Name: 18th Annual Private Foundations Executive Symposium
Uploaded: 2025-12-16T21:15:05.066Z
Duration: 1 h 58 min 12 s
Description: 18th Annual Private Foundations Executive Symposium

Transcript for "18th Annual Private Foundations Executive Symposium": And I just wanna welcome everybody to our eighteenth, believe it or not, our eighteenth annual private foundation symposium. And I think I mentioned this last year. We started this now eighteen years ago, the first group we had at the Yale Club. We had about 40 or so attendees and presence, and we go, wow. That's a lot. I think today, we have way way over 200, maybe near 250 virtually, and possibly another 85 to 90 here in the room, maybe even a 100. So it's about 350 or so folks. So thank thank you everybody for attending, both virtually as well. Obviously, here in person, I apologize to the virtual people that can't get any free breakfast out of this. I did not get it yet. Not really missing anything. Super it's fantastic. Please remove your microphones. Just just a couple, I guess, housekeeping rules before you start three from anybody. A o l dot c p a, that one c p e. There's a little Ara, Barber is gonna be speaking about the current political climate, and maybe, my ass, Ara, she can talk about some hot gossip that went on behind the scenes in the one big beautiful act. There was chatter at one time that private foundations would have to pay, a 15% or maybe even a 20% excise tax on a net investment income. And Sarah is gonna get into that a little bit, how that eventually got down to a tiered tax at the house version and finally no tax at the senate version. And then finally, when the president signed the bill, currently, there's no new tax on private foundations. We're still at the 1.39% tax per se. We're also gonna get into certain items that are affecting the private foundation arena today. There were certain emails or letters that were sent out by senate finance to a few foundations. There was a couple emails or letters that were sent out by Tom Jim Jordan, to certain charities on potential Antifa links and just what's happening out there under the current administration per se. Sorry. You have a lot on your plate to speak about here. And then after Sarah, Helen Helen? Helen Helen Helen has a Bronx accent. Everybody will see in a few minutes. Very strong Bronx accent. We always talk about how Helen's gonna talk about a few items here in the investment world. Then we're gonna get into AI with Jean and Chris, and what's going on. And Taylor Greg, Taylor, where are you? Taylor just mentioned that one organization, I think, not through a company, not through a foundation, gave out a significant amount of grants to charities between 500,000 and 10,000,000, just for AI purposes and size and total revenue per se. And then Kelly is gonna wrap up. Kelly, on what's going on. Kelly Kelly's been with one of our partners. I've spent a good amount of time with the IRS. What's going on today within the IRS? What we see going that coming down the road? A little bit from an IRS point of view on the one big beautiful bill. What's out there? A little different than the gossip behind the one big big beautiful bill, and we're gonna go from there. Sarah, you're up. Everybody could bear with me while I get set up. I always wondered why I was good at this lobbying job, and it must be because I love gossip. After that introduction from Tom, good to be with you all this morning. I'm very excited to be back this year, from last year, which means I didn't scare too many people. Today what I'm gonna walk through is what Tom alluded to, a bit little bit of what's happening in Washington as it relates to nonprofits and philanthropy, what we saw this year in 2025, and then what we're expecting heading into 2026, and maybe share a little bit more of this gossip. As a little bit of background, I've been working at the intersection of tax policy and philanthropy for about eleven years now, watching the Tax Cuts and Jobs Act come into place, watching all of the relief through COVID, kind of play out in the tax space, and then most recently, participation in some advocacy and some defense around the One Big Beautiful Bill Act. So, so there's gonna be some reference to some of these past efforts just because they did inform what we saw come up this year and are going to continue to inform what happens in the policy space going forward for private foundations. It's been a very active year for nonprofit tax policy. If you've been following the headlines, you might be a little tired, like I am, of being surprised on a Friday afternoon, about a new proposal or letter or inquiry. We do expect that to continue, but I will get to all of that throughout this presentation. That's not working. Let's see. There we go. So let's start with a look back at 2025. First, we're gonna talk a little bit about the OB I'm gonna call it the OB three, the one big beautiful bill act. Some people call it OBBBA, but I never know how many b's to say. So, OB three is what it is today, And some of the, tax exemption conversations that have reemerged in congress and the administration this year, private foundations in particular have found themselves in the spotlight of that. Then we're gonna turn to 2026, a year shaped by reelection politics, government funding deadlines, and perhaps even a little bit of bipartisanship that may be wishful thinking. But first, I'm gonna start with OB three and philanthropy. Sorry, guys. Now you will hear a lot more from Kelly about the provisions in OB three and how they stand to impact philanthropy from the IRS perspective, so I'm gonna leave that to the expert. I think it's helpful though to see the full picture of what was seriously in play in this bill as it was being negotiated so we can learn a little bit more about why we had such a big fight on our hands. OB three was, in many ways, the biggest challenge for the sector this year. It was a mixed bag necessarily. Some of the worst ideas ultimately didn't pass, like that private foundation excise tax that Tom mentioned. But the fact that they were even proposed tells us about how lawmakers are viewing nonprofits right now and ultimately how they could tap them for future revenue needs. Couple provisions that I think are important here, these two that are marked out in addition to all of the others that did make it into the final bill. First, this private foundation excise tax increase. This was a major revenue raiser that was clearly aimed at the largest foundations that members of Congress, particularly Republicans in the House, view as left leaning. And it revealed real misunderstandings about private foundations and grant making and how our taxation really works in this sector. Several members actually believed that higher taxes would encourage faster payout, which is not how private foundation accounting works right now, but was a really interesting view into both a lack of understanding of how the payout require how the payout requirement and excise taxes work, but also a view into what they believe to be happening or not happening at private foundations. And the interesting part here that you don't see that Tom alluded to was the roughly eight weeks of, I would say, first panic and then really effective advocacy that got this provision ultimately removed. Initially, rumors began circulating in late April that we were going to see a tiered excise tax come into play very similar to what they were discussing around the university excise tax, if folks are familiar with that, which did end up becoming law, which based on, endowment size was going to levy up to a 21% tax in original form, before it was ratcheted down, throughout the negotiation process on some of the largest endowments and that was potentially going to apply to private foundations as well. When we finally saw the proposal in the initial draft of the house bill after all of these rumors panned out, the highest rate had been brought down to 10% of an a 10% excise tax on foundations with assets over 5,000,000,000 and then ratcheted it down to those between 250,000,000 and 5,000,000,000, 50,000,000 and 250,000,000 and then of course the current 1.39% rate on those with assets under 50,000,000. The change and the ultimate stripping of this provision from the final bill in the senate was the result of a very coordinated advocacy effort, that beneficiary organizations, what what we call infrastructure organizations like the philanthropy roundtable and the council on foundations engaged in both together and on their own, to to really tell the story of what impact this type of tax could have on the beneficiary organizations that would miss out on potential grants if, more of the money and foundations was being sent into the federal government. I will be honest, it was a bit of a scramble. Besides the rumors a few weeks before, this was very unexpected. We did not necessarily predict that, that the House would view private foundations in the same way that they were viewing, that they were viewing university endowments, but it was a good lesson learned. And now because it ultimately was stripped out, presents a really good opportunity for private foundations going forward, which I will touch on, a little bit when we kind of talk about the messages that we're hearing in Washington right now around foundation grant making. Another example here I just want to point to in the OB three that really signaled to us this misunderstanding around nonprofit tax policy and foundation tax policy, as well as a willingness to tap resources in the nonprofit sector was the nonprofit parking tax. And is anybody in here familiar with the nonprofit parking tax? No. Okay. I will give you a quick little background. This was actually enacted in 2017 as a way to equalize treatment when Congress, rescinded the or, got rid of the deduction for parking profit employers offer to their employees. When they were, eliminating that deduction, they asked themselves, how can we create parity here with the nonprofit sector? Let's slap a 21% tax on their expenses for parking tax or for parking and transportation benefits. As you can imagine, that was not taken very well by the sector. Imagine some of the organizations here in New York that own parking lots or parking garages or are required to offer parking and transportation benefits to their employees would now have to take the value of those benefits, multiply that by point two one and pay that into the federal government as well. So they ended up repealing this provision after two years. And I will say, again, from a, kind of a more political perspective, it was probably the fastest I've ever seen a lawmaker admit that they were wrong. It was two years later, the chairman of the Ways and Means Committee was the lead, lead proponent of repealing this provision that he was the lead proponent of getting enacted. Unfortunately, the memory on Capitol Hill is short term at best, and we got to early this year and saw another proposal for a nonprofit parking tax. This time, exempting houses of worship because they thought that that was the problem last time around. Unfortunately, it was the policy that was the problem, not, specific organizations that it was hitting. But what it really did highlight, even though it was ultimately taken out of the bill, was this willingness from house Republicans in particular to tap nonprofit and philanthropic resources to raise revenue and to do so in ways that reflect this imperfect at best understanding of the nonprofit sector. But what's really helpful here is to hear how they were talking about this. So we heard a number of recurring narratives on Capitol Hill that were informing these proposals. A big one was the idea that private foundations operate like hedge funds, which says to me they also probably don't understand how operate like hedge funds, which says to me they also probably don't understand how hedge funds operate. They're that they're growing assets instead of spending them. Another was that if nonprofit tax revenue looks like or if nonprofit revenue looks like for profit revenue, we should tax it as such. We heard concerns about the size of the nonprofit sector overall and some members argued that increasing excise taxes would push private foundations to pay out more as I noted earlier. We did though hear some thoughtful counterpoints, which I think are helpful to point out here so that I'm not just the skunk at the garden party right now. The private the private action is critical as government capacity shrinks. We also heard from some of our champions in incentivizing all taxpayers as fundamentally democratic