Define the nonprofit sector or the third sector
Organizations that do not exist primarily to generate profits for their ownersThe nonprofit sector is the collective name used to describe institutions and organizations that are neither government nor business. Outside the United States, nonprofits are often called nongovernmental organizations (NGOs) or civil society organizations. Characteristics include having volunteers operate the organization, are tax exempt and are very board driven
Identify the characteristics that organizations in the nonprofit sector share with those in the public and private sectors, and the characteristics that are unique to nonprofit sector (and thus define it)
Share: Private, self-governing, formal organization, source of revenues, diverse Unique: Non-profit-distributing, voluntary, of public benefit, donations as a source ofrevenue
Use indicators to illustrate the importance of the nonprofit sector to the U.S. economy (list up to four indicators/numbers)
- 1. Number of nonprofits: 1.1m to 1.4m in ten years (95 to 05)
- 2. Growth rate: Grew 27.3 percent
- 3. Percent of GDP: 5%
- 4. Revenue: $1 trill
- 5. Percent of economy’s wages: 8.1% 6
- . Percent of jobs: 9.7% of jobs
List any three factors that historically have fostered the growth of the nonprofit sector in the U.S.
- Government policies and privatization
- Evolution of laws and regulation (Poor Laws, tax exemption, estate tax, etc.)
- Golden Age philanthropy
- Emergence of the voluntary role
List and explain three theories of the nonprofit sector
- Public Goods Theory:
- Non-profits are formed because of government failure. Gov only serves median voter so some people get left out on public goods.Thus, people will create voluntary organizations to provide collective goods.
- Market Failure Theory:
- Non-profits form because as a result of market failure. Not enough demand for the good for a private market to sustain while providing it, so non-profit organizations have to because they have access to private donations and can be exempt from taxes.
- Subsidy theory:
- Non-profits are encouraged because of the government subsidies that are available to them, such as direct government funding, the tax exemption, lower postage rates, etc.
Define “non-distribution constraint”
- Non-profits aren’t allowed to distribute its profits to its overseers
- states that a nonprofit organization is prohibited from distributing its net earnings among individuals who oversee the organization. This includes board members, staff, and directors.
Define and compare 501(c)(3) and 501(c)(4) NPOs.
- 501(c)(3): Religious, charitable, education, scientific, literary purposes. Can’t be very involved in political activity.
- 501(c)(4): Civic leagues, social welfare orgs, etc. Can lobby but not tax- deductible donations.
List four sub-sectors of NPOs and explain why they’re important
Education: (2nd largest component of NP sector)elementary and secondary education, higher education, vocational education, library services.
Arts, Culture, Humanities: (smallest NP sector)
Health: (non-profits are most prominent in this sector)hospital care, in-home or outpatient clinic care, nursing home care, and health insurance
Human Services: (largest NP - largest # of organizations)day care services, adoption assistance, foster care, care for ederly, emergency food assistance, etc.
What are the main revenue sources of NPOs and how are the revenue sources different among the four sub-sectors?
- Other Income
Education: state & local government, private fee, donation
Arts, Culture, Humanities: ticket sales, endowment earnings, private philanthropy, government.
Health: government, private donations, private pay
Human Services: fees, service charges, government, private donations, volunteer support
Explain the basic organizational difference between (1) ASU; (2) Stanford; (3) the University of Phx
ASU: (public university) revenue comes mostly from the government
Stanford: (nonprofit university)
- University of Phx: (private university) revenue comes mostly from tuition
- (1) Arizona State University
- - ASU is a public university. A public university is a university that is predominantly funded by public means through a national or subnational government, as opposed to private universities
- (2) Stanford University
- - Stanford University is a private / nonprofit university. Private universities are universities not operated by governments, although many receive public subsidies, especially in the form of tax breaks and public student loans and grants. Depending on their location, private universities may be subject to government regulation. Private universities are comparable to public universities and national universities
- (3) University of Phoenix
- - For-profit education (also known as the education services industry or proprietary education) refers to educational institutions operated by private, profit-seeking businesses. University of Phoenix is is a for-profit institution – a wholly owned subsidiary of Apollo Group Inc. and publicly traded.
