More Resources

Two more resources and links that I remembered I said I would share with all of our workshop participants.

The first is the the organization called BoardSource, a nonprofit dedicated to helping and improving nonprofit governance. They have a nice series of short books on governance, called the New Governance Series that touches on topics such as board organization, structure and financial management.

The other resource asked for was a sample gift acceptance policy which the new form 990 asks us for. It seems like those are pretty unique to the nonprofit but here is a list of ones that can be found on line from the Foundation Center. These could be used to help us get started crafting our own. If anyone has other sample policies they would like to share let me know and I will put them up here too.

Accounting Boot Camp Questions

Below are some questions and answers from recent nonprofit accounting trainings I've led.

• Is there a minimum dollar threshold for registering our nonprofit's raffle with the state of California?
  No but click here for more.
  
• Does the charity report the raffle winners to the state?
  No it does not.
  
• Can a nonprofit accept a donation of the use of a donor's timeshare?
  Yes, but the donor will not get a tax deduction for the donation of the use of the time share. See Publication 526, all about contributions to nonprofits.
  
• Where can I find more information on the new 990?
  At the IRS website stayexempt.org the have a series of mini-courses on various topics including several on the new 990, walking you through the whole form. They are 20 to 30 minutes each and free.

Contact me if you asked a question and I didn't get to it.

Where did all the money go?

As the Finance Guy I've been asked questions similar to this through the years. Often it comes from a board member or someone who is not too familiar with how nonprofits operate, or maybe just how organizations operate in general, and thinks that I, as my role of Finance Guy, have some ability to make money appear instead of just controlling the spending of it. I'm the first to admit that my strong suit is not fundrasing. I can put together a cash flow report and tell you how fast you will be spending your income but as far as generating contributions? Not so much.

Our sector has other professionals for that and resources out there to them get those donations. One I've read and like is The Raiser's Razor. Written by a CFRE in Dallas, Texas and covers both national and local issues. From the United Way of Dallas to how to ensure a second gift, click through and learn about what goes on in that part of the nonprofit world.

This entry is part of the Nonprofit Blog Exchange's Virtual Event #9. Check it out to see bloggers writing about other blogs.

Is A Donation To An Individual Tax Deductible?

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

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?

Where Does the Money Come From?

It is time for another edition of the Nonprofit Blog Exchange, where a blogger writes about another blogger's site.

If you are The Finance Person in your nonprofit do you know how the income is generated for your nonprofit? Someone has to bring in the money so we can manage it. The finance staff plays a key roll in assisting those who bring in the funds your group needs to function.

From budgets to reporting, finance and fundraising need to work together to make sure all the bases are covered. Are we asking for enough funding? Does the proposal's budget narrative match the budget numbers? Are the numbers in our financials accurate? Do they accurately tell the story (in numbers) of our organization? Are the funds received restricted? If yes, in what way?

But where can we go to get information about fundraising? A good place to start is Seeking Grant Money Today. There you will find some really good basics from the real world of grant writing. For example "How Do We Tighten Up Our Grant Proposal?" And "How to Coordinate the Executive Director, the Board, the Volunteers and the Staff to Successfully Raise Grants." And "Top 10 Grant Money Myths."

I asked CAN's Deputy Director to look at this blog and she responded, "Most books and classes just tell you how to research, write and submit a grant. They don't tell you how to figure out if you're ready for the world of grants yet or not, how to manage the submission and building process, how to get the whole staff involved in the process or how to take a serious red pen to your first draft. This is really good, real-world stuff."

So there you have it, good stuff to be found there.

Shopping for Charity / Embedded Giving

So did anybody out there buy products and gift for folks because a portion of the proceeds went to charity? Did any of you have one these programs for your organization? So how would you book those?

I think as the popularity of these kind of programs continues to grow there will be more and more questions raised. I'm for encouraging donations but there needs to be some serious accountability in these programs to make sure the $$ gets to the charities. And will programs like these hurt direct contributions to charities in the long run?

FASB 116 & 117

Since we talk about them so much in the boot camps, and the govern so much of what we do in keeping our nonprofits books, I thought I would link to the sources and list a quick summary of them. Enjoy!

Statement No. 116 Accounting for Contributions Received and Contributions Made

This Statement establishes accounting standards for contributions and applies to all entities that receive or make contributions. Generally, contributions received, including unconditional promises to give, are recognized as revenues in the period received at their fair values. Contributions made, including unconditional promises to give, are recognized as expenses in the period made at their fair values. Conditional promises to give, whether received or made, are recognized when they become unconditional, that is, when the conditions are substantially met.

This Statement requires not-for-profit organizations to distinguish between contributions received that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. It also requires recognition of the expiration of donor-imposed restrictions in the period in which the restrictions expire.

