transcript

Speaker 1:
[00:12] Welcome to Headlines, this is Ari Wasserman, and today we are going to be talking about nonprofits, schools, schools and the like. Can a nonprofit be run for profit? Can he be treated as a family business? In fact, a number of weeks ago, we talked about nonprofits, but that was about the management, the governance side of nonprofits. And today we're going to be talking about the financial side of nonprofits. And we're going to answer a number of questions, including are there Halacha caps or guidelines on salaries and benefits? Does nepotism ever become a legal or Halacha problem? For example, can the Menahel, can the Rosh Hashiva hire family members, pay them, have them on payroll, even if they are not qualified for the given job? We'll talk about what constitutes reasonable compensation for somebody who is operating a religious school. We'll also talk about can money be taken out in indirect ways? For example, if somebody doesn't think that they're getting compensated enough through salary, can they take consulting fees? A different form of compensation. Joining us today, we have a number of very wise and experienced guests, starting out with Rabbi Chaim Kohn, who's the founder of BHI, the Business Halacha Institute. He's also in Av Beis Din. And then we will speak with Mr. Raphael Grossman, a CPA in New York, who represents individuals, families, corporations and numerous nonprofits. And then we will speak with Rabbi Yoni Schick, who is the president of GOAL Consulting Group. Before we go to our guests, a quick word on Parsha's Ahremos. At the beginning of the Parsha, Nadav and Aviyu pass away. And it's not clear from the B'sukim what they did. What was their sin? And Hazal and the Rishonim and others bring various rationales as to what they were responsible for. What did they do wrong? One of the views by Hazal is that Shaha Yom Mechusar Begadim, they were not properly dressed, they were lacking the garb or some of the guard necessary to be worn by the coin to do the Avodah in the Beis HaMikdash or the Mishkan at that time. Shaha Yom Mechusar Begadim, what does that mean? So the commentaries explain that they weren't wearing the mi'il, the mi'il, the robe, the cloak that is necessary to do the Avodah. But a number of them, before Shama asked a following question, of course they weren't wearing the mi'il, only the coin guddle can wear the mi'il. Neither of them was the coin guddle, so they couldn't wear the mi'il. So it can't be that they're being found guilty because they were lacking the mi'il. And the Maram sofa, this is brought in the Safer, the Kutay bus or the Kutay. What's going on here is that of course they weren't wearing the mi'il. It's not to be taken literally, but it's to be taken figuratively. The muster behind it, what did the mi'il represent? We're gonna get back to that in a second. The Sam sofa explains the love that Akadosh Baruch Hu had for Avraham because Avraham was there, always looking out for others. He wanted to improve the lives of others. He wasn't focused internally on himself, but the rabbi. On the other hand, Chanukh. Chanukh was also a tzadik, but he was focused on personal improvement, and Nadev and Avihu were somewhat similar to Chanukh in that regard, and not like Avraham. In fact, Nadev, Avihu, they did not even married women because they were focused on their own striving to become perfect individuals, self-improvement in of themselves, and marrying somebody else would somewhat be of a distraction. So that was not the approach of Avraham who was there for the rabbi. They were focused more on improving themselves. Also tzadikim, but deficient in a certain way. And accordingly, let's get back to the chazzal, that they were lacking, that they were mechusare begadim, they weren't wearing the mi'il. It's not literal, but what they were lacking is what the mi'il represents. What's the mi'il? The robe, the cloak that had on the bottom, and the pahamonim verimonim, that had the bells, that v'nishma koloh, that the koin gadol, as he would walk, his actions would be heard by others. In other words, that represents that the koin gadol wasn't there for himself, but he was there for others. Others would hear, others would be influenced in a positive way, others would be impacted by the clothing, by the mi'il that was worn by the koin gadol. And that's what chazzal mean when they say shahayun mechusar e begadim, nadav and aviyu, they did not have that aspect of the mi'il worrying about other individuals. In fact, that's what we're talking about today on our show. There are unbelievable individuals in every community that take upon themselves the responsibility of setting up schools and shuls and other necessary institutions that are necessary for klal yisrael to live in health, in success, taking care of themselves, taking care of the klal, and those individuals, like Avraham Avinu, they're worried about the rabbim and accordingly they set up these institutions. They set up the schools, the chedars, they set up the yeshivas, the kamachim and everything. An amazing thing, an amazing zikuy l'arabim. But what we're talking about today is proper governance of those institutions. How should they be run financially? What's proper? What may be pushing the envelope? And what may be improper? That's gonna be our focus today. Instructions, guidance from our guests as to how we can keep our institutions as clean as possible, especially given the rampant anti-Semitism in the world nowadays. We have to be cleaner than clean, and that will be the focus of our conversation today. Before we go to our guests, let's hear the riddle of the week. For this week's riddle, we'll actually have two riddles, both of them from Parsha's Kedosh, in the first, on the posseq that talks about the history of Los Salin, that you have to pay your workers on a timely basis. The posseq says as follows, Los Salin, Pula Sakhir, Yitkhaq, Ad Boker, a worker's wage should not reside with you until the morning. Rashi in Babametsiha explains is talking about somebody who is a zkhir yom, that somebody who works during the day, and his hours are until shkia, until sunset, and the requirement is that you have to pay him by the end of the night. By the end of the night, you have all night to pay him, but it has to be by the end of the night, or the employer is going to violate the prohibition of los salin. And the question is as follows, the Gemon Brachos tells us that uncertain mitzvah, certain things that could be done all night, Chazal instituted, don't do it all night, finish it up by chatzos, by midnight, because of the concern, that the daylah harchik eshadah min haveiru, to distance us from an averah. In other words, if we have the opportunity to do it all night, maybe we're never going to get it. For example, kriya shema. If we have the mitzvah all night, we may delay, let me just take a nap, I'll go to sleep for a bit and I'll get up later and do it, and it may never happen. Similarly, achilas kodshim, eating certain korbanas, you could eat it all night, but Chazal said, be sure to finish it up by chatzos. And the question is as follows, why did Chazal not institute for the Easter of Los Salin that you have to pay by chatzos? And in fact, they left it, as the Torah says, you can pay all night long. So why for Los Salin did Chazal not institute? Make sure to pay by midnight and not wait until the end of the night. That is question number one. Question number two, a little bit later in the parasha. A few qsukim later, hocheach tochiyach asamisecha nemitzvah of tochach, a giving rebuke to somebody. The Gemorim Baba Masih Al-Amaralaf says, why does it say hocheach tochiyach twice? Double language. Tochiyach eynli elah harav le talmid. From here, we learn that the rav should give tochacha to the talmid. But where do we learn that the talmid should give also tochacha to his rav, if it's appropriate, if it's fitting, if it's necessary. That's why it has a double language, in both instances, whether it's the rav giving tochacha to the talmid or the talmid to the rav. And the question is as follows, as the G'mar and Brachas Yud Tes HaMad Alef, that tells us that if you saw a Talmud Chacham doing Avira, if he did it at night, don't worry, he'll fix it. If he did it in a day, he'll fix it immediately. The G'mar says as follows, im ra'isa Talmud Chacham, Sha'avar Avila B'Layla, if he did an Avira at night, Altahar Her Acharav Bayom, don't think the next day, oh, he did an Avira, kivvadai, Asa Chuvah, certainly at that point he did Chuvah. The question is as follows, when will we ever have a situation that the Talmud is gonna give to Chacha, is gonna need to give to Chacha to his Rab, if we know that the Rab, the Talmud Chacham, pretty quickly does Chuvah over any Avira that he did. So that's our question. Our second question, where do we have this concept of Chach to Chach, the Talmud to the Rab, if we know that the Rab does Chuvah fairly quickly? Please send in your responses. We always enjoy hearing from you.

