Tag Archive for Board of Directors

The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.

TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.

The use of “data-driven decision making” for audit selection is one iStock_000010827673_Smallof the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.

The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:

Exemption – issues such as non-exempt purpose activity and private inurement.

Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.

Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.

International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.

Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.

The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.

The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.

Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization

For more information please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England, our blend of accounting expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with state and federal grant requirements, charitable giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura J. Kenney, CPA
Tax Director

View Laura’s Bio Here >>

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.

Setting Executive Compensation: How Much is Too Much?

This is part of a series of articles focused on issues relevant to non-profit boards of directors

shutterstock_46389259In recent articles, I have outlined the roles and responsibilities of non-profit boards and focused on the legal and ethical responsibilities of individual non-profit board members. Now, I want to spotlight one very important task non-profit board members must complete carefully and strategically: setting executive compensation.

A non-profit’s chief executive is often the heart, soul and public face of the organization. The chief executive is responsible for leading and coaching staff members; overseeing revenue-generating and fundraising activities; making final strategic decisions to ensure the organization’s mission is advanced; and countless other day-to-day tasks.

Clearly, the chief executive position is vitally important to the overall success of any non-profit organization. So, how do you put a dollar value on something so important? In today’s hyper-competitive environment, non-profit organizations across the country are struggling to answer that question.

As we discussed in my previous article, the board of directors has the responsibility of hiring and setting compensation for executive leadership.

Study the marketplace: Of course, every non-profit organization wants to hire their first choice for the executive director role–but many quickly learn they’ve only budgeted for their third, fourth, or fifth choice.

Before going through the process of selecting a new chief executive, non-profit boards must find out the “going rate” for that position. That means analyzing the salaries and benefits of comparable positions in private, public, and non-profit sectors and comparing those salaries to what the organization is prepared to offer. Having in-depth knowledge of the current marketplace will help your board set expectations and budget appropriately.

Protect your bottom line: The board needs to find middle ground between compensation that attracts the top talent and cost-cutting strategies that help the organization fund its services. That means offering a salary range that the IRS calls, “reasonable and not excessive.”

The National Council of Nonprofits encourages non-profit boards to think carefully before finalizing a deal with a new executive leader and ask itself: “Are the assets of this non-profit being used prudently and to advance the mission?”

Play by the rules: The IRS has rules and regulations that aim to prevent non-profit organizations from overpaying their executive staff. If the non-profit board knowingly overpays an executive a salary the organization can’t afford, the IRS sees that as “excess compensation.” Penalties range from hefty fines to an organization losing its tax-exempt status.

Keep detailed records: Hiring a chief executive is one of the most important decisions a non-profit board has to make, and it should be documented as such. Non-profit board members will be asked by donors, supporters, reporters and perhaps the IRS to explain their hire and justify their salary and benefits.

Guidestar recommends a three-step process to ensure the board complies with IRS regulations and board members remain unbiased:

  • The board should approve compensation before an offer to the candidate is made and to ensure no board member has a conflict of interest related to the transaction.
  • The board should research comparable positions before approving compensation.
  • The board should document the decision-making process throughout the process.

Guidestar’s recommendations follow the IRS “rebuttable presumption of reasonableness” rules. In other words: The board is doing its due diligence and covering its bases while it makes a strategic, well-thought-out decision on executive compensation.

 

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.

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.

Communication Between the Business Office and The Board

As a member of the business or finance office, you hold some of the most sensitive and important information regarding the operation of your non-profit.  Budgets, cash flows, obligations, covenants, financials, audit, internal controls, legal and regulatory matters….all of these can have a tremendous impact on how the individuals running the program activities accomplish their goals. Matters surrounding finance can provide stepping stones or significantly hinder the progress of the organization’s mission.

The finance office is charged with providing the most useful and pertinent information to the Board, which will enable them to fulfill their responsibilities of providing guidance and decision-making, most importantly surrounding fiscal matters.

Nonprofit Board meetingAs the CFO, Controller or Business Manager, have you thought about what you should be providing to the Board and in what format? Boards typically meet for an hour or two once a month or quarter. Given the limited time frame, this should be the time that they discuss critical matters, review accurate and timely financial reports and vote on high-level governance matters. Providing a great deal of extraneous data can muddle the waters and prevent them from understanding the true issues and being able to make timely resolutions. Here are a few areas to focus on which will help to ensure the Board has the tools to be most effective in fulfilling their responsibilities.

Organizational, legal and regulatory matters: 

First and foremost, the Board should be well informed of any and all potential risks that arise in these areas. Has the organization consulted an attorney for any claims or potential litigation? Are there new financial, reporting or other regulatory matters that are coming down the pike that may affect the organization? Significant accounting or audit standards, personnel matters, 990 reporting, communications from regulators, filing complications, due dates, donor matters, etc. can all have an impact on the organization and its ability to continue with its mission.

