Reduce Your Tax Bill By Accurately Deducting Charitable Gifts

Here in the United States, we are one month past "tax time." It is a dreaded time for us Americans, April 15th. We agonize over it and spend millions, nay billions, of dollars seeking out professional help to file our taxes. As someone who does my own taxes, I keep a folder of the charitable gifts I have given during the year. They result in about a 30% reduction. In other words, for every $100 I give, I am able to deduct about $30 in taxes. I don't give to get that reduction, I give because as the article below says, it is for heartfelt, altruistic reasons. There are certain nonprofits and charities that I am attracted to: those walks, those animals, the charitable activities my friends and family take part in...and that's another whole article on "why people give." But if you do give, you need to be aware of how to "book" that giving come tax time and you need to be aware of it now to get ready for next year. Here, Charity Navigator gives you the guide. Bunnie

Reduce Your Tax Bill By Accurately Deducting Charitable Gifts

People give to charity for many heartfelt, altruistic reasons. But as evident by the surge in online gifts flowing through our site on the last few days of the year (about 10% of annual giving), the tax benefits of giving do impact our decision to support charities. We shouldn’t take issue with donors who are motivated by the tax benefits of giving. In fact, many worthy charities are funded by donors who are able to make larger gifts as a result of the tax deductions they later claim.


But before you prepare your tax return, you should know that the government continues to be concerned with taxpayers inflating the value of their gifts. In recent years, new laws have been passed to curb those who abuse the spirit of such tax breaks. And the IRS continues to scrutinize claims for charitable deductions to make sure taxpayers are entitled to such claims.


To help you maximize the tax benefits of your charitable endeavors and avoid making a false claim, Charity Navigator offers the following tips.

• Document All Cash Donations
  If you want to claim a charitable deduction for a cash gift, then you must be prepared to verify your claim. In other words, you can no longer deduct the spare change dropped in a charity's collection bucket without the proper documentation. If you are audited, the IRS will only accept one of the following to substantiate a monetary gift: a canceled check, credit card statement, bank statement or a written acknowledgement from the charity (showing the charity's name, the date of the donation and the amount given).
  
  Donating online at Charity Navigator , through our partnership with Network for Good, helps you fulfill this requirement since all your giving records will be stored in one place enabling you to quickly obtain an annual record of your charitable giving for tax preparation.

• Monetary Gifts of $250 or more Require Additional Documentation If you contribute $250 or more, then you must prove to the IRS that you (a) made the donation and (b) you didn't receive anything in return for that donation. Therefore you’ll need a receipt from the charity that includes the following information: the charity’s name, the value of your gift, the date you made your donation and a statement verifying that you did not receive any goods or services in return for your gift.

• Be Careful When Valuing a Donated Vehicle
  Although a new law implemented in 2005 attempted to crack down on taxpayers who were overvaluing donated vehicles, the government reports that many taxpayers still inflate the value of such donations. As a result, the IRS continues to take a close look at such deductions. If you donated a car worth more than $500, then you can only deduct the amount the charity received from the sale of your car. You can use the receipt from the charity to substantiate your claim. Do not attempt to use the fair market value unless one of the following conditions apply: (1) instead of selling the vehicle, the charity keeps and uses it, (2) the charity makes improvements to the car before selling it, (3) your car is sold at a discounted price to a person with a low income, (4) or if the car is worth less than $500.

• Make Sure Donated Clothing and Household Items Are In Good Condition
  Hopefully, all your donations of clothing and household items last year were in "good used condition or better.” Not only do donations of junk (such as used socks) cost charities a lot of money each year to discard, but the IRS does not permit deductions for such items. The only exception here is for any single clothing or household item worth more than $500. For these items you can claim a deduction, regardless of its condition, so long as you submit a qualified appraisal with your tax return. And speaking of documentation, you’ll want to maintain an itemized receipt from the charity for all gifts less than $500 to substantiate your claims in case of an audit.

Keep in mind that the above rules are predicated on the following conditions.

