Determining whether an organization conducts joint activities and properly accounts for these activities can be challenging at times, as it can be subjective depending on the fundraising activity. In our experience, we have encountered not-for-profit organizations with joint activities that could partially be divided into separate expense categories.
Not-for-profits have three categories to allocate expenses that include:
- Program—money spent on organization’s mission,
- Fundraising—the costs in raising money for the mission, and
- Management and General—the cost of managing the organization.
Many clients strive to allocate a majority of their expenditures towards their program mission in efforts to decrease total fundraising expenses. Fundraising costs can include advertising, telemarketing, publications, direct mail, and other solicitation activities; however, when these activities include a call to action, the organization may be able to report them as joint activities. The costs that are determined to be incurred for joint activities could be partially allocated to the specific program expense, and in part, to fundraising or management and general expenses.
The rules for an activity to be recognized as joint costs require criteria relating to “purpose, audience, and content”. These criteria must be met in order to allow partial allocation to a function of the program mission. The call to action must include a purpose directed at an audience that promotes the organization’s goal (not just the goal of raising money). Management must evaluate joint activities for the criteria to ensure that the costs are properly accounted for under the accounting standards. Determining when expenses meet the definition of joint costs is not a black and white decision. Interpretation and judgment are usually factors that go into the determination.
By Danielle T. RoisomPosted on August 4 2015 by admin
The Giving USA Foundation (a public service initiative of The Giving Institute) has released their annual Giving USA Report on Philanthropy in collaboration with The Indiana University Lilly Family School of Philanthropy. The Giving USA report compiles and analyzes data on charitable giving in the U.S in order to identify trends that can be useful to nonprofit organizations. The following is a summary of the sources of the $358.38 billion in charitable giving disclosed in the 2014 report:
(Numbers in billions of dollars and rounded)
- $258.03 (72%) Individuals
- $53.76 (15%) Foundations
- $28.67 (8%) Bequests
- $17.92 (5%) Corporations
Seventy-two percent of donations came from individual donors in 2014. This was noted in the 2013 report as well. In fact, very little changed in the overall mix of donor sources from 2013 to 2014. Bequests increased from 7% to 8% of the total, and Corporations decreased from 6% to 5%. Giving USA notes that the total increase in charitable giving was 7.1% from 2013 to 2014, and this was primarily driven by an increase in donations by individuals.
In addition to the breakdown of contribution sources, the Giving USA Report also highlighted some other interesting information:
- Average annual donations made by U.S. households reached $2,030 in 2014. It is also estimated that giving by both itemizing and non-itemizing individuals increased by 6% and 4.1%, respectively.
- The 13.7% increase in corporate giving is attributed to the 2014 increase in GDP and corporate pre-tax profits.
- The nonprofit categories seeing the highest increases in giving are arts, culture and humanities organizations, as well as environmental and animal organizations. These categories saw increases between 7 and 9%. The human services subsector also saw growth, at 3.6%.
- Total giving as a percentage of GDP is at its highest since 2006.
More information regarding the Giving Institute and the Giving USA report can be found here. A two page summary of the highlights from the full report can also be obtained at no cost on the Giving USA website.
By Paul BiggsPosted on July 21 2015 by admin
I can’t count the number of times friends and family have asked me what percent of their donation goes towards the cause or programs of a charitable organization. There’s a common argument that the amount of expenses listed in the program column of the Statement of Functional Expenses on the Form 990 is the percent that supports the cause. This column is used to represent the amount of expense that was spent directly for the not-for-profit’s mission. (You can find this by searching for the not-for-profit’s tax return on Guidestar.org and reviewing Page 10 of its 990).
However, I would disagree with that argument. There are several expenses that are not allowed to be considered program expenses on the Form 990 that the entity is required to incur to continue as an organization. For example, a not-for-profit’s audit or accounting expense cannot be considered a program expense, yet these services are required to properly account for the operations of the entity. Although this doesn’t directly support the mission (such as purchasing food for a food bank or supplies for a crisis center), the expense for accounting indirectly supports the organization as a whole and without incurring this expense, they couldn’t continue to operate. In addition, the office supplies used by staff for general expenses, the office space for management, and the salaries of management sometimes do not directly relate to the mission. However, without these supporting services, the entity could not continue with its mission.
There’s a third column of expenses on the Form 990 not-for-profits have to report: fundraising. These expenses relate to the amount spent to hold fundraising events or send out mailings to the public to solicit donations to support their mission. Even though these expenses don’t directly go to the mission of the organization, they directly result in additional funding to be spent for the entity’s mission. After all, without getting their name known, how can they get additional funding?
Charitable not-for-profits have several laws and regulations they must abide by. Many are required to have audits where internal control is reviewed and assessed for deficiencies in proper financial control. They also are governed by a board of independent directors who oversee the operations.
There are so many people and animals that are supported by not-for-profits and it would not be possible without donations from you. It’s important to understand where your money goes but I would recommend looking at the statistics of the number of people served or the number of success stories to assess if you want to support that organization.