to give to charity, and that we that the first amendment protections matter deeply, whether that's when the IRS is being asked to decide which organizations are politically acceptable or when we're considering policies that could potentially advantage certain types of organizations or missions over others. So there's this tension of messaging that we're still seeing, in this conversation in DC that defined a lot of 2025 and I think is going to continue to define conversations around philanthropy and tax policy in Washington into 2026. This quote from Chairman Smith, who is the chairman of the Ways and Means Committee, really captures this political tone. He frames the bill as ending special treatment of wealthy elites and he specifically points to private universities and nonprofits as his targets. There's another example of how the Ways and Means Committee messaged the components of this bill that would hit nonprofits as holding local elites and the political class accountable. And I think that this rhetoric really just resonates with a certain voter base especially in a district like where Chairman Smith comes from, which is one of the I think depending on the year, it's the seventh or the ninth forest district in the country. They don't have a lot of massive donors, don't have a lot of private foundations in, in his district in Missouri. And so this this populist rhetoric really resonates with his voters and is resonating with a lot of Republican voters right now. And I think it's important for foundations to understand this because this type of messaging is not going away. We're seeing it come from Congress, but we're also seeing it come from some folks in the White House. Oversight has also intensified dramatically. I think if any of you were here last year, I talked a lot about themes from the Ways and Means Committee over the prior two years as Chairman Smith had been leading the panel and their increased use of their oversight power to look at nonprofits, tax exemption, and funders specifically. So they have been using its their investigative tools to examine nonprofits for several years. But in 2025, what was new is the administration joining in. And this is happening this has happened throughout the year, but especially most recently with a memo issued in September that directed the Department of Justice, the IRS, and the Treasury Department to use their legal tools to pursue nonprofit organizations and funders that they believe are contributing to political violence. And this represents a major shift even from January until now where it's not just pausing federal funds. I'm sure a lot of us were hearing about that earlier this year, but now it's really threatening organizational existence. Here are some headlines that kind of capture this. One of the things that Tom alluded to was this probe into some foundations like Gates and Ford and Rockefeller Brothers Fund just a few weeks ago from Chairman Grassley who chairs the judiciary committee. Many of you may recall he chaired the Finance Committee for several years, and has been quite quite a critical eye toward the nonprofit sector broadly. And now he's using his position on the Judiciary Committee to also call into question some, some behaviors of funders. So I think it's really a really important thread here that we're not just seeing the the ways and means or senate finance committees, which typically have jurisdiction over the tax exempt sector, use their oversight tools, but we're seeing chairman of other committees use their jurisdiction to also call into questions and behaviors of funders. So it's it's, now a little bit bigger of a party, if you will, of folks who are who are questioning and critical of the nonprofit and philanthropic sector. Now I'm actually gonna go back one if I can figure out how. One just one more observation here. I think whether this becomes a sustained priority of the administration really remains unclear. As many of you know, this administration tends to shift their focus pretty quickly. But it's real it's, unclear also if the IRS and Treasury are going to have the time to implement a lot of these calls from the president around nonprofit activity as they work to implement the OB three bill, which has a ton of provisions that need to be enacted for the current year that we're in and then many dozens more for 2026. We did hear most recently from the assistant secretary for tax policy at the Treasury Department who is also the acting IRS chief counsel. I think everyone at IRS and Treasury is required to have at least two jobs. Right now, it's said that investigations into tax exempts that are potentially fomenting political violence are still on their agenda. They are working on that. So, we don't know how long that will last. We also don't know what it will result in, but it's important for foundations to keep that in mind because they're not just looking at the non profits that they believe are engaging in potential political violence, but they're also looking at the funding sources of those non profits. So let's look ahead to 2026. This upcoming midterm election year is shaping up to be defined both by policy headlines and then of course election year dynamics. We'll start with government funding again, which is going to take significant oxygen. Many of you know you just came out of a government shutdown. This is set to happen again partially on January 30 unless the, the administration and Congress come to a deal to keep parts of the government open that do not have funding through the end of the fiscal year. So this is going to probably consume all of January for Congress. Then there's going to be talk of reconciliation two point zero depending on what happens in the midterms, whether that happens before or after remains to be seen. But the reconciliation is the tool that Republicans used to pass OB3 earlier this year. It allows them to pass a bill along party lines, that make that has budgetary impact. They cannot, advance policy issues and bills like that that don't have a primary budgetary impact. So a lot of these concerns around certain funding, certain funding missions of non profits would probably not make its way into reconciliation package if the, parliamentarian in the Senate has anything to do with it, but it still presents this opportunity for them to message around what their priorities are. Retirement security also continues to be one of the few truly bipartisan areas and, and Secure three point o, which is going to be a third version of a retirement, reform package that we've seen over the last several years. We'll certainly those conversations around that package will certainly continue and could provide some interesting avenues for the nonprofit sector to advance policies to, to expand how folks use their retirement savings to support philanthropy. And then we could also see some movement on in the regulatory space. There were DAF regulations that were fine or that were proposed in, 2023 that still stand to be finalized at some point, maybe this year. And then some new regulations around how private foundations use donor advised funds that were noticed back in 2017 that we could see proposed in the near future. Of course then, the midterm elections are the big kind of topic of conversation going into 2026 and depending on when these, these primaries and then general elections really start to demand the attention of the administration and of the members who are up for reelection, we'll see a shift away from policy making and a shift into politics and, folks messaging to get reelected. So just a quick look at this before I get us into a q and a session. This is the balance of the power of power in the senate right now. It's pretty, pretty well controlled by Republicans. As you'll see, they have 53 seats right now. And as we look to the map of Republicans and Democrats up for reelection in the Senate in 2026, there's not a lot of room to flip, flip those seats that are up. So we do expect Republicans, unless there is something very significant in the few months leading up to the election, will hold on to their power in the senate, but anything can happen. And then over in the House, I think it's more interesting because there is such a narrow margin, a historic margin of slim margin of power that it's in Republicans' hands. History tells us anything After a new president from a new party is elected, two years later, at least one chamber of congress congress is held by their party will flip back to the other party who doesn't hold the White House. That is very likely in this scenario where Republicans have a very very tight margin. But I think what's really helpful to illustrate what is going to dictate a lot of the headlines around the reelection campaign of house members in 2026 is this this map right here, which is from Sabato's crystal ball out of UVA. And you'll see here pretty much all of the the potential, contested elections or elections where there could be some shifts, in party power. And you'll notice in each of the almost every of these columns, there's a an out of place or a couple out of place colors. And for many of these, it's because of this redistricting that we're all reading about right now. Right? There's, especially in California and Texas, Texas, we've seen huge efforts to redraw congressional districts and draw the majority party into more districts. We're also seeing it in other states in a smaller way, but the most significant impact this is going to have is in California and Texas depending on whether these maps are upheld by the Supreme Court or whether they strike them down, and force them to go back to their current maps. And so what what I believe we're all going to be reading about for the next at least nine months, is how changes to maps, when it comes to what populations, what ZIP codes are represented by a certain district are going to dictate that margin of power in the house probably in a very narrow way. It signals to us that, that this effort which initially kind of began in more red states, was a an admission from the current majority, the Republican majority that they're pretty certain that 2026 is going to result in them losing their majority in the house. So they're doing everything possible to keep that hold on to that so that they can continue their trifecta into 2027 and 2028. All of that said, that was a lot. I know it's a quick preview of that election. I don't wanna get too deep into predictions because we're so far out and so many things can happen. But I do wanna make sure everybody has it on their mind because it always shapes what what can be done in Congress when we know that there are 435 members of the House and at least 33 members of the Senate, running for reelection in addition to trying to make policy. So I will stop there and happy to take questions from the online audience, also in person. If you're in person, I'm gonna ask you wait until you have a microphone to ask the question so the online audience can hear you. I covered it all, I guess. We have one over here. Thanks. Thanks. Thank you very much. I have a question on the DAF, if there's any sense of how they're leaning, in terms of regulations with DAF and DAFs and, the private foundations having DAFs and or, increasing payout for DAFs or requiring payout for DAFs, and if there's a difference between community foundations and the national, donor advised funds. Yeah. So just to repeat the question in case anybody on the online audience didn't hear, it's question about DAFs. Where do DAFs fall in all of this from a regulation perspective, a payout perspective, and where may where may have regulators signaled they're going. Donor advised the donor advised fund regulations that were proposed in 2023 were really targeted at the relationship between donor advised fund donors, donor advised fund sponsors, and financial and investment advisors. So those were those are very specific to the definition of a donor advisor and the definition of a donor advised fund. And those were really unclear about where they're going to go. They've put them on their priority list in the category of deregulatory, which means that they will have to make significant changes to those proposed regulations if they're to be deemed deregulatory in any universe. But the other, noticed potential regulations from 2017 that impact private foundation use of donor advised funds, They did indicate to us back in 2018 when we were having conversations with them that they were looking at trying to figure out a way to, ensure that if a private foundation gives to a donor advised fund to meet their 5% payout, they have a requirement