• You Itemize
  You must itemize in order to take a charitable deduction. Make sure that if you itemize, your total deductions are greater than the standard deduction. If they're not, stick with the standard deduction.
• You Donated to a Qualified Charitable Organization
  Just because an organization is exempt from income tax doesn't mean that contributions to the organization are tax deductible. For example, 501(c) (4) organizations, like the Disabled American Veterans or the National Rifle Association of America, are allowed to spend a substantial portion of their revenue on lobbying our government so not every donation to them is tax-deductible. However, all of the organizations rated by Charity Navigator are 501(c) (3) public charities to which all donations are tax deductible.
• Your Gift Was Made in Time
  If you were among the many donors that gave online on December 31^st, then your gift still qualifies for a deduction on your  tax return even though you paid the credit card company in the following year. If you waited until the last minute and paid by check, you gift qualifies so long as the check was mailed on or before December 31.
  
  There is one new special exception to this rule. Just as Congress did after the South Asian Tsunami and Hurricane Katrina, it passed a special tax exemption to encourage American taxpayers to give generously to Haiti relief efforts. Under this provision, if you made a donation to a qualified charitable organization between January 12 and March 1, 2010, then you have the option of claiming this deduction on your 2009 or 2010 tax return. Keep in mind that you can not claim a deduction for these gifts for both years. Also, the gift must have been a cash donation. This includes donations made by texting, check, credit card or debit card.

Learn more about the tax implications of charitable giving in the Tips & Resources and FAQ portions of our site.
  
 Reprinted with the permission of Charity Navigator, www.charitynavigator.org, America's leading independent charity evaluator.

Protection of Charitable Assets Act: What the New Uniform Law Would Mean for Nonprofits

We hear a lot in the news media about laws affecting business.  Are existing laws or tax code restricting business?  Encouraging business?  Affecting the ability of business to get the economy growing?  

According to a 2007 report from Johns Hopkins, nonprofits generate a significant amount of our gross domestic product, or GDP.  "' Private, not-for-profit hospitals, schools, social service agencies, symphonies, environmental groups and many other organizations — accounts on average for 5 percent of the GDP in the countries covered, and exceeds 7 percent in some countries, such as Canada and the United States. By comparison, the utilities industry — including gas, water, and electricity — in these same countries accounts on average for only 2.3 percent of GDP, the construction industry for 5.1 percent, and the financial intermediation industry embracing banks, insurance companies, and financial services firms, for 5.6 percent."  

For that reason and many others, I find myself becoming weary of lawmakers (many of whom have no idea of what goes into running a nonprofit) formulating regulations that ultimately are harmful to small nonprofits.  

Here in the U.S. we had a law called Sarbanes-Oxley that was supposed to regulate large business and prevent another mega melt-down like Enron.  But the end result was a series of regulations that none but the largest nonprofits could comply with adequately.

The IRS has recently begun a crack down on Girl Scout troops, church auxiliaries, garden clubs and a multitude of small nonprofits whose combined assets don't amount to a hill of beans.  

Now this.

A proposed new uniform law that seeks to establish reporting requirements for nonprofits with $5,000 or more in assets.  So if you have a couple computers, a copy machine and a few desks, you are now required to file an annual report with the Attorney General of your state?

Will someone please find out what drugs these regulators are taking?

This is beyond the pale and has serious consequences for nonprofit entities.  Never mind the amount of money required to enforce such ridiculousness.  

Thank goodness for the folks at Venable who keep an eye on these things.  Jeff Tenenbaum, Robert Waldman and Alexandra Megaris provide us with a glimpse of what this new law might mean.  Pay special attention and in the meanwhile, I will try to find out how you can weigh in on this knuckle-headed process and report back to you when I do.  Bunnie

Protection of Charitable Assets Act: What the New Uniform Law Would Mean for Nonprofits

By Jeffrey S. Tenenbaum, Robert L. Waldman, and Alexandra Megaris 

Jeff Tenenbaum

Alexandra Megaris

Robert Waldman

The committee tasked with drafting a new uniform law that regulates charities and charitable assets has released the newest version of the proposed law, renamed the Protection of Charitable Assets Act, which is currently under consideration by the drafting committee. If ultimately approved, the uniform act could become law in many states.

