Cost Deduction Standards for Membership Requirement M

Transcription

1 Cost Deduction Standards for Membership Requirement M Page 1 of 52

2 Approved by FIC November 2004 Endorsed by NPC December 2004 Revised July 2012 COPYRIGHT UNITED WAY WORLDWIDE 2012: United Way Worldwide member organizations may make unlimited copies for their own internal purposes, provided the copyright attribution ("Copyright United Way Worldwide 2012") is retained on materials reproduced. No modifications or reproduction by non United Way Worldwide members is permitted without prior written approval. Page 2 of 52

3 Table of Contents Executive Summary 4 Significant changes from prior versions Introduction 11 Section 1 Cost Recovery Standards...12 Formulas Used in Determining Costs o Fundraising Cost Recovery o Management & General Cost Recovery Collection Loss Tax Receipts Using a 3 rd Party to Process Pledges Application Scenarios Campaign Example #1 Processor is also a Fundraiser Campaign Example #2 Multiple United Ways share in Fundraiser Role Section 2 Reporting Standards...19 Communication Prior to the Campaign o Roles and Responsibilities o Establishment of Alternate Cost Deduction Arrangements o Payment Methodologies Communication During the Campaign o To Other United Ways o To Agencies o To Donors Communication with Payments o Pledge Payments o Payment of Fundraising Fees Other Fees Charged on Gifts Transferred Appendix A General Comments and Basis for Conclusions 32 Appendix B Examples Pledge to Comply with Requirement M...38 Appendix C Sample Letter to Verify Fundraising Roles..39 Appendix D Sample Letter for Fee Sharing Arrangements...40 Appendix E Sample Campaign Report.41 Appendix F Sample Remittance Report...43 Appendix G Sample Letter to 1 st Dollar United Way s Member Agencies...45 Appendix H Handy Guide to Required Communications.46 Acknowledgements...47 Page 3 of 52

4 United Way Worldwide Cost Deduction Requirements Executive Summary for Requirement M Cost Deduction Standards In January 2003, the Board of Trustees of United Way Worldwide adopted the Eligibility Criteria for Sustained Membership in the United Way System, which included a requirement for the creation of uniform standards for deducting Fundraising and Management and General (M&G) expenses from donor pledges. The Financial Issues Committee (FIC) of United Way Worldwide was charged with creating a standard calculation for recovering actual costs and publishing a set of standards for compliance with Requirement M by United Way boards and staff. This document is intended to fulfill that charge. While originally issued in 2004/2005 as two distinct documents, the Financial Issues Committee combined them into this single standards document in In addition, a number of updates were made in order to reflect current challenges (not contemplated in the original standards) and best practices that have developed among the United Way members over time. Overall, the goal of these standards is to improve overall efficiency and consistency for United Way pledge processing and designation payments. The overall purpose of Requirement M is to assure the public that: 1. Donors are charged no more than the actual cost incurred to process and transfer designated gifts. 2. There are no duplicative charges or redundant services assessed to the donor. 3. All United Ways have a consistent, fair and understandable methodology for calculating and recovering fundraising, processing, and management and general expenses on designated donations. In order to achieve those purposes, it is necessary to first determine what actual costs are for a United Way and then to build a standard reporting structure among organizations such that each participant in the process understands their role and how the funds will flow to/from them. Thus this document is divided into two sections: Section 1 Cost Recovery Standards Section 2 Reporting Standards Page 4 of 52

5 Key elements of Section 1 Cost Recovery Standards 1. Fundraising (see page 12 for more detailed information): Cost recovery for fundraising expenses, including providing staff support, pledge cards, videos, awards, supplies, etc. is to be deducted at a rate not to exceed a three year average calculated from the most recently filed 990 tax forms. The formula for the maximum percentage to be applied for fundraising costs will be calculated as follows: Numerator = Total Fundraising Costs (Part IX, Column D, line 25) Public Sector Campaign Fundraising Costs Denominator = Total Direct Public Support (Part VIII, line 1(c&f)) less any grants for which related costs are recorded in Program Services (within Part IX, line 25) If a United Way other than the United Way entitled to this fee (the Manager/Fundraiser) is the party paying out designated contributions (the Processor), the Processor shall deduct such fundraising costs (based upon their own calculation above) and remit such amounts to the Fundraiser, the frequency and methodology of which is explained in section 2 of this document Where both United Ways incur fundraising costs, an agreement must be made prior to beginning the campaign as to how the fee deducted will be shared by both. In the absence of an alternate mutual agreement between two or more United Ways, the determination of Manager/ Fundraiser and Processor should be made using the NPC guidelines for reporting of amounts raised (as found in the document titled NPC Policy for Reporting Total Resources Generated to United Way Worldwide), consistent with the methodology for reporting of campaign results. 2. Management and General Expense (see page 13 for more detailed information): The formula for the maximum percentage of Management and General cost to be applied will be calculated as follows: Numerator = Total Management & General Costs (Part IX, Column C, line 25) Denominator = Total Revenue (Part VIII, line 12) This deduction may only be taken by the first party processing a designation. If a United Way elects to have designations sent to them by another United Way rather than having payments made directly to the recipient agency, the second United Way may not deduct any fees. Note that these calculations provide the limits, not to be exceeded. Page 5 of 52

