Nonprofit Accounting

The New 990 - Financial Accountability Resources

2008-07-21T11:00:00.000-07:00

I'm going to start off an occasional series about the new form 990. As we move closer to the end of 2008 and closer to the time when we have to start using this form it is important to look at our organizational and financial systems and make sure they are able to give us the information we need so we can fill out this report or get the right information in a timely fashion to those who will fill it out for us.

An important aspect of what the updated form 990 is looking for is financial accountability. There are several questions in the governance section (pdf) of the form that ask us about our governance practices. Do we have the minutes of Board of Director meetings? Do we have a document retention and destruction schedule? Is there whistle blower policy at our nonprofit? Not sure what some of the term s mean exactly, or wonder if the IRS has a different meaning for a word? Check out their handy Appendix and Glossary (both pdf's). Both excellent resources.

Much of this is similar to what for-profits have to have because of the Sarbanes Oxley-act of 2002. A great resource for implementing policies like those asked for can be found here on the National Council of Nonprofit Associations website. I encourage you all to read about what information the new 990 will ask to keep track of and have on hand before we or our auditors have to fill this out. Preparation will save us time and money

Outcomes Measurement

2008-07-17T09:07:00.000-07:00

Kate Barr at Balancing the Mission Checkbook has a nice piece on the recent report of an annual survey of public confidence in nonprofit groups by Professor Paul Light from NYU’s Wagner School of Public Service.

What intrigued me in her post is her mention of how Professor Light asks the questions about how nonprofits spend our money versus how I think the majority of nonprofits and foundations view our spending. The survey asks the public if they think nonprofits are spending their money wisely. Not program vs. management or any of the other typical benchmarks we use but if the public thinks we are doing a good job with our funds.

How could we show this for our own organizations? Is it possible that if a nonprofit spends 35% of its funds on administrative functions that the public would still view it as spending its funds wisely? Could foundations and corporate funders be persuaded to evaluate organizations in such a manner? Click the link above to find an example of an organization that may have figured out the right way to do it. Outcomes measurement is something we will all need to figure out a way to do for our nonprofits.

Questions and Answers

2008-07-15T16:18:00.000-07:00

Thanks to everybody who came to any one of the six workshops I presented at in the last month. Nonprofits from Orange County to Maine all seem to be interested in nonprofit accounting, governance issues, risk management and the new form 990.

I get asked a lot of questions at these events and the ones I can't answer I look up and respond to here. Unless I loose the paper with the questions on it.* To that end let me begin with the first one:

What is the difference between a Commercial Fundraiser and Fundraising Council? What are the rules that tell us how to work with them?
In a nut shell a Commercial Fundraiser hold the funds they solicit on your behalf and then gives them to your organization less any fee. Fundraising Council does not hold the funds for you. Contracts between CA nonprofits and commercial fundraisers need to be approved by the California Attorney General's office. For all the details please see the overview of 2004's Nonprofit Integrity Act (pdf).
How do we change our nonprofits name?
Need to file updated Articles of Incorporation with the state and let the IRS know and anywhere you have registered to solicit funds. This guy has the goods.
This came up during a discussion of the new Schedule M (pdf) of the updated form 990 which talks about listing and valuing donated non-cash items (if you get more then $25,000.00 of them). The question was:
If we have a special event to raise funds and receive proceeds from a silent auction, where do we report the income?
In part VIII of the core form with the revenue and in any of the appropriate schedules. Schedule M is sole concerned with the valuation of the donated items. The IRS wants to make sure donors are not inflating the value of items donated to the nonprofit. For more on valuing donated items and how to book these please click here.
Boards of Directors
No specific questions here but clear from the tone of the comments and question at these events that many of us have an occasional issue with our boards. For an interesting study on this I would direct you here to the Urban Institute. For resources to help Boards out I would direct you to start with these folks.

*Sorry if I missed your question. Please email me or post a comment here if you want me to look up an answer for you.

IRS Increases Mileage Rates through 12-31-08

2008-06-24T11:53:00.000-07:00

From the IRS press release:

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70. [opens up a PDF]

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 [opens up a PDF] on the optional standard mileage rates.

