Designations Processing
Financial Management and Human
Resources Forum
Atlanta – October 7, 2013
Designations and “First Dollars In” –
What Are the Pros and What are the
Cons?
First Dollars In: Scope
• Greater Mankato Area United Way
• BPM 3A (Metro 3)
• Staff of 5.5 FTE
• Campaign $2.025M
• Designations = $57K (2.8%)
• Payable designations = $8K (.4%)
3
Atlanta
October 7, 2013
First Dollars In: Philosophy
• Concept: Designations are considered first dollars in the door to be
paid as part of Partner Agencies’ pre-determined Allocation
• Policy: Only accept write-in designations to Partner Agencies and
other United Ways
• Communication: Frame as supporting UW’s work in community,
not to be viewed as a pass-through fundraiser. Role of CID
volunteers review the needs and determine Allocation $
• If non-partner, encourage to donate directly to nonprofit
• This approach works for our UW:
– Smaller community (50K)
– Supportive of UW (top 2% of per capita giving)
4
Atlanta
October 7, 2013
First Dollars In: Examples
Example 1: Up to
• UW allocates $25,000 to Agency A
• Jane designates $500 to Agency A
• Agency A receives a report of Jane’s $500 donation
• Agency A receives 12 monthly payments totaling $25,000
$2,500
$2,000
$1,500
$1,000
$500
$-
5
Atlanta
October 7, 2013
Allocation
First Dollars In: Examples
Example 2: Over
• UW allocates $25,000 to Agency A
• Donor designations total $30,000 to Agency A
• Agency A receives 12 monthly payments, totaling $29,200 ($25K
Allocation + $5K designations minus Req M and Pledge Loss rate)
• Note: This has never happened
Payout
$3,000
$2,500
$2,000
$1,500
Designation
$1,000
Allocation
$500
$-
6
Atlanta
October 7, 2013
First Dollars In: Change in Approach
• In 2008, went from Separate Stream ($25K plus designations) to
First Dollars In ($25K total)
• Communicated to partner agencies, and talked about at rallies
• Framed as CID volunteers do the tough work for you
• Since then:
• Campaign: +20%
• Total designations: -33%
 2.8% of campaign (down from 5.1%)
• Payable designations: -89%
 0.4% of campaign (payout now $8K down from $86K)
7
Atlanta
October 7, 2013
First Dollars In
Pros
8
Cons
• Found donors thought they
were being asked to choose
• Donors might circumvent UW
to donate to Agency
• More dollars to allocate =
more control
• Could result in decreased
campaign total
• Less administrative time
processing designations,
verifying Patriot Act, etc.
• Consider possible backlash if
community is not receptive
Atlanta
October 7, 2013
First Dollars In: Fees under Requirement M
• We charge the maximum fee for designations paid out per
Requirement M calculation
• Clear direction by our Finance Committee: this is an “actual” not a
“maximum”
• Aligns with our philosophy: Charging less would mean we’d be
using other donors’ dollars to supplement the designation
9
Atlanta
October 7, 2013
Designations and “Separate Stream” –
What Are the Pros and What are the
Cons?
Separate Stream: Scope
• United Way of Central New Mexico
• BPM 3B (Metro 1)
• Staff of 40 FTE
• Campaign $28.2 Million
• Designations = 66%
• No Fee (Standard M) charged for designations due to Corporate
Cornerstone program.
11
Atlanta
October 7, 2013
Separate Stream: Philosophy
• Concept: Organizations receiving both Community Fund grant
allocations and designations are paid out independently in separate
streams.
• Policy: Designation policies vary widely from no designations to
completely open.
• Communication: Support designations to “bundle” giving and
support UW’s work in community.
