Moving On

Just a quick note to say that I am moving on from the California Association of Nonprofits (CAN). My last day in the office will be this Friday, December 12. After the first of the year, I will continue my work as a consultant and trainer in the area of nonprofit accounting and finance and continue blogging and providing resources as well.

It has been my pleasure to work with CAN for nine years to help the nonprofit sector, to develop and lead the Nonprofit Accounting Boot Camps and other financial trainings (1,300 trainees across the state and nation!) and to speak with thousands of you on our helpline and at our events around the state. I look forward to continuing my relationship with you in the years to come and I want to say thanks to all of you for helping me learn about and grow with this sector over the last nine years. It has been an interesting journey, and I could not have done it without you.

It is hard to believe that this blog has been up and running for over a year and a half, and that we get almost 2,000 readers a month. Thank you for that as well. I'm not sure what the status of this blog will be in the weeks and months ahead but I will continue my interest in the area of nonprofit finance and accounting in another forum for those of you who are interested in reading yet another not-for-profit accounting blog.

I wish you a happy and relaxing holiday season.

Alan J. Strand
Interim Executive Director, California Association of Nonprofits (until 12/31/08)
Principal, Strand Financial Services (starting 1/1/09)
www.notforprofitaccounting.net

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.

Nonprofit Accounting Questions

Here are some more questions and answers from recent nonprofit accounting trainings trainings I have done.

Q: What is the difference between a 501c3 and a trade group?
A: Check out these publications from the CA Attorney General's office and this listing of resources from the IRS.

Q: What is admin? Just what are administrative costs:
A: Please read this from the National Center of Charitable Statistics.

Because of the diverse characteristics and accounting practices of non-profit
organizations, it is not possible to specify the types of cost which may be classified as indirect cost in all situations. However, typical examples of indirect cost for many non-profit organizations may include depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

Q: What is the minimum reporting threshold for filing a w2-g?
A: Please read this from the IRS (opens in a PDF).

Q: What is deferred revenue?
A: Check out these search results for the answer.

Q: Where to find compliance questions and answers from the IRS? How do we stay exempt?
A: The IRS has some good information here.

Q: Where can I find more information on the rules governing commercial fundraisers?
A: From the CA Attorney General's office here and here.

Q: Where are some discussions regarding excessive fundraising costs?
A: In the above commercial fundraiser links and here and here.

Again, if you have any other questions please let me know.

New 990 Resources and Links

Thanks to all the people who have come to our recent, "New 990" workshops. Below are a list of questions from them and resources I said I would post. If I miss any or you have other questions please feel free to put them in the comments below.

• Form 8734 - the end of advance ruling form is no longer required for groups who's advance ruling periods expire on or after June 8th 2008. Click here for the details.
• The IRS's recent 990 webinar is still available on line for folks who want to know more.
• Here is a link to SOP 98 2 issues regarding joint costs (costs that have BOTH a fundraising component and a program component. be careful with these, they can get you into trouble if you do not know the rules and the IRS is looking closer at this stuff.
• Here is the complete list of new 990 forms, instructions and schedules including J which list all the types of reportable compensation
• Other websites I referred to:
  www.stayexempt.org - helpful IRS resource
  www.guidestar.org - where our 990's reside
  hrcalifornia - labor and employment issues
• There was a question on schedule G part II. the text reads, "Events. (Complete this part if the organization reported more than $15,000 on Form 990, Part VIII, line 8a or
  Form 990-EZ, line 6a. List events with gross receipts greater than $5,000.)" The questioner asked why the 990 amount was $15,000.00 and the 990-EZ amount is $5,000.00. I had no idea until I looked at it now and realized there is a period that separates the two sentences. The $15,000.00 amount is for both the 990 and 990-EZ.
• Another question was asked about question 6 of part I of the core form, why does the IRS need to know the number of volunteers a nonprofit utilizes? I'm not really sure, maybe someone out there knows? Here is the text from the form 990 instructions:
  

  Line 6. Number of volunteers. Provide the number of volunteers, full-time and part-time, who provided volunteer services to the organization during the reporting year. Organizations that do not keep track of this information in their books and records or report this information elsewhere (such as in annual reports or grant proposals) may provide a reasonable estimate, and may use any reasonable basis for determining this estimate. Organizations may, but are not required to, provide an explanation in Schedule O of how this number was determined, and the types of services or benefits provided by the organization’s volunteers.