6 3. Governing Board Disclosure (see page 13 for more detailed information): Designation Policy and Cost Recovery The decision to permit designated gifts rests with each United Way s governing board. Thus it follows that the decision on what fee, if any, a United Way will assess to recover its costs for handling designated gifts is taken by its governing board. In cases where United Way governing boards do not approve recovery at the organization s maximum allowable rate under these standards, the board should understand the net effect is that undesignated gifts are subsidizing designated gifts. Irrespective of the calculation itself or the party recovering the costs, the requirement of this Standard is that only one United Way may charge for fundraising and only one United Way may charge for M&G. 4. Collection Loss (Shrinkage) (see page 14 for more detailed information): to be deducted by the processor using one of the following methods, in the order of preference: a. Actual amount by individual donor b. Actual amount by individual company c. Estimated loss experience based on a three year average for the most recently closed campaigns by individual company d. Estimated loss experience based on a three year average for the most recently closed campaigns of the United Way All United Ways are encouraged to take the steps necessary to be able to use method A or B. Methods C or D should only be used when the limitations of the United Way s human and technical systems make following methods A or B impossible or impractical. These standards, while applicable to all designated contributions, are particularly critical when the Fundraising and M&G responsibilities are shared by multiple United Ways. In order to provide consistency to the donor and the general public, these standards may have disadvantages for some United Ways, but have been set forth in the best interest of the system overall. Key elements of Section 2 Reporting Standards 1. Communication Prior to the Campaign (see page 19 for more detailed information): Communication prior to the campaign may be required for a number of reasons, but is primarily necessary to clarify processes and ensure that all parties have the appropriate information necessary to achieve an effective campaign. 2. Roles and responsibilities (see page 19 for more detailed information): If a processing United Way is not also the fundraising United Way (defined in accordance with the NPC Policy for Reporting of Total Resources Generated to United Way Worldwide), the processor must reimburse the fundraiser for the costs associated with those services in accordance with the Page 6 of 52

7 maximum calculation set forth in Section 1. In certain cases, however, a processor may process a regional or national campaign in which the United Way has virtually no involvement in the fundraising efforts and all United Way parties acknowledge/agree that this is the case. In such cases, it is incumbent upon the processing United Way to confirm the role of the other United Way(s). In the absence of such confirmation, the presumption is that the other United Way is entitled to the fundraising fee and it must be remitted accordingly by the processor. 3. Establishment of alternate cost deduction arrangements (see page 20 for more detailed information): When a United Way serves as the processor of a campaign for which that United Way was not also the fundraiser, the reimbursement to the fundraising United Way for those services must be provided at the maximum rate. This is the default position and alternate fee-sharing arrangements are permissible, so long as only one fundraising fee and one management and general fee is deducted and assuming the agreed upon rate does not exceed the maximum allowable rate of the processor. Either United Way may initiate a request for an alternate arrangement, but, unless otherwise mandated by the Company (donor), the processing United Way has the ultimate authority for approving such an arrangement. 4. Payment methodologies (see page 20 for more detailed information): The default assumption is that dollars will be paid directly to the recipient agency, with the other United Way being paid the appropriate fundraising cost deduction for only those amounts raised in the other United Way s service area (including designations to agencies). As such, communication is required whenever dollars will not be paid directly to the recipient agency prior to the start of the campaign. The processor may wish to not pay directly to agencies, but rather to pay through the other United Way. In such cases, however, the other United Way can require the processor to pay dollars directly to the agency to avoid incurring additional processing costs. The processor must honor such a request and continue to provide the appropriate reporting to the other United Way in accordance with the requirements specified below in order to allow the other United Way to report appropriately to United Way Worldwide. In cases where such a request is made and honored, the other United Way must supply their agency file to the processor, upon request, in order to make such payments. If the other United Way wishes to have dollars raised in their service area paid through them, the other United Way must proactively contact the processing United Way to request this. Honoring this request, however, is at the sole discretion of the processor. 5. Reporting during the campaign (see page 21 for more detailed information): Reporting during the campaign consists of reporting to other United Ways, agencies and donors. These requirements address the issues of timing, frequency and also content a. To Other United Ways i. For Dollars Raised in the Processor s Service Area and Designated to another United Way - The value of this reporting to United Way is primarily to disclose dollars coming to the United Way as undesignated funds, i.e. designated to the United Way from the processor s service area. Page 7 of 52

