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I am pleased to recommend Mark and his firm. He has helped us to become a better organization and better people as well.

Rev. Louis R. Lothman, Th.D., Director, Pastoral Counseling Services, Presbyterian Minister, Presbyterian Church (U.S.A.)

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Tackling volunteer liability issues

During the pandemic, your not-for-profit may have been forced to operate without your dedicated volunteers. It has probably come as a great relief to welcome them back in person. However, volunteers, like employees, represent some risk to your organization. For example, you could be exposed to lawsuits if volunteers are harmed or harm others while volunteering for you.

What’s the risk?

Allegations of negligence or intentional misconduct often motivate lawsuits against nonprofits. In certain situations, responsibility for harm may be considered automatic whether or not there’s negligence or misconduct. Nonprofits also can be held liable even when volunteers act outside the scope of prescribed duties or accepted procedures.

Still, most organizations have to manage volunteer-related risks as best they can, because operating without unpaid help would be impossible. But you can use volunteers with greater confidence by adopting certain practices. Just be sure to create policies with input from legal counsel.

How do you mitigate risk?

Your volunteer recruitment process should be almost as formal and structured as your paid employee hiring process. Before seeking volunteers, develop job descriptions for open positions that outline the nature of the work to be performed, any required skills or experience, and any possible risks the job presents.

Screen prospective volunteers according to your nonprofit’s mission, programs and likely volunteer activities. Some positions will pose few risks and your screening process can be relatively basic: Ask candidates to fill out an application and submit to an interview, and then check their work and character references. Positions that carry greater risks — such as work involving children, the elderly and other vulnerable populations, or direct access to cash donations — require a more rigorous process.

Once volunteers are on board, provide training, supervision and, if necessary, discipline. At a minimum, training should involve an orientation session to explain your nonprofit’s mission and policies. Once volunteers have begun working for you, actively supervise them.

Do you need insurance?

Adequate insurance is critical. In addition to general liability coverage, your nonprofit may want to consider supplemental policies that address specific types of exposure such as medical malpractice or sexual misconduct.

Contact us

During the pandemic, your not-for-profit may have been forced to operate without your dedicated volunteers. It has probably come as a great relief to welcome them back in person. However, volunteers, like employees, represent some risk to your organization. For example, you could be exposed to lawsuits if volunteers are harmed or harm others while volunteering for you.

What’s the risk?

Allegations of negligence or intentional misconduct often motivate lawsuits against nonprofits. In certain situations, responsibility for harm may be considered automatic whether or not there’s negligence or misconduct. Nonprofits also can be held liable even when volunteers act outside the scope of prescribed duties or accepted procedures.

Still, most organizations have to manage volunteer-related risks as best they can, because operating without unpaid help would be impossible. But you can use volunteers with greater confidence by adopting certain practices. Just be sure to create policies with input from legal counsel.

How do you mitigate risk?

Your volunteer recruitment process should be almost as formal and structured as your paid employee hiring process. Before seeking volunteers, develop job descriptions for open positions that outline the nature of the work to be performed, any required skills or experience, and any possible risks the job presents.

Screen prospective volunteers according to your nonprofit’s mission, programs and likely volunteer activities. Some positions will pose few risks and your screening process can be relatively basic: Ask candidates to fill out an application and submit to an interview, and then check their work and character references. Positions that carry greater risks — such as work involving children, the elderly and other vulnerable populations, or direct access to cash donations — require a more rigorous process.

Once volunteers are on board, provide training, supervision and, if necessary, discipline. At a minimum, training should involve an orientation session to explain your nonprofit’s mission and policies. Once volunteers have begun working for you, actively supervise them.

Do you need insurance?

Adequate insurance is critical. In addition to general liability coverage, your nonprofit may want to consider supplemental policies that address specific types of exposure such as medical malpractice or sexual misconduct.

Contact us at Online Stewardship & Accounting: Lynn@onlinestewardship.com. We can help review your nonprofit’s current insurance coverage and risk mitigation policies and identify threats you may not have considered.

 

© 2021


What nonprofit board members need to know about fiduciary duties

It takes more than dedication and enthusiasm for your not-for-profit’s cause and programs to make a good board member. The most critical duty for all board members is being a fiduciary. This means, among other things, that they can be trusted to always act in their nonprofit’s best interests, avoid unnecessary risk, make decisions thoughtfully and execute them efficiently.

