As a 501 (c) (3) tax-exempt organization, you are permitted, under Federal Law, to pay only for unemployment benefits claimed by former employees. Think of this permission as setting up a “pay as you go” plan for unemployment benefits. Your organization is self-funding the insurance. Your organization is acting as the unemployment insurance department. Cash disbursements are only made when unemployment benefits are required for former employees.
This plan is NOT for every 501 (c) (3) tax-exempt organization. You need to carefully review your recent history of unemployment benefit claims, the financial strength of your organization, your current work force and the continuality of your programs and various locations moving forward. What are your chances of losing programs or locations and having to lay-off some of your work-force?
If interested in discussing further, please call me. I can discuss the rules and the pluses and minuses of making this decision and can direct you to organizations that can help you further explore this option for potential implementation.
Auditor independence is still a hot topic among investors and lenders even though the financial crisis of 2008 was nine years ago. Here’s an overview of the independence guidance from the Securities and Exchange Commission (SEC). These rules apply specifically to public companies, but auditors of private companies are typically held to the same (or similar) standards.
External auditors are supposed to be “independent” of their audit clients — both in appearance and in fact. This may seem like common sense. But there’s sometimes confusion about the rule, causing the SEC to file auditor independence cases on a regular basis. These enforcement actions generally fall into three broad categories:
Auditors who provide prohibited nonaudit services to audit clients,
Auditors who enter into prohibited employment (or employment-like) arrangements with audit clients, and
Auditors (or associated entities) with prohibited financial ties to audit clients (or their affiliates).
To avoid independence-related enforcement actions, it’s important for auditors and their clients to respect the auditor independence guidance. Audit clients generally include companies whose financial statements are being audited, reviewed or otherwise attested — and any affiliates of those companies.
Unsure whether an assignment violates the auditor independence guidance? Consider these questions:
Does it create a mutual or conflicting interest?
Does it put the auditor in a position of auditing his or her own work?
Does it result in the auditor acting as a member of management or an employee of its audit client?
Does it put the auditor in a position of being the client’s advocate?
Affirmative answers may indicate possible independence issues. The SEC applies these factors on a fact-sensitive, case-by-case basis. Examples of prohibited nonaudit services for public audit clients include bookkeeping, financial information systems design, valuation services, management functions, legal services and expert services unrelated to the audit.
The auditor independence guidance applies to audit firms, covered people in those firms and their immediate family members. The concept of “covered people” extends beyond audit team members. It may include individuals in the firm’s chain of command who might affect the audit process, as well as other current and former partners and managers.
Independence is universal
CPAs are public watchdogs — we protect the interests of not only public company investors but also private company shareholders and financial institutions that lend money to companies of all sizes. Our auditors are committed to maintaining independence in order to provide accurate and reliable financial statements that stakeholders can count on. If you have concerns about auditor independence issues, please contact us to discuss them.
Many not-for-profit youth sports leagues are at risk for fraud and don’t even know it. Because cash transactions are common and leagues usually are managed by volunteers with little oversight, it’s easy for crooked individuals to take advantage of the situation. Unfortunately, sports league fraud is usually committed by board members or officers who are well known and respected in their communities. How then can your league prevent this crime?
By far the most important step you can take is to segregate duties. This means that no single individual receives, records and deposits funds coming in, pays bills and reconciles bank statements. Assign someone uninvolved in handling deposits and payments to receive and reconcile the bank statement. A different person should monitor the budget, and every payment (or at least payments over a certain threshold) should require two signatures. If your league has credit or debit cards, ask someone who isn’t an authorized user to review the statements.
Also, your league should:
Mandate board review. Your board of directors should receive and review financial reports on a quarterly or monthly basis — including when the league isn’t in season. The treasurer should submit a report for every board meeting, with bank statements attached.
Require online registration and payment. A lot of leagues still use paper registrations and accept payment by cash or check. Cash can be pocketed in the blink of an eye, and checks can be diverted to thieves’ own accounts. But with online registration, payments are deposited directly into the league’s account.
Rotate treasurers. Treasurers are the most likely youth sports league officials to commit fraud because they have the easiest access to funds and the ability to cover their tracks. Make sure no one person stays in the treasurer position for more than a couple of years. If funds are available, consider hiring a part-time bookkeeper who will report directly to your board.