8 ii. For Dollars Raised in the other United Way s Service Area - Information regarding amounts raised in another United Way s service area must be reported to that United Way in order to allow them to be included in campaign results in compliance with NPC reporting guidelines. iii. The other United Way s service area may be combined, so long as it is clear to the agency as to the United Way from whom they will be receiving the payment. This is critical in order to prevent an agency from reporting duplicate revenue when one United Way reports the pledge and another United Way pays that pledge. b. To Donors - Reporting to donors is primarily a customer service aspect of the United Ways and the cost deduction standards do not specifically address requirements related to donor reporting. Even so, several reporting guidelines (some required and some recommended) are suggested for consideration. 6. Payments (see page 28 for more detailed information): a. Pledge Payments (To Other United Ways and Agencies) - This document addresses timing and frequency, minimum payment amounts and information to accompany the payment. b. Payment of Fundraising Fee Cost Deduction to Another United Way - A fundraising fee must be charged by the processing United Way on amounts raised outside its service area by another United Way (the fundraiser) unless an alternate written agreement is in force. As such, these fees must be deducted from amounts collected and must be transferred to the fundraiser periodically, as outlined below. These requirements address the issues of timing, frequency and content. Summary of significant changes from prior versions: 1. Does using a 3 rd party processor automatically exempt you from having to follow these standards? No, the following wording was added to the document to indicate if the United Way contracts directly with the 3 rd party processor for services, then the United Way must require the processor to comply with these standards as part of the contract terms (see page 12): However, if the United Way engages a third party (e.g. an external pledge processing company or another United Way that offers pledge processing services to other organizations) then these standards will serve as guidelines which should be applied whenever they do not contradict the terms of the contract the United Way has with the processor. For more information on application of these standards when not processing pledges in house, please see the section titled Using a 3 rd Party to Process Pledges below. Page 8 of 52

9 2. Can a United Way serving as a 3 rd party processor for another United Way charge a rate for services greater than their maximum calculated cost recovery rate under this requirement? Yes, the following section was added to the document to indicate that provided that the net resulting cost to the designated organization is less than the cost they would have been assessed were the United Way (not the processor) to have done the processing themselves (see page 15): It is the intent of Requirement M to ensure pledge processing and fund distribution is accomplished as efficiently and at as low a cost as possible so the maximum value of each donation can be dedicated to mission related work rather than administrative costs. For this very reason it is not uncommon for a United Way to seek to outsource functions like pledge processing, collection, and distribution of funds to a 3 rd party who can reduce the overall cost of these activities. Because these are considered arms-length contractual relationships, the maximum cost recovery rates defined in this document do not apply, provided that the rate paid to the 3 rd party processor is based on prevailing local market rates for such services. There are also situations where the employer company agrees to pay the cost of processing directly to a 3 rd party processor, thus ensuring that the full amount of the employee donation is passed on to designated organizations. In this situation, the contract terms between the company and the processor dictate the rate charged and the maximum cost recovery rates in this standard do not apply because the overall result is a lower cost to the designated organization. These two exceptions apply regardless of whether the 3 rd party processor involved is external to the United Way system (for example a for-profit processor like Truist) or another United Way, so long as the end result is a lower overall cost to the designated organization. Notwithstanding the above cost recovery rate exception, when engaging a 3 rd party processor, United Ways are required to ensure that the contract terms reflect the spirit and intent of all of the rest of these standards outlined in this document. In other words, when a member United Way outsources pledge processing, it does not relieve that member from ensuring compliance with the reporting, payment, and other standards outlined in this document. 3. Is there some way we can standardize the format of ACH coding, build a national code database, or at least better communicate ACH codes among ourselves to make it easier to figure how where electronic funds transfers are originating from? Yes, the following bullet points were added in several places to the document to standardize and require disclosure of ACH codes when communicating other campaign & payment information between organizations (see pages 23, 25, 26, 29 and 31): Expected date of first payout Paying United Way s standard ACH code (if payments are to be made by electronic funds transfer) Page 9 of 52

10 4. May a United Way make distribution payments less than quarterly if a recipient refuses to accept the United Way s primary/preferred payment method? Yes, the following bullet points were added to the document to allow for semi-annual distributions when the recipient refuses to accept the primary/preferred means of payment offered by the payor (see pages 28 and 31): If the recipient organization insists on payment in a form other than the payor s primary/preferred means of transferring funds, then the payor must take reasonable steps to accommodate that request and may pay less frequently but no less than semi-annually. For example: if the United Way s primary/preferred transfer method is via electronic funds transfer and the recipient insists on a hard copy check, then the payor may pay that organization semi-annually rather than quarterly. The first payment must be made no later than June 30 th If the cumulative amount due to an organization at any scheduled payment date is less than $1,000, then the payor may pay less frequently, but no less than annually (paid no later than March 15 th of the following year) and no less than the full amount due, even if less than $1,000. This document supersedes the related elements of the following previously issued standards: Transfer Pricing Guidelines for the United Way System issued June 1995 Guidelines for Pricing and Processing Agency Designations issued May 1996 United Way Transfer Fee Ceiling and Fee Splitting for Donor Designations issued January 1998 Designation Processing Guidelines issued April 2001 Cost Deduction Requirements for Membership Standard M (part 1) Issued December 2004 Cost Deduction Implementation Requirements for Membership Standard M (part 2) Issued December 2004 Page 10 of 52