of a certain amount of time, whether it be three years or five years, to make sure that that money gets out the door to a non DAF operating charity. They're if they're not going to prohibit it altogether, at least based on, you know, now what is that, seven years ago? Could have very well changed, by now with a lot of turnover over there, but that was the indication they gave us is they just wanted to put a time limit on that if private foundations were using it to meet their payout requirement. There's less conversation in the regulatory space about a payout requirement on donor advised funds because they do not have the authority to do that over at the IRS and Treasury. It would have to be changed legislatively. There were efforts earlier this I guess, a couple years ago, to to implement a payout requirement, whether it was timeline or percentage wise. But it kind of fell on it kind of fell with a thud in congress. There were only three, sponsors of it in the senate and four sponsors of it in the house, at least one of whom is no longer in the house. So that could be revived, certainly, over the next several years, especially with this increasing critique and likely the increased use of donor advised funds following the o b three bill. So, so I wouldn't totally take that off the table, but it it could potentially come up again. Has there been any conversations about how PRIs, taken as, towards your distribution requirement, whether or not there's an opinion about that being beneficial or a workaround in terms of, meeting your minimum distribution? Not that I've heard of from a policy perspective. They may be having quiet conversations with the IRS about that. To be frank, I don't know that many members of congress could tell you what a PRI is and whether it counts toward your payout or not. So so I'm guessing that if there are critiques about that, they're probably coming from outside voices that could use some of these increased more broad critiques to to start that conversation with members, but I haven't heard of that coming to fruition in any sort of legislation or regulation yet. Thank you. Thank you, Sarah. I wanna go back to the scrutiny of the private foundations. It it seems to me, like, over the last twelve months, like, there was an executive order right at the beginning of the Trump administration of and nothing happened. There was supposed to be announcements in May, then the excise tax. Then there's additional headlines. And then after the murder of Charlie Kirk Kirk, about OSF and now these latest headlines that you it just seems like there's always some saber rattling about going after the private foundation community. And is it I'm I'm looking for your analysis. Is it just on the list of things that they're trying to do? It just drops down and they just never get to it? Or or so I I imagine we all have to remain, concerned and cautious, but it just never seems to have happened yet. So I'm just curious what your take is on that. No. I think that that's a great observation and can understanding executive orders and executive action, is really helpful in answering that because a lot of this other than the private foundation excise tax increase, a lot of this has been happening through executive action. And executive orders or presidential memos are not binding. They're not law. It's the president essentially saying, hey, here's my priority. I'd like you to go implement it to the extent that you can. And they're very specific in those to say, if you if they're engaging in a legal activity, then if they're engaging in a legal DEI, then you can go after them and add them to your list. If, if this is within the purview of your role at your agency, then please go do this. And then you have these agency heads who probably analyze it a little bit and decide whether they do believe that it's within their jurisdiction. That said, the effect that it's meant to have is a chilling effect. And and that is the purpose of putting these out. We've seen it work over the last twelve months. We've seen it work in past administrations as well. It's meant to chill behavior without the force of law. So so yes, we haven't seen a lot come from some of these, some of these actions, but the signal it gives to congress about what they should focus on is where I'm the most concerned because then we can see it start to form into legislation, oversight, and honestly just have, reputational, repercussions for the sector itself. Mhmm. Alright. Thank you. Could you shed some light on the, the rationale behind 0.5% of, AGI as a floor? I mean, what do they try to achieve? And based on your conversations around DCO, your analysis, what might actually become the impact to a lot of, communities or, like, schools that they many of them, they rely on some of the small amount donation. Nowadays, at least it's a discouraging, you know, discouragement to such donations. Yeah. Just any any, thoughts on this would be helpful. Thank you. Yeah. So the rationale behind the half percent floor is really interesting because it relates back to the, nonitemizer charitable deduction that was enacted at a thousand dollars for single filers, $2,000 for joint filers, which applies to folks who don't itemize their taxes now. This was temporary in 2020 and 2021 at $300 and $600. And so the the enactment of a thousand dollars and $2,000 costs a lot of tax revenue. And so as they were negotiating that, the champions for that bill went to the joint committee on taxation, who does all of the scoring for revenue provisions in congress and said, what type of floor would we need to raise enough revenue on the itemizer side to pay for this nonitemizer deduction? And what they came to was about a half percent. That doesn't raise quite enough, but it got them close. So the purpose of it is to not lose tax revenue on the first half percent of AGI given, by the largest donors and highest income taxpayers, if you will. I think the impact is going to be first of all, complexity at all makes people a little less confident in their charitable giving. Right? I also think that that is going to lead more folks to doing to planning even further their charitable giving, not just at what time of year they give to, what type of asset they give to, but what year they end up giving, so that they can really maximize above that floor in one year and then maybe hold off on giving for a couple years. And maybe they'll use donor advised funds to smooth it out over time. But I certainly think the introduction of that complexity is going to lead to a little bit more clunky giving instead of smoother charitable giving that the current law in 2025 would allow. Does that answer most of the question? Okay. Any others? Do you have any from online? No? Alright. Well, thank you, everyone. Really appreciate you having me back, and I hope everybody has a great holiday season. Thank you, Sarah, for kicking it off for us today. Good morning, everyone. It is so nice to have such an amazing turnout, as Tom said, both in person and virtually for our eighteenth annual private foundation symposium. My name is Lauren Riali. I am one of the directors here at PKF specializing in audit, tax, and advisory services for our private foundation group. Very excited to be here today and to introduce you to our remaining speakers. Our next topic will focus on investment oversight, specifically regarding due diligence, fees, and fiduciary responsibility, and will be presented by our very own Helen Brexwinkel, director here at PKF. Helen has over twenty years of ex of hands on experience in operational risk and due diligence. She has led global operational due diligence and private equity operation teams, served on key governance committees, and now has our firm's operational risk advisory services group. Please welcome Helen. Thank you. Hopefully, you can hear me. I'm not as tall as everybody here. And as Tom said, I don't have a Bronx accent, I'm afraid. So you have thirty minutes of a British accent, and I will also apologize because if you were looking for investment advice, this is not me, and you, have thirty minutes of non investment advice, I'm afraid. So give me two seconds to, set up here. But, hopefully, what you will find is something useful and a way to help you protect some of your assets. Can you hear okay? Closer to the microphone? Okay. Perfect. Normally, people tell me to be quiet. So here we go. If I'm too quiet, tell me again. Okay. So let's start us off. So my background is in, non investment risk, and I'm here really to talk to you about how you can protect some of your assets and your investment portfolios from some of those non investment risks. And when, we think about investments in your investment portfolios, I'm sure most of you have, financial advisers, and you pay a lot of money to those financial advisers, and they give you very good performance every year. Maybe not every year, but most years. And, if I was in investments, I'm sure I'd have followed the S and P 500. And over the last two years, it have earned about 63% of my return, and I definitely wouldn't be standing here today to give you this lecture. But I'm not in the investment team. I'm looking at non investment risk. And whilst the S and P rose by 63% over the, last two years, unfortunately, the, for the risk of fraud and cyber related losses has also risen. So between 2022 and 2023, investment forward losses and those are just the reported losses have risen to 38% and another 41% to 6,500,000,000.0. And that's just investment for losses that have been reported. On top of that, you have cyber enabled fraud losses, which in 2024 rose 33%, and it's estimated to cover around $1,617,000,000,000 in, in total, forward related to investments. And I'm sure as you're all shopping on Amazon and it's all been Black Friday, you've all received investment or sorry. Spoofing emails and spam emails saying you've received, you know, a parcel that's not been, yours, and you think, okay. Is this is this a phishing attack? I'm not sure. And while you're all receiving these, your investment advisers will also receiving these. And it only takes one person to click a link that isn't supposed to be clicked, and all of a sudden, that investment adviser and all of your bank accounts, that access could be open to someone who shouldn't have access to that, account. So when we're talking about non investment risk, what we're talking about really is protecting the risk of your investment. So we're not talking about the return on your investment. That's what your investment advisers do. That's what your investment teams do. I'm worried about the return of your investment and how we can protect that. And we've listened a lot to Lauren about the changing regulatory landscape and the political landscape and how that affects the regulatory landscape. And we've certainly seen in the last year that there have been changes to the regulatory landscape, and some of that impacts how we take a look at, protecting some of those risks. And most of you have a duty responsibility for your foundations and the investment portfolios and how those are governed. And so when you look at all of these changing landscapes about fraud increasing, regulatory oversight may be decreasing, the responsibility on you and your financial advisers to increase your oversight and to increase the governance around those non investment risk increases. Specifically, if it works, if it doesn't okay. So, specifically, we're looking at private markets. And why we look at private markets is not just because I have an interest in private markets, but private markets increasingly take up a larger percentage of private foundations portfolios. And when we look at, the statistics for the what we call a large port a larger foundation, private markets and alternatives typically take up around 35 to 55% of a portfolio, and that's what we would classify the large foundation's portfolio. So that's a a growing percentage of somebody's portfolio that's dedicated to private markets and hedge funds. And there are risks associated to those portfolios that don't happen in public markets. And those risks are specific to public markets because they have a lower level of regulation. There are nonstandardized reporting. You don't get daily reporting on your private market assets. There isn't a template that says you have to be followed. You have to give daily reporting. The assets are marked to an industry standard. A lot of responsibility is retained by those managers of those private market assets in house. And so you're depending on someone's goodwill and their capability, in house to to do a good job and