12
Atlanta
October 7, 2013
Separate Stream:
Example 1- Community Fund Grant Allocation Only
• UW allocates $25,000 to Agency A
• Agency A receives a total allocation payment of $25,000
• Paid out 1/12th ($2,833 per month) July-June
Payout
$2,500
$2,000
$1,500
CF Grant Allocation
$1,000
$500
13
Atlanta
October 7, 2013
June
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Aug
Sept
July
$-
Separate Stream:
Example 2- Designations Only
• Jane designates $5,000 to Agency A
• Agency A receives a report of Jane’s $5,000 donation
• Agency A receives designation payments of $5,000
• Paid 1/12th beginning in January if payroll deduction; Paid out when
received if any other method (no later than March of following year)
Payout
$450
$400
$350
$300
$250
$200
$150
$100
$50
$-
14
Atlanta
October 7, 2013
Designation
Separate Stream:
Example 3- Both CF Grant Allocation & Designations
• UW allocates $25,000 to Agency A
• Jane designates $5,000 to Agency A
• Agency A receives a report of Jane’s $5,000 donation
• Agency A receives total allocation and designation payments of
$30,000.
Payout
3000
2500
2000
1500
Designation
1000
CF Grant Allocation
500
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
0
15
Atlanta
October 7, 2013
Separate Stream: Does it Encourage Designations?
Pros
Cons
• Could result in increased
campaign total
• Easier for recipient agencies to
track and account for
• Recipient agencies potentially
receive more $
16
Atlanta
October 7, 2013
• More Designations
• Fewer unrestricted dollars to
allocate
• More administrative time
processing designations,
verifying Patriot Act, etc.
Methods of Applying Designations to
Partner Agency Funding
Methods to Apply Designations to Partner Agency
Funding
18
A.
First Dollar In
B.
Separate Stream
Atlanta
October 7, 2013
A Little Background
United Way Suncoast (central gulf coast of Florida)
• Sarasota and Tampa Bay United Ways merged effective July 1, 2012
• Metro 1B with Campaign revenue of $21.3 million
• Designations are approximately $3.7 million or 17.3 %. UWS charges
Requirement M fundraising/processing fees
• Sarasota uses First Dollar In - Tampa Bay uses Separate Stream
• Finance Committee decision was to use Separate Stream for all beginning
in January of 2014
The BIG issue
How do we make the change in Sarasota without creating
problems for our partner agencies?
19
Atlanta
October 7, 2013
FIRST DOLLAR IN
Assumption: United Way Commitment each year is $25,000
Year 1
$13,500
funded
by
United
Way
UWS adheres to Requirement M.
However, any fees charged would be offset
by the payments necessary to meet the
allocation commitment.
$11,500
20
Atlanta
Designations
October 7, 2013
FIRST DOLLAR IN
Assumption: United Way Commitment each year is $25,000
Year 1
$13,500
funded
by
United
Way
$16,000
funded
by
United
Way
$11,500
21
Atlanta
Year 2
$9,000
October 7, 2013
FIRST DOLLAR IN
Assumption: United Way Commitment each year is $25,000
Year 1
$13,500
funded
by
United
Way
$16,000
funded
by
United
Way
$11,500
22
Atlanta
$9,000
October 7, 2013
Year 3
Year 2
$15,000
funded
by
United
Way
$10,000
SEPARATE STREAM
Assumption: United Way Commitment each year is $15,000
Agency expects $25,000
$0
Year 1
$5,000
$10,000
$15,000
UNITED WAY - $20,000
$20,000
$25,000
Designations
$8,000
$7,040
Year 2
UNITED WAY - $20,000
Designations
$5,700
$5,000
Year 3
UNITED WAY - $20,000
Designations
$4,500
$3,960
23
Atlanta
October 7, 2013
$30,000
Fundraising/
Processing
fees
Our Plan for Making the Change from First Dollar In to
Separate Stream:
1. Talk to volunteers (the ones who determine allocation
funding) and to partner agencies – clearly explain what
you intend to do and why you are doing it.
In our case, we believe that the transparency
associated with stating that a designated gift will be
paid directly to an agency will improve credibility.
24
Atlanta
October 7, 2013
Our Plan for Making the Change from First Dollar In to
Separate Stream:
We also believe charging (and explaining) fundraising and
processing fees helps donors understand that raising and
distributing funds for another agency has a cost the other
agency does not have to bear.
2. Average United Way payments to each partner agency
for 3 or more years to estimate an annual allocation
amount for each agency.