Core duties

Not all board members are aware of their duties — and it’s up to your organization to ensure they understand them. In general, a fiduciary has three primary duties:

  1. Care. Board members must exercise reasonable care in overseeing the organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand the nonprofit’s mission, programs and structure, make informed decisions, and consult others — including outside experts — when appropriate.
  2. Loyalty. Board members must act solely in the best interests of the organization and its constituents, and not for personal gain.
  3. Obedience. Board members must act in accordance with the organization’s mission, charter and bylaws, and any applicable state or federal laws.

If your board members violate these duties, they may be held personally liable for any financial harm your organization suffers as a result.

Improper transactions

One of the most challenging — but critical — components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when a nonprofit organization does business with:

  • A board member,
  • An entity in which a board member has a financial interest, or
  • Another company or organization for which a board member serves as a director or trustee.

To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.

The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.

Educating your board

To help your board carry out its duties, provide new members with an orientation that educates them in the basics of nonprofit finance and accounting. Also regularly provide an updated list of responsibilities that covers financial documents, compliance requirements and risk management. Contact us at Online Stewardship & Accounting: Lynn@onlinestewardship.com. 

© 2021


Making the decision to hire new nonprofit staffers

Many Americans remain unemployed due to the COVID-19 pandemic — at least 9.8 million at the end of April, according to the U.S. Bureau of Labor Statistics. But that’s expected to change quickly as employers ramp up hiring activities. If your not-for-profit will soon need new staffers, you might want to start putting out feelers now.

Obviously, the decision to hire is a difficult one considering the economic uncertainty that may remain. But you also don’t want to miss out on the best talent. Here are some issues to consider.

Needs assessment

First off, do you need new employees? Even if you plan to expand services and introduce new programs, volunteers may be capable of picking up the slack. Or current staffers may be underused on projects that are stagnating or winding down. Carefully examine your nonprofit’s priorities and consider eliminating programs that aren’t meeting expectations so that you can redeploy human resources where you need them most.

If staffers have been working from home, you may want to call them back to the office (with any necessary safety protocols) before making the decision to hire. It’s possible some won’t want to return to in-person work. On the other hand, you may find you have enough hands once everyone’s back on site.

Financial considerations

The pandemic took a financial toll on most nonprofits. Others, however, have actually experienced outpourings of support. Whatever your situation, ensure you can fit any new staffers into your budget.

Even if you can, the fact remains that nonprofits are obligated to be careful financial stewards. Donors, watchdog groups and the media demand it. So consider how you’ll make the most of any new staffing budget before you spend it.

Outsourcing options

Remember that when you hire full-time employees, the expense isn’t limited to salaries or hourly wages — you’ll also be paying for benefits. In many cases, it’s cheaper to outsource functions, particularly accounting, IT and human resources work.

Outsourcing offers the additional benefit of being temporary if you aren’t happy with the service. Underperforming employees are much harder to let go.

Making the decision

The decision to hire is likely to be one of your organization’s toughest calls this year. Employees are expensive. And probably the last thing you want to do anytime soon is lay off people due to a social or economic crisis. Contact us at Online Stewardship & Accounting: Lynn@onlinestewardship.com. We can review your financials and help you decide how to proceed.

© 2021


Nonprofits: Limit disaster damage with a plan

COVID-19 was a kind of disaster most not-for-profits weren’t prepared for. As your organization recovers from this unusual event, don’t let it become vulnerable to other, more common, threats. Every nonprofit needs a formal disaster plan for such risks as a fire, natural disaster or terrorist attack.

Isolate threats

No organization can anticipate or eliminate all possible risks, but you can limit the damage of potential risks specific to your nonprofit. The first step in creating a disaster plan is to identify the threats you face when it comes to your people, processes and technology. For example, if you work with vulnerable populations such as children and the disabled, you may need to take extra precautions to protect your clients.

Also, assess what the damages would be if your operations were interrupted. For example, if you had an office fire — or even a long-lasting power outage — what would be the possible outcomes regarding property damage and financial losses?

Delegate responsibility

Designate a lead person to oversee the creation and implementation of your continuity plan. Then assemble teams to handle different duties. For example, a communications team could be responsible for contacting and updating staff, volunteers and other stakeholders, as well as updating your website and social media accounts. Other teams might focus on:

  • Safety and evacuation procedures,
  • Technology issues, including backing up data offsite, and
  • Financial and insurance needs.

