How Charities Can Regain Lost Trust (Part II)

In order to continue supporting our “brother Israelite” in times
Of need, both donors and non-profits must transform their
relationship. Donors and non-profits have an informal agreement
in which donors give money to specific non-profits with the
expectation that the non-profits are effectively supporting their
brother Israelite. This agreement is based on trust. At present,
this trust has been lost. The Wall Street meltdown and the Madoff
scandal have caused donors to feel uncertain; donors no longer are
certain that their dollars are being used effectively. The present
system of giving, based on trust, must be transformed to a system
based on transparency. Those non-profits that highlight
their transparency will regain the trust of donors; those
non-profits that highlight their mission, without providing
financial transparency, will lose support.

Following are recommendations for transforming the donor-charity
relationship. This week’s blog will discuss actions that the donor
should take. Next week’s blog will discuss actions that non-profits
should take.

Recommended Donor actions:
1) Be personally responsible with the dollars you give.
Do rigorous due diligence when giving money charity.
This entails looking beyond the mission statement of the
charity you give money to. Examine the charity’s financial
efficiency, its ability to survive an economic downturn, and
its investment practices.
2) Access the following resources:
a) Charity Navigator (http://www.charitynavigator.org/)
provides comparative efficiency ratings based on the most
recently filed tax returns.
b) Guidestar (http://www.guidestar.org/) provides the actual
tax return filed by the non-profit.
3) Communicate directly with your target charity. Ask the charity
about their finances. Ask the charity how financially efficient it is.
Ask the charity about their investment practices. Ask the charity
if it had invested money with Madoff. A reluctance to answer your
questions should give you caution about donating to this charity.
4) Use donor advised funds to park your charitable money while
doing your due diligence. Donor advised funds are intermediate
vehicles that allow you make a tax deductible contribution, that
allow you to maintain control over your money, and allow you to
keep your money in a safe place. Examples of donor advised
funds are:
a) Jewish Communal Fund
(http://www.jewishcommunalfund.org/) has been helping
individuals, families, corporations and communal groups achieve
their philanthropic goals for over 36 years. It had no exposure
to Madoff investments.
b) Jewish National Fund
(http://www.jnf.org/) provides donor advised funds in addition
to being a vital part in helping the State of Israel develop its land.
c) Jewish Federations in the following cities offer donor advised
funds: Atlanta, Baltimore, Boston, Chicago, Cleveland,
Detroit, and San Francisco.
d) Fidelity Charitable Gift Fund
(http://www.charitablegift.org/) is the largest donor advised
fund in the nation. Since 1991, it has helped more than 55,000
donors recommend more than $9 billion in grants to over 129,000
nonprofit organizations.

Next Week's Blog: Recommended non-profit actions

How Charities Can Regain Lost Trust (Part I)

Intrinsic to the precepts of Judaism is the act of giving.
A verse in the Torah states, when a “…man (is) reduced
to poverty and cannot support himself in the community,
you shall uphold him…” (Leviticus 25:35) The real
tragedy of the Wall Street meltdown / Madoff scandal in
the Jewish community is not a loss of money, but a loss
of trust. Our ability to help our brother Israelite has been
harmed. Though we still seek to support our brother Israelite,
we are now afflicted with fear and uncertainty on how to
give effectively.

First, let us examine the facts:
1) The troubles in the housing and financial markets have a
far greater impact on charities than the troubles caused by Madoff.
2) Jewish non-profits, like all non-profits, have been harmed.
However, very few have been devastated.
3) According to Gary Tobin, the President of the Institute for
Jewish & Community Research, “thousands of (Jewish)
organizations generally have sound fiduciary control in place,
and in the constellation of Jewish communal life, very few of them
have been affected in a serious way by Mr. Madoff’s cheating.”
(Chronicle of Philanthropy: page 46; Januray 15, 2009)

The breakdown in trust caused by Fannie Mae, Freddie Mac,
Lehman Brothers, Merrill Lynch, AIG has instilled fear and
uncertainty in the people trusting them with their money.
The breakdown in trust caused by Madoff has instilled fear and
uncertainty in donors to Jewish non-profits. As a result, donors
may cut back on the amount they donate to charities, or at least
put off their donations for a while.