What is a uniform law? The Uniform Law Commission (“ULC”)—the same body that recently drafted and ushered through the Uniform Prudent Management of Institutional Funds Act—is an organization comprised of state commissions on uniform laws from each state, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. Once the ULC determines that a specific area of law should be uniform, it appoints a committee to draft the model legislation. The final uniform law is then submitted to a vote by the entire Commission. Once the ULC approves a proposed Model Act, the states then vote. A majority of the states present, and no less than 20 states, must approve an act before it can be officially adopted as a Uniform or Model Act.

At that point, a Uniform or Model Act is officially promulgated for consideration by the states. The state legislatures are urged to adopt Uniform Acts exactly as written, to “promote uniformity in the law among the states.” 

What would the Protection of Charitable Assets Act do? The proposed act would do four main things: 

(1) define the authority of the state Attorney General over the protection of charitable assets in that state; 

(2) impose a registration requirement; 

(3) oblige charities with assets above a minimum amount to file an annual report; and 

(4) require a charity to notify the state in advance of certain specified “life events.”

1. Authority of the State Attorney General. The model act authorizes the Attorney General of each state:

• to enforce the use of charitable assets by a charity for the purposes for which the asset was given;
• to “act to prevent or remedy” a breach of a legal duty by the charity; and
• to seek declaratory or injunctive relief to determine that an asset is a charitable asset.

In addition, the law would give the state Attorney General the power to commence or intervene in an action filed by another party to prevent or obtain damages for a violation of the law. The state Attorneys General would have the ability to initiate investigations and issue administrative subpoenas to charities in order to determine whether charitable assets are being used for the purposes for which the asset was given. While many state Attorneys General already exercise significant regulatory oversight over nonprofit organizations operating in their states, other state Attorneys General take a less active role. The proposed model law, if adopted by the states, would establish uniform standards in this area. 

2. Registration and Reporting Requirements. The Model Act, as currently drafted, would require each charity that holds or administers charitable assets above $5,000 and that meets one of the following five criteria to register with the state: is organized (e.g., incorporated) under the state’s law, has its principal place of business in the state, holds charitable assets in the state other than assets held for investment purposes, conducts activities in the state, or holds assets that are given for the benefit of a person in the state. The registration provision includes limited exemptions for governmental, political, religious and financial entities and certain individuals holding charitable assets.

3. Annual Reports. Charities with assets above $5,000 also would be required to file an annual report with the state Attorney General. The report would require basic accounting and financial information and require the charity to attach its IRS filing (e.g., Form 990).

4. Notice to State Attorney General of Reportable Events. Charities required to register under the proposed statute also would be required to notify the state Attorney General if any of the following events occur:

• dissolution or termination of the charity;
• disposition of all or substantially all of its charitable assets;
• a merger, conversion or domestication; or
• removal of the charity or of a significant charitable asset from the state.

This proposed uniform law would impose significant registration and reporting requirements on many charitable organizations across the country, especially on those that operate in multiple states. We will continue to monitor the status of the proposed model statute. A final draft of the statute is expected to be introduced and voted on at the annual meeting of the Uniform Law Commission commissioners in July 2011.

Mr. Tenenbaum is a partner with Venable and chairs the firm's Nonprofit Organizations Practice Group, as well as its Credit Counseling and Debt Services Industry Practice Group. Mr. Waldman, a tax partner, chairs Venable's Business Division. He also leads Venable's national representation of tax-exempt organizations. Ms. Megaris is an attorney in Venable's Regulatory Practice who works regularly with the firm's nonprofit organization clients. She is resident in Venable's New York office.

 

16 Provocative Ideas That Will Raise More Money

Raising money is a 24-7 job for the nonprofit community.  Just as business must always be selling, we too cannot rest on our laurels, we have to cinch the deal.  Gail Perry (Gail Perry Associates, Fired-Up Fundraising) shares what she learned at the Association of Fundraising Professionals.  Very provacative ideas.  I really like the monthly donations.  For little more than one pizza delivery per month you can offer donors the ability to easily support your nonprofit.  Bunnie

 

16 Provocative Ideas That Will Raise More Money

by Gail Perry, Fired-Up Fundraising (March 2011)

I am just back from an intense 4 days at the AFP International Fundraising Conference.

