I was telling my friend (who recently got into HPMOR and lurks a little on LW) about Holden’s critique, specifically with regard to the theft. He’s an accounting and finance major, and was a bit taken aback. His immediate response was to ask if SI had an outside accountant audit their statements. We searched around and it doesn’t look like to us that you do. He immediately said that he would never donate to an organization that did not have an accountant audit their statements, and knowing how much I follow LW, immediately advised me to not to either. This seems like a really good step for addressing the transparency issues here, and now that he mentions it, seems a very prudent and obvious thing for any nonprofit to do.
Edit 2: Luke asked me to clarify, I am not necessarily endorsing not donating to SI because of this, unless this problem is a concern of yours. My intent was only to suggest ways SI can improve and may be turning away potential donors.
Edit: He just mentioned to me that the big four accounting firms often do pro bono work because it can be a tax write-off. This may be worth investigating.
Also note that thefts of this size are not as rare as they appear, because many non-profits simply don’t report them. I have inside knowledge about very few charities, but even I know one charity that suffered a larger theft than SI did, and they simply didn’t tell anybody. They knew that donors would punish them for the theft and not at all reward them for reporting it. Unfortunately, this is probably true for SI, too, which did report the theft.
Yep. We knew that would happen at the time—it was explicitly discussed in the Board meeting—and we went ahead and reported it anyway, partly because we didn’t want to have exposable secrets, partly because we felt honesty was due our donors, and partially because I’d looked up embezzlement-related stuff online and had found that a typical nonprofit-targeting embezzler goes through many nonprofits before being reported and prosecuted by a nonprofit “heroic” enough, if you’ll pardon the expression, to take the embarrassment-hit in order to stop the embezzler.
I suspect that some of the hit was due to partial disclosure. Outsiders were left guessing what exactly had transpired and why, and what specific steps were taken to address the issue. Maybe you had to do it this way for legal reasons, but this was never spelled out explicitly.
Yes, we’re currently in the process of hiring a bookkeeper (interviewed one, scheduling interviews with 2 others), which will allow us to get our books in enough order that an accountant will audit our statements. We do have an outside accountant prepare our 990s already. Anyway, this all requires donations. We can’t get our books cleaned up and audited unless we have the money to do so.
Also, it’s my impression that many or most charities our size and smaller don’t have their books audited by an accountant because it’s expensive to do so. It’s largely the kind of thing a charity does when they have a bigger budget than we currently do. But I’d be curious to see if there are statistics on this somewhere; I could be wrong.
And yes, we are investigating the possibility of getting pro bono work from an accounting firm; it’s somewhere around #27 on my “urgent to-do list.” :)
Edit: BTW, anyone seriously concerned about this matter is welcome to earmark their donations for “CPA audit” so that those donations are only used for (1) paying a bookkeeper to clean up our processes enough so that an accountant will sign off on them, and (2) paying for a CPA audit of our books. I will personally make sure those earmarks are honored.
How many possible universes could here be (what % of the universes), where not donating to a charity that does not do accounting right when pulling in 500 grand a year, would result in destruction of mankind? 500 grand a year is not so little when you can get away with it. My GF’s family owns a company smaller than that (in the US) and it has books in order.
Yeah, that would be really unfair, wouldn’t it? And so it’s hard to believe it could be true. And so it must not be.
(I actually don’t believe it is likely to be true. But the fact it sounds silly and unfairly out-of-proportion is one of the worst possible arguments against it.)
You can’t deduct the value of services donated to nonprofits. Not sure your friend is as knowledgeable as stated. Outside accounting is expensive and the IRS standard is to start doing it once your donations hit $2,000,000/year, which we haven’t hit yet. Also, SIAI recently passed an IRS audit.
Fifteen seconds of Googling resulted in Deloitte’s pro-bono service, which is done for CSR and employee morale rather than tax avoidance. Requests need to originate with Deloitte personnel- I know a friend who works there who might be interested in LW, but it’d be a while before I’d be comfortable asking him to recommend SI. It’s a big enough company that it’s likely that there are some HPMOR or LW fans that work there.
