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I have been the treasurer for my church for the better part of 10 years. It is an important job but one that requires a certain amount of specialized knowledge to do it properly which makes it very difficult to ever move out of the position. Having a firm like OSA&C to step in and do the detailed work allows our church finance committee to focus on making the decisions that are best for the church and not be concerned with the details of the books. What a relief!

William S. Hart, CFP, MBA
Retirement Strategies, Inc.

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Your nonprofit may have a license to print money

In this pandemic year, many not-for-profits are scrambling to find new sources of revenue to replace donor contributions and other lost income. If this sounds like your charity, you might want to consider licensing your name and brand to a for-profit business.

Ensuring success

When licensing arrangements work, both charities and companies can experience significant benefits. One example is AARP, which licenses its name to a variety of companies, including UnitedHealthcare, The Hartford and ExxonMobil. But such arrangements can also cause problems. For example, if a product “endorsed” by a nonprofit is found to be ineffective or harmful, the nonprofit may suffer by association. By the same token, a nonprofit mired in controversy could harm the public perception of a product or service bearing its name.

To ensure a license arrangement doesn’t become a public relations problem, thoroughly research any potential partner’s business, products and the backgrounds of its principals. Also confirm that your mission and values align. If you determine that a potential licensee’s products or services have the potential to undermine your brand, take a pass — no matter how high the promised royalties.

Look before you leap

Work with your attorney to include certain provisions in any license agreement. Specify how the licensee can use your name and brand, mandate quality control standards and detail termination rights. And realize that signing the agreement doesn’t end your responsibility — you’ll need to actively monitor the licensee’s use of your name and intellectual property throughout the agreement period. If it sounds like all this will require additional staff time, you’re right.

In fact, the resource-intensive nature of licensing leads some nonprofits to outsource the work. Outsourcing allows your organization to focus on its mission, but you’ll probably pay upfront fees, a monthly retainer and a percentage of the royalties that your consultant secures. So it’s important to crunch the numbers and make sure your license arrangement is worth this expense and effort.

Don’t forget the tax implications of licensing. Nonprofits enjoy a royalty exclusion that generally exempts licensing revenues from unrelated business income taxes (UBIT). But certain arrangements can jeopardize this. You can’t receive compensation based on your licensee’s net sales — only on gross sales. And you must play a passive role, meaning you don’t actively provide services to the licensee.

Make a positive impression

Any licensing arrangement your nonprofit enters into should generate revenue and, probably even more important, promote a positive impression of your brand. To evaluate your financial options and find what’s best for your non-profit, contact the Online Stewardship accounting team at Lynn@OnlineStewardship.com.

© 2020


What to do when the audit ends

Financial audits conducted by outside experts are among the most effective tools for revealing risks in not-for-profits. They help assure donors and other stakeholders about your stability — so long as you respond to the results appropriately. In fact, failing to act on issues identified in an audit could threaten your organization’s long-term viability.

Working with the draft

Once outside auditors complete their work, they typically present a draft report to an organization’s audit committee, executive director and senior financial staffers. Those individuals should take the time to review the draft before it’s presented to the board of directors.

Your organization’s audit committee and management also should meet with the auditors prior to the board presentation. Often auditors will provide a management letter (also called “communication with those charged with governance”), highlighting operational areas and controls that need improvement. Your nonprofit’s team can respond to these comments, indicating ways they plan to improve the organization’s operations and controls, to be included in the final letter. The audit committee also can use the meeting to ensure the audit is properly comprehensive.

Executive director’s role

One important audit committee task is to obtain your executive director’s impression of the auditors and audit process. Were the auditors efficient, or did they perform or require redundant work? Did they demonstrate the requisite expertise, skills and understanding? Were they disruptive to operations? Consider this input when deciding whether to retain the same firm for the next audit.

The committee also might want to seek feedback from employees who worked most closely with auditors. In addition to feedback on the auditors, they may have suggestions on how to streamline the process for the next audit.

No material misrepresentation

The final audit report will state whether your organization’s financial statements present its financial position in accordance with U.S. accounting principles. The statements must be presented without any inaccuracies or “material” — meaning significant — misrepresentation.

The auditors also will identify, in a separate letter, specific concerns about material internal control issues. Adequate internal controls are critical for preventing, catching and remedying misstatements that could compromise the integrity of financial statements. The auditors’ other suggestions, presented in the management letter, should include your organization’s responses.