Speaker 2:
[09:29] If you want to leave a message by phone or dial in by phone to listen, in America, our number is 732-806-8700. In England, it's 44, I think that's the country code, 33011-702-50. In the United States, it's 02372-0304.

Speaker 1:
[09:51] And now let's go and hear from our guests. Joining us now is Rabbi Chaim Kohn. Rabbi Kohn is the founder of the Mahon, the Khoshin Mishpat, also called the Business Halacha Institute. He is the Dean of the Beis Din, Hora, Yitzchim, and the Av Beis Din of its affiliated Beis Din. Rav Kohn is the author of a number of works on Khoshin Mishpat. Most recently, and I will say personally, I feel it is a monumental work, Dine Ha Mishpat, which is a comprehensive commentary on Khoshin Mishpat. Rav Kohn, thank you so much for joining us. My pleasure. It is a pleasure to have you always, Rav Kohn. If we could start out with a Dina DeMahusha Dina question. When we're talking about legal and regulatory requirements of a nonprofit, it could be in the United States, a 501C3, and it could be in the UK, whatever they call it, or possibly in Israel, a SNF 46, Arbein V'shesh. Regarding requirements, Dina DeMahusha Dina, what do they have to adhere to? All of these countries that have these entities, these nonprofit entities have requirements. I'll give you some examples. One would be, and the US has this, could be that all places have this, reasonable compensation. An amuta, a 501c3 cannot be used as a piggy bank. The compensation of those who work at them, administrators, principals, staff, has to be reasonable. Or prohibitions on private, inurement or insider benefits. There are requirements for approvals to, for example, decide on compensation. It has to be by disinterested people and also maintaining accurate financial records and filings with the government, Form 990 in the US. So the fundamental question is, does Dinah Demalchus Edinah bind an amuta, and if so, to what extent?

Speaker 3:
[11:59] Well, the simple and straightforward end would be, I don't think it's an issue of Dinah Demalchus Edinah to begin with. It's simply a question not different than anybody would ask or have to address if he's his own personal business and has to pay taxes to the IRS. The same applies here, too, because basically what you're talking about here is if there is a structure of tax exempts, that is for a reason. The state would love to have other income. They would love to have tax, everybody, and there are certain reasons why you have tax exempts. And in fact, supplement will maybe even furthermore carry the burden of what if government doesn't take it, so then the private taxes will take it, and this is to supply education, supply any kind of charity necessary for everybody. So therefore, there is tax exempts for this purpose. In other words, they don't tax you and say then, okay, so we are going to give everybody what he needs, but you take care of those needs. And as you know very well, probably, those are his, it has historical roots in America in particular, because once they separate it, and this was the idea of the Puritans, who were very religious people, to separate state from religion, so government should be as small as possible, so give people the opportunity of freedom, freedom of choice being people who are religious, and believe that it's an obligation to care for your fellow person. So all obligations and responsibility of charity, and education to the most part, was referred to the private sector. To the private sector. And now, you know, we're not going to go in now to FDR and so on and so forth, this is not about social studies, but this is really what they thought about. So, so sad, but you're talking about here is basic and higher-F question. And as such, it's no different than anybody in private sector who will have a good accountant or tax lawyer who advise them what can or cannot be done and how it should be handled. And I think that's the same issue.

Speaker 1:
[14:13] So is that Dinah de Machoose Dinah, or is it not Dinah de Machoose Dinah?

Speaker 3:
[14:17] I think you are touching on a different subject that I said in the beginning, namely, if the obligation to pay taxes is included into Dinah de Machoose Dinah, it has nothing to do with the subject you are addressing here. In other words, it has nothing to do with tax exempt. And you could ask, generally speaking, is Dinah de Machoose paying taxes or not? So that's a subject in its own right, which I don't know if it's relevant or not relevant, but it's certainly irrelevant as a separate subject for tax exempt is concerned, like I explained it to you, because basically what people are doing by using the tax exempt is precisely what the government should have done, namely that they should have financed everything and then there would be no need for tax exempt to begin with. There is no... It wasn't done for, how should I say, pure reasons.

Speaker 1:
[15:05] Okay, but the laws that are on the books, What? The laws that are on the books, the requirements of the IRS, is that can be binding halachically on the administrators of Amutat.

Speaker 3:
[15:15] I'm referring the question to you back. Why don't you ask the same question on any private business?

Speaker 1:
[15:21] We were just talking about Amutat, I would have that question if I ever saw it.

Speaker 3:
[15:24] But you don't, but you don't. And there's a reason for that. And we discussed it not when we were in the private sphere.

Speaker 1:
[15:30] Now we were recording.

Speaker 3:
[15:31] No, no, no, no. So let's focus. But I'm saying something very simple. Regardless of the question, if there's an obligation of Dilma Hussein to pay taxes or not, which I would say, trust in brackets, a normal person should pay taxes, you might. But on the other hand, he doesn't have to be taken advantage by the IRS either. So the same principle applies here too. And it's not an illogical issue, it's a common sense issue. So the same applies here too. That will be my answer to your question.

Speaker 1:
[15:55] So do you require to have common sense?

Speaker 3:
[15:58] Well, yes.

Speaker 1:
[15:59] And act accordingly? The problem is common sense is not very common nowadays.

Speaker 3:
[16:02] So then therefore, what I'm saying is, be the same attitude with the same reference that you have to any private business, you should have it here too.

Speaker 1:
[16:11] Okay, very good. So let's turn to Halacha. We've talked about is Dinah or Hosea Dinah? Is it common sense? What's the requirement? From a secular perspective, from a Halachic perspective, what guidance would the Rav give? Somebody comes to you, wants to start a school, wants to start an amutah, a yeshiva, whatever the case is and says, do I have limitations, requirements as to how to set compensation? For example, the administrators take my own compensation, for example, the principal of Rosh Hashiva Rebem and the like, is there guidance? And in particular, because the funds typically come from the outside, there are donors. If somebody is using his own funds, it's like, you don't do whatever you want to. But if there are donors that are donating to the 501C3, the amutah, the whatever it is, are there restrictions, limitations, caps, maximums on setting of compensation?

Speaker 3:
[16:59] So, I will rephrase your question. And really what you want to say, and I will be now your most piece, and this is, it's Stoker money. This is, right? You're not correct. Incorrect. I do not necessarily agree. And I will explain to you something. Certainly, there's an element of Stoker, no question about it. But if you look into the social structure that is appropriate in Kralisovn, so then what you have is always, there's a symbol, the symbol of obligation, right? There's an obligation to give Stoker. There's a cup of Stoker. If you talk about poor people, if you're talking about education institutions, this is mainly what you are addressing here, education institutions, right? Well, there would be really an obligation on the public, on the Jewish public, the Hebrew public, to establish educational facilities, right? Which they, for the most part, if you're talking about, so to say, the majority of, at least, orthodox Judaism, doesn't do. You don't have it. In other words, you don't have it in the public coming in and say that we are going to establish a shiva, we are going to establish the internal territory, and so on and so forth. It happens, but not so often. Where do you have it? You have it sometimes if there is still something, a structure for Kehila. The Kehila does it. But, as you know very well, people choose in America to be free, including when you're talking about their religious behavior, which includes that, don't tell me what to do or not to do, even if I'm in a steeble or in a shoe, in a congregation, whatever I should do. Consequently, I don't bear the obligation to give education, religious education, to my children who should do it. Well, somebody should do it. So that somebody stands up and says, okay, I'm going to do it.

