After surviving Black Friday and Cyber Monday, many people still remembered to give to the causes nearest to their hearts. It looks like donations collected on last week’s December 3rd Giving Tuesday far surpassed the 2012 efforts of the movement aimed to be a day of national giving. Preliminary estimates revealed that online donations totaled more than $27 million, which was $15 million more than what was collected in the inaugural 2012 year.
The NonProfit Times recently provided some other interesting statistics related to Giving Tuesday:
• More than three times as many organizations participated in 2013 compared to 2012.
• Blackbaud reported the average donation collected on the site was up about 40% this year – from $102 to $142.
• Not only did the amount of dollars contributed increase, but the number of donors did, too. Network for Good reported an increase of 89% in the number of donations made.
• The busiest time of day for Network for Good clients was between noon and 4 p.m. when 31% of donations were collected, followed by 8 a.m. to noon when 25% of donations were collected.
According to the article, nonprofits seeking to leverage off of their Giving Tuesday momentum should make sure to follow up with new donors to continue the relationship and make sure they thank all donors properly. IRS rules require nonprofits to send a written acknowledgement for any donations greater than $250, but it’s a good practice to send one for all donations.
Jessica Puckett, CPAPosted on December 3 2013 by admin
A disposal of a fixed asset should occur when an asset is obsolete, broken, or sold. No matter what the circumstance, the treatment to remove the asset from your books is the same. You will need to be sure you completely remove the asset’s cost and accumulated depreciation from the balance sheet and if there is a loss or gain on the disposal you must record the gain/loss on the income statement.
In a situation where there is no gain or loss on the disposal of the asset you will debit accumulated depreciation, debit cash, and credit the asset account. If you sell the asset for more than its carrying value, you must record a gain on the disposal of the asset. In this case, you will debit accumulated depreciation, debit cash, credit the asset account, and credit gain of disposal. If you sell the asset for less than its carrying value, then you must record a loss on the disposal of the asset. To record a loss on disposal you will debit accumulated depreciation, debit cash, debit loss on disposal, and credit the asset account. In a situation where there is no salvage value and no sale involved, you debit accumulated depreciation and credit the asset account for the same amount to remove the asset from your books.
If you find yourself in a unique situation or one not listed above, please do not hesitate to reach out to any of our accounting professionals for more information.
Michelle HousmanPosted on November 26 2013 by admin
If your organization receives federal funding and undergoes an Office of Management and Budget (OMB) A-133 audit or better known as a single audit, your organization is required to file a Data Collection Form with the Federal Audit Clearinghouse (FAC), who operates on behalf of the OMB, 30 days after the audit report is issued or nine months after your organization’s year end, whichever is earlier.
The 2013 Data Collection Form has been revised by the OMB. The form is in the process of being reviewed and is awaiting approval, and therefore is not currently available. Once it is finalized the new form will be applicable for audit periods ending in 2013, 2014, and 2015. For all those low-risk auditees, do not fear – this will not affect your status! If your form for fiscal period ending 2013 is due before the form is available, the OMB has granted an extension on this filing deadline until January 31, 2014. This extension is automatic and there is no approval required. This extension applies only to single audits for the fiscal periods ending in 2013.
If you would like to stay updated on the status and availability of the 2013 Data Collection Form, you can visit the FAC’s website at https://harvester.census.gov/facweb/Default.aspx.
I was recently reading an article in the September issue of the Journal of Accountancy that highlighted tips for good not-for-profit governance that were presented at this year’s AICPA Not-for-profit Industry Conference. It was such a concise, solid list that I thought I’d share it with our blog readers:
1. State the organization’s values in a written code of ethics for board members and present it to them during the orientation process. The code should become part of the not-for-profit’s culture rather than a stale document that is easily forgotten.
2. Maintain a conflict-of-interest policy for board members that requires periodic disclosures and consistent monitoring. Some boards read the policy before every meeting, and some have quarterly or semiannual reminders.
3. Develop a whistleblower policy. This should allow everyone associated with the organization to come forward without fear of retaliation.
4. Establish a document retention and destruction policy. This should undergo legal review to make sure it complies with state and federal laws, and requires regular compliance monitoring.
5. Carefully monitor expense reimbursement. This should conform to the rules of Internal Revenue Code Sec. 62(a) and follow IRS guidelines, requiring documentation and receipts for all purchases over a specific dollar amount, which often is $25.
6. Maintain a gift acceptance policy. This also should be reviewed by legal counsel, and potential gifts should be screened to determine whether ethics, financial circumstances, or other interests are compromised by the acceptance of the gift.