List the key requirements/components of the articles of incorporation in AZ
The name of the AZ corporation
A brief statement of the character of its intended activity
The name, address, signature of each incorporator
The name, street address and signature of the corporation’s statutory agent
The name and address of each person who is to serve as a board of director until a successor is elected or qualifies
The street address of the known place of business for the corporation
Whether or not the corporation will have member
List the key benefits of obtaining a 501(c)(3) status
Exempt from fed income taxes
Donations can be deducted
People wouldn’t otherwise donate if they couldn’t get deduction
Indicates minimum amount of accountability
May self-insure for complying with unemployment compensation laws
Exempt from certain state taxes
What information of a nonprofit organization is subject to public discourse?
Financial information (1099)
The organization’s exemption application
The organaization’s approved application with supporting documentation & any letter/document issued by the IRS concerning the application
Three most recent annual tax returns (Form 990, Form 990-EZ, Form 990-PF, etc.)
Donors (name, address) to private foundations and political organizations are subject to public inspection
What additional information is needed to form a membership nonprofit in AZ?
Criteria for admission of members
Continuation of membership
Rights and obligations of members
Annual membership meetings
Must notify members of time and date of meeting at least 10 days but no more than 60 days before meeting
Members are not personally liable for the acts, debts, liabilities or obligations of the corporation.
Compare and contrast nonprofit and for-profit boards
- Size: 30-50 people
- Composition: community leaders, public servants make up the board
- Degree of dissension: more common in nonprofit HR
Level of operating function: usually more broad for Nonprofit HR
What are the main responsibilities of board members?
- 1. Select and evaluate the Chief Executive Officer
- 2. Define and reevaluate the mission of the organization
- 3. Develop a plan for the organization
- 4. Approve budgets
- 5. Fundraising and planning special events
- 6. Public Relations within the community
List up to three indicators we can use to measure board effectiveness.
- Understands institutional context
- Builds capacity for learning
- Nurtures the board itself
- Recognizes complexities, respects process and is future oriented.
- The existence of a common vision. (pg. 85 OSTER)
List the pros and cons of charging fees
- May give bad image
- Can discourage people a way to generate revenue/make the program sustainable
- more diversification of funding sources beyond just searching for grant
Why should a nonprofit organization diversify its revenue sources?
Changes in the environment
Reduces product cost
Promotes earning stability and growth ability
List the pros and cons of homogeneous vs heterogeneous boards
Oster, Pg. 79
List the four categories of giving used by Giving USA annual giving report
- Charitable bequests
- Individual giving
- Corporate giving
- Foundation grants
- (estimated at $303.75 billion in 2009)
List four socio-demographic characteristics that affect an individual’s charitable giving behavior and explain how each characteristic is related to giving
- 1. Income (people on the lower and higher ends of the income range tend to donate a greater percentage of their income, while those in the middle tend to give the least percentage)
- 2. Education (people who have completed more school tend to give more money)
- 3. Presence of children (people with children are more likely to donate money that will be reinvested into their community)
- 4. Race (research has found that certain races or ethnicity are more likely to put their money into programs that their cultures place high importance in)
List four reasons people give/don’t give
- 1. Makes them feel good
- 2. Guilty about what they have
- 3. No relationship to the cause (don’t give)
- 4. They are not asked (don’t give)
List five fundraising strategies
- 1. Foundations
- 2. Direct Mail
- 3. Businesses
- 4. Telephone Solicitation
- 5. Government Grants
What is the most efficient type of fundraising strategy?
- Major gift fundraising
- efficiency: total revenue/ total cost (cost benefit ratio)
Compare nonprofit and for-profit sector HR management
- - Compensation: For-profit HR paid more
- - Job structure: tax independence and schedule flexibility in nonprofit HR
- - Motivation: For-profits have incentives contracts, nonprofits rarely have them
- - Mission: Nonprofits are mission-driven, for-profits are money-driven
- - Hierarchy: Nonprofits are autonomous, for-profits are controlled
List up to four key federal laws and regulations on HR management
Taxpayer Bill of Rights 2: allows the IRS to tax nonprofits if the CEO is paid significantly higher than the rest of the employees.
Equal Pay Act of 1963: Men and women get equal pay. (nonprofits: women’s pay is more equal to men’s than the business sector).
Civil Rights Act of 1964: Anti-discrimination in hiring/interview process. Certain questions are illegal to ask, such as country of origin, religious beliefs, sexual orientation, etc.
Fair Labor Standards Act of 1938: employees paid for overtime
Immigration Reform and Control Act of 1986: Must be legal U.S citizen-- illegal worker.
Family and Medical Leave Act of 1993: Allows employee to take six weeks paid leave then six more unpaid (family or health reasons).