I always advise looking at a not-for-profit’s tax return prior to donating to assess where the money is spent. However, don’t overthink the base numbers. If there are amounts or descriptions you’re unsure of, ask your CPA to assess them. Overall, let’s keep supporting charitable organizations. Without our donations, they couldn’t help those in need!
By Samantha E. Mahlen, CPAPosted on July 14 2015 by admin
To acquire a diverse set of funding sources, a nonprofit organization first has to be sure that the community has a positive impression of the organization and mission. Recently, I came across a publication issued by the Horatio Alger Association called, “Ten Traits That Make Nonprofits Great”. After reading through this infographic, I believe that trait Number 4 —“Develop Diverse Funding Sources” — is one of the most important traits in creating a successful nonprofit organization, as more services can be provided with increased funding. When acquiring new funding sources, we see that some sources are more available or recognizable than others. I have realized that funding sources are not consistently used by nonprofit organizations, as some smaller charities may not know or be familiar with the various funding prospects that are available. This infographic showed the following examples of funding sources that charities can utilize:
- Local Foundations and Businesses
- Special Events
- Investment Income
- Government Grants
- Payment for Services
The publication has listed great examples of various ways to diversify funding sources. It is important to have a balance of diversity while maintaining the organization’s focus on the funding sources that are most effective for the success of the organization. Considering advice from local public relations, marketing and advertising firms can help with increased community support and your organization’s development success. Being able to utilize a combination of funding sources can help with the increase of contributions for the organization, which in turn creates more growth, opportunities, and overall potential. It is best to take your organization’s funding sources into close consideration to help with identifying trends and other unique funding resources. The above insights can provide you with a good sense of an effective funding mix for your particular organization. Make sure to read the publication from the Horatio Alger Association for other ways to make your nonprofit great.
By Danielle RoisomPosted on July 7 2015 by admin
Did you know Henry & Horne, LLP offers complimentary continuing professional education (CPE) credits to our not-for-profit clients and friends!? To top it off, you also get a free lunch or breakfast!
Each month, one of our professionals presents various topics that are related to your not-for-profit organizations. We call it “The Learning Series,” and sessions are held every second Thursday of the month in our Scottsdale location for lunch at 11:30AM and every third Thursday in our Tempe location for breakfast at 7:30 AM. The same topic is presented at each location during the month, so you can choose to attend the location and time that is most convenient for you. If you really enjoy what you hear, and think it would be beneficial to have your board or other employees hear the presentation, then we will set up a time to re-present the presentation just for your organization at no charge. Most of our topics relate to technical accounting issues, but we also mix up the rotation by bringing in some legal, insurance or fundraising experts from time to time.
The Learning Series is also great opportunity for networking and meeting some other colleagues in the not-for-profit community who have similar interests and issues you may be dealing with at your organization. To sign up to receive monthly invitations for the next CPE opportunity with us and to find out more information, click here.
Additionally, we’re always looking for new topics as we plan our upcoming calendar. Is there a particular not-for-profit accounting topic you’d like to learn more about? We’d love to hear from you!
By Michelle Housman
Recently I was talking to a client of mine about some of their permanently restricted net assets when he blurted out, “I wish I could just get rid of these little, old amounts that have been around forever! They’re more trouble than they’re worth!” Before I could get my reply out, he followed up with, “I’m not being serious, of course. I know that’s the whole point of permanently restricted contributions. I’ve come to terms that they’ll never go away!”
Actually, there is a way to make certain small amounts of permanently restricted contributions “go away,” assuming they’ve been on your books for a couple of decades or longer. It’s a provision in the Management of Charitable Funds Act, which is the law that governs expenditures of charitable endowments that the State of Arizona follows … and it’s not as difficult as you might think!
First of all, I should clarify what I mean when I use the words “little, old contributions.” Little means less than $50,000. Old means 20 years or more. If your contribution in question meets those requirements, and if meeting the restrictions is impracticable or wasteful, you can submit a plan of release or modification to the Attorney General for approval. There is an automatic approval after 60 days, as long as the Attorney General doesn’t object to the plan within that timeframe, and – of course – the contribution must be used in accordance with the charitable mission of the Organization.
Organizations with funds that do not fit into these criteria must petition the courts to modify or release the restriction.
By Jessica Puckett Moulder, CPA, CFEPosted on June 23 2015 by admin
Once April 15th comes and goes, most Americans no longer are thinking about tax returns. If you’re involved in a not-for-profit, however, you may still be working on getting your informative return done and e-filed.
It’s human nature, especially when you’re busy, to only report what you have to on your 990. However, your 990 is referenced by many future donors by reviewing it on sites like Guidestar or Charity Navigator. Therefore, your 990 is not only a required IRS filing, it’s a potential marketing tool.
Before you file this year, review your mission statement, vision and program descriptions and edit them to become more appealing to potential donors. Using statistics and updating how many people your organization helped during that tax year will show the reader how big of an impact you make in your community and how worthy your organization is of their donation.