11 United Way Worldwide Cost Deduction Standards MEMBERSHIP REQUIREMENT M Each local United Way that is a member of United Way Worldwide will adhere to the following cost deduction standards on designations (agency transactions): A. United Ways will charge fees based on actual expenses B. United Ways will not deduct fundraising or processing fees from designated gifts originating by or from another United Way organization. Introduction The overall purpose of this standard is to assure the public that: 1. donors are charged no more than the actual cost incurred to process and transfer gifts, 2. there are no duplicative charges or redundant services assessed to the donor, and 3. all United Ways have a consistent, fair and understandable methodology for calculating and recovering fundraising, processing, disbursement, management and general expenses on designated donations (agency transactions). The United Way Worldwide Financial Issues Committee (FIC) therefore recommends, as an assurance to donors of each United Way s commitment to these standards, that member organizations publish a pledge to adhere to these standards in campaign literature and as a footnote to their Audited Financial Statements. Examples of wording of such a pledge are included in Appendix B at the end of this document. This document is written in a manner that promotes and demonstrates direct payment of designations to agencies. However, it should be noted, this document does not require use of the direct payment method. The FIC recommends each United Way consider the best interest of its donors and community relative to the issue of direct payment. Regardless of the choice made, only one United Way is allowed to deduct a fundraising fee and only one United Way is allowed to deduct a management and general fee relative to any gift. In the absence of an alternate mutual agreement between two or more United Ways, the determination of Manager/Fundraiser and Processor should be made in accordance with the document titled NPC Policy for Reporting Total Resources Generated to United Way Worldwide and consistent with the methodology for reporting of campaign results. If the direct payment method is used, then such payments must be reported to the other fundraising United Ways on a timely basis. While this document does not address every conceivable scenario, it does give specific requirements for the more common paths that funding takes within the United Way system. For those situations where the requirements do not specifically address a particular path of funding, it is assumed that United Way members will follow a course that is consistent with the spirit of this document. Page 11 of 52

12 Section 1 Cost Recovery Standards The following cost deduction requirements are designed to assist United Ways in determining how to calculate cost recovery rates to be applied to amounts their United Way raises and/or processes in house. However, if the United Way engages a third party (e.g. an external pledge processing company or another United Way that offers pledge processing services to other organizations) then these standards will serve as guidelines which should be applied whenever they do not contradict the terms of the contract the United Way has with the processor. For more information on application of these standards when not processing pledges in house, please see the section titled Using a 3 rd Party to Process Pledges below. Formulas Used in Determining Costs References in formulas to items from Internal Revenue Service information return 990 are to be calculated using the average of the last three most recently completed returns. These cost deduction rates may be applied to gross pledges and deducted up-front or deducted ratably based upon collections. It is also important to note that these standards are not intended to apply to Combined Federal or other public sector campaigns (state/local governmental unit campaigns) where the allowable fees are negotiated in advance, so long as those fees do not exceed actual costs. 1. Fundraising Cost recovery for fundraising expenses, including providing staff support, pledge cards, videos, awards, supplies, etc. is to be deducted at a rate not to exceed a three year average calculated from the most recently filed 990 tax forms. The formula for the maximum percentage to be applied for fundraising costs will be calculated as follows: Numerator = Total Fundraising Costs (Part IX, Column D, line 25) Public Sector Campaign Fundraising Costs** Denominator = Total Direct Public Support (Part VIII, line 1(c&f)) less any grants for which related costs are recorded in Program Services* (within Part IX, line 25) *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, and other State/local governmental unit campaigns where the allowable fees are negotiated in advance) 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 (see Appendix A for further discussion). NOTE: Line numbers on IRS Form 990 change frequently, users of this document should check the United Way CFO Deskbook section of United Way Online regularly for updated formulas Page 12 of 52