do the right thing for you. So there's a lot of valuation dependency on a manager. There's a lot of compliance risks associated with those private market assets. There's a lot of dependency on fees, and, I'm sure a lot of you have seen a lot of fee pressure and a lot of extra fees have been charged to your portfolios. And there are lots of different variabilities on governance standards. So private market assets don't typically have to have an independent board unless you're, say, a Cayman regulated fund and the Cayman authorities tell you have to have an independent board. They don't have to have an independent board. They don't have to have independent oversight. They don't have to have monitoring of conflicts. And so the absence of a lot of this material and a lot of this governance structure means that you're exposed in the private markets and alternatives world to risk you're not typically exposed to in the public market, etcetera. And so there becomes a higher fiduciary responsibility for you and your financial advisers, to make sure they oversee. And so when we talk about non investment risk, this very simple diagram is kind of what we're talking about. So we look at financial risk, and that's really kind of concerned with valuation. So who's valuing those assets? How are they being valued? I'm sure you've all seen cases about private credit and HBS and Firstbrands and how they've been valued and whether you can take reliance in those valuations. We look at the operational risk. So can someone go in and access those systems and run away with your cash? Is there your data protected? So do you have, do your does your manager have good controls over that data? Is your, is your, is there suitable regulatory risk coverage? So is there a risk that the SEC could come in and do a review of that manager and find the manager? Is there litigation associated or litigation risk associated with the with that manager? All of these things could impact your investment and have a financial implication for you. There's also a reputational risk. And for me, this is kind of the area of most interest and where we typically find red flags. And so when we think about reputational risk, it's kind of who are you doing business with. And a lot of the time when we do, due diligence reviews and we do risk reviews of private market funds and hedge funds, this is where we find the issues. And it's really ensuring that you're doing business with somebody who has that same level of integrity and aligns their values with yours and that yours, the mission that your, foundation has. And we have examples of diligence thing. I won't call Mel, but venture capital managers are a good example, and I'm sure a lot of you have venture capital exposure. And you will go in, and we will test those venture capital managers and a part of our processes. We do background checks for managers. And those background checks say, okay. What is their litigation, civil or criminal litigation? And then we will ask the the managers themselves, you know, what what what has happened? Do you have criminal civil litigation? And the answer is, oh, no. Never. You know, we don't get involved in anything like that. And you check the report and you say, okay. Well, that's not quite right because one of our managers had civil litigation, and it was only something which you could say was fairly innocuous. You know, he had 30 speeding tickets in the course of two years. Probably not right, and you probably wouldn't be too comfortable with it, but, okay, not too bad. And so we did a little bit of further digging. And there's a case against his wedding planner, and he didn't wanna pay for the wedding planner. And there's a big, I would say, 500 page document about why he was suing the wedding planner because he he said, you know, she'd impacted his reputation. And in all of the court documents, there was a a line in there from him to the wedding planner that says, if you don't believe what I'm capable of, just Google my name. And at that point, you question what his integrity is and how he behaves with that wedding planner and how he would behave with you as an investor. And does his attitude and his integrity align with your integrity and your beliefs and your mission as a foundation? And for that investor, that was a clear red flag and that was a no when we walked away from the investment. And it's those sort of risks that you don't always think about. So while you have a financial adviser, very concerned with investment performance, which is obviously critical and obviously the priority, there are these other risks that can have a clear impact on your investment portfolio and should definitely be considered as you're looking at your investments, firstly, in the beginning and also through that investment life cycle. And for some of your private equity funds, you'll be in it for ten years, maybe thirteen years. And for those of you who are stuck in continuation funds, you could be in it forever. So there are a long there's a long lead time for those civil and criminal litigations, those regulatory actions to take place, and it needs to be monitored to make sure that you're protected. Okay. So what I do and what my team does is something called operational due diligence. And what most of your financial advisers, but not all of your financial advisers do, is operational due diligence. So they will sit alongside your investment team, and they will perform an operational risk review that looks at the investment manager independently and says, okay. From a non investment risk perspective, we've looked at the investment. We've looked at the structure and the terms and the manager and the controls. We've looked at the reputation. We've looked at the backgrounds of the key individuals, whether they're the CFO, the CEO, and we're comfortable with this risk. And we've identified what the risks are. We've assessed them, or we've understand how we can manage them. We looked at the governance structure, who the counterparties are, and we've looked at the framework, around oversight. Then we've looked at, we've talked about First Brand and HPS, and I can go into a little more detail about that. But I'm pretty sure given the nods in some of the rows here that you are all very familiar with this. But the issues that came up with First Brands and HBS primarily were a fault to somebody not doing good due diligence at the beginning. And, give me one second. So in HBS's situation, you had, I mean, I laugh because I think, okay, it's easy with hindsight for somebody to go in and I identify all of this. But in HBS's situation, what they found after the fact is they were lending, money to a borrower who didn't exist. They had fake emails. There was a receivables balance that just was completely fabricated, And it's still a case that's ongoing, so thankfully, we have the Chatham House rules, and you don't need to relay this any further. But there's definitely a case for saying, okay. Well, how on earth could you not have identified this? And this was not the first time they'd lent to this lender. The gentleman in question had been a regular borrower. They did no testing. They didn't confirm the email addresses. They didn't confirm the assets existed. There was just so many red flags that could have been picked up by somebody saying, okay. Well, hang on a minute. Let me just run this through a simple IT program program to say, okay. That email address is correct, and it doesn't belong to Amazon or someone in a foreign country who has nothing to do with these telecom assets. You didn't do it, and it it could have saved you. Okay. They're talking about 500,000,000, which they said is immaterial. And it's fine. It's immaterial in the case of, of HPS, but it couldn't have been much bigger, and it could have been another made off, and they just were lucky in this instance. And in the case of First Brand, another private credit, borrower, another private credit case, what they had there was double pledged assets. So they lent money to a borrower, and that borrower had a lot less liquidity than it said it did. And when it, unwound, it actually only had, I think, 20,000,000 in the bank. And what it had was assets that it it pledged to other lenders. And so when you go after those assets, you have multiple parties who are going after those assets, and you have no chance of recovering your money. And, again, there are ways that you can manage that risk. So up front, all you would have had to do is say, okay. Let's do our diligence on who this borrower is borrower is, if I can get my words out. And then, let's put in place a contract that says, okay. There is no no ability to double pledge these assets. You are restricted from double pledging these assets. And there were registers you can check to make sure that the assets haven't been double pledged, and it doesn't seem that they did any of this. It's not expensive to do this. It's not time consuming to do this. I'll tell you, I mean, I'm paid. My team is paid, but we're not paid more than it cost you to save an instance like this, in the first branch case. And, again, they say, oh, you know, it wasn't, you know, an expensive deal, and most investors are protected. But that was pure luck. It wasn't a made off, but it was by chance. A made off happened because somebody didn't do good due due due diligence. They didn't go down and say, okay. Well, who is the auditor for Madoff? Is it someone, like, three fours below who is related to him? Do they have anyone independent valuing these assets? No. But, again, somebody could have easily have done it. And it's very easy to say in hindsight, but, actually, there are standard controls and operational due diligence teams who have been in existence for years who could come in and help you protect some of these risks. I'm a little passionate about these subjects, so I have to watch my time here. So k. See if I can get it to move. Okay. We talked a little bit about operational due diligence. Okay. So we talked about what operational due diligence does. It goes and reads all the documents. It, asks questions of the managers. It does an independent review, and it sits alongside your investment team. And it should happen throughout the life of that investment, and it should help you manage those risks and many cases mitigate those risks. And I'm gonna try and do a nice segue into the next topic. But what you're paying your investment advisers to do is help you manage those non investment risks. And many of your investment advisers and financial advisers will do that, but some of them won't. And so when we think about what we're paying our investment advisers for, we go into our next topic, which is what are you paying your investment advisers for? And, hopefully, I've made a good job with that segue. Okay. So my background is operations. I used to work for a company called Aberdeen Investment. It went by several other names. So you might know it as Aberdeen Standard Investment. We looked after money for endowments, foundations, a lot of high net worth individuals. So I'm used to looking at investment fees and receiving some of those investment fees on my firm certainly did. And I've been with PCare for two years now, and, we help the private foundation team, help our clients understand, okay, from your perspective, what are you paying your financial advisers for, and are you getting the service you should be getting for the fees you're paying? And last year, we performed an exercise for one of our clients to uncover just that. Do you know what your fees are from an advisory fee perspective all the way down to what your hedge funds and your public market funds are charging? And it was quite eye opening. So when we look at the transparency, we're saying, okay. First of all, what are we paying and how much are we paying? And you think the question is quite easy. You get an you get an invoice from your financial adviser. You pay it. You think, okay. Well, I'm pretty sure, you know, I pay on an AUM basis, and it's, like, 25 not 125% on this, and that's fine. And it looks reasonable and okay. Yep. We're good. But what you don't know is that they may be charging you for auxiliary services. There may be a referral fee to somebody that they've referred you to. There may be a reporting fee on some of those assets. And all of a sudden, what you're paying for doesn't quite equal what you're expecting to pay for. And it certainly maybe doesn't equal what you could be getting out of an optimized service model. And when we say optimized service model, it's really getting your value out of your investment advisers. And when we look at