7. Review tax returns. All board members should be allowed to review Form 990, Return of Organization Exempt From Income Tax, before it is filed.
8. Develop a board compensation policy. Not-for-profit board members should not be excessively compensated. However, in some instances, board members do receive stipends. Any compensation should be documented and approved.
9. Oversee the independent review of financial statements. Best practices call for an independent audit committee that monitors financial practices and is involved in auditor selection. Recruiting board members with financial expertise is critical to this process.
10. Cultivate appropriate procedures for selecting and monitoring grant recipients. Grant-making policies should be made public to avoid the appearance of impropriety.
11. Develop and abide by an endowment spending policy. This can help make sure investment is done responsibly.
12. Create and adhere to a fundraising policy. Although this is seen in practice less frequently, it’s wise to have a written policy that’s monitored for compliance and reviewed with management annually to ensure that fundraising statistics are accurate and tactics are ethical.
13. Disclose governing documents. This aids in transparency.
14. Review the size, structure, and independence of the board. There should be at least five members, with at least two-thirds of members independent, and with a diverse background.
15. Adhere to a meeting minutes policy. Minutes should contain enough detail to determine the quality and extent of discussion, and typically are reviewed and approved at a subsequent board meeting.
I believe we’ve discussed each of these items on the Nonprofit GPS at some point, but it’s nice to see them compiled all together in one place. How does your not-for-profit organization size up compared to this list of best practices?
Jessica Puckett, CPA, CFEPosted on November 12 2013 by admin
Here are ten important things to know when you have a political organization (PAC):
(1) The IRS requires that a PAC have its own taxpayer ID # which can easily be obtained at the IRS website by completing form SS-4.
(2) When a political organization is first formed, it must give notice electronically to the IRS that it is a political organization under Section 527 by filing Form 8871. This allows the PAC to be tax exempt.
(3) Certain political organizations are not required to file Form 8871 including: an organization that is required to report to the Federal Election Commission, committees of state or local candidates or political parties, and any organization that believes it will have less than $25,000 in annual gross revenue on a regular basis.
(4) After filing the initial Form 8871, the PAC will need to file another 8871 later if there are any significant changes to the information that was originally reported.
(5) Once a newly formed PAC files Form 8871 and has its tax exemption, it should know that its tax exempt function includes influencing the selection, nomination, election, or appointment of any individual to any office. Any activities outside of these types of activities would be considered non-exempt activities.
(6) Certain political organizations are also required to file Form 8872 on a periodic basis to report contributions and expenditures. The organization is exempted from this requirement if it was not required to file Form 8871 (#3 above) or it is a qualified state or local political organization (QSLPO). This basically means that you are already required under state law to report information that is similar to what is required on Form 8872.
(7) A PAC is also required to file its own separate annual Form 990 or 990-EZ if it typically has gross annual revenues of $25,000 or more.
(8) A variance to #7 is if the PAC is a QSLPO (defined in #6 above). If the PAC fits this definition, it is only required to file Form 990 if gross annual revenues are $100,000 or greater.
(9) A PAC may also be subject to tax if it has net investment income of greater than $100 OR if it has non-exempt net income of greater than $100 (see definition of exempt activities in #5 above). If it is subject to tax due to one of these circumstances, it is required to also file Form 1120-POL on an annual basis. The tax is calculated on this form and paid when this form is filed.
(10) If the PAC is required to file an annual Form 990 (see #7 and #8 above), then Part 1-A of Schedule C will need to be completed along with the Form 990 which is to report total political expenditures.
Colette Kamps, CPAPosted on November 5 2013 by admin
Expenses are reported in two different ways on the 990 return: by their natural classification (salaries, depreciation, travel, etc.) and by their functional classification (program, administrative, fundraising). Correct functional allocation of expenses is important because some donors may scrutinize the percentage of program costs vs. administrative and fundraising costs while making a decision to donate to an organization. Tracking and allocating costs can be difficult or confusing but there are some things you can do to make the process easier:
- Develop a consistent and reasonable method for cost allocation and document it so that it will be easy for you to explain to your auditors, tax preparer, etc.
- While some expenses are directly and easily allocated, others may be more ambiguous or divided among multiple functions. Depending on the particular cost there are a number of methods that can be used, such as square footage used, time spent by employees on certain activities, or the number of employees. Typically the best basis of allocation is the primary cost driver. For example to allocate the rent expense of your facility you might use the percentage of square footage that is dedicated to program activities/administrative activities. Or in order to allocate salaries expense of employees who have both program and administrative duties you might use the time they spend on each function.
