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Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
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Newsbits
A-133 audit threshold raised for small nonprofits
The Office of Management and Budget (OMB) has streamlined its guidance on grants management, including administrative requirements, cost principles and audit requirements for federal awards. Among other things, the new rules reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits currently performed under OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations (also known as single audits).
The federal threshold will jump to $750,000 from $500,000 — nonprofits will be required to undergo a single audit only if they spend $750,000 or more in federal awards in a fiscal year. Those that spend less are required only to make their records available for review or audit by the federal awarding agency, any pass-through agency and the U.S. Government Accountability Office. The new rules take effect for fiscal years beginning on or after Jan. 1, 2015.
Most organizations have room for improvement with online fundraising, according to a study of 151 national charities, conducted by the consulting group Dunham+Company and the fundraising think tank Next After. Researchers found that most organizations don’t do enough to persuade supporters to sign up for e-mails and that their messages don’t provide enough direction as far as actions recipients should take, such as donating or signing a petition.
Of those responding, 37% sent no e-mails within 30 days after visitors signed up to receive them, and 56% didn’t ask for a donation within 90 days. Additionally, 84% hadn’t made their donation websites easy to read on mobile devices. And 65% of their websites required visitors to click through three or more pages to give online. With contributions hard to come by, your organization should eliminate any of these shortcomings, if applicable.
The Foundation Center, a source of information about philanthropy, has launched Foundation Stats (http://data.foundationcenter.org), an online tool that provides free and open access to data on nearly 82,000 independent, corporate, community and grantmaking operating foundations. Users can explore foundations’ basic financial data by organization type, location and fiscal year. The grants section, based on giving by the top 1,000 U.S. foundations, allows users to filter data by recipients’ geographic location and by subject area or population group served.
Users also can generate their own tables, charts and graphs to show trends over time, and all custom results can be downloaded for use in spreadsheets. And the tool includes an application programming interface so Web developers can freely extract multiple years of aggregate-level statistics for their own use.
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Nonprofit organizations typically depend on a variety of funding to keep them alive and well. They need funds to pay their bills, pay their staffs and pay for the costs of running their programs. But savvy nonprofits know that not all that’s green has equal value and flexibility. Types of funding vary greatly in how they can — or cannot — be used.
Your nonprofit should decide from the onset what type of funds it wants to solicit, and what types it’s willing to accept. Here are the three main categories to consider:
Permanently restricted funds. Often called endowments, these funds are subject to lasting donor stipulations, which mandate that the funds be “held in perpetuity.” The donor can limit earnings to use for a specific purpose or allow them to support operations.
Temporarily restricted funds. These gifts are subject to donor-imposed stipulations that can be removed with the passing of time or when spent for the purpose intended by the donor.
Unrestricted funds. These funds are free of donor stipulations. Board-designated funds are included in this category. Although the board has decided to use these funds for a certain purpose, it can “undesignate” the funds at a future date.
Charitable organizations need cash to carry out their daily operations and unanticipated costs. Thus, having an adequate and steady stream of funds without strings attached — unrestricted funds — is the best way to keep a charity’s operations and programs strong and sustainable.
Unlike temporarily or permanently restricted funds, unrestricted funds can be used to cover the cost of operating expenses, such as rent, utilities, salaries and other day-to-day expenses. The grants and individual donations a nonprofit receives for general operating support allow management to refocus its efforts from raising funds to improving programs and responding to emerging community needs.
Before an organization sets out to solicit unrestricted funds from individual and corporate donors, it should understand what it’s up against: There’s a public sensitivity toward nonprofits that spend too much money on administrative costs and too little on programs that fulfill their missions.
To secure funds without restrictions, prove to donors that you’ll use their money wisely. One way to do that is by presenting a healthy program service expense ratio and results-focused information on your Form 990, which is made publicly available.
When asking for unrestricted funds, being direct is best. Explain in your fundraising materials how unrestricted gifts offer greater flexibility than restricted gifts and how they help ensure you have adequate funds to keep the doors open. Moreover, encourage donors to make multiyear commitments for unrestricted gifts. Having funding dedicated to future years allows management to plan with more foresight.
Ask funders to designate their donations “as unrestricted funds that help the organization.” You also might consider naming a fund after families or individuals who give only unrestricted funds. It might just help encourage contributions of this type.
Sometimes grantors, such as government agencies or foundations, require that funds be restricted to a particular program or function. If that’s the case, you may still be able to factor in an administrative component of, say, 8%–10% to help cover operational costs.
When contributions, large and small, shrink during tough economic times, you’ll want to have enough “money in the bank” to help you ride out the storm. Unrestricted funds offer flexibility for funding programs to meet your mission and take care of operational costs.
