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.
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.
Has your nonprofit frozen wages or awarded minimum pay increases over the last few years while asking employees to take on new responsibilities? Are they being asked to contribute more to your benefit plan, or take a benefits cut?
Such organizational moves often are necessary during tough economic times. That said, don’t lose sight of the importance of your staff, from hiring and training them to rewarding them for their performance, and providing motivation to stay.
When asked to list their organization’s assets, nonprofit leaders are likely to name investments, facilities, real estate, cash and other tangible assets. Too often, personnel are left off the list.
But without a knowledgeable and committed staff, you stand little chance of delivering program services or raising enough money to fund them. And when you consider the cost of hiring, training and mentoring staff, not to mention the losses your nonprofit incurs when an experienced employee leaves, it’s easy to see why you should assign a high value to your people.
Finding and keeping good staff starts with smart hiring. Just as you wouldn’t buy a mutual fund without researching its performance and strategy, don’t hire staffers without thoroughly vetting them for potential rewards and risks.
Experience, education, skills and employer recommendations are merely a starting place. Good hiring requires employers and job candidates to honestly assess their respective objectives. Don’t hire someone simply because you’re desperate to fill an empty position. Shaky starts rarely lead to long-term success. Similarly, don’t court a candidate who seems likely to jump ship when a “better” offer comes along — no matter how impressive his or her resumé.
When a new employee comes aboard, ensure he or she receives comprehensive training — not only related to job responsibilities, but also about your not-for-profit’s culture and ethics. Staffers need to buy in to your mission and support the programs you’ve established.
Also ensure that employees understand your evaluation and compensation system — and feel like full participants. Often, they leave a job claiming their employment expectations weren’t met and the employers are left scratching their heads about what went wrong. Staffers must be able to voice perceived obstacles to their successful long-term employment without fear of reprisal. If you want to keep them, listen and try to find ways to help them succeed.
Although financial compensation is generally the best way to reward and retain people, there are other ways you can let employees know you value them — without busting your budget. For example, consider tangible rewards other than money. You could write a personal “thank you” note and enclose a small gift card when a staff member achieves something special. Or you could reward that person with an extra vacation or personal day. Another idea: Offer the employee more flexible hours, such as earlier starting and leaving times or the option to telecommute.
And don’t forget the value of praise and recognition. Acknowledge employees for a job well done at staff meetings or in your nonprofit’s newsletter. Or invite “star” employees to be introduced at a board meeting, or to represent your nonprofit at an industry conference. All of these actions reflect your confidence in those individuals and indicate their importance to the organization.
Your nonprofit may be unable to compensate employees quite as well as its for-profit counterparts. But, if your focus is on valuing and growing your assets — that is, your employees — all you need is a little creativity in order to reward them in many other ways.
Public companies have been required to have an audit committee for about a decade now (due to the Sarbanes-Oxley Act of 2002), and many nonprofits have started their own such committees during that time. The result? Some organizations have learned the hard way that good intentions aren’t enough to ensure an effective audit committee — both the nonprofit and committee members must fully understand the committee’s role and responsibilities.
An audit committee should operate as the arm of the board of directors that assures proper financial management. As such, it’s an integral part of good governance, making it relevant for nonprofits of all sizes. After all, poor governance and accountability can cost any organization support, financial and otherwise.
The committee’s job largely comes down to oversight, which is usually focused on financial reporting, external and internal audit functions, compliance with legal and regulatory requirements and the internal controls over these areas. An effective audit committee can lead to improved financial practices and reporting, reduced fraud and enhanced internal and external audits.
The audit committee should take a much broader view, overseeing the conduct and integrity of financial reporting, including establishing and implementing accounting policies and internal controls to promote good financial stewardship. The goal is to protect the nonprofit’s assets, strengthen the reliability and accuracy of financial reporting, and reduce the risk of fraud.
On a practical level, financial reporting oversight translates to, among other things:
Ultimately, the audit committee should ensure that all financial reports are accurate and transparently portray the organization’s performance.
