What is the Philanthropic Advisory Service and Why
The
New York Philanthropic Advisory Service (NYPAS) of the Better Business
Bureau of Metro NY was founded in 1986. NYPAS’ mission is to increase
public accountability on the part of New York charities and encourage
wise giving on the part of New York residents. We pursue this mission
by producing and distributing reliable, easy-to-read reports on Metro
New York charities, informing the public about wise giving practices
and encouraging charities to meet and maintain high ethical standards.
NYPAS promotes the national Standards for Charity Accountability
of the Council of Better Business Bureaus, which were developed with
professional advice from representatives of the nonprofit community.
The Standards provide a generally accepted framework for nonprofit management in four essential areas of operation:
- Governance
- Measuring Effectiveness
- Finances
- Fundraising & Informational Materials
Overall, the Standards
encourage each charity to provide information voluntarily about the
organization's purposes, programs, finances and governance. The
Standards emphasize clear disclosure in fundraising solicitations, and
stress that donated funds should be used for the purposes stated in
solicitations. While all charities must necessarily incur costs in
fundraising, the Standards state that those costs should not exceed a
reasonable proportion of the group's total income or public
contributions to the charity. Further, the Standards emphasize the
necessity of careful controls over fundraising activities, including
assurance that fundraising is conducted without excessive pressure.
Finally, an adequate governing structure is deemed essential to the
efficient management of a charity.
Each year, NYPAS reviews hundreds of financial statements, tax
filings, annual reports, solicitations, direct mail pieces and benefit
information from nonprofit organizations throughout the Metro New York
area. Based on this information, NYPAS determines whether a charity
meets our Standards.
NYPAS then produces a report with our determination and a summary of
the charity's mission, activities, governance and key financial
information.
How Charities are Selected for Review by NYPAS
There are more charities in our area than NYPAS can possibly review. So how do we decide which charities to cover?
First, we listen to potential donors from the general public. When a
potential donor contacts the BBB to ask for information on a charity in
our area that is not currently in our database, we add that charity to
our list. The charity is then asked to complete a Charity Profile
Questionnaire as well as provide us with additional supporting
documents. Based on this information we generate a charity report.
In addition, NYPAS staff members monitor newspapers, magazines
and television in our area. When we see a NY charity not currently
covered by NYPAS actively soliciting donations, we add them to our
list. In this way, we focus our attention on the organizations most
likely to be soliciting money from individual donors, companies and
foundations in our area. A charity can also come to us voluntarily and
request a NYPAS review. Once a review is completed, NYPAS publishes its
full report in our Online Giving Guide on our website.
How Often are Charities Reviewed by NYPAS?
Charity reports are generally valid for two years, after which time the
organization is re-evaluated and a new report is generated. The month
and year in which the charity report was written and in which it
expires are indicated on every report. During the interim year, each
organization is asked to review the information presented in its report
and provide details of any significant changes. If there have been
significant changes in the organization’s staffing, major programs, or
financial health during the year, its report is updated and republished
on our website.
What Information is Contained in a Charity Report?
Except in rare cases, every report contains the following subsections discussed below.
Contact Information
Each Charity Report (File or Interim) provides the donor with the
most current information on an organization’s legal name, address,
phone number and fax number, as well as the email address and web site
of those organizations that indicate them. In some cases, when
charities have telephone hotlines, TTY communication lines (for the
hearing impaired) or multiple addresses, NYPAS will include this
information alongside the primary contact information.
Evaluation
NYPAS uses the materials it receives from the organization to
determine whether or not the organization meets NYPAS’ 20 Standards for
Charity Accountability. Click here to see the complete Standards, and click here to see the Implementation Guide created to assist the donor in understanding how the Standards are applied.
Based on this evaluation, a charity may Meet or Not meet one or more of the NYPAS Standards. In some cases, we are Unable to determine whether the charity meets all or any of our Standards. Finally, there are some organizations for which there is No ranking. These indications are described in detail below.
Meets: If a charity meets all 20 of the NYPAS
Standards, the NYPAS Evaluation section of the report will say that the
charity “meets all NYPAS Standards for Charity Accountability.”
