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Designations Processing

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

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Designations Processing

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  1. Designations Processing Financial Management and Human Resources Forum Atlanta – October 7, 2013

  2. Designations and “First Dollars In” – What Are the Pros and What are the Cons?

  3. 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%) Atlanta October 7, 2013

  4. 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) Atlanta October 7, 2013

  5. 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 Atlanta October 7, 2013

  6. First Dollars In: Examples Example 2: Over • UW allocates $25,000 to Agency A • Donordesignations total $30,000 to Agency A • Agency A receives 12 monthly payments, totaling $29,200 ($25K Allocation + $5K designations minusReq M and Pledge Loss rate) • Note: This has never happened Atlanta October 7, 2013

  7. 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) Atlanta October 7, 2013

  8. First Dollars In • Pros • Found donors thought they were being asked to choose • More dollars to allocate = more control • Less administrative time processing designations, verifying Patriot Act, etc. • Cons • Donors might circumvent UW to donate to Agency • Could result in decreased campaign total • Consider possible backlash if community is not receptive Atlanta October 7, 2013

  9. 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 Atlanta October 7, 2013

  10. Designations and “Separate Stream” – What Are the Pros and What are the Cons?

  11. 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. Atlanta October 7, 2013

  12. 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. Atlanta October 7, 2013

  13. 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 Atlanta October 7, 2013

  14. 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 thanMarch of following year) Atlanta October 7, 2013

  15. 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. Atlanta October 7, 2013

  16. Separate Stream: Does it Encourage Designations? • Pros • Could result in increased campaign total • Easier for recipient agencies to track and account for • Recipient agencies potentially receive more $ • Cons • More Designations • Fewer unrestricted dollars to allocate • More administrative time processing designations, verifying Patriot Act, etc. Atlanta October 7, 2013

  17. Methods of Applying Designations to Partner Agency Funding

  18. Methods to Apply Designations to Partner Agency Funding • A. First Dollar In • B. Separate Stream Atlanta October 7, 2013

  19. 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? Atlanta October 7, 2013

  20. 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. Designations $11,500 Atlanta October 7, 2013

  21. FIRST DOLLAR IN • Assumption: United Way Commitment each year is $25,000 Year 1 Year 2 $13,500 funded by United Way $16,000 funded by United Way $11,500 $9,000 Atlanta October 7, 2013

  22. FIRST DOLLAR IN • Assumption: United Way Commitment each year is $25,000 Year 3 Year 1 Year 2 $13,500 funded by United Way $16,000 funded by United Way $15,000 funded by United Way $11,500 $9,000 $10,000 Atlanta October 7, 2013

  23. SEPARATE STREAM Assumption: United Way Commitment each year is $15,000 Agency expects $25,000 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $0 UNITED WAY - $20,000 Designations $8,000 Fundraising/ Processing fees Year 1 $7,040 UNITED WAY - $20,000 Designa- tions $5,700 Year 2 $5,000 UNITED WAY - $20,000 Desig- nations $4,500 Year 3 $3,960 Atlanta October 7, 2013

  24. Our Plan for Making the Change from First Dollar In to Separate Stream: • 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. Atlanta October 7, 2013

  25. 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. • Average United Way payments to each partner agency for 3 or more years to estimate an annual allocation amount for each agency. • Communicate United Way funding to our partner agencies, explaining again that there may be a difference in overall funding for the current year. Atlanta October 7, 2013

  26. Our Plan for Making the Change from First Dollar In to Separate Stream: • 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

  27. Our Plan for Making the Change from First Dollar In to Separate Stream: • 7. Remind partner agencies again that designations will vary year by year. • 8. Hope we hit the target! Atlanta October 7, 2013

  28. I Received a Designation to A Non 501(c)(3) Organization – Now What?

  29. 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) Atlanta October 7, 2013

  30. Is There A Threshold for Paying Out Designations?

  31. 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. Atlanta October 7, 2013

  32. Membership Requirement “M” – Cost Recovery on Designated Gifts

  33. 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. Atlanta October 7, 2013

  34. 3 Types of Gifts to Charity Atlanta October 7, 2013

  35. 1. Outright Gift to Charity (Unrestricted, Temp-restricted, or Perm-restricted under GAAP) Atlanta October 7, 2013

  36. 2. Designated Gift (Agency Transaction under GAAP) Atlanta October 7, 2013

  37. 3. Donor Advised(Unrestricted under GAAP) Atlanta October 7, 2013

  38. Tax Deduction All The Same Outright Designated D.A.F. Membership Requirement M Only Applies to Designations Atlanta October 7, 2013

  39. 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 Atlanta October 7, 2013

  40. Standardized Maximum* Fees Two allowable fees: • Management & General (administrative) fee • 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 Atlanta October 7, 2013

  41. Maximum Management & General (administrative) Cost Recovery Rate Calculation • (unless an alternate fee sharing arrangement is in place) • M&G costs must be allocated in accordance with the UWW Functional Expense Standards Atlanta October 7, 2013

  42. 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. Atlanta October 7, 2013

  43. 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 Atlanta October 7, 2013

  44. 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 Atlanta October 7, 2013

  45. 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 Atlanta October 7, 2013

  46. 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 Atlanta October 7, 2013

  47. 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 Atlanta October 7, 2013

  48. 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) Atlanta October 7, 2013

  49. 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 Atlanta October 7, 2013

  50. For amounts raised in the PROCESSOR’S service area, the minimumcontent 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 Atlanta October 7, 2013

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