Don’t neglect planning for recovery, or how your nonprofit will get employees back to work and your office and services up and running. You may need to plan in phases that can be rolled out depending on the extent of the disaster’s damage.

All must plan

All organizations — nonprofit and for-profit alike — need to think about potential disasters. But plans are critical for charities that provide basic human services (such as medical care, food and housing) or that respond directly to disasters. This could mean mobilizing quickly, perhaps without full staffing, working computers or safe facilities.

If you aren’t sure where to start with your disaster plan, contact the Online Stewardship team of accountants at (904) 398-4747 or Lynn@OnlineStewardship.com. We’d be happy to assist you. 

© 2021


Do you know the new accounting rules for gifts in kind?

If your not-for-profit organization accepts contributions of nonfinancial assets, such as land, services and supplies, you should know about Financial Accounting Standards Board (FASB) rules approved last year. Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets is intended to increase transparency around gifts in kind.

Inflated values

The updated rules were generated in response to concerns about U.S. wholesale market prices being used to determine the value of donated pharmaceuticals that can’t legally be sold in the United States. A donor, for example, could contribute such drugs for use only outside the country.

Stakeholders worried that the values will be inflated, which could increase an organization’s revenue and program expenses. The nonprofit might, therefore, appear larger and more efficient than a smaller organization or one with lower values for its gifts-in-kind donations.

New procedures and disclosures

The most dramatic change from previous gifts-in-kind rules is that donations should be reported by type of asset (for example, building, food or pharmaceuticals), rather than reported in aggregate. The rules also require you to report gifts-in-kind donations as a separate line item in the statement of activities.

Further, you must disclose:

  • Your organization’s policies for monetizing in-kind donations (such as by selling them), rather than actually using the donations in your operations,
  • Any donor restrictions,
  • The valuation techniques and data used to calculate a gift’s value, and
  • The principal market or most advantageous market used to calculate the gift’s value.

This last disclosure is necessary if donor restrictions prohibit your nonprofit from selling or using the donation in the principal or most advantageous market. The principal market has the highest volume of activity for the donated asset. The most advantageous market generally maximizes the amount that would be received if the donation were sold.

Compliance required soon

If you aren’t already following the rules, prepare to comply with them. They take effect for annual reporting periods starting after June 15, 2021, and interim periods within fiscal years starting after June 15, 2022.  Contact the Online Stewardship team of accountants at (904) 398-4747 or Lynn@OnlineStewardship.com if you have any questions regarding the new rules.

© 2021


Reduce your nonprofit’s liability risk with D&O insurance

Not-for-profit organizations may operate under the assumption that their missions and their board members’ good intentions protect them from litigation. Sometimes, this assumption is proven wrong with a lawsuit. To protect your leaders from financial exposure, consider directors and officers (D&O) liability insurance. This coverage allows board members to make decisions without fear that they’ll be personally responsible for any related litigation costs.

Protecting key individuals

D&O policies are designed to protect both your organization and its key individuals: directors, officers, employees and even volunteers and committee members. Normally, D&O insurance covers allegations of wrongful acts, errors, misleading statements, neglect or breaches of duty connected with a person’s performance of duties.

Such coverage typically would protect from allegations of mismanagement of funds or investments and employment issues such as harassment and discrimination. D&O insurance also usually covers claims of self-dealing, failure to provide services and failure to fulfill fiduciary duties.

If a legal complaint is filed against them, insured organizations contact their insurer to determine whether the matter is insurable and includes defense costs. Most policies reimburse the insured for reasonable defense costs, in addition to covering judgments against the insured.

Observing policy periods

D&O policyholders need to be aware of a few caveats. This type of insurance is claims-made, meaning that the insurer pays for claims filed during the policy period even if the alleged wrongful act occurred outside of the policy period. So D&O insurance provides no coverage for lawsuits filed after a policyholder cancels, even if the alleged act happened when the policy was in effect.

If you need to make a claim after your policy has been canceled or expired, you might still be covered if you have extended reporting period (ERP) coverage. It generally covers newly filed claims on actions that allegedly occurred during the regular policy period.

Considering cost constraints

Most nonprofits are cost-conscious and you may be wary of adding another insurance policy. To keep costs down, think seriously about the people and actions that should be covered and the amount of protection you need — and don’t need. If you already have general liability and workers’ compensation insurance, you probably don’t need coverage of bodily injury or property damage. And if you opt for higher deductibles, your policy will be less expensive.