If your nonprofit became a victim of fraud, it wouldn’t just hurt your organization’s bottom line — the infraction also could do devastating damage to your reputation. By implementing some simple controls, though, your organization can help protect itself from these risks.
One of the most important preventive measures is the segregation of accounting duties, especially those related to executing outgoing payments. You should assign different employees to approve, record and report transactions. And the employee who generates checks for payment or approves invoices shouldn’t also be responsible for signing checks or initiating online payments.
Similarly, the staffer who makes bank deposits shouldn’t be charged with reconciling the organization’s bank statements. If the nonprofit is too small to segregate duties fully, consider rotating staff through the various duties regularly, or involving a board member to oversee the process. You also can adopt a mandatory vacation policy to make it more difficult for fraudster employees to conceal their schemes.
Research conducted by the Association of Certified Fraud Examiners (ACFE) shows that organizations with antifraud training programs experience lower losses, and frauds of shorter duration, than those without. Nonprofits should provide targeted fraud awareness training not just for managers but also for employees.
At a minimum, the ACFE recommends explaining which actions constitute fraud, how fraud harms everyone in the organization and how to report suspicious activity. Managers and employees also should be educated on the behavioral red flags of perpetrators and encouraged to keep an eye out for them. Red flags include an employee who appears to be living beyond his means or one who refuses to take time off. Additionally, some insurance providers offer discounts if certain antifraud training is attended by a majority of staff members.
Fraud hotlines are one of the most effective strategies for uncovering fraud. The ACFE has consistently found that tips are the most common means of detecting fraud. The majority of tips come from employees, but the hotline also should be available and publicized to vendors and constituents.
Management should encourage employees to report any suspicious activity and enforce an antiretaliation policy so employees aren’t reluctant to speak up. Ideally, the hotline should be anonymous, or at least confidential.
Last year, the AICPA published its 2013 Audit Risk Alert: Not-for-Profit Entities Industry Developments. The alert urges not-for-profits to develop a formal fraud risk management program, including a fraud risk assessment.
According to the AICPA, a fraud risk assessment should identify:
The goal of the assessment is to identify any vulnerabilities and gaps in internal controls that could leave your nonprofit susceptible to financial and reputational damage.
Cutting the risks of fraud requires the board of directors and management to be aware of your nonprofit’s vulnerabilities. Staff also must pitch in, staying on the lookout for red flags, conflicts of interest and other potential issues — and they must be comfortable reporting any concerns. Your financial advisor can help, too, by conducting a fraud risk assessment and suggesting ways to establish appropriate controls.
When reviewing financial statements, nonprofit board members and managers sometimes make the mistake of focusing solely on bottom-line figures. But financial statements also may include a wealth of information in their disclosures.
Savvy constituents and potential supporters know this and will examine the notes to your financial statements to gain a sense of how well your organization is pursuing its mission. This means that you, too, need to be familiar with the common types of disclosures and the information they make available for scrutiny.
The summary comprises two sections: a brief description of your nonprofit (including its chief purpose and sources of revenue) and a list of the main accounting policies that have been applied in preparing your financial statements (with a subsection for each specific policy). A policy is generally considered significant if it could materially affect the determination of financial position, cash flows or changes in net assets.
The summary outlines specific policies such as:
The disclosure of accounting policies should describe accounting principles and methods that have been selected from acceptable alternatives, and explain industry peculiarities or unusual or innovative applications of Generally Accepted Accounting Principles (GAAP).
Nonprofits must disclose in the notes a variety of information related to investments, beginning with the types of investments, such as equities, U.S. Treasury securities and real estate. Among other information, the notes must disclose the carrying amounts for each major type of investment, current year income, realized and unrealized gains and losses, and information about how fair value is determined.
Constituents may look to the related party transaction disclosure to determine if the not-for-profit is susceptible to conflicts of interest. The note describes transactions entered into with related parties such as board members, senior management and major donors. The description should include the nature of the relationship between the parties, the dollar amount of the transaction and any amounts owed to or by the related party as of the date of the financial statements, and the terms and manner of settlement. Guarantees between related parties also must be disclosed.
The not-for-profit must disclose any reasonably possible loss contingencies. Contingencies are existing conditions that could create an obligation in the future but arise from past transactions or events. Constituents may find loss contingencies of particular interest because of their potential effect on financial position and net assets. The financial statement notes must disclose the nature of the contingency and provide an estimate of the loss (or state that an estimate can’t be made). In certain circumstances, gain contingencies also may need to be disclosed.
