could make a nonprofit’s fundraising efforts look more successful than they really are, leading to a reduction in donations.

According to Cassidy, the process, which will only apply to those whose fiscal year started after Dec. 15., will affect the direct mailing aspect of nonprofits’ fundraising by revising the way in which their costs are allocated.

“The new process will call for a higher percentage of funds to be allocated to fundraising than to public education,” he said. “Fundraising percentage costs are meaningless for a nonprofit organization, but they are looked at by many as a determining factor of how successful they are. It doesn’t tell how effective or efficient a group is.

“This process is going to make a lot of companies look like they are raising a lot more money then they really are, and that is going to play a strong role in a person’s decision to donate money to them or to someone else who looks like they are making less,” he said.

SOP-98-2 will mean new and more “difficult and arbitrary” standards that will have to be met to get a piece of literature labeled as public education, Cassidy said. One standard states that if a substantial part of the compensation of an individual taking part in the joint activities of fundraising and public awareness is based on the amount of money raised, then the entire cost should be allocated to fundraising.

The process also makes a rebuttable presumption, Cassidy said. If a nonprofit group’s donor list includes past donors, then the group would not be allowed to allocate any money from those particular mailings to public education.

“They are assuming that once a group of people has learned about something, they will never forget it and they don’t have to be further educated in the future,” Cassidy said. “This is also going to greatly affect those charities with a limited universe of donors. They won’t be able to allocate any money to public education. To the AICPA, if their criteria aren’t met, it’s ‘pure fundraising.’ ”

“The reasons we undertook this project were because the current provisions were difficult to implement, and they were being applied inconsistently in practice,” said Joel Tanenbaum, the technical manager for the AICPA. “We took the prior model and went on to clarify some of the things that were unclear. We then put in some more detail and guidance and expanded the scope of the costs covered to include all costs of joint activities and not just joint costs.”

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