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From the President's Office, July 2007

Dear Friend:

Nonprofits are in the news again. A series of front-page stories in the Washington Post has highlighted a long list of compensation and expense abuses at the Smithsonian Institution, an important—and prominent—national cultural institution. And once again, the actions of one nonprofit organization have introduced one more element of mistrust and suspicion among the public and the media, affecting us all.

An independent review committee linked the problems at the Smithsonian directly to governance. The committee's June 18 report stated, "The root cause of the Smithsonian's current problems can be found in failures of governance and management. The governance structure of the Institution is antiquated and in need of reform."

A newly released study from the Urban Institute confirms that governance is a problem at nonprofits throughout the country: "Substantial percentages of boards are simply not actively engaged in various basic governance activities."

Ouch. Those are powerful statements, ones that should concern anyone involved with the sector. The Smithsonian's organizational and governance structure is peculiar, but not unique, among American nonprofit organizations, and the Urban Institute study illustrates the pervasiveness of the problem.

The issue is critical to everyone in the sector. Poor governance makes it much easier for unscrupulous persons to benefit from nonprofits, and, as we all know, when nonprofit controversies happen, the rest of us have to work harder to demonstrate that we are dedicated to our missions and deserve the public's confidence.

How can those of us in the sector—at any level—address the governance problem? Most of us know how difficult it is simply to recruit capable board members. In fact, the Urban Institute report notes, "Seventy percent of nonprofits are having difficulty recruiting board members, and 20 percent are finding it very difficult. Greater difficulty obtaining board members was negatively related to board engagement in every board practice."

What can we do to demonstrate that we are doing our jobs the way they should be done? (As my GuideStar colleagues and I firmly believe most nonprofits strive to do.) Do we need to create set standards for governance? If so, who should develop those standards, and who should enforce them?

How can GuideStar be of more help to the cause of better governance? Right now we encourage nonprofit organizations to supply us with the names of their board members. Is there additional information we could be collecting to demonstrate nonprofits' governing and administrative practices? Is there a tool or a service that could help you benchmark your organization's governance?

We'd like to know.


Bob Ottenhoff
President and CEO

Anatomy of an External Brand Audit

Reprinted from Branding Bytes

Question: What is an external brand audit?

Answer: There's an old saying in the communications business that states: It's not how a message is delivered but rather how it is received that makes all the difference. Put another way, it doesn't matter what you may want to say about your organization through brand messaging. If those messages don't resonate with the audiences you are trying to reach, they're mostly a waste of time, energy, and valuable resources.

Beware Publicity When Raising Big Gifts

Excerpt from Fund Raising Realities Every Board Member Must Face (rev. ed.)

Don't expect publicity to raise money. It doesn't, at least most of the time.

The reasons are simple. To raise substantial money you must ask people in person, regardless of any well-placed stories. Second, most campaigns depend on a relatively small number of major donors—about 10 percent of the prospects—whose decision to give won't be much influenced by the media.

IRS Update, November 2007: Updated Compliance Guidelines for Public Charities and Private Foundations

It's not always easy being part of a 501(c)(3) organization; keeping track of all the rules and regulations involved can be a daunting task. The IRS, however, has recently made things a bit easier by issuing updated versions of two useful brochures for public charities and private foundations.

Publications 4221-PC and 4221-PF are designed to aid organizations in understanding the requirements involved in retaining their tax-exempt status. Even if you already have a firm grasp of the rules, it's important to remember that the sector has undergone some significant changes in recent years, most notably those involving the Pension Protection Act of 2006. If you or someone at your organization hasn't already taken a look at one of these updated guides, it's probably time that you did.

Compliance Guide for Public Charities

Publication 4221-PC offers an overview of the reporting, record-keeping, and disclosure requirements for 501(c)(3) public charities as well as some specific activities that could lead to penalties or loss of exempt status. The publication also includes information on:

  • Filing a Form 990-N
  • Reporting changes of information
  • Obtaining assistance from the IRS

Compliance Guide for Private Foundations

Publication 4221-PF features the same type of information as it pertains to private foundations. Other topics covered include:

  • Filing a Form 990-PF
  • The different types of foundations
  • Requesting determination letters

Where to Get Copies

Hard copies of these publications can be ordered by calling the IRS toll-free at 1-800-829-3676. They can also be downloaded in PDF format from the IRS Web site.

