New Rules Can Help You Increase Your Government Overhead Reimbursement

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Happy New Year!

2015 is already proving to be a significant one for nonprofits. In case you missed the big news that Michigan Nonprofit Association (MNA) announced earlier this month, governments at all levels are now required to reimburse nonprofits for the reasonable indirect costs (sometimes called “overhead” or “administrative” costs) they incur to deliver services.

As you know, entering into a contract for services with a government agency has often meant that we had to accept low limits on the amount of reimbursement for indirect costs. Essentially, government agencies were asking us to lose money in order to do the work.

A recent study by Charity Navigator says that the average American does not understand the indirect costs of the nonprofit sector. In fact, the study says that 62 percent of the people surveyed believe the typical nonprofit spends more than what is reasonable on overhead expenses such as fundraising and administration.

The new federal Office of Management and Budget Uniform Guidance rules are setting a precedent for the way that foundations and other funding sources view the indirect expenses that nonprofits incur. By instituting these new rules and paying their fair share of the costs that we incur in providing services and supports, the federal government is setting an example.

The Uniform Guidance rules now call for more costs to be directly reimbursable. They also raise the threshold for single audits to $750,000. It is estimated that this change alone will reduce the administrative costs for approximately 5,000 nonprofits across the country. Specifically it will help to ease the administrative costs and improve the efficiency and effectiveness of federal and state contract awards.

I urge you and your team to do a deep dive into what these new rules mean to your organization and your current and future contracts. You can start by registering for this free webinar presented by MNA and the National Council of Nonprofits:

Stop Losing Money: New Grant Rules You Need to Know
New OMB Uniform Guidance: Find out how new reforms can save you money
3-4 p.m. Tuesday, Feb. 24

If you receive federal funds, either directly or through pass-through funding, this webinar is a must. Are you unsure if your organization receives federal funding? Check your most recent audit.

MNA will continue to educate Michigan nonprofits, foundations, funders and other donors on our indirect costs and what they support.

We will continue to share information on the OMB rules, as well as how nonprofits can prepare for and take full advantage of the changes.

Learning your rights will help support a successful year for the good work you do throughout 2015!

8 Revelations from a SuperConference 2012 Participant

What a privilege to be able to attend the MNA CMF SuperConference!  I was inspired and energized, learned a great deal of information and met new people with whom we can build relationships.  That is everything you could ask and more from an intense two day experience.

Revelation 1 came from a workshop led by Kid’s Food Basket from Grand Rapids.  They call themselves a “porous” organization, one that someone can enter from any point and get involved.  Not only do they leverage volunteer time, they have involved their volunteers financially to use their myriad volunteers as an income source.  Arts & Scraps has many common elements in mechanics and volunteer involvement, but we have not to date formalized programs for financial as well as time contributions.

Revelation 2 came from the Prize Foundation session.  Remember to look for unlikely and unknown sources for ideas and expertise.  Don’t be afraid to tackle big issues and throw open the doors to seek help.

Revelation 3 came from the advocacy preconference session.  “Keep laser-like focus on long term goals”.  Involve people around their interests and look for commonalities.

Revelation 4 came from the Impact session.  Keep a “burning patience”, nurture the backbone of your organization with optimism and perseverance to reach the goal of a successful collective effort.  I’ve often thought the best attribute to have is just plain stubbornness.  This is a much more elegant statement.

Revelation 5 also came from the  Impact session.  There is no silver bullet, just silver buckshot.  Again, an elegant phrase.

Revelation 6 on a personal level, from the Investment session, I recognized that  I’m fortunate enough to have a savings account.  I could invest that in causes in which I believe and put that money to work for social good.

Revelation 7 from the Creativity session:  a couple of wonderful tidbits.  “Money never solved a money problem”—enough said.  Don’t save creativity for big problems, rely on group input and repeat priorities often.

Revelation 8 is back from Kid’s Food Basket.  Make your MISSION seem needy without making your ORGANIZATION seem needy.

Add to this list of big ideas 6 viable contacts for serious follow up and a list of 18 items in a to do list generated by ideas.

This was a very successful two days!  Thank you to the Ford Motor Company Fund for the sponsorship.  I was so excited about it that I probably told 20 people that’s how I was able to attend.  It was a good investment in our organization.  We’ve had the first staff meeting with another scheduled next week.