Speaker 1:
[18:40] So in other words, it's done by individuals nowadays.

Speaker 3:
[18:43] One second, one second. Therefore, you have individuals. So individuals are undertaking the responsibilities to build a Shiva, a Tharmatera, whatever they should be. So by definition, what you created is a private business. By definition, you did that. I don't have to tell you that there was a Shiva or somebody who had a Tharmatera or anything of those edical facilities. It doesn't enjoy raising funds. It may be a state-funded, a snore action like the Sochnut or something of this sort, which is state-funded, that people enjoy because it comes associated with a lot of additional benefits, right? But if you're talking about a single individual getting up and saying, there's a need for a Shiva, there's a need for a Tharmatera, there's a need for this and that, and therefore it stands up and bears the responsibility, well, he has to be compensated for that. So you are going out to say, well, but he has to be responsible to somebody. Ideally speaking, that's true. But usually, if you are responsible to somebody, so the one you are responsible to also has to bear part of the burden. In other words, if you have a board of ABCDEF, who are the board of this institution, which often it is, those people on the board are not necessarily sharing the burden.

Speaker 1:
[19:55] Not the fundraising group.

Speaker 3:
[19:57] That's right, which is the essence of the existence. So then you can't really turn the table and say, well, you know, you are not responsible to me. Are you also responsible to me as well? So here you have this awkward or not awkward, the goals resulting situation. This is the price that you pay if you want to live in a society which does not establish a debt of the killer and taking as such also the burden of how to finance the institutions which are necessary for the public who needs this kind of service. And therefore, if you are going to ask now, I have to be responsible to whom? To whom should I be responsible to? To those people I'm going to knock on the doors and collect the money for their children. So you have a phenomenon today, which is true. You have something which is called the bulbous of that institution, right? An anomaly. But it is a result of the anomaly of the structure, how we established ourselves in the community of three countries.

Speaker 1:
[21:00] So, we're looking at it as a private business and accordingly, unless the donors will make stipulations when they give the donations, that gives free rein to the principal to do as he desires.

Speaker 3:
[21:13] I'm not going to another extreme. What I'm saying is, it makes sense to whoever establishes this kind of institution to have somebody who he is able to give a report to and to offer, which probably he will. Because, yes, if he is within the concept and the attitude of common sense and doesn't want to be eventually challenged, he should do that in sort of his own good, because usually he will be able to draft in those people who appreciate what he's doing, that they will help to share the burden of fundraising. But this has nothing to do with tax exempts, because he's certainly tax exempt by definition, because he's, as I said earlier, he's taking the burden of what otherwise maybe government should have done, or the gala should have been done.

Speaker 1:
[22:00] OK, so when it comes to the donations came in, we have an individual running a school, and he should use common sense in deciding his salary and the salaries of others, that should be what guides him, common sense. How about when it comes to proper use and allocation of funds? Does he have any limitations, meaning he has a stated use of stated...

Speaker 3:
[22:21] You have to understand that he's handing his money of people, give it for a particular purpose, although what was done to begin with isn't really the right way how to handle matters, as we said earlier. There should have been some... There should have been a coalition. There should have been a public institution that takes responsibility and is in lieu of that. But on the other hand, yes, certainly you should have a certain responsibility and establish an entity which could be supervised in that sense. But you know very well, you know, supervision is a very delicate subject, because if he understands how things have to be run and if he understands what is right and wrong, not to have other people who because they gave a particular amount of money or other rights of respective members of the community to be in the criticizing, so to say, chair, it's armchair governing. And that's not so simple. So you're talking about a very complex situation. It's very easy to judge it from the outside when you don't run it, when you're not responsible to pay the salary for the teachers. You have to pay, you have to see to have proper accommodations for the school, for the armchair, for the issue, whatever there should be. So it's not so simple.

Speaker 1:
[23:41] Okay, very good. Common sense is what I'm coming out with right here. Common sense, Seicho, Seicho, in all areas.

Speaker 3:
[23:48] There are... And let me add something else. I remember from somewhere in the Chaimoodic sources, I have... Have you done Kolodum lecaschus? Kyrgyi Avas. That's right. Now that we're in the summertime, we learn it. Have you done Kolodum lecaschus? It's not so simple. Every person has his own challenges in life. And many times, there is no choice but to use money in order to fill the gap. And nobody knows exactly what's going on behind the door of somebody else, including the cashier or the marketeer and so forth.

Speaker 1:
[24:21] Right.

Speaker 3:
[24:21] Very good.

Speaker 1:
[24:22] Okay, Sechel and Havey Dunn. There is a law about being non-profit. You cannot have side businesses. And if you have a side business, if it's reasonable, okay. But at a certain point, it's going to become taxable. If you have an entity that needs to bring in additional funds, maybe it doesn't, maybe it wants to bring in additional funds, and you start side businesses under the umbrella of a non-profit, would you have to adhere to the requirements of the IRS or whatever other governing agency and report correctly the funds that come in that are unrelated to your educational purposes or your religious purposes and pay taxes on them? Or can you be a little bit flexible on that?

Speaker 3:
[25:03] I don't know if flexible or not, but I said earlier, everybody who has a business, for that matter, a non-profit business, has his advisors, legal advisors, tax lawyers who are specialists in that particular area. What can be done, what cannot be done? When you're talking about the social role and so forth, what you mentioned earlier, I think, right? I think it's a very good idea they should have it, because by this, they alleviate the burden of fundraising. Let's come back to the previous discussion, to the previous understanding, how one has to run his institution. If he's able by part of the building, dedicating as a social role anything of the sort, and there's an income from there, it means in other words that he doesn't have to now to knock on the doors of people for money. So, does it reconcile exactly with the letters of the law? That's not so mere question, it's a question for the lawyer, right? But from, as you said in the beginning, from the halachic perspective, tov o lebrocha, ad haba, why shouldn't he do it? It will make it much easier for him to raise the funds necessary.

Speaker 1:
[26:07] But still consult with the CPA and the attorney?

Speaker 3:
[26:11] Again, if you don't, one day you might find yourself in trouble.

Speaker 1:
[26:14] Come back to Sechel and Common Sense.

Speaker 3:
[26:16] That's, yeah, I will agree. I will agree. Very good.

Speaker 1:
[26:20] Rabbi Kohn, I wanna thank you so much for joining us. Always a pleasure speaking with you. Joining us now is Raphael Grossman. Raphael is a CPA in private practice in Brooklyn. He started out working for the government for 10 years, auditing non-profits. So we're gonna hear from him today about what the government historically looked for and what they look for nowadays. And he's now in private practice. He had other jobs in the interim and now private practice representing numerous foundations and non-profits in addition to individuals and businesses. Raphael, thank you so much for joining us.

Speaker 4:
[26:53] Thank you very much for inviting me. I hope we will be so good to meet you again.

Speaker 1:
[26:59] Amen, amen. Well, why don't we start a little bit broad and give us the landscaping on Shul's Charitable Foundations, G'mahim, is there only one type, 501c3? And for example, are there different reporting requirements when it comes to a Shul versus the others?