If I missed any question please let me know.

More Boot Camp Questions & Answers

Q: Where do I find out about raffles and raffle registration in California?

A: The California Attorney General's Office is where you get the forms and the CAN website has a nice FAQ section on raffles.

Q: Our organization collects funds and items from donors to give to another organization. How do we handle these transactions in our accounting system?
A: It sounds like these might be considered pass-through transactions and subject to SFAS 136 rules. For a clear description of these rules and how to handle them check out this link for more information and here to buy the book.

Q: How do we prove that the board has reviewed our 990 before we submit it?
A: [The new form 990 has a yes or no question as to weather or not the the governing body of the nonprofit has reviewed the form 990 prior to submission. Can you guess what answer they want to see here?]
From the Independent Sector's guide to the new 990:

The organization must explain (in Schedule O) the process, if any, it follows to have officers, board members, committees, or management review the prepared Form 990, when that review happened, and the extent of the review. The instructions clearly say “If no review was conducted, state ‘No review was conducted.’ ” The IRS does not require or recommend any particular procedure for reviewing the Form, but most organizations will want to ensure that their senior staff managers and/or the board committee responsible for overseeing financial policies and procedures have a chance to review the Form before filing.

Questions and Answers

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:

1. 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).
2. 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.
3. 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.
4. 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.

To The Participants

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

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!

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.

Boot Camp Questions & Answers

Some questions from the latest boot camps. More to come!

Q: What is the pay rate for comp time?

A: According to HRCalifornia.com you must pay at the rate the time is used, not when it was accrued. Compensatory time off is a very tricky issue and any employer currently offering it or thinking of offering it needs to be aware of all the issues surrounding it. HRCalifornia.com recommends you not offer it for the most part, and be sure never to give comp time to exempt employees.

Q: Do internal transfers count as income under SB 1262 rules for determining when we need to get an audit?

A: No, not according to the text. Only "gross revenue." But be careful how you are booking and describing the transfers to be sure that you are not calling it income, if indeed it is not.

Q: Do we have to pay California state sales tax on auction items?

A: Check out this earlier post.

How much will an audit cost?

I get asked every once in a while how much an audit costs, and I never have an answer that is $xx,xxx. It really varies on how big you are, the complexity of your funding, the state your books are in to begin with.

But I started think about costs because there are several new audit standards coming, including this one, which will have a dramatic impact on how the audit is done and how much it will cost. I asked a few friends of CAN, folks I look up to a lot and turn to for help on many an occasion how they cost an audit. Here are some of their responses:

"It is not how much total revenue they have but how many different sources of funding that complicates an audit (for instance multiple government contracts versus one or none), also how complicated their balance sheet is (do they have split interest agreements, many notes or capital leases, deferred comp plans etc)."

"We need to know if they have affiliated organizations, a subsidiary or member of a parent organization. We need to know what the nonprofit is looking for in requesting an audit. Do their grants require special reporting even though they do not meet the threshold for a Yellow Book (compliance) audit."

"Some times there are covenants from banks or grants that must be tested. When determining whether to take on an audit, we need to know if they have books and records that are able to be audited. For example if they are a new organization, their internal controls may be lacking or their accounting staff may not have the books computerized and on an accrual basis. Not that they can’t have an audit, but they will require additional work to get ready for the audit."

"Are they in an industry that requires special reporting such as health care industry or schools?"

