The competition for donor contributions continues to rise as more nonprofit organizations register with the Internal Revenue Service (IRS). With this increase in competition, many nonprofits are choosing to hire a professional fundraiser to help maximize their earnings potential. Before hiring your own, you should consider the following factors:
- Is it necessary? Some organizations give up prematurely on raising money themselves when they have plenty of fundraising potential. Are you one of those? If so, consider a few less costly options.
- Conduct research and seek advice. Network with other nonprofits in your region and obtain advice on how to successfully raise money. Ask them about any problems they have experienced with fundraising. If they are using a fundraiser, ask them about their experiences with that specific fundraiser.
- Does the fundraiser subcontract their fundraising phone calls? It is extremely difficult to monitor how they treat your prospective donors if they subcontract the work.
- Is the fundraiser interested in your mission? Have them attend an event to better understand what they are raising money for and have them become involved in the organization.
- How is the telemarketing staff hired and trained? If they are working on commission, they are more likely to exaggerate or make untrue claims over the phone. Additionally, if the employees are paid poorly, they are more likely to experience high employee turnover rates.
- Have an attorney review the contracts before they are signed. You do not want to become involved with any lengthy lawsuits to invalidate “bad” contracts.
- Does the contract give your nonprofit sufficient control over fundraising efforts? Your nonprofit should be able to review phone calls made by fundraisers to potential donors, provide a script for them to follow, and be allowed to visit their office for follow up conferences.
The overall message is to do your homework to be sure you make the right decision for your nonprofit organization.
By Kristian HaralsonPosted on November 4 2015 by admin
A few weeks ago the IRS Tax Exempt & Government Entities Commissioner released a Workplan Briefing for the Government’s fiscal year 2016. She listed five strategic issue areas, below, in which they will focus resources in the next year.
- Exemption: issues include non-exempt purpose activity and private inurement
- Protection of Assets: issues include self-dealing, excess benefit transactions, and loans to disqualified persons
- Tax Gap: issues include employment tax and Unrelated Business Income Tax liability
- International: include oversite on funds spent outside the U.S.
- Emerging Issues: includes non-exempt charitable trusts and IRC 501(r)
It was also noted that the compliance strategy will include oversite of tax-exempt hospitals and compliance issues with the Patient Protection and Affordable Care Act. As well as a continued review of the 1023-EZ process and post-determination compliance enforcement for those Organizations granted exemption though the 1023-EZ application.
Be aware of the above issues throughout the year and if you are unsure whether your organization is in compliance consult with your non-profit tax preparer or visit the IRS website in the charities and nonprofits section. To read the complete message and work plan, click here.
By Kristin Cullen, CPAPosted on October 27 2015 by admin
If your nonprofit organization regularly solicits and receives multi-year promises to give, you most likely occasionally have the situation where a promise that was made in a past year becomes uncollectible. Where does this write-off or loss get reported on the Form 990? As a reduction in contribution income on the Statement of Revenue (Part VIII)? As “bad debt expense” on the Statement of Functional Expenses (Part IX)? The answer to these latter 2 questions is “no”. Any losses from writing off promises to give from prior years, as well as any refunds of contributions from prior years, should be reported only as an “other change” in the Reconciliation of Net Assets (Part XI) of the Form 990. This “other change” in net assets should also be described on Schedule O.
Schedule A is another schedule to consider with this situation. On line 1 of Part II and Part III (depending on which part you are required to complete) of Schedule A, you report the total amount of gifts, grants and contributions for each of the last 5 years. If you had a write-off or loss of a promise to give that had been promised/recorded in a prior year, you should reduce the amount on line 1 in the column that pertains to the year the promise was originally made. By doing this, you are correctly reducing your public support percentage calculation. So for Schedule A, the rules are different – you do actually reduce the revenue reported here, but be sure to do so in the correct column for the correct year. If the promise that you are writing off was promised more than 5 years ago, you would not have an adjustment on Schedule A.