Speaker 4:
[27:15] Yes. For a Shul, you actually are required to have an active minion. To make a Shul, it's not enough to have a room with Svaram, a room with a Yelena. Iris will not allow that to be considered a synagogue. You have to actually have an active synagogue with a participating minion. There should be an ordained rabbi and services that are uninterrupted. It's not so easy to have a Shul. So the government allows individuals who want to establish non-charitable activities that donators will get a tax deduction to form a foundation. Forming a foundation does not require you to have an actual synagogue. All you have to do is fill out a few forms and explain the charitable activities that you will do. But once you have a foundation, whether it's private foundation or public foundation, you are required to annually file a tax return called the 990. This return is very detailed, requires very detailed listing of deposits, of where the money went to, the purpose of the money, and very often a CPA, since it's difficult to complete, participates in completing this form and sending it each year to the government. Synagogues are generally exempt from this requirement.

Speaker 1:
[28:34] So synagogues have a lot less burdensome reporting requirements, and it gives them a lot more free rein to be able to manage the activities of the show without having scrutiny.

Speaker 4:
[28:50] Well, they generally subject to the rules, but they're not required to annually file. This can be a negative, a detriment to this, because if has to be shown there is an audit of a show, because the show is claiming a tax deduction, if there is an audit and they're not prepared to do the audit because they never actually filed returns and never reconciled their income with their expenses. So sometimes there can be lapses in controls and record keeping.

Speaker 1:
[29:19] Does that happen that shows are audited sometimes?

Speaker 4:
[29:23] Yes, it definitely happens. Now the IRS has special agents that sometimes will call a synagogue and ask for a donation and see if there's any money laundering, actually pose as religious individuals seeking to make a donation, and then trying to lead the synagogue into doing something that may not be illegal.

Speaker 3:
[29:45] Okay.

Speaker 1:
[29:45] So keep it clean. Even if you're not reporting on that 990, you better have the books all in order.

Speaker 4:
[29:50] Yes.

Speaker 1:
[29:51] Okay, very good.

Speaker 4:
[29:52] Unless you consider the private institution, not a synagogue and a M'linkish or tax-exempt status.

Speaker 1:
[29:58] Okay, very good. Talk with us about compensation. If the synagogue, shul, has a rabbi, if a school has a Rosh Hashiv or a principal and the like, or whatever other institution, foundation, g'mach, it is, what would be considered appropriate or legal compensation? Or because it's an institution, you're running it, you're spending a lot of time on it. Can we say that the person should receive a significant salary, despite the fact that it's a not-for-profit?

Speaker 4:
[30:25] Okay. Well, that's an excellent question. In the past, reasonable compensation just meant what to other individuals in similar situations receive as compensation. For example, if the average salary was $90,000, and they saw $400,000 was being taken, so that would be an issue. But the government has expanded reasonable compensation to not only include comparison to other salaries, they also have, in most of their audits, have looked at the lifestyle of the participant, of the person who is controlling the funds, to see if the lifestyle is also reasonable. For example, if a divest can now see the cars, the vehicles owned by anybody, they can see the number of homes owned by anybody, and if they, and that's readily available, the states give that information, and I've seen it at audits, where they question me, how did this individual get 10 cars or 8 cars and 4 homes, and that can cause a major issue. In addition, reasonable compensation for clergy has included also parsonage. In the past, parsonage was generally not reviewed, possibly in respect for the clergy, but the mood the last couple of years has been to look at parsonage. In fact, the IRS tax return now has a worksheet requiring the preparer to prepare the parsonage amounts. Now, there was a famous case, there was a clergy in Brooklyn who, during his sermon, was bedecked with tremendous amount of gold and other jewelry, and eventually was investigated because the government said we're added to get all those funds, and eventually he was indicted. So it's very important that reasonable compensation include lifestyle and include all types of deposits and make sure that it can be reconciled.

Speaker 1:
[32:24] Okay. So the Form 990, is it a requirement to fill in the compensation of the-

Speaker 4:
[32:31] Yes.

Speaker 1:
[32:32] Okay. It should be the compensation, and then they're going to say, is this comparative? Is this comparable to what others are seeing? And they'll also check out the lifestyle. I guess they have access to seeing what residences are owned and flows of funds in and out of bank accounts. I guess that's something that the IRS have access to.

Speaker 4:
[32:49] Yes. And in addition, they now can get access to credit card activity. That's very serious. For example, if somebody is complaining, is claiming that his compensation was $50,000, but his credit card activity shows $300,000 or $400,000 of expenditures, the IRS auditor has looked at it and a credit card detail shows exactly what's spent. They can see if it was spent for religious purposes or not, and it can be a very difficult audit.

Speaker 1:
[33:18] So if somebody wants to fly under the radar screen, let's talk about if they want to do it in an honest way. We don't have to talk about dishonesty. But they don't want to have a large compensation figure on the Form 990. Are there other ways that the money can be taken out? For example, a consulting fee, set up a company, it's not under my name, it has maybe a different EIN, it's not the individual or a vendor charge or something like that, in order to take money out of the non-profit. So it doesn't look like an unreasonable compensation.

Speaker 4:
[33:49] On a tax return, it may work. But if Hashem is in audit, it will definitely not work. All audits require all bank statements to be produced. On the bank statement, if they see transfers to a person that's not reported as compensation on the W-2 or 1099, that will definitely be questioned.

Speaker 1:
[34:09] Okay, very good. Now, we've been talking about an individual taking compensation, the person who is the owner or operator of the non-profit, of the shul, of the school. How about family members, including multiple family members? It's not unusual to have a wife do some work on behalf of a non-profit. Maybe she'll keep the books or she'll do other necessities, or the roof, or principal can't do everything, or spouse's children, in-laws, son-in-laws, whoever it may be, can they be hired? Can they get compensation? Is it just simply it needs to be reasonable as opposed to unreasonable? And will the IRS ever look at the qualifications of such individuals? And also, I guess, a related question, will they look at the substance of that commitment? Is that person really working full-time or part-time to see if it's reasonable compensation?

Speaker 4:
[35:00] Yes, the IRS, legally, it can be done, but when an IRS auditor or any government auditor sees that relatives are a large part of the not-for-profit, they will ask for a lot of documentation. The required documentation would be independent board approval of the hiring of the relative, and they will also see the qualifications of the relative, and also they will check to see the work activity of the relative. It definitely is allowed, but the scrutiny is much, much more.

Speaker 1:
[35:34] Okay, so board approval, and they'll also look at the qualifications, and also is the person actually fulfilling the responsibilities, which number one would be how much time are they spending on the job. So that's going to be necessary, and that is, I wouldn't say onerous, but that's simply honest and required. What about income coming into a charitable organization? If it's a school, if it's a shul, you have tuition, you have membership dues and the like, but how about if the organization wants to open up effectively a business? I know this is an issue in Israel as well, that you have a shul and you want a catering hall because you need something to subsidize the expenses, the overhead. So what are the laws in the United States we're talking about now of having a 501c3 and having a side business? Can nonprofits run those businesses, like a wedding hall, a gift shop? And is there a problem then if the income is unrelated to the essential activities of the shul or the school?