“Applications for a contribution of pro bono professional services must be made by Deloitte personnel. To be considered for a pro bono engagement, a nonprofit organization (NPO) with a 501c3 tax status must have an existing relationship with Deloitte through financial support, volunteerism, Deloitte personnel serving on its Board of Directors or Trustees, or a partner, principal or director (PPD) sponsor (advocate for the duration of the engagement). External applications for this program are not accepted. Organizations that do not currently have a relationship with Deloitte are welcome to introduce themselves to the Deloitte Community Involvement Leader in their region, in the long term interest of developing one.”
Deloitte is requiring a very significant investment from its employees before offering pro bono services. Nonetheless, I have significant connections there and would be willing to explore this option with them.
You might want to pm this directly to lukeprog to make sure that he sees this comment. Since you replied to Vaniver, he may have not seen it, and this seems important enough to merit the effort.
In California, a non-profit is required to hire a CPA audit once donations hit $2m/yr, which SI hasn’t hit yet. That’s the way in which outside accounting is “IRS standard” after $2m/yr.
SI is in the process of passing an IRS audit for the year 2010.
Eliezer is right: RobertLumley’s friend is mistaken:
can the value of your time and services while providing pro bono legal services qualify as a charitable contribution that is deductible from gross income on your federal tax return? Unfortunately, in a word, nope.
According to IRS Publication 526, “you cannot deduct the value of your time or services, including blood donations to the Red Cross or to blood banks, and the value of income lost while you work as an unpaid volunteer for a qualified organization.”
He may be referring to the practice of being paid for work, then giving it back as a tax-deductible charitable donation.
My understanding is that you can also deduct expenses you incur while working for a non-profit—admittedly not something I can see applying to accounting. There’s also cause marketing, but that’s getting a bit further afield.
“the big four accounting firms often do pro bono work because it can be a tax write-off” doesn’t sound much like “being paid for work, then giving it back as a tax-deductible charitable donation”.
In talking to him, I think he may have just known they do pro bono work and assumed it was because of taxes. Given Vaniver’s comment, this seems pretty likely to me. He did say that the request usually has to originate from inside the company, which is consistent with that comment.
Regarding the theft:
I was telling my friend (who recently got into HPMOR and lurks a little on LW) about Holden’s critique, specifically with regard to the theft. He’s an accounting and finance major, and was a bit taken aback. His immediate response was to ask if SI had an outside accountant audit their statements. We searched around and it doesn’t look like to us that you do. He immediately said that he would never donate to an organization that did not have an accountant audit their statements, and knowing how much I follow LW, immediately advised me to not to either. This seems like a really good step for addressing the transparency issues here, and now that he mentions it, seems a very prudent and obvious thing for any nonprofit to do.
Edit 2: Luke asked me to clarify, I am not necessarily endorsing not donating to SI because of this, unless this problem is a concern of yours. My intent was only to suggest ways SI can improve and may be turning away potential donors.
Edit: He just mentioned to me that the big four accounting firms often do pro bono work because it can be a tax write-off. This may be worth investigating.
Also note that thefts of this size are not as rare as they appear, because many non-profits simply don’t report them. I have inside knowledge about very few charities, but even I know one charity that suffered a larger theft than SI did, and they simply didn’t tell anybody. They knew that donors would punish them for the theft and not at all reward them for reporting it. Unfortunately, this is probably true for SI, too, which did report the theft.
Yep. We knew that would happen at the time—it was explicitly discussed in the Board meeting—and we went ahead and reported it anyway, partly because we didn’t want to have exposable secrets, partly because we felt honesty was due our donors, and partially because I’d looked up embezzlement-related stuff online and had found that a typical nonprofit-targeting embezzler goes through many nonprofits before being reported and prosecuted by a nonprofit “heroic” enough, if you’ll pardon the expression, to take the embarrassment-hit in order to stop the embezzler.
I suspect that some of the hit was due to partial disclosure. Outsiders were left guessing what exactly had transpired and why, and what specific steps were taken to address the issue. Maybe you had to do it this way for legal reasons, but this was never spelled out explicitly.
Pretty sure it was spelled out explicitly.
Yes, we’re currently in the process of hiring a bookkeeper (interviewed one, scheduling interviews with 2 others), which will allow us to get our books in enough order that an accountant will audit our statements. We do have an outside accountant prepare our 990s already. Anyway, this all requires donations. We can’t get our books cleaned up and audited unless we have the money to do so.
