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Tax reporting may be the last thing on your mind when planning a special fundraising event. But your not-for-profit should carefully track revenues and expenses and retain related documentation now to facilitate the reporting process later. Pay attention to the following issues.

What to report

Tax reporting for an event may require different — and more — information than financial statement reporting does. If your organization adheres to Generally Accepted Accounting Principles (GAAP), you usually must report revenue and expenses related to special events on your financial statements as special event revenue. For tax purposes, though, your organization may be able to report some of the event ticket revenue as contributions. For example, if attendees pay more for a ticket to a dinner than the dinner’s fair market value (FMV), the excess would be a contribution.

Tax reporting can require more granular information, too. You report special event data on IRS Form 990, “Return of Organization Exempt from Income Tax.” If you’re reporting more than $15,000 in fundraising event gross income and contributions, you also need to complete Schedule G, “Supplemental Information Regarding Fundraising or Gaming Activities.”

Schedule G requires you to report amounts for cash prizes, noncash prizes, facilities rental, food and beverages, and entertainment. If your event includes gaming, you’ll have to answer a series of multi-part questions on Schedule G, too. In addition, you’ll need to allocate income and expenses between the gaming and fundraising event on Form 990.

How to handle donations and donors

Nonprofits often rely on donated services or facilities, as well as the work of volunteers. Although GAAP generally requires nonprofits to record such in-kind contributions and sometimes the value of volunteer time, the IRS doesn’t include them in contributions or expenses. Goods donated for an event, on the other hand, are reported as contribution revenue and, when used, as expenses.

Be sure to provide donors with information about the tax benefits they receive from participating in a special event. They might not be aware that their deductible contributions are reduced by the FMV of the benefit they receive. It’s generally up to you to report the value donors receive in a written statement, reminding them to deduct only the excess of their payment over the FMV. Specifically, you must provide the disclosure for payments of more than $75. Note that it’s the initial payment amount that triggers the obligation — not the amount of the deductible portion. Failure to make the disclosure can result in a penalty of $10 per contribution, up to $5,000 per fundraising event.

Even if it’s not legally required, you should routinely provide special event participants with a statement of the benefits they receive. You’ll make it easier for them at tax time, which could result in the kind of goodwill that leads to future support.

When to start organizing

Although it may seem like more work, planning for tax reporting while you’re still in the early stages of your event preparation will pay dividends later. If you need help collecting data or complying with IRS rules, contact us with questions or concerns at Online Stewardship or our parent company, Patrick & Raines CPAs. You may reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

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Filed under: General by OSA&C Tuesday, August 8th, 2023
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Public charities, or 501(c)(3) organizations, are fundamentally different from private foundations. They depend on support from multiple public sources, including individuals in their communities. If your not-for-profit isn’t reaching out to and engaging its broad donor and prospective donor base through the media, it probably needs to revise its PR strategy. Consider these best practices.

Often rather than occasionally

You can raise your nonprofit’s profile by putting out news releases often rather than just occasionally. The addition of a key staff member, an operational milestone, a new grant you’ve received or the kick-off of a fundraising campaign can all warrant press releases. In general, focus on outlets that are most likely to use your press releases, such as local television stations that cover community news. Get to know producers and editors and their broadcast and publication schedules. By taking the time to do this, you can pinpoint the most suitable outlets for your news.

Social media platforms are especially useful for publicizing news less formally — not to mention quickly — because you have complete control over when you post and what you post. Keep in mind that social media doesn’t require you to write long pieces. Just post captioned photos from a recent fundraising event or awards ceremony to remind followers that you’re seeking their support.

Compelling narratives

Human beings are naturally attracted to compelling narratives and are more likely to remember stories than disconnected facts. Work with your communications team to craft a story that dramatizes your nonprofit’s challenges and features real constituents. Your story will resonate if you focus on situations many people have experienced — such as mourning the death of a family member or struggling to find a new job.

Providing a local angle on an issue of national importance will increase your appeal to the media and immediate community. Whenever possible, offer an expert source from your organization who can talk knowledgeably about the local impact of a national story. By positioning your nonprofit as an authority, you can build trust and, ultimately, increase support for your organization.

Of course, when it comes to good publicity, timing is critical. You can increase your odds of coverage by submitting requests to certain media outlets, such as print and online magazines, at the start of new publication cycles. Or think about hosting an event or releasing an important announcement on a typically slow news day.