The committee must understand the nonprofit’s overall risk profile (as determined by a comprehensive risk assessment). The risk profile considers, among other things, investment practices, disaster recovery plans, insurance coverage, and compliance with laws, regulations and donor and grantor requirements. It also looks at internal policies and procedures. The organization’s risks are evaluated in light of its “appetite for risk.” The committee should assess internal controls over those risks and, if necessary, see that remedial measures are effectively implemented.
The audit committee is responsible for hiring, compensating and overseeing external auditors and is therefore considered the auditors’ client. It should have regular communications with the auditors, including meetings to discuss a workplan before the audit and to review any findings before they’re presented to the board.
Besides the roles and responsibilities described above, the committee must maintain its independence. That means audit committee members can’t accept any consulting, advisory or other compensatory fee from the organization.
Independence from management also is critical. Committee members shouldn’t have been an officer or employee of the nonprofit in the prior three years, or the immediate family member of such a person.
The American Institute of Certified Public Accountants recommends that some audit committee members also be members of the board of directors. But some states limit the number of audit committee members who also are on the finance committee.
Audit committees may seem like just one more layer of bureaucracy, but they’re rapidly becoming a nonprofit “best practice.” Your CPA can help you establish a new committee or make sure that your existing committee is operating as it should be.
|
||
|
One in 12 respondents to a recent GuideStar Economic Survey said they believed their nonprofit was in danger of closing for financial reasons. If your organization is dealing with a lack of either financial or human resources, you need to start looking for solutions — fast. Joining forces with another nonprofit is one strategy to consider. When researched and executed carefully, a merger can make both organizations stronger.
The decision to merge isn’t an easy one to make. But if your organization has experienced steady declines in grants and donations, it’s worth considering. Duplication and overlap of services may be another valid reason to merge. Bringing organizations together can be a powerful way to build unity, achieve objectives faster and use funding more efficiently.
You also might consider joining with another nonprofit to gain access to a larger skill set. Perhaps another organization has an outstanding and dedicated staff, while you have excellent fundraising skills. Combining forces may enable you and the other nonprofit to provide better services and maximize capabilities.
If you’re mulling a merger, think about what you really want to achieve. Develop realistic objectives stated in measurable terms, such as striving for a 25% increase in donations or an expansion of services into an adjacent community.
You also need to assess your readiness to be a partner. Assemble a committee of key managers, board members and advisors to discuss the financial, legal, public relations and other implications of a potential merger. Invite critical outside stakeholders, such as major funders and service recipients, to provide input. If you’re going to lose funding because a merged entity would deviate from a major funder’s goals, it’s better to know before you make your decision.
In general, nonprofits are better merger candidates when they have stable management — including a strong relationship between the executive director and the board — and a good handle on their strategic challenges. Nonprofits that are growth-oriented, with a history of successful risk-taking, also may be better candidates.
Naturally, nonprofit mergers involve considerable risk of stakeholder resistance as well as internal hurdles. For example, it may be difficult for two organizations to combine their cultures. Out of habit and expectation, staff may oppose efforts to act as a united organization when it comes to everything from the flexibility of work hours to program procedures. Combining information technology systems can be challenging as well.
Funders, program partners and community leaders also may object. Good communication can help alleviate much — but not all — resistance. Legal obstacles are another possibility. Many states have specific procedures that must be followed, particularly if either of the entities owns real estate, and forms that must be filed when nonprofits merge. Further, you may need to get consent from donors to legally transfer gifts or grants.
Finally, consider just how much time and other resources are needed to merge two entities successfully. Depending on the size and complexity of the organizations, a merger can take as long as two years to complete. The process also will involve additional costs, such as for the services of financial consultants and attorneys.
Two organizations becoming one clearly face obstacles. But, if going it alone no longer seems doable, combining resources with another nonprofit may be the answer. Just make sure that your organization’s plan to merge is as strong as its desire to succeed.
One of the top priorities for nonprofits is engaging with their supporters and building relationships. It’s no surprise, then, that interest is surging in technology that can help nonprofits do just that. How can your organization maximize the potential of current technology tools and avoid wasting time with passing fads? Let’s look at what’s working.