Not all fun and games
Many youth sports leagues are ripe for fraud, in large part because of their lack of formality and their environment of trust. Structure may seem counter to the spirit of amateur leagues, but if your group doesn’t adopt some smart business practices, it could end up out of business. Contact us for more information.
What do charitable donors want? The classic answer is: Go ask each one individually. However, research provides some insight into donor motivation that can help your not-for-profit grow its financial support.
The biennial U.S. Trust® Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, regularly finds that wealthy donors are primarily motivated by philanthropy. The tax benefits of giving were cited by only 18% of respondents in the 2016 survey.
On its own, your organization has little control over tax rates or deductions. But by teaming up with other nonprofits, you can exercise influence over tax policy. For example, groups such as the Charitable Giving Coalition have been credited with helping to defeat congressional challenges to the charitable deduction. Some nonprofits also partner up to influence state legislation on charitable giving incentive caps. Just keep in mind that, to preserve your nonprofit’s tax-exempt status, political lobbying should be kept to a minimum.
Other research has found that donors are just as motivated by matching gifts as they are by tax benefits. A joint Australian and American study gave supporters a choice between a tax rebate and a matching donation to charity. Donors were evenly split between the two — but those opting for the match gave more generously than those who took the rebate.
If your nonprofit hasn’t already tried offering matching gifts, it’s worth testing. You’ll need to identify donors willing to use their large gift to incentivize others — reliable supporters such as board members or trustees. Consider using their gifts during short-lived fundraisers, where a “ticking clock” lends the offer greater urgency.
Other strategies can enable donors to stretch their giving dollars. For example, encourage your supporters to give appreciated stock or real estate. As long as the donors meet applicable rules, they can avoid the capital gains tax liability they’d incur if they sold the assets.
Don’t make assumptions
Donors can be motivated by many social, emotional and financial factors. So it’s important not to assume you know how your target audience will respond to certain types of fundraising appeals. Perform some basic research, asking major donors and their advisors about their philanthropic priorities. Contact us for more revenue-boosting ideas.
Interest in not-for-profits’ governance practices from lawmakers, watchdog groups and the general public has been growing in recent years. If your board hasn’t reviewed its roles and responsibilities recently, now is a good time.
3 primary responsibilities
Nonprofit board members — whether compensated or not — have a fiduciary duty to the organization. Some states have laws governing the responsibilities of nonprofit boards and other fiduciaries. But, in general, a fiduciary has three primary duties:
Duty of care. Board members must exercise reasonable care in overseeing the organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand its mission, programs and structure, make informed decisions, and consult others — including outside experts — when appropriate.
Duty of loyalty. Board members must act solely in the best interests of the organization and its constituents, and not for personal gain.
Duty of obedience. Board members must act in accordance with the organization’s mission, charter and bylaws, and any applicable state or federal laws.
Board members who violate these duties may be held personally liable for any financial harm the organization suffers as a result.
Conflicts of interest
One of the most challenging components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when an organization does business with:
A board member,
An entity in which a board member has a financial interest, or
Another company or organization for which a board member serves as a director or trustee.
To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.
The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.
The rules concerning the liability of fiduciaries are complex. But your board members can meet their obligations by acting in good faith, putting the organization’s best interests first, making informed decisions and disclosing any potential conflicts of interest. Contact us for more information.
Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it’s a great time to take a look at your records for previous tax years to see what you can purge.
Consider the statute of limitations
At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2013 and earlier years (2012 and earlier if you filed for an extension for 2013).
In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.
Keep some documents longer
You’ll need to hang on to certain records beyond the statute of limitations:
Tax returns. Keep them forever, so you can prove to the IRS that you actually filed.
W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).
This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.
Is your not-for-profit association offering enough (or the right) programs to keep members active and engaged? New programs require time, effort and money. So when you commit to developing one, you want to get the biggest bang for your buck. Here are some simple dos and don’ts:
DO consult your members. Through focus groups, surveys and informal conversations, gather information about issues your membership is facing. Note gaps between your current program offerings and members’ wants and needs.
DON’T support foregone conclusions. Spinning member feedback to match what you think your organization needs is a big mistake.
DO target specific outcomes. Identify the intended outcomes of proposed programs and attach to them strategic, realistic and timely goals.
