Archive for Shannon Crowley

Year-end planning: What can non-profits do now to prepare for 2017?

shutterstock_228440362As a non-profit, you are likely in the middle of your annual appeal and evaluating how to raise funds for the coming year’s operational budget. While you’re closing the calendar year and finalizing the last of your annual contributions, make sure you are also keeping tax processes top of mind. In this article, I offer some tips and best practices to save you time and frustration during tax season.

1. Be prepared – don’t let tax season sneak up on you

Have you collected W-9s for service providers and/or vendors? You’ll be getting those 1099 forms out in January so now is the perfect time to make sure you have what you need.  Be aware of deadlines and avoid getting stuck with interest and penalties. Due dates for the IRS 990 Form vary based on the end of your fiscal year. The 990 is due 4 1/2 months after the close of your fiscal year. If your fiscal year follows the calendar year, they are due May 15.

2. Spend your grants

One of the quickest ways to lose out on getting the same grant the following year is to not use all the money you initially received. Make it a practice to have multiple people regularly review your grants and ensure your programs are running as promised.

3. Say thank you (and document it)

All donations – regardless of size – deserve a quick and heart-felt recognition of thanks. Nothing makes donors happier, and more likely to repeat a donation, than receiving a prompt thank you from a charity they just supported.

Sometimes, you’ll need to do more than offer thanks. Donors who make contributions more than $250 need a donor acknowledgement letter to claim the deduction on their individual tax returns. A donor acknowledgment letter can be a letter, an email, or a postcard – the IRS doesn’t have a required format.

However, there are specific details you need to include in the acknowledgement to ensure that the donor gets his/her deduction. You must include the name of your organization and non-profit status (e.g. 501(c)(3) and the details of the contribution (date, method of payment, or description of contribution).

Include a statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case. If any goods or services were provided by the organization in exchange for the contribution, include a description and good faith estimate of the value of those goods or services (e.g. a fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation). Certain insubstantial goods or services like a sticker or coffee mug may be disregarded. Or, provide a statement that goods or services (if any) that the non-profit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

4. Come tax time, fill out the proper forms

Are you tax-exempt? According to the IRS, certain organizations and their affiliates that are: religiously based, a federal or state non-profit, or a disregarded entity of a larger charity, do not need to file an annual form.

If you don’t fall into any of the exemption categories, you’ll need to complete the 990 Form. However, there are several different versions of this form so make sure you are choosing the appropriate one. For example, if your organization’s gross receipts for the year total $50,000 or less, you must fill out Form 990-N. If your non-profit received more than $50,000 but less than $200,000 during the year and has less than $500,000 in assets, you can complete either Form 990-EZ or Form 990. On the other hand, if your group receives $200,000 or more annually, you’ll be obligated to complete Form 990. Private foundations must submit Form 990PF.

5. Consult tax professionals

Consulting professional tax help is always advised to make sure that you get the most out of your tax-exempt status, cover your bases, and protect your non-profit status. There are many tax professionals that offer pro bono help for non-profits and the benefits of properly filed taxes will only help the organization continue to fulfill its mission.

 

Shannon Crowley Massachusetts CPAShannon Crowley is an Accounting Manager at BlumShapiro. She can be reached at scrowley@blumshapiro.com. BlumShapiro, with more than 400 professionals and staff, offers a diversity of services, which include auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations, and provides non-audit services for publicly traded companies.

Donor Acknowledgment – Reminder as the end of the year approaches

iStock_000001334173MediumAs the calendar year end approaches, and we all get ready for 2016, this is to serve as a reminder about the requirements for donor acknowledgments. Many donors wait until the end of the calendar year to make their donations to non-profit organizations in order to receive an individual tax deduction. Management should make sure their procedures around donor acknowledgments are up-to-date and adhere to the IRS requirements.