And I listened to some of fundraising’s most brilliant – and provocative -  leaders.  Here’s what’s on the mind of some of our smartest thinkers.

Do consider these ideas NOW. They may go against your typical practices.  But I promise, absolutely, that you will raise more money if you implement them.

 1. Go All Out for Monthly Donors On Your Home Page.

Monthly donors are worth gold to you. On average, they will stay for 10 YEARS. Put the ask right on your home page.  The ideal monthly appeal ties a monthly ask to something specific. “$31 a month will do xxxx.”  Harvey McKinnon

 2. Focus on Fewer – Not More Donors.

You don’t make more money by having more donors. The more donors you accumulate – the less profitable your fundraising program. (Penelope Burk)

 3. Encourage Restricted Giving.

Restricted asks raise more money. Period.  We are holding our philanthropy back, because we are asking for unrestricted rather than restricted. (Penelope Burk)

4.  Get Rid of the Words.

Put your whole message in the first 150 words. The rest of your copy just backs it up.  (Tom Ahern)

5.  Get Rid of “Unmet Needs,” “Programs,” “Services.”

Write like you are an outsider to your organization. Get rid of the boring, obtuse jargon. Jargon is a flame retardant! (Tom Ahern)

6.  Make Your Case Like a Series of Ads.

Add photos while you get rid of words. Create your case or your fundraising materials with the fewest words and the best photos. (Tom Ahern)

 7.  Hire More Fundraisers.

Saying, “We can’t hire any more staff.” is stupid. Each additional fundraising staffer upticks gross fundraising revenue. Period. (Penelope Burk)

 8.  Give Your Fundraising Staff Raises.

Money is the #1 reason fundraising staff leaves. Investing in retention of staff will make you money. Retention boosts profit.  Extend young staff from 18 months to 30 months saves you money. (Burk)

 9. Get Rid of the Raise Money Now Mindset.

31% of fundraisers who are planning to leave their jobs will leave because of  an unrealistic “old school” culture of fundraising: ie, “you HAVE to bring in the $ NOW.”  How much more money could you raise if you took a long term, strategic approach? (Burk)

10. You Must Give Your Staff Management Training.

Success in business is 95% in the management of other people. But we cut staff training first whenever there is a shortfall. Training is essential. There’s not enough management training in nonprofits.(Burk)

 11. Get Rid of Lousy Board Members Now.

Allowing a lousy, nonperforming board member to serve out their term is, two words: “Chicken S***”  (Simone Joyaux)

 12. Be Blatant.

Try this: “With your help, all these amazing things happened. And without your help, they won’t.”  You‘re selling the impact of the donor’s gift. (Tom Ahern)

 13. Stop Talking About The Money You Need.

You choose:

 A case is about the opportunity you‘re putting in front of the donor.

OR

A case is about your organization‘s need for cash. (Ahern)

14. Become a Shrink.

When dealing with volunteers, you are a psychologist not a fundraiser!  (Laura Fredricks)

15. Don’t Believe Your Prospect, When. . .

If he says, “I’m just a plain ole country boy,” it really means he is a wealthy prospect! (Eli Jordfald)

16. Close Down Some Programs.

Leaders will close or giveaway a program or activity that is no longer profitable and has little impact.

So were these ideas provocative? Would they challenge your status quo?

 Remember fundraising is changing. Donors are changing.  Doing what you’ve always done the same old way will get you yesterday’s results.  Go for it! Change is good.

Contact Gail at Gail Perry Associates

Policy vs. Paper Clips

There's a lot of advice out there about governance structure.  Particularly when a board has always operated in a certain way, sorting through all the advice and finding the governance structure that fits your nonprofit can be difficult.  And it is more difficult when the board has acted as staff and now must transition to policy makers.  Dr. Eugene Fram sent me a copy of his book Policy vs. Paper Clips and I found it to be an interesting read.  One of the reasons it is actually a fun book to read is Dr. Fram tells the story of how to transition to a corporate model of governance through the fictional exchange of emails between friends.  Here are some of the things you can expect from the book:

From Dr. Fram...