3. Communicate United Way funding to our partner
agencies, explaining again that there may be a
difference in overall funding for the current year.
25
Atlanta
October 7, 2013
Our Plan for Making the Change from First Dollar In to
Separate Stream:
26
4.
Budget a total annual amount available for agency
allocations that includes a reserve. We estimate
our reserve will be approximately 5% to10%
5.
Work with volunteers to determined the program
funding allocations for the next year.
6.
Use the reserve to supplement any agency that
receives substantially less than expected for
program support from both designations and the
United Way allocation.
Atlanta
October 7, 2013
Our Plan for Making the Change from First Dollar In to
Separate Stream:
27
7.
Remind partner agencies again that designations
will vary year by year.
8.
Hope we hit the target!
Atlanta
October 7, 2013
I Received a Designation to A Non
501(c)(3) Organization – Now What?
Processing Designations to non-501(c)(3)
Organizations
Religious Organizations and Schools
Before First Payout is Made:
• Patriot Act Compliance
• Send list of all designated organizations to GuideStar for
verification.
• UWW sponsored GuideStar Screening
(http://online.unitedway.org/file.cfm?fid=3093467)
29
Atlanta
October 7, 2013
Is There A Threshold for Paying Out
Designations?
Threshold for Paying out Designations
• Set a minimum for designation payouts
• Example: Payout designations totaling $500 or less in one payment
rather than spreading out over 12 months.
• Agency has total designations of $500
• 12 Payments of $41.66 OR 1 payment of $500
• Pro: More efficient and cost effective
• Con: If payroll deduction, may not collect the entire amount paid
out.
31
Atlanta
October 7, 2013
Membership Requirement “M” – Cost
Recovery on Designated Gifts
Requirement M: Cost Deduction Standards
Summary: Adhere to cost deduction standards on designations: fees
charged based on actual expenses; will not deduct fund-raising or
processing fees from designated gifts originating by or from another
UW organization.
Purpose: Public assurance that donors are not charged too much, no
duplicate charges or services exist, and that UW has consistent and
fair processes.
33
Atlanta
October 7, 2013
3 Types of Gifts to Charity
34
Atlanta
October 7, 2013
1. Outright Gift to Charity
(Unrestricted, Temp-restricted, or Perm-restricted under GAAP)
35
Atlanta
October 7, 2013
2. Designated Gift
(Agency Transaction under GAAP)
36
Atlanta
October 7, 2013
3. Donor Advised
(Unrestricted under GAAP)
37
Atlanta
October 7, 2013
Tax Deduction All The Same
Designated
Membership Requirement M Only Applies to Designations
38
Atlanta
October 7, 2013
The Purpose of Requirement M
To assure the United Way movement that:
• Consistency exists between members
• Each party to a campaign understands their roles
• Timely reporting and fund transfer is maintained such that financial
accountability standards can be adhered to
• Members continue to focus on building the most cost effective processes
• We have a consistent definition/calculation of the actual cost of fundraising
and processing
• We have a consistent communication process to assure that only one
United Way deducts a fee
39
Atlanta
October 7, 2013
Standardized Maximum* Fees
Two allowable fees:
1. Management & General (administrative) fee
2. Fundraising fee
Note: The first United Way who processes a campaign is responsible for
deducting all fees (unless an alternate fee sharing arrangement is in place)
* If you opt to collect less than the maximum allowable fee, you
must have approval from your governing board
40
Atlanta
October 7, 2013
Maximum Management & General (administrative)
Cost Recovery Rate Calculation
(unless an alternate fee sharing arrangement is in place)
•
41
Atlanta
M&G costs must be allocated in accordance with the UWW
Functional Expense Standards
October 7, 2013
Maximum Fundraising Cost Recovery Rate Calculation
**
* When non-government grants are included in Part VIII, Line 1f with the related expenses for
raising those grants included in program services, these amounts must be excluded from the
denominator for the calculation of the maximum fundraising deduction. This is required in order to
ensure the appropriate calculation of the ratio of campaign fundraising expenses to net annual
campaign revenue only.