Patrick Ferraro, November 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

Patrick Ferraro is a freelance writer in Seattle and a former editor of the Newsletter.

IRS Updates, July 2007: Revised Form 990 and Proposal for an Exempt Organization Voluntary Compliance Program

Revised Form 990

The IRS seeks feedback on the draft of the revised Form 990, which was released for public comment last month. In August, GuideStar will publish a special Newsletter issue focusing entirely on the proposed 990 revision. In the meantime, find more information >

Voluntary Compliance Program for Exempt Organizations

On June 13, 2007, the Advisory Committee on Tax Exempt and Government Entities recommended that the Exempt Organizations Unit of the IRS establish a voluntary compliance program for tax-exempt nonprofits. Such a program would allow nonprofits that find they are not in compliance with tax laws to take the initiative to rectify the situation.

The lack of such a voluntary compliance system, the advisory committee noted, "has led to the evolution of a dual-class system for exempt organizations: the represented and the unrepresented." Many large nonprofits have legal or accounting resources that are accustomed to negotiating IRS regulations and are able to resolve compliance problems in the organizations' favor.

Organizations that do not have access to such resources, however, "often flounder. They may contact IRS personnel who are unable to help or, worse, they may be paralyzed into continued inaction by their uncertainty as to what course to take." Similar situations are often resolved differently for nonprofits that do contact the IRS (with or without qualified assistance).

The number and variety of exempt organizations, the advisory committee contended, exceed the Exempt Organization Unit's oversight capabilities. A voluntary compliance program would lessen the strain on IRS resources and enable more nonprofits to be compliant with the tax code.

Common Areas of Noncompliance

The advisory committee identified the most common forms of noncompliance by exempt organizations:

  • Failure to file a required form
  • Late filing and inaccurate or incomplete filings
  • Failing to file, or improperly completing, payroll tax reporting forms
  • Failure to pay withholding taxes
  • Mischaracterization of exempt status
  • Inadvertent excess benefit transaction
  • Confusion about or inaccurate reporting of political activities
  • Identification of unrelated business taxable income

Implementing an Exempt Organization Voluntary Compliance Program

The advisory committee recommended starting with a transitional program related to the Pension Protection Act provision requiring the IRS to revoke the status of any exempt organization that fails to file an annual information return or ePostcard for three consecutive years. (For more information on this provision, .) The advisory committee's report outlined the specific steps to launch the transitional program.

The advisory committee also emphasized the importance of the annual returns and the benefits a voluntary compliance program could achieve in this area:
The Service requires Form 990 and its variations because, as a matter of law enforcement and of tax policy as well, both the Service and the public want exempt organizations to provide that information. If an exempt organization has been delinquent in filing its information returns, it is not only good tax policy but also a wise use of limited enforcement resources to offer a well-publicized and straightforward procedure for that organization to come back into compliance with the law by providing the missing information.
Over time, the IRS would expand the voluntary compliance program until it addressed most noncompliance issues, "including inurement, private benefit, electioneering, excessive lobbying and loss of or failure to qualify for public charity status."

Creating a voluntary compliance mechanism for exempt organizations would require substantial effort by the IRS. The advisory committee maintained, however, that in the long run, the benefits of such a program would offset the resources needed to establish it.

Read the complete report >

Suzanne E. Coffman, July 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.

Introduction to Competency-Based Hiring

Over the past few years, there has been a lot of talk about utilizing core competencies in the hiring process. You may be wondering what exactly core competencies are and how they can help your organization make better hires.

The term core competency was originally introduced in 1990 by the Harvard Business Review to describe the management concept of corporations possessing specialized expertise in a specific area. Corporations quickly adopted the concept of core competencies to communicate what they did "best" and to leverage the competitive advantages of their brands.

Since then, core competencies have been applied to other aspects of management and have become a key strategy in the hiring process. This article explores competency-based hiring and how nonprofit organizations can best use this technique in the hiring process.

