Archive for Financial Statements

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.

Implementation of ASU 2016-14 Not-for-Profit Entities (Topic 958), Presentation of Financial Statements of Not-for-Profit Entities

iStock_000010827673_Small-300x199Now that the nonprofit reporting standard has been issued in its final form, it’s time to think about implementation.

Transition Guidance

The update is effective for annual financial statements for fiscal years beginning after December 15, 2017, which means calendar year 2018 and after. Earlier adoption is permitted. The provisions should be applied on a retrospective basis to all prior years presented. However, when presenting comparative financial statements for periods prior to adoption, the following may be omitted from the prior period financial statements presented:

  • Analysis of expenses by both natural and functional classification, unless previously required under the old standard for voluntary health and welfare organizations.
  • Disclosures about liquidity and availability of resources

In the period that the update is applied, the nonprofit should disclose the nature of any reclassifications or restatements and their effects, if any, on changes in the net asset classes for each period presented.

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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.

FASB Exposure Draft on Not-for-Profit Financial Reporting Issued

Last month, the FASB issued a much anticipated exposure draft relating to the proposed accounting standards update relating to not-for-profit and health care entity financial reporting.  BlumShapiro Partner Reed Risteen summarized the exposure draft in a recent article to help explain the proposed changes, and provided some practical examples of how financial statements may look under the new proposed guidelines. Read the full article here.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

How Interested Parties Learn About Your Non-Profit Organization and How to React

Interested Party Communication - Nonprofit CPAIndividuals looking to learn more about your non-profit organization have a wealth of information at their fingertips thanks to the many resources available to them on the Internet.  In today’s competitive environment, it is important for leadership to view these resources as opportunities to generate interest from those who seek out information and invest the time necessary to produce comprehensive materials that will help them tell their story.  It is also important for your organization’s leadership to understand where and how information is made available.  With that knowledge, a comprehensive approach to addressing each one of these resources can be developed to ensure the message conveyed through them is positive and thorough.

Nonprofit Resources

Below are a few resources that can be accessed by the general public and provide details of your organization’s standing and compliance with filing requirements:

  • The IRS website and GuideStar. These sites provide visitors with an opportunity to review the exempt status of your organization and determine whether or not it is in good standing.
  • GuideStar and Charity Navigator. These allow for access to your organization’s federal informational returns.
  • Secretary of State, Attorney General or other agencies that monitors charities at the state level. Many websites for these state agencies include a searchable database of registered non-profit organization filings, formation documents, by-laws, etc.  For example, the Massachusetts Attorney General’s charities database includes copies of federal and state filings as well as the audited or reviewed financial statements (for larger organizations).

Because your exempt status and federal and state filings can be reviewed by the general public, it is important that you remain up-to-date and in compliance with all applicable laws and regulations.  Further, these filings should be viewed by the leadership within your organization as a marketing tool where accomplishments can be celebrated and where you can clearly demonstrate that the mission has been put into action.  Take the time to review these documents thoroughly with the board before they are filed and ensure everyone understands how easily accessible they are to potential donors, grant makers and others who want to learn more about the organization.

In addition to the above resources, those desiring to gain further knowledge about your organization will likely review the following:

  • The organization’s website. Your website should provide a great level of detail on the organizations mission, programs, fundraising initiatives, board of directors, etc.  In addition, it should also include testimonials and stories about those who have been positively impacted by the work of the organization.
  • Facebook, LinkedIn and Twitter accounts.  Social media has become an important way for organizations to communicate what’s happening in real time.  While organizations should be cautious with their use of social media, responsible use can produce extremely positive results as a great message will be spread very quickly.
  • Search engine results.  Often, the best way to learn about an organization is simply to “Google” it.  Search engines are a great tool for interested parties to see how your organization is connected to others, what people are saying about the organization and review the services you provide or causes you support.

With knowledge of the fact that people are using these resources to learn more about your organization, it is important to keep them up-to-date and to continuously prepare new content.  Having old and outdated information about your organization available to interested parties could result in them concluding that your mission and activities are also old and outdated.  Set roles and responsibilities within your organization for maintaining the website and social media accounts and know what your competition is doing so you can stay on the cutting edge.

Chris Ernest, CPA oversees audit and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.  Chris provides services to a wide range of  non-profit organizations, including independent schools, country clubs, museums and trade associations. In addition, he specializes in audits of employee benefit plans.

FASB Progresses Toward Issuance of Exposure Draft to Redesign the Non-Profit Financial Reporting Model

In the summer issue of our Non-Profit Notes newsletter, BlumShapiro partner Marcus Harwood shared the latest accounting update affecting non-profit organizations.

As we have discussed in previous articles the Financial Accounting Standards Board (FASB) is working on a project to redesign the non-profit financial reporting model in order to provide more useful, transparent and consistent information to financial statement users. Marcus’ article outlines the changes and the areas most likely to be affected.

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A New Look to Your Non-Profit’s Financial Statements

There are currently some changes in the works for the non-profit financial reporting model. The proposed changes, currently being developed by the Not-For-Profit Advisory Committee of the Financial Accounting Standards Board, aims at improving net asset classification requirements as well as disclosure information provided to the reader.

Recently, Marcus Harwood, Partner at BlumShapiro, provided some relevant information about these proposed changes and the current status of the initiative. Read Marcus’ article here.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

 

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.