YNPN Nonprofit Dictionary

Nonprofit jargon can be a hard thing to pick up, but it can enhance your speaking ability and your image.  Want to get the cliff notes on what you overheard your boss talking about this morning?  Check out our YNPN Nonprofit Dictionary below.

Know of something that isn't on here but should be?  Send us your thoughts at info@denverynpn.org.

501(c)(3)
Audit
Business Planning
Board of Directors
Capacity-Building and Technical Assistance
Capital Campaign
Colorado Common Grant Application (CGA)
Colorado Common Grant Report Form (CGRF)
Diversity
Endowment
Federated Campaign and Federated Fund
Fiduciary Responsibility
Financial Statements and Documents
  Budget
  Cash Flow Statement and Cash Flow Projections
  Statement of Financial Position or Balance Sheet
  Statement of Activities or Income and Expense Statement
Foundation
  Community Foundation
  Private Foundation
  Family Foundation
  Operating Foundation
  Grantmaking Public Charity 
  Supporting organization
Inclusiveness
IRS Determination Letter 
IRS Form 990
IRS Form 1023
Outputs versus Outcomes 
Planned Giving
Program-Based Budgeting
Program Evaluation, Importance of...
Restricted versus Unrestricted Funding
Stewardship
Strategic Planning
Technical Assistance and Capacity-Building

501(c)(3)

This refers to the section of the IRS code relating to nonprofit charitable organizations that grants exemption from some federal income tax.  The 501(c)(3) code exemptions apply to corporations, funds, or foundations, organized and operated exclusively for religious, charitable, testing for public safety, literacy, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.  While 501(c)(3) organizations are only one of many types of federally tax exempt organizations, such organizations are what most people think of when hearing the term "nonprofit."

Adaptive Capacity and the Learning Organization

Adaptive capacity is the ability for an organization to learn from its successes and failures, to gather and analyze information, and to learn from these processes in a way that improves the organization's effectiveness, efficiency, and/or ability to achieve the organization's mission. 

Audit

An audit is a review of an organization's financial statements, transactions, and internal controls by an independent organization to test their accuracy and completeness.  Once an audit is complete, the auditor offers an opinion about how accurately the organization's financial statements reflect the organization's financial position and whether they comply with Generally Accepted Accounting Principles (GAAP).  Clean audits are very important for organizations who receive a significant amount of their funding from institutional donors like foundations and governmental entities. 

Business Planning

Nonprofits often engage in business planning to:

• Define the organization's business model
• Identify what the organization plans to accomplish (desired impact)
• Identify the organization's activities that will help achieve the desired impact
• Identify the necessary resources
• An explanation of how the organization will measure its results

Business planning is most appropriate for organizations with complex funding sources, plans to grow, or audacious goals.  The process of developing a business plan and a strategic plan are often similar within nonprofit organizations.  (from the Bridgespan Group - An Introduction to Business Planning for Nonprofits). 

Board of Directors

The State of Colorado laws governing nonprofit organizations require that such organizations have a board of directors composed of at least three members, a president, Secretary, and treasurer (note: board best practices indicate that boards should have more than three members - three is simply the legal standard in Colorado). 

Board members have duties that fall into the following categories (from BoardSource):

• Duty of care - describes the level of competence that is expected of a board member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.
• Duty of loyalty - a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization.
• Duty of obedience - requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission.

Additionally federal and state laws specify certain specific fiduciary duties for board members (see Fiduciary Responsibility).  Many nonprofit organizations also define additional responsibilities for board members, including evaluating the executive director, participating in fundraising activities, helping the organization engage in planning, etc.  See the Colorado Nonprofit Association's Principles and Practices for Nonprofit Excellence for more information about board and governance best practices.

Capacity-Building and Technical Assistance

These terms are used to describe the activities that help an organization achieve its mission more effectively.  Technical assistance could include helping an organization with its technology needs, setting up an accounting system, or converting a database, often through the direct assistance of a consultant or "how-to" training.  Capacity building can include developing a strategic plan, implementing a fundraising plan, developing a case statement, rethinking a governance structure, or creating a marketing strategy.  Both capacity building and technical assistance often involve an outside consultant or expert and the two activities often overlap. 