By Colette Kamps, CPAPosted on October 21 2015 by admin
Believe it or not, it’s already the holiday season where not only do you begin thinking about what your loved ones want as gifts but also how to properly pull off your annual fundraising gala. Many not-for-profit events not only have entertainment, a call to action, and great food, but also have silent or live auctions.
Luckily for most not-for-profit organizations, we have a very generous population in the Phoenix Valley and most items up for auction are donated to the organization. Although this is very beneficial to the organization, it is not always the easiest thing to account for in our general ledger.
So how do we record these donated items? When an item is received to be used in an auction benefitting the organization, it should first be recognized as an asset and contribution revenue. For example, if a company donates a luxury cruise in Alaska valued at $4,000 to be part of the live auction at your event, you should initially recognize the item as follows:
Donated auction items (asset account) $4,000
Contribution revenue ($4,000)
When the item is sold, there are two different ways the transaction may need to be handled. If it is sold at a value higher than originally donated at, the amount of cash above the value is accounted for as additional contribution revenue. If the Alaskan cruise is sold for $5,000, you should recognize the sale as follows:
Donated auction items (asset account) ($4,000)
Contribution revenue ($1,000)
However, in the unfortunate event that the buyer gets a “steal” and pays less than the donated value, you would recognize the difference between the asset value and incoming cash as a debit to contribution revenue. If the Alaskan cruise is sold for $3,000, you should recognize the sale as follows:
Contribution revenue $1,000
Donated auction items (asset account) ($4,000)
In review of the above entries, notice that the maximum amount of contribution revenue you should report is the cash received for the donated item. Therefore, it may seem easiest to just report the ending revenue and cash. However, if the donation and event don’t occur in the same annual period, entry 1 must be entered. If both occur in the same annual period, you may be able to record the cash and revenue after the event as the only entry.
Unfortunately, even if the donation and sale occur in the same period, you will still need to track the fair market value of all donated items not only for internal purposes, but also for Schedule G of your Form 990. A list of all donated items with their fair market value, amount each sold for, and supporting documentation will make your auditor and tax preparer very happy.
By Samantha E. Mahlen, CPAPosted on October 7 2015 by admin
The 2014 Burk Donor Survey was released earlier this year. This survey is a study that was done by fundraising expert Penelope Burk, which analyzes the changes in donor giving each year. More importantly, it gives insight to how donors intend to give in the upcoming 12-month period. This survey asked 23,000 donors in the U.S. and Canada about some of the factors that made them decide to start giving and what will cause them to stop their support. Some findings include:
Donors can give more. Donors gave over $335 billion; yet overall, 40% of donors surveyed said they could have given more. Fifty percent of those under the age of 35, which is the youngest age bracket, are the ones who are the most willing to give more.
Donors are donating smarter. Fifty-seven percent of those surveyed are spending more time than they did five years ago researching a nonprofit before they give for the first time or renew their support. Donors are paying attention to how much nonprofits are spending on administrative costs and fundraising. Seventy-five percent are more than likely to stop their support of an organization whose fundraising costs are too high and 81% said they would stop supporting an organization if their general administrative costs are high.
Donors intend to give more. Fifty-five percent of donors expect to give the same amount as they did in the prior year and four times as many donors are expected to give more, not less. This is good news for nonprofit organizations.
Donors don’t want token gifts. Seventy-two percent of the donors who received a plaque or some type of display as an appreciation are either throwing it away or storing it where they are not seen. Most donors who receive this type of appreciation gift often question the cost of the gift, which, in turn, causes them to wonder if their donation is being spent well. Those surveyed noted that they would much rather receive a simple thank you letter or a phone call.
By Sharlynn Garza, CPAPosted on October 1 2015 by admin
Recently I came across an article by Accounting Today that discussed a survey of over 100 not-for-profit leaders who were asked to gauge what they felt about their board members and those members’ involvement. Most spoke positively of their board but reported some challenges broken down below:
- 15% of the leaders felt the board carefully observes their dashboard performance compared to their peers.