your layers of fees, you definitely have your advisory fees, and they make up the big chunk of your fees at the bottom there. So you have your investment advisory fee that's generally on a an AUM or an ad basis. You have maybe a reporting fee. So if you have multiple advisers, you may have one adviser who will give you a reporting fee for all of those assets. And then there may be other fees that they put in there as well. There may be a portfolio management fee that they'll give you, and they may tag on other fees that you've signed up for at some point. And they'll all be included, hopefully, in your investment advisory agreement. Beneath all that, they're managing assets. And within those assets, you have fund fees. And, typically, you'll have a performance fee. You'll have a management fee you're paying. And then for some fees, some funds, you'll have an operating expense. And so in the hedge fund world, and I'm imagining most of your investment portfolios have hedge funds, your some of your well performing hedge funds pass through your operating expenses. And so if any of you are familiar with Millennium or Citadel, and I'm hoping that none of you are in the audience, those hedge funds pass through those operating expenses. And so they give you good returns, so Millennium and Citadel perform exceptionally well, but they also pass through a big chunk of the operating expenses that other hedge funds will cover themselves. And so when someone's looking at the fees that you're paying, you have to think, okay. Well, have I factored in these operating expenses and looked at the performance and understood exactly where my performance drivers are? And could I reallocate my my portfolio to ensure that I'm not paying an inordinate amount of operating expenses where I don't have to? And there are then other fees that you can put on top of that, and we uncover those for you as well. So you we can unlayer all of those fees for you, look at how they've been charged, and we can dig down to an investment line by line basis, And then we can compare it to your fee to your peers and say, okay. Well, this is how you look on a broad basis compared to your peers. And this is a very rudimentary example, and I'm hoping the text is big enough. It's just about big enough for me. But if you look at your fee layers, say, on a very simple 5% return, which I'm assuming most of you are well above, But you you may and, again, this is an undiluted, an undiluted, graph, so you'll have to bear with me on some of the math. So you have a 5% return. You're paying an advisory fee of, say, we'll go with no point 5% in this example. You may be paying a reporting fee, which could well be no point 1%, and we've certainly seen it a high as high as that for some of our clients. You then have a management fee charged by your underlying funds, private equity funds, hedge funds, and some of your public market funds. You have operating expenses charged by some of those funds. You have performance fees, which are great because it means your funds are making a performance. And then there may be other fees in there as well. So slowly, it chips away at that, investment return. And so when you're looking, at your investment fees and you're thinking, okay. Well, what do I need to look out for? You're looking at things like, okay. When I go through my portfolio, what am I actually paying for? Like, what fees are included? And what service sorry. What services are included? What should I be paying for? And am I actually getting my money's worth? I'm not duplicating fees. If I have multiple advisers, am I making sure that one adviser isn't duplicating a service of the other one? I'm not paying twice. Other expense caps in any of these funds that I'm over and they're monitoring for me. On your private equity funds, like, you have to look at your carry basis. So for private equity funds, you have different carry structures, European versus US waterfall met, mechanisms, and your portfolio advisers can tell you what the differences of those are. One is much more investor friendly than the other. And then you can look at additional reporting fees and other fees that are included in there. And why it matters is in the case study that we looked at last year, we uncovered 33% or 1,100,000 of savings just by unpacking all of these fee layers. So what we did was we looked at every layer of investment, and we drilled down investment by investment investment. And we said, okay. Well, there are multiple advisers here. You're getting reporting from three advisers, And for two of those advisers, you're actually paying for that reporting. And that doesn't quite make sense, so let's try and restructure that or at least you know, okay, that's what you're that's what you're being charged for. There was a lot of scale and complexity in these portfolios. There was definitely a variety of asset classes. We had a large family office and a foundation in there. So there were multiple vehicles and multiple different asset classes. We had referral fees going through. So somebody was referred to a, a, a listed, a listed product and received a referral fee for it, which I'm not sure why you would receive a referral fee for something like that. So, again, we highlighted that as a risk. And so what we did, if nothing else, was said, okay. Here is a transparency for all of your fees. This is what you're paying for, and this is what you could save by restructuring some of these agreements. And in the end, as I say, we identified just over a million of fee savings, which represented about a 33% saving in total fees. And so while you're looking at it from a cost perspective, if one of your investment advisers said, okay. Well, this is what I can generate for you investment performance, I think you say, okay. That'd be great. Let's do it. And so it's very important to think about, okay, what am I getting my money from my investment advisers? Can I unpack some of these fees and get some some transparency? And so if I was gonna do this in house with my magic sticker, what would I do? Well, the first thing I would do is say, okay. Let's look at our investment advisory agreements and what are we getting. Are we getting good value for money? Do we have reporting included? Do we have portfolio management included? What are those services, and do they reflect what I'm getting on my invoice? I will say that are they a strategic partner? Can you pick up the phone to them and they'll give you good advice? Will they connect you with experts, or will they say all of them are in house and maybe you're not sure you're getting the advice you need? Or are they someone who lit literally gives you a report every month and then you say you're happy with it? So think about are you getting a good value for that relationship? Are they actually a partner with you who you can pick up the phone to, you get good advice? And then how do you compare to your peers and your policy? So you can look at, things like there's a common common funds benchmarking study, which will tell you where you're operating and your fund administration expenses should be. It's a fairly high level analysis, but it tells you roughly where your expenses should be. And it's a good guide to say, okay. This is where you should fall out once you cover all of the costs. And if nothing else, once you unpack all of this and you look at it on a line by line basis, you are armed with that information to go to your investment advisers and say, okay. This is what I understand I'm paying for. This is where I think I may be duplicating services or I don't need services or this is maybe something that actually we don't need any longer. And you can go and negotiate fees. Or you can think about, okay. Well, maybe there's another adviser out there who will give me better value for money. And so if nothing else, it gives you transparency and a negotiating point. So that's it. That's all I had to talk to you about. I could go a lot longer, but I'm pretty sure that's Arlene's gonna tell me I'm nearly up on time, but I would love to take any questions you have. No? Perfect. Great. Oh. I've done any of this due diligence with DAFS. Have have you done any due diligence with DAFS? Because this seems like something that a lot of this, lack of a better word abuse could happen. Yeah. So we do it for a lot of different clients. So it's it's kind of client agnostic. So it doesn't matter who we look at, but we can perform due diligence on anybody. So we have worked for any clients. We've worked for a number of clients, and we've looked at a number of different vehicles. So it doesn't matter who we work for or who what are we diligent. Like, it's it's fairly agnostic as to who we cover. Here. No? Okay. Thank you. Well, thank you, Helen, and thank you in particular for pulling the mic down to my level. So, hopefully, everyone can hear me a little better now. I'm pleased to introduce our next speakers, Jean Westrick and Christopher Percoco, two leaders who helped shape how philanthropy adapts to technology and change. Jean is the executive director at the Technology Association of Grantmakers, who has over twenty years of experience in tech strategy and digital transformation for foundations, including her work at the Chicago Community Trust and the award winning On the Table initiative. Chris is the chief operating officer at Unbound Philanthropy, overseeing key operational functions. Chris joined Unbound after more than sixteen years at the Helmsley Charitable Trust, where he guided more than 5,000,000,000 towards philanthropic causes. They'll be sharing per, practical strategies how grant makers can lead with AI, how it's evolving, and how we can use it to drive impact. So please welcome Jean and Chris. Thank you. Well, hello. Can everybody hear me alright? Make sure my mic is on. Alright. I'm I'm so pleased to be here. I'm Jean Westrick, president and CEO of, the Technology Association of Groundmakers. And so for those of you who don't know about TAG as we're as we're known, can you hear me alright? No? We'll be better. Okay. I'm gonna I'm gonna speak up. Alright. So, hopefully, that's better. So for folks who don't know, TAG, TAG is, essentially, the the global voice for philanthropy tech. We have over 400 members, mostly here in North America, but we actually have members in eight countries. And we're entering into our twentieth year, as in 2026. And so we're a membership association. It's a very generous community. So if you are a member of TAG, thank you for being a member. And if you're not a member of TAG, maybe you'll want to join. I'm excited to be here with Chris. Great. Thank you, Jean. I hope everyone can hear me as well. As everyone said, my name is Chris Picopo. I'm the chief operating officer about philanthropy. We are a private foundation contributing to a vibrant and welcoming society and a just innovation system for to support and assist democracy. And as was said, I joined about previously after more than sixteen years at the Health Reap Trust where I joined, the innovation being set up at a scale. So I was there with really great for a very exciting and rapid period of time. And really my passion has always been around the operations in the nonprofit sector. Both undergrad and graduate degrees are in the public sector. So I figured for myself very young, which is I think is very telling. We're I'm excited to be here today and thanks to all kinds for having us because we really really think about kind of operations. Technology is such a key part of that. And as we kind of talk through our presentation today, we really really wanna give a sense of kind of, where the current, where we are in the society now and the sector now, where we think we can go and what we could do with AI, but also what we need to do as well as some actionable next steps for philanthropy as a whole. And with that, I'm gonna turn over to Jean to tell us, where we under where are we in what's the current landscape? Thank you. Hopefully, my placement on my microphone is made a little easier to hear me. I will try to project as much as possible. So where are we right now? The big headline here is individual adoption is very widespread. So AI, adoption is accelerating across the sector. However, it is uneven when it comes to enterprise adoption. What we see is at at least two thirds, and this is according to our state of philanthropy tech survey, which is a a survey we conduct every other year about the landscape. And we had over 350 foundations report on their, their experience. There were a few questions on AI, but there's also really, really rich data on, IT operations and and practices, generally. So