Some of these answers came form larger firms who can't charge much less than $20,000.00 an audit. Other larger firms can sometimes offer you a deal because they do so many audits and rely on a high volume to keep costs low. Of course you could substitute "larger firm" with "smaller firm" for the above statement, it all depends on the firm.

Those new auditing standards coming will also have an impact on price. According to the folks I have spoken with it could be anywhere from 20 to 40 percent more than prices are now.

Other bits of info I have picked up:

• Many firms will bid on your job assuming you have clean books. If it turns out you don't then additional time (for the auditor) and money (for you) will be spent to get them into shape.
• Initial engagements always cost more than subsequent engagements.
• Reviews cost about half as much as audits. They cover less ground than an audit but CAN has never had anyone say, "you need to give us an audit." when we have submitted an review. Audits are they best way to go, they tell us the most about an organization, but maybe you don't need to do one every year. Unless you are subject to SB 1262, the Nonprofit Integrity Act.
  
• Preparation is the key to a good audit. You will get a list of things to do, documents to fill out, reports to have ready before anyone sets foot in your office to get to work. Get it all done, and stay in contact with the firm to make sure you understand what they are asking.
• Got a weird transaction you don't know how to handle? Got an auditor? Ask them. It will be cheaper to get guidance up front than having to fix any possible errors later on.

Finally, here is a link to CPA and Accounting referrals. Any questions / comments?

CPA & Accounting Referrals

I'm frequently asked to give recommendations for CPA's who know nonprofits. I'm happy to do so and with changing regulations changing how CPA and client will be interacting the need to shop around for services may be greater than ever.

The first recommendations I give or those folks listed on the CAN website. For referrals to QuickBooks specialists I refer them here. The California CPA Society also has a robust tool for looking up CPA's, check it out too.

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.

QuickBooks Help

I frequently get emails about folks who need help with QuickBooks; new installations, re-tooling their existing set-up, user questions, you name it. I'm happy to give advice and CAN is able sometimes to get out and help folks. But there are other options two that are supported by Intuit and QuickBooks:

1. Check out the Other Resources Section below for links to books and forums to ask questions and get answers.
2. Look for a Certified QuickBooks ProAdvisor. You can select by zip code and area of expertise and then get a list of folks to interview.

Hope that helps,
Alan

Image Source

8-7-07 Boot Camp Questions

From the August 7 Boot Camp in Eureka:

Q: How many years do we keep donation records?
A: I have not found any official record keeping guidelines but looking at samples of other organizations in seem to range from 5 years to permanently, the latter for donated works of art, etc. My guess is that as long as you maintain a donor database of any kind you will want to maintain a record of anything that person has given you.

Q: Are the administrative charges from a fiscal sponsor an admin expense or program?
A: From what I have been able to find it is an admin expense. Lots of great info on fiscal sponsorships can be found here.

Q: Are donations to churches subject to the $250.00 threshold?
A: Yes. If a person donated $250.00 or more to a church, or any nonprofit for that matter, they must get proof of that donation from the church or charity. But Separate contributions are not aggregated for purposes of measuring the $250 threshold. For more information on churches, religious organizations and the IRS download this nice document. For others get the donation publication from the IRS is this blogs resources section.

Q: Should we list the building a nonprofit owns at its assessed value or its market value?
A: From what I can find out now and what I remember from my accounting classes you would use the assessed value as it is documented and verifiable.

Anybody have different answers to these questions? Post them in the comments below. Did I forget anyones questions? Post them below too.

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.

Operations Manual

Heather has posted a nice piece about creating a manual.

CAN's financial policies manual is available for those who want to email me.

Alan

New website, new tools

Hey everybody, CAN has a brand new website! with an area dedicated just to us finance folks! There is a listserv so we can further the dialog and get questions answered by our peers and a growing list of resources beyond what we have here.

So check it out and let us know what you think, if you find any bugs, whatever.

Thanks!

New Volunteer Time Value Estimate

Four posts today? And all from checking out IS's site? They do have good stuff there.

Alan