Stretch your budget

Public charities must be accountable to the public, so communicating effectively with a large audience via the media is essential. If you’re unsure about how to stretch your budget for a better PR strategy, contact us with questions or concerns at Online Stewardship or our parent company, Patrick & Raines CPAs. You may reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

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Filed under: General by OSA&C Tuesday, July 25th, 2023
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Do your not-for-profit’s accounting processes work perfectly — with no errors, delays or other inefficiencies? If yours is like most organizations, probably not. But if your nonprofit is committed to improvement, you have an edge over those that accept the status quo. Whether it’s building budgets, paying invoices or preparing financial statements, there’s almost always something that can work better, faster and less expensively.

Prioritize certain functions

Certain financial functions deserve greater attention than others. For example, it’s essential that individuals or groups responsible for your organization’s financial oversight (such as your CEO or board finance committee) promptly review monthly bank statements and financial statements. They should look for obvious errors or unexpected amounts. If your nonprofit doesn’t handle this task efficiently, ascertain the reason and find a solution. It could be one person who doesn’t understand his or her role or a systemic problem with multiple points of failure.

Another important area is paying invoices. Make sure your policies and procedures prioritize a monthly cutoff. For instance, require all invoices to be submitted to the accounting department within one week after the end of each month. Too many adjustments — or waiting for employees or departments to weigh in — can waste time and delay the completion of your financial statements.

You also may be able to save days at the end of the year by reconciling your balance sheet accounts each month. It’s a lot easier to correct errors when you catch them early. Also, be sure your organization is reconciling accounts payable and accounts receivable subsidiary ledgers to your statements of financial position.

Let software work for you

Many organizations underuse the accounting software package they’ve purchased because they haven’t invested the time to learn its full functionality. If needed, hire a trainer to review the software’s basic functions and teach time-saving tricks and shortcuts to staffers. If you find your software is outdated or simply doesn’t meet your nonprofit’s needs, prioritize its replacement.

With the right software, you should be able to standardize financial reports with no modification. This not only will reduce input errors but also provide helpful financial information at any point, not just at month end. And consider performing standard journal entries and payroll allocations automatically within your accounting software. Many systems have the ability to automate, for example, payroll allocations to various programs or vacation accrual reports. But review any estimates against actual figures periodically, and always adjust to actual amounts before closing your books at year end.

Find inefficiencies — and fix them

This is only the tip of the iceberg. Depending on your nonprofit’s size, programming and other characteristics, you may have other accounting functions that don’t work as well as they could. We can advise on specific problems or even conduct an organization-wide audit to find — and fix — multiple inefficiencies.  Contact us with questions or concerns at Online Stewardship or our parent company, Patrick & Raines CPAs. You may reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

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Filed under: General by OSA&C Tuesday, July 11th, 2023
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Many not-for-profit leaders are nervously watching macroeconomic signs — inflation, rising interest rates and the possibility of recession — to predict how their organization will fare in coming months and years. But threats to your nonprofit’s well-being may be closer than you think. Whether you’re an executive or board member, make sure you’re looking out for these four internal warning signs:

1. Unexplained budget discrepancies. After a budget has been approved by the board of directors, it should be monitored for variances. Although some variances are to be expected, your 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 watch out for overspending in one program funded by another, dipping into operational reserves, or unplanned borrowing. These, plus the need to raid your nonprofit’s endowment for funding, may mark the beginning of a financially unsustainable cycle.

2. Down-trending donations. Let’s say your nonprofit has been receiving fewer and smaller donations lately. Then you start hearing from long-standing supporters that they’re losing confidence in your organization. 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 activities could mean your nonprofit is scrambling for cash.

3. Unreliable financials. If your financial statements are untimely and inconsistent or aren’t prepared using U.S. Generally Accepted Accounting Principles, 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.

4. Leadership run amok. 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 or breaks other rules of good fiscal management. The board also should question any executive who attempts to choose a new auditor or who makes strategic decisions without board input.

If you spot any of these signs, don’t ignore them. Ask us to review the situation and help you tackle any problems. Contact us with questions or concerns at Online Stewardship or our parent company, Patrick & Raines CPAs.  You may reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

© 2023

Filed under: General by OSA&C Tuesday, June 13th, 2023
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Whether you’re starting up a not-for-profit organization or your nonprofit has existed for years, you may have questions about insurance. For starters: What kind do you need? How much? Are you required by your state or by grant makers to carry certain coverage?

Much depends on your organization’s size, scope and programming. But your goal should be to carry what’s required to meet any regulatory or funding mandates and to address legitimate risks. Although there are many types of insurance available to nonprofits, it’s unlikely you need all of them.