I recommend to anyone who will listen to check a not-for-profit’s 990 prior to donating to ensure that organization is what you want to support. On the other hand, I recommend to all of my not-for-profit clients to use their 990 as a marketing tool because more and more donors are checking the 990 than in past years.
Revise your 990 and think “would I donate if I read this?” Having an appealing, heartwarming informative return may bring in more donations for your organization.
By Samantha E. Mahlen, CPAPosted on by admin
On Saturday June 13, fifteen Henry & Horne, LLP employees and family members cleaned carpets, washed windows and wiped down chairs, desks and tables for The Children’s Center for Neurodevelopmental Studies. Rob from the Center was BLOWN AWAY by how hard-working our team was and was so thankful for the work done.
The Center is a school that has developed programs for children and teens with autism or other development disabilities to learn social, educational and life skills. They serve anywhere from 30-50 students each day with their year-long programs. The hours our team was at the Center on June 13 helped make the class rooms and auditoriums a cleaner place for the students to learn and grow this summer.
Thank you to all who came and made this event a success!
By Samantha E. Mahlen, CPAPosted on June 16 2015 by admin
Social media has become the top marketing tool in businesses today, which of course includes the not-for-profit community. By now, you probably have a team member that is responsible for the organization’s Facebook, Twitter and LinkedIn accounts. However, there are more ways that social media can affect your organization than its own pages.
Employees, volunteers and directors can now associate or link themselves with your organization by listing that they work or volunteer for your organization on Facebook and LinkedIn. On Twitter, they can tag your not-for-profit by using the unique tag line. Therefore, it’s important for your organization to have a policy in place that educates all people associated with the not-for-profit on what type of social media activity is acceptable and what types of posts will negatively impact the reputation of your organization posted either on behalf of your not-for-profit or on a personal basis.
Finally, it’s most likely not feasible to have an employee monitor all social media activity your employees, volunteers or directors post. You need to determine what level of monitoring is practical to protect your organization.
You can find more information and templates of social media policies at socialmediagovernance.com. Social media can be a tool for great marketing, or it can be a form of exposure that is harmful to your organization’s reputation. By implementing a policy, you can help mitigate the risk of damaging publicity.
By Samantha E. Mahlen, CPAPosted on June 9 2015 by admin
Last Saturday while browsing the internet at a coffee shop, I came across any donor’s worst nightmare. According to the Federal Trade Commission (FTC), over the past eight years The Cancer Fund of America, The Cancer Support Services Inc., The Children’s Cancer Fund of America, Inc., and The Breast Cancer Society spent $187 million dollars of donations on cars, luxury cruises, Jet Ski outings, and sports and music events as well as dating site memberships and college tuition for family and friends. The complaint states that the Children’s Cancer Fund funded two all-expense paid trips to Disney World for board members, employees, and their families. The initial complaint was filed with the District Court of Arizona but all 50 states and D.C. joined the FTC in filing the charges, making it one of the largest charity fraud cases to date. All in all, the four charities spent an average of $0.03 on cancer patients for every dollar collected. The charities could face charges of more than $135 million; however, it is unlikely that any of the charities have enough assets to collect this amount.
The fraud appears to be an interfamily affair. James Reynolds Jr. is the Executive Director and Board President of The Breast Cancer Society. His father, James Reynolds Sr. is the CEO and Board President of the Cancer Fund of America and The Cancer Support Services. James Reynolds Sr.’s ex-wife, Rose Perkins, is the Executive Director and Board President of The Children’s Cancer Fund of America, Inc. James Reynolds Jr. and Rose Perkins have since settled the charges against them for $75,000. Both will be banned from fundraising, charity management, and oversight of charitable management for life. Litigation is ongoing for James Reynolds Sr. who has chosen to fight the charges.
It is hard to believe that any individual would be willing to steal $187 million from such an honorable cause like fighting cancer. Many questions ran through my head as I read the article. How did they cover this up? What could the auditor have done differently to discover the fraud? How can donors protect their contributions against fraud? How can charitable organizations prevent this from happening? Stay tuned as I attempt to answer these questions and others in future blog posts.
By David Woods-- Older Entries »
Our Not-For-Profit niche is a strong team of experienced professionals who focus their work in the not-for-profit industry. Henry & Horne has been a stable local firm in Arizona for 55 years, and the Not-For-Profit niche has a long history of working with charitable organizations and other tax exempt organizations of all kinds. Our focus is exceptional client service and building relationships with our clients to promote communication throughout the year, not just at the time of the annual audit. We highly value and are very proud to be helping those who help others.
Before posting a comment on a blog post please be aware that we do not give free advice to non-clients by email, comment response, or phone. Thank you!
- Accounting for Joint Activities
- Annual Giving USA Report Released
- What Percent of My Donation Goes to the Cause of the Organization?
- Developing Diverse Funding Sources
- Complimentary Not-For-Profit CPE Offered by Henry & Horne, LLP
- Releasing or Modifying Permanently Restricted Contributions – Is this Allowable?
- Use Your 990 as a Marketing Tool
- June Community Event a Huge Success!
- Is It Time for You to Implement a Social Media Policy?
- Cancer Charity Fraud Part I