- 28% thought their board members are highly strategic in providing guidance.
- 29% said the board connects the organization to external sources.
- 47% said board members provide their professional capabilities.
- 45% said the board closely monitors investments.
- 61% believed their boards are engaged but don’t micromanage.
- 57% said directors closely monitor expenditures.
- 54% said board members are active in attending board meetings.
- Roughly half of those surveyed said board members follow the overall performance of the organization but fail to look into specific programs.
On the positive side, 73% of the nonprofit leaders said their board members are passionate about the mission of the organization. It should be an organization’s strategy to work on involving their board or keeping their board involved. I believe board members actively participating in the organization and its strategies benefit the not-for-profit greatly because it generates better accountability and transparency while at the same time motivating the not-for-profit to be innovative in advancing the organization in its charitable interests.
By Rebecca A. GorntoPosted on September 15 2015 by admin
Lately I’ve received several questions about the policies and procedures listed on page 6 Part VI Section B, three of which are a written conflict of interest policy, whistle blower policy, and a document and retention policy. The concern always seems to be, what if the organization doesn’t have these policies in place? The IRS does not require an organization to have any or all of these policies.
However, having these policies is considered a best practice for a non-profit organization. The length and detail for each policy would depend on the size and complexity of the organization.
A written conflict of interest policy should be reviewed and completed by at least the board of directors and key employees, if not all employees to help identify any potential conflicts. Once they have been identified, there should be a process to review the impact of the conflict. You may determine that there is no impact to the organization or, for example, a board member may abstain from voting on a particular topic.
A written whistle blower policy can take several forms. A few examples are to have a compliance officer or a third party hotline to take anonymous calls. It is equally important to ensure employees are aware this policy exists and are reminded on a regular basis.
A written document and retention policy can help ensure that employees and volunteers follow consistent guidelines on any accounting, legal, or internal needs of the organization. There are documents that need to be kept permanently and others that can be disposed of after certain time periods, typically a range of 7-10 years.
If you’re not sure how to start creating these policies, there are several websites (blueavacado.org, councilofnonprofits.org) that have examples to use as a starting point. We also have a few templates on our website at www.hhcpa.com.
By Kristin Cullen, CPAPosted on September 10 2015 by admin
It should be no surprise that the use of cell phones has increased. While it has been the source of a lot of talk over the years, it appears we’re finally at a tipping point.
As shown below, Emarketer created a chart to show the shift in search volume in the U.S. since 2011. Their results concluded that in 2015 mobile usage is expected to be on par with desktop usage. In 2016, mobile usage is expected to exceed desktop usage.
Additionally, donor behavior has changed significantly in recent years. In 2013-2014, the following year-over-year digital trend data was compiled from a group of nonprofits:
- 28% year-over-year increase in revenue generated via mobile device transactions
- 42% year-over-year increase in donations made from mobile devices
- 35% year-over-year increase in web traffic going to mobile devices
As mobile usage increases, the trends will only continue to get larger.
Lastly, research has shown that 50% of all mobile users have dropped a brand because of a poor mobile experience. They did not interact with the brand in another way; instead, they just stopped engaging in those brands. This is pertinent for nonprofits to consider with the increase in donations made through mobile devices.
With these significant changes going into effect, is your nonprofit truly able to sit this one out?
By Kristian HaralsonPosted on August 26 2015 by admin
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 Biggs-- 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.
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- Healthy Skepticism: Hiring a Professional Fundraiser
- IRS Tax Exempt Priorities for 2016
- A Little-Known Element on the Form 990
- How to Account for Donated Auction Items
- The Burk Donor Survey
- Involvement of Nonprofit Board of Directors
- Internal Control Policies Reported on the 990
- Why Your Nonprofit Needs a Mobile Site
- Accounting for Joint Activities
- Annual Giving USA Report Released