According to the Pew Internet and American Life Project, 45% of American adults had a smartphone as of September 2012, and 25% had a tablet computer (a dramatic jump from only 4% in September 2010). As of April 2012, Pew reports, 55% of adult cell phone owners used the Internet on their phones — almost twice as many as three years earlier. And 31% of the cell Internet users said that they mostly use their phones to go online, as opposed to using a desktop or laptop computer.
With mobile Internet access poised to surpass that of conventional computers in the coming years, some nonprofits are wisely taking steps now to develop mobile websites and apps. Why do you need a mobile-specific website? Imagine a supporter who receives an e-mail call to action on his phone and immediately clicks through to your regular site, only to find that it’s difficult to read and use on his phone’s small screen. That’s a lost opportunity — one that will only multiply as users increasingly rely on phones for their online communications.
Mobile websites and apps provide your supporters with information at their fingertips and allow them to act, including donating, on the go. As with any type of online transaction, of course, it’s important to establish strong internal controls to protect users’ data and privacy and prevent the fraudulent misappropriation of funds.
Mobile websites and apps also can help nonprofits leverage their supporters’ social networks. The past few years have taught many organizations the critical role that social networks can play in spreading their missions to wider audiences than ever and attracting new supporters and donors.
Some may have initially scoffed at the idea that Facebook or Twitter could provide real value. But few can argue with the power of social media at this point, particularly for nonprofits. It’s an indisputable fact that people are much more likely to engage with organizations endorsed by friends, families and trusted sources.
That’s one reason why peer-to-peer fundraising has taken off in recent years. Thanks to social media, it’s much easier for participants in your 5K race, cycling event or dance-a-thon to drum up financial support for their efforts. By providing social media tools as part of your registration materials, you empower your participants to personalize their pitches and meet or surpass their — and your — fundraising goals. Again, though, you’ll need to have proper internal controls in place, such as firewalls, encryption and other protections for credit card data.
Social media also allows nonprofits to easily and cost-effectively participate in back-and-forth, multiparty conversations, rather than just one-way communications. A single posting might elicit numerous enthusiastic responses that can snowball as the posting is passed along by readers with a click of a button.
Engaging in social media doesn’t mean you can afford to neglect your existing website, though. Instead, savvy nonprofits are expanding their Web presence.
Your website visitors should find a simple, secure way to donate, as well as a range of compelling content that will bring them back again and again. Online videos, for example, offer effective, inexpensive opportunities to tell your organization’s story and mobilize viewers. Partnering with an experienced Web-design firm to improve your online presence can be an investment with results measuring far greater than the cost.
The tools listed above are by no means the only technological advances that can pay off for your organization or enhance your outreach efforts. Nonprofits are also turning to cloud computing, social analytics and software that produce solid financial metrics. Such advances are no longer a luxury — they’re a matter of survival. If your organization has lagged behind, now is the time to jump into the water.
The notice sends shivers down your spine — the IRS has called or written to inform you that your organization has been selected for an audit. Now what? Understanding the nuts and bolts of IRS reviews can help reduce your risk of running into trouble.
The IRS conducts three types of reviews of nonprofits:
1. Field audit. If your initial contact letter schedules an agent to visit your premises, the IRS is conducting a field, or in-person, examination. Field audits are done at an organization’s location, the organization’s representative’s office or an area IRS office. It usually takes place where the nonprofit’s books and records are located.
Field audits fall into two categories. A general program exam usually is conducted by a single IRS agent. A team examination program audit focuses on large, complex organizations and may involve a team of examiners.
2. Office /correspondence audit. If the initial letter asks you to deliver documents to an IRS office by mail, you are undergoing a correspondence audit. An agent generally conducts the audit using letters and phone calls to work with the organization’s officers or a representative.
But a correspondence audit can expand to become a field audit if the issues grow more complex or the not-for-profit doesn’t respond. Both correspondence and field audits can expand to include prior and subsequent tax years.
