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.

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?