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

News from the IRS

For those of you who don't subscribe to the IRS's Exempt Organization Update here are some highlights:

1. Nothing revolutionary but they seem to have reorganized some of their existing resources into a new spot. Seems to be a bit better laid out, all in one place.
2. Commissioner Miller's latest remarks about nonprofit governance can be found here, a PDF of his remarks at the Western Conference on Tax Exempt Organizations in November 2008.
3. The IRS's 2009 Exempt Organization Work Plan. Read this PDF to find out what the Internal Revenue Service will be up to in 2009 with regards to nonprofits.

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.

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.

More 990 Resources

The last post listed an IRS webinar for the new 990 and I put up a to-do list a while back. You think I would be done touting new 990 resources but you would be wrong! In the spirit of making sure there are enough resources noted out there to satisfy as many people as possible I give you one more. A big hat tip to Nancy at Non-profit accounting help for pointing out this resource from avenue2possibilities. It includes samples of many of the policies the new form 990 will be asking about and a workbook and checklist to go through to help make sure you are ready. So now all you have to do is put the policies in place!

And if they ever create a New 990 Comic Book you will hear about it here first thing, promise.

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.

New 990 To Do List

Even if your nonprofit is lucky enough to have a November 30 year end there is still plenty of stuff you need to be doing right now to get ready for this new reporting form. Thanks to Brian for this great list, it has been something I have been meaning to do for CAN as well as share with everybody. This is a work in progress, some things will be added as we go through this stuff but here is where it is so far:

THE NEW 990:
WHAT DO WE NEED TO DO RIGHT NOW?

Required Policies

• Conflict of interest policy
• Whistle blower policy
• Document retention and destruction policy
• Joint venture policy
• Expense reimbursement policy
• Non-standard gift acceptance policy
• Written debt collection policy (hospitals)

Practices & Procedures

• Need to prepare a written document which sets forth the procedures by which the Board of Directors will review the Form 990 before it is filed
• Document compensation reasonableness processes
• Professional fundraisers agreement
• Documentation regarding eligibility to receive grants

To Do List

• Estimate the total number of volunteers utilized during the year
• Identify any new program service activities conducted during the year
• Identify revenue and expenses for three largest program service activities
• Ensure that filing all 1099s when required to do (non-employee services in excess of $600)
• Prepare documentation to support classification of independent contractors
• Ensure that organization is preparing Form W-2G when required
• Make sure register with California Attorney General if conducting raffles and make sure undertake backup withholding if necessary
• Identify non-cash contributions in excess of $5,000 for which public charity disposed of within 3 years after receiving
• Document meetings of Board of Directors committees with authority to act
• Write-up re how satisfy public disclosure requirements
• Identify all key employees under the expanded definition
• Break out the revenue and expenses from gaming activities from the general fundraising activities
• Update Chart of Accounts (and audited financial statements) to include the expense categories listed on Part IX of the redesigned Form 990

Even if the phrase, "new 990" wants to make you stick your finger in your ears and say, "lalalalalalalalalalala" you can still go through this list and make sure your organization is more prepped than it is right now for the big event.

And please let me know if you think anything is missing from the list!

Nonprofit Leaders

For those of you who have not read Heather Carpenter's blog I do encourage you to. She writes about nonprofit leadership issues and has some great ideas.

Last week she posted a particularly interesting piece, "My NP Times Top 50: The Next Generation of Nonprofit Leaders You Should Know." It is based on the Nonprofit Times' Power and Influence top 50 nonprofit executives but it is made up of those she feels are the up-and-coming folks in the sector.

I'm honored to be on the list but mostly I'm grateful that she created it. This is a fantastic list of people who are doing interesting things to help strengthen the sector and it is great to have this opportunity to get to know them. Thanks Heather and keep up the good work.

Updated Form 990 Instructions

This IRS has announced the release of the updated and presumably final instructions for the redesigned form 990. The link takes you to a page to download the instructions to the various sections in PDF. The IRS has not yet compiled them all into the usual three column format, I think that they are easier to read at the moment. From the press release:

“We were gratified by the amount of help the IRS received from the tax-exempt community through public comments to redesign the Form 990 and revise its instructions,” said Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division. “This input helped us achieve our goal of improving compliance while minimizing burden. We will now begin working with the tax-exempt sector to help organizations complete the form and prepare for the 2009 filing season."

The IRS expects to release instructions to the 2008 Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, in the next few weeks.

Happy reading! I'm going to start through these this week.

Updates From the Nonprofit Risk Management Center

Need a Refresher on Maintaining Tax-Exempt Status and Other IRS Obligations?

The IRS recently updated Publication 557 (a PDF). The updated publication provides helpful guidance on what information needs to be provided to donors to acknowledge donations, the rules regarding public disclosure of annual returns to the IRS, including the 990-T form, as well as examples of what constitutes the all-important public support needed to maintain tax-exempt status.

Frequently Asked Questions Now Available On the Center’s Web Site

Every day the Center responds to questions about risk, liability and insurance. The Center is pleased to announce that the “Advice” tab of the Center’s Web site now provides an easy link to the Center’s responses to these Frequently Asked Questions.

Why Your Financial Systems Matter

Thanks to the Independent Sector for the heads-up: From the Los Angeles Times comes a story about a local chapter of the Service Employees International Union. This story has everything -- everything that can give the public a reason to think nonprofits are poorly run or are run solely as a scam to make money for the founders: undisclosed payments made to businesses owned by family members, poor financial record keeping, lavish spending and possible misstatements of fundraising expenses.

Even if all the issues mentioned in the story are found to be justified, it is still almost a perfect example of everything you should not do. And just because something is legal doesn't mean it is ethical. Taking the time to think, "How will this look?" to the media, regulators, other nonprofits and especially the community you serve can only help your decision making, financial or otherwise. Having a strong financial system in place and people knowledgeable about those systems, as well as other nonprofit accountability measures, are key for all organizations regardless of mission or size.

Outcomes Measurement

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.

Nonprofit Deregulation?

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

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

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

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.

The Commensurate Test

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

1. 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.
   

2. 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?
   
   
3. IS Announces New Estimate for Value of Volunteer Time

More Talk About Efficient Charities

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

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.