I would I would encourage you to check out that survey. But, what we did learn is is that two thirds of of individuals are experimenting or using AI. And I think that that number is even higher because that the the growth is just incredible that individuals are are seeing the benefits, to save time and and be more efficient with their work. You know, we do have some foundations that, that report that no one is leveraging AI, and that foundation typically tend to be very cautious. So this is not a surprise. But as far as enterprise adoption, it is really uneven. And I think that there's a lots of things that, that undergird why it's uneven, and that comes down to a a certain amount of readiness. Mainly mainly governance. Governance within the philanthropic landscape is really and so what we find is almost an invert of that same just that chart around adoption. Two thirds of foundations report that they do not have an AI policy or, an advisory group that is helping guide their AI usage and adoption. About 20% report that they do have a policy, which is good news, But this is this is an opportunity here that we can't ignore as is that we do need good governance. And, really, this is the theme you'll see throughout the presentation, which is really this governance core is where since spending time may bear very good fruit in the future. Oh, I agree. Because well, you can go to ChattGPT and get yourself an AI policy. It it really has to be something that you engage with as an organization to really think about how do you wanna use it and and what makes sense within your own context. So I would say, you can start with a generic AI policy, but don't end there. This has to be something that you engage with deeply. When we ask grantmakers how they're using AI, I'm I'm gonna just be perfectly blunt. I think that the, use cases are pretty germane. They're not particularly exciting, and and maybe that is because of the tools in which folks are are gravitating towards. They're using AI to take meeting notes and generate summaries. That's a it's a great use case. They're also using it to generate some sort of content or correspondence. Two thirds will report using AI for, you know, drafting some sort of, correspondence or content of some sort. The more interesting things when we look at things like trying to surface, patterns in data, where there might be an opportunity to to get greater insights into your work or to see opportunities for impact. We're seeing some organizations doing that, or classifying or coding and summarizing data. I am actually very heartened that very few organizations are reporting using AI for grant making decisions. I think this is exactly right because our work is relational, and it's really important that we don't outsource the most important part of our mission, to to an AI system. So, so I I actually think that that's very good. Oops. Sorry. Again, not really sort of exciting information here when we ask about the AI solutions. Alarmingly, there is a really high usage of the free ChatGPT. And I would caution folks not to be using a free version because you you lack the kinds of safeguards and abilities to to close down that that, the searches. So, I would be concerned about that. We see Copilot as not not a big surprise because of the widespread use of Microsoft environments. So Copilot is is, very easy to to adopt. Zoom being the next most common. But I do think that there's an opportunity here. We are seeing a lot of branch management systems starting to put AI right into their platforms, and so there's an opportunity to leverage some efficiencies through your existing platforms. And I think we're gonna see more and more of that as time comes. Yeah. And just to piggyback what Jane just said about the free chat chat GBT, part of that too is data governance. Once you use a free system, they own something of yours. And going back to internally, what does that mean to your organization? And this is where it comes back to what is your organizational approach, and does that match the way you want to work and interact with AI? Chris, thank you for calling that out because I think that this next chart comes right to one of the big barriers and data is the headline here. Data privacy and security concerns are the number one reason why organizations are slow to adopt. And and I think it's perfectly okay to be slow to adopt. So I wanna just underscore slow does not mean bad. Followed by a lack of AI skills or knowledge, unsure potential use cases, bias and fairness in AI solutions. The story here is is that there's a capacity gap and there's a data readiness governance gap. And so there is a real opportunity to really think about the data that powers your mission and really think about that first before you start thinking about what do we do with AI. Otherwise, you are going to be, you know, a hammer in search of a nail and that really is not how we want to lead with AI. So So getting to where are we now, really, I guess, the first question I would ask is, what are you seeing as foundations? Is there anxiety? Is there frustration? Is there, you mentioned that there are some use cases, not not necessarily exciting, But what are you what are you seeing in the field at the moment? I'm seeing, reticence to adoption, largely, because of the anxiety. Because I think that folks haven't really done a lot of the deep inquiry around governance and what they want to do with AI. This is an this this is a, new technology that has far reaching implications, and it's moving very fast. And so there's a lot of anxiety about where to start, how big to go. And I would just caution folks. This is like, you don't need to boil the ocean. You really honestly you can start small and build your capacity over time. So I think that that is, you know, that's a big piece is, you know, there's a lack of governance, a lack of a a real sort of reflection upon how we can leverage this tool for for greater impact. And then, of course, there's, you know, overarching, ethical issues, which is not surprising. We are a purpose built organization, so we should be engaging deeply in the ethical concerns. Yeah. Absolutely. And just to kind of expand that, you're here are these themes throughout the presentation of kind of meeting your organization where it is. Again, don't blow the ocean. From the from the get go, you wanna make sure this makes sense for you and also it can be iterative. It's gonna be a process where you take a first step. You then figure out if that first step works, either adjust pivot or expand. And along the same lines, talk to me about what what are some myths you want you wanted to spell? Well, you can't really avoid AI at this stage. It's everywhere, and it's creeping into everything. I would also like to say, like, you know, even though ChatGPT and Gemini, these gen generative AI is really leading headlines, there's also predictive AI, which is about the the the patterns of data that really can power your work. And so, you know, be aware that you really understand what AI can do, I think, is really important. I think the, the other thing I would say is your staff is already adopting AI. And you are whether you like it or not, there's a lot of shadow tech happening where people are on the down low talking to their friend, Claude. And, you might not know that. And so it's I think it's really important to be just upfront with the fact that it's here. You can't ignore the elephant in the room, and it's better to go into that, not saying we're gonna shut down all AI uses. But think about ways in which you can embrace AI in a way that sort of, you know, supports your mission and supports the the the the folks who work at your organization. I think also too, you know, if you if you're not acknowledging that reality, you're you're inviting, risk and you might not even know it. So I think that those are those are some things that, that are really important. I would also say this is not a technology challenge. This is a change challenge. And it really requires, vision and leadership at the very top. This cannot be driven by your IT team. You know, as as, you know, many folks who work at foundations, your IT teams are actually relatively small. There's a lot of outsourced IT, and it's really hard to be strategic if you've only got a fractional CIO or CTO or an MSP who's helping you. You really need to think about your mission, what you're trying to do, and your vision for it. I think, the other thing I would like to bring, into this conversation is just a little risk, you know, looking back. If we look over the arc of the last thirty years, thirty years ago being sort of the advent of the the introduction of the Internet, the Internet really brings our missions online and creates that opportunity to share our work and and and those sorts of things. Social media allows us to use strategic storytelling and engage our community in new ways. We have to create the vision for what AI is going to bring for our our work. And it is going to change the nature of how we deliver our mission. Actually, I think now it's time if you tend to pivot to kind of what can we do and where are we where where we're going. Yes. So I think I've got I've got some questions for you because, because you've got you've got a deep deep experience in operations. And so as a friendly professional, what examples have inspired you, and what, and how do you think that AI can help funders you know, better understand the needs outcomes and and and opportunities for communities? Absolutely. I also wanna take this moment to be transparent where I'm someone who I believe there's a place for AI. I don't think AI is the MLB all. And it's something where as you were just talking about, if you look at the last thirty years, there's been a tremendous amount of shifting and changing in the world in the use of technology. I think that I feel very strongly that AI is the new shiny toy and not necessarily the new shiny toy is always the right toy. It's exciting. There's a lot of opportunity. We're going to be intentional. One thing that I actually am quite against is, as Jean said, AI should not be making our decisions. It's still too new. We have to figure it out. Also, I don't think I'm alone in that. Between my I recently took switched out as I said. And then that time off, I was great at doing nothing for about four days, and I started trying to do some more research. And with this presentation coming up, I started talking to some peers and friends more deeply about their use of AI. And I reconnected with someone, from college who now, I will say, is one of the leaders of AI for a very large corporation. And I was talking to him, he actually said to me, he thinks he got the job at this organization because he told people we don't know where we're going. That there's a lot of opportunity, but a lot a lack of clarity in the future. And, frankly, my concern about decision making is, to make a really out there comment, like, we've all seen those movies. We've seen Terminator. In my case, I'm actually I'm a huge Marvel fan. I've seen x men. The sentinels were bad because humans made them think for themselves and then attack back. So, again, it's an extreme example, kind of funny, but it's the last year of kind of where it could go and also speaks to the need to meet people where where they are now. And with the foundation, the theme of meeting the organization and possibly the individuals at the foundations where they are is really important. The AI component of any tech strategy really needs to focus on leveraging streamlining, leveraging impact, and not necessarily wholesale changing how we work. There are huge opportunities in looking at kind of what an organization needs to do to do their work and where can AI play a role in enhancing and streamlining, not necessarily making decisions. And so I use myself as an example. When I use AI, it's very it's not for very substantive thought because because, again, you have to fact check AI. It's only as good as the data it has, which makes the governance of your data very important. So in my case, I often use this to help me draft things. I'm someone who looking at a blank word document is extremely stressful for me, but giving AI a couple of prompts, giving me some rough structure makes makes my work more efficient. And again, that's a place where that's applicable to other places at the an organization that streamlining for looking at reports, maybe maybe thinking about how to structure an argument for a grant or how to help a grantee. And I think you also have to invest in helping grantee use AI because they're they also