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Our offices will be closed on December 24, December 25, and January 1.
Friday, December 27, is the last day of our winter hours, with offices closing at noon MST.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices will be closed on December 24, December 25, and January 1.
Friday, December 27, is the last day of our winter hours, with offices closing at noon MST.
Popular payment app, Venmo, explores nonprofit application
Venmo, a mobile payments app particularly popular with Millennials, is working on a channel that nonprofits can use to accept donations. Venmo is commonly used to transfer funds between friends who, for example, are splitting a restaurant check. With its emoji-filled news feed, the app could offer the opportunity for young people to donate, share their cause and perhaps subtly pressure their friends into donating, according to MarketWatch. The nonprofit program is currently undergoing testing with a limited number of organizations.
Nonprofits need to appeal to donors’ self-images
Charitable appeals should take into account prospective donors’ self-concepts, new research published in the Journal of Experimental Social Psychology suggests. Study participants viewed appeals that emphasized the pursuit of shared goals — for example, “Let’s save a life together,” or individual achievement: for instance, “You = Life Saver.”
Psychologists found that people who earn less money were more likely to give in response to an appeal that emphasizes community. But those with incomes of more than $90,000 responded better to appeals focused on personal achievement. The researchers concluded that, rather than trying to persuade prospective donors to see the world as they do, nonprofits may find it more effective to “meet them where they are” when tailoring appeals.
FASB proposes changes to grant, contribution accounting
The Financial Accounting Standards Board (FASB) has released a proposed Accounting Standards Update (ASU) that could result in more grants and contracts being accounted for as contributions. The ASU, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, explains how to determine whether transactions should be considered contributions (which generally are recognized when pledged) or exchange transactions (which are subject to the revenue recognition standard, ASU No. 2014-09, Revenue from Contracts with Customers). The ASU also clarifies when a contribution is conditional rather than restricted by the donor, which affects the timing of revenue recognition.
The ASU would follow the same effective dates as the revenue recognition standard — with application for most nonprofits in periods beginning after December 15, 2018.
Overheard in a nonprofit’s office: “It’s so hard to find good board members. It’s going to be really difficult to fill these board openings.”
If your organization struggles each time it needs to fill a board vacancy or does not always come up with the candidates it desires; it may be time to consider creating a board compensation program.
Add up the pluses and minuses
Board member compensation comes with several pluses and minuses your nonprofit should consider. Different organizations might assign different weight to each of the factors.
On the plus side, offering compensation could help attract board members with specialized expertise, such as fundraising or a well-regarded community presence. It also could give you an edge when courting potential board members who would receive generous compensation from for-profit organizations for serving on their boards.
Compensation could be in order, as well, if your board members are expected to invest significant time and effort, or if your nonprofit has a business model that competes with for-profit organizations, such as a nonprofit hospital. In addition, providing compensation can help create an obligation to perform on the board member’s part and promote professionalism. This also might:
Board compensation also comes with several minuses. In general — and this is a big one — it can look bad. Donors expect their funds to go to program services, and board compensation represents resources diverted from the organization’s mission.
Further, there are IRS and legal implications. The IRS looks carefully at whether any arrangement could create a conflict of interest. And, board members receiving compensation of more than $10,000 aren’t independent members of the board by the IRS definition. Reimbursing for expenses under an accountable plan is not considered compensation for measuring independence. Also, in some states, volunteer board members are protected from legal liability, while compensated members may not be. So you will need to check on your state’s laws.
Launch a compensation program carefully
If you decide to compensate board members, do it correctly. First and foremost, the compensation arrangements must comply with the Internal Revenue Code’s private inurement and excess benefit regulations, as well as the IRS rules about “reasonable compensation.” Failure to do so can result in steep excise taxes, penalties and even the loss of your organization’s tax-exempt status.
Independence is indispensable when setting the amount of, or formula for, board compensation. It should be set by independent directors (who aren’t among those to be compensated), or an independent governance or compensation committee, with insight from an independent consultant. The amount should be comparable to that paid by similar nonprofits, as determined by compensation surveys or other data. Whoever sets the amount should be guided by a formal compensation policy.