The essentials

One type of insurance you do need is a general liability policy for accidents and injuries suffered on your property by clients, volunteers, suppliers, visitors and anyone other than employees. Your state also likely mandates unemployment insurance as well as workers’ compensation coverage.

Property insurance that covers theft and damage to your buildings, furniture, fixtures, supplies and other physical assets is essential, too. When buying a property insurance policy, make sure it covers the replacement cost of assets, rather than their current market value (which is likely to be much lower).

Depending on your nonprofit’s operations and assets, you might want to consider such optional policies as automobile, product liability, fraud/employee dishonesty, business interruption, umbrella coverage, and directors and officers liability. Insurance also is available to cover risks associated with special events. Before purchasing a separate policy, however, check whether your nonprofit’s general liability insurance extends to special events.

Biggest threats

Because you’re likely to be working with a limited budget, prioritize the risks that pose the greatest threats. Then discuss with your financial and insurance advisors the kinds — and amounts — of coverage that will mitigate those risks.

Be careful you don’t assume insurance alone will address your nonprofit’s exposure. Your objective should be to never actually need insurance benefits. To that end, put in place internal controls and other risk-avoidance policies such as new employee orientations and ongoing training.

Don’t go overboard

Some organizations buy more insurance coverage than they need, which can be costly. So make sure you’ve thoroughly analyzed your nonprofit’s risks and buy only what’s necessary to protect people and assets. We can help you decide what insurance you need — and what you probably don’t. Contact us with questions or recommendations at Online Stewardship or our parent company, Patrick & Raines CPAs. You may reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

© 2023

Filed under: General by OSA&C Tuesday, May 30th, 2023
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Not-for-profit organizations are compelled by federal and state wage-and-hours laws to perform a certain amount of time tracking. Funders may also stipulate timekeeping practices. Fortunately, timekeeping software can make the job a lot easier for staffers and managers. Here’s how to ensure your nonprofit complies.

What’s required and what’s not

You generally are required to document hours worked by hourly employees. And even though salaried workers aren’t paid by the hour, you’ll need proof of their time worked if there’s ever a dispute over wages or their exempt status. Exempt employees generally include executive, administrative and professional workers who earn a salary, provided they meet the Fair Labor Standards Act criteria for these classifications.

In addition, your nonprofit should document incurred costs for funders that reimburse expenses or fund specific programs or activities. Timekeeping is also necessary to comply with the Affordable Care Act. Under the act, employees who work, on average, 30 or more hours per week are considered full-time. And employers with 50 or more full-time and full-time equivalent employees may be penalized if they don’t offer them adequate health care coverage.

If your organization follows Generally Accepted Accounting Principles (GAAP), you must allocate payroll expenses to specific programs and supporting services. Payroll allocation may be the basis for recording other expenses by program. The same holds true for costs deducted from unrelated business income.

Although you’re not required to track volunteer time, you may want to consider tracking it. Knowing the total number of hours volunteers contribute helps you show donors the true cost of programs and full scope of volunteer support. It also enables you to recognize and reward committed volunteers.

Best practices

For your timekeeping procedures to be effective, your organization should collect information as early as possible, verify its validity and let your software program do the rest. For example, you can require employees to record their own time daily (or use a time clock system that does it automatically). Consistency is important: Once you’ve established a policy, make sure everyone adheres to it.

Although tracking time for staffers who work exclusively in a single program usually is easy, timekeeping for multiple programs and supporting service areas can be more complicated. To simplify the task, capture employees’ time and allocate it as soon as you can. If daily tracking isn’t possible, consider capturing time data for a few representative periods during the year and applying those percentages broadly.

Decision-making help

Even if timekeeping weren’t required, it would be a good idea. Careful allocation of payroll and other expenses helps you understand the true cost of running programs. This, in turn, enables you to make decisions such as whether to continue specific initiatives and find new funding for programs. Contact us with questions or for timekeeping software recommendations at Online Stewardship or our parent company, Patrick & Raines CPAs.  You can reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

© 2023

Filed under: General by OSA&C Tuesday, May 16th, 2023
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Despite recent accusations that the IRS targets certain types of tax-exempt organizations for audit, not-for-profit audits generally are rare. That’s because most nonprofits owe no or very little tax. However, as the IRS receives funding as part of the Inflation Reduction Act, it’s expected to hire new agents for all divisions, including the Tax Exempt and Government Entities Division. So nonprofit compliance checks and audits potentially could become more common.