What Is Competency-Based Hiring?

An individual's core competencies are determined by two groups of factors: (1) skills, knowledge, and technical qualifications and (2) behavioral characteristics, personality attributes, and individual aptitudes. Although traditional hiring has focused primarily on evaluating a candidate's skills and technical qualifications, a competency-based approach includes an analysis of a candidate's behavioral characteristics as well. Competency-based hiring is grounded in the identification of core competencies required for success and the subsequent evaluation of each candidate's demonstration of those competencies in their past experiences.

From a hiring perspective, there are two different kinds of core competencies: position-specific and organizational. The following is a brief overview of each type.

Position-specific competencies refer to the abilities and behavioral characteristics required for success in a specific role. These characteristics may include attributes of an individual's work style as well as personal qualities such as being analytical, resourceful, flexible, or creative.

Organizational competencies refer to the qualities and attributes that characterize success across an entire organization. These competencies include fit with the organization's management style, risk tolerance, work pace and volume, employee demographics, and physical environment. Organizational competencies play a major role in determining what type of people will "fit" in an organization, regardless of their specific roles. For example, a bureaucratic, autonomous manager may not succeed in a management role at a highly entrepreneurial nonprofit where all decisions are made by consensus.

Sample Core Competencies

  Development Director, Tutoring Organization Program Associate, Youth-Outreach Organization
Position-Specific Competencies Develop and maintain effective relationships

Use innovation and creativity to create opportunities
Motivate participants through ongoing support and dedication

Demonstrate awareness of the community and ability to translate needs into services
Organizational Competencies Focus on demonstrable results in every aspect of work

Be entrepreneurial, take action, show initiative
Value every person, regardless of circumstance and past experience

Demonstrate personal self-awareness and be reflective

Core Competencies in Action

The first step in adopting a competency-based hiring model is to determine both the organizational and position-specific competencies required for a given position. To figure out organizational competencies, we recommend convening a focus group or implementing a carefully crafted survey to identify the top three to five characteristics and traits that typically make someone successful within the organization. Be sure to include all key stakeholders, including management, staff, board members, funders, and other constituents as appropriate. In order to determine position-specific competencies, you will want to employ a similar process, focusing on those who know the position best. Depending on your organization, it may also be helpful to define department-specific competencies, particularly for highly specialized departments such as finance or development.

After you have determined the competencies for a given position, you can use this information to inform all subsequent stages of your recruitment and hiring process. For example, your job description should focus on the core competencies successful candidates will demonstrate, not just academic or technical qualifications. In terms of recruitment, a focus on core competencies will lead to a broader candidate pool because you will be seeking professionals who possess the desired competencies required for a position but may come from less traditional backgrounds. To learn more about developing your search strategy and recruitment plan, click here.

Using core competencies to drive the screening and interviewing phases of the hiring process will provide more relevant information upon which to base hiring decisions than matching candidates against a list of requirements or assessing whether the hiring manager "likes" the candidate. We recommend using behavioral interviewing, which refers to asking questions that require candidates to describe past experiences in which they were able to demonstrate specific competencies. Based in the premise that "past behavior predicts future behavior," research and experience have found behavioral interviewing to be a more effective way of gauging how each candidate has performed in certain types of situations and therefore how successful each may be in a certain role. To learn more about behavioral interviewing, click here.

Hiring and Beyond

Adopting a competency-based hiring model requires an investment of time and effort up front, but that investment is well worth the effort because it enables you to make more appropriate and sophisticated hiring decisions. After the hire is made, core competencies continue to be useful in setting goals and positioning new hires for success, identifying areas for professional development, and making appropriate decisions about future promotions and raises. These factors lead to increased employee engagement and retention, two hallmarks of successful organizations.

For more information on competency-based hiring, we suggest the following helpful resources:

Commongood Careers, July 2007
© 2007, Commongood Careers

Commongood Careers is dedicated to helping today's most effective social entrepreneurs hire the best talent. Founded by nonprofit professionals, Commongood Careers offers personalized, engaged services to job seekers and organizations throughout the hiring process as well as access to a wealth of knowledge about careers in the social sector.