Capital Campaign

A capital campaign is a fundraising strategy used to raise money for a capital purchase, like a building or a piece of equipment.  The basic elements of a capital campaign include a purpose, a case statement (how the campaign will help the organization better achieve its mission), fundraising goal, timeline, and a strategy to raise the money.  The Gates Family Foundation in Denver produces an excellent guide to capital campaigns. 

Colorado Common Grant Application (CGA)

The CGA is an grant application accepted by a large number of foundations within Colorado, helping organizations streamline their grantwriting process by using a template to apply for multiple grants.  The CGA was recently revised to reflect nonprofit best practices that have emerged since the original CGA was developed in the late 1980s.  To learn more about the CGA and access the CGA User's Guide (an excellent grantwriting resource), please visit http://www.coloradocommongrantforms.org/.

Colorado Common Grant Report Form (CGRF)

The CGRF is the report companion to the CGA.  Like the CGA streamlines the application process, the CRGF streamlines the reporting process.  The CGRF is used by many foundations and is currently being revised to complement the newly revised CGA. 

Diversity

From The Denver Foundation: Diversity describes the extent to which an organization has people from diverse backgrounds and communities working as board members, staff, and/or volunteers.  See also: Inclusiveness.

Endowment

A nonprofit typically establishes an endowment to increase the organization's sustainability and provide an income stream, often for a specific purpose like maintaining a building or supporting a program.  An endowment is created when gifts are restricted in a way that prevents spending the principal, with the goal of having the principal exist in perpetuity (forever).  The principal is then invested and the proceeds from the investments are used to generate income for the organization.  Let's say a nonprofit raises $1 million for an endowment to support the organization's operating expenses and the $1 million is invested as the principal.  The $1 million can never be touched, but the interest can be taken out to support programs or reinvested.  If the rate of return on the principal is 7% or $70,000, the organization can use that $70,000 to support the organization or can reinvest it with the principal. 

Federated Campaign and Federated Fund

A federated campaign is a funding drive that raises money from a variety of sources and then distributes the proceeds to a variety of organizations (sometimes with an application process, sometimes with the donor designating a beneficiary).  A federated campaign is run by a federated fund, sometimes also known as a community giving fund, a combined campaign, or a workplace giving drive.  The United Way, the Federal Combined Campaign, and Community Shares are all examples of federated funds or federated campaigns. 

Fiduciary Responsibility

Simply, fiduciary responsibility refers to a board of director's legal responsibilities related to their service on the board, including accepting responsibility for oversight of the organization's financial assets, financial management, keeping records, ensure compliance with applicable laws, ensure compliance with terms of donations, and filing applicable forms and returns.  

Financial Statements and Documents

Financial statements and documents communicate information about an organization's financial position.  Common financial statements and documents include:

Budget

A budget is a document that projects income and expenses for an organization and its programs, activities, and functions, often for a year at a time.  Budgets are often presented in a format comparing the budget to actual, often on a monthly or quarterly interval.  Budgets can be used as planning documents and can help organizational leadership in managing an organization's income and expenses over the budget period.

Cash Flow Statement and Cash Flow Projections

Understanding how cash flows in and out of an organization or program is essential in maintaining sustainability.  A cash flow statement shows what income is coming in and what is going out during a certain period of time.  Cash flow projections can help an organization time expenses by considering when income will be recognized. 

Statement of Financial Position or Balance Sheet

This financial statement portrays an organizations assets and liabilities at a certain point in time by totaling assets, subtracting liabilities, and calculating net worth or net loss.

Statement of Activities or Income and Expense Statement

This financial statement calculates all of the organizations revenue and subtracts all of the organization's expenses, resulting in total assets.  This information is presented in a way that gives an historical view of the organization's activities over a certain period of time and provides insight into how a nonprofit organization manages its finances and activities.