What should you do if your nonprofit hears from the IRS?

Initial letter and call

If your organization is chosen, most likely it will be subject to a correspondence (not an in-person) audit. An IRS agent will send you — and, if applicable, anyone with a power of attorney — contact letters via the U.S. Postal Service. The agent will then wait at least 10 business days before making phone contact.

The initial phone call will include discussion of the issue (or issues) being examined, for example, an incomplete Form 990 or a complaint the IRS received about your nonprofit. The agent will ask you to provide items listed on an Information Document Request (IDR), such as:

• Filed Form 990s and other tax documents,
• Payroll tax records,
• Records of transactions with donors or business partners, and
• Unrelated business income documents.

The phone discussion may lead the IRS auditor to modify the IDR before sending it to you. If the request seeks more than one item, the auditor will group the items on a single IDR.

Communicate and meet deadlines

Before the auditor sends the IDR, you and the auditor should agree on the deadline for your response. If you can’t agree on a date, the auditor will assign one.

The IDR also will identify the date that the auditor plans to review your responses for completeness. Deliver everything by the deadline. If the auditor determines your response is complete, you’ll be informed by phone. If, on the other hand, the auditor decides your response isn’t complete — or if you didn’t respond — you might be granted one or more extensions to comply.

If upon reviewing the IDR documents, the IRS decides you’re in compliance, the agent will contact you via phone and mail you a closing letter. Otherwise, the auditor will propose a tax adjustment, tax status change or even a revocation of tax-exempt status. If you agree to the proposal, you can typically close your case by fulfilling any requirements. Or you can request an appeal with the IRS or via the court system.

Get help if you need it

If your nonprofit is audited, comply with all requests on time and remain calm and professional when talking with IRS agents. If you need assistance communicating with the agency or assembling information and documentation, we can help. Contact us with your questions about best practices for avoiding an IRS audit thru Online Stewardship or our parent company, Patrick & Raines CPAs.. You can reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

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Filed under: General by OSA&C Tuesday, May 2nd, 2023
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Data analytics is the science of collecting and analyzing sets of data to develop useful insights, connections and patterns that can lead to better informed decision making. It can be enormously useful for not-for-profits. For example, data-driven nonprofit Community Solutions partners with local charities to help them reduce, and even end, homelessness in their communities. Among the tools it uses are databases that account for individuals experiencing homelessness and their history, health and housing needs, as well as real-time data on available housing.

But what about nonprofits that don’t have the expertise to pursue tech-driven solutions? If this sounds like your organization, take heart: Using data analytics is easier than you might think. And deploying it successfully can save your nonprofit time and effort over the long term.

Number of advantages

The potential for data analytics is almost endless. It can produce such metrics as program efficacy, outcomes vs. efforts, and membership renewal that can reflect past and current performance and, in turn, predict and guide future performance. Data analytics can also help your organization validate trends, uncover root causes and improve transparency. For example, analysis of certain fundraising data makes it easier to target those individuals most likely to contribute to your nonprofit.

Data analytics typically facilitates fact-based discussions and planning, which is helpful when considering new initiatives or cost-cutting measures that stir political or emotional waters. The ability to predict outcomes can support sensitive programming decisions by considering data on a wide range of factors — such as at-risk populations, funding restrictions and grantmaker priorities.

Finding what you need

Data usually comes from two sources, internal and external. Internal data includes your organization’s databases of detailed information on donors, beneficiaries or members. External data can be obtained from government databases, social media and other organizations. Some basic analytics tools are free or available through non- and for-profit partnerships. But for more sophisticated and powerful functions, your organization may need to spend a little money.

Your informational needs should dictate your data analytics package. Thousands of potential performance metrics can be produced, but not all of them will be useful. So identify those metrics that matter most to stakeholders and that truly drive decisions. Also ensure that the technology solution you choose complies with any applicable privacy and security regulations, as well as your organization’s ethical standards.

Talk to experts

If you have in-house technology expertise or any board members familiar with data analytics, seek their input. Otherwise, talk to data experts for advice. Contact Online Stewardship or our parent company, Patrick & Raines CPAs for help when you have questions. You can reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

© 2023

Filed under: General by OSA&C Tuesday, April 18th, 2023
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The arrest last year of a high-profile cryptocurrency exchange founder for fraud not only hurt the crypto business, but also cast a shadow on “effective altruism.” This philosophy employs evidence and statistics to determine strategic ways to benefit others — and the alleged fraudster is a vocal proponent. He has claimed that he earned as much money as he could so he could give most of it to charity.