In brief, a written acknowledgment for all contributions over $250 and for all quid pro quo contributions over $75 are typically required within 60 days after the contribution is received by the organization. For more information: Here is a link to a prior article on this matter as well as the IRS guidelines.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

State Registration Requirements for Fundraising

iStock_000012012741_ExtraSmallMost states require registration with the state agency before soliciting contributions. Solicitation of contributions generally includes any requests of the state’s residents by mail, phone, email, advertisement, etc., and is not dependent on whether contributions are actually collected. In the past, this requirement has not been enforced, mostly because the states lacked the resources. However, in recent years there were changes in the Form 990 that now require non-profits to provide information about their state registrations, bringing more attention to this requirement. Each state’s requirements and filings are different and vary greatly. Prior to the solicitation of contributions in other states, management of non-profits should reach out to the different state agencies to understand their requirements and how to register. The National Association of Sate Charity Officials (NASCO) website has a listing of all the state offices and contact information here.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

What is Considered Unrelated Business Income?

shutterstock_130231046Non-profit organizations that have gross income of $1,000 or more from an unrelated trade or business are required to file Form 990-T with the IRS. But what is considered unrelated business income (UBI)? According to the IRS, for most organizations, an activity is an unrelated business, and therefore subject to unrelated business income tax (UBIT), if it meets the following three requirements.

  1. It is a trade or business;
  2. It is regularly carried on; and
  3. It is not substantially related to furthering the exempt purpose of the organization.

An example of possible UBI is a non-profit organization that regularly holds weddings or other events not related to the organization’s exempt purpose on their facilities. Another is a non-profit university that regularly charges the public for usage of a parking garage for unrelated activities. Note that there are a number of exclusions and exceptions to the general definition of UBI. Determining whether a certain activity is UBI is not usually black and white and requires some judgment and analysis. Annually, management should consider their current year operations to determine if there could possibly be any UBI. Management should seek help from their tax preparer for guidance. All management decisions should be supported and documented in writing. For more information and detail on UBI and examples and exceptions, please click on the following link to the IRS Publication 598.

 

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Four Thresholds Massachusetts Non-Profits Should Be Aware Of

Non-profits are subjected to several regulatory requirements. Below are four thresholds of which that managers of Massachusetts non-profits should be aware:

iStock_000003856109_ExtraSmall1. Review vs. Audit: The Massachusetts Attorney General’s Office requires any charitable non-profit organizations, with gross support and revenue between $200,000 and $500,000 in the fiscal year to have reviewed financial statements, and any revenue over $500,000 in the fiscal year to have audited financial statements. Both the reviewed and audited statements are required to be submitted with the annual Massachusetts Form PC filing.

2. Single Audit Threshold: For fiscal years beginning on or after January 1, 2015, the Office of Management and Budget (OMB) requires a single audit if there are expenditures using federal funds of $750,000 or more in a single fiscal year. This is an increase from the prior threshold of $500,000. Management should keep in mind that the threshold relates to expenses incurred, not revenues received or earned. Also, spending of federal monies does not just include those received directly from the federal government, but also includes any pass-through federal monies received from other non-profits, states, or agencies.

3. Massachusetts Uniform Financial Statements and Independent Auditors’ Report (UFR) Filing: The Operational Services Division (OSD) requires human and social service organizations that deliver services to consumers in Massachusetts using state contracts to file an annual UFR or a UFR cover page and Exceptions/Exemption documentation.

4. 403(b) Plan Audit: The Federal Department of Labor (DOL) requires an audit for 403(b) plans with participant counts greater than 120.   Participant counts should include the following: (a) eligible employees at the beginning of the plan year (whether they participate in the plan or not); and, (b) participants who terminated and still have account balances. For 403(b) plans you can exclude participants who terminated prior to January 1, 2009.

The above are brief descriptions of the requirements and are not all inclusive. If you have any questions or would like further information on any of the requirements above, please contact us.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Best Practices for Allocation of Functional Expenses

iStock_000002010966_ExtraSmallNon-profit organizations are required to report on expenses by functional classification. This can be presented within the statement of activities or within a related note to the financial statements. In addition, the functional expenses are also reported in the IRS Form 990.

The functional expense classifications are as follows:

  • Program Services – costs relating to providing program services that fulfill the organization’s mission.
  • Management and General – costs relating to the essential day-to-day administration and overall direction of the organization. Examples include oversight, general recordkeeping, financing, etc.
  • Fundraising – costs relating to obtaining financial support for the organization from potential donors.

Organizations typically have expenses that relate to more than one functional expense classification. The most accurate and preferred method of allocation is by directly identifying a specific expense to a function. However, in many cases, direct identification is not feasible, and, therefore, allocating expenses based on either financial or non-financial data is appropriate. Management should have a written policy in place for its cost allocation plan in order to ensure consistency. Please keep in mind that management should review the policy at least annually and consider the organization’s current year operations in order to make revisions as necessary.