13 If a United Way other than the United Way entitled to this fee (the Manager/Fundraiser)is the party paying out designated contributions (the Processor), the Processor shall deduct such fundraising costs (based upon their own calculation above) and remit such amounts to the Fundraiser which is explained in section 2 of this document. In the absence of any alternate agreements to the contrary (e.g. mutual agreement between United Ways or if the company insists on a different cost recovery method/rate), the processor must collect a fundraising fee on behalf of all other United Ways who are deemed fundraisers for dollars raised outside of the processor s service area. It may not always be the case that the United Way truly has shared or performed the fundraising. As such, it is suggested that the processor verify this prior to transferring this deduction to the United Way. However, in the absence of such verification, the rebuttable presumption is that the other United Way is the fundraiser/manager of the funds that were raised in their service area. 2. Management and General Expense The formula for the maximum percentage of Management and General cost to be applied will be calculated as follows: Numerator = Total Management & General Costs (Part IX, Column C, line 25) Denominator = Total Revenue (Part VIII, line 12) Cost recovery for donor-designated funds distribution is to be deducted at a rate not to exceed a three-year average calculated from the most recently filed 990 tax forms. Governing Board Disclosure: Designation Policy and Cost Recovery The decision to permit designated gifts rests with each United Way s governing board. Thus it follows that the decision on what fee, if any, a United Way will assess to recover its costs for handling designated gifts is taken by its governing board. In as much as a generally applied percentage method may not be considered fair to larger donors, who end up bearing the cost of processing smaller donations, some United Ways may have to consider a community level policy for placing a cap on the fee by transaction or a minimum limit on the dollar amount of designations. In cases where United Way governing boards do not approve recovery at the organization s maximum allowable rate under these standards, the board should understand the net effect is that undesignated gifts are subsidizing designated gifts (in other words, undesignated gifts given in support of United Way s impact mission-related work are being used to offset unrecovered costs for the processing of designated gifts that may or may not be going to organizations/programs that are in alignment with the United Way s impact mission work). Therefore, while alternative rate structures are acceptable, care must be taken to ensure that the resulting fees do not exceed the maximum calculated above and the amount of undesignated dollars used to subsidize such policies is fully disclosed to the Board. Page 13 of 52

14 Irrespective of the calculation itself or the party recovering the costs, the requirement of this Standard is that only one United Way may charge for fundraising and only one United Way may charge for M&G. Collection Loss (Shrinkage) Uncollectible pledges, just like bad debts in a for-profit, are unfortunately a normal part of doing business for a United Way. However, unlike in a for-profit, uncollected pledges do not represent an expense to the organization, rather they are considered a contra-revenue under GAAP. For this reason, it is important for United Ways to refrain from using terms like uncollectible fee when referring to pledge losses on designated gifts because such terms imply that they are a source of revenue for the United Way Deductions for collection loss (shrinkage) shall be based upon actual collections using one of the following methods: A. Actual amount by individual donor B. Actual amount by individual company C. Estimated loss experience based on a three year average for the most recently closed campaigns by individual company, taking into account any change in current circumstances D. Estimated loss experience based on a three year average for the most recently closed campaigns of the United Way, taking into account any change in current circumstances Methods are listed in order of preferred application and all United Ways are encouraged to take the steps necessary to be able to use method A or B. Methods C or D should only be used when the limitations of the United Way s human and technical systems make following methods A or B impossible or impractical. Tax Receipts For donor designated gifts, the question often arises as to which entity should properly issue documentation of a tax deductible gift, the United Way who handles the money or organization that ultimately receives it? While another document (United Way Tax and Receipting Guidelines for Charitable Contributions - Substantiation and Disclosure Requirements) provides detailed information regarding the various aspects of tax documentation, it is important to note here that the tax confirmation/receipt should be provided by the first organization receiving the donor s payment, not the organization to whom it is ultimately distributed. The tax confirmation is meant to substantiate the payment between the donor and the party to whom a payment was made. This is the only party that can completely and accurately substantiate the donor s payment, since this is the only party receiving funds directly from the donor. IRS regulations (1.170A-13T(c)) state that a charitable organization that initially receives the donor contribution is recognized by the IRS as the donee organization, even if, upon donor instruction, that organization distributes the amount received to one or more other charitable organizations. This is not to be confused with an acknowledgment or thank-you letter, which may be sent by any and all United Ways or agencies that benefit from the donor s gift. Page 14 of 52

15 Using a 3 rd Party to Process Pledges It is the intent of Requirement M to ensure that pledge processing and fund distribution is accomplished as efficiently and at as low a cost as possible so that the maximum value of each donation can be dedicated to mission related work rather than administrative costs. It is not uncommon for a United Way to seek to outsource functions like pledge processing, collection, and distribution of funds to a 3 rd party who can lower the overall cost of these activities. Because these are considered arms-length contractual relationships, the maximum cost recovery rates defined in this document do not apply, provided that the rate paid to the 3 rd party processor is based on prevailing local market rates for such services. There are also situations where the United Way is able to get the employer company to agree to pay the cost of processing directly to a 3 rd party processor, thus ensuring that the full amount of the employee donation is passed on to designated organizations. In this situation, the contract terms between the company and the processor dictate the rate charged and the maximum cost recovery rates in this standard do not apply because the overall result is a lower cost to the designated organization. These two exceptions apply regardless of whether the 3 rd party processor involved is external to the United Way system (for example a for-profit processor like Truist) or another United Way, so long as the end result is a lower overall cost to the designated organization. Notwithstanding the above cost recovery rate exception, when engaging a 3 rd party processor, United Ways are required to ensure that the contract terms reflect the spirit and intent of all of the rest of these standards outlined in this document. In other words, when a member United Way outsources pledge processing, it does not relieve that member from ensuring compliance with the reporting, payment, and other standards outlined in this document. Application Scenarios Equally as important as knowing how to perform the cost deduction calculations, is the understanding of how and when to apply them. Following are multiple scenarios in which funds are raised and distributed between multiple United Ways. Scenario #1: Designations raised and processed by your United Way A United Way that raises and processes pledges designated to agencies or other United Ways shall deduct and retain fundraising costs, management and general costs (including processing costs) and actual or estimated collection loss (shrinkage) in accordance with the guidance contained herein. Page 15 of 52