Speaker 4:
[36:38] Okay, there are basically three levels. If a not-for-profit runs a wedding hall, if the wedding hall is just for the members of the not-for-profit, and it's done for religious activities such as bar mitzvahs and religious weddings, that would probably not be considered income that is taxed. However, if the wedding hall is treated more as a business and others also can participate in making meetings there, business meetings there, then that can be considered unrelated business income. It's allowed, but the not-for-profit will have to pay the unrelated business tax. The problem would be if there is no other activity except the gift shop for the wedding hall and it's run in a retail setting and there is no other not-for-profit activities being done at all, then the IRS will say this is not a religious activity, it's a business and it cannot be considered not-for-profit and it must be taxed. There was a famous case where a not-for-profit did nothing except buy diamonds in order to avoid the sales tax. This was caught by the government and no other religious activity was done, so they lost their not-for-profit status.

Speaker 1:
[37:55] They lose the not-for-profit status and everything is taxable because it is a business. I guess that was my next question. You may have answered it already. Can a non-profit effectively function as a family business? That would be, I guess, level number three or the level.

Speaker 4:
[38:08] Well, unless they can document that every member of the family is doing a essential need and they can document that, and they have independent board approval. I remember I was in my mom's knees and they were not-for-profit, and they didn't allow anybody to hire their children. I wanted my children to learn my business, but it was not allowed. That's one of the reasons why I left and formed my own practice, my own private practice where I immediately hired a few of my children. But this would not be allowed currently in most not-for-profits.

Speaker 1:
[38:47] Nepotism, in other words, hiring children, hiring relatives. You were willing to do it when you were employed by Maimonides. Maimonides had a stricter policy than required by the IRS. What's the policy nowadays for a non-profit?

Speaker 4:
[39:01] That's generally the policy. In fact, almost every not-for-profit, if they're large, has to have a corporate compliance officer. The conflict of interest documents have to be filled out by the administrator. For one year, I was the conflict of interest violation director at Maimonides. It's being adhered to mostly in the not-for-profit world, and the government is looking at this.

Speaker 1:
[39:27] To not hire relatives.

Speaker 4:
[39:28] Correct. Exactly.

Speaker 1:
[39:32] It's just a higher responsibility, a higher standard if you do hire those relatives, it will be scrutinized, but it's not prohibited per se.

Speaker 4:
[39:40] It's not prohibited per se, but it's looked at and scrutinized, and most not-for-profits choose not to do it in order to avoid scrutiny.

Speaker 1:
[39:47] Avoid the scrutiny. Let's talk about surplus funds. Let's say that the nonprofit does have a lot of donors, it has funds coming in, it may have that related business activity going on that's not taxable. What are the requirements for surplus funds? Can you hold money in retained earnings, we'd call it in a business, that you can hold it on year to year, or is there something that has to be done with the funds in a nonprofit?

Speaker 4:
[40:12] Well, if it's in order, you'd have to explain why you're holding the funds. If you say, we're holding it in order to increase the size of the building or modernize the building, if you show that you have an architect, you have to show some documentation to support any claim you're making. Otherwise, if they see the surplus funds, we're actually depositing into accounts of individuals and nothing was reported, then that can be a serious violation.

Speaker 1:
[40:36] Okay, very good. I want to talk a little bit about schools and maybe this will depend on the state. What funds does the government, I guess if it's federal, then it's not going to depend on the state or federal, if it's state, what funds do the government provide to nonprofit religious schools, if anything?

Speaker 4:
[40:52] Okay, today we can start from early in the morning. There's generally free busing, and there's free breakfast or reduce free breakfast. Then there's free lunches.

Speaker 1:
[41:01] This is in New York?

Speaker 4:
[41:03] New York, New York for sure. I know in New York. Then you have reimbursement for administrative fees and course for the school to maintain records needed by the government. Then there's remedial education, special education. Then there's textbook aid, computer aid, and in a base-med school level, the government in the past 15 years has provided almost free tuition, the embarrassment for anybody who qualifies for financial aid, and that can be very significant.

Speaker 1:
[41:37] This is at the state level. How about at a federal level?

Speaker 4:
[41:39] At a federal level, there's FASA, which provides up to $6,000 of tuition assistance in the entire country.

Speaker 1:
[41:46] This is fairly significant funding coming from the government, even for a religious school.

Speaker 4:
[41:51] Yes. I remember when I was in elementary school before all this, we had to use 70-year-old textbooks. We had stories of firefighters who were running fire engines, run by horses, as the sheaves couldn't afford to have the new books.

Speaker 1:
[42:07] You're dating yourself, Raphael.

Speaker 4:
[42:09] Well, 70-year-old books.

Speaker 1:
[42:11] Right, absolutely. Now, conditions by the government. The government typically when they're giving funding, there are strings attached. What are the requirements of the government that you have to in order to get this funding?

Speaker 4:
[42:24] When you take funding from the government, you're losing your independence. The government has very strict rules and everything. You've got to be aware of what they're auditing and what they're not, because the rules are tremendous amount of rules. And in addition to making the rules, once you take government funds, you're subject to audit by the government, which can be very serious and very time consuming. And hopefully, the government audits will result in no change if good records are kept.

Speaker 1:
[42:55] Now, those conditions, does it extend to amount of tuition that can be charged, and also financial aid requirements, how to provide financial aid, amounts of financial aid?

Speaker 4:
[43:06] Well, the government, you can charge whatever tuition as long as the tuition is used to cover course. For example, if you charge 40,000 tuition for seminary and the course only 20,000 for student, and the excess is not being funneled back into the school, and the government actually sees deposits going to private funds, that can be a serious issue. But if the tuition is used and only for school expenditures, there should not be any problem. Okay.

Speaker 1:
[43:33] I would like to talk about the scrutiny and what happens when the government comes in and audits. Have you had any of your 50 plus nonprofits, the one that you represent as an accountant, have any of them been audited? Were the audits randomly chosen or were they targeting certain nonprofits, areas of nonprofits, and what happened with those audits?

Speaker 4:
[43:57] Okay. For a long period, I never had an audit. All of a sudden, within a two week period, I get a call from five of my clients that they are being audited, and then I get a call from 11 additional clients that they got possible audit redits. That's six, five actual audits at the same time, and 11 potential audits all sent to my clients. In addition, the IRS sent a lien to me for $488,500 before the audit was even completed.

Speaker 1:
[44:31] On your own personal asset?

Speaker 4:
[44:33] Correct. In addition, the head of the Division of Foundations from Denver, Colorado, with her assistant from California, called my office to set up a meeting. All this came within a two-week period. Wow.

Speaker 1:
[44:45] What were they looking for?

Speaker 4:
[44:46] They were looking for indictments. They spent 13 months going through all the deposits of all my foundations. They scrutinized every check that was written. They wanted receipts. Even if it was written to another charity, they wanted receipts for it. They went to schools to see if tuition was paid from this donation. They actually audited the trustees of the foundations to see if any money was coming back to them. The audit was not only one year. They found nothing the first year, so they audited the second year and the third year. Three years, I never had, when there was no change in one year, that they should go and audit a second year and the third year. And one of the auditors actually told me, you know, Mr. Grossman, we were expecting to find a lot of personal payments being made from your foundations. We haven't found any. So it turned out not what they were expecting.