Other changes include moving the Medical/Moving rate to 27 cents per mile. The Charitable rate remains unchanged at 14 cents per mile.

To The Participants

2008-06-19T10:05:00.001-07:00

Thanks to all of you who have attended our recent events including the Accounting Boot Camp in Watsonville and the New 990 presentation in Santa Ana. I will be posting the answers to the questions we received over the next few days as I finish tracking down the answers.

For those of you interested in attending other events of ours or scheduling them please go to CAN's website or contact me via my profile here.

Thanks!

Pre-Tax Benefits

2008-06-10T10:45:00.000-07:00

Two Things:
One - I have changed the name of our blog. Slightly. Over the last fourteen months of this blog (fourteen months!) it has changed from just being a resource for the Nonprofit Accounting Boot Camps we are doing to a broader look at the nonprofit finance and administrative world. I think the name should reflect that, but the change should not be too big to confuse people.

As the link above points out we are still doing the boot camps and I am still doing nonprofit accounting presentations around the state and in other states. Check the CAN home page for the latests educational events or click here to sign up for our enewsletter to have all the latest news delivered to your in-box.

Two - A tip of the hat to Kim at California Payroll. Pre-tax transportation benefits! Here in CA we are pushing $4.50 a gallon so anyway to help counts. These benefits won't lower prices but could help out tax-wise and any benefits that we can offer our employees that don't cost the employer much are win-win. From Kim's email:

In a nutshell, your employees can set aside $115 per month in pre-tax income to use towards riding in a commuter highway vehicle (qualified vanpool arrangement) between home and work and for purchasing transit passes. Also, your employees can set aside $220 per month for qualified parking.

Find out more from IRS Publication 15-B, The Employers Guide for Fringe Benefits. Click here to download a PDF of the publication. Thanks Kim!

Nonprofit Deregulation?

2008-06-05T09:07:00.000-07:00

On the Independent Sector's website is a really good article by Clara Miller, a leader in the sector who I think makes a lot of sense and has written extensively about nonprofit financial issues.

In this piece she once again lays out the complex world of nonprofit capital management. Things that we as nonprofit finance professionals take for granted that would send our for-profit counterparts into confused apoplexy. She posits that in our efforts to do good we may have let a patchwork of rules and regulations from many different sources cover us so that our capacity to meet our missions may seriously limited if not in jeopardy.

Read the article, or others by her, and tell us what you think about what she has to say and the issues she brings up in the comments section below.

Comments On The 990 Instuctions

2008-06-03T11:09:00.001-07:00

Independent Sector released their comments to the redesigned form 990 instructions. The instructions were released on April 7th and the comment period closed June 2nd. Click here for a PDF of what the IS had to say.

Threats to Nonprofit Tax Exemptions

2008-05-27T10:29:00.001-07:00

From the New York Times on May 26th.

In case folks out there have not heard of the recent challenges to nonprofit tax exemption and the Minnesota case I thought I would pass this along. Some concerns may be justified; how big should a university endowment be? Does that nonprofit hospital do enough to be considered a charity? Or maybe not. But those big dollars will get people talking and those nonprofits need to have a story to tell or one will be told to them.

A quote from the article really hits the mark for me:

The nonprofit sector is being pressed to be more business-like and to find new ways to fill the gaps between what [funders] will pay and what services cost, but then assessors want to treat us like businesses, which pay taxes.

I think this will be a big issue in the coming years as both charities and governments struggle to find more sources of revenue, especially in a troubled economy.

Volunteers

2008-05-20T10:47:00.001-07:00

This is framed more as an HR topic than accounting one, but I'm going to guess many of the nonprofit financial staff out there where multiple hats. I like to say that I do all of the "non-fun" stuff in a nonprofit; accounting, HR and IT.

Many of us use volunteers, but are we doing it the right way? Volunteers work with us because they care about the cause and want to help so by nature may be disinclined to take action against us should something go wrong. But that is not something we should count on and you will be exposing your organization to unnecessary risk if you do so. This article presents something for us to think about and these resources from the Nonprofit Risk Management Center can help set up an run an effective volunteer program.