16 Scenario #2: Designations processed by your United Way on behalf of other United Ways (e.g. campaigns that cross multiple United Way service areas): A United Way that processes pledges on behalf of itself (the processor) and other United Ways, but distributes those funds directly to the end recipient shall deduct fund raising costs, general management costs, and collection loss (shrinkage) on behalf of themselves and all other participating United Ways (fundraisers). The processor may retain the deducted management and general costs deducted but the deducted fundraising costs must be remitted to the managers/fundraisers. The frequency and other logistics related to these remittances are covered in section 2 of this document. These fees will be deducted and remitted at the maximum fundraising calculation of the processor, which may be different from that of the fundraiser. Despite the risk that there may be some disparity between these rates, this policy has been established for ease of administration for the benefit of the overall system. The manager/fundraiser to receive the fundraising deduction should be determined based upon the NPC s reporting policies, as previously discussed. Alternate arrangements between United Ways are permitted, so long as the arrangements are documented and only one United Way deducts each fee. Scenario #3: Designations received by, but not raised or processed by, your United Way: A United Way that receives designated pledges from another United Way s service area, where the other United Way has already deducted Fundraising costs, Management & General costs, and a provision for uncollectible pledges may not charge any fees to recover costs related to Fundraising, Management and General or collection loss (shrinkage). Since the recipient United Way may not charge any processing cost recovery fees, they may wish to consider asking the originating United Way to pay designations to local agencies directly as a method of reducing overall unreimbursed cost. The recipient United Way may, however, charge a reasonable fee to recover Community Service/Impact costs for fund allocation of undesignated dollars received. Page 16 of 52

17 Campaign Example 1 Processor is also the fundraiser Assumes no grants or public sector campaigns (i.e. CFC and other state/local governmental unit campaigns where the allowable fees are negotiated in advance) 1 Model United Way raises pledges from Star Company within its service area that are designated to Neighbor United Way and pledges that are designated to an agency in Neighbor United Way's service area. 2 $1,000 is designated to Neighbor United Way and $800 is designated to the agency in Neighbor United Way's service area. 3 Model United Way did all the fundraising and processing relative to the campaign (e.g. Neighbor UW played no role). 4 Model United Way experiences an actual collection loss rate (shrinkage) of 5% for Star Company. 5 Following is selected information for the IRS Form 990 returns for Model United Way for 2009, 2010 & Average Total Direct Public Support (Part VIII, Line 1(c&F)) $15,745,683 $16,401,753 $17,749,276 $ 16,632,237 Total Revenue (Part VIII, Line 12) $18,042,293 $18,794,055 $20,484,142 $ 19,106,830 Total Management & General (Part IX, Column C, Line 25) $ 317,362 $ 327,177 $ 337,296 $ 327,278 Total Fundraising (Part IX, Column D, Line 25) $ 1,342,759 $ 1,384,288 $ 1,269,824 $ 1,332,290 Calculations: Average fundraising cost calculation: $ 1,332,290 / $16,632,237 = 8.01% Average processing cost calculation: $ 327,278 / $19,106,830 = 1.71% Paid to NUW Agency Pledge Amount $1, $ Pledge Loss (5%) $ (50.00) $ (40.00) Net Collected $ $ Fundraising Fee (8.01%) $ (76.10) $ (60.88) Processing Fee (1.71%) $ (16.27) $ (13.02) Net Paid Out $ $ Note: If Model wishes to charge a lower fee than that calculated on pledges raised in their own service area, it may do so only on pledges raised in their own service area, at its own discretion but charging a higher fee is prohibited Note: For additional guidance on accounting for designation Cost Recovery fees, see Implementation Standards for Membership Requirement H Page 17 of 52