Examples of nonprofits’ contingencies include:
Contingencies related to noncompliance with donor restrictions also should be included in the disclosures.
Contributors, funding sources and regulators tend to be more interested in total expenses by function, such as fundraising costs, than expenses for line items like professional fees, postage and supplies. Nonprofit financial statements should disclose information that allows users to compare the total amount of fundraising costs with the related proceeds and total program costs. If a ratio of fundraising expenses to funds raised is disclosed, the organization also should describe the method used to compute it.
Bottom-line numbers don’t always tell the whole story of an organization’s financial health. Board members and management need to follow the lead of their savvier constituents and take the time to read the disclosures so they know the facts behind the figures and can plan for their organization accordingly.
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Peer-to-peer fundraising events — for example, walks and runs — have become one of the most common ways for nonprofits to raise money. But are you doing all you can to maximize and safeguard those funds?
Peer-to-peer fundraising is often an attractive option for resource-strapped organizations. As opposed to traditional fundraising, which requires you to invest heavily in building relationships with donors, peer-to-peer events let you tap the existing relationships of participants. Instead of relying on staff to get the word out about your organization, you can deploy an enthusiastic battalion of true believers to spread your message and create awareness.
But it’s important to remember that awareness isn’t the end goal — fundraising is. A study by Blackbaud, a software and service provider for nonprofits, found that peer-to-peer event participants see participation and fundraising as separate tasks.
According to Blackbaud, these events are frequently marketed as awareness events, with the fundraising aspect only implied. It’s not unusual, then, for a participant to sign up for a 10K run, pay the registration fee and not pursue fundraising at all.
One of the most effective ways to encourage fundraising by participants is to set goals. Blackbaud found that 80% of survey respondents who set a goal raised that amount or more. And participants who are working toward a team goal generally raise more than if they’re fundraising on their own. Goals also make it easier for an organization to implement metrics and analyze financial performance during and after an event.
Establish goals at the outset, in the initial materials sent to participants and with online fundraising tools (where both participants and their donors can see goals). Feature the top fundraisers on the event’s website and in posts on your social media accounts, and offer low-cost prizes like T-shirts.
Avoid setting goals too high, though. It’s best to set lower, achievable goals. Not only will your participants be less likely to become frustrated, but smaller donors will be more likely to feel as if they’re making a difference.
Also be aware that, if participation in an event requires meeting a fundraising minimum, a participant might cover the whole amount, rather than actually engage in fundraising that could attract new donors. So while success is usually measured based on the total amount a participant raises, also consider the number of donations a participant generates.
By definition, fundraising involves the handling of funds, which presents the opportunity for fraudulent misappropriation and simple accounting errors by nonprofessionals. Nonprofits, therefore, need to implement appropriate controls from the outset.
The good news is that the use of social media to drive peer-to-peer fundraising means that monies are typically submitted through the Internet, as opposed to the not-so-distant past when participants would collect cash and checks. As with any online transaction, you’ll need effective controls to protect credit card data and personal information and prevent fraud, including firewalls, encryption and similar protections.
Although peer-to-peer participants shoulder much of the burden with these events, it’s up to your nonprofit to provide appropriate support. Make it as easy as possible — but also as secure as necessary — for them to drum up support.
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The Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) has issued a new rule that addresses the proper accounting for services received from personnel of an affiliate for which the affiliate doesn’t seek compensation (EITF Issue 12-B).
Currently, the recipient organization only recognizes contributed services from an affiliate if the services either create or enhance nonfinancial assets, or require specialized skills and would typically need to be purchased if they hadn’t been donated. Such contributed services are recognized at fair value.
Under the new standard, a nonprofit generally should recognize personnel services that are performed by an affiliate’s employees at the affiliate’s cost of such services, rather than at fair value. The cost components would depend on the nature and type of service provided, but, at a minimum, costs should include all direct personnel costs (for example, compensation and payroll-related fringe benefits) incurred by the affiliate. The guidance will be effective for fiscal years beginning after June 15, 2014.
A new study sponsored by international consultants CCS, through its William B. Hanrahan Fellowship at the Lilly Family School of Philanthropy at Indiana University, has found that the majority of charitable contributions of $1 million or more come from local donors. About 60% come from donors from the same state or geographic region as the recipient’s and about half of all publicly announced gifts of this size (47% of the total number of gifts and 52% of the total dollar amount) come from donors living in the same state.
Health nonprofits; arts, culture and humanities organizations; higher education institutions; foundations; and government agencies received more than half of their million-dollar-plus gifts from donors in the same state.
Nonprofits may want to focus their efforts on cultivating relationships with donors invested in their local communities — and who have the financial capacity to make significant gifts.