Also, it’s my impression that many or most charities our size and smaller don’t have their books audited by an accountant because it’s expensive to do so. It’s largely the kind of thing a charity does when they have a bigger budget than we currently do. But I’d be curious to see if there are statistics on this somewhere; I could be wrong.
And yes, we are investigating the possibility of getting pro bono work from an accounting firm; it’s somewhere around #27 on my “urgent to-do list.” :)
Edit: BTW, anyone seriously concerned about this matter is welcome to earmark their donations for “CPA audit” so that those donations are only used for (1) paying a bookkeeper to clean up our processes enough so that an accountant will sign off on them, and (2) paying for a CPA audit of our books. I will personally make sure those earmarks are honored.
How many possible universes could here be (what % of the universes), where not donating to a charity that does not do accounting right when pulling in 500 grand a year, would result in destruction of mankind? 500 grand a year is not so little when you can get away with it. My GF’s family owns a company smaller than that (in the US) and it has books in order.
Yeah, that would be really unfair, wouldn’t it? And so it’s hard to believe it could be true. And so it must not be.
(I actually don’t believe it is likely to be true. But the fact it sounds silly and unfairly out-of-proportion is one of the worst possible arguments against it.)
You can’t deduct the value of services donated to nonprofits. Not sure your friend is as knowledgeable as stated. Outside accounting is expensive and the IRS standard is to start doing it once your donations hit $2,000,000/year, which we haven’t hit yet. Also, SIAI recently passed an IRS audit.
Fifteen seconds of Googling resulted in Deloitte’s pro-bono service, which is done for CSR and employee morale rather than tax avoidance. Requests need to originate with Deloitte personnel- I know a friend who works there who might be interested in LW, but it’d be a while before I’d be comfortable asking him to recommend SI. It’s a big enough company that it’s likely that there are some HPMOR or LW fans that work there.
Interesting!
“Applications for a contribution of pro bono professional services must be made by Deloitte personnel. To be considered for a pro bono engagement, a nonprofit organization (NPO) with a 501c3 tax status must have an existing relationship with Deloitte through financial support, volunteerism, Deloitte personnel serving on its Board of Directors or Trustees, or a partner, principal or director (PPD) sponsor (advocate for the duration of the engagement). External applications for this program are not accepted. Organizations that do not currently have a relationship with Deloitte are welcome to introduce themselves to the Deloitte Community Involvement Leader in their region, in the long term interest of developing one.”
Deloitte is requiring a very significant investment from its employees before offering pro bono services. Nonetheless, I have significant connections there and would be willing to explore this option with them.
You might want to pm this directly to lukeprog to make sure that he sees this comment. Since you replied to Vaniver, he may have not seen it, and this seems important enough to merit the effort.
Thanks for the excellent idea! I did in fact email Lukeprog personally to let him know. :)
Thanks. As I said, this is something on our to-do list, but I didn’t know about Deloitte in particular.
Clarifications:
In California, a non-profit is required to hire a CPA audit once donations hit $2m/yr, which SI hasn’t hit yet. That’s the way in which outside accounting is “IRS standard” after $2m/yr.
SI is in the process of passing an IRS audit for the year 2010.
Eliezer is right: RobertLumley’s friend is mistaken:
He may be referring to the practice of being paid for work, then giving it back as a tax-deductible charitable donation. My understanding is that you can also deduct expenses you incur while working for a non-profit—admittedly not something I can see applying to accounting. There’s also cause marketing, but that’s getting a bit further afield.
In the one instance of a non-profit getting accounting work done that I know of, the non-profit paid and then received an equal donation. Magic.
This is exactly equivalent to not paying, which is precisely the IRS rationale for why donated services aren’t directly deductible.
“the big four accounting firms often do pro bono work because it can be a tax write-off” doesn’t sound much like “being paid for work, then giving it back as a tax-deductible charitable donation”.
In talking to him, I think he may have just known they do pro bono work and assumed it was because of taxes. Given Vaniver’s comment, this seems pretty likely to me. He did say that the request usually has to originate from inside the company, which is consistent with that comment.
Ah. That would make more sense.