What are the responsibilities of individual non-profit board members?

shutterstock_275563196In my previous article, I laid out the overarching responsibilities of non-profit boards, which include big-picture strategic planning; selecting executive staff members; overseeing executive leadership; approving the organization’s budgets; overseeing compensation for staff members and leadership; and fundraising.

In this article, I will focus on the responsibilities of each individual board member.

Understand your fiduciary responsibilities

As members of non-profit organizations’ governing bodies, individual board members must adhere to the legal responsibilities of fiduciaries. A fiduciary is a “person who has the power and an obligation to act on behalf of another under circumstances that require total trust, good faith and honesty.”

As fiduciaries, non-profit board members have three specific legal duties:

  1. Duty of Care: To act with such care as an ordinary, prudent person would employ in your position.
  2. Duty of Loyalty: To act in good faith and in a manner you reasonably believe is in the best interest of the organization.
  3. Duty of Obedience: To be faithful to the organization’s mission. You are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public’s trust that the organization will manage donated funds to fulfill the organization’s mission.

Long story short: board members must, at all times, act in the best interest of the non-profit organizations they represent.

Educate yourself on the organization you represent

In order to responsibly serve on a non-profit’s board, members should understand the organization’s mission, strategic vision and financial situation. That means reviewing:

  • Audited financial statements of past years
  • The organization’s Form 990
  • Missions and values of the organization
  • The organization’s bylaws
  • The organization’s most recent strategic plan
  • Current financial statements

Once new board members are initiated, they should review all provided information in advance of board meetings, including financial information, so that each member is prepared to make informed and responsible decisions.

Joining committees to stay involved with the organization

Most non-profit boards have committees dedicated to specific organizational efforts. These committees vary based on the size and operations of each organization.

Individual board members should actively seek out committees relevant to their specific skill sets and interests.

 

Hatch-Michelle-150x150Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

The firm, with over 400 professionals and staff, offers a diversity of services, which includes 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, 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.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Top 7 Responsibilities of Non-Profit Boards

iStock_000012107875_MediumNon-profit organizations in today’s business climate are expected to meet increasingly large demands while operating with small staffs and limited resources. In order to ensure sustainable success, non-profits must have in place effective, focused and committed leadership.

That starts with the organization’s Board of Directors.

Board Responsibilities:

Boards of directors (or boards of trustees) hold a great deal of responsibility in advancing non-profit organizations’ missions and leading the organizations toward successful futures. Some responsibilities of a non-profit board include:

  1. Strategic planning: The board should always be thinking about the “big picture.” From determining the organization’s mission and purpose to enhancing the organization’s public image, the board is responsible for the overall health of the non-profit.
  1. Selecting executive staff: Who will be the public face of the organization? That is one of the first and most important questions a non-profit board must answer. While the board operates behind the scenes to steer the organization in the right direction, the executive staff manages the day-to-day operations.
  1. Overseeing (and evaluating) executive leadership: The board should support the organization’s executive staff, making sure they have the resources and moral support they need to effectively do their jobs. Every organization hopes to avoid overturn, but – should the board deem it necessary – it does have the authority to remove executive leaders and team members.
  1. Budget approval: Serving as the non-profit’s governing body, the board is responsible for securing and strategically allocating financial resources in order to advance the organization’s mission. This is typically done through the approval of the annual budget.
  1. Setting compensation: While the board is not usually involved in setting individual staff salaries, they usually do this through the overall budget process.
  1. Fundraising: Non-profits’ annual budgets typically rely heavily on fundraising efforts. As the board is in charge of approving the organization’s budget, is is also responsible for ensuring the organization has the money it needs to fulfill its mission.
  1. Recruiting new members to the board: Membership on non-profit boards is typically very fluid. Board members step down for a variety of reasons, and new members are brought in to replace them. To ensure long-term success, an effective board will articulate clear prerequisites for members and offer training and guidance to new members.

Serving on a non-profit board can be a tremendously rewarding and enriching opportunity for any professional. But, as you can see, it also comes with a great deal of responsibility.

 

Hatch-Michelle-150x150

Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

 

The firm, with over 400 professionals and staff, offers a diversity of services, which includes 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, 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.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

IRS Audits on the Rise for Tax Exempt Organizations

shutterstock_228440362Whether you are a board member, executive director, accounting manager or CFO of a non-profit organization, you should be aware that the Internal Revenue Service (IRS) is increasing their audits of the Form 990.

Effective for tax years beginning in 2008, the IRS extensively revised Federal Form 990to include a new summary page, a new governance section, enhanced reporting of executive compensation and an organization’s relationships with insiders and other organizations and new reporting for non-cash contributions, foreign activities, tax-exempt bonds and hospitals.