Foundation

The term "foundation" typically refers to an organization that makes grants to other organizations for charitable purposes.  Some types of foundations include:

Community Foundation

A community foundation is an organization that gathers donations from numerous supporters and then pools and invests those donations, using the proceeds to fund grants to nonprofit organizations.  Community foundations often involve community members in their grantmaking decisions and trustees represent the communities served by the foundation.  The Denver Foundation is a community foundation. 

Private Foundation

The term private foundation refers to a portion of the IRS tax code that defines and sets restrictions for a certain type of foundation. 

From the Foundation Center: 

"The Foundation Center defines a private foundation as a nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.  To understand what a private foundation is, it helps to understand what it is not. Every U.S. and foreign charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is a "private foundation" unless it demonstrates to the IRS that it falls into another category. Broadly speaking, organizations that are not private foundations are public charities as described in Section 509(a) of the Internal Revenue Service Code. 

Another difference between private foundations and public charities is that public charities generally derive their funding or support primarily from the general public, receiving grants from individuals, government, and private foundations. Although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities. A private foundation, on the other hand, usually derives its principal fund from a single source, such as an individual, family, or corporation, and more often than not is a grantmaker. A private foundation does not solicit funds from the public."

Family Foundation

A family foundation is often started when an individual or family creates a foundation and donates some of their personal wealth.  This donation is invested and the proceeds from the interest is used to fund grants for nonprofit organizations.  Family foundations are sometimes created when the donor is living and sometimes after the donor passes away and leaves a bequest to the foundation.  The donor or the donors family often make up the majority of trustees of family foundations and are often very involved in grantmaking decisions.  The Bill and Melinda Gates Foundation and the Anschutz Family Foundation are two examples of family foundations.  Family foundations are private foundations under the IRS code governing nonprofit organizations.

Operating Foundation

An operating foundation is a foundation that operates its own programs to accomplish its charitable mission instead of or in addition to funding programs.  Instead of raising money like a typical nonprofit organization, most operating foundations funds their programs from the foundation's endowment.  The Piton Foundation is an operating foundation. 

Grantmaking Public Charity

A grantmaking public charity is a nonprofit organization that raises money and uses all or some of that money to make grants in line with its mission to other nonprofit organizations.  Susan G. Komen for the Cure, the American Cancer Society, and the Morris Animal Foundation are granmaking public charities.

Supporting organization

"Supporting organization" is a term that refers to an organization that raises money for the sole purpose of supporting another entity.  An example of a supporting organization follows:  the Saint Joseph Hospital is a nonprofit organization and the Saint Joseph Hospital Foundation is a supporting organization for Saint Joseph Hospital.  All of the money raised by the Saint Joseph Hospital Foundation supports Saint Joseph Hospital.  Even though the Saint Joseph Foundation has the word "foundation" in its name, the organization's main purpose is supporting the hospital, not making grants to other organizations. 

Inclusiveness

From The Denver Foundation: Inclusive organizations not only have diverse individuals involved; more importantly, they are learning-centered organizations that value the perspectives and contributions of all people, and strive to incorporate the needs and viewpoints of diverse communities in o the design and implementation of universal and inclusive programs.  Inclusive organizations are, by definition, diverse at all levels. 

IRS Determination Letter

This letter is produced by the IRS when an organization applies for tax exemption.  The letter communicates the IRS decision on tax exemption, or the determination.  This letter is often supplied with grant requests to help funders ensure that they only make grants to organizations with current tax exempt status. 

IRS Form 990

The IRS Form 990 is the tax return document that is filed by tax exempt organizations.  Different types of tax exempt organizations and organizations with different assets and gross receipts file slightly different 990 forms and schedules (forms that are used to provide additional specific information related to the type of organization filing the document).  Form 990s can be accessed for free through http://www.guidestar.org/ and are considered public information. 

