Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please Note: Our office will be closed Wednesday, April 16th.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please Note: Our office will be closed Wednesday, April 16th.
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.
This means you may continue to use our Secure Email and Client Portal without fear of compromise through this recent threat.
Keeping your personal and financial information secure and confidential remains a top priority for us. Please contact us with any questions or concerns.
You may not be aware of some of the services local CPA firm, Stockman Kast Ryan and Company of Colorado Springs provides that could benefit you and your business. Here is just a partial list:
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.
The IRS has released its long-awaited final regulations implementing the Affordable Care Act’s (ACA’s) employer shared-responsibility — also known as “play or pay” — provision that applies to “large” employers, including for-profit, nonprofit and government entities. These regulations are effective January 1, 2015. The final regs push out one year, from 2015 to 2016, the risk of play-or-pay penalties for eligible midsize employers that otherwise would be considered large employers under the ACA. They also provide other significant relief for 2015 and clarify certain aspects of the play-or-pay provision.
The play-or-pay provision imposes a penalty on large employers that don’t offer “minimum essential” health care coverage — or that offer coverage that isn’t “affordable” or doesn’t provide at least “minimum value” — to their full-time employees (and their dependents) if just one full-time employee enrolls in a qualified health plan through a government-run health insurance exchange and receives a premium tax credit.
Under the ACA, a large employer is one with at least 50 full-time employees or a combination of full-time and part-time employees that’s equivalent to at least 50 full-time employees. This involves totaling part-time employees’ monthly hours and dividing that figure by 120 to calculate full-time equivalent employees (FTEs). That figure is then added to the total number of actual full-time employees. A full-time employee generally is someone employed on average at least 30 hours a week, or 130 hours in a calendar month.
Under the final regs, eligible midsize employers will not be subject to the play-or-pay provision until 2016.
To qualify for the midsize-employer penalty relief, an employer must:
Be aware that these employers will still be subject to the ACA’s large-employer information-reporting requirements in 2015.
Under the ACA, large employers that don’t offer at least 95% of their full-time employees minimum essential health coverage will be assessed a penalty if one of their full-time employees receives a premium tax credit when buying health care insurance from an insurance exchange. The annual penalty is $2,000 per full-time employee in excess of 30 full-timers.
The final regs provide that large employers that don’t qualify for the midsize-employer penalty relief in 2015 can avoid the penalty for not offering minimum essential coverage by offering such coverage to at least 70% of their full-time employees (and their dependents.) The 95% requirement will apply in 2016 and beyond.
The final regs extend and expand transitional relief in other ways as well, such as the following:
The IRS indicated it will consider whether it’s necessary to extend any of this transitional relief beyond 2015.
Generally, if an employee’s share of the premium would cost that employee more than 9.5% of his or her annual household income, the coverage isn’t considered affordable. Because an employer generally won’t know an employee’s household income, the proposed regulations provided safe harbors under which an employer can determine affordability. The final regs maintain the proposed safe harbors with some minor changes.
Under these safe harbors, affordability can be determined based on:
If the employer meets the requirements of a safe harbor, the offer of coverage will be deemed affordable.
The final regs allow employers to use an optional look-back measurement method to determine whether employees with varying hours and seasonal employees are full time for purposes of determining large employer status. They also clarify the application of the look-back and alternative monthly methods of determining full-time status.
Additionally, the final regs clarify whether certain types of workers will be considered full time. For example, bona fide volunteer hours worked for government or tax-exempt entities won’t cause the volunteer to be considered a full-time employee.
The IRS is expected to soon issue final regulations that will substantially streamline information-reporting requirements related to the play-or-pay provision. We’ll keep you apprised of the relevant changes. In the meantime, if you have questions on how these or other ACA provisions may affect your company, please contact us.
|
The IRS has released its long-awaited final regulations implementing the Affordable Care Act’s (ACA’s) employer shared-responsibility — also known as “play or pay” — provision that applies to “large” employers, including for-profit, nonprofit and government entities. These regulations are effective January 1, 2015.