If the auditors find your internal controls weak, promptly shore them up. You could, for example, implement new controls or new accounting practices.

If you have questions about audits and post-audit procedures, contact the Online Stewardship accounting team at Lynn@OnlineStewardship.com.

© 2020


When should you pay nonprofit board members?

Most for-profit companies compensate the directors who serve on their boards. But not-for-profit board members generally serve on a voluntary basis. However, there are circumstances in which you might want to consider compensating those who serve on your board.

Advantages and drawbacks

Board member compensation comes with several pros and cons to consider. Your organization might, for example, find it worthwhile to offer compensation to attract individuals who are: prominent or bring highly specialized expertise; are expected to invest significant time and effort; or who represent diverse backgrounds.

Also, if your nonprofit has a business model that competes with for-profit organizations, such as a nonprofit hospital, board compensation may be appropriate. In general, providing compensation can improve board member performance and promote professionalism. It may incentivize meeting attendance and accountability.

But there are several drawbacks. First, it can look bad. Donors expect their funds to go to program services, and board compensation represents resources diverted from your organization’s mission. Further, there are legal and IRS implications. For example, in some states volunteer board members are protected from legal liability, while compensated members may not be.

Compliance matters

If you decide to compensate board members, make sure your arrangement complies with the Internal Revenue Code’s private inurement and excess benefit regulations, as well as the IRS rules about “reasonable compensation.” Failure to do so can result in excise taxes, penalties and even the loss of your tax-exempt status.

Independent directors, an independent governance or compensation committee, or an independent consultant should set the amount of, or formula for, board compensation. Whoever sets the amount should be guided by a formal compensation policy and make the amount comparable to that paid by similar nonprofits.

Put it in your policy

Make sure your compensation policy includes four elements:

  1. How compensating board members benefits your organization (for example, by allowing it to attract a member with financial expertise).
  2. Which members are eligible for compensation (the chair, the officers or all members).
  3. How compensation is structured (for instance, flat or per-meeting fee).
  4. Expectations for board members in exchange for compensation, such as meeting attendance, qualifications and experience.

Also document all compensation discussions. This includes your board’s formal vote approving the policy and compensation amounts.

Arriving at an amount

If you decide to compensate board members, you may find the most difficult aspect is arriving at an amount. If you need assistance figuring out what will be best for your unique organization, contact the Online Stewardship team at Lynn@OnlineStewardship.com. We can make suggestions based on what comparable organizations pay as well as the nature of your nonprofit and its revenues.

© 2020


How nonprofits should classify their workers for tax purposes

Employees or independent contractors? It’s not only for-profit companies that struggle with the question of how to classify workers for federal tax purposes. Not-for-profit organizations must withhold and pay Social Security, Medicare and unemployment taxes for employees, but not for contractors. (There may also be state tax responsibilities.) But be careful before you decide that most of your staffers must be contractors. The IRS may not agree.

What counts?

When determining whether a worker is an employee or contactor, the IRS looks at whether an employer has the right to direct or control how the person does his or her work. In general, it’s not necessary that your nonprofit directs or controls how work is done — it just matters whether it has the right to do so. The existence of detailed instructions, training on specific procedures and methods, and evaluation systems generally will support a finding that an employment relationship exists.

Evidence that your nonprofit has the right to control the economic aspects of a staffer’s work also indicates an employment relationship. The IRS is more likely to deem individuals as contractors if they:

  • Incur significant unreimbursed expenses,
  • Have a major investment in their self-employed businesses with the potential of a profit or loss,
  • Provide tools or supplies for the job, and
  • Are available to work for other companies or clients.

The IRS also considers payment methods. Independent contractors typically are paid a flat fee for the contract or job, while employees generally are guaranteed a regular wage amount for an hourly, weekly or biweekly period.

Relationship type matters

How do you and the worker regard your relationship? For example, if you provide traditional employee benefits — such as health and disability insurance, a retirement plan and paid vacation days — it signals your intent to treat him or her as an employee. Note, though, that the lack of benefits alone doesn’t necessarily mean a worker is an independent contractor.

The duration of the relationship is relevant, too. Is it expected to continue indefinitely or only for the run of a specific project or period? Similarly, if workers provide services that are a critical part of your operations, your nonprofit is more likely to have the right to control their activities. Thus, these workers are more likely to be classified as employees.

Learning more

If you’re still not sure whether a worker is an employee or an independent contractor, see IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” Contact the Online Stewardship team before filing this form at Lynn@OnlineStewardship.com. We can help you document reasons supporting your decision for treating a worker as an independent contractor or employee.