3. Nonaudit. The contact letter might indicate that the IRS is conducting a compliance check, which isn’t an audit but may include a checklist with specific questions. Or the compliance check may ask about information and forms that your nonprofit is requred to file or maintain, such as Forms 990, W-2 or W-4.
Compliance checks are an accountability tool, like audits, but are simpler and less burdensome and don’t directly determine a tax liability for any particular period. They can, however, lead to an audit.
Nonprofits are chosen for reviews based on several methods, including:
Form 990 plays a strong role in the selection process. In its FY 2012 Annual Report & FY 2013 Workplan, the IRS delivered this “bottom-line message” to nonprofits: “The IRS uses the Form 990 responses to select returns for examination, so a complete and accurate return is in your best interest.”
An audit begins with the initial contact and continues until audit findings are discussed in a closing conference (in person or by phone) and a closing letter is issued. Both the conference and the letter will explain your appeal rights.
A compliance check also starts with the initial contact letter, and the IRS may contact your organization again if it needs more information or you don’t respond. The agency typically issues a closing letter at the end of a compliance check.
During a field audit, the agent will tour your office and interview an officer or representative. For a correspondence audit or compliance check, IRS personnel will review requested items submitted via mail and follow up as needed. They may request additional information.
This can be serious business – worst-case audit findings include adjustments to tax liability or tax-exempt status. If you get a call or letter from the IRS, contact your CPA immediately.
Here are some ways Stockman Kast Ryan + CO can help:
Feel free to contact us with questions, clarifications, or assistance with any IRS dealings.
|
|
||
|
A survey of more than 6,500 young people, ages 20 to 35, suggests that one of the most important things you can do to reach them is to make your website easy to read on a mobile device. The Millennium Impact Report 2012, sponsored by the Case Foundation, found that more than three-quarters of respondents own a smartphone, and 79% of those respondents have used the device to connect with a nonprofit, including via Facebook, Twitter, e-mail and e-newsletters.
According to the report, the prominence of smartphone use makes a mobile strategy more critical than ever — in particular, optimizing websites, e-newsletters and solicitations for mobile devices.
About 65% of respondents said they liked to learn about a nonprofit through its website. Respondents also liked to learn about organizations through social media (55%), e-mail newsletters (47%), print (18%) and face-to-face conversations (17%).
If you’ve recently taken a more conservative approach to valuing your corporate product donations (also known as “gifts in kind”), Charity Navigator has established a way to reflect the impact of such changes. The website is allowing charities that adopt a more conservative approach to revise past financial data to be more comparative — avoiding the appearance of dramatic drops in revenues that would trigger concerns about ongoing operations and sustainability.
To revise data, nonprofits must provide Charity Navigator with Form 990 tax returns from past years adjusted to report the groups’ product donations under the new approach. A nonprofit’s audit committee must sign off on the revised financial information, and the nonprofit must post the information on its website.
Some organizations are concerned that restating financial information reported in prior year IRS Form 990 and audited financial statements will raise concern about those filings. Changing valuations based on current conditions or new accounting standards may not be relevant to prior periods and may not result in valid reports. Therefore, some nonprofits are forgoing this option and merely noting information about such changes in their narratives.
The national Pro Bono Readiness Survey, conducted by consultants LBG Associates, finds that 66% of U.S. nonprofits need pro bono services more than any other volunteer work. The survey revealed particular demand for marketing, technology, strategic planning, management, human resources and leadership development services.
But respondents also said making good use of pro bono services is challenging. Hurdles include the inability to sustain project results over the long term without ongoing external support and the lack of strong project planning and time management tools.
In a slow economy, many nonprofit leaders worry about having enough money to meet their organizations’ financial obligations each month. But those who effectively monitor their nonprofits’ cash flow can successfully predict when the money coming in will balance with the money going out, when they’ll have a surplus of cash, and when they’ll have a shortage. They can plan — and take actions — accordingly.
Cash flow management involves analyzing cash inflows and outflows based on the timing of receipts and payments. It’s more than taking your annual budget figures and dividing by 12 to come up with a static, monthly amount — this won’t give you an accurate snapshot of your cash flow.