The policy should include clear objectives outlining how compensating board members pays off for the organization (for example, by allowing it to attract a member with financial expertise). It should specify which board members are eligible for compensation (the chair, the officers or all members) and how compensation is structured (for instance, flat fee, retainer or per-meeting fee).
The policy also should address expectations for the board members in exchange for their compensation. Expectations can be described, for instance, in terms of number of meetings attended, hours worked or qualifications and experience.
Finally, document, document, document. You’ll want written evidence of a formal board vote approving the policy and the compensation amounts, related discussion and copies of the data the board relied on to make the decisions.
Leave no loose ends
Making a shift to a board compensation program is a major change. Your preparation also should include checking to see how other nonprofits with compensation programs handled communicating the change to the public, which can help you develop your own communication plan.
Be sure to seek advice from an attorney who’s familiar with laws governing nonprofits in your state. And you may also want to get feedback from supporters and donors before making a final decision.
With the end of the year on the horizon, your supporters may be thinking about making charitable contributions they can deduct on their 2017 federal tax returns. If a nonprofit wants to keep donors on its side, it needs to explain that different types of donations can carry different tax benefits and that some donations are not deductible at all.
What can be deducted?
Generally, donors can deduct contributions of money or property. The amount of the allowable deduction varies based on the type of donation:
Cash. Cash donations are 100% deductible, including donations made by check, credit card or payroll deduction.
Ordinary income property. Donations of this type are generally limited to the donor’s tax basis in the property (usually the amount the donor paid for it). Specifically, donors can deduct the property’s fair market value less the amount that would be ordinary income or short-term capital gains if they sold the property at fair market value (FMV).
Property is ordinary income property when the donor recognizes ordinary income or short-term capital gains if he or she sold it at FMV on the date of donation. Examples include inventory, donor-created works of art, and capital assets (for example, stocks and bonds) held for one year or less.
Capital gains property. Donors of capital gains property can usually deduct the property’s fair market value. Property is considered capital gains property if the donor would have recognized long-term capital gains had he or she sold it at FMV on the donation date. This includes capital assets held more than one year. But there are certain situations where only the donor’s tax basis of the property may be deducted, such as when the donation is intellectual property (for instance, a patent or copyright) or, interestingly, “certain taxidermy property.”
Tangible personal property. As the name implies, tangible personal property can be seen or touched. Examples include furniture, books, jewelry and paintings. If your nonprofit uses the donated property for its tax-exempt purpose — for example, a museum displays a donated painting — the donor can deduct its fair market value. But if the property is put to an unrelated use — for example, a nonprofit children’s hospital sells the donated painting at its charitable auction — the deduction is limited to the donor’s basis in the property.
Vehicles. Generally, if a vehicle has an FMV greater than $500, the donor can deduct the lesser of the gross proceeds from its sale by the organization or the FMV on the donation date. But if the nonprofit uses the vehicle to carry out its tax-exempt purpose — for instance, an animal welfare organization that uses a donated van to transport rescued dogs and cats — the donor can deduct the FMV. Make sure you provide Form 1098-C, which your donor must attach to his or her tax return to take the deduction.
Use of property. Say a supporter donates a one-week stay at his vacation home for an auction. Unfortunately, he cannot take a deduction because generally only donations of the full ownership interest in property are deductible. The right to use property is considered a contribution of less than the donor’s entire interest in the property. But there are some situations in which a donor can receive a deduction for a partial-interest donation, such as with a qualified conservation easement.
Donors also might want to claim a deduction for the donation of their services, such as when a hair stylist donates one free haircut and color for your auction, or a graphic designer lays out each issue of your quarterly newsletter for free. These types of donations are not deductible as contributions, only as normal costs of doing business. But the related out-of-pocket costs, such as supplies and miles driven for charitable purposes (14 cents per mile), are deductible as charitable contributions.
Help donors help you out
Be aware that there are additional limits on charitable deductions. Proposed tax law changes could also affect charitable deductions, though most likely not for 2017. So keep an eye on federal developments in Washington.
While tax education may seem beyond your responsibility, you cannot afford disgruntled donors. Taking the time to make sure your donors understand the tax implications of their gifts can avoid unpleasant surprises down the road, and keep donors on board as long-term supporters.
What other limits apply to charitable deductions?