Below are some examples of allocations of expenses:

  • Salaries and Wages – allocate based on percentage of time spent in each function by the individual employee/department
  • Employee benefits and payroll taxes –  allocate based on salaries and wages
  • Occupancy costs (utilities, janitorial, building maintenance, etc.) – allocate based on square footage of the organization by function or allocate based on salaries and wages

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Retirement Plan Sponsor Best Practices

Non-profit organizations have a minefield of details to navigate and regulations to adhere to when they sponsor a retirement plan. To help non-profits understand and manage their legal responsibilities as plan sponsors, Will Berry of Wealth Planning Resources, LLC shares some important best practices and a warning about increased scrutiny being placed on fee disclosure.

What are some issues you see that should be a concern for retirement plan sponsors?

Retirement Plan Sponsor Best PracticesToo often we find that plan sponsors do not necessarily know who is a fiduciary, and, if they do, they do not necessarily know what their responsibilities as fiduciaries are. Often there is no clear process in place to manage these responsibilities. We come across many executive directors and human resources professionals at non-profits trying to juggle the many responsibilities of a fiduciary, even though it is not an area of their expertise and they are busy with many other non-retirement plan responsibilities.

What are some best practices for retirement plans sponsors?

1. Know the laws and rules that govern your plan as dictated by ERISA and your plan document.

2. Every plan should have an IPS (Investment Policy Statement). An IPS should spell out the process of managing your fiduciary responsibility. Questions that should be answered by the IPS include but are not limited to:

    • What are the objectives of the plan?
    • Who are the parties to the plan and what are their roles?
    • Which asset classes/types of investments will be available?
    • How are plan investments monitored and benchmarked?
    • What is the process for employee education?
    • How are services and fees by service providers monitored?

3. Always act in the best interest of plan participants. I believe that participants know when a plan is well managed and the employer has their best interests at heart.

4. With the help of your service providers, make tools and information available that can help participants make good decisions.

5. Avoid conflicts of interest.

6. Make decisions using the Prudent Man Rule. In other words, act with care and due diligence that a prudent person would exhibit in a similar situation.

7. Be diligent and document all that you do. Document the process that you go through, the decisions you make and the criteria you use to get to decisions. You do not have to be an expert in all areas, but review capabilities and expertise of those experts whose advice you rely on to guide your decisions.

Are there any hot topics that we should be aware of?

There is a great amount of scrutiny placed on fee disclosure right now. I would suggest plan administrators first make sure they have a detailed understanding of all plan fees and expenses. Secondly, they should work with their service providers to implement a plan on how and when fees will be disclosed to participants in a way that will be compliant with ERISA rule 404(a)(5). Remember to always document what you did and when you did it.

Will Berry’s firm, Wealth Planning Resources, works with plan sponsors to help implement and monitor retirement plans as well as to provide employee education. He graduated from James Madison University in 1999 with a BBA in Finance. His professional certifications include Chartered Financial Consultant (ChFC) and Certified Life Underwriter (CLU), and the Accredited Investment Fiduciary® (AIF®) Designation.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Cultivating a Relationship Between the Finance and Development Offices

It is not uncommon for the relationship between the finance and development offices at non-profit organizations to be strained or non-existent. Yet this relationship is probably one of the most important within a non-profit organization, especially for those organizations that rely heavily on donations and grants. Poor communication between these two offices can result in the improper receiving and handling of contributions and, ultimately, lost funding and upset donors.

Effective two-way communication is vital to cultivating the relationship between the finance and development offices. Below are specific situations in which communication is important:

Reconciliations

Most organizations have two independent systems that track contributions, one used by the development office and one used by the finance office. Also the treatment used by each office to track contributions can be different, resulting in variances when comparing reports for the same time period from one system to the other. If the two systems are not reconciled, this can be very confusing to a finance committee or management when reviewing the reports. Therefore, it is important that a reconciliation between the two systems is completed monthly, or at least quarterly. Monthly reconciliations will enable the two offices to ensure that there are no errors (such as incorrect, duplicate, late or missed postings) and confirm that the reports are complete and accurate. The only reconciling items should be the differences in treatment of the contributions.