Policy vs. Paper Clips is an unusual how-to book. It is a serious subject – improving nonprofit board governance while enhancing a management focus – but it is written in a highly user friendly way. Two old friends with ties to vastly different nonprofit organizations discuss via email what it takes to adopt the Corporate Model, an approach that can position your nonprofit to meet the demanding realities of the 21st century world.

Given today’s difficult times for nonprofits, hardly any can continue to operate as they have in the past. For most, it is no longer possible for a volunteer group of directors to be involved in day-to-day operations of the organization. The Corporate Model establishes a framework for separating policy development from operational activities. When customized appropriately to your own nonprofit, the Model promotes growth. This book shows you how to tap the creative energies of the board of directors to address critical issues about vision, direction, assessment of outcomes; how to adapt to new challenges and how to capture emerging opportunities – while turning over day-to-day operational matters to management.

The Corporate Model works best for nonprofits that have an annual budget of about $1 million or more and staffs of about 15 or more. However, anyone associated with a nonprofit group can benefit from reading this book. It provides an essential self-examination that can serve as a catalyst for becoming a more dynamic organization.

Your Board Members & Chief Executive Working Together Can More Effectively:

• Focus an organization on strategic issues over operational minutiae

• Encourage directors to bring their special expertise & cultural values to board discussions

• Understand the need for – and implement – rigorous assessment of operational outcomes

• Pinpoint management’s responsibility & clarify its responsibility

• Establish a system of organizational checks & balances

ALSO

• Allow for more management flexibility to develop a more entrepreneurial culture

• Increase focus on productivity at the expense of bureaucratic processes

• Improve the CEO’s fund raising capacity to drive development productivity

• Obtain greater efficiencies through lower costs

• Keep board involvement high when developing policies & strategies

• Create a partnership between board and staff that builds trust

Your Board Members Can More Effectively:

•  Provide an appropriate mission-focused board structure for growth

• Operate effectively with only three standing board committees

• Make major board structural changes with minimum disruption

• Evaluate the chief executive fairly despite only having imperfect metrics

ALSO

• Reduce or increase board size

• Develop effective audit committee & fraud protection procedures

You can contact Dr. Fram at

eugenefrm@yahoo.com

Decline and Fall of the Vanguard Public Foundation

Richard Cohen is an excellent, thoughtful writer and I am always pleased to feature his work here.  This is a long article, however, it is very instructive.  Often we think of "ponzi schemes" only happening in "for-profit" enterprise, when the truth is, nonprofits are ripe for this kind of use and abuse, maybe even more so since nonprofits are not measured by money earned but by services provided.  Additionally, boards of directors of nonprofits may not conduct the due diligence of boards of directors of for-profit corporations.  Whatever the cause and effect, the real pay off in this article are Richard's conclusions at the end.  Bunnie

(This article is reprinted with permission from Blue Avocado, a practical fast-read magazine for community nonprofits. Subscribe free by sending an email to editor@blueavocado.org or at www.blueavocado.org.)

Decline and Fall of the Vanguard Public Foundation 
by Richard Cohen

Once acclaimed as a pioneer in philanthropy and an important force for social justice, the Vanguard Foundation is no more. The full story will take years to emerge, but we report here in Part I on some of the clues to its sorry demise. A link to Part II is at the end of the article.

In San Francisco, the Vanguard Public Foundation is out of business, its nonprofit status suspended by the California Secretary of State, its website down, its assets apparently gone. Federal and state court lawsuits involving donors, investors, staff, and trustees question what happened to millions of dollars that flowed through the foundation to progressive causes.

But nonprofits and foundations go out of business all the time, particularly in this nonprofit-devouring recession. What makes the Vanguard Public Foundation worth special inquiries? Is it because of the celebrities associated with Vanguard -- Danny Glover, Harry Belafonte, and United Farm Workers co-founder Dolores Huerta, among others? But the glam factor is not the story.