Financial dashboards can steer your nonprofit toward financial success

Not-for-profits increasingly are adopting a corporate world tool: financial dashboards. A dashboard is a summary of an organization’s progress toward a specific goal over time — or a snapshot of its current situation. Dashboards are designed to help boards and other constituents visualize important metrics, or key performance indicators (KPIs). But to facilitate informed, timely decisions, it’s critical to select the right KPIs.

Choosing the right KPIs

A nonprofit’s financial KPIs will depend largely on factors such as its revenue streams, key expense factors, budget and strategic goals. To include the most useful metrics, identify your organization’s “business” drivers and solicit input from your audience.

Additionally, determine which factors affect the reliability of your revenue streams — and which influence expense levels. Then create KPIs that monitor those factors. Think, too, about the level at which you want to track your KPIs. You could monitor them by individual program or function, or at the organizational level.

Looking at an example

Say that a performing arts organization’s board is concerned about financial stability and liquidity. The nonprofit’s primary business drivers are proper pricing and maximum attendance. Its dashboard might include KPIs such as an increase or decrease in operating results, the level of liquid unrestricted net assets, current debt ratio (total liabilities / total assets), and progress toward a desired number of months’ cash on hand (cash on hand + current unrestricted investments / average monthly expenses). The organization also would want to monitor the number of tickets sold and average revenue per performance.

Over time, this nonprofit likely would need to adjust its KPIs as its strategies, priorities or programs change. As many organizations have learned recently, what was “key” last year isn’t necessarily key in today’s challenging environment.

Considering popular KPIs

Certain KPIs are popular among nonprofits. These include:

Current ratio. This reflects your organization’s ability to satisfy debts coming due within the year. Divide current assets by current liabilities. A ratio of “1” or more generally means you can meet those obligations.

Projected year-end cash. Based on the current cash position plus budgeted cash flows through the end of the fiscal year, this projects liquidity and ability to satisfy upcoming commitments.

Year-to-date revenue and expense. This KPI measures actual results against a budget and lets you know separately if revenues and expenses are in line with expectations or within a reasonable range.

Program efficiency ratio. The ratio assesses an organization’s mission efficiency by showing the amount of funding that goes to programs vs. administrative or other expenses. Calculate it by dividing a program’s expenses by its overall expenses.

Meaningful metrics

By providing a target such as budgeted amounts, chronological trends or external benchmarks, you’ll make the metrics more meaningful for your audiences. 

If you have any questions on what KPIs to look out for and how they can affect your nonprofit, contact the Online Stewardship team of talented accountants at Lynn@OnlineStewardship.com

© 2020


Should your nonprofit accept that new grant?

Current financial pressures mean that your not-for-profit probably can’t afford to pass up offers of support. Yet you need to be careful about blindly accepting grants. Smaller nonprofits that don’t have formal grant evaluation processes are at risk of accepting grants with unmanageable burdens and costs. But large organizations also need to be careful because they have significantly more grant opportunities — including for grants that are outside their current expertise and experience.

Here’s how accepting the wrong grant may backfire in costly and time-consuming ways.

Administrative burdens

Some grants could result in excessive administrative burdens. For example, you could be caught off guard by the reporting requirements that come with a grant as small as $5,000. You might not have staff with the requisite reporting experience, or you may lack the processes and controls to collect the necessary data. Often government funds passed through to your nonprofit still carry the requirements that are associated with the original funding, which can be quite extensive.

Grants that go outside your organization’s original mission can pose problems, too. Managing the grant may involve a steep learning curve. You could even face an IRS challenge to your exempt status.

Cost inefficiencies

Another risk is cost inefficiencies. A grant can create unforeseen expenses that undermine its face value. For example, new grants from either federal or foundation sources may have explicit administrative requirements your organization must satisfy.

Additionally, your nonprofit might run up expenses to complete the program that aren’t allowable or reimbursable under the grant. Before saying “yes” to a grant, net all these costs against the original grant amount to determine its true benefit.

Lost opportunities

For any unreimbursed costs associated with new grants, consider other ways your organization might spend that money (and staff resources). Could you get more mission-related bang for your buck if you spend it on existing programs?

Quantifying the benefit of a new grant or program can be equally or more challenging than identifying its costs. Evaluate every program to quantify its impact on your mission. This will allow you to answer the critical question when evaluating a potential grant: Are there existing programs that can be expanded using the same funds to yield a greater benefit to your mission?