IRS Form 1023

The IRS Form 1023 is used to apply for tax-exempt status from the federal government. 

Outputs versus Outcomes

These two terms are often used when discussing evaluation and impact for nonprofit organizations.  Increasingly, funders are expecting nonprofits to demonstrate outcomes, in addition to outputs.  An output summarizes what activity took place.  An outcome communicates what what achieved.  Let's say an organization is providing education about obesity.  The provided obesity prevention and nutrition education to 100 people.  That is an output, or the activities that took place.  Through this education, 60% of the participants reported eating at least five more fruits or vegetable servings a week than before they participated in the education program.  This is an outcome, or what was achieved. 

Planned Giving

Planned giving is a sophisticated fundraising strategy that focuses on encouraging donors to make a charitable gift upon the donor's death.  A simple planned giving strategy is encouraging donors to name a nonprofit in their will.  More sophisticated planned giving vehicles include charitable remainder trusts, gift annuities, and charitable lead trusts.  The National Committee on Planned Giving and the Colorado Planned Giving Roundtable are good sources of information about planned giving. 

Program-Based Budgeting

Program-based budgeting is the practice of allocating the costs of operating an organization across an organization's programs, activities, or functions.  Incomes and expenses are allocated to programs, which helps an organization's management and board understand if programs are self-sufficient or are subsidizing or subsidized by other programs.  One major benefit of program-based budgeting is that this practice helps an organization understand the true costs of operating programs.  

Program Evaluation, Importance of...

Many nonprofit organizations evaluate their effectiveness based upon their activities, not their accomplishments or impact.  Institutional funders like foundations and governmental entities and more sophisticated donors are becoming more and more interested in the impact and accomplishments, not just activities.  Because of this shift in thinking, nonprofit organizations need to develop an evaluation strategy that analyzes the results of the organizations activities, not just the activities in and of themselves.  Once the organization gathers evaluative information, the organization should then use the information to determine effectiveness.  If a program is determined to be ineffective or less effective than is could be, an organization should determine a strategy to improve results and effectiveness.  Also see "Outputs versus Outcomes." 

Restricted versus Unrestricted Funding

Funding received by an organization is either unrestricted, temporarily restricted, or permanently restricted.  Unrestricted funding can be used in any way that the organization chooses.  Temporarily restricted or restricted funding must be used exactly as specified by a donor.  for example, if a foundation makes a grant for a program, that grant must be exclusively used to operate that program in the way that was specified to the funder.  Nonprofit organizations should only accept restricted funding if they are capable of tracking expenditures related to the funding in the organization's financial system and the activities related to the funding.  

Stewardship

Stewardship refers to the practice of ensuring that dollars invested in charitable activities are spent in ways that help achieve the mission of an organization and in accordance with the wishes of the donor.  Stewardship is essential in building trust with donors and in complying with the legal and ethical responsibilities that accompany tax exempt status. 

Strategic Planning

Strategic planning is the process of identifying the long-term vision for an organization and then identifying the strategies necessary to achieve the identified vision.  Nonprofit strategic planning often includes:

• Assessing an organization's current status, both from internal and external perspectives
• defining a vision for the organization
• revisiting the mission statement
• identifying and prioritizing strategic goals
• identifying the objectives and action steps necessary to achieve those strategic goals
• Defining a timeline
• Assigning responsibilities

The most effective strategic planning processes involve all of an organization's major stakeholders throughout the full process.  A strategic plan can be used to help an organization prioritize its activities, make decisions, stay focused, and allocate resources. 

Technical Assistance and Capacity-Building

These terms are used to describe the activities that help an organization achieve its mission more effectively.  Technical assistance could include helping an organization with its technology needs, setting up an accounting system, or converting a database, often through the direct assistance of a consultant or "how-to" training.  Capacity building can include developing a strategic plan, implementing a fundraising plan, developing a case statement, rethinking a governance structure, or creating a marketing strategy.  Both capacity building and technical assistance often involve an outside consultant or expert and the two activities often overlap.