Statement No. 117 Financial Statements of Not-for-Profit Organizations

This Statement requires that all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows. It requires reporting amounts for the organization's total assets, liabilities, and net assets in a statement of financial position; reporting the change in an organization's net assets in a statement of activities; and reporting the change in its cash and cash equivalents in a statement of cash flows.

This Statement also requires classification of an organization's net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assets-permanently restricted, temporarily restricted, and unrestricted-be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.

This Statement amends FASB Statement No. 95, Statement of Cash Flows, to extend its provisions to not-for-profit organizations and to expand its description of cash flows from financing activities to include certain donor-restricted cash that must be used for long-term purposes. It also requires that voluntary health and welfare organizations provide a statement of functional expenses that reports expenses by both functional and natural classifications.

Boot Camp Q & A - Gifts-in-kind Valuation

Several questions from the last book camps have been about non-cash donations and how to value them. The PPC Guide to Contributions has the best guidance out there on the subject and I still highly recommend them, a worthy investment for your nonprofits financial well being.

Q: How do we value food donations for our, "Taste Of..." event?

A: Fair value must be determined. According to SFAS 157, Fair Value Measurements, the fair value is, "the price that would be received to sell an asset or paid transfer of liability in an orderly transaction between market participants at the measurement date. The quoted price for identical assets in an active market is the most reliable evidence."

For this question, if a restaurant is providing you with 300 deserts, what do they sell the deserts for? If they are catering at your event, what do they normally charge for catering? Those quoted prices (or better yet and invoice) would be what you would use to value the donations.

Q: Can the suggested starting bid on an item to be sold at auction be used as the fair value?

A: Yes, with exceptions. If a vendor gives you something to auction for your charity event and places a "suggested starting bid" sticker on it, that can be used. But if you have sold similar items before and what they suggest doesn't match what you have used in the past that suggestion won't work. Checking other resources on how the item might be valued would also be a good idea.

Q: We have a golf tournament where everything is donated. Donors then buy tickets for the event. Is the whole ticket deductible to the those donors?

A: From what I can tell it is not. The non-deductible portion of the ticket represents the estimated fair market value of the goods or services received by the donor in return for the contribution. How much would the donor normally have had to pay to play golf at the location? The fact that the nonprofit did not incur any costs for the facility is irrelevant to the benefit received by the donor.

Q: What are some resources for valuing donations?

• Association of Evangelical Relief and Development Organizations

• Determining the Value of Donated Property (IRS pub. 561)
  
  
• eBay.com
  

• Salvation Army's Donation Valuation Guide

• SFAS 157, Fair Value Measurements

• TurboTax ItsDeductible

Three New Technical Practice Aids for Nonprofits

From the Thompson Tax and Accounting e-newsletter comes the news of three new technical practice aids for nonprofits. You can download a PDF of them here. The highlights:

• TIS section 6140.20 discusses circumstances in which not-for-profit organizations with contribution revenue could have minimal or no fund-raising expense. It describes situations in which this would occur, thereby expanding the relevant guidance in the AICPA's Audit and Accounting Guide, Not-for-Profit Organizations.
• TIS section 6140.21 addresses the accounting treatment of professional fund-raiser charges. It states that these charges should be reported "gross," i.e., as fund-raising expenses, and should not be netted with contribution revenue.
• TIS section 6140.22 describes how an NPO may act as an agent or intermediary for a donor that has stipulated that certain resources be transferred to another NPO. It states that any compensation (including administrative fees) retained by the agent/intermediary NPO should be reported as fund-raising expense by the NPO that receives the contribution. The receiving NPO also reports the original amount contributed by the donor as contribution revenue.

Car Donations

A question from a recent boot camp had to do with vehicle donations:

"When providing the donor with a thank you letter for a donated car, what amount do we list?"

From the IRS website:

"If the claimed value of the donated motor vehicle, boat or plane exceeds $500 and the item is sold by the charitable organization, the taxpayer is limited to the gross proceeds from the sale.

Under the new [2004] rules, the charitable organization must provide an acknowledgment to the donor within 30 days of the sale stating the amount of gross proceeds.

Alternatively, if the charity significantly uses or materially improves the vehicles, the charity must certify this intended use and duration and provide an acknowledgment to the donor within 30 days of the contribution. If the charity significantly uses or materially improves the vehicle, generally, the donor may deduct the vehicle’s market value."

Also check below in the IRS Guides section for Publication 526, it tells all about vehicle donations. It states that if the claimed value of the donated vehicle is more than $500.00 you can deduct what the charity sells it for OR the fair market value, which ever is LOWER.

Donated Advertising

A reader emailed me a question about donated advertising. They wanted to know how to book the advertising, they are a small group and the value of the donated advertising was over three times their annual budget.

The way it is supposed to work is that if you are the recipient of any kind of donated advertising you must book it as a contribution and then as an offsetting expense as well.