As you probably know, there’s a limit to the amount of charitable deductions a taxpayer can claim in a given year. The taxpayer’s total deduction generally cannot exceed 50% of his or her adjusted gross income (AGI). (A higher limit applies for certain qualified conservation contributions.) But donations of capital gains property are generally limited to 30% of AGI.
In some cases, the limits are even lower. For example, deductions for contributions to certain private foundations, veterans’ organizations, fraternal societies and cemetery organizations are limited to 30% of AGI. And capital gains property contributions to such organizations are limited to 20% of AGI.
Donors and other stakeholders continue to look for more accountability and transparency from nonprofits, especially regarding fundraising. Not only is the sum of money raised in campaigns meaningful, but how efficiently you’re able to raise it, too.
Interested parties look beyond total dollars raised to also consider associated costs in fundraising efforts. Cost ratios that present fundraising costs as a percentage of funds raised (also known as cost-per-dollar) focus on the expense of fundraising, while return on investment (ROI), importantly, focuses on the returns. It makes sense to track both.
Determining ROI vs. cost ratios
The formula for ROI uses the same inputs as the cost ratio but flips them:
ROI = Fundraising revenue / Investment in fundraising (Fundraising expense)
Focusing not only on the big picture but on specific fundraising activities will allow your organization to identify its weaker methods and strategies and improve its overall fundraising performance. Which of your fundraising activities generates the highest return? Once you establish a baseline, you can see where your results are improving and which programs are most effective.
Some organizations feel it’s more meaningful to measure gross revenues raised compared to the fundraising expenses for that effort. However, many follow a more traditional method of measuring ROI using net revenues (revenues minus the related expenses) when comparing to costs. Either way is OK, but you must be consistent by measuring your revenues in the same way for each year and campaign. And remember, these metrics are only meaningful when you compare fundraising activities or trends from one year to prior years.
Calculating the inputs
There are other considerations. How, for instance, do you compute your “fundraising expense”? Although the revenue information is easily available to your development staff, your accounting staff should be recruited to gather data on expenses at the same level of detail by campaign or fundraising effort.
Your fundraising expense should include the direct costs of the initial effort, as well as later efforts. Initial costs might include the investment to create a new donor relationship (for example, online advertising costs or the costs of a phone campaign), while subsequent costs include those associated with maintaining that relationship (for instance, the costs of a renewal mailing).
What about indirect or overhead costs? Be consistent! If you exclude those that you would incur with or without the monitored activity, such as the costs for your website or donor database, make sure they are excluded from every campaign metric. For both costs and revenues, you should use rolling averages that cover three to five years. This will reduce the effect of “one-offs,” whether in the form of a significant donation or an economic downturn. You’ll also avoid penalizing fundraising activities, such as a major gift campaign, that require some time to show results.
Calculating these metrics will help you make better decisions when it comes to allocating your fundraising resources. But keep in mind that ROIs can vary greatly by activity, and a lower ROI doesn’t necessarily mean you should cut the activity. One fundraising expert suggests striking a balance between high-cost, high-potential long-term activities and low-cost, short-term activities.
A win-win scenario
Going to the effort of computing the cost ratios and ROIs is a win-win. With this information in hand, you can make more informed decisions and satisfy your stakeholders. Your CPA can help you in these efforts.
Whether an executive on staff or a member of the board, new to the organization or a long-time veteran, a nonprofit leader sometimes faces tough challenges that a formal development class will not address. But according to the nonprofit Community Resource Exchange (CRE), learning on the job itself can be a rich source of leadership and management development. The CRE advocates two self-coaching opportunities that lean on resources you can find in yourself, within the workplace and among your networks.
The CRE’s first technique is a method known as “reframing.” It refers to the ability to shift your perspective and unlock a fresh approach to problems.
The organization also urges leaders to follow what it calls the 1-2-3 steps, which target low-hanging fruit first. This approach calls for beginning with the first few, relatively easy actions you can take to address a specific challenge. The idea is that these initial steps will help move you from understanding the problem to taking action and accomplishing real change.
These strategies can work, for example, to reframe a problem familiar to many nonprofits — the lack of the strong accounting systems and staff needed to ensure the accurate and timely reporting required for continued funding of your organization.