** Costs related to fundraising for public sector campaigns (i.e. CFC, etc.) are included in Part IX,
Column D, Line 25, however, the campaign results are reported in Part VIII, Line 1(a), thus must be
deducted from the numerator to avoid overstating the calculation, if material.
42
Atlanta
October 7, 2013
Communications Prior to the Campaign
Minimum purpose for the communication prior to the campaign is for:
• Determination of roles and responsibilities
• Establishment of alternate cost deduction arrangements
• Communication of payment methodology
43
Atlanta
October 7, 2013
Determining Roles and Responsibilities
• Per the NPC Policy, it is assumed that the UW in whose service
area the solicitation takes place is the fundraiser and receives the
fundraising fee, regardless of who processes the campaign
• The first processor confirms that the other UW(s)
are not involved in the solicitation process
• “Positive confirmation” of roles not required, must
only communicate assumptions and allow time for
challenge
• Lacking communication, first processor must deduct and distribute
at the maximum calculated rate
• UW’s who are solely processors (e.g. no fundraising costs on which
to base the calculation), should create an average formula based
on the cost ratios of the UWs served
• Sample Pre-Campaign letter in Requirement M document
44
Atlanta
October 7, 2013
Alternate Cost Deduction Arrangements
• Permissible if only one M&G and only one Fundraising fee is ever
deducted, and the amount deducted does not exceed the rate of the
processor
• Any party may initiate a request for an alternate arrangement, but it
is ultimately up to the processor to approve such arrangements
• Regardless of who deducts the fundraising fee, the rate may not be
less than the maximum rate of the first processor unless mandated
by the donor company or agreed to by all parties
• Even if mandated by the donor company, the alternate arrangement
must be communicated to all parties
45
Atlanta
October 7, 2013
Payment Methodologies
• Default assumption is direct payment with fundraising fee paid to
the UW who serves as fundraiser for each location
• Communication is required whenever direct payment method will
not be used
• Communication also required for all new campaigns or if a change
in the methodology from prior year
• Pass through/pay through (in lieu of direct payment) may
be requested by a LUW, but is at the discretion of the first
processor (assuming the second processor charges no M&G
fees and the fundraising fee taken jointly does not exceed the
rate of the processor)
• A processor may accept a LUW’s request to pass through,
but cannot require a LUW to accept dollars to be passed
through them
46
Atlanta
October 7, 2013
Payment Methodologies
Summary:
• The LUW can require direct payment by the
processor**
• The LUW can request paying through themselves
• The LUW can not require paying through themselves
• Regardless of payment methods, the processor must
provide information needed by the LUW to
appropriately report campaign results
** To exercise this right, the LUW must make their agency file information
available to the processor
47
Atlanta
October 7, 2013
Communication – During Campaign
Minimum requirements established
– Standardized timing & frequency of the communications
– Standardized content
Key point: Required communication elements differ depending on
where the funds are raised (Processor’s vs. LUW’s service area) and
who the report goes to (LUWs, agencies, or donors)
48
Atlanta
October 7, 2013
Communication Schedule
Timing & Frequency (same requirements whether dollars are raised in
processor’s or LUW’s service area):
• First report by 2/28 for activity thru 12/31
• Second report by 4/30 for activity thru 3/31
• Final report by 7/31 for all activity through 6/30
• Subsequent reporting required for any material adjustments after
final report issued
• Above represents the minimum requirement, more frequent
reporting is recommended
49
Atlanta
October 7, 2013
For amounts raised in the PROCESSOR’S service area, the minimum
content is as follows:
• Name of UW that managed the campaign (in this case, the processor)
• Campaign year
• Donor name/identifier and address (unless anonymous)
• Type of pledge (cash, payroll deduction, etc.)