Reconciling the two systems requires cooperation and good communication between the development and finance offices. In order for a reconciliation to be completed, the two offices must first understand the underlying differences in the treatment of various types of contributions. There could be several differences. For example, when a verbal pledge is received, the development office will usually record the pledge; however, the finance office might not record a pledge unless it is agreed to formally in writing, or if it is contingent upon an event or a matching contribution. Once these differences are understood, the two offices should then work collectively to reconcile the reports. The two systems should be set up so that they are in alignment with each other as much as possible (for example, having the same tracking number for each type of contribution, e.g. annual fund, endowment), which will assist with the reconciliation process.

Restricted Donations and Grants

Many times, only the development office is involved during the beginning stages of a grant. Not involving the finance office early in the process could result in important deadlines being missed, restrictions being broken and, the worst case situation, the funding falling through. It is important that, during the RFP stages, the development office communicates to the finance office any deadlines for reporting requirements and details on any restrictions. This will enable the two offices to work together to evaluate the opportunity, prepare a proposal budget (or complete any other necessary paperwork or reporting requirement) and ensure that the restrictions meet the goals and fiscal needs of the organization. The finance office will also need to adequately understand the restrictions for financial statement reporting purposes and to ensure the funds are spent in accordance with the restriction and the proper information is tracked for reporting purposes.  

Campaigns and Pledges

Likewise, with restricted contributions, the development office should involve the finance office, senior management and the board in the beginning stages of a campaign for funds. In particular, the offices should work together and agree on the purpose of the campaign to ensure that any restrictions on the funds are in accordance with the goals and fiscal needs of the organization. 

When pledges are made, the development office should communicate the details (donor, amount, restrictions, timing of the pledge, as well as verbal or written) to the finance office as soon as possible. It is important that the finance office records the pledges in the correct fiscal year and spends the funds in accordance with the restriction.

Effective two-way communication requires the willingness of the personnel within both the development and finance offices. Both offices should be proactive and seek out necessary information, rather than waiting or assuming the other office will communicate the information. Scheduling frequent meetings between the two offices is also recommended. Agenda discussion items can include new grant opportunities, new campaign initiatives, reporting requirements and other topics. While both the development and finance offices are essential to a non-profit organization, the two offices working together collectively is invaluable.

For more information, please contact Shannon Crowley at scrowley@blumshapiro.com or 781-610-1245.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Five Steps to Prepare for a Financial Statement Audit

Financial Statement PreparationFollowing are five steps you and your finance team can take to better prepare for a financial statement audit. These steps will help decrease the audit burden on you and your team. After all, an audit should not be looked at as a burden. It should be viewed as a tool that ensures your financial operations are working properly and provides insight on best practices and how to improve.

  1. Be proactive. The auditors should reach out to you and provide you with a requested list of items they will need to perform the audit. However, you can reach out to them as well when you have time to work on their requests. This way you can work on the requests according to your schedule.
  2. Ask questions. If the auditor’s request list is not clear on a particular item, do not hesitate to ask the auditor questions before he/she comes out to perform fieldwork. This will cut down on the time spent pulling unnecessary information and last minute scrambles to pull requests together. In addition, in many cases, there is no need to re-create new schedules for the auditor’s purposes. Most times, auditors can utilize the schedules and reconciliations that you and your team prepare on a monthly basis.
  3. No surprises. Keep communication with the auditors open throughout the year. If you have any unusual transactions or changes in operations, it is best to keep the auditors in the loop and ask for their advice. This way you have the auditor’s approval of how to record the transaction and it will cut down on time spent at year end.
  4. Be prepared. Try to have all requests ready by the auditor’s deadlines and for when he/she comes out into the field.  This will cut down on the questions and interruptions when in the field and the auditor will be able to work through the audit more quickly. This will also cut down on any extra audit costs.  In addition to having all requests ready, make sure that all individuals that will be needed during the audit will be available for auditor’s questions. If key individuals are on vacation or not available when the auditors are in the field, it will slow down the audit process.
  5. View the auditors as a resource. As noted above, a lot of times auditors are viewed as being a burden. Try to change this mindset and instead utilize their knowledge and skill set to improve your financial operations. Ask auditors for advice on best practices, internal controls, benchmarking, etc. Ask them what changes they have seen within a particular industry. Auditors appreciate these types of questions and want to help.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.