Do your homework

Grants from the government or a foundation can help your nonprofit expand its reach and improve its effectiveness in both the short and long term but they also can hamstring your organizations in unexpected ways. For help evaluating your options, contact the talented team of Online Stewardship accountants at Lynn@OnlineStewardship.com.

© 2020


Recently, the Federal Reserve announced that not-for-profit organizations now may apply for loans under the $600 billion Main Street Lending Program. Previously open only to for-profit businesses with more than 100 employees, the program offers low-interest loans with relatively relaxed repayment terms. If your organization needs funding to keep operating during this difficult period, a Main Street loan may be an option.

The Basics

Initially, the Main Street program offered loans through three credit facilities but has added two more specifically for nonprofits: Nonprofit Organization New Loan Facility and Nonprofit Expanded Loan Facility. The difference between the two is that the Expanded Facility makes larger loans to qualified applicants, such as universities and hospitals.

Eligible banks accept applications and extend loans, but the Fed takes a 95% stake in them. Like the Paycheck Protection Program, Main Street is funded in part by CARES Act funds. It is designed to help keep organizations operating and able to retain and hire employees.

Rules for applicants

To qualify for a Main Street loan, nonprofit organizations must be tax exempt and have:

  • A minimum of 10 employees,
  • Been in operation for at least five years,
  • Less than a $3 billion endowment,
  • Total non-donation revenues equal to 60% of expenses or more, 2017 through 2019,
  • 2019 operating margin of 2% or more,
  • Cash on hand for 60 days,
  • A debt repayment capacity of greater than 55%.

Loans have a five-year term and interest rate of LIBOR plus 3%. Interest payments are deferred for one year. Loan size depends, of course, on the size and financial health of your nonprofit, but amounts generally run from $250,000 to $300 million.

Right for you?

Even if your nonprofit has never taken out a loan, it may be necessary now during the COVID-19 crisis. But you’ll need to think carefully about your nonprofit’s ability to repay any loan. We can help evaluate your creditworthiness and repayment capacity. We can also suggest alternate funding options, including other loan programs. Contact our talented accounting team at Lynn@OnlineStewardship.com.

© 2020


An advisory board can complement your nonprofit’s board of directors

Your not-for-profit has a board of directors — so why would it need an additional advisory board? There are a few reasons. Some organizations assemble advisory boards to provide expertise for a specific project, such as a fundraising campaign. Other organizations use them to give roles to major donors and prestigious supporters who may not be a good fit for a governing board. Here are some other ways to use an advisory board and how to set one up.

Opening the door

Look at your general board members’ demographics and collective profile. Does it lack representation from certain groups — particularly relative to the communities that your organization serves? An advisory board offers an opportunity to add diversity to your leadership. Also consider the skills current board members bring to the table. If your board of directors lacks extensive fundraising or grant writing experience, for example, an advisory board can help fill gaps.

Adding advisory board members can also open the door to funding opportunities. If, for example, your nonprofit is considering expanding its geographic presence, it makes sense to find an advisory board member from outside your current area. That person might be connected with business leaders and be able to introduce board members to appropriate people in his or her community.

Creating a pool

The advisory role is a great way to get people involved who can’t necessarily make the time commitment that a regular board position would require. It also might appeal to recently retired individuals or stay-at-home parents wanting to get involved with a nonprofit on a limited basis.

This also can be an ideal way to “test out” potential board members. If a spot opens on your current board and some of your advisory board members are interested in making a bigger commitment, you’ll have a ready pool of informed individuals from which to choose.

Understanding their role

It’s important that advisory board members understand the role they’ll play. They aren’t involved in the governance of your organization and can’t introduce motions or vote on them. But they can propose ideas, make recommendations and influence voting board members. Often, advisory board members organize campaigns and manage short-term projects.

Advisory boards usually are disbanded after a project is complete. You may also want to consider eliminating an advisory board if it begins to require too much staff time and your organization can’t provide the support it needs. For more information on effective nonprofit governance, feel free to contact us at Lynn@OnlineStewardship.com

© 2020


Appealing to the next generation of supporters

Factors such as wealth level, education and even whether people volunteer, probably will tell you more about potential donors than their generation. But some broad generalizations about age can help not-for-profits target particular groups for support. The newest generation of adults belong to what’s being called Generation Z, and it’s possible to draw some conclusions about this otherwise diverse demographic.