It is understandable that people withdraw when confronted with
uncertainty. This lack of trust has a bright side. It will lead to a
discussion about transparency in American philanthropy. Charities
that are transparent, efficient, and follow good practices of
accounting should be rewarded. Charities that do not follow these
practices should mend their ways. Finally, donors need to be more
personally responsible for their giving. They should do rigorous
due diligence when giving their money to charity. Donors should
look beyond the mission statement of the charity they give money
to. They need to examine the charity’s investment practices, its
efficiency, and its ability to survive an economic downturn.

The tragedy of Wall Street / Madoff may actually be a watershed
moment in time. In the future, donors will look back upon this
moment as a time when we learned how to better support our
brother Israelite.

American Jewish Congress

Mission: The American Jewish Congress (AJ C), www.ajcongress.org is an association of Jewish Americans organized to defend Jewish interests at home and abroad through public policy advocacy - using diplomacy, legislation, and the courts. Five subjects comprise the core of our agenda: safety and security of Israel and the world Jewish community, especially in the face of worldwide terrorism; fighting to eradicate the new anti-Semitism; preserving religious freedom in the United States through separation of Church and State; energy independence and stopping the flow of petrodollars that fund terrorism; and supporting moderate Muslim countries and prominent individuals who oppose radical Islam and believe in "enlightened moderation" as the message of Islam.

FINANCIAL EFFICIENCY EVALUATION:
According to Charity Navigator
(http://www.charitynavigator.org/),
America’s leading charity evaluator, AJC has an overall
rating of one star (four stars is the highest rating.)
Charity Navigator provides the following financial
breakdown of AJC based on 990 tax returns through
2006:

Overall Rating: One Star *

Organizational Efficiency:
Efficiency Rating: 0 Stars
Program Expenses: 59.8%
Administrative Expenses: 8.1%
Fundraising Expenses: 31.9%
Fundraising Efficiency: $0.57
(AJC spends $0.57 to raise $1)

Organizational Capacity:
Capacity Rating: Two Stars **
Primary Revenue Growth: - 0.7%
Program Expenses Growth: 1.8%
Working Capital Ratio: 2.93
(AJC can sustain itself for 2.93 years
without generating new revenue.)
Organizational capacity refers to an organization’s
ability to sustain itself over time. Charities that exhibit
consistent revenue and expenses growth are more
likely to sustain their programs and services over the
long haul.

Compensation for its Executive Director, Neil Goldstein,
was $206,232 which represents 3.33% of expenses.
For comparison purposes, compensation for the President
of the American Jewish World Service, Ruth Messinger, was
$191,000 which represent 0.79% of expenses.

As of 2006, AJC had net assets of $17,125,899.
Of this figure, AJC had investment-securities
assets of $16,035,469 and fixed assets of
land, buildings and equipment less accumulated
depreciation of $294,019.

Discussion:
AJC’s working capital ratio of 2.93 years is a measure
of its reserve of liquid funds in excess of current
liabilities that is available as a margin of safety
against future financial uncertainty and such random
shocks, as the Wall Street meltdown and the Madoff
affair, to which its flow of funds is subject. It is important
to note, however, that there is no direct or established
relationship between balances of working capital items
and the pattern that future cash flows are likely to assume.
The AJC acting co-executive director, Marc Stern, was
quoted in Jewish Week (12/19/08) as saying that the
AJC “…took a loss that we would rather have not taken.
It’s not trivial, but it’s not fatal.” Stern said that the
AJC had two endowment funds invested with Madoff,
but its “…operating funds were safely invested elsewhere.”
Normally, a working capital ratio of 2.93 years is a
Sufficient cushion for a non-profit to fall back upon;
However, the reliability of this figure is now in question.
Depending upon the severity of its Madoff investments,
the AJC may not be in good position to weather the
present economic downturn.

Recommendations:
On the home page of its website, the AJC provides
access to its annual report of its accomplishments in
2008. This report, however, provides no financial
information. Due to the lack of financial transparency
on Wall Street, and by Madoff, the public has become
more selective to giving to non-profits. As the AJC has
received low ratings from Charity Navigator, the AJC
should re-issue its annual report and include financial
information. In addition, the AJC should also provide
easy access to its financial statements and tax returns.
The AJC should provide access to this information on
the homepage of its website, http://www.ajcongress.org.
Negative information is better than hidden information.
In order to keep the trust of its donors, the AJC needs to
be become more transparent about economic matters.

Next week’s blog: Just One Life