New Markets Tax Credit Benefits Nonprofits

The New Markets Tax Credit (“NMTC”), under IRC §45D, was created as part of the Community Renewal Tax Relief Act of 2000. This act encouraged qualified equity investments (“QEIs”) in community development entities (“CDEs”) directed towards low-income communities. President Obama recently extended the NMTC in January of 2013 as a part of the American Taxpayer Relief Act of 2012. The NMTC rewards investors with a 39% tax credit of the total QEI, which is split over a seven year period. There is also additional return to investors who make a low-return project viable.

The CDEs also benefit with a 25% reduced cost of borrowing and lower interest rates than could otherwise be attained. Programs must apply to become CDEs; awards totaling up to 3.5 billion are announced annually. The stimulated investments lead to job and material improvement in the residents of struggling communities. Many CDEs serve as intermediaries for providing loans and investments in low income areas, which lead to increased economic activity.

To qualify as a CDE, the program must be located in a distressed community which displays at least one of the following characteristics:

• The poverty level is above 20%.
• The median family income less than 80% of the average family.
• The community is composed of a specified targeted population.
• The population is less than 2000 people.
• It is a rural county with high migration.

Webinar: The Myth of Asset Allocation: Would You Rather Beat the Market or Make Money?

For nonprofits, choosing the right investment strategy is a key factor in determining the future viability of your mission. Join Aronson LLC and American Asset Management Group, Inc. on October 17th for a webinar that will offer a brief overview of the differences between Relative Return and Absolute Return investment philosophies. Topics will include:

• Modern Portfolio Theory (MPT)
• Efficient Market Hypothesis (EMH)
• Capital Asset Pricing Model (CAPM)
• Systematic vs. Non-Systematic Investment Risk
• The Importance of the Investment Policy Statement ( IPS)

John O. Low, Institutional Investor Counsel with American Asset Management Group will share his perspective and help attendees understand the finer points of investment strategy. In addition to his work with AAMG, Mr. Low is passionate about serving the needs of the nonprofit community. He founded the Non-Profit Cooperation Circle – a model for peer to peer networking, education and support for association executives, board members and other nonprofit professionals.

REGISTER HERE

Wells Fargo Served a Major Legal Defeat Against Minnesota Nonprofits

U.S. District Court Judge Donovan Frank has shot down Wells Fargo’s request for dismissal of the civil trial following the 2010 verdict of fraud and breach of fiduciary duty by the bank. Blue Cross and Blue Shield of Minnesota, along with two other health care organizations, several pension funds, a college endowment fund, and a charitable foundation, sued Wells Fargo for misrepresenting the level of risk of their investment. The nonprofits stand to win $41 million at the civil trial in January 2013, not including punitive damages which could skyrocket into the hundreds of millions range.

The bank presented an investment program claiming it was safely conservative and could earn extra returns by lending the securities to brokers for short sale transactions. The lawsuit claims that the bank concealed the reality of the complex, long/short, structured investment which tanked along with the rest of the market in 2008.

The bank, now owned by Citigroup Inc., defends its investment vehicle, saying that the program was in accordance with investment guidelines and the investments were suitable at the time of purchase.

A word of caution: Investment brokers are ultimately selling a product. Unless they have certification as a financial planner (CFP), they owe professional due care, but not fiduciary responsibility, meaning, protecting your financial interest isn’t the top item on their list. Many brokers are also CFPs and it makes good financial sense to make sure your broker is one.

News Source: Star Tribune

#wellsfargo #lawsuit #nonprofit

EITF 12-A: Exciting Cash Flow Guidance for Donated Stock!

EITF (Emerging Issues Task Force) 12-A tackles the question on everyone’s lips: where do you put the sale of donated stock on the cash flow statement? Is it an operating expense or an investing expense?

This is why it might be keeping some of you awake at night: the cash provided (used) by operating indicate how well an organization’s activities support itself (or doesn’t). The cash provided (used) by investing activities indicates how much is going towards capital expenses but can also show if an organization is having to sell investments to pay bills.

The Task Force concluded that a nonprofit’s sale of donated securities that are unrestricted should be classified as an operating activity if it is converted to cash shortly after receipt (general practice). If the donation was restricted, then it should be included with financing cash flows.

The impact: if it’s unrestricted – it’s your operations working that brought in the donation and it should count towards the efforts of operation; if it’s restricted, it still isn’t an investment cash flow and receives treatment similar to endowment activities.

The issue is open for comments for 90 days. No effective date at this time. Read more about it here.

“Stealing from kids”

The Chronicle of Philanthropy and the Press Democrat are reporting that a federal grand jury has charged a California man with 9 counts of  wire fraud relating to the alleged theft of over $2 million from the National Education Foundation in Alexandria, VA. The organization offers grants and online classes to disadvantaged students around the world.

The scheme was to invest $2.35 million promising profitable returns in the form of high monthly interest rate payments. The organization collected an initial $274K but the remainder of the money was allegedly used for personal expenses from a private account.

The president of the organization, Appu Kattan, was quoted as saying,”To me it’s like stealing from kids, it’s horrible.”