18 Campaign Example 2 Multiple United Ways share in the fundraising and one United Way does all of the processing (assumes no grants or public sector campaigns (i.e. CFC and other state/local governmental unit campaigns where the allowable fees are negotiated in advance)) Given: 1 Model United Way processes pledges from Star Company within its service area and that of Neighbor United Way for a company with branches in both United Ways service areas. 2 $1,000 is due to Neighbor United Way from the campaign and $800 is designated to the agency in Neighbor United Way's service area. 3 Each United Way did the fundraising in its own service area while Model United Way did all the processing relative to the campaign. 4 Model United Way experiences an actual collection loss rate (shrinkage) of 5% for Star Company. 5 Following is selected information for the IRS Form 990 returns for Model United Way for 2009, 2010 & Average Total Direct Public Support (Part VIII, Line 1(c&f)) $15,745,683 $16,401,753 $17,749,276 $ 16,632,237 Total Revenue (Part VIII, Line 12) $18,042,293 $18,794,055 $20,484,142 $ 19,106,830 Total Man. & Gen. (Part IX, Column C, Line 25) $ 317,362 $ 327,177 $ 337,296 $ 327,278 Total Fundraising (Part IX, Column D, Line 25) $ 1,342,759 $ 1,384,288 $ 1,269,824 $ 1,332,290 Calculations: Average fundraising cost calculation: $ 1,332, 290 / $16,632,237 = 8.01 % Average processing cost calculation: $ 327,278 / $19,106,830 = 1.71% Paid to NUW Agency Pledge Amount $1, $ Pledge Loss (5%) $ (50.00) $ (40.00) Net Collected $ $ Fundraising Fee (8.01 %) $ - $ (60.88) (Note, these fees payable from Model to NUW as NUW did the fundraising) Processing Fee (1.71%) $ (16.27) $ (13.02) (Note, these fees stay with Model to offset its costs) Net Paid out $ $ Separate payment $ (Pd to NUW from Model after withheld from agency payment) Total $ Note: If Model wishes to charge a lower fee than that calculated on pledges raised in their own service area, it may do so only on pledges raised in their own service area, at its own discretion but charging a higher fee is prohibited Note: For additional guidance on accounting for designation Cost Recovery fees, see Implementation Standards for Membership Requirement H Page 18 of 52

19 Section 2 Reporting Standards As noted in the executive summary, the purpose of this document is to provide guidance for implementation of Requirement M, as well as address various overarching reporting requirements necessary in order to ensure complete and timely reporting of information between United Ways and to agencies. These requirements do not apply to public sector campaigns (i.e. CFC and other state/local governmental unit campaigns where the allowable fees are negotiated in advance), which are governed by their own regulatory requirements. Requirement M does not mandate whether dollars will be paid directly to the recipient agency or whether dollars will be paid through a United Way. United Ways are encouraged to work cooperatively to determine the policies and procedures that best serve both their communities. The default assumption, however, for purposes of the implementation requirement is that dollars will be paid directly to the recipient agency. The default assumptions regarding determination of the fundraiser and processor in this document are aligned with the NPC s Policy for Reporting of Total Amounts Raised to United Way Worldwide. Please note, however, that this document is not designed to specifically address issues concerning how results are counted for reporting to United Way Worldwide or any other reporting requirement. Those requirements are addressed in the NPC s Policy for reporting of total amounts raised to United Way Worldwide and in the Financial Statement and 990 Standards. Communication Prior to the Campaign In order for any campaign to run smoothly, there must be up-front communication among all the parties involved in the process. This communication may be required for various reasons, but the following are addressed specifically as they relate to the cost deduction standards: - Determination of roles and responsibilities - Establishment of alternate cost deduction arrangements - Communication of payment methodology 1. Roles and Responsibilities If a processing United Way is not also the fundraising United Way (defined in accordance with the NPC Policy for Reporting of Total Resources Generated to United Way Worldwide), the processor must reimburse the fundraiser for the costs associated with those services (in accordance with the maximum calculation set forth in Section 1). In general, according to the NPC policy, it is the United Way in whose solicitation area the branch location of the company resides that is the fundraiser, rather than the processor. In certain cases, however, a processor may process a regional or national campaign in which the other United Ways have virtually no involvement in the fundraising efforts and all United Way parties acknowledge/agree that this is the case. In such cases, it is incumbent upon the processing United Way to confirm the role of the other United Ways. In the absence of such confirmation, the presumption is that the other United Way is entitled to the fundraising fee and it must be remitted accordingly by the processor. Page 19 of 52

20 If the processor believes that according to the NPC reporting policy, it also serves as the campaign manager (i.e. no other United Way involvement), the processor is entitled to retain this fee. However, in order to do so, the processor must ensure that their assumption on fundraising efforts is correct. This does not mean that the processor must obtain a signed (positive) confirmation from each United Way. Rather, a letter to each United Way specifying the processor s assumption will suffice, so long as the letter states a reasonable basis for such assumption and allows sufficient time (at least 30 days) for the other United Way to respond if they wish to counter such assumption. (See Attachment A for a sample letter). This letter should be addressed to the United Way s CPO with a copy to the Finance Department. If the processor does not contact the other United Way(s), the processor must deduct and remit the fundraising fee to the other United Way(s). The processor may determine that it is more cost effective to simply remit the fundraising to the other United Ways in lieu of this communication. Such a policy is also acceptable under these guidelines. 2. Establishment of alternate cost deduction arrangements To the extent that a United Way serves as the processor of a campaign for which that United Way was not also the fundraiser, reimbursement to the fundraising United Way for those services must be provided at the maximum rate. This is the default position and alternate fee-sharing arrangements are permissible, so long as only one fundraising fee and one management and general fee is deducted, assuming the agreed upon rate does not exceed the maximum allowable rate of the processor calculated per the Requirement M Standards. Either United Way may initiate a request for an alternate arrangement, but, unless otherwise mandated by the Company (donor), the processing United Way has the ultimate authority for approving such an arrangement. Exception: The processing United Way may not deduct fundraising at less than the maximum rate on amounts raised in another United Ways service areas unless: The other United Way agrees or The rate is mandated by the Company. If a less than maximum allowable fee is mandated by the company, the processing United Way must communicate what that rate is to affected United Way(s) prior to the start of the campaign. The element at the processor s discretion, referred to above, is solely the option to accept or reject a United Way s request for an alternate fee arrangement other than the maximum rate or rate set by the company. 3. Payment methodologies The default assumption is dollars will be paid directly to the recipient agency, with the United Way being paid the appropriate fundraising costs deducted for only those amounts raised in the United Way s service area (including designations to agencies). Communication is required whenever dollars will not be paid directly to the recipient agency. The second United Way receiving the funds may not take any fees and, thus, must be informed prior to requiring them to take on this additional cost with no reimbursement. Page 20 of 52

