The philanthropic arena is overwhelming!
I have been involved with non-profits most of my life as a volunteer, board member, employee, and consultant. I have an MBA with a concentration in management of non-profit organizations. I attend classes at the Kellogg Center for Nonprofit Management. I read books and articles, listen to webinars and attend networking events. And despite all of this I am frequently overwhelmed at the size and scope, breadth and depth of the nonprofit sector.
I can imagine that you may be as well, especially if this is not your chosen area of expertise. You have a life. You may have a career, a family, friends, your community. You’re busy!
You have a life. You’re busy!
Add to that the confusion resulting from the array of worthy causes, lack of accountability, cases of waste and fraud, and the fact that massive amounts of aid and charitable giving have been unable to solve our most pressing social issues.
You are passionate about giving of your time, talent, and treasure, but how in the world are you supposed to find the time to understand and wrap your arms around this whole idea of spiritual philanthropy?
I’m here to help.
I’m here to help. I want to take this vast arena and condense it into the information you need to know to make smart, effective giving decisions.
So let’s get started.
First, let’s talk jargon. The nonprofit sector can also be called not-for-profit, charitable, tax exempt, civic, third, independent, voluntary, public interest, and social sectors.
Within the arena there are many kinds of nonprofits, with the IRS identifying more than 30 categories of organizations that are exempt from federal income taxes.
The most common is classified as a “charitable” or 501(c)(3) organization. This classification includes public charities, religious organizations and private foundations. Contributions to these organizations are tax deductible for the donor.
The statistics are startling!
The Urban Institute’s Nonprofit Sector in Brief 2015 reports the following startling statistics:
- In 2013, more than 1.4 million tax-exempt organizations of all kinds were registered with the IRS. Of this number, 1.1 million were 501(c)(3)s or public charities.
- Reporting nonprofits took in approximately $2.26 trillion in revenues and identified total assets of $5.17 trillion in 2013.
- The non-profit sector contributed an estimated $905.9 billion to the US economy in 2013, composing 5.4% of the country’s Gross Domestic Product (GDP) and provided 11.4 million jobs.
- In 2014, an estimated 62.8 million (25.3%) US adults volunteered contributing 8.7 billion hours of service at a value of $179.2 billion.
- Total charitable giving in 2015 was estimated at $373.3 billion according to the 2016 Giving USA Annual Report.
Why do these numbers matter to you?
Interestingly, charitable giving as a percent of disposable income has stayed pretty much the same at approximately 2% over the past 40 years according to Giving USA. Yet the number of non-profit organizations has skyrocketed!
According to an article by Alex Daniels in The Chronicle of Philanthropy, from 2011-2013, the number of tax-exempt designations granted by the IRS was less than 50,000 per year. In 2014, the IRS introduced the 1023-EZ, a three-page electronic form that replaced the 26-page application. That year the IRS granted 501(c)(3) status to 94,365 organizations. In 2015, the number was 86,915. That’s over 200 each day!
The number of nonprofit organizations is skyrocketing!
Ken Stern in Charity For All says that, “…according to a Stanford University study, the IRS approved more than 99.5% of charitable applications. This statistic reveals the first troubling truth about our process for deciding what is a charity and what is not: we don’t have one. We permit almost anyone with a basic facility with government forms to start a charity.”
And then once a charity receives approval, it is almost impossible for them to have the designation rescinded. There’s no trigger mechanism for when a charity should be shut down.
This is concerning for a number of reasons. First, the shorter tax form may make it more difficult for the IRS to root out fraud from the outset. Additionally, the IRS does not have the staff to oversee the burgeoning number of nonprofits resulting in frighteningly low levels of oversight. An independent study by the Advisory Committee on Tax Exempt and Government Entities released in June of 2016 says that the IRS is “losing ground in its effort to regulate nonprofits”.
Lack of oversight in the nonprofit sector is a big problem.
Finally, with donations remaining relatively stable while the number of organizations balloons, the not-for-profit community finds itself struggling to attract the funding necessary to carry out its mission. As a result, management is required to spend more time on fund-raising than programming.
Even more concerning, dollars are being re-directed away from the most effective organizations to those that are ineffective and at times outright fraudulent. The reality is we need the non-profit community to perform efficiently and effectively. Our astronomical government debt means that we rely more and more on non-profits to deliver critical services.
We need to direct funding to the most effective nonprofit organizations.
So, how do we ensure that the more effective non-profits receive more funding than the less effective?
That’s where you come in. Join me next month to learn more!