- Instead of waiting until the end of your fiscal year to allocate costs, it may be much easier to apply your allocation method throughout the year, and can help to avoid delays and additional time during your audit.
- Accounting expenses will always be administrative costs.
If you are unsure of how certain expenses within your organization should be allocated or what method to use, your CPA is a great resource to provide guidance on how specific expenses are typically classified.
Paul BiggsPosted on October 30 2013 by admin
Conflict of Interest policies for board members are a much needed piece for any not-for-profit organization. A conflict of interest policy will help board members recognize when their activities are related party transactions and should have different treatment. These treatments include processes for decision making and disclosures to the financial statements. When a board member discloses they have a conflict of interest, they should not be a part of the voting process or decision making for that transaction. An important tip to remember is documentation in the minutes about the treatment for the decision made on the related party transaction. Be sure to document in the minutes that the board member left the room for the discussion and was not a part of the voting process. If there is a related party transaction made, then the details of the transaction must be disclosed in the financial statements. The footnote should describe the conflict of interest and the dollar amount of the transaction.
Just having a conflict of interest policy in place may not be enough to ensure all related party transactions are caught. Be sure to continually remind your board members about what constitutes a conflict of interest. They may have life changes, such as new employment or retirement that will affect any current conflict of interest they have with the organization currently. Having a conflict of interest policy and recognizing when conflicts occur are also important to the not-for-profit organization because you are required to list any related party transactions on the 990 return. The 990 form will also ask if the organization has a conflict of interest policy in place. Even though it is not required to have a policy in place, this is an area users will look on your 990 return when researching your organization. If you have questions or would like to discuss more on conflict of interest policies, please do not hesitate to contact any of our non-profit professionals.
Michelle HousmanPosted on October 17 2013 by admin
“Best practices” can be a buzz phrase you hear a lot, especially when it comes to governance of a not-for-profit organization. With the overload of information available to organizations, it’s easy to see why some view the task of incorporating best practices into their own activities as a bit daunting. The following are some “basics” that I believe should be considered by all organizations, no matter the size.
Have a sufficient board of directors - The organization must have a minimum of 3 members. Regardless of the size of the board, it’s recommended that at least a third of them are independent. It’s also in good practice to form an audit/finance committee made up of financially-savvy board members to discuss the organization’s financial health and to communicate with auditors. This committee should also review what type of financial statement engagement is necessary in the upcoming years (i.e., audit, review, agreed-upon procedures).
Have a conflict of interest policy - Keep in mind it’s not enough to just have a policy. In order to be effective, it must be a “living document” within the organization. Have your staff and board review it at least annually and sign as an indication of their compliance.
Have the board approve executive compensation - This includes any changes to compensation or benefits throughout the year.
Have the board review the annual Form 990 - It’s important to have procedures in place for how this return is reviewed by the board before it is filed. This is a disclosure that gets reported to the IRS.
Have a fraud whistle blower policy-Include in this policy procedures in place to encourage individuals to report information about fraud or illegal acts. This is one of the most effective ways to uncover fraudulent activities within an organization.
Have an expense reimbursement policy - Make sure this policy includes what types of expenses are reimbursable and what types of documentation is required to qualify for reimbursement.
Remember that these are guidelines – so there isn’t a “one size fits all” approach here. Nonprofit organizations vary drastically from one to the next, so it’s essential that a board reviews these thoughtfully to determine how they will most effectively apply to their activities and operations.
If you’ve already got some or all of these in place – kudos to you!
Jessica Puckett, CPA, CFEPosted on October 1 2013 by admin
In Part I of this article we discussed the accounting impacts of mergers and acquisitions on non-profit entities. Ultimately the distinction between the two comes down to the form of governance of the new entity as well as the power of control.
Generally, in a merger neither party dominates, or is capable of dominating, the process leading to the formation of the new organization. In an acquisition, however, the acquirer often dominates the process, sometimes dictating the terms and timing of the transaction. Features of governance and powers of control that may indicate that the combination is an acquisition rather than a merger include: one organization’s ability to appoint significantly more of the governing board members for the new entity; one organization’s ability to retain significantly more key senior officers; or one organization’s ability to retain substantially unchanged its bylaws, operating policies, and practices.