But the value of the donated advertising must be equivalent to what someone would normally pay for that advertising. For example say your organization gets donated PSAs every night at 3:00 am for a week on a local radio station. The value of that donation should be based on the advertising rates at 3:00 am, not for prime time advertising rates which would be higher.

Boot Camp Questions - Donations

Question: For a dinner-dance type fundraiser ticket, what is the portion of the ticket price is a donation?

Answer: Everything beyond what is a direct benefit to the donor. Those items are the actual cost of the items and services furnished to the attendees as inducements to attend the event: The food and beverages, the ballroom, the band, the decor.

Question: When do you value donations of stock?

Answer: The date the shares are transferred to your organization, the date of the gift. If a donor wishes to give your organization a gift of stock and take advantage of any tax deductions for tax year 200X they must make sure the transfer takes place before December 31 200X.

If they ask their broker to make the transaction in December but the broker doesn’t post the transfer until January 2nd, then the donation will have in fact taken place in January, not December.

Recognizing Contributed Services

Contributed services are professional services that have been donated by someone outside of your organization with specialized skills — such as those provided by doctors, nurses, lawyers or accountants. A rule of thumb I like to apply is that if the person has letters after their name (CPA, JD, etc.) or requires some kind of licensing to do their job (architect, etc.) they can probably provide you contributed services that you (and they) can recognize.

The service:

• Must create or enhance a non-financial asset. For example, the organization acquires a graphic designer to create collateral materials to describe fund-raising and development programs. Although the services are provided on a pro bono basis, certain technical expertise is necessary to produce the materials, which would otherwise have been purchased.
  

Or the service:

• Must require specialized skills. General volunteer services, such as working a booth at a fundraising event, are typically not recognized as contributed services
• Must be provided by persons possessing those specialized skills, and
• Is of the type that typically would be purchased by the nonprofit organization if the service or skills were not donated.

An example of a recognized service would be a lawyer providing necessary legal advice. What would not be recognized is:

• A non-lawyer providing legal advice.
• A lawyer providing un-asked for legal advice.
• That same lawyer stuffing envelopes for a fundraiser.
  

Assuming the criteria above have been met, the nonprofit would record contribution revenue for the fair market value (based and invoice from the service provider) of the donated services and also as an expense in the appropriate category.

Contributions that are conditional

A questions was asked at a recent Boot Camp about conditional contributions. A condition is effectively a barrier that must be overcome before a promised gift becomes a contribution. A part of the definition of a contribution is that it is an unconditional promise to transfer assets to a nonprofit.

The question went along the lines of "is a contribution conditional if the promised contribution is not paid until the end of the year and the work is completed." - If I got this wrong please let me know. What you could have here is an exchange transaction, and not technically a contribution.

But assuming it is a contribution you can recognize the revenue in two ways depending on the donor/grantor's instructions. The first would be piecemeal. As you do a portion of the work a portion of the condition of the contribution is met and therefore you can count it as revenue and a receivable. So as you do the work, you recognize a bit of the grant at a time. The second would be to recognize it all at once after the work is done. Once the work is done (the condition is met) then you have a contribution and book the receivable.

When you get the actual cash does not factor into the discussion in any case, just when you get conformation from the donor that at some point you will be getting the cash.

Hope that helps

Some answers to questions posed at the Eureka boot camp

Q: Why is the Chart of Accounts numbered?

A: To make it easier to index and catalogue your chart items and when you had to do accounting on ledger sheets by hand it was easier to write 2010 that “accounts receivable – grants receivable” in the little green spaces.

Q: Is a PSA donated air time or contractual obligation?

A: From what I have been able to dig up it is a donation even though they are required to make the time available.

Q: Specifics for letter to a donor, what the nonprofit gives them.

A: See the link in the IRS section to the right labeled, “Contributions Guidelines for Donors.”

Q: A nonprofit gives money to a community foundation to create an endowment. Is that money permanently restricted?

A: From what I have found it all depends on how you create it. Can you revoke the “gift” to yourself? I would guess that the money would be treated as permanently restricted until the nonprofit changes the status. It is different to me than a board designated fund always being considered unrestricted because in the above question you are giving control of the money to another organization.

Q: How to book membership income when the “membership” is actually a donation?

A: If your group solicits membership as a way of soliciting donations but no real value is exchanged for the membership, that membership is considered a donation and entered on your books as such. If the “member” gets a tote bag or equivalent item with their membership the value of that is deducted from the contribution and put into the earned income section.

Q: Are volunteers reported under a nonprofit’s worker compensation insurance?

A: By law, workers' compensation benefits for volunteers are not required. A volunteer who does not receive compensation for his or her work is not entitled to workers' compensation benefits, unless the agency for which the volunteer works chooses to provide these benefits (See Labor Code Section 3363.5).

I don’t claim to have all the right answers listed, just what I have been able to find through my research. Anyone have any different ones? Post them in the comments please!