wanna find the same efficiencies and they don't want the resources. Tom Blaine mentioned before there recently was an announcement about some new funding for AI out of, a fund that was created. That's that's still very, very new. It's still something that doesn't happen very often. So how do we, as a sector, think about how can we enable grantees to use AI to be more efficient? Because, again, as was just discussed with, the big, beautiful bill and other implications at a federal level, nonprofits are going to be asked to do more with less yet again. The starvation cycle is real nonprofit sector. It is AI tool that can be used to lessen that starvation, which is really important. And again, going back to kind of the streamlining, it again, look at how you use AI, not how AI uses you. And that's something that I think is really important. And what I've said to a few people recently is AI is a tool. It's not your boss. If you're starting to feel like AI is imposing things on you, you're using it wrong and possibly exposing yourself, your organization to risk. I appreciate, all that you said, and I wanna pick up on a couple things you just talked about is this has helped me, explain it to folks. It's AI is your teacher Mhmm. Your assistant, or your muse. Can you use it to generate some ideas? Can you learn it to can you use it to to learn something new, or can you use it to help you, do a task? And those are great individual use cases. But I also want to remind you of something you said to me today, and I said you should put that on a bumper sticker. And what what did that what was it again? I think AI should be I see AI as a way to be innovative, not just incremental. I think that there one thing as we think about how we implement AI is, again, you have to look at how it fits within your whole policies. If there's a use if there's use case, don't be afraid to test it. And the chain change is often incremental. I understand that. But, again, it it can lead to innovation in the long term as well. And actually to kind of feedback off of that for Eugene, my question back to you would be looking at how do people use AI to make things more equitable or what are you seeing in that space? Oh, that's a great question. I I think you you hit on one thing. You know, we are only as good as our our nonprofit partners are able to exist on their and and then deliver their mission. That's that's how we deliver our mission is through those nonprofit partners. Mhmm. And and far too I'm I'm gonna say it very bluntly. We have starved folks from funding technology at the scale in which it needs to be done. I mean, it is 2025. Technology is a powerful tool, and we need it. It's not just, a utility, like like the lights. It is something that enables mission. And so we're not thinking about it. And everywhere. It's everywhere. Everywhere. It's ubiquitous. And so you have to you have to make sure you're empowering your nonprofits, not just with the tools, but the skills as well. Because this is far reaching and it has implications. I think also too, you know, I think that there's an opportunity to, really think about the work that you do and where AI might serve that. So if your, if your, work is focused on eliminating poverty or, you know, better educational outcomes, What's the implication for AI in that work? I mean, these are these are really, we're gonna have to reflect on this and really think about how we want to harness the potential for that. And we have to stop thinking about, this in one year budget cycles. We have to start thinking about where do we wanna be five years from now with AI, and start planting those seeds so that you can build a roadmap for that because we have under invested in our data strategies. And so, therefore, we're not gonna get the big benefits of AI strategies without that. And so I would I would say think deeply about your work and what are the implications there and start from your purpose. I have something I I I talk about with with regards to any technology implications. I call it watching your p's and q's. First and foremost, what's your purpose? Ask that question. Make sure you know and and everybody around the table can answer that question. Then ask yourself what's the problem you're trying to solve. And, again, problem definition is one of the hardest problems to get to get at the heart of when you're talking about IT. But make sure you really understand what you're trying to solve for, then think about the people, then think about the platforms and the policies and the processes and the partners that are gonna help you get there. Yeah. And that and that all leads to a more transparent process in the goal. And I wanna take a moment to remind everyone we will have questions at the end, so start thinking now about what questions you may have. Also online, start putting those in the chat. But, again, going back to the transparency piece, I think that is critical. And I've often found in my career that trans transparency in general leads to better process, but also a better environment in which to work. And that's where you wanna be able to explain to people, who's involved. What are the what what are you trying to do or what do you want them to do? Why are you doing this? There people can get very anxious about something new, especially if they're someone who is later to adopt technology. I can tell you I that there are a lot of people who are very nervous about implications of AI until they see a benefit. It's oftentimes you have to see the benefit for people to actually find a way to buy in but also to adopt. And that leads to really how. You wanna be transparent about what you're trying to accomplish, and don't be afraid to kind of bring people into the into the discussion. One thing that we've spoken about is the need for to fit the organization and the people. And that means you can't do this in a silo. It can't just be IT creates a road map and then rolls it out. That is a recipe for pushback, a lack of, adoption, but also a lot of people being more nervous and and rebelling against it. So kind of building that transparent process is really key. Something that I've spoken to spoken about, Unbound, but also with some other organizations is how do you get the right cross section of people in the room? And it's not just a single person from x, y, and z department or program. It really is about length of tenure. It's about what are they earlier adoptions? You wanna make sure of people who are easier to earlier to adopt than later. You want to also be transparent about a timeline. Because sometimes when you say, we're looking at an AI AI policy, and then it's six, nine, twelve months until they hear anything else, that actually leads to more stress in many ways. Mhmm. Because then staff make up their own stories about what's happening behind the scenes. So make sure you're clear about a communication plan and how that will work. Well, also, again, you wanna be transparent about how you're using AI. There and there are two pieces to this. One, you wanna make sure you're fact checking. As I said, AI is a is a tool. It's not the end all be all. I was speaking to a colleague a few months ago where they spoke about how they've tricked AI in in one of the use cases. They were getting a tremendous amount of pressure to use AI more broadly, I would say, in life decision making and guiding the way that they were working. And what ended up happening was is, okay. Like, I wanna see if this works. I'm asking questions. And as they were asking AI questions, they actually noticed that they were actually getting responses out of the process. And as they dug into it, the responses were not correct. That they actually found simple errors that was probably because of the data that AI was using to make this recommendation. So again, they were able to go back to the people who were pressuring them to start using AI more broadly and said, listen. This is why we can't use AI for this. The limitation is going to be they can help us gather information. They can help us maybe create some systematized way to look at things, but they can't be the one making a recommendation. Here's why. And it led to a much healthier discussion about where they saw the purpose and what they saw as possible. And another thing is there are tools that are using AI for videos, or other types of, training materials. And something I've seen recently is people using AI to build training materials, which I actually think training videos are great. I am a primary primarily audio learner and visual learner. So it may so I if you want me to read something, I can get there. But if you want me to maybe retain, tell me it, and I'll remember it much faster. So in my case, a video training is extremely useful. But the flip side of that where video creating a video in a more streamlined manner using AI is AI then could be used for cybersecurity risks. Then all of a sudden you have people making malicious videos. So what I would say there is you wanna be transparent. If you make, for example, a training video on how do you how do you grant me due diligence, label it that was made by AI. And that way you build the muscle memory to say, yes. You will see that this was done using AI in the future. And it may also get people used to looking for certain visual cues in AI. Chris, to that point, when you are, like, say, on a Zoom call, do you tell people that you're recording it? Always. Always. That's a that's a really good practice again, you know, for that transparency. I think It actually bothers me that that's a choice. I actually have to tell Zoom or or, Teams to either disclose or not disclose that they're being recorded. I think it you should be told if AI is being used to the back part of the time. I I 100% agree because, you know, as I trust is our currency. You know, foundations have plenty of money, but what we can't what we can't buy is that trust. And once it's gone, it's really hard to rebuild it. And so we rebuild the trust by ensuring that we're being responsible and we're being transparent, and we're and and we're building that practice, not muscle memory about that every time. Yeah. And and just kind of pivot to kind of what we need to do. When you think about what what are the most important guardrails in your mind as people think about AI and, sort of implementing that foundation? Well, I do think that, you know, some of the things we've already mentioned around, you know, governance and and making sure that you, have the governance. But before you even develop an AI policy, I would ask you, what is your data governance policy? And and I and I'm actually quite surprised at how many people don't know. What data do you have? What's the data that powers your mission? What data is, is confidential? What data is is protected or restricted in your organization? And what is open in public? You know, you have to know that, in order to have a data policy. Mhmm. And then that will help inform your AI policy as well because it it's really an extension of that. I think this idea around transparency and building that muscle memory, and I think then, you know, the, you know, the other things are about, you know, risk management. How are you doing some of the due diligence on your tools that you're using? Do you understand their data policy and their practices? And so making sure that you're digging into that, before before you do that adoption. And, I think that you also sort of mentioned about engaging staff throughout the process and being very intentional about it. Prior to my role at Tag, I, was leading change management for a $6,000,000 digital transformation at the Chicago Community Trust. Change management, oh, I started thinking about it really as a user journey. Mhmm. And thinking about how I can bring everybody along and really thinking about the experiences that they were gonna have. And I used everything from our our UAT testing to to reinforce the types of skills and to use that to, you know, spread awareness, observe the knowledge, and and the desire and the need and and and those, the skills and the abilities so that they could adopt. Mhmm. And I love to actually include folks who are who are skeptics or or heck or technically challenged, as part of my group because I learned actually more from them, than they probably learned from me. I I really like what you just said to drill down a little bit. It it it really is about investing in the people and the process and make sure that what you're proposing works for them. And I think that oftentimes that the human aspect is lost, and that's where the humanized, the humanized response to what