Does Not Meet: A charity may fail to meet one or
more of the Standards. The specific Standard and an explanation of the
circumstances that lead NYPAS to determine that the organization did
not meet the Standard or Standards will appear in the report. All
charities are given the opportunity to provide further explanation of
the circumstances they believe have led them to not meeting the
Standard or Standards in question. If an explanation has been provided
by the organization, it will be included in the report proceeded by the
words “Organization’s Response.”
Donors must determine for themselves the importance of any charity’s deviation from the Standards.
Unable to Determine: For various reasons
NYPAS may be unable to determine whether the organization meets one or
more of the Standards. In these cases, both the Standard and the reason
why we were unable to determine the organization’s compliance is
included in the report.
Informational: Some organizations are not evaluated
against the NYPAS Standards because they are too new, or receive less
than 10% of their total support and revenue from public donations or
grants. In this case NYPAS does not apply the Standards. We report on
these organizations because donors have requested information about
them, and the report is generated for informational purposes only.
Purpose & Programs
This section of a charity report briefly details a charity's
mission and central activities. It is important to note that some
organizations may provide services or be involved with activities not
listed in this section due to space constraints. NYPAS strives to
remain neutral when discussing an organization’s operations, and so
this section is an objective summary of the organization’s activities.
We
are not advertising the organization or its services, but providing the
donor with a general description from which he or she may gain
perspective on the organization’s size, capacity and main programs.
Governance
This section of the report provides the donor with the name of the
organization’s highest ranking paid employee, when there is one, as
well as the size of the organization’s staff, including paid employees
and volunteers. Some organizations have no paid employees. This section
also notes the name and employer of the Chairman, President, or
Director of the organization’s Board of Directors or Board of Trustees.
Various organizations use different titles. Regardless of the title,
the person identified is the person directing the charity’s outside
governing board, the head of which has specific duties and obligations
under the law. This section also details the number of the
organization’s board meetings and average board attendance. Donors
should check that the board meets regularly and with that the meetings
are well attended.
Fundraising Activities
This section outlines an organization’s major fundraising
activities. Donors should note the number of activities and fundraising
methods used by an organization. Both these factors can affect the
amount of money an organization spends on fundraising. Some
organizations ask that NYPAS inform donors that they do not use
telemarketers or direct mail solicitations. Such statements will appear
in this section of the report. If donors are contacted either by phone
or by mail by persons using the organization’s name or a similar
sounding name, the donor should contact the organization directly.
This section also shows the percentage that fundraising expenses
represent of related contributions. This number indicates how much of
every donated dollar goes into raising that dollar. Related
contributions include, but are not limited to, private contributions,
grants from foundations or corporations, revenue from special events,
government grants, indirect support, and federated giving.
Tax Status
This section contains information on the organization’s tax
status. Most organizations reviewed by NYPAS have been ruled tax-exempt
by the IRS and are classified as “501(c)(3) organizations.” Donations
to 501(c)(3) organizations are tax deductible to the extent allowed by
law. Donations to some non-501(c)(3) organizations, such as veterans
organizations, may also be tax deductible. If an organization is not
tax exempt or NYPAS knows that donations are not tax deductible, it
will be noted in this section.
Financial
This section presents the financial analysis conducted by NYPAS. It
includes information on the organization’s total support and revenue;
the percent of total expenses spent on the organization’s program
services, management and general expenses, and its fundraising
activities; as well as information on what percent of related
contributions are spent on fundraising. Finally, this section indicates
how much the charity had left after expenses or how much its expenses
exceeded its income for the fiscal year. The information contained on
the financial worksheet of each report is derived from the
organization’s audited financial statements and/or its IRS Form 990.
Revenues
When analyzing a charity’s finances, NYPAS uses the standard accounting
notation for negative numbers and places them in parentheses. For
example, if the organization earned $50 during the year, but spent
$100, the deficit figure would appear as (50) on the worksheet.
The first section of the worksheet contains information about the organization’s total support and revenue. Support and Revenue
is defined as revenue from any source earned during the fiscal year.
For our purposes, Support and Revenue includes unrestricted
contributions, government support, program revenue, interest and other
revenue, as well as restricted contributions and interest, pledges and
bequests, and permanent endowments.
A donor should look at the sources of the charity’s support and
revenue. It is considered sound financial management to have a number
of different sources of income, including, but not limited to,
contributions, program revenue and interest earnings.