• Pledge amount (by donor if available) – this will be only the amount pledged to
the UW, not the entire gift
• Indication of whether report is cumulative or in addition to prior reports
• Applicable M&G and Fundraising rates to be deducted by the processor and
whether fees will be deducted up front or ratably upon collection
• Shrinkage policy to be applied by the processor (estimated vs. actual)
• Indication of status of report (initial, interim, or final)
• Acknowledgment policy (who issues the thank-you letter)
• Expected date of first payment
• If paying by EFT, what the standard ACH code is
50
Atlanta
October 7, 2013
For dollars raised in ANOTHER UW’s service area
•
Additional information must be reported:
– Donor name (if available), even if they wish to remain
anonymous (note that report must indicate donor wishes
to remain anonymous)
– Total pledge amount by donor, including all undesignated AND
designated pledges
– Company/donor level detail
– Indication of the party to whom funds will be paid
• Reports for dollars raised by Processor vs. LUW may be combined
provided the fundraiser/manager is clearly identified in the report and all
required elements are reported
• Many software systems already have the functionality to report at the
required level but some reformatting may be needed.
(Note: Sample letter can be found in Requirement M document)
51
Atlanta
October 7, 2013
Communication – After campaign
(during collection/payout cycle)
Two basic types of payments addressed:
• Pledge Payments to LUWs and Agencies
• Fundraising fee distributions to LUWs
Standardized:
• Timing & frequency of payments
• Minimum payment amounts
• Minimum content of the accompanying communication
Note: These are the minimum requirements - more information is always
acceptable
52
Atlanta
October 7, 2013
Pledge Payments
(To United Ways and Agencies)
Timing and Frequency:
• First payment by 2/28 for collections thru 12/31
• Minimum requirement of quarterly payouts in first calendar year
following campaign*
• Minimum requirement of semi-annual payouts after first calendar
year, until final payment is made
• More frequent payouts recommended
• Special accommodations for larger company or
individual donor can be made at the discretion of
the processor but must be communicated to
recipients
* If the recipient organization insists on payment in a form other than the payer’s preferred means of
transferring funds, then the payer must take reasonable steps to accommodate that request but may
pay less frequently, however no less than semi-annually.
53
Atlanta
October 7, 2013
Minimum Designation Payment Amounts:
• Minimum quarterly payment amount is determined by
the Processor
• Minimum may never be set at an
amount greater than $1,000
• Must assure that the final payout honors all donors’
intent by distributing any balance, regardless of
threshold chosen for quarterly payments no later than
March 15th of the following year
54
Atlanta
October 7, 2013
Minimum content of accompanying reports:
• Name of United Way in whose service area funds were raised (i.e. fundraiser)
• Campaign year to which payment relates
• Gross pledge amount by donor, if available
• Collection information by donor, if available; otherwise, by company
• Costs deducted from pledge and basis for deduction (up front or ratably with
collection)
• Net payment amount (sum of all must equal check total)
• Payment terms (e.g. direct to agency or through LUW)
• Pledge loss policy applied
• Projected payment schedule for remaining amounts due
• Reminder statement on who issues tax receipt
• Optional: billing policies and indication of amounts collected but not yet distributed
• Payment origination date
• If paying by EFT, what the standard ACH code is
55
Atlanta
October 7, 2013
Fundraising Distributions to United Ways
Timing & Frequency:
• Minimum of quarterly in the calendar year following the campaign
• Continue until final campaign payout is made
Minimum Payment Amounts:
• Shall never be greater than $100 cumulatively
• If the cumulative fees due another UW for a particular campaign
never exceeds $100, the processor is not required to remit the fee
56
Atlanta
October 7, 2013
Minimum content of accompanying reports:
• Fundraising Rate applied (calculation not
required, but must be available upon request)
• Year to which payment relates
• Details of any pre-negotiated arrangements
• Information that enables LUW to determine how amount was
calculated (may be provided in detail calculation or general
methodology, but detail must be available upon request)
• Payment origination date
• If payments are made via EFT, what the payer’s ACH code is
57
Atlanta
October 7, 2013
Frequently Asked Question
• Are “Impact Area Designations” covered under this
requirement?
 NO. When a donor indicates that he/she would like
his/her donation to be used to support your impact
areas, they are making a contribution to your United
Way, not to another organization and therefore it is not
an “agency transaction” (you can’t be an agent for
yourself). It is simply a “purpose restricted”
contribution to your organization.
58
Atlanta
October 7, 2013
Vetting Designated Organizations…
The USA Patriot Act
The USA PATRIOT Act of 2001
(Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism)
• Strengthened the government’s ability to combat
terrorism by:
– enhancing investigative powers
– encouraging the sharing of information among
law enforcement agencies
– requiring financial institutions to identify and
root out money laundering.