The Vanguard Public Foundation (not to be confused with the Vanguard Charitable Fund related to the for-profit Vanguard), was lauded in its heyday as a new wave of philanthropy, a generational shift, an exemplar, and a model.

The famous people associated with the foundation are neither the story nor the cause of the foundation's demise. Rather the story may be one of organizational hubris, board narcolepsy, and the disease of our time: the siren song of the get-rich investment plan which, like Bernie Madoff's ponzi scheme, was just too good to be true.

A new generation of philanthropy

Established in 1972, the Vanguard Public Foundation was among the first of the social justice foundations established by the young scions of wealthy families, inheritors of corporate fortunes who were devoted to supporting a progressive, very liberal social and political agenda. One of the first of the "rich kid foundations," Vanguard was heralded as an inspiring model of a new generation's remaking of philanthropy.

Vanguard rose as a leader among some two dozen new progressive public grantmakers that became members of a network called the Funding Exchange. Largely modeled on Vanguard are the Haymarket People's Fund in Boston and the Liberty Hill Foundation in Santa Monica. In 1977, Vanguard produced the bible for these funds, Robin Hood Was Right: A Guide to Giving Your Money for Social Change, re-issued by the Funding Exchange 25 years later.

Vanguard's grantmaking role remained distinctive, putting money into social movement causes, often before they became politically acceptable and often to organizations and actions that were never going to generate mainstream support. Among the often controversial groups that benefitted from Vanguard grants:

• Act Now to Stop War and End Racism (ANSWER)
• Astraea National Lesbian Action Foundation
• Center for Third World Organizing
• Emilio Zapata Oakland Street Academy
• Free Mumia Abu-Jamal
• KPFA (Pacifica Network Free Speech Radio)
• National Immigration Project of the National Lawyers Guild
• Rainforest Action Network
• School of Unity and Liberation (SOUL)
• Solidarity Info Services
• Southern Poverty Law Center
• Young Worker Project

Vanguard was a friend to emerging causes which often went on to become more accepted by the public and more fundable by mainstream foundations. Donors also gave funds to such causes through Vanguard, enabling unincorporated groups to receive donations.

These are the kinds of grants that cause heartburn for the likes of Glenn Beck ("Marxist foundations of the 'social justice' movement") and Bill O'Reilly ("pinheads!").

Are progressive foundations in general suffering?

Is Vanguard's demise reflective of a downturn in these foundations of young (and in many cases, now no longer young) progressive rich people? While just about every public foundation has experienced the downturn while raising money from wealthy donors, the members of the Funding Exchange look healthier than one might expect, even in many cases increasing their grantmaking over a period of many peaks and troughs in the economy. For example, grantmaking grew between 1998 and 2008/9 at Liberty Hill, the Appalachian Community Foundation, Bread and Roses Community Fund (Philadelphia), the Headwaters Foundation for Justice (Twin Cities), and the McKenzie River Gathering (Oregon).

Others have shrunk over the years, perhaps as the big community foundations offered themselves as social justice competitors for donor-advised funds, others perhaps simply due to changes in leadership and management. The Southern Partners Fund in Georgia, Haymarket, and even the North Star Fund in New York City are significantly smaller than they were a dozen years ago, but they still exercise influence in their communities and within the philanthropic sector.

Unlike many of its peer progressive foundations, the Vanguard Public Foundation dissolved into nothing -- other than litigation. Why?

Mouli makes the world go 'round

In 2002, Vanguard leadership met an exceptionally intriguing entrepreneur named Samuel "Mouli" Cohen. In addition to his glamorous background, Cohen reportedly promised to achieve astonishing financial returns using Vanguard's funds as investments.

The Israeli-born Cohen (no relation to this author) and his wife Stacy lived the lifestyle of the rich and famous in a mansion in Belvedere, California. A master of self-promotion, Cohen's multiple personal websites, Facebook page, and press releases reveal him to be anything but modest; he describes himself as a "brilliant visionary," "business tycoon and magnate," "world renowned philanthropist," and "super entrepreneur."