Speaker 1:
[45:46] Well, I guess that was a kid of Shosham. Were they respectful of it in the end of the day? Did they say, this is much cleaner and more of-

Speaker 4:
[45:55] Well, I saw the audit reports. One, they just criticized, one foundation bought a computer. That was the only thing they found. So I told them, isn't a foundation allowed to have a computer to maintain its records? So they still put in the report, we found a possible personal expense of a computer bought by the foundation. And that was basically their only finding. One case they went to, she was, they weren't so sure if one of the donors had his grandchild's tuition paid. That was it. That was from all the 13 months of their scrutiny and looking at three years of activity, that was all that they found. So at the end, they canceled my lien and that was it. No apology.

Speaker 1:
[46:37] No apology for going at you, targeting you personally as simply the third party accountant to non-profit.

Speaker 4:
[46:45] Yes, and I asked the director of the Foundation Division when she came to my office, I said, I do 25 Orthodox foundations and 25 Gentile foundations. All five audits were just on my Orthodox foundations and all 11 warning letters were only to my Orthodox foundations. Why are you targeting only Orthodox foundations?

Speaker 1:
[47:07] What was the response?

Speaker 4:
[47:09] A response was, well, the Orthodox teeny portion of the population, they have a tremendous amount of foundations. That's what she told me. I told her, just walk outside, you'll see in every, this is the heart of Flapper's, you'll see every block, you'll see a synagogue, Ashkenaz synagogue, Svahed synagogue, you'll see a school with college, without college, English-speaking, Yiddish-speaking, Hebrew-speaking, and this is where the money from the foundation is going to. We are very happy that the government has freedom of religion and allows us to practice our religion.

Speaker 1:
[47:45] A beautiful response. I hope you explain what Ashkenaz and Svahed are and Hasid.

Speaker 4:
[47:49] Well, the one from California was Jewish. I think she brought her along to actually help her, but the Gentile auditor was much nicer.

Speaker 1:
[48:00] Oh, wow. Do you have other examples? I think that's a tremendous Kadesh Hashem. Do you have other examples of honesty and Kadesh Hashem that you have seen and experienced?

Speaker 4:
[48:09] Yes. I was offered to go to the Eshwisterra office in East Broadway, and I saw a page of the ledger maintained by Rev. Henkins et al. It was so detailed, listing the date, the payee, the amount of the check, the balance, a perfect set of records. Another story I personally witnessed was I was at a board meeting of Mary Yeshiva, where the main topic of discussion was whether to take $500,000 of funding for preschool education. The Russian Shiva stated that he decided not to take these funds because the funds required that only secular education was allowed. No type of religious instruction, even alif bais was allowed. The board members were discussing it, and they said, why are we refusing such a significant amount? But the Russian Shiva said, because the rules are clear. Are we going to allow no religious instruction for preschool, not even alif bais? And at the end, we agreed, the board finally agreed that he was right. To meet the requirements of receiving this very significant amount of $500,000, we had to not teach any religious studies. Another incident that I personally experienced was, when I was in Mary Sheva, I was there full time, but at night, I attended Brooklyn College and I took 13 credits. Now, if you took 12 credits or more, you're entitled to full financial aid. So the Brooklyn College Financial Aid Advisor told me, I should sign up for financial aid at Brooklyn College. That time, it was $5,000. So I went to the Mary Sheva office. I said, I know I'm getting financial aid at Mary Sheva, and it's probably about the same amount, $5,000. And I allowed to take, since I'm also full time at Brooklyn College, $5,000 also in financial aid. So he told me no. Now, in reality, the chance of being caught is near zero, because computers weren't the way it is today. But he told me no, and I listened. This type of education that I received in Sheva, I believe, and I am sure helped me with these audits. Many years later, this type of adherence to rules and worrying about not causing a qul Hashem definitely helped me that I was over, that the audits that I had many years later ended up in a very good result.

Speaker 1:
[50:36] Very good. Well, you continue your honest representation of your companies and you're being mashbiah on them to keep the books clean.

Speaker 4:
[50:44] Thank you very much.

Speaker 1:
[50:46] Thank you so much for joining us, Raphael. Always nice to have you on the show.

Speaker 4:
[50:49] My grace.

Speaker 1:
[50:51] Joining us now is Rabbi Jonathan, aka Yoni Schick. Yoni is the president of GOAL Consulting Group, which consults primarily to non-profit organizations and also to schools. He is the author of the book, The Non-Profit Secret, Six Principles of Successful Board, CEO Partnerships. Yoni, thank you so much for joining us.

Speaker 5:
[51:11] Thank you, Rabbi Wasserman. Great to be here again.

Speaker 1:
[51:13] It is great to have you. Last time, we spoke about primarily schools and getting into schools, nepotism in schools, who gets hired into schools, governance in schools, and now we're talking money. Finances, the financial side of things when it comes to non-profits. We'll focus on schools for the most part. We can branch out from there as well. And I want to start with the, I guess the most conflict of interest prone issue that may come up is setting the salary, setting the salary for the CEO, for the president who was ever running the show. Does he set his own salary because that would be a tremendous conflict of interest? Or do you need the board to approve such a thing? What goes on with setting that salary of the number one person at the institution?

Speaker 5:
[51:58] Okay, that's a great way to start. Just to bridge from last episode because we had the Yom Tovim in between. So just as a quick bridge, I just want to reiterate the fact that this position of non-profit CEO, of manahel, of head of school, is an extremely challenging one. If you haven't experienced it yourself, it's really hard to judge the individuals in those positions. I myself was a manahel twice. In fact, founding manahel of two different schools. And it's really lonely at the top. And I think we should keep that in mind as we head into this discussion. But as far as the question about money, so it should be, as you said, it should be a joint process between the board and the head of school manahel CEO. In reality, though, what happens usually reflects the dysfunction that goes on in our mostos. On the one hand, if you're in a more, let's say, modern or modern Yishivish type of community or an out-of-town community, when the board is more heavily involved, that, like we said last time, could be more of a micromanaging situation. In fact, in some situations, it's simply dictated by the board without any input from the head and often in a patronizing way. And it's like just treating the individual like a hired hand. That's certainly not an effective way. And then on the other hand, if you have, quote, an owner-operator school, more of a Hamish situation where it's said entirely by the Manahel himself or herself, then as you just said, it's a conflict of interest. The person's no gabber-dover, and whether you judge it as too much or even sometimes it's even too little. So the better way to handle this is really a joint process with the board and the head together.

Speaker 1:
[53:44] Okay, very good. That's when it comes to setting the salary of the person in charge. How about if he or she hires relatives? So we stopped about nepotism last time, but we didn't talk about the money side of things. So if he wants to hire on a relative, it could be his wife, it could be a son-in-law, it could be a son. How do you go about setting an appropriate salary there?

Speaker 5:
[54:09] All right, so in that case, well, there's a clout guddle in when it comes in general, this applies to all businesses and also institutions, schools. You never really want to hire anyone you can't fire. So when it comes to hiring relatives, you have to be careful. I remember a situation where there was a school that had the board chairman's daughter was also the assistant principal. So do you think that the principal of the manhau could actually potentially fire the daughter of the board chairman? So that's a difficult position to be in, so you want to avoid that. However, that being said, if the individual is the most qualified for the job, then you can actually, from a legal perspective, you can certainly hire someone who's related. There's nothing inherently illegal about that at all, but you want to get the best person for the job. So if you can get past that, and it could be a transparent process where people understand that this was or is the best person for the job. Like I said last time, I do know situations where there are sons, son-in-laws, daughters, daughter-in-laws, who are in habit positions in schools like that, but they've been vetted and they are the right people for the job, and that's okay. Again, always important to keep in mind that when it's a situation where the person is unable to be not only fired, God forbid, but evaluated. If they can't be evaluated properly in doing their job, then you're doing a disservice to the community, whether it be a school or a nonprofit, because here's another cloddle. Nonprofits do not exist to give people jobs. They exist to do the common good and to serve the community. So if the nonprofit exists just because you want to take care of some people who need work, then you have to ask yourself, are you actually fulfilling the mission that you've been entrusted in?