• Strengthens penalties for the provision of
material or financial support for terrorism.
• Provides private parties with a cause of action
against those that provide support for terrorism.
• New focus on international grant makers.
• Actual knowledge required for criminal sanctions.
60
Atlanta
October 7, 2013
Why is this important for United Ways?
The IRS requires businesses to conduct a sufficient level
of due diligence to ensure funds are not used to support
terrorist activities…
The diligence required is not specified but should be
based on risk presented.
61
Atlanta
October 7, 2013
Risk to United Ways stems from the amount of funds
distributed across the country, some of which is to
designated agencies with are subject to minimal review…
Any violation, whether intentional or not, will create
reputational harm.
62
Atlanta
October 7, 2013
So, what is “due diligence” for a United Way?
1. Annually screen all agencies, partner and
designated, against the OFAC list maintained by
the U.S. Department of Treasury at
www.treas.gov/offices/enforcement/ofac/sdn.
•
This list includes the Specially Designated Nationals (SDN) and the
Terrorist Exclusion List (TEL).
2. Annually obtain from all agencies a certification
stating that United Way funding will be used in
compliance with all applicable anti-terrorism financing
and asset control laws, statutes and executive orders.
•
63
Atlanta
The date(s) of screening and certificates should be maintained for
verification purposes.
October 7, 2013
Exceptions:
64
•
United Way members are not required to be
screened because members certify compliance to
UWW with the annual membership certification process.
•
These guidelines do not apply to the distribution of Combined
Federal Campaign (CFC) funds.
–
Office of Personnel Management (OPM) is responsible for conducting
the compliance required for participation in that campaign.
–
United Ways making distributions or allocations outside of the United
States must comply with the Treasury Guidelines for international
grant makers.
Atlanta
October 7, 2013
An Alternative approach…
Outsource to GuideStar:
• Verifies agencies against the IRS database of approved charities
and the Office of Foreign Asset Control (OFAC) list.
• United Ways that use these services are not required to collect an
Anti-Terror Certification from funded agencies.
• UWW’s General Counsel believes this service constitutes a
reasonable level of diligence.
For further information or questions, please contact Patti Turner, UWW’s
General Counsel at patti.turner@uww.unitedway.org
65
Atlanta
October 7, 2013
Challenges and Unanswered Questions
66
•
Does paying by EFT eliminate need for screening since banks are required
to screen both senders and receivers of EFTs against OFAC?
•
Is screening and certification of designated agencies required?
•
Does the board need to approve our compliance processes?
•
Designated agencies are difficult to obtain certificates from, some even
refuse to provide certificates based on legal or philosophical grounds…
why doesn’t 501(c)(3) screening suffice?
•
There is no single integrated list, the lists changing daily and may still be
incomplete, all this means that the checking process is burdensome… are
there Software tools available to help us do this?
Atlanta
October 7, 2013
A key additional resource is only a “click”
away… United Way CFO’s Desk Book
(http://online.unitedway.org/cfodeskbook)
• Available at United Way Online, in the
“Member Services” section, “Finance
and Accountability” tab
• Compilation of all UWW Financial
Issues Committee (FIC) and other UW
finance related documents.
• FIC is systematically updating older
sections and adding new sections so
that it stays current
• Print off or order your own copy today
67
Atlanta
October 7, 2013
Questions
68
Atlanta
October 7, 2013
Gwen Donev
Director of Operations & Finance
Greater Mankato Area United Way
507.347.4535
gwend@mankatounitedway.org
Lisa Kruger
Chief Financial Officer
United Way of Central New Mexico
505.247.3671 Ext. 726
Lisa.Kruger@uwcnm.org
Susan Casper
Chief Financial Officer
United Way Suncoast
813.274.0905
scasper@uwtb.org
Ken Euwema
Director – Member Financial Accountability
United Way Worldwide – US Network
703.836.7112 Ext. 565
Ken.Euwema@uww.unitedway.org
Thank you for participating!