In some cases two non-profit entities, each with the same governing board, will want to combine into one single entity. This type of merger is called a “combination” and differs from both a merger and an acquisition. Often when two non-profits with the same governing body combine they use a pooling of interest method in which both entities book balances are combined as of the beginning of the fiscal year they are currently in. If the combination occurred on December 31, 20X1 and the year end for both organizations is June 30, 20X2 then the combined entity will have the combined entities book balances as of July 1, 20X1 not the December 31 date. Basically, the financial statements of the receiving entity should report changes in net assets for the period in which the transfer occurs as though the transfer of net assets had occurred at the beginning of the period. Changes in net assets for that period will thus comprise those of the previously separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end of the period, remembering to eliminate any inter-company account balances or transactions if there are any.
There are many factors that go into mergers, acquisitions and combinations. It is always suggested that you consult legal counsel and your certified public accountant (CPA) before initiating any merger, acquisition or combination.
Brian Hemmerle, CPA, CFE
Jeff Patterson, CPA, MBA
Recently, we had a blog regarding the trend of non-profit organizations considering mergers with like organizations, and the pros vs. cons on such a decision by a governing body. This blog quickly highlights the effects on the financial statements for deciding to do a merger vs. an acquisition of two or more non-profit organizations.
Although many factors go into decision of whether to classify something as a merger or acquisition, the one factor that is most commonly used in deciding, is the level of control by one, both or neither of the two non-profit entities.
Merger: A merger usually means the combination of two non-profits at a particular date to create a brand new non-profit. This means neither of the governing bodies have more control over the newly created entity than the other governing body. Both governing bodies cede control to a newly formed governing body. To cede control means that a new organization (not necessarily a new legal entity) is created with a new governing body and the governing bodies of the merging organizations do not retain shared control of the new organization. To qualify as a new nonprofit organization, the new entity must have a newly formed governing body. Although it is not necessary that the new organization be a new legal entity, the governing bodies of the combining organizations cannot retain shared control of the new organization in a merger.
When a merger occurs on a particular date outside the normal fiscal year end date, the two entities assets, liabilities and net assets combine on that date and both entities are dissolved and a new non-profit has been created starting on that date with the merged balances. An example would be two non-profits with a fiscal year ending June 30, 2012 decide to merge on December 31, 2012 to create a new non-profit that will have its year end on June 30, 2013. The new non-profit will have its first period ending June 30, 2013 with six months of information with beginning balances from the combined non-profits. No fair value calculations are required; the old non-profits bring their book balances together to create the beginning balances for the new non-profit.
Acquisition: An acquisition by a nonprofit organization is a transaction or other event in which an organization obtains control of one or more nonprofit activities or businesses. Control is defined as the direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise. (FASB ASC 958-810-20) Most combination transactions between nonprofit organizations involve one organization obtaining control over another nonprofit organization.
With an acquisition, you are required to determine the fair value of the assets that are being acquired and the fair value of the liabilities being assumed on the date of acquisition. The result is that the acquiring entity debits the asset accounts of the acquired entity, credits the liability accounts of the acquired entity, and if there is a remaining credit, it will go to the Statement of Activities and will be called “Excess of fair value of net assets over consideration in acquisition of the acquired entity”. This should be below the operating activities on the Statement of Activities, after a line called “change in net assets before acquisition income”. The credit/income is basically to recognize one nonprofit organization (the acquired) “donating” its net assets to the other nonprofit organization (the acquirer). If the liabilities are greater than the assets when acquired, resulting in a remaining debit, and the organization is mainly supported by program service fees, then you would have to record goodwill, which means the acquirer “paid” more than the value, even though they “paid” zero. If the organization is mainly supported by contributions, you would not debit goodwill and instead debit “Excess consideration over fair value of net assets in acquisition of the acquired entity” which would be below operating section of the Statement of Activities.
The acquired entity may be required to obtain an appraisal of their assets and liabilities as of the date of the acquisition so they can be posted to the acquiring entities books.
Brian Hemmerle, CPA, CFE
Jeff Patterson, CPA, MBA
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- Giving Tuesday Considered a Success
- How and When to Dispose of Fixed Assets
- 2013 Data Collection Form is Being Revised
- Tips for Good Governance of a Not-for-Profit Organization
- 10 Things to Know When You Have a PAC (Political Organization)
- Allocating Expenses – Make the Process Easier
- The Importance of A Conflict of Interest Policy
- Best Practices for Not-for-Profit Organizations
- Non-profit Mergers vs. Acquisitions, the Basics, Part 2
- Non-profit Mergers vs. Acquisitions, the Basics, Part 1