Charities Review Council of Minnesota Standards

Charities Review Council of Minnesota
Standards (1998)
Developed January 1997, revised December 1997, adopted by CRC Board of Directors, January 8, 1998

[CRC TEXT]

The mission of the Charities Review Council of Minnesota (CRC) is to promote informed giving by Minnesota donors. CRC's mission is rooted in the belief that charities serve a unique and valuable role in meeting the needs of society, that charities have the right to solicit contributions of time and money in pursuit of their missions, that donors have the right to choose how they spend their charitable dollars and to expect that charities will conduct themselves in an accountable, ethical and effective manner. CRC believes that the responsible actions of both donors and charities will sustain and enhance the climate for charitable giving.

CRC carries its mission forward by creating and applying standards to encourage accountability in the charitable sector; and by providing information to donors that will help them make informed giving decisions. CRC does not have resources sufficient to conduct evaluations of all programmatic aspects of a charity's work. However, CRC's standards are indicators of effective, ethical and accountable management practices. Following are the standards used to evaluate nonprofit organizations, the philosophy behind each standard and guidance on how the standard is applied.

Public Disclosure

Standard 1A. For the year under review and the preceding two years, the organization has not violated any applicable provisions of Minnesota or federal law relating to the organization's tax exempt status, registration with and reporting to governmental agencies and the public or fundraising practices.

Guidelines for Application. CRC will examine a charity's compliance with applicable laws and regulations including I.R.C. §501(c)(3); Minn. Stat. §309.52; Minn. Stat. §309.53; Minn. Stat. §309.556; I.R.C §170(f)(8); I.R.C. §6115; I.R.C §6104(e) to determine compliance with public disclosure standard 1A. In addition, the organization's IRS Form 990 will be obtained from the Attorney General's office as well as any information regarding violation of charity law or actions against the organization by the Attorney General.

Standard 1B. The organization provides the following upon request:

an annual report that includes: a) a description of the organization's purpose; b) a description of its program activities, accomplishments and geographic area served; c) a summary of the total cost of each major program (to the extent required in the IRS Form 990); and d) a list of the organization's board of directors.
annual financial statements prepared in conformance with generally accepted accounting principles, and audited when required by federal or state law or contracts to which the organization is a party.

Guidelines for Application. If an organization fails to provide CRC with a completed CRC Disclosure Form within six weeks of the initial request, or demonstrates a pattern of failing to provide information requested by potential donors, CRC will conclude that the organization does not meet public disclosure standard 1B. Although the annual report is generally a single publication, CRC will consider a collection of documents that when furnished together provides the information requested.

Standard 1C. Through the annual report or other comunications available to donors, the organization provides specific, objective information about its accomplishments related to its stated mission.

Guidelines for Application. CRC will review the organization's annual report or other communications available to donors to determine compliance with public disclosure standard 1C.

Standard 1D. Program names, activities and financial information listed in the annual report, audited financial statement and IRS Form 990 are consistent.

Guidelines for Application. CRC will review and compare the charity's program names, activities and financial information as stated in its IRS Form 990, audited financial statements and annual report. If irreconcilable differences exist, the charity will not meet public disclosure standard 1D.

Governance

Standard 2A. The governing board meets at least three times per fiscal year with a quorum present, and maintains written minutes of each meeting.

Guidelines for Application. CRC will review the list of board meeting dates and attendance to determine compliance with governance standard 2A. Meetings of the governing board should be scheduled at regular intervals throughout the year (for example, quarterly), but do not have to be in person.

Standard 2B. The organization addresses director, officer, and key staff conflicts of interest pursuant to a written policy that prohibits the interested party from approving or voting on the conflicted transaction and requires full disclosure of all material facts to the appropriate decision makers.

Guidelines for Application. CRC will review the organization's conflict of interest policy to determine compliance with governance standard 2B. The policy should address conflicts of interest as described in this standard. Key staff is defined as anyone who has the authority to act or enter into contracts on behalf of the organization. Sample policies can be obtained from CRC.

Standard 2C. Board members receive no compensation for board service other than reimbursement of expenses incurred as a result of board participation.

Guidelines for Application. CRC will ask the organization to disclose its board compensation practices and will review its IRS Form 990 to determine compliance with governance standard 2C.

Standard 2D. Not more than one member of the governing board is a paid staff person of the organization; no paid staff person serves as board chair or treasurer.

Guidelines for Application. CRC will review the organization's bylaws, articles of incorporation, and list of board and staff members to determine compliance with governance standard 2D. Only paid positions are considered in applying this standard. Unpaid staff may serve in the capacity of board chair or treasurer.