Now that several years have passed since the 990 revisions, the IRS has commenced auditing Form 990s based on “data-driven” criterion. This means organizations will be automatically selected for audit if certain data is detected by this automated process. The shift to “data-driven” assessments of an organization’s compliance with the federal tax laws, means that Form 990 preparation is more critical than ever. A properly prepared and executed information return will ensure that an organization’s chances for random audit selection are minimized and that exposure to income taxes, both on unrelated business income tax as well as other income by virtue of loss of exempt status, are kept at the lowest level possible.

Continue reading the article here >>

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.

Revenue Recognition Step 5: Recognize Revenue When (or as) the Entity Satisfied a Performance Obligation

As noted in our prior blog post, new revenue recognition standards were issued in 2014. The fifth and final step of the new revenue recognition standard is to recognize revenue when (or as) the entity satisfies a performance obligation. An organization satisfies a performance obligation by transferring control of a promised good or service to the customer. The transfer can occur over time or at a point in time. A performance obligation is satisfied at a point in time unless it meets one of the following criteria, in which case it is satisfied over time:

  • The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs.
  • The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
  • The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.

Assessing whether each criterion is met will likely require significant judgment.

Read other articles in our “Revenue Recognition” Series:

Hatch, Michelle Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

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.

Recovering Indirect Costs from Federal Grants Under Uniform Guidance

shutterstock_228440362In previous articles, we have reviewed the major provisions of OMB’s Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance, or UG) and implementation of grantee requirements.

In this article, BlumShapiro Partner Reed Risteen, takes a look at recovering indirect costs from federal grants under UG. One of the common issues our grant-driven clients face is ensuring they are recovering the maximum amount of indirect costs from their federal grants. He covers the following items:

  • Direct Costs
  • Indirect Costs
  • Methods for Charging Indirect Costs
  • Charging Indirect Costs Under Uniform Guidance
  • Use of De Minimis Rate
  • Use of Negotiated Rate
  • Subrecipients

Read the article >>

Revenue Recognition Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract

As noted in our prior blog post, new revenue recognition standards were issued in 2014. The fourth step of the new revenue recognition standard is to allocate the transaction price to the performance obligations in the contract. For a contract that has more than one performance obligation, an organization should allocate the transaction price to each separate performance obligation in the amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each separate performance obligation.

To allocate an appropriate amount of consideration to each performance obligation, an entity should determine the standalone selling price at contract inception of the distinct goods or services underlying each performance obligation. Sometimes, the transaction price includes a discount or variable consideration that relates entirely to one of the performance obligations in a contract. The requirements specify when an entity should allocate the discount or variable consideration to one (or some) performance obligation(s) rather than to all performance obligations.

Any subsequent changes in the transaction price should be allocated on the same basis as at contract inception.

Read other articles in our “Revenue Recognition” Series:

Hatch, MichelleMichelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

Advertising vs. Qualified Sponsorship Payments

iStock_000001334173MediumAs a follow-up to our “What is Considered Unrelated Business Income?” blog post regarding unrelated business income tax (UBIT), written by Shannon Crowley, the following highlights some of the key factors used when determining whether or not advertising and sponsorship revenue are considered unrelated business income (UBI).

Generally, the IRS considers revenue derived from commercial advertising activities to be UBI; however, advertising revenue is not UBI if:

  • It is not regularly carried on;
  • It is substantially related to the organization’s exempt purpose;
  • Substantially all the advertising activity is conducted by volunteers;
  • The purchaser of the advertising does not expect more than a negligible commercial benefit by the advertisement; and
  • It is simply a listing of names of businesses with no advertising message or index to advertisers.

Advertising

Often, a non-profit will produce a periodical (e.q., newsletter, magazine, etc.) that is related to their exempt purpose and sell commercial advertising space within the publication. When the advertising is purchased for the purpose of inducing a reader to purchase the goods or services of that business, the revenue is likely UBI. Indications of advertising usually include messages that contain qualitative language, promotion of the business entity’s products, services or facilities, or statements of pricing or value.

Qualified Sponsorship Payments

Revenue derived from qualified sponsorship payments (QSP) are excluded as UBI. Typically, this is seen with fundraising or program events and acknowledgements of corporate sponsors in an event program. A QSP is a payment (cash, property or services) by a business entity to an exempt organization, without an arrangement or expectation that the sponsor will receive any substantial return benefit from the payment. A substantial return benefit generally does not include use of the business entity’s name, logo, slogans or contact information. If there is some element of advertising (as described above) provided to a sponsor in return for their payment, the amount exceeding the fair market value of the advertising purchased would be considered to be a QSP.

For more information, see IRS Publication 598.

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.

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.