New 990-N Filing Deadline Approaching

2008-05-13T12:19:00.001-07:00

May 15, 2008, is the first deadline to file the brand new form 990-N, the form for small tax-exempt organizations whose gross receipts are normally $25,000 or less for tax years ending on December 31, 2007. Check out the latest information by clicking here.

The Commensurate Test

2008-05-06T10:52:00.001-07:00

From the Independent Sector's Memo To Members come these interesting bits of news:

IRS Plans to Make Greater Use of "Commensurate Test" in Oversight of Charities
The commensurate test generally measures if a charity is undertaking, through contributions and grants, a charitable purpose commensurate in scope with its financial resources. Miller said that the Service will "re-energize" what he called a "little-used line of legal precedent."
Thanks to some news about nonprofit college and hospital spending and levels of endowments the IRS wants to make sure we are using our funds for our charitable purposes and not hording our funds.
Senate Bill Proposes FTC Jurisdiction over
Charities
The business practices of 501(c)(3) nonprofits would be subject to Federal Trade Commission regulation and enforcement under a bill introduced last month by Senator Byron Dorgan (D-ND). The FTC Reauthorization Act of 2008 (S.2831) would expressly extend FTC jurisdiction by changing the current definition of “corporation” in the FTC Act to cover 501(c)(3) organizations. FTC commissioners stated in written testimony that their lack of jurisdiction “has prevented the commission from taking action against potentially anticompetitive conduct of nonprofits engaged in business.”
Just to look at the dark side of this there have been a number of for-profit entities that have sued nonprofits because the for-profit businesses thought that the nonprofits had an unfair advantage over them because they didn't have to pay taxes. Is that what this is related to? Maybe they haven't heard of Unrelated Business Income?
IS Announces New Estimate for Value of Volunteer Time

More Talk About Efficient Charities

2008-05-05T10:48:00.001-07:00

I'm not the only one to write about the IRS Commissioner's speech. The Chronicle of Philanthropy mentions others who are talking about the issue. You should read the article and follow the links in it to see what others are saying.

Efficient Charities

2008-04-28T14:42:00.001-07:00

Two stories from the Chronicle of Philanthropy last Thursday caught my eye.

The first is about congressional rumblings to have nonprofits post fundraising ratios and costs on a Postal Service web site.

Seriously.

No information was given on where the charities would pull this information from, when it would be updated and weather it would be checked out or not for accuracy. Not to mention who would maintain this database, how it would be funded or what kind of education and outreach about the information on said site and how to use it.

The second article is more in depth. It starts out with the IRS Commissioner Steven T. Miller stating that, even though the IRS may not have the jurisdiction to, it will be more aggressive in monitoring the "efficiency and effectiveness of charitable organizations." He was also disappointed that the IRS gave up the idea of placing "efficiency indicators." on the front of the 990 because he wants to help make "apples-to-apples" comparisons possible.

I was against having the "efficiency indicators" there precisely because I don't think that it helps much for comparison. Standard benchmarks like the ones listed in the article may be informative but I do not believe they tell you how efficient a charity is, especially in comparison to other charities. For profit businesses are formed to make profit. A dollar of profit is the same at one business as it is at another, so ratios work and are comparable. But nonprofits are formed to do many different things, too many to be able to come up with easy ratios and benchmarks that cross the sectors of the charitable universe.

Would you compare a big nonprofit hospital to a small after school sports program? You could but I don't think you would get much that is useful. Now hospital to hospital, sports program to sports program? You could make some comparisons with benchmarks and ratios that could yield some interesting information.

The myopic thinking that all nonprofits are the same just because they are nonprofits still baffles me. Especially in people who task themselves to regulate us.

Is A Donation To An Individual Tax Deductible?

2008-04-25T11:58:00.000-07:00

The short answer, according to the IRS and Publication 526, is no. I have been asked this question several times over the years and there is one thing people always get stuck on: They want to donate money to a specific person that charity XYZ works with. They will write the check to the charity but specify who the money should be spent on. That is a charitable donation, right? Wrong. To quote from the IRS:

You cannot deduct contributions to specific individuals, including the following.

Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.

Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.

Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.

Expenses you paid for another person who provided services to a qualified organization.

Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services.

Payments to a hospital that are for a specific patient's care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.

This is not to say that those donors cannot donate to those individuals at all, just that those donations will not be tax deductible.

Pledge Contracts

2008-04-18T10:09:00.001-07:00

This article from the Chicago tribune reminded me of a few emails I have received recently. Several organizations have asked for samples of any "pledge contracts" I might have. I was mystified by this concept having never heard of such a thing. These callers wanted to make sure board members or other big donors would follow through with any pledges made and wanted legal recourse if they failed to do so.

I can see the rational of course, especially if it a large amount of money and the organization has budgeted for it. But it strikes me as a harsh way to do it, as the article mentions, like a sort of prenuptial agreement. But maybe that is the way to go, keeps everything on a nice professional level.

The article quotes an attorney on what he recommends for such an agreement:

Conduct a credit check on donors; include a "bad boy" clause in gifts
that come with naming rights so the non-profit can remove the name if
it deems necessary; wait to begin construction of a new, donor-paid
building until at least 30 percent of the pledge has been paid; and
make sure the donor's spouse signs any gift agreement.

Has anyone else encountered agreements like these?

For the QuickBooks Users Out There

2008-04-16T11:57:00.002-07:00

I received this email from QB today about a potential conflict between the 2008 version of QuickBooks and Windows:

Dear QuickBooks 2008 customer,
We have discovered that a recent Microsoft Windows update may be
triggering problems for some users of QuickBooks 2008 software. When
the problem occurs, QuickBooks does not open.

Common symptoms include the following:
1.The QuickBooks splash screen flashes, and then disappears.

OR

2.On launch of QuickBooks, an error message reports that the Web

Connector has failed to initialize and QuickBooks does not open.
It turns out that the Microsoft update introduced a problem in the
.NET 2.0 Framework.
To resolve this issue, please do not uninstall and re-install
QuickBooks. We do not recommend this, as it will not address
the problem.

The best thing to do is to go to the source of the problem, so you
will need to remove and reinstall the .NET 2.0 Framework. To help
walk you through it, we have provided detailed instructions in our
QuickBooks Knowledge Base that provides some easy to follow steps and
also includes additional links to the Microsoft site:
support.quickbooks.intuit.com/support/pages/

We are continuing to work on this issue and if we find out anything
new, we will be sure to let you know right away.
Thanks for your patience,
The QuickBooks Team

Has anyone noticed any problems out there?

Updated 990 Draft Instructions Released

2008-04-08T11:37:00.000-07:00

It is finally here! On April 7, 2008, the IRS released for public comment draft instructions for the 2008 Form 990. Here is a link to the announcement and the link to find draft versions of the instructions. Public comments on the draft forms will be open until June 1, 2008. You can submit your comments directly to them or in the comments section of this post and CAN will aggregate them and send them in.

Many of the draft forms have a highlights section in the beginning where the IRS describes what is new, different and where the IRS really wants our comments. Lats years comments on the draft 990 had many comments and critiques on the current instructions including:

No glossary of key terms, too few definitions, and unclear definitions that are scattered throughout the form and that are difficult to find
Too much extraneous material specific to particular types of filers is placed in the front end before the specific line-by-line instructions that apply to most filing organizations
Ambiguous reporting standards for executive compensation, particularly with respect to the types of compensation that must be reported, and when and where they must be reported on the form
Lack of examples in particularly difficult areas

The IRS is promoting new tools in these updated instructions to address these and other concerns so be sure and check them out and give us your feed back.

Public Inspection of Form 990-T

2008-04-03T09:51:00.000-07:00

And other things from the IRS.

This week guidelines were released on how to request a copy of the form 990-T which is now a publicly available document. The 990-T is used to report a nonprofit organization unrelated business income (which is taxable income).

Below is an excerpt from this PDF:

The Tax Technical Corrections Act of 2007, Pub. L. 110-172, H.R. 4839, provides that
the Internal Revenue Service is required to make Forms 990-T that are filed by a section 501(c)(3) organization publicly available for inspection and copying pursuant to section 6104(b). This provision is effective for returns filed after August 17, 2006, the date of enactment of the Pension Protection Act of 2006, Pub. L. 109-280 (PPA).

Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form, is used to request from the Internal Revenue Service a copy of an exempt or political organization’s return, report, or notice pursuant to section 6104(b). The Form 4506-A does not currently contain a check box for a Form 990-T, although the Internal Revenue Service is in the process of revising the Form 4506-A to include this provision. If you want to inspect or copy a Form 990-T that was filed after August 17, 2006, please mail or fax a copy of the Form 4506-A to the Internal Revenue Service following theinstructions for that form. In line 7 of the Form 4506-A, however, please write in “Form990-T”.

A Copy of the Form 4506-A can be found here.

The IRS also updated it's Form 990-N FAQ's, click here to check them out.

An Updated QuickBooks Resource

2008-03-20T13:11:00.000-07:00

Christine Manor, CPA, the main author of the UCOA (third edition), has just published her updated QuickBooks for Not-for-Profit Organizations for 2008. From the publishers website:

QuickBooks for Not-For-Profit Organizations 2008 provides detailed step-by-step instructions on how to use QuickBooks in a not-for-profit environment. Also included with the book are downloadable practice files with complete examples for using QuickBooks in a Not-For-Profit organization. QuickBooks for Not-for-Profit Organizations includes clearly illustrated screen shots and sample data practice files that will allow you to practice each step as you read about it.

I have and use the previous version of her book and I do recommend anyone using any version of QuickBooks for nonprofit accounting give it a once over.

Do You Have Employees?

2008-03-14T11:32:00.001-07:00

The you need the Exempt Employer's Toolkit from the IRS. All the info on payroll taxes (**spoiler alert** Nonprofits have to pay payroll taxes!) what documents you need to get from your employees. And if you have any consultants you work with there is guidance there to on how to report their earnings.

For the state regulations and rules I recommend the CA Chamber of Commerce's website, they have lots of nice worksheets and details on twhat the difference is between a consultant and an employee, exempt vs, nonexempt employees, etc.

All About Admin

2008-03-12T16:53:00.001-07:00

This week is primarily dedicated to doing all the stuff I have neglected to do over the last few months and get caught up:

Organizing and filing the last of the 2007 financials so I'm (almost) ready for our audit.
Figuring out what can be destroyed based on our retention policies.
Finding our retention policies!
Entering our 2008 budget into QuickBooks because NOW I have to start generating variance reports for '08.
Bi-monthly cost allocations so we can release those monies from restrictions.

If I was not also doing program stuff (which I do enjoy) I think would be more on top of this, but maybe not. Some of this is grunt work that needs to get done but is rather boring.

What administrative tasks tend to get put on the back burner at your organization?
Have you found any good tips / tricks / tools to help?

IRS Round Up

2008-03-06T14:01:00.000-08:00

Here is a list of recent stories and information from the Internal Revenue Service that affect our sector:

Not exactly recent but a timely reminder nonetheless about the restrictions placed on advocacy by 501(c)3's. We can and should lobby but we need to make sure we do it the right way.
Gotta beef with a nonprofit? Want to file a complaint? Here is where to do it and what the process is like.
Audit? Compliance Check? Examination? Whats the difference and why is it happening to my organization? Find out here.
Despite the fact that we file a "tax" return to them, one of the main goals of the 990 and the IRS's Exempt Organizations Division is governance and making sure we are serving a charitable purpose. They have made some changes to their good governance guides and resources, see the update here.

Nonprofit Audit Committee Toolkit

2008-02-25T16:18:00.000-08:00

Does your organization have and audit committee? Is it supposed to have one? Even if the answer is "no" I do recommend you have one in addition to your Finance Committee. The nice folks at the AICPA have put together a tool kit just for your audit committee to help them get there job done. From the website:

Audit committees have a big job to do in an organization—tough when the members have other responsibilities and the audit committee role is a part-time job with huge accountability. The AICPA Audit Committee Toolkit: Not-for-Profit Organizations is the needed help for audit committees to do the job they need to do as effectively and efficiently as possibly.

You can find the kit here with details on all of its elements. For those of you who don't want to download all this info you can buy it as well.