Submitted by Peg Upmeyer, Director of Arts & Scraps and Superconference 2012 Attendee

Despite differences, education is central to both State and Federal Budgets

These past few weeks have demonstrated the challenges of creating sound, effective budgets at the state and national level. The Michigan and federal budgets, however, paint two very different pictures of the health of their constituents.

The recession over the past four years has not been kind, but there seems to be a glimmer of hope in Michigan. After several consecutive years of painful cuts, it appears the financial outlook is more optimistic with 2012’s budget surplus. Education funding increased by 0.2%, public safety funding is also set to increase, and the “Rainy Day” fund will grow by an additional $130 million, according to the State Budget Office. At the Federal level, by contrast, the deficit still weighs heavily on programs most Americans take for granted, but rely on – the President offered a 52% decrease in Education, a 35% decrease in Labor, and slight increases for Health and Human Services (3.7%) and the Corporation of National and Community Service (1.3%).

Still, there are some common commitments between the two budgets, such as improving performance and affordability of education. President Obama promotes a ‘Race to the Top’ and links financial aid to universities that keep their tuition under control. Governor Rick Snyder also wants to link increased spending in education to improved performance, best practices, and college tuition restraint. And they are politicians from two different parties.

Despite the other differing priorities of the two budgets, it is clear that superior education for future generations must be a priority for education beyond high school. Whether it is community college, traditional four-year, or vocational – higher education has become increasingly important to achieve personal financial security.

Submitted by Michelle Eichhorst, Public Policy Fellow for Michigan Nonprofit Association

Our Greatest Asset is Trust

Among the assets of Michigan’s nonprofits, the greatest is trust. There is no legal requirement for people and organizations to give to nonprofits. There is no mandate by government for every citizen to serve their community by volunteering at a nonprofit. The only way we can compel anyone to support our organizations is through our ability to demonstrate impact, show effective use of resources, and tell the story of the people we serve. In other words, people give because they trust the organization they give to will be good stewards of their gifts. Urgent File Image

During this “giving season” nonprofits across Michigan are reaching out for financial support of their work. This is also a ripe time for less altruistic actors to prey on the good intentions of Michigan’s citizens who want to give. Fraudulent solicitations, misuse of charitable contributions, and ineffective utilization of resources are all threats to trust in nonprofits—threats to our most valuable and hardest to earn asset. As a sector, we have to ensure that we protect the public trust.

MNA is working on several fronts to ensure a high level of trust in the sector. SB 1528 amends the Charitable Organization Solicitation Act (COSA) to increase penalties on bad actors including fraudulent fundraisers. This important piece of legislation is a cornerstone priority of the Michigan Nonprofit Caucus and is currently scheduled to be considered during the Lame Duck Session of the Michigan Legislature.

Nonprofits can help encourage donors to give to their organizations by using the Giving Wisely: Helping Michigan Citizens Be Savvy Donors guide. This guide, available on MNA’s website, helps donors understand the important questions they need to consider when giving their time, talent and treasure to nonprofits. MNA developed Giving Wisely in partnership with the Council of Michigan Foundations, Michigan Association of United Ways, and the Office of Attorney General. Giving Wisely has links to important web resources, provides issues to consider when giving money as well as time to nonprofits, and offers nonprofits the opportunity to demonstrate that they are a good investment.

In a time when seven in ten Americans trust nonprofits more than they trust government or industry to address our community challenges, it is imperative that we live up to those expectations and build our assets–build trust.

Submitted by Kyle Caldwell, president and CEO, for the Michigan Nonprofit Association.

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Giving Wisely: Helping Michigan Citizens Be Savvy Donors

This time of year, mailboxes and inboxes are filled with requests for charitable donations all saying the same thing – your support is needed now more than ever. Michigan citizens are generous, but the challenges facing many families make it more important than ever to make careful, wise choices about which charities to support and how best to support those organizations.

To assist donors in making these critical decisions, the Council of Michigan Foundations (CMF), Michigan Association of United Ways (MAUW), Michigan Nonprofit Association (MNA), and the Michigan Office of the Attorney General have developed the Giving Wisely: Helping Michigan Citizens Be Savvy Donors guide.

Photo by fsecart on Flickr

The Giving Wisely guide includes issues to consider when giving money, tips for making donations, important ways to give, and issues to consider when volunteering your time and talents.