Take an annual event. If it’s a holiday dinner, costs rise in November and December as you plan, and pay for, the event. Costs also may bump up noticeably in, say, January if you publish an annual membership directory then. In fact, costs can vary significantly from month to month for a variety of reasons — for example, as heating and cooling costs rise and fall or staffing needs change.
To begin managing your not-for-profit’s cash flow, create a cash flow report using a simple grid. Along the top, list all 12 months and label them either “actual” or “projected.” Going down the page, create rows for the following information:
Beginning balance. This line shows the amount of cash you had at the start of the month.
Cash coming in. Create line item entries for the largest income categories you’ll have for each specific month. Total all the individual entries to calculate the amount of incoming cash.
Cash going out. Make line item entries for the largest categories of expenses, combining as necessary. Total all individual entries to calculate the amount of outgoing cash.
Net inflow/outflow. Subtract your cash going out from your cash coming in to determine your net inflow or outflow.
Ending balance. Add the beginning balance to the net inflow/outflow number to get an idea of your cash position for each month.
Use historical data in addition to what’s on your calendar for the year ahead to help create your projections. Remember, you’re creating a time-based report, not simply averaging expenses and income over 12 months.
Be realistic about when cash will actually come in. If your big fundraiser is cash-based, you’ll have the money in the month of the event. But if you’re executing a fundraising campaign, donations can come in months after your initial mailings. Reflect that in your projections.
To complete your cash flow report, compile a total of your cash on hand and estimates of cash receipts and their due dates. You’ll also need to enter into the report payment amounts and schedules for personnel expenses (including salaries, wage increases, taxes and benefits).
Other data you’ll need includes consulting and professional services fees, occupancy charges (including rent and insurance), and office charges (including telephone service, equipment rental, service contracts and supplies). Last, be sure to include financing costs and all other expense categories (including travel, postage and printing).
We can help you devise your cash flow report and review maiden entries. We can walk you through the analysis process to help ensure that your reports are used to your nonprofit’s best advantage. Over time, the ability to successfully project and manage cash flows and positions — along with effectively managing the budget and having sufficient liquidity — will be key to your organization’s viability.
Your status with the IRS as a tax-exempt “public charity” gives you significant benefits — paying no federal, state or local income taxes is the most obvious advantage. And the good news doesn’t stop there.
The designation also enables you to receive donations, may qualify you for special grants and government funding, and can entitle you to special rates for services, such as mail delivery. In short, the status better enables your organization to apply its financial resources toward its mission and goals than if it were a for-profit entity.
But keeping your 501(c)(3) status isn’t automatic. Here are some important dos and don’ts to follow if you want to retain the privilege:
Do comply with reporting obligations. Your nonprofit is required to file some type of IRS Form 990 — Form 990, Form 990-EZ or Form 990-N, depending on the amount of your total annual receipts and total assets — each year. If you fail to do so for three years in a row, your tax-exempt status will be revoked.
If you’re required to file the full Form 990 or Form 990-EZ, be sure to annually complete Schedule A, Part I (“Reason for Public Charity Status”) to identify why you aren’t a private foundation. Check the box that coincides with the reason that you’re a public charity for the current tax year.
You also must file all required payroll tax returns for your employees and 1099 forms for independent contractors, and answer related questions about these workers on your Form 990.
Do maintain the required level of public support. As detailed on Schedule A to the 990, if your nonprofit is primarily supported by a government unit or the general public or is a community trust (Box 5, 7 or 8 on Schedule A, Part I), you’ll also need to pass the public support test on Part II of Schedule A. If your organization is exempt because it receives more than one-third of its support from contributions and activities related to its exempt function, as outlined in IRC Section 509(a)(2), you’ll need to pass the public support test on Part III of Schedule A each year.