DON’T lose focus. Consider only program ideas that will directly contribute to your association’s mission, vision and overall goals.
DO protect your creation. If your new program is unique, protect it with appropriate trademarks, service marks, copyrights, and patents.
DON’T go it alone. Whenever possible, share expenses and resources by partnering with other organizations. Alliances can lend depth, breadth and impact to programs.
DO keep your promises. Deliver new programs on time and on target for the greatest impact.
DON’T overspend. Come up with a reasonable budget and stick to it. Make adjustments only when absolutely necessary.
DO start small. Launch new programs slowly and thoughtfully — and then build on initial success.
DON’T worry about perfection. Take chances and try new strategies. The best ideas often are those most different from what you’ve done in the past.
For more tips on making the most of your association’s budget, please contact us.
Many not-for-profits are adopting a marketing tactic that has been used successfully by for-profit companies. Social listening costs relatively little and can give you valuable insight into issues that resonate with your supporters. This allows you to tailor communications to better reach them.
Identify and engage
Social listening starts with monitoring social media sites such as Facebook, Twitter, LinkedIn and Instagram for mentions of your organization and related keywords. But to take full advantage of this strategy, you also must identify and engage with topics that interest your supporters and interact with “influencers,” who can extend your message by sharing it with their audiences.
Influencers don’t have to be celebrities with millions of followers. Connecting with a group of influencers who each have only several hundred followers can expand your reach exponentially. For example, a conservation organization might follow and interact with a popular rock climber or other outdoor enthusiast to reach that person’s followers.
To use social listening, develop a list of key terms related to your organization and its mission, programs and campaigns. You’ll want to treat this as a “living document,” updating it as you launch new initiatives. Then “listen” for these terms on social media. Several free online tools are available to perform this monitoring, including Google Alerts, Twazzup and Social Mention.
When your supporters or influencers use the terms, you can send them a targeted email with a call to action, such as a petition, donation solicitation or event announcement. Your call to action could be as simple as asking them to share your content.
You can also use trending hashtags (a keyword or phrase that’s currently popular on social media, such as #BostonMarathon or #PrinceHarry) to keep your communications relevant and leverage current events on a real-time basis. You might be able to find creative ways to join the conversation while promoting your organization or campaign.
Savvy nonprofits know they need to embrace and make the most of social media. By pursuing social listening, you can cost-effectively improve your engagement efforts. Contact us for more information on growing your supporter base.
Nonprofit organizations are required to file annual reports with the IRS. Organizations with gross receipts of $50,000 or less can file an e-Postcard instead of the longer Form 990. The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2016 reports is May 15, 2017.
To err is human, but your not-for-profit’s supporters, not to mention the IRS, may be less than forgiving if errors affect your financial books. Fortunately, if you attend to accounting details, you can avoid these common pitfalls:
1. Failing to follow accounting procedures. Even the smallest nonprofit should set formal, documented and detailed procedures for managing financial and bookkeeping chores. Your process should include all aspects of managing your organization’s money — how to accept, document and deposit donations, pay bills, and handle every step in between. Put these procedures in writing and make sure you follow each step, every time.
2. Making data entry errors. It’s easy to wreak havoc on your accounts by entering a $500 payment as $50 or transposing numbers. So check and double-check every entry every time. Reconcile accounts against bank statements immediately, and don’t overlook even the smallest discrepancy.
3. Working without a budget. You can’t control overspending or invest a surplus if you don’t know they exist. Budgets don’t have to be intricate to be useful; just look at a few months’ worth of bills and deposits to create a starting point. Then refine your plan as you go along. Include a “miscellaneous” category, but don’t allow it to account for the majority of your expenses.
4. Playing loose with petty cash. Small expenditures like picking up a few office supplies or buying a pizza for volunteers is much easier to do with a petty cash fund. Handle the cash with care, though. Lock it up, authorize only a few people to make disbursements and require receipts for all expenditures.
5. Neglecting to properly categorize. All money coming in and going out of your organization must be assigned to the appropriate category. This is particularly important if you accept donations that may be earmarked for certain programs. To be successful at this, you need to properly set up the initial chart of accounts and define how items should be assigned.
Contact us with any nonprofit financial question or if you need help devising organizationwide policies.