You could reframe this situation by shifting staff from other areas of the organization to shared responsibilities in finance, thus encouraging managers to think beyond narrow roles. Would involvement of a board member or volunteer supply the manhours and controls you’re missing? You also can get past hiring the additional person you can’t afford by trying to improve the processes in place, and by inviting and seriously considering creative suggestions from your staff.
From here, you can identify the 1-2-3 steps to get the ball rolling. For instance, you might establish a team from various areas of the organization to outline what needs to be completed on a project and when. Are there tasks that should be prioritized to satisfy government and grantor requirements? Are there other nonessential recordkeeping tasks that could be minimized or eliminated? You also could obtain information and pricing from professional outside accounting firms that specialize in this type of work. Then compare those costs with providing accounting in-house.
The CRE also has applied its suggested strategies to the challenges of managing differences. Imagine you’re dealing with several diverse groups that use your library’s services. Reframing would shift from viewing the different groups as a hodgepodge to seeking common ground among the personalities, demographics and needs. Are these groups all from the local community? Do they all need access to the programs in person? Are they all readers? You also could move from trying to achieve uniformity of interest to mining their diversity.
Easy steps might include convening all of the relevant parties to develop an initial plan for priority activities in the coming year. How best can these groups interact? Possibly, you could bring the children from Story Hour to share an activity with the Writers’ Group.
You also could take time to learn more about strategies for managing differences by reading relevant books and articles, meeting to share what you’ve learned, and planning how to handle future interactions with the various groups that benefit from your services.
The most effective leaders always encourage their employees to seek more knowledge and then lead by example. Employing the methods above can help you continually hone your leadership and management skills, even when you don’t have the time or money for formal development.
Whistleblower policies encourage staff, volunteers and others to discreetly provide credible information on illegal practices or violations of organizational policies. They protect individuals who risk their careers or take other kinds of risks to report illegal or unethical practices. According to its Report to the Nations, the Association of Certified Fraud Examiners identified tips as the No. 1 method by which fraud is detected. Whistleblower policies (and the use of hotlines) are important to ensuring tips are received by the organization. IRS Form 990 asks nonprofits to report whether they’ve adopted a whistleblower policy. And although no federal law specifically requires organizations to have such policies in place, several state laws do.
Your whistleblower policy should be tailored to your not-for-profit’s unique circumstances. But here are some general tips to consider when forming, or refining, your policy’s provisions:
1. Be clear about whom the policy covers. Spell out who’s covered by your policy. In addition to employees, volunteers and board members, you might want to include clients and third parties that conduct business with your organization, such as vendors and independent contractors.
2. State which types of wrongdoing are covered. Financial misdeeds often get the most attention, but whistleblower policies can have a longer reach. For example, you might include violations of your organization’s client protection policies, conflicts of interest and unsafe work conditions.
3. Spell out reporting procedures. Explain the procedures for reporting concerns. Must claims be made to a compliance officer or can they be reported anonymously? Is a confidential hotline available? Whom can whistleblowers turn to if the designated individual is suspected of wrongdoing? Your procedures should be clear and simple enough to encourage individuals to come forward.
4. Describe investigative procedures. State that every concern raised by a whistleblower will be promptly and thoroughly investigated and that designated investigators will have adequate independence to conduct an objective query. Ideally, investigators should report directly to your nonprofit’s board of directors.
5. Describe postinvestigation steps. Let everyone know what will happen after the investigation is complete. For instance, will the reporting individual receive feedback? Will the individual responsible for the illegal or unethical behavior be punished? If your organization opts not to take corrective action, be sure to document your reasoning.
6. Promise confidentiality. A guarantee of confidentiality can make whistleblowing more appealing. But it may not be possible to make such promises if whistleblowers need to become witnesses in criminal or civil proceedings. However, your policy should assure confidentiality to the greatest extent possible.
7. Describe disciplinary action. Not every whistleblower is motivated by pure intentions. State that your organization will take disciplinary action against individuals who make unfounded allegations that are reckless, malicious or intentionally false.
8. Forbid retaliation. A critical component of a whistleblower policy is the prohibition against retaliation. Make clear that no retaliation — including harassment, termination or blacklisting — will be tolerated against anyone who raises concerns about potentially illegal or otherwise wrongful practices in good faith. “Good faith” means the individual has a reasonable belief that a problem exists. Specify the party to whom complaints of retaliation can be addressed. Violators should be disciplined promptly and appropriately.
