Corrections or additions?

This article by Bart Jackson was prepared for the December 4, 2002

edition of U.S. 1 Newspaper. All rights reserved.

Doing Good Without Being Bad: Eva Rose Bornstein

Urban legend assures us that the executive handcuffs

are reserved only for those greedy board members who mishandle funds

in their for-profit firms. But growing numbers of non-profit agencies

are finding that the Enron tarnish can easily rub off on even their

pristine image and good-hearted causes. To attract funds from an

increasingly

cynical public, non-profits are learning that like Caesar’s wife they

must be totally above any fiscal reproach.

Accountants, attorneys, and all non-profit professionals seeking to

eschew financial sloppiness and embrace IRS compliance are the

audience

for the full-day Non-Profit Conference sponsored by the New Jersey

Society of Certified Public Accountants (NJSCPA) on Thursday, December

5, at 8:30 a.m. at the Sheraton Woodbridge Place. Olympia

Dukakis

is the keynote speaker. Cost: $319. Register on-line at

www.NJSCPA.org.

The conference presents a broad range of legal and financial topics

including embezzlement, the IRS tax climate and new Yellow Book

updates,

the new environment of auditor independence and its problems, the

New Jersey non-profit tax landscape, preventing conflict of interest,

and fraud risk analysis.

Speakers include John Hall, North American practice director,

internal audits for Jefferson Wells International; W.A. Broadus

of W.A. Broadus Accountants; attorney Eve Rose Bornstein, who

runs a solo practice centering on non-profit needs in Minneapolis;

Frank Mahon, specialist for the New Jersey Division of Taxation,

and several others.

"What I typically see in non-profit charities," says veteran

attorney Bornstein, "is really, really well-intentioned people

doing really, really sloppy and almost fraudulent things." For

the past two decades she has labored to correct these nice, if

not-to-exacting

folks. Born and raised in Teaneck, she did her undergraduate work

at Brown and Rhode Island University, where she majored in women’s

studies and history. It was in the latter that she gained her first

taste of non-profit agencies, working in a battered women’s shelter.

After moving to the University of Minnesota for her legal degree,

she joined tax law specialists Ernst & Winney before opening her own

practice 14 years ago.

The problem, as Bornstein sees it, is that most charities are

receiving

not nearly enough of the spoken legal advice nor the accountants’

work on their books. And while board members may be frighteningly

hard-nosed business folk on their day jobs, many come to the

non-profit

table at night and morph into forgiving souls who allow every form

of due diligence to slide by. As a result, their marvelous cause may

find its fundraising ability brought up short in the face of some

newspaper expose. Bornstein warns all her non-profit accounts to guard

against her "standard list of blunders:"

The non-business, business manager. Too frequently

executive

administrators are selected on their abilities to do programs or fund

raise. Thus, while record numbers of homeless are being fed, the

accounting

takes a back seat. Books get done hurriedly and haphazardly by someone

who doesn’t really understand accounting or tax laws.

Forgetting to publish regular financial statements.

Increasing

pressures for greater accountability have made their way into the

charitable sector. Last April it was proposed before Congress that

the 1996 Internal Sanctions law be broadened and that even non-profits

be subjected to internal review. "This is more of a carrot than

a stick," insists Bornstein. "It would give your charity

credibility

to the donating public."

Too many charities make wish lists, instead of budgets. A full and

thoughtful financial statement, says Bornstein, helps the executive

administrator balance the checkbook and cover the immediate bills.

In the longer run, it helps keep the organization on financial track.

(If it is only May and you have already spent two-thirds of your

annual

budget, perhaps it is time to pull in your horns.) Finally, financial

statements for preceding years can be sliced and diced, helping the

board see the exact outlay for similar future projects.

Conflicts of interest. Imagine old Irv has been a board

member on your non-profit forever and owns the land on which your

charitable summer camp is annually held. Then one day he announces

that wife Irma is making him move to Florida and he must sell the

land. Instead of listing it through a real estate broker, he

graciously

offers to sell it to your non-profit for last year’s appraised value.

Everyone on the board nods and gratefully receives Joe’s generosity.

Done deal. Everyone except Bornstein, that is, whose head is shaking

in her hands. "Did anyone ever think to ask what the appraised

value was?" she asks. "Were realtors called to evaluate the

land and check for liens? Would you buy your new home based strictly

on last year’s appraisal?"

Such conflicts of interest occur frequently and range from

off-handedly

accepting this type of deal to hiring a director’s spouse. They are

not necessarily wrong and do not necessarily involve attempted fraud,

but they can undercut the charity’s integrity, and can place a

permanent

blot on your fund-raising capabilities. The solution is simple: always

get expert, objective comparisons; get two outside appraisals for

gifts; do a salary study as a matter of course. Upon hearing the

frequent

complaint of "such formality would offend our people,"

Bornstein

answers, "Imagine how not checking up would offend your

donors."

Just a little embezzlement. Everyone knows that non-profit

workers are paid less than peers in the for-profit sector. Thus, when

Henry collects $118 in expenses for the Atlantic City conference he

never attended, the tendency is let it slide. It can be written off

as a "perk" for all his good work. In the for-profit sector,

Henry would have some explaining to do, but too many charity

administrators

can’t be bothered enforcing integrity and allow these occasional

bonuses.

Sticky fingers also tend to develop when checks are signed by

individuals

not officially with the organization. Members tend to rotate in and

out of non-profits, and often, board members officially retire, but

for convenience sake keep on running some aspect of the program.

Eventually

these semi-outsiders may end up collecting dues or fees, and storing

them in their account or desk drawer. Hopefully everything gets

returned

into the company’s pot, but, says Bornstein, that is not always the

case.

In the end, notes Bornstein, it is not the IRS that will prove

your greatest nightmare. During this past fiscal year, 90,000 501C

tax-exempt status forms were submitted to the 800 IRS workers in the

non-profit division. They are truly inundated. "However,"

she warns "your charity is still being watched. Ever-more diligent

consumers are getting on their computers and looking up your agency’s

financials before giving. If they see blanks or contradictions, they

turn you down."

Be efficient, says Bornstein, and show donors you’re efficient. Your

reputation will continue to shine and chances are that you will pull

in a more cash, enabling you to do a lot more good.

— Bart Jackson


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