Guidance on 2007 CFC National/International Applications Resulting from Changes to the CFC Regulations (Effective November 20, 2006)

CFC Memorandum 2006-21

November 27, 2006

This memorandum provides guidance on changes to the 2007 CFC Application for National/International Organizations as a result of the revisions to the CFC regulations that went into effect on November 20, 2006. This document modifies CFC Memorandum 2004-10 and prior guidance to conform to the current regulations. Part I of this guidance applies to national/international independent organizations as well as federation members. (Note: under the new regulations the term “independent” replaced the term “unaffiliated”) Part II of this guidance applies only to national/international federations.

The following changes and clarifications are in effect for the 2007 application.

• All national/international applicants must provide a schedule of real services, benefits, assistance, or program activities provided within the past three years, the state or country of service, and the year of service. The description must be sufficient for OPM to determine that the service, benefit, assistance, or program activity was not de minimis.
• Private foundations and units of government are not eligible to participate in the CFC. OPM will verify each applicant's I.R.S. Code § 501(c)(3) tax-exempt status with the IRS.
• OPM no longer evaluates whether revenues and expenses in the audited financial statements reconcile with those contained in the IRS Form 990
• Applicants with administrative and fundraising rates that exceed 25% of total revenue are no longer required to submit an explanation and formal plan for reduction of the rate.
• Independent organizations and federation members are not required to submit an annual report or information on board of directors meeting dates or locations, or directors’ terms of office. This requirement is retained for federations.
• A federation must reestablish eligibility each year. However, only the applications of its new and former members that were not within the federation, as a CFC participant, in the previous year's campaign need accompany the annual federation application once an organization has obtained federation status.

Each organization that is deemed eligible to participate in the CFC is entitled to only one listing in the CFC brochure, regardless of the number of federations to which that organization belongs, with the exception that a national organization and its local affiliate may both be listed if the requirements of 5 CFR § 950.401(i) are met. If it comes to the attention of OPM that an organization has applied more than once, OPM will contact the organization directly to request written confirmation of the one application to be considered. In the absence of a satisfactory response, all of the applications may be denied.

PART I - Requirements for National/International Independent Organizations and Federation Members

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Statement of Real Services, Benefits, Assistance, or Program Activities
(Attachment A)

1. In accordance with 5 CFR §950.202(a) each organization seeking national/international list eligibility must certify that it provides or conducts real services, benefits, assistance, or program activities in 15 or more different states or one foreign country over the three–year period immediately preceding the start of the year involved (i.e. for the 2007 campaign period, services within the time period 2004-2006).

   In addition to the above certification, the application must attach a schedule, called Attachment A, which details the services in each state (minimum 15) or foreign country (minimum 1), including the year of service. The schedule must make a clear showing of national or international presence through the provision of services, benefits, assistance, or program activities. OPM will not accept publications or other documents in lieu of a schedule detailing this information.

   “De minimis” services or benefits will not be accepted as a basis for qualification as a national or international organization. OPM, in its sole discretion, will determine whether services, benefits, assistance, or program activities are “de minimis” based on whether, under the facts and circumstances presented, they fail to constitute more than a minimal level, type or amount.

   Factors that OPM will consider in determining whether an organization’s services, benefits, assistance, or program activities are de minimis include, but are not limited to:

   • nature and extent of the service, benefit, assistance, or activity;
   • frequency, continuity, and duration;
   • impact on, or benefit to, beneficiaries;/li>
   • number of beneficiaries.

   Participating organizations are required to certify (Statement #3) that services, benefits, assistance, or program activities affecting human health and welfare were provided in the previous calendar year. Such services must appear in Attachment A of the application. Failure to list any that affect human health and welfare for the year prior to the application year will result in a denial of the application.

2. Web-based Services

   In order to meet the requirements of 5 CFR §950.202(a), the Attachment A for web– based service organizations must include service logs or other records indicating the geographic distribution of users in each state, and must demonstrate the scope of services received by users over the three-year period immediately preceding the start of the campaign year involved.

   In addition to the above required information, two of the three following types of information must be included in the Attachment A to further demonstrate the provision of real services, benefits, assistance, or program activities:

   • Evidence that recipients, including members of the general public, dues paying members or affiliate organizations, have registered for use of the website;
   • Summary reports that document customer feedback, through service satisfaction or utilization surveys or other mechanisms;
   • Documented evidence that recipients of web-based services paid a fee for the service.

   Reports that reflect only the number of hits to a website are not sufficient, by themselves, to establish the provision of real services in Attachment A.

IRS Determination Letter (Attachment B)

1. 501(c)(3) Status
   Every CFC applicant must demonstrate that it is recognized by the Internal Revenue Service (IRS) as tax-exempt under 26 U.S.C. §501(c)(3) to which contributions are tax–deductible pursuant to 26 U.S.C. §170(c)(2) and that the organization is classified as a public charity under 26 U.S.C. §509(a). Private foundations and units of government are not eligible to participate in the CFC.

2. IRS Verification
   Each applicant’s 501(c)(3) status will be verified with the IRS. Applicants whose current 501(c)(3) status cannot be confirmed by the IRS will be denied participation. OPM encourages organizations to request current letters from the IRS confirming their tax-exempt status. This request can be made by contacting the IRS at (877) 829-5500.

   National/international organizations that are part of an IRS group exemption must provide a copy of the IRS letter granting the group exemption, as well as the list of subordinates that are covered by the group exemption. The EIN on the applicant’s Form 990 must match the EIN on the IRS determination letter.