Whistleblower policies send a strong message about your commitment to good governance and ethical behavior. Make sure that your policy echoes your adherence to an environment of accountability and employee empowerment.
Three “top jobs” that nonprofits will need to fulfill their missions in the future have been identified by business magazine, Fast Company: 1) chief culture officer (CCO), 2) data scientist and 3) user experience (UX) designer.
A CCO manages an organization’s relationship with the community, implements internal wellness and health initiatives and devises policies to combat employee burnout, according to the magazine. Data scientists help nonprofits identify trends and critical information that can guide their program and service decisions. And UX designers improve the on- and offline processes that clients use (or don’t use) to access a nonprofit’s programs and services.
Online nonprofit revenue in 2016 grew by 14%, and email marketing revenue grew by 15%, according to a new study by nonprofit consultants M+R. Based on input from 133 nonprofits, “Benchmarks 2017” found that web traffic, email list size, Facebook fans, and Twitter and Instagram followers were all on the rise in 2016, while most individual email metrics were down. For example, the emails opened per number delivered fell 7% overall, for an average just under 15%.
For fundraising messages, the response rate was only 0.05%, an 8% drop from 2015. In other words, a nonprofit had to deliver 2,000 fundraising emails to generate a single donation. For every 1,000 fundraising emails delivered, nonprofits raised $36.
The M+R study also found that respondents increased their spending — including paid search, display and social media advertising spending.
The bottom line is that email marketing can be an effective fundraising tool. Two components for success are targeting your audience and building your email list of prospective supporters.
Recognition, trust and support — both monetary and otherwise — are among the critical factors that make nonprofit employees happy and, thus, create a superior nonprofit employer, according to The NonProfit Times “2017 Best Nonprofits To Work For” report.
Among the eight categories considered, the largest disparity overall between organizations that made the “Best Nonprofits” list and those that didn’t was found within “pay and benefits” (an 18-point differential) and “leadership and planning” (a 16-point differential). Across the 50 nonprofits recognized, the key drivers for employees included confidence and trust in the organization’s leadership and overall satisfaction with the organization’s benefits package.
Another statement where the “Best Nonprofits” diverged from others was “This organization gives enough recognition for work that is well done.” About 84% of respondents at the recognized organizations responded positively to that statement, compared to only 66% for nonprofits that didn’t make the list.
Employ analytical analysis to get a better view of your organization’s revenue picture. Techniques such as pinpointing year-to-year trends and benchmarking to other nonprofits can be useful in planning your short- and long-term future.
To some degree, most nonprofits rely on contributions from supporters to balance their budgets. Compare the dollars raised to past years and see if you can pinpoint any trends. For example, have individual contributions reached a plateau in recent years? What fundraising campaigns have you launched during that period?
Go beyond the totals and determine, for instance, if the number of major donors — say, those who give $1,000 or more a year — has been rising. You get more bang for your fundraising buck when you’re able to add major donors to your roster of supporters.
Also estimate what portion of contributions is restricted by donors as to how or when the money can be used. If your organization has a large percentage of donations tied up in restricted funds, you might want to re-evaluate your gift acceptance policy. You also might want to review your fundraising materials to make sure you’re pursuing contributions that give your organization the most flexibility.
Grants include funding from corporate, foundation and government sources. They can vary dramatically in size and purpose, from grants that cover operational costs, to monies for launching a program, to payment for providing services to clients. For example, a state agency may pay you $500 for each low-income, unemployed individual who receives your job training.
Pay attention to trends here, too. For instance, did a particular funder supply 50% of total revenue in 2014, 75% in 2015, and 80% last year? A growing reliance on a single funding source — an example of a “concentration” that will increase your risk — is a red flag to auditors and it should be to you, too. In this case, if funding stopped, your organization might be forced to find a new funding source, curtail a program or even close its doors.
Fees from clients or other third parties can be similar to fees for-profit organizations earn. Fees are generally viewed as exchange transactions, because the client receives something of value in exchange for its payment. Some not-for-profits charge fees on a sliding scale based on income or ability to pay. In other cases, fees (such as rent paid by low-income individuals) are subject to legal limitations set by government funding agencies.