Speaker 1:
[56:02] So bottom line, who sets those salaries then? Is it the relative who's heading the school or is it the board? Because there's a lot of conflict of interest here.

Speaker 5:
[56:11] Right. So great. If you get past the question of if the person is the right person, and that is considered the right person for the job, then actually it is okay for the Menahel to set that salary. But again, it should be done in a way that in the board meeting, you say, hey, listen, we're bringing this person in to the installation and all that. I want it to be open with you about it, and she is the best candidate for the position. Then like any person in the institution, the main number one person, CEO, does set the salary. Remember, the board can set the general budget. The general budget of the institution is done along with the Menahel. But then the individual salaries, that is the purview of the Menahel or Menahelos.

Speaker 1:
[57:00] Okay, very good. Now we've talked about salaries for the top person, for the relatives of the top person. Have you seen money being taken out of schools, other nonprofits, institutions, 501c3s, in other ways? Meaning we're not gonna call it salary, but we'll call it a consulting fee or something of that nature. And I guess more fundamentally, have you seen nonprofits being run legally or illegally as a for-profit business? Meaning they're calling it a not-profit, shielding the profits from the IRS, from whatever tax authority there is. But money is nonetheless being taken out as compensation, but called something else.

Speaker 5:
[57:42] Yeah, great question, Ari. So, you know, when I was living in Texas, there was a school, a large Episcopal school, that was run by a certain reverend. And over time, people started noticing that the reverend was driving nicer and nicer cars. And there's also another clout-guttle, which is never drive a fancier car than your balabatim. You know, that's something to be aware of. So anyway, he had this, his board chair happened to be an individual who owned some of the top car dealerships in this city. And he had a really close relationship with this board chair. And over time, he was accruing a nice little garage for himself of cars. So, you know, obviously that's a bit of a problem. It's a complicated issue in general. And I don't think anyone who becomes a head of EMOSA goes in there thinking, well, I'm gonna do this to open a school so I can use it as my personal piggy bank. I mean, I don't think anyone, we're idealistic. We come into these positions. I have really never met a Manahal, a Manahaless, who was literally just out for the buck. I never met such a person. At least in the front world, I've never seen that. However, it is true that when you have a gun to your head and when things are very, very stressful and things are extremely anxious and whether you have to raise payroll or whether you yourself are making a sim card and all that, it's very easy to rationalize and justify, you know what, I'll grab a little bit from the kitty and we'll give it back, you know? And because it's very easy, the fudge factor is too easy sometimes, it's a yetsihara, it does exist. We can't fool ourselves in thinking that these things don't happen. So that's why when you, again, when you do things in a joint manner that are open, I don't mean open for the whole community, but I mean open at least with your kibbalabatim, that you're setting a real budget and there's regular finance committee meetings if you have a committee, even if you don't have an official finance committee, but you have a group of people who are financially cognizant of what's going on in the institution, and so therefore, there isn't this ability to fudge. A manal cannot be everything and everyone. I think it's just a good way to avoid these type of challenges. I think it's a difficult thing when someone does not have any oversight and it's completely their institution, you don't really know what's happening.

Speaker 1:
[60:16] Ultimately, should the average balabias care, meaning I want to send my kid to school, I don't want headaches, he seems to be fairly happy, and if the principal needs to take some additional funding out to make him help, I don't want to start making issues, it's not my issue and let him do what he wants. Should I care really? One thing that does come to mind could be that tuitions are going up because money is going out the back door, but other than that, and is that a fact? And other than that, why should I care?

Speaker 5:
[60:48] Yeah. I think that's the crux of the question, and I think it's really important for your listeners to understand this piece. You know, during the 2000s, I worked for a pretty major cancer charity in the United States, and I don't want to mention the city it was in, but they had a number of affiliates, at least in the 2020-30 affiliates throughout the country, and I worked with many of them. And one of the main affiliates, which was in a large city, to say the least, there was a battle. There was a mahlokes between the founder and a major donor. Now, this nonprofit served 5,000 poor indigenous families who were facing cancer diagnoses in this community. 5,000 a year, that's a huge number, okay? And this founder and major donor had a falling out, and basically, they burned the whole thing down. The nonprofit closed, not because they weren't successful in their mission, they closed because there was dysfunction and there was all these mahlokes in that brought the whole thing down for really petty reasons. And that's why it's important, and that's why it should matter to you how your mostos and how our nonprofits are being run, because when they're not run well, it affects us in ways we don't even realize. You know, you talk about tuition. Well, think about this for a moment. Let's say your school has a lot of turnover in the Menahel or Menahel SC. Someone, I have a friend whose son was in the Yeshiva, and they went through three principles in four years. So there's a number of problems with this. First of all, there's a lack of continuity. The kid, the children themselves, the Yeshiva students in this case, are not getting consistency in the education. But also, how does that affect tuition? Well, think about it. Each time you do a search for a new manahel, and each time you have to pay off sometimes the previous one, that's a huge chunk of change. And that also affects, bottom line, how instead of the teachers being paid X amount of money, you're busy paying people who you made a bad hire, and your board is not really functioning in the best way. And so therefore, you have all these issues. So it does affect them. And to end off with another story, there was a, also, we would think this wouldn't happen in the Yeshivas, but it does. There was also a Yeshiva where there was a Machlokas between the Russian Shiva and the key main rebbe of the main Shia. And this is a Beis Medrash. And basically, this main rebbe who was quite popular because this Machlokas left the Yeshiva and all the boys left with him. So, it all goes back to the fact that this joint effort needs to be done in a joint way. And I want to address one other related point, conflict. Someone will listen to this will say, well, conflict is a natural part. Even in Volusian, of course, back in the days, they used to have all these issues with, conflict is normal. So therefore, we're gonna have conflicts. And therefore, you deal with them and then you pay the person off or you make some arrangement to get a Beis Din and the Beis Din comes in and they work it out. Well, actually, that is a false idea. You don't have to automatically go to the default position that conflict is a normal way of life and you just deal with it. There's gonna be conflict, but many of the times you can nip this in the bud, you can buff on it. I lead retreats a lot. And these retreats often deal with an institution that hit a certain wall or at a certain point and there's a different factions and you have to come together and make some major really difficult decisions. So worked with one my son, I won't mention his name, he'd probably be very happy to share who it is, but this individual said after this retreat that they had, and this was in 2012 in New York City, after this retreat, four years later, he says that built my building, that built my building because when we came together and we worked out these sort of ultimately petty disagreements, we realized we ultimately had the same vision. And so these things, all these things that we're talking about, ultimately, we go back to what I said last time, is it a kink in the hose? Is it because there's no money? Is the issue money? Today's subject is money. But often it's not money, that's the core reason that we're having this trouble. It's because the leadership way we're running the institution is inherently broken, and we have to do a better job of leading our institution.

Speaker 1:
[65:36] Absolutely. The better that we can govern, the better that we can manage the finances, the better it is. Joni, I want to thank you so much for joining us. Appreciate the input and experiences that you have shared with us.