Is this a case of one bad apple spoiling what’s otherwise a sound approach to giving? After all, effective altruism is particularly popular among tech millionaires and billionaires. Or should your not-for-profit be wary of philanthropists who espouse it?

Power of high-impact giving

Effective altruism (also known as “strategic giving”) doesn’t focus on how effective a nonprofit is with its funds. Rather, it looks at how effective donors can be with their money and time. Instead of being guided by what makes them feel good, effective altruists use evidence-based data and reasoning to determine how to make the biggest impact.

Effective altruists generally consider a cause to be high impact if it’s large in scale, generally neglected by other philanthropists and is “highly solvable.” Because they strive to get the most bang for their bucks, some effective altruists focus on nonprofits that help people in the developing world. So, instead of donating to a U.S. school, an effective altruist interested in education might donate to an organization that provides nutrition to children in poor countries — because improving their diets also will improve their ability to learn.

What critics say

Skeptics question whether a focus on measurable outcomes results in a bias against social movements and arts organizations, whose results are harder to measure. Some organizations work to eliminate broader problems, such as income inequality or oppression, where progress isn’t easily quantified. An effective altruism approach may do little to tackle the societal issues behind a problem.

Critics also point out that an evidence-based approach ignores the role that emotional connection plays in charitable donations. When it comes to choosing which organizations to support, givers’ hearts frequently matter more than their heads. Concentrating on numbers and efficiency may actually discourage supporters.

Then there’s the issue of control. Some charities worry that effective altruists not only will dictate how nonprofits use their funds but also will treat philanthropy as a tool to achieve business, political and other non-charitable goals. Such problems are only exacerbated if effective altruists donate ill-gotten funds.

Exercise caution

Your nonprofit probably shouldn’t ignore the effective altruism movement, but exercise caution. Carefully evaluate any large offer of support, particularly if it means giving up control of how funds are spent or if you’re worried about the legitimacy of the donor. Instead, rely on financial and other experienced professionals for advice.

Contact Online Stewardship or our parent company, Patrick & Raines CPAs for help when you have questions. You can reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.

© 2023

Filed under: General by OSA&C Tuesday, April 4th, 2023
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When inflation is high, it’s common for people to cut expenses by deciding not to renew subscriptions and memberships. For charities and associations that depend on membership fees, this trend can be distressing — if not catastrophic. If your not-for-profit’s membership rolls are declining due to nonrenewal, you need to address the problem immediately. Here are some ideas for keeping members in the fold.

Matching offerings to needs

To keep members, you may have to offer something they need. For example, offer education, networking opportunities, research, discounts or credentials. And the only sure way to get a handle on what your members need is to ask them.

Accomplish this through formal surveys, focus groups and online polls as well as by simply asking your members when you talk with them. How are your products or services meeting their needs? What do they need that you’re not providing? Needs aren’t static, and a lot has changed over the past few years. So check in with members regularly.

Communicating your value

Providing the right offerings is important. But you also must emphasize your organization’s value proposition. This is the unique experience that your members have when they interact with your nonprofit and its offerings.

Try making an emotional appeal that taps into the intangibles of being part of your group. Depending on your mission, you might tout the value of individuals banding together to create a powerful voice for change, the chance to help improve the conditions in your community or the ability to network with local or industry leaders.

Meeting members where they are

In general, members who are deeply involved will stick with your organization. Create as many avenues as you can for members to participate, for example, as board and committee members, event volunteers, or publication contributors.

Treat members as individuals whenever possible. Always address correspondence to them specifically (never to “member at large”) and consider offering them personalized content when they visit your website. Also make sure that it’s easy to renew membership through your website and that the renewal process enables multiyear memberships — possibly at a discounted rate.

If you don’t already, work your social media channels. Give members reasons to follow you by regularly posting updates, event photos and other engaging material. If your group is top of mind, members will find it harder to abandon you.

Acknowledging hardship

Finally, don’t avoid financial realities. Acknowledge that times are hard and you understand that members may face cash crunches. If possible, you might want to discount your membership fees temporarily to encourage renewals — and new memberships.

And if you feel your organization’s membership-dependent revenue model is no longer feasible, contact Online Stewardship or our parent company, Patrick & Raines CPAs for help when you have questions. You can reach out to Lynn by calling (904) 396-5400 or email her at Lynn@onlinestewardship.com or office@CPAsite.com.  We can help you explore other revenue-generation strategies. 

© 2023

Filed under: General by OSA&C Tuesday, March 21st, 2023
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