Nonprofits in some states may not need D&O insurance because volunteer immunity statutes provide limited protection for negligence. For more information about the insurance you need and general risk-prevention strategies contact the Online Stewardship team of accountants at (904) 398-4747 or Lynn@OnlineStewardship.com

© 2021


It may be time to tune up your nonprofit’s accounting function

Many organizations get stuck in procedural ruts because it’s easier in the short term to continue doing things the way they’ve always been done. But it generally pays to regularly review your not-for-profit’s accounting function for inefficiencies and oversight gaps. You might plan to conduct a review once a year or perform an assessment whenever significant changes, such as staff turnover or the introduction of new software, warrants one.

Room for improvement

Be sure to consider the following items in your review:

Cutoff policies. Your nonprofit should set and adhere to monthly invoicing and expense recording cutoffs. For example, require all invoices to be submitted to your accounting department by the end of each month. Too many adjustments — or waiting for staffers or departments to turn in invoices and expense reports — waste time and can delay financial statement production.

Account reconciliation. You may be able to save considerable time at the end of the year by reconciling your bank accounts shortly after the end of each month. It’s easier to correct errors when you catch them early. Also, reconcile accounts payable and accounts receivable data to your statements of financial position.

Processing in batches. Don’t enter only one invoice or cut only one check at a time. Set aside a block of time to do the job when you have multiple items to process. Some organizations process payments only once or twice a month. Make the schedule available to everyone and fewer “emergency” checks and deposits are likely to surface.

Increased oversight. Make sure that the individual or group that’s responsible for financial oversight — for example, your CFO, treasurer or finance committee — reviews monthly bank statements, financial statements and accounting entries for obvious errors or unexpected amounts.

Software use. Many organizations underuse the accounting software package they’ve purchased because they haven’t learned its full functionality. If needed, hire a trainer to review the software’s basic functions with staff and teach time-saving shortcuts. Make sure you install updates as they become available and know when it’s time to buy new packages — for example, when your software is no longer “supported” because the vendor has gone out of business.

Add value

Accounting systems can become inefficient over time if they aren’t monitored. So look for labor-intensive steps that could be automated or procedures that don’t add value and might be eliminated. Often, for example, steps are duplicated by two different employees or the process is slowed down by “handing off” part of a project. That said, it’s essential to maintain the segregation of accounting duties to prevent fraud.

For more information or if you need help streamlining your accounting function, contact the Online Stewardship team of accountants and consultants at (904) 398-4747 or Lynn@OnlineStewardship.com

© 2021


Nonprofits: Heed these financial danger signs

Many not-for-profits are just starting to emerge from one of the most challenging environments in recent memory due to the COVID-19 pandemic. Even if your organization is in good shape, don’t get too comfortable. Financial obstacles can appear at any time and you need to be vigilant about acting on certain warning signs. Consider the following.

Budget variances

Once your board has signed off on a budget, you should carefully monitor it for unexplained variances. Although some variances are to be expected, staff should be able to provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, work to mitigate negative variances by, for example, cutting expenses.

Also make sure you don’t:

  • Overspend in one program and funding it by another,
  • Dip into operational reserves,
  • Raid an endowment, or
  • Engage in unplanned borrowing.

Such moves might mark the beginning of a financially unsustainable cycle.

Messy financials

If your financial statements are untimely and inconsistent or aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP), you could be heading for trouble. Poor financial statements can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing.

Insist on professionally prepared statements as well as annual audits. Members of your organization’s audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Declining donations

Let’s say you’ve noticed a decline in donations. Then you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances or leadership. Investigate immediately.

Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean your nonprofit is scrambling for cash.

Faulty leadership

Even the most experienced and knowledgeable nonprofit executive director shouldn’t have absolute power. Your board needs to step in if an executive tries to ignore expense limits and breaks other rules of good fiscal management. The board also should question an executive who attempts to choose a new auditor or makes strategic decisions without the board’s input.

Don’t ignore the signs

If one of these danger signs appears, it’s important to act swiftly. Financial problems don’t disappear on their own. For help evaluating the situation and for advice on how to get your organization back on track, contact the Online Stewardship team of accountants and consultants at (904) 398-4747 or Lynn@OnlineStewardship.com

© 2021


Events of the past year put a dent in many not-for-profit’s reserves. Perhaps you tapped this stash to buy personal protective equipment or to pay staffers’ salaries when your budget no longer proved adequate. As the pandemic wanes and economic conditions improve, you’ll need to start thinking about rebuilding your operating reserves.