Speaker 5:
[65:47] Rabbi Wasserman, as always, thank you so much. And I look forward to going back to Jerusalem to get some of your wife's cookies again.

Speaker 1:
[65:54] Looking forward, Joni. Shalom aleichem, this is Ari Wasserman taking back the microphone for our summary, takeaways and lessons learned. Rabbi Chaim Kohn told us that questions of financial propriety and governance in a nonprofit are not matters to be analyzed through Dinah dem Achu Sadinah, but rather through common sense. On a high level, he explained that establishing schools and various communal institutions is an obligation of the tzibor. A community has a responsibility to set up, for example, educational institutions. However, today, this is generally not done directly by the community. That is an aberration. Instead, private individuals often undertake the work of creating schools and institutions on behalf of others. Accordingly, this can be viewed halachically as a private enterprise, a private business, and those running it should be compensated appropriately. What should guide them particularly regarding when setting salaries and the use of donated funds is common sense. Use Sechel. Common sense should be used to determine what is right and what is wrong. As for those outside the institution, there is also an obligation of Hevydan es kol ha'adam le'kavschos to judge others favorably. People should recognize that when something appears to be inappropriate, they often do not know the full story. Regarding generating funds through activities unrelated to the educational or religious mission of the organization, which under civil law could potentially be taxable, Rabbi Cohen's view is that tavo al-abraha, raising funds through side businesses, can be a very positive thing because it reduces dependence on donors. Still, one must use common sense and Seichel and consult professionals such as accountants and attorneys to ensure that everything is handled properly and does not cause legal issues in the future. Getting back to what Rabbi Cohen said about heavy dhan is called adan, the kafskhus, that we have to be able to judge people in a favorable way. Truth be told, sometimes rarely, but sometimes things that are inappropriate do go on in various institutions. And we have to remember, it's very important to remember, that the vast majority of times, everything is glocosher and the institutions need our tzedakah. The needs are tremendous, but there are times that individuals will take advantage those at these institutions. And then there could very well be what it says in Parsha's Kaddosh, in the mitzvah of hocheiach tohiach hesamitach. If we see something that is going on or we think it's going on, we have to oftentimes be dhan the kafskhus, sometimes, and in consultation with a rav, there may be an obligation to give tohacha or speak up. And then it's incumbent upon us to do it in a Secheldeque way. And I just want to go through an al-Sheikh who says as follows in explaining this puzzle, hocheiach tohiach hesamitach, to give tohacha, v'losi salav ched, and don't put upon him the ched, the sin. We'll have to see what that means. He rivals the puzzle in Mishlei al-tohacha chleit pen yisnaecha, don't give tohacha, don't rebuke a fool, a clown, a lait, because he will come to hate you, hochach lechacham biavecha, but you should give tohacha to somebody who's wise because he will love you. Typically, we explain this puzzle to mean that there are two categories of people, those who will be receptive to tohacha and those who will not be. A fool, a clown, doesn't want to improve himself, he's not gonna listen, he's gonna hate you, don't bother, however, somebody who's a kacham is gonna be receptive, he's gonna love you for giving him kud, that's the type of person to give tohacha. However, the al-shah says a different explanation, a brilliant explanation. He says this applies to everyone, it doesn't matter who you're giving tohacha, the focus here is how you give tohacha, not to whom do you give tohacha. And he explains it as follows, if you see something that is going on, you see in Av Eira, how do you approach that in an individual, don't approach him as you are a fool, you are a low life, you're committing a sin, al-tohacha, late. Don't approach him saying you are doing something terrible because that person is gonna go and come and hate you because of how you are delivering the tohacha. On the other hand, how should you deliver the tohacha?

Speaker 3:
[70:19] Ho-chach le-chacham.

Speaker 1:
[70:20] You should approach him as you're such a wonderful person, you're a chacham. This act, this action, this sin that you're doing or may be doing, that's below you. Why are you getting involved in such a thing? And the approach has to be give tohacha that you are a chacham, don't give tohacha that you are a lowlife and a late. And accordingly, he says as follows in our parsoch, ho-che-ach toh-che-ach, give tohacha, yes, le-lo-si-sa-la-f-che-t, but don't give it by throwing on him, claiming you're a sinful, terrible person, but rather it has to be done, that the person is a chacham. There's a lot of value to you, so why are you involved in something that is below you? Next, Raphael Grossman explained that nonprofits are required to pay reasonable compensation, which the IRS evaluates on two levels. First, compensation must be comparable to that of similar roles and not excessive. Second, the IRS may examine the individual's lifestyle to ensure it aligns with their reported compensation, helping to identify any unreasonable payments. Hiring family members is legally permitted, but it often invites additional IRS scrutiny. It requires board approval, confirmation that the individual is qualified, and assurance that they are actively performing legitimate work rather than merely being on the payroll. Regarding income for charitable organizations, there are three general categories. First, income from activities that primarily serve members, such as operating a social hall for the shul members for the organization itself, is permitted and not taxed. Second, if those activities are opened to non-members, they may be classified as unrelated business income, which is allowed, but subject to taxation. Third, if the organization operates purely as a business without meaningful charitable activity, it risks losing its non-profit status and all income may become taxable. Joni Schick explained that setting the salary for a principal, head of school or CEO should be a joint decision between the individual and the board. It should not be determined unilaterally by either side, as the head of the school might otherwise take too much or too little compensation. When it comes to hiring relatives, the key principle is to never hire somebody you cannot fire. While it is legally permissible to hire a relative, it may not be advisable. The most important factor is ensuring that the person is the most qualified for the job. Ultimately, the head of the school will determine the salary. Regarding running a school for personal profit, this is generally not the intention in the firm world. However, when personal financial pressures arise, inappropriate decisions can occur. There is certainly a yates or harder when it comes to money and issues do sometimes happen. The best safeguard is to keep the board involved, establish clear budgets and maintain oversight through a financial committee to prevent any impropriety. Just to end off, obviously we need to keep our nonprofits and for profits as clean as possible, especially in the anti-Semitic world that we live in. Just want to go over a quick fort in Parshas Kedoshim. The Psycheim say as follows, don't steal the signovu and also don't lie, v'lust se shakru. There's an interesting Magimik Helaman as he says as follows. He would normally say on a regular basis, he would say the shakran, somebody who lies is worse than an agonovu and a goslin. Why is that agonovu and a goslin? It's terrible. So he says as follows, somebody who is agonovu is stealing at night, but not during the day. He has some fear, so he's limiting his nefarious activities to the nighttime. Somebody who is a goslin, he steals in the daytime and the nighttime. He doesn't have fear about that, but he does limit his stealing because he focuses on individuals and he doesn't steal from the rabbim, he doesn't steal from the community. On the other hand, a chakran, somebody who is dishonest, a liar, he's stealing in the day, at the night, he's stealing from individuals, he's stealing from the rabbim. And that's why somebody who is a chakran is the worst person, worse than a ghanav and a goslin. And obviously, when we are thinking about our institutions, for the most part, the vast majority of them are run by honest people who are dedicating their lives to the education, to the religious activities of the community. And that is incredibly commendable. And those limited individuals that are not on the up and up, obviously, we should avoid them. But otherwise, our institutions need our tzedakah, and we should focus them on those that have the greatest need and are run by the most dedicated of individuals. Thank you so much for listening. We'll see you next week on Headlines.