On an ongoing basis, your nonprofit will need to assess if providing certain services pays for itself. For instance, fees set four years ago for a medical procedure may no longer be sufficient to cover costs. A decision to raise fees or discontinue the services will probably need to be made.
If your nonprofit is a membership organization, you likely charge membership dues. Has membership grown or declined in recent years, and how do your dues compare with similar groups?
Make informed predictions about the future of membership dues, especially if you rely on them substantially for revenue. If you suspect that dues income will continue to decline, your organization might consider dropping dues altogether and restructuring. If so, examine other income sources for growth potential.
Once you’ve gained a deeper understanding of your revenue picture, apply that knowledge to various aspects of managing your organization. This will likely involve educating your management team and setting or revising goals.
Colorado Secretary of State Wayne Williams recently urged Coloradans to be mindful when making a donation to Hurricane Harvey relief efforts.
“It is important for Coloradans to research the charities they support and trust that their donations are being used prudently,” he said.
Williams shared 10 tips to avoid charity scams.
If you have tax questions about donating to the hurricane relief efforts, please call your tax professional.
Every organization, whether for-profit or nonprofit, is at risk of falling victim to costly acts of fraud. Nonprofits, though, have some common characteristics that make them particularly susceptible to such schemes. Fortunately, you can help combat the risks at your nonprofit by implementing some simple controls.
Nonprofits tend to operate in a culture of trust and rapport, and that is one reason that they are attractive targets for fraud perpetrators. Organizations are often founded by a handful of passionate and idealistic volunteers and develop over time into a team with tighter relationships than typically seen in many for-profit businesses. As a result, management may not feel the need for antifraud controls, or they find it hard to ask tough questions when confronted with possible signs of fraud.
Similarly, many nonprofits place significant control in the hands of a limited number of people. This is a risk even in an organization with some internal controls, because more powerful individuals within an organization can simply override the controls, with lower-level staff too intimidated to intervene.
Nonprofits that have a lot of cash on hand, either in the office or at remote events, also can run into fraud problems. Cash has a way of disappearing into people’s pockets, especially at events held without proper accounting procedures. Creating a paper trail, with numbered tickets or receipts and multiple people involved every time cash is handled, helps mitigate the risk.
These are not the only factors that make nonprofits so vulnerable to fraud. High turnover among staff, volunteers and board members, as well as limited resources, also may contribute.
Internal controls in the form of strong policies, procedures and governance are a must for every nonprofit, regardless of size. Controls can help deter and detect fraud.
Perhaps the most critical control is segregation of duties. A single employee should never be responsible for all the steps in any accounting process — for example, collecting, recording, reconciling and depositing cash receipts. Segregating duties can be a challenge for smaller nonprofits. But, at the very least, the duties of handling and reconciling funds should involve more than one individual. And a separate individual should receive and review bank statements. If your nonprofit lacks the manpower, consider including board members or outside advisors to segregate duties.
Nonprofits also should conduct background checks on board members, employees, volunteers and anyone else who might handle cash. The checks should encompass credit history, references and criminal history and be updated periodically.
Governance plays a role in deterring and detecting fraud, too. Your board of directors must perform proper oversight by, for example, naming qualified individuals to independent finance and audit committees. It also should set an antifraud tone by developing — and enforcing — policies on matters such as conflicts of interest and the treatment of whistleblowers.
The Association of Certified Fraud Examiners has consistently found that tips are the most common (and low-cost) detection method for occupational fraud. It is best if tips are reported to the board or one of its committees, rather than management. The organization should make an anonymous fraud hotline available to employees, volunteers, vendors and clients.
Finally, you will need to formally educate your employees about fraud. You should provide training on the organization’s antifraud policies, red flags that could signal fraud and how the hotline works. Board members and volunteers with financial responsibilities should receive training, as well.
You can not prevent all fraud — no organization can. But you can reduce the risk of substantial fraud losses by recognizing your vulnerabilities and taking appropriate steps to mitigate them and to investigate thoroughly when fraud is suspected. Choosing to ignore fraud and hope for the best may result in suffering both financial and reputational damage.