   Bona–fide chapters or affiliates of a national organization that do not have an IRS determination letter for the local organization must provide a certification signed by either the Chief Executive Officer (CEO) or CEO equivalent of the national organization. Such certification must state that the local charitable organization operates as a bona–fide chapter or affiliate in good standing of the national organization and is covered by the national organization’s 501(c)(3) tax–exemption, IRS Form 990 and audited financial statements, to the extent required by regulation. A copy of the national organization’s 501(c)(3) letter must accompany the CEO’s certification.

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Audited Financial Statements (Attachment C)

Reporting Requirements
All national/international organizations are required to submit audited financial statements, regardless of total revenues. OPM no longer evaluates whether the revenues and expenses in the audited financial statements reconcile with the IRS Form 990 (although the IRS Form 990 does contain an internal reconciliation against audited financial statements at Part IV-A & B).

Organizations seeking national/international CFC eligibility are required to account for their funds in accordance with Generally Accepted Accounting Principles (GAAP), which requires an accrual based accounting system. Both the IRS Form 990 and the audited financial statements must be prepared using the accrual method. CFC eligibility will be denied to organizations using any method of accounting other than the accrual basis (such as the cash basis, modified cash basis, and modified accrual basis of accounting.)

IRS Form 990 (Attachment D)

1. A national/international applicant must certify, as appropriate, that it has included a copy of the IRS Form 990 that was submitted to the IRS; or, that it is not required by the IRS to file a Form 990 but has completed a pro forma copy for CFC purposes only.

   An organization that is required to submit an IRS Form 990 on an annual basis is not permitted to submit a pro forma document with its application. An organization that files with the IRS must submit with its application a complete IRS Form 990, including all supplemental statements and Schedule A, if applicable, to be eligible for the CFC regardless of whether or not the IRS requires the organization to file the Form 990. IRS Forms 990EZ, 990PF, and comparable forms will not be accepted. However, smaller organizations that file Form 990EZ may submit it with page 1 and Part V of the Form 990 attached.

2. Officer, Director, Trustee and Key Employee Compensation Must be Set Forth in IRS Form 990
   Part V of the IRS Form 990 requires the organization to include a “List of officers, directors, trustees, and key employees (List each one even if not compensated).” An organization’s IRS Form 990 that does not include a list of the officers, Board of Directors, trustees and key employees, and their compensation, if any, is incomplete and will result in a denial. If an officer, director, trustee, or key employee is not compensated, the compensation column must reflect $0.

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Administrative and Fundraising Rate (AFR)

OPM no longer requires an explanation and formal plan to reduce administrative and fundraising expenses if an organization’s AFR exceeds 25 percent. Applicants are still required to calculate and provide their AFR. If the organization is admitted, its AFR will appear next to the organization’s listing.

PART II - Requirements for National/International Federations

National/international federations must adhere to the guidance provided above, in Part I of this guidance, with the following exceptions and additions. This section does not pertain to independent organizations or federation members.

A new federation (one that did not participate in the prior campaign year) must submit, along with its own application, complete applications for all of its member organizations, including each organization's administrative and fundraising rate.

A federation that participated in the prior year must submit a complete application for itself as well as each member that is new to the federation. A federation member is considered to be new even if it participated in the prior year as an independent organization or as a member of another federation, or was denied participation as a member of the applicant federation in the prior year. A federation must submit the complete application of any new member organization upon OPM’s request.

Statement of Real Services, Benefits, Assistance, or Program Activities (Attachment A)

Federations must provide as their Attachment A, a list of all eligible member organizations, including their legal names, EINs, and administrative and fundraising rates. Each federation must have at least 15 member organizations, not including itself, that meet the eligibility criteria. Where a federation applicant has less than 15 eligible members, the federation and/or any of its applicant members that meet national/international eligibility will be considered as independent organizations and the federation will also be considered as an independent organization which must meet national/international eligibility criteria. If admitted, all funds and campaign communications will be sent, as appropriate, directly to the participating independent organization.

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Attachment C - Audited Financial Statements

Federations are required to submit audited financial statements, regardless of the amount of total revenues. OPM no longer requires that the audited financial statements reconcile with the IRS Form 990 (although the IRS Form 990 does contain an internal reconciliation against audited financial statements at Part IV-A & B).

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Annual Report (Attachment F)

1. Contents
   Federations are required to submit an annual report that is made available to the public. Annual reports or their substitutes (as defined in CFC regulations) must include a description of the organization's services or activities during the year covered by the report and identify the Board of Directors and chief administrative personnel. OPM will not accept an annual report that contains only a description of mission and goals or historical information about services and activities without a defined timeframe. Federation members and independent organizations are no longer required to submit an annual report as part of the application.

2. Disclosure of Federation Dues/Fees in Annual Report
   Each federation is required to include in its annual report a statement that sets forth details regarding member dues and/or service fee arrangements with its member organizations.

   Dues or fees refers to any charge, direct or indirect, that may be deducted from donor contributions or billed for pledge processing or other services related to workplace fundraising. Federal donors should understand how much of their actual CFC contribution reaches charities. If fees are not deducted, but instead are billed, federations must state this.

   The role of federations in workplace fundraising is to provide charities wider access to employee contributions and to provide marketing and other services, at a cost to charities. While these transactions are part of an agreement between the charity and the federation, Federal employees must be provided complete information regarding the actual percentage of their contribution that goes to the charitable organizations they designate.

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