Given the charges and countercharges now swirling around Mouli's relationship with the foundation and its leaders, some of his self-promotion is unintentionally humorous and ironic, particularly this from his Mouli Cohen on Business webpage: "(I)ntegrity is one of the most important characteristics for any investor. Investors, customers, employees and partners will reward you endlessly if you always act with complete integrity, according to Mouli Cohen."

It's hard not to give him one-name celebrity status, like Cher, Bono, Usher, or Madonna; his over-the-top persona demands it. As a philanthropist, Mouli's exploits, mostly known from press releases and philanthropic blog posts that he seems to have generated, didn't sync with Vanguard's values, mission, or funding priorities.

For instance, representative of Mouli's philanthropic activities were support for the European Center for Jewish Students, which works to increase the Jewish population of Europe against the threat of intermarriage and assimilation; a Jewish orphanage in Odessa; facilities development at the Ukraine tomb of a Lubavitcher Hasidic rabbi; and a library and museum in Israel affiliated with the Lubavitcher Hasids. In addition, he claims to be a leader and donor to several organizations which mention him nowhere on their websites, including Camp Okizu, Seva Foundation, and Soroko Medical Center.

Regardless of these differences in philanthropic goals, Vanguard became interested in Mouli for his investment acumen. A self-described technology entrepreneur, he claims to have founded or led business ventures which have generated some $3 billion in shareholder value. One of his more recent activities was a digital entertainment firm called Ecast, which provides services to bars and nightclubs.

The picture blurs

Now the story gets murky with a mix of charges and countercharges, and of course, litigation. Apparently, in 2002, Mouli met Vanguard CEO Hari Dillon and actor/activist Danny Glover. According to complaints filed in state and federal courts, Mouli said he would help the foundation by allowing Vanguard and its individual donors to buy shares in the privately owned Ecast. Dillon and Glover formed general partnerships through which they purchased several million dollars worth of Ecast -- or thought they did. The Contra Costa Times reported that Vanguard donors ultimately put in over $20 million more in philanthropic money and personal investment cash. How much of this was Vanguard money repurposed through Mouli is unclear.

The story gets even murkier. The investors -- now plaintiffs -- say Mouli stated that Ecast was to be acquired by Microsoft, which would generate a return on investment, according to the Times, of 1,000 percent. And according to peHUB Wire, the deal was to buy Ecast stock at $3.50 a share, but get paid off in Microsoft shares after the purchase at $23 per share. But something or other kept putting off the miracle. The Microsoft acquisition reportedly got delayed over EU rules, which generated a need for more fees to cover transaction costs. Then there were reports that Ecast was considering a competing bid from Google, further delaying the deal. Ultimately, there was no Microsoft purchase, no Google bid, and the money disappeared ("stashed" in Cohen's secret accounts and distributed to family members like wife Stacy, according to plaintiffs), and the investors were, one might say, aggrieved.

Mouli's attorney denies it all.

Even Ecast sounds aggrieved, stating that Mouli Cohen left Ecast in 2002, roughly when these dealings began. An Ecast attorney told Vending Times that the firm has had "ongoing" legal problems with Cohen, including two cases filed in 2003 and 2004 against Cohen about "very similar" charges that were settled out of court. If it was true that Dillon, Glover, and the Vanguard Public Foundation investors thought they were buying Ecast stock, they were doing so with a guy who had been out of Ecast's picture for years.

Transforming a social justice foundation into what?

But questions of questionable management and governance decisions at the foundation do not seem to have been limited to this speculative multi-million dollar investment with someone of dubious provenance. Why didn't someone notice the following?

• Annual operating deficits: $427,000 deficit in 2003, $1.33 million deficit in 2009 and $1.37 million deficit the subsequent year
• Deficit of $1.95 million in 2006, nearly equal to the $1.99 million received in contributions, gifts and grants
• In its last publicly accessible Form 990 in March 2007, Vanguard had total assets of $453,000 and total liabilities of $3.59 million
• That same 990 showed $1.25 million in loans from officers and directors and $1.8 million in mortgages and other notes

The operating deficit dropped to "only" $1.2 million on its final Form 990, but by then the foundation was living on fumes -- or loans.