Standard 2E. No elected member of the governing board serves for more than five years without standing for re-election.

Guidelines for Application. CRC will review bylaws for terms of office and election procedures to determine compliance with governance standard 2E.

Financial Activity

Standard 3A. At least 70 percent of the organization's annual expenses are for program activity and not more than 30 percent for management/general and fundraising combined.

Guidelines for Application. CRC will review the organization's audited financial statements (when applicable) and the IRS Form 990 to determine compliance with the financial activity standard 3A. CRC will determine the percentage allocated for program activity, management and general, and fundraising based on the average of aggregate figures for the three most recent completed fiscal years. When an organization reports joint cost activities, CRC will examine the activities in comparison with sample fundraising materials and activities described. Organizations reporting 50% or more of its program expenses from joint cost activities will be reviewed more closely. Based on a review of the information gathered, CRC may conclude that joint costs allocated to program are overstated while costs allocated to fundraising are understated. This may cause CRC to conclude that the organization does not meet financial activity standard 3A and an annotation will indicate a difference in opinion between CRC and the organization regarding its allocation of joint costs. For charities that have been in operation for fewer than three full years, CRC will analyze the aggregate expenses for all completed years to determine compliance with financial activity standard 3A. Special consideration may be given to unusual circumstances that affect the organization for a limited period of time.

Standard 3B. Unrestricted net assets available for current use are not more than twice the current or next year's budgeted operating expenses.

Guidelines for Application. CRC will review the organization's Statement of Position to determine compliance with financial accountability standard 3B.

Standard 3C. The organization does not have persistent or increasing operating deficits.

Guidelines for Application. CRC will review the organization's Statement of Activity to determine compliance with financial activity standard 3C. Persistent is defined as three or more consecutive years. CRC will note if the deficit appears to be decreasing over time.

Standard 3D. The governing board approves an operating budget prior to the beginning of each fiscal year and receives financial reports, at least quarterly, comparing actual to budgeted revenue and expenses.

Guidelines for Application. CRC will ask the organization to disclose the date of the meeting at which the governing board approved an operating budget and the dates financial reports were provided to the governing board to determine compliance with financial activity standard 3D.

Fundraising

Standard 4A. Solicitations and information materials clearly describe the purpose or programs for which the contributed funds will be used and identify the charity that will receive the contribution. The donor is provided with the address or phone number of the charity. All information provided in connection with solicitations is accurate and not misleading.

Guidelines for Application. CRC will review sample fundraising materials (including direct mail solicitations, telemarketing or canvassing scripts), the organization's annual report and financial statements to determine compliance with fundraising standard 4A. CRC will also consider donors' reactions to direct mail appeals. Examples of inaccurate or misleading solicitation practices include:

statements incorrectly implying local use of donated funds (by callers or letters)
the use of misleading photos
misrepresenting the level of program accomplishments
inaccurate disclosure of programming accomplished through joint cost activities
activities that are inconsistent with charity mission
exaggerated or false claims The organization's name, address and phone number should appear in all written fundraising appeals to donors.

Standard 4B. Solicitations do not cause donors to feel threatened or intimidated. The charity maintains a written policy to discontinue contacting any person upon that person's oral or written request directed to the charity, its professional fundraiser or other agent.

Guidelines for Application. In addition to reviewing sample fundraising materials submitted by the organization, whenever possible CRC will considers donors' reactions to telephone solicitations and door-to-door canvassers to determine compliance with fundraising standard 4B. Examples of intimidating or threatening appeals include:

insistence by callers after prospect has declined to make a contribution
personal criticisms by caller
call-backs after prospect has declined to give

The organization's name, address and phone number should be provided immediately to donors upon request by telemarketers or canvassers. CRC will also rely on community volunteers to provide feedback to CRC regarding fundraising appeals.

Standard 4C. Solicitors who are not employees or volunteers of the charity identify themselves in each solicitation as professional fundraisers and, upon request, provide the name and address of their employer or contracting party. Upon request, persons authorized by the charity to utilize the charity's name in connection with the sale or marketing of goods or services provide accurate information about the percentage of gross revenue that is paid to the charity.

Guidelines for Application. CRC will review telemarketing scripts, professional fundraising contracts and feedback from donors to determine compliance with fundraising standard 4C. Complaints by donors regarding the conduct of organizations through their fundraising appeals will be tracked and documented to determine if a pattern exists.