The Charitable Giving Coalition has launched a new website designed to provide user-friendly, accessible information about the vital role of charitable giving in U.S. communities. Formed in 2009, the coalition is dedicated to preserving the tax deduction for those who give to charities. The website (http://protectgiving.org) includes information about the policy debate surrounding the charitable deduction, the effect on the charitable sector, and the coalition and its membership, which includes organizations ranging from the American Red Cross to United Way Worldwide.
Overseeing a nonprofit’s endowment fund is one of the most important roles for the board of directors. A strong investment committee, made up of board members and staff, will not only ensure the continued health of the endowment and the organization but also attract other donors looking for good stewards for their contributions. As this article explains, effective endowment management lies in sound policies regarding investment, allocation, spending, and performance monitoring. A sidebar addresses required financial statement disclosures.
When a nonprofit sets the salary for an executive director or other individual key to the organization, the board of directors wants to make sure it’s paying what’s necessary to attract or retain the most qualified, capable individual for the position. But that’s not the only consideration that should be on the radar screen. IRS regulations prohibit 501(c)(3) and 501(c)(4) organizations from engaging in an “excess benefit transaction” with a “disqualified person.” This article explains those terms and the steps that charitable organizations should take to be sure that compensation is “reasonable” by IRS standards.
In this issue, “Newsbits” discusses a recent study showing that online giving is on the increase. It also notes how several states are testing the waters of Pay for Performance (PFP) contracts with social services nonprofits, and looks at the Silicon Valley’s “accelerator” Y Combinator, which is now helping launch nonprofits involved in areas such as public health, microlending and education.
When reviewing financial statements, nonprofit board members and managers sometimes make the mistake of focusing solely on bottom-line figures, but these statements also may include a wealth of information in their disclosures. Savvy constituents and potential supporters know this, so nonprofit executives need to be familiar with the common types of disclosures and the information they make available for scrutiny. This article notes the information that statements provide regarding accounting policies, related party transactions, contingencies and other matters. A sidebar describes a particular Form 990 disclosure that has gotten renewed attention.
Fraud doesn’t just hurt a nonprofit’s bottom line — it also could do devastating damage to its reputation. However, this article discusses how, by implementing some simple controls, an organization can help protect itself from these risks. These controls involve segregation of accounting duties, fraud awareness training for all employees, establishment of a fraud hotline, and risk assessment.
Types of funding vary greatly in how they can — or cannot — be used. This article discusses the differences between permanently restricted funds, temporarily restricted funds and unrestricted funds, and how to beef up donations of the latter.
In this issue, “Newsbits” takes a look at Office of Management and Budget rules that reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits. It also discusses a study showing that most organizations have room for improvement with online fundraising, and notes an online tool that provides free and open access to data on nearly 82,000 independent, corporate, community and grantmaking operating foundations.
While board members typically bring a variety of talents and expertise to the table, they don’t always have extensive experience in financial and accounting matters. But they can’t properly perform their functions if they don’t obtain and understand information about the organization’s financial position. This article explains how to best communicate the essential financial information board members need. It looks at the specific kinds of information they should receive and how it can be presented in a user-friendly format. A sidebar notes that a dashboard — a one- or two-page snapshot of key metrics — may be especially useful in some instances.
If an activity conducted by a nonprofit is a trade or business carried on regularly, and not substantially related to furthering its exempt purpose, the income generated is considered unrelated business income (UBI). And accumulating too much can subject the nonprofit to taxes — and even threaten its tax-exempt status. This article explains what kinds of activities do and do not generate UBI.
Peer-to-peer fundraising events — for example, walks and runs — have become one of the most common ways for nonprofits to raise money. This article offers tips for maximizing and safeguarding those funds. It observes that one of the most effective ways to encourage fundraising by participants is to set goals, and notes the importance of implementing appropriate financial controls from the outset.
Many nonprofits have started their own audit committees over the past decade, but have learned the hard way that good intentions aren’t enough to ensure an effective committee — both the nonprofit and committee members must fully understand the committee’s role and responsibilities. This article describes the purpose of an audit committee 
In the recent tough economic times, many nonprofits froze wages, awarded minimum pay increases and/or cut benefits, all the while asking employees to take on new 
This issue’s “Newsbits” looks at a new rule from the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) addressing the proper accounting for services received from personnel of an affiliate for which the affiliate doesn't seek compensation. Newsbits also discusses a study indicating that donations of $1 million or more come mostly from local donors. Also discussed is a new website from an organization that’s dedicated to preserving the tax deduction for those who give to charities.