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Contracting for Fundraising

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We recently had the question at Spokes, “What are the pros and cons of using independent contractors for fundraising and basing their fee on the amount of money raised?” Good question!

The answer? Well, when done correctly, it is legal, but there are lots of steps that must be taken. In addition, there are ethical and practical issues that you really need to consider before taking this route. If you or your board is considering this approach, Spokes recommends you carefully review the following references, in order.

Compensating Nonprofit Fundraisers – this is a good overview that gives pros and cons.

Professional Fundraising Consultants and Grantwriters  – Pay particular attention to the section, “Did you know?”

California Attorney General’s Guide for Charities – California is a state that does require both the fundraising professional or company to be registered and the charity/nonprofit to follow specific procedures as to contracting, etc. See Chapter 9 beginning page 68.

AB5 issue. – Finally, be aware that California now has very stringent rules with regard to employees versus independent contractors. Basically, a person is an employee unless “proven otherwise.” There is a list of exceptions that includes “grant writer” but not fundraising consultants.

Do You File IRS Form 990-EZ?

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The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The requirement to file electronically generally became effective for tax years beginning after July 1, 2019. However, for small exempt organizations, the legislation specifically allowed a postponement (“transitional relief”). As a result:

  • For tax years ending before July 31, 2021, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax.
  • For tax years ending July 31, 2021, and later, Forms 990-EZ must be filed electronically.

IRS will be sending an educational letter (Letter 6194) to organizations that filed paper Forms 990-EZ previously.

Resources for Effective Board Governance

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BoardSource is a great resource for all things related to nonprofit board leadership and governance. For example, Recommended Governance Practices is a six page document that gives high level advice in three areas:

  • Essential Practices: practices to function successfully.
  • Leading Practices: practices to move toward board excellence
  • Compliance Practices: practices that address legal requirements

Download a free copy here.

Policy or Procedure?

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Setting policy is an important responsibility of the board of directors of a nonprofit organization. Determining procedures is not. That’s why board members need to know the difference!

Policies are general statements that express principles or requirements of behavior for the organization. They don’t change often. What are some examples of basic policies nonprofits should have in place?

  • Conflict of Interest
  • Whistle Blower
  • Document Retention and Destruction
  • Gift Acceptance
  • Financial Control
  • Investment

By contrast, procedures lay out the steps and processes by which the policies will be implemented. They do change, as often as needed, to make sure they are working right.

When a nonprofit has paid staff, generally it is the Board’s responsibility to establish polices and the staff’s responsibility to develop the procedures to implement the policies. In an all-volunteer nonprofit, the job of developing procedures probably should be delegated to a committee. In either case, the goal is for the board as a whole to work at the level of policy and strategic direction, and avoid “micromanaging” the organization.

Two good resources to learn more:

What Governance Policies Should Your Nonprofit Have?
Creating Nonprofit Policies

Researching Local Nonprofits

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Looking for nonprofits near you? Perhaps you are thinking of starting a new nonprofit but, before you do, you want to see if there’s already one with a similar mission. Maybe you are a staff member or volunteer of an existing nonprofit and you are looking for nonprofits that complement what you do or with whom you could collaborate or share resources. Here are three online databases that can help you research nonprofits in your area—or elsewhere!

GuideStar has been around for years and provides a database of charities and nonprofits classified in the following nine groups: Arts, Culture and Humanities, Education and Research, Environment and Animals, Health, Human Services, International, Public, Societal Benefit, Religion, and that old faithful, “Other.” Each main category is broken down into various subcategories. You can search by state and city, but not by county without purchasing a subscription.

GreatNonprofits bills itself as “the leading platform for community-sourced stories about nonprofits.” Like GuideStar, you can search by geography (state and city). You can also search on a long list of issue areas from AIDS to Zika Virus. What sets GreatNonprofits apart are the individual reviews and ratings submitted by individuals who have experienced services or volunteered for various organizations.

Cause IQ provides the most sophisticated queries of these three services. Create a free account and you can search using many filters. For example, the first filter I applied was to limit organizations to those in the “San Luis Obispo-Paso Robles metro area.” That yielded 1, 845 nonprofits. Then I applied the additional filter “501(c)3.” That brought my total down to 1,465. I limited that set to “Animal organizations” which reduced my group to 53. Finally, I excluded organizations that filed a 990-N tax form (i.e. those with gross annual receipts of $50,000 or less). The result: a list of 28 animal organizations in the San Luis Obispo-Paso Robles area with 501(c)3 status and annual income of over $50,000.

Whether you’re searching nearby or afar, add these tools to your research kit.

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