Back on steady ground

Assembling an adequate operating reserve takes time and should be regarded as a continuous project. Obviously, it’s nearly impossible to contribute to reserves when you’re under financial stress. But once you feel your nonprofit is on steadier ground, your board of directors needs to determine what amount to target and how your organization will reach that target. It’s also a good time to review circumstances under which reserves can be drawn down.

Reserve funds can come from unrestricted contributions, investment income and planned surpluses. Many boards designate a portion of their organizations’ unrestricted net assets as an operating reserve. On the other hand, funds that shouldn’t be considered part of an operating reserve include endowments and temporarily restricted funds. Net assets tied up in illiquid fixed assets used in operations, such as your buildings and equipment, generally don’t qualify either.

Protection and flexibility

Determining how much should be in your operating reserve depends on your organization and its operations. Generally, if you depend heavily on only a few funders or government grants, your nonprofit probably will benefit from a larger reserve. Likewise, if personnel costs are high, your organization could use a healthy reserve cushion.

Three months of reserves is typically considered a minimum accumulation. Six months of reserves provides greater security. A three-to-six-month reserve should enable your organization to continue its operations for a relatively brief transition in operations or funding. Or, in the worst-case scenario, it would allow for an orderly winding up of affairs.

An operating reserve of more than six months provides greater protection if, for example, something similar to the COVID-19 lockdown occurs again. And a bigger reserve can give you financial flexibility. For example, you might have the funds to pursue a new program initiative that’s not fully funded, or to leverage debt funding for needed facilities or equipment.

No hoarding

Note that it’s generally not a good idea to put aside more than 12 months of expenses. Increasingly, donors want to see the nonprofits they support put funds to work, not hoard them. For more information about operating reserves, contact the Online Stewardship team of accountants at (904) 396-5400 or Lynn@OnlineStewardship.com.

© 2021


Defrauded? How to help your nonprofit recover

Thousands of not-for-profit organizations fall victim to embezzlement schemes every year — some even losing millions of dollars. But losses go beyond actual dollar amounts. The hit to a group’s reputation may scare off donors, grantmakers and other supporters. However, with the right response, nonprofits can bounce back from fraud. Here’s how.

One best practice

A study published in the Journal of Accounting, Ethics & Public Policy makes the case that the specific steps an organization takes following a fraud incident can mitigate significant reputational damage. In its hypothetical example, the study lists several ways a nonprofit might act after discovering money has been embezzled:

  • Make a formal apology,
  • Undergo an external audit,
  • Improve the board of directors’ oversight function,
  • Pursue legal action against the guilty party,
  • Improve internal controls, and
  • Terminate the executive director.

The study found that improving board oversight was the only response to elicit a statistically significant positive effect on supporters’ intentions to donate. Stronger oversight also helped restore an organization’s perceived trustworthiness.

To signal improved board oversight to would-be donors, the authors suggested that an embezzled organization start requiring board members to be completely independent from management and bar employees from serving on the board. Researchers also informed study participants that a nonprofit should increase the number of voting board members and mandate that at least one member has a financial or accounting background. Participants were further told that all board members must review the financial statements at least monthly.

Comply with regulations

The study’s authors call improving board oversight “an ideal image repair strategy” because it comes at a relatively low cost. But while reputational repair is of utmost importance, it’s not the only consideration for victimized nonprofits. If your nonprofit loses funds to fraud, it must comply with federal and state reporting obligations, too.

The IRS generally requires organizations to report any “significant diversion” of assets on Form 990. A significant diversion happens when the gross amount of all diversions discovered during the tax year exceeds the lesser of 1) 5% of gross receipts for the year, 2) 5% of total assets at year end or 3) $250,000. Check with your state for other required reporting.

Act now

You may be able to save yourself a lot of heartache by preventing rogue employees from committing fraud in the first place. Tighten internal controls and board oversight now. And just in case a criminal slips through the cracks, be ready with a fraud contingency plan that can guide you in the aftermath of an incident. For help to investigate fraud or create a mitigation plan, contact our parent company, Patrick & Raines CPAs, either directly or through the Online Stewardship team at Lynn@OnlineStewardship.com or (904) 398-4747.

© 2021


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