By 2007, loans from officers and directors included $5,000 from Danny Glover, $100,000 from board member Susanne Moore, and $600,800 from CEO Hari Dillon. In Vanguard's 990 for the fiscal year ending in 2008, Dillon's loan to the foundation had grown to $1,172,511.

The Vanguard Public Foundation was living on borrowed funds largely from the CEO, whose salary and benefits at the foundation combined do not appear to have ever topped $90,000 annually. But the foundation didn't appear to be thinking about belt-tightening during this period of financial stress. Travel expenses skyrocketed and salaries grew as significant funds were used to send CEO Dillon, senior staff member Gus Newport, and others on "projects."

A grantmaking foundation was turning into an operating foundation, running its own programs instead of making grants to nonprofits. In its last available 990, the foundation lists $3.35 million in total expenses, including the following:

• $600,000 from Vanguard's donor-advised funds to the Peninsula Community Foundation
• $103,000 from non-donor-advised funds to Gathering for Justice c/o Belafonte Enterprises (singer Harry Belafonte is one of Vanguard's founders)
• Only $129,000 in other non-donor-advised grants

In the fiscal year ending March 2007, Vanguard's total expenses were almost exactly what it owed in loans. The foundation was investing, borrowing, and spending itself out of existence.

Oddly, the partnerships established by Dillon to invest money in Mouli Cohen's Ecast scheme made him personally fully liable for the funds. Typically, a general partner would never expose himself to such risk, unless perhaps the deal was a sure thing with a big upside. But the foundation's investments and the donors' additional funds didn't yield a nickel, at least perhaps to anyone other than Mouli Cohen. This left Dillon on the hook. In 2010, Dillon filed for personal bankruptcy, listing assets of $836,000, primarily from the value of his home, secured claims of $721,000 (probably a home mortgage), and unsecured claims totaling a whopping $21.6 million.

Lessons from Vanguard's demise

These are all clues to a story for which we have neither an end nor a satisfactory answer about motivations and choices. More of the Vanguard Public Foundation story will emerge in the months ahead as lawsuits wend their ways through the courts, but some lessons are discernable now:

1.      Too good to be true: The lesson of Mouli Cohen, like the lesson of Bernie Madoff, is to be careful about schemes that will make your nonprofit or foundation rich. Mouli's deal was better than anything Bernie Madoff ever pitched. It should have been obvious.

2. Character counts: Dillon and many of the Vanguard people are hard to find now or won't speak on the record, but Mouli continues to issue self-congratulatory pronouncements on his website. It's hard to imagine that the philanthropic values of Mouli Cohen (or his wife, the author of the Kosher Billionaire's Secret Recipe) were any kind of comfortable match with those of the foundation.

3. Non-attentive trust in the CEO is not a healthy governing model: With warning signals in abundance, observers suggest that the board was even a little mesmerized by the CEO and his celebrity friends. And board meetings were reportedly very rare.

4. Give the grants to nonprofits, not yourself: It's so easy for foundations -- even progressive foundations -- to decide they should run their own programs rather than give grants. Whether one agrees with Vanguard's agenda or not, a legacy of giving grants to causes it believed in would have been one to be proud of . . . rather than one dirtied by using the funds on its own activities.

5. Are progressive groups especially vulnerable to disengagement? Some have suggested that Vanguard's moves to turn over some decision making to community leaders left donors disengaged, and resulted in board members who were less attentive to grantmaking decisions and governance responsibilities.

6. Sleepy press, sleepy government: How does a public grantmaker disappear and garner so little attention from the press -- including the nonprofit press -- and no attention from the government? The Internal Revenue Service? The Attorney General?

There are many stories to be found in the rise, decline, fall, and aftermath of the Vanguard Public Foundation, and this article only touches on one of them. Tragic stories have at least as much to teach us as the rosy, jargon-filled stories about themselves that foundations pump out by the thousands. The Vanguard story is one from which we will be learning for a long, long time.

Note: Part 2 of this story was published in the October 5, 2010, issue of Blue Avocado: Here