Click here to read Giving Wisely: Helping Michigan Citizens Be Savvy Donors.

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2010 Compensation and Benefits Survey data can help avoid excise taxes

The IRS imposes intermediate sanctions primarily as a means to penalize nonprofits for excess benefit transactions. The most common type of excess benefit occurs in providing excessive compensation, fringe benefits, or other unearned benefits to directors or other disqualified persons. Sometimes the excess benefit arises through the sale of property for less than fair market value or a contract that confers excess benefit on the disqualified person. Disqualified persons are generally members of the board and officers of the organization but also include persons with significant influence over the organization, such as managers, large donors, or fundraisers providing significant services.

If the IRS finds a disqualified person has received an excess benefit, that person or entity is required to return the excess benefit to the organization. The organization must be returned to the state it was in, to the extent possible, before the excess benefit was given. In addition the individual or entity must pay an excise tax in the amount of 25% of the excess benefit to the IRS. If the return to the organization is not done in a timely manner, then the excise tax can increase to 200%, and the IRS may also levy a 10% tax on the organization manager who authorized the original transaction. The excise tax assessed against an organization manager is limited to $10,000 for any one excess benefit. With respect to any one excess benefit transaction, the maximum amount of the tax imposed cannot exceed $20,000.

Is your head spinning yet?

While these sanctions pose serious consequences for nonprofit organizations, compliance is fairly straightforward. Congress has created a procedure in which the board, or a committee given authority by the board, can create a rebuttable presumption that the transaction with a disqualified person is not excessive. Payments under a compensation arrangement or transfers of property between an applicable tax-exempt organization and a disqualified person are presumed reasonable at fair-market value if the following conditions are satisfied:

• The transaction is approved in advance by an authorized body of the organization composed of individuals who do not have a conflict of interest concerning the transaction. This means that the persons who will benefit should not participate in the decision making process.

• The authorized body must obtain and rely on comparable data to determine if the compensation or transaction is appropriate. (This is where studies like Michigan Nonprofit Association’s 2010 Compensation and Benefits Survey can be helpful.)

• The authorized body must adequately document the basis for their decision. The document should include:
o Terms of the transaction and date approved
o Members of the authorized body present and their votes
o Comparability data relied on by the authorized body and how it was obtained
o Any actions by a member of the authorized body who may have a conflict of interest
o Documentation of the basis of the determination before the next meeting of the authorized body or 60 days after the final action was taken, whichever is later; and approval of the records as reasonable, accurate, and complete within a reasonable time thereafter

These rules, along with transparency and accountability standards, dictate that a nonprofit must examine the marketplace and maintain clear records of processes used to determine compensation. In order to assist members in this effort, Michigan Nonprofit Association released the 2010 Compensation and Benefits Survey. Free for all members of the Association, this survey provides salary and benefit information for nearly 20 positions specific to Michigan’s nonprofit sector. The survey is intended to provide comparable data to be used to determine the appropriateness of compensation and to rebut charges that compensation is excessive or inappropriate. Nonprofit boards, authorized committees and executive level staff can use this data as a resource in their process of setting salaries, ensuring that their organization is competitive in the marketplace, and significantly reducing the risk of intermediate sanctions being imposed by the IRS.

Log on to MNA’s website today at to download your free copy of the 2010 Compensation and Benefits Survey.

Marion Gorton

Brandon Seng

Submitted by Marion Gorton, Public Policy Specialist, and Brandon Seng, Director of Member Services, for the Michigan Nonprofit Association.

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Resource Friday: Michigan Nonprofit Management Manual

New MNA Nonprofit Management Manual Now Available

The 5th edition of the Michigan Nonprofit Management Manual builds on the informative chapters found in previous editions, with many new features and updates, including: a new chapter on Risk Management, alignment with MNA’s Principles and Practices for Nonprofit Excellence in Michigan, updates on laws, regulations and filing requirements, expanded chapters on the use of technology, connections to other resources with many website references and a revised format to help locate information quickly. MNA members can take advantage of the reduced member price of $75.00. The non-member price is $95.00. Order your copy today at MNA’s online bookstore:

Submitted by Kelley Kuhn, Director of Management Support and Capacity Building Services for Michigan Nonprofit Association.

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