21 This communication is also critical for those United Ways determining their allocations on a first dollar in basis. Communication regarding payment methodology is also required by the processor for any new campaigns (prior to the start of the campaign) or when there are any changes in the payment methodology from prior year. A United Way can require the processor to pay dollars directly to the agency to avoid incurring additional processing costs. In such a case, the processor must honor such a request and continue to provide the appropriate reporting to the United Way in accordance with the guidelines specified below in order to allow the United Way to report appropriately to United Way Worldwide. In cases where such a request is made and honored, the United Way must supply their agency file to the processor upon request in order to make such payments. Although this file will not include all possible agencies a donor may designate, it will contain all current agencies paid by the United Way and, thus, will reduce the efforts of the processor in paying such designations directly. Since the default is paying directly, a processing United Way may opt to do so without contacting the other United Way(s), unless this methodology is a change from the prior year. If the other United Way wishes to have dollars raised in their service area paid through them, the other United Way must proactively contact the processing United Way to request this. It is expected that United Ways will consider the payment policy that is in the best interests of both communities; however, the option of whether to honor the United Way s request to pay through the United Way will ultimately be left to the processing United Way s discretion. This is due to the undue burden placed upon the processor by requiring them to support two different options and track those decisions and the related member agencies of the other United Ways. A United Way can require direct payment to agencies by the processor. However, a processor cannot require paying through another United Way. A United Way may request to be paid through, but cannot require it of the processor. Irrespective of the way dollars are paid, processor must continue to provide information necessary for the other United Way(s) to appropriately report campaign results. This is particularly critical in the event another United Way utilizes a first-dollar-in methodology, since the United Way will need sufficient information in order to ensure amounts paid to their agencies are captured as part of their first-dollar-in calculation. This information must be provided by the processor as discussed below. Communication during the campaign There are several aspects of reporting during the campaign. Reporting occurs to other United Ways, to agencies and to donors. Indicated below are the minimum requirements. More information may be provided, but, in no event, shall the reporting include less than the specified requirements. This section is split into dollars raised in the Processor s Service Area versus those raised in the other United Way s service area. This is due to the difference in the type of information required by a United Way, dependent upon where the dollars were raised. The two reports indicated below Page 21 of 52

22 may be combined, so long as the fundraiser/manager is clearly indicated in order to allow the other United Way to determine where the dollars should be counted. 1. To Other United Ways a. For Dollars Raised in the Processor s Service Area and Designated to another United Way - When reporting amounts raised in the processor s service area, the value of this report to the recipient United Way is primarily to disclose dollars coming to that United Way as unrestricted funds ( designated to the United Way from the processor s service area), since the recipient United Way will not be reporting these pledges as Campaign Results on their GAAP Financial Statements (they are reported as non-campaign revenue). o Timing and Frequency must be reported at least twice during the campaign: The first report must be mailed or transmitted no later than February 28 th for all campaign activity as of December 31 st. Not all campaigns will be closed at this date, thus the report must note whether this is an interim or final report. (Note: receiving this information as soon as possible after 12/31is important to those United Ways who operate on a calendar year end) The second report must be provided no later than April 30 th, for all campaign activity as of March 31 st. The report must note whether this is an interim or final report. (Note: this information and timing is critical for reporting to UWW for the Database II survey in May of each year. While these funds are not to be included in a recipient United Way s standardized campaign results, they are reported outside of the United Way Continuum, below the line, as incoming designations.) If there are significant open campaigns when the prior reporting occurred, or there are changes in previously reported information, final reporting with all campaign information must be submitted no later than July 31 st for all campaign activity through June 30 th. Any changes to campaign information subsequent even to the final close should be reported to the recipient United Way at least quarterly if and when such changes occur until there are no further adjustments to report. Some United Ways may opt to provide additional interim reports, either in detail or in summary. This is permissible and earlier, more frequent reporting is encouraged, but not required. However, in no event may reporting be less frequent than indicated above. o Content information provided by the processor to the recipient United Way must include the following Name of the processing United Way Page 22 of 52