you want to happen. And talking through listen. Like, if we want staff to adopt this, this is what we have to think about. These are the reactions they may have, but also talking to them and engaging them in the conversation, not dictating to them about what needs what they will do, But they would but more ask them what they want to do. Exactly. Exactly. Because they're using it. Are we out of time? Okay. So I think this is not working, by the way. But, I think with that, do we have time for any questions? Or we got time for a couple questions. So, if you could speak into the mic with your question. Sure. So you talk about fact checking. You you understate really how hard that is. I'll give you an example. So many here in the room invest with nonmarketable managers, and we get quarterly reports, some six pages, some 60 pages. And we're asked to summarize for some of the larger managers' results for the quarter. So we dropped in the PDF, of one manager, and I forget the prompts. It'll give us a summary of what happened during the quarter. And it gave us some results. And we're looking and, you know, we did read the material, not every page. We don't remember seeing that. So we went through every single page for this one manager, and we came to the conclusion that ChatGPT, the paid version, went out to the web and got some results. So we couldn't possibly turn that information into the board and others in charge of governance. So Mhmm. How can you possibly accurately fact check AI? Sorry. Yeah. No. I think it's it's the same way you would fact check with with everything. It's just like, are there ways in which you can validate that information? And I've had the exact same, you know, experience where you say, summarize this report, and they're like, that's not what this report is about. It it hallucinates, and that is that is part of it. So, it is about sort of building the muscle to, build those literacy skills. I I call it AI literacy skills like you had media literacy skills, at the same way. It's just how can you validate that that that you trust the responses here. And I would just say, again, this is a very short presentation and, obviously, not comprehensive, but it it is hard and I will be transparent. It is very difficult to fact check. However, you just said, well, I think we all need to realize. In your gut, you knew something was wrong. So you went back out and looked into it more deeply. If something looks wrong, we'll look into it. Again, the fact checking then becomes a much a a larger, more intensive process than necessary reviewing the report. Thank you. Could you drill down, data privacy, especially sensitive data using chat, GPT, or any of the AI tools, it's unclear to me who owns the data after you put them in those systems, whether it's a fee based or non fee based. Thank you. Yeah. And that's a great question. And I would say, right now, you have no data privacy with SMPT. There are ongoing litigations that are actually even if you change the settings to say, don't save my chats, you know, my prompts, it it it can't because because that is currently under investigation. So, like, I would say use these things at your own, at at at your own, you know, within your own, comfort zone. I would say don't ever put any, personally identifiable information into a into a a a chatbot, because that you don't know. And that goes to the what we were saying before, where having a data policy is so important where you wanna be very clear about, what can and cannot be put into a system. Because, again, especially with many of the free AI tools, you can't assume privacy to any degree. Now there are some more provisional AIs where theoretically, you own the data because you're building it as you go. Again, I personally have questions about that already. But, again, it goes back to why the data policy is so important. I know we are over time. I'm getting dirty looks, So we're gonna wrap up. But, thank you so much, and please be in touch. Thank you. Great. That's easy, mate. Well, thank you both. AI is always a fascinating topic and can certainly be a useful tool to help us operate in our industry today as we learned. I'm pleased to introduce our last speaker for the day, Kelly Morrison Lee, managing director and leader of our tax controversy practice here at PKF. Kelly has more than fifteen years of experience navigating federal tax administration and has held senior roles within the IRS, including serving as special counsel to the national taxpayer advocate and senior advisor to the chief tax compliance officer. She brings deep expertise in IRS procedures, regulatory matters, and emerging tax issues. Today, Kelly will walk us through the IRS update for private foundations and the One Big Beautiful Bill Act, a topic that has certainly sparked a lot of conversation this year. So please join me in welcoming Kelly. Hey, everybody. Crystal, let's check-in on my how's it doing? You can hear me? Good. Okay. We're gonna do our best. How's that better? Thanks for having me today. Unlike most of the people in this room, I have very little expertise. There we go. There I am. In private foundations. Instead, I am a a tax journalist, and I have had a number of roles as as Lauren alluded to. Strike. Better? Worse? Okay. We're just gonna try it like this, like in podcast. But in in those roles, I, have gained a very broad knowledge of tax practice and procedure. And what that means is knowing how to navigate the IRS as an entity in the federal government as an entity and and to resolve taxpayer disputes, whether they be individual or from a policy perspective. In my role with the chief tax compliance officer, one of the things I wanna highlight is that I was very very involved in oversight activity. So, I was, responding to congressional inquiries from the tax writing committees that were referenced earlier. I responded to inquiries from the treasury inspector general, for tax administration, and from the government accountability office. What that means is we also have a a broad understanding of of tax practice and procedure in whole and how to communicate about that and the information standards related to it. So today, with our limited time we have left, I wanted to focus on where we see the private foundation space as part of tax exempt taxation as a whole and, where we see scrutiny potentially falling in this in this current landscape. As the messaging and the rhetoric continues to be strong around the idea of a a a focus on not for profit taxation, which is, yes, a, an oxymoron in saying that. It turns out that private foundations have been able to avoid specific provisions in in in the OBAA. Is it OB three? Is it OBAA? We're not sure. Everybody likes a different phrase there. As well as some of the more specific executive orders and presidential memorandums that have that have affected not the not for profit space. That said, that does not mean that we shouldn't be aware. I I share what I'm about to say not to to create concern about increased audit in the space, but into instead to increase awareness of the space. As we see executive orders that will affect federal grant making, that will affect other types of not for profit foundations and the tracing of their funds, we need to be aware of grantors and grantees alike. That obviously will affect private foundations. In fact, I, in my role in my last role at the IRS as social counsel of the national taxpayer advocate, I I had exposure to the treasury department and the introduction of many of these executive orders and and presidential memorandums. I would say that is a focus of the treasury department is the implementation of these or orders. And as we look at that, we can see that, there will be information scrutiny. And so when we talk about information scrutiny, what does that mean? It means the data we've talked about in the AI space. It means taxpayer information and the disclosure obligations under internal revenue code sixty one zero three. Traditionally speaking, when we talk about that code provision, that is a guidepost of every employee at the Internal Revenue Service. And as a guidepost, it does it as a guidepost, it affects everything that every f IRS employee conducts. Be it those who are processing returns as they they arrive at a service center in Kansas City or senior leadership. Everyone is governed under it and subject to the scrutiny of it. And what it says is that returns and return information shall be kept confidential except as authorized. And so let's talk about the Grassley letters that that recently came from note, the senate judiciary committee. While while mister Grassley is the chair of said committee, this is not a tax writing committee. It's not the House Ways and Means Committee. It's not the Senate Finance Committee. It's not the Joint Committee on Taxation. Meaning, there are different authorizations here at issue. And so an awareness of and protection of taxpayer rights including those related to privacy and confidentiality become key. So how do we knowing that as we said, there are tangential OBAA effects, there are tangential executive order and presidential memorandum effects, what do we do in the private foundation space as we know it's continuing to be a changing landscape? The rhetoric continues to be strong. But as of now, there are not direct changes in law affecting this arena. Well, Helen talked about, the idea of non investment risk. Right? That's that's key here. So stay informed and be flexible. Yes. I'm giving you corner corner advice. We all know this. But in conducting those risk assessments on the non investment risk, think about these two things in particular. Your organization's ability to trace funds and where those program program outcomes end, and your organization's ability to maintain clear documentation and ledgers relating to those grants, relating to those payments. Where does it all end up? That's the kind of risk mitigation that's going to be key here, is being prepared. We do not know what future changes in law may come, but we we know where our organization stands, where our money ends up, and and and why we want to operate with the mission we have. So that means regular communication with all of your advisers, tax, investment, audit advisers, with regular scrutiny of your own due diligence standards, and you don't use due diligence standards, especially in the enlightened AI space. And then finally, continued consultation with your advisers to make sure you are protecting the rights I reference. The rights for taxpayer privacy, the rights for taxpayer confidentiality, and ensuring that the IRS is operating within the limitations that they they're subject to. So as as I've joined this team and sorry this was a little rough in trying to to adjust to the time frame here. But as I joined the PKF team three months ago, one thing I'm increasingly impressed by is the private foundation's teams and the other teams and their ability to meet their clients' needs. So when I talk about all these things very generally, not being an expert in the private foundation space, we have experts in all these spaces, but we also have advisors like myself who know the landscape as a whole and how we navigate it. There's a lot of lack of clarity there. Perhaps that was another oxymoron. There's a lot of unclarity as as we face a changing legal and, just communication landscape. But, teams like PKF are are well entrenched and know their clients and their clients' needs. And I and I'm I'm really happy to be here and talk about those needs. So I think I'm gonna try to keep us on time there. Anand, is there anything else you wanted me to hit? Okay. Thanks. Well, thank you, Kelly, and a big thank you to all of our speakers for presenting on so many important topics today. Unfortunately, Chris Peterman couldn't be here due to our prior engagement, and Tom just had to run out to a meeting. So I'll be walking us through our closing remarks. On behalf of Chris, Tom, all of our private foundation partners and team here, we wanna sincerely thank you for joining us both in person and virtually. A survey is being passed around, and a virtual version will be sent out as well. We do encourage you to complete it, and you'll have the chance to share any feedback or ideas for future discussions. Please feel free to reach out to us at any time. We do truly value your input. We'll also be collecting name tags at the check-in desk on your way out, so please feel free to drop those off before you leave. Thank you again for spending your time with us. We wish you all a wonderful holiday season, and we hope you enjoy the rest of your day. Thank you.