Treasury Bonds: Is the future secure?

Nonprofit organizations tend to be heavily invested in treasury bonds because of their low volatility and relatively guaranteed return. The bull market combined with low interest rates and slow economic recovery has kept bonds in the limelight. But is it always going to be that way?

It’s fair to say that the bull market has to come to an end at some point. Whether it’s sooner or later is up for rowdy debate. Part of the beauty (and pain) of the market is that it isn’t as predictable as we might wish.

There is always debate and postulation, but this week has seen a significant increase on both sides because of the U.S. hitting its debt ceiling. The ceiling can be raised – it wouldn’t be the first time (in fact, it would be the 52nd time), and spending can be cut, but fears are being driven by the threat of default. Default would make the U.S. a “fiscally irresponsible borrower” according to Robert Rodriguez, Chief Executive of First Pacific  Advisors. Rising inflation could also cause current yields to be paid off with money that is worth less causing returns to fall, as Carmen Reinhard of Peterson Institute for International Economics asserts.

Whether we are dealing with another rapture (or subsequent lack thereof) remains to be seen, but bondholders should, at a minimum, be aware that their heretofore stalwart investment vehicle may be subject to increased volatility.

Stockpiles of Gold

The board of a Canadian charity is regretting deeming an audit too expensive after realizing that the organization has been using a large amount of revenue to stockpile gold.

 The Toronto Star reported on The Ontario Society (Coalition) of Senior Citizens’ Organizations (OCSCO), a Canadian charity with a mission is to “improve the quality of life for Ontario’s seniors”, has spent large amount of revenue stockpiling gold.

 Frustrated directors say demands that to open the books led to heated arguments with executive director Morris Jesion in the society’s Wilson Ave. boardroom near Bathurst St. An independent audit ordered by a board committee in 2009 was never done because the cost (several thousand dollars) was deemed excessive.

 The society collects about $520,000 each year, from break-open lottery ticket proceeds as well as provincial and federal grants. However, in 2010 nearly $304,000 went to salaries for the executive director, two full-time staff, a part-time bookkeeper and consultants and the society had invested about $216,000 in gold investments.

 The society’s 2010 annual report boasts three pages of programming. It details a workshop in Sudbury to discuss the challenges seniors face in rural areas; computer training for seniors across the Greater Toronto Area; and five multicultural fairs.

 But critics say the society is piggybacking on the success of other groups, which organized and ran several of the events and programs while the society either helped fund or oversee them

To read more about it see The Toronto Star Article.

Madoff Claims Banks “Didn’t Want to Know”

The first interview with Bernie Madoff since his arrest in December 2008 hit the press yesterday in a New York Times article. During the interview, Madoff claimed that the banks had an attitude of “if you are doing something wrong, we don’t want to know about it.” He stated that the banks were complicit in the fraud by maintaining a “willful blindness” to obvious discrepancies in his reporting. His focus during the interview stayed on the wrong-doing of the banks and defrayed his own guilt by claiming investors had made significant real gains beyond what they could have earned elsewhere before any of the fraudulent activity even began.

More on the interview here: Huffington Post

Webinar: Investment Strategies – Where Do We Go From Here?

In the face of turbulence and volatility in the investment markets over the past two years, many nonprofit organizations are wondering what to do next.  We are pleased to invite you to attend a panel discussion on February 17th where experts from Aronson LLC, Goldman Sachs, Wells Fargo Advisors and PNC Bank will share their insight on topics affecting asset management in the current economic environment.  Get answers to your most pressing questions, including:

• What modifications to asset allocation are being made based on lessons learned over the last two years?
• Are previously unexplored asset classes and alternative investments now gaining wider acceptance?
• How do hedge funds fit into nonprofit portfolios?  
• How do you balance your portfolio strategy with spending requirements?

Seats are limited, so register today for this important panel discussion!

 Type: Webinar

Date: February 17, 2011

Time: 11:00am-12:00pm

Price: $0

Location: Via WebEx

Increased Oversight of Brokers

The Securities and Exchange Commission issued a report on Saturday issuing their opinion that investment advisers and stockbrokers should be subject to the same fiduciary standard of conduct. Fiduciary duty can be defined as a legal or ethical relationship of confidence or trust regarding the management of money or property between two or more parties. This means that someone with fiduciary responsibility is held to conduct that puts the investor’s best interest first. The report notes that the lay investor is largely unaware that there is a distinction and differing level of responsibility between the two positions.

Investment advisers MUST adhere to a higher standard of conduct in order to be registered. Certified financial planners must also adhere to this code of conduct. Stock brokers who are not registered or certified as financial planners are not held to this same standard of fiduciary responsibility AND they work on commission. In addition, you may have unwittingly signed away your right to sue if you didn’t read the fine print of your broker agreement. The SEC is recommending that this lower level of fiduciary responsibility be abolished and that brokers should be held to the same standard. Currently, brokers are not held to putting the investor’s best interest first when making recommendations. The suitability of a particular investment may be lower on the list of concerns for a non-fiduciary broker. Continue reading »