Other sources of income include:
Indirect Support/Federated Giving: These are funds
contributed to a charity through another organization, such as the
United Way, the United Hospital Fund or the Combined Federal Campaign.
Special Events: Organizations often hold special events to
raise money. NYPAS records the revenue earned from these events under
Special Events. This figure is a gross figure unless otherwise
indicated. The only expenses that NYPAS nets from Special Events
revenue are those associated with the direct benefit provided to the
donor (such as the value of the dinner or the entertainment.)
Government Support (non-contract): This revenue is derived
from State, Local and Federal government grants and is considered
public support. This is not revenue derived from Government Contracts
in which the charity is paid a fee for its services. This form of Government Revenue (contract) is included in program revenue.
Unrealized Gains are the increase in value of the
organization’s investment assets. These gains are only “paper gains” as
the organization has not sold the assets. As such, these gains do not
represent funds available for spending, and may change in value before
the organization chooses to convert the assets into cash through sale.
All of this is totaled and labeled Total Support and Revenue. Total Support and Revenue is the revenue from all sources, available and unavailable.
Expenses
The second section of the financial analysis outlines the organization’s expenditures, broken down by Program Services, Management and General Expenses and Fundraising.
To the right of the dollar figures for expenses you will find the following percentages:
- Percentage of Total Expenses Spent on Program Services:
This is the percent of total expenses spent on the provision of
programs, activities or services in line with the charity’s stated
mission. NYPAS Standards require that an organization spend no less
than 65% of total expenses on program services.
- Percentage of Total Expenses Spent on Management and General Expenses: This
is the percent of total expenses spent on management and general
expenses directly related to administrative activities. These costs are
not directly related to the provision of Program Services or
Fundraising.
- Percentage of Total Expenses Spent on Fundraising: This
is the percent of total expenses spent on fundraising activities,
including all direct mail appeals, special events, grant writing and
submission and other development expenses.
An additional Fundraising percentage is given:
- Percentage of Total Fundraising Expenses against the amount of Total Related Contributions, i.e. Total Public Support:
This is the percent of total expenses spent on fundraising activities,
including all direct mail appeals, special events, grant writing and
submission and other development expenses. NYPAS Standards require that
an organization not spend more than 35% of total related contributions
on fundraising.
It may be helpful to think of this percentage as the amount of each
donated dollar spent to obtain that dollar. If an organization’s
fundraising expenses represent 20% of related contributions, it’s as if
20? of each $1.00 raised from the public is being spent on fundraising.
Year End Figures
Following the accounting of expenses, you will find Excess (Deficit) of Total Support & Revenue over Total Expenses. This amount reflects the Total Support & Revenue, both available and unavailable, left over after all expenditures. If the amount of Total Expenses exceeds the amount of Total Support & Revenue the amount will be a deficit and will be noted in parentheses.
Although some circumstances may cause a charity to exceed its income in
a particular year, organizations should not consistently overspend.
Continuously running a deficit may lead to financial instability and
may be a sign of mismanagement or other internal crisis. Donors should
seek an explanation from the charity as to why expenses exceeded income
and what management is doing to address any problems.
The final section of the financial analysis notes the organization’s total Assets and Liabilities at the end of the fiscal year being analyzed. Assets include
cash, accounts and grants receivable (money due to the charity),
inventory, prepaid expenses, real estate, property and equipment owned
by the charity. Liabilities include accounts payable (money the
charity owes), accrued salaries and payroll taxes, notes and loans
payable and long-term debts. In general, an organization’s assets
should be greater than its liabilities. If they are not, a donor may
wish to have the organization explain the conditions that have led to
this situation.
The final figures included on the worksheet are the Fund Balances for
the end of the fiscal year being analyzed and for the fiscal year
preceding it. In general, donors should note whether or not the
organization is gradually increasing its fund balance over time. This
means that the organization is consistently bringing in more money than
it is spending. While nonprofits cannot earn a “profit” that benefits
its directors, members or affiliates, a prudent organization ends the
year with a surplus.
Donor’s Choice
Donors must decide for themselves the importance of any variation from
the Standards by weighing the relative importance of the variation
against the organization's total performance. Charity reports are
written solely to assist donors in exercising their own judgment. We
also recommend that donors specific concerns about a charity’s
performance direct those questions to the Executive Director of the
organization, before they make up their mind to give.