Charitably inclined digital natives

Members of Generation Z typically are either in school or just beginning to launch careers. According to a study conducted by one market research firm, their contributions represent only about 2% of total giving. And their average donation tops out at $341 per year. Yet approximately 44% of Gen Zers have given to charity and they may be more driven to pursue social impact than earlier generations at their age. Many young people are hyperaware of what’s going on both in the world and their own communities.

As digital natives immersed in social media, Gen Zers make good peer-to-peer fundraisers. You might be able to harness the energy of this generation by sponsoring fun runs and similar events that require participants to solicit funds from friends and family members.

Many in this demographic volunteer or perform paid work for more politically oriented causes that they see affecting their own lives, such as gun control, climate change and racial inequality. Consider, for example, the teenagers and young adults who mobilized ongoing gun control campaigns in the wake of the Parkland shooting. Or the Black Lives Matter protests that have been largely led by young adults.

Content tailored to their interests

To reach Gen Z, forget Facebook and even Twitter. Teens and young adults favor platforms such as Snapchat, Instagram and TikTok, so you may need to develop different types of content for these more visual channels. The good news is that younger people tend to be more receptive to digital ads than their parents. But they expect outreach to be narrowly tailored to their interests, so be sure you rely on good data.

Members of Generation Z usually want to be more involved in charitable causes than earlier generations. They may not be satisfied with making one-time donations to nonprofits they barely know. To provide young adults with hands-on roles, create formal volunteer programs and consider setting up a junior board of directors.

Big dividends

Although most young adults aren’t in a position to make major donations now, you should regard this group as your nonprofit’s future. Cultivating their support and loyalty can pay big dividends down the road. For help in planning your nonprofit’s financial future, contact our talented team of accountants at Lynn@OnlineStewardship.com.

© 2020


Nonprofits: Carefully navigate the upcoming election

The 2020 presidential election is fast approaching and your not-for-profit has a stake in its outcome. But that doesn’t mean your organization is free to participate in campaign activities. In general, Section 501(c)(3)s risk losing their tax-exempt status if they participate in campaigning. However, there’s more nuance in the rules than you might suspect.

5 potential traps

Tax-exempt organizations can’t directly or indirectly act in federal, state or local campaigns either for or against a candidate or party. Here are several examples of activities that are generally off-limits:

1. Supporting a candidate or party for election. Your organization can’t get behind or oppose a declared candidate or third-party movement, engage in efforts to draft candidates, or perform advance exploratory work for a candidate or party.

2. Contributing to a campaign or endorsing a candidate. This includes direct financial support and indirect support, such as having your staff make calls on a candidate’s behalf.

3. Providing monetary support. Organizations are barred from donating funds to a candidate or party, and they can’t use another event to raise funds. Section 501(c)(3) not-for-profits are also barred from making loans to candidates or parties.

4. Offering support for support. You can’t ask for “support” from a candidate, political party or other political organization in exchange for your endorsement.

5. Distributing materials. Your nonprofit can’t distribute campaign materials or anything that tells recipient how to vote. This includes online communications.

5 acceptable activities

Of course, there are ways your nonprofit can participate in elections. For example, you can:

1. Sponsor a candidate appearance. If a candidate is invited for nonpolitical reasons — say, as a supporter of your charitable mission — make sure the appearance doesn’t turn into a campaign stop or fundraiser.

2. Hold a debate. If your nonprofit hosts a candidate forum, invite all the candidates, have an independent panel prepare the questions and provide every candidate with equal speaking opportunities. An impartial moderator should state that the views expressed within the debate don’t represent those of your organization.

3. Advocate a political issue. You can try to sway candidates to your way of thinking and encourage them to take a public stand. But you can’t endorse any of them.

4. Help build party platform planks. Your nonprofit can deliver testimony to a party’s platform committee, so long as you clarify that the testimony is strictly educational.

5. Launch a “get out the vote” drive. The drive must be designed solely to educate the public about voting and can’t promote or oppose a candidate or party.

Avoid penalties

Campaign-related offenses are punishable by revocation of tax-exempt status, but first-time offenders may be able to negotiate a less severe penalty. For example, you might agree to change procedures and stipulate that the violation won’t occur again. If your nonprofit spent funds on the banned activity, the IRS may impose excise taxes.

If you’re unsure about the acceptability of a proposed election-related activity, the Online Stewardship team can help.  Contact us at Lynn@onlinestewardship.com.

© 2020


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