Do pay employment taxes and properly withhold from employees’ paychecks. Even though your organization doesn’t pay income taxes, you must still pay applicable employment taxes, such as the employer portion of each employee’s Social Security and Medicare taxes. And you must withhold from your employees’ paychecks the employee portion of employment taxes, as well as federal, state and local income taxes where applicable — and remit the withheld amounts to the appropriate governmental agency.
Do use a formal process to approve compensation. The salaries and benefits you pay your executive director and “key employees” are available to the public on your Form 990 and have been identified as a primary focus of exempt organizations’ audits by the IRS. Even more important than the compensation total is the process you use to determine that the compensation is reasonable and comparable to amounts paid by organizations of similar size and activity. The IRS sees this review and approval as a responsibility of your board of directors or one of its committees.
Don’t operate for the benefit of private interests. No part of a 501(c)(3) organization’s earnings or equity can benefit individuals, such as the organization’s founders, executives or board members — or their family members. Your nonprofit was granted its tax-exempt status to benefit the public, not private parties or interests.
Don’t generate excessive unrelated business income (UBI). UBI is income from a trade or business activity that is regularly carried on and is unrelated to your exempt mission. Although the Internal Revenue Code is silent as to how much is too much, excessive UBI has been interpreted as spending a “significant” amount of time on the unrelated activity.
For example, if an organization has more expenditures for the unrelated activity than program expenses, the IRS likely will consider terminating its exempt status. But courts have considered an organization spending even as little as 10% of its total efforts on a UBI activity to be too much.
Don’t pay more than market rates for goods and services. Ensure you’re using your organization’s resources wisely by getting at least three quotes before purchasing a significant asset or establishing a service contract or a standing order for supplies. If you ever decide to do business with related parties (board members, founders, executives or their businesses), the other quotes will support the “going rate” in your market and show you aren’t providing an excess benefit to the related party.
Should the IRS determine that you’ve provided excess benefits, your organization and its leaders will be subject to penalties as well as the possibility of losing the nonprofit’s exempt status.
Don’t engage in substantial lobbying or any political campaign activities. Two methods can determine whether lobbying activities are “substantial.” One considers the time spent by compensated employees and volunteers on lobbying activities. The other is the expenditure tests.
Your nonprofit can elect to use the latter option — called a 501(h) election — by filing Form 5768. (Churches are ineligible.) The 501(h) election sets a defined limit on the amount of resources an organization can use to influence legislation before losing its exempt status, based on a percentage of its total expenses.
Political campaign activities include making contributions to a political campaign fund or making public statements for or against a candidate (either written or verbal). Participating in any of these activities can result in the IRS either revoking your exempt status or imposing certain excise taxes on your organization.
Notice of an IRS audit may be unnerving to a nonprofit, but understanding the nuts and bolts of IRS reviews can help reduce its risk of running into trouble. This article looks at the three types of IRS reviews and how the agency selects an organization for scrutiny. A sidebar lists some of the matters that a particular type of review may cover.
One of the top priorities for nonprofits is engaging with their supporters and building relationships. It’s no surprise, then, that interest is surging in technology that can help nonprofits do just that. This article shows how organizations can maximize the potential of current technology tools by developing mobile websites and apps, leveraging social networks and expanding their Web presence. A sidebar discusses specific metrics to use in evaluating technology investments.
Nonprofits that are suffering a lack of either financial or human resources might want to consider joining forces with another nonprofit. When researched and executed carefully, a merger can make both organizations stronger by building on their complementary skills. But there are questions to ask and a variety of hurdles to overcome; this article looks at some of them.
Effective cash flow management involves more than taking annual budget figures and dividing by 12 to come up with a static, monthly amount – after all, costs can vary significantly from month to month for a variety of reasons. This article explains how to prepare a cash flow report and how a CPA can help ensure that it's used to a nonprofit's best advantage. A sidebar discusses how to make decisions based on the report.
In this issue, "Newsbits" takes a quick look at how to reach younger donors through smartphones; shows why charities that have recently adopted a more conservative approach to valuing corporate product donations can, with Charity Navigator's help, make past financial data be more comparative; and cites a survey indicating that 66% of U.S. nonprofits need pro bono services more than any other volunteer work.