Finances: 
The Business Office should be preparing timely, summarized financial reports that are relevant to the Board’s responsibilities. Reports should be formatted in a way that does not confuse, overwhelm or complicate discussions surrounding finance.  Discuss with the Treasurer of the Board the most effective method of providing these reports. Have the Treasurer review the reports, and other more detailed information prior to submission to the Board, which may help to identify any questions or concerns ahead of time. It is probably helpful if the Board can review current month/quarter budget vs. actual reports as well as year-to-date compared to budget and prior years. A concise analysis of the significant activities of that period, such as large new contributions, significant past due balances or write offs and reserves, unanticipated expenses or capital purchases as well as high level departmental budget to actual comparison. Most importantly, having the most relevant and timely reporting available will enable the Board to make decisions on a timely basis, and avoid surprises at the end of the year.

Conflict of Interest and Related Party Activity: 
All Board members should be reading and signing a conflict of interest (COI) policy each year. All possible related parties and transactions should be disclosed in full, and any interested person should be excused from those discussions and determinations.  One misconception is that it is undesirable to have any related party activity, such as a Board Member who can provide professional services to an organization. Often times, a Board member can give back to an organization by providing expertise that the Organization would otherwise have to incur significant expenses for. This is ok, as long as regulation allows for it (for example, a financial statement audit must be conducted by an Independent Auditor), and provided that the Organization follows its COI policies surrounding disclosing, understanding and voting on these relationships and the transactions.  The Business Office liaison is often times the individual who ensures that the Board has all of the relevant information, that these matters get on the agenda and that the process adheres to approved policy.

Form 990: 
The Business Office is typically the department that ensures that the Form 990 is prepared timely and accurately. One section of the 990 includes several questions surrounding governance and policy. It goes without saying that the Board should be well aware of these policies at the time that they sign on to be a Board member. However, one question asks whether the Board has received a full copy of the 990 (as filed), and what the process is for the review of the 990. These questions are really aimed at shining a light on the Organization’s responsibility for ensuring that the 990 contains accurate information. Typically, the auditor/CPA is preparing the form, however there is so much more than quantitative data on the 990 as compared to any other IRS tax form. The qualitative data must come from the leadership of the Organization.  Each Board member should be aware of what is contained in the filing, and be expected to understand the questions and implications of the Organization’s responses.

Timeliness:
As the key financial officer of a non-profit, the CFO or Business Manager should aim to provide the financial reports to the Board members in advance of their meeting dates. Having the appropriate amount of time to carefully review reports, budgets, forecasts and analysis will enable the Board members to prepare thoughtful questions and commentary on the information given.  This will set the stage for a more meaningful discussion and proposed responses, ultimately benefitting the mission of the Organization.

 

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.

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.

5 Questions to Ask Before Joining a Board

Joining a Nonprofit BoardAs we gain experience and grow in our respective “day jobs,” some of us will be offered the opportunity to serve on the board of a non-profit organization.  Others among us may seek out such an opportunity as a way to give back to the community that has given them so much.  In either case, there are some questions that you will need to ask yourself before committing to such a position.

1.    What is the organization’s mission?

First and foremost, what does the organization do and is it something that you believe in.  Your duty as a board member will be to act in the best interest of the organization. For this reason, you should make sure that the mission does not conflict with any of your personal beliefs/interests (or interests of any other organization (your employer or other) that you may represent). Identify any potential conflicts of interest prior to joining a board.  And above all, you want to make sure that it is an organization whose mission you can stand behind.  As we discuss with the next question, a lot may be asked of you, with little to no compensation.  So make sure you are putting your efforts towards an organization and a mission that you truly believe in.

2.    What responsibilities would you have?

Discuss with the executive director or chairman of the board, some of the responsibilities that will be expected of you.  Some of the items to discuss are:

  • Frequency, typical duration, dates and location of meetings
  • Expected availability of board members between meetings and involvement on other committees
  • Length of your term as well as any term limits, and other limits on a board member’s continuing involvement, including any mandatory terminations for failure to attend meetings
  • Any meeting, travel, meal and expenses you will be expected to absorb or contribute

3.    What’s in the organization’s Form 990 (and other documents)?

I recommend reviewing the organizations Form 990 before agreeing to serve on a board.  The Form 990 provides detailed financial information and governance information about the organization. Other documents that you should review are the organization’s governing documents, including articles or the certificate of incorporation, bylaws or regulations as well as any board policies or guidelines, especially those regarding conflicts of interest and statements of mission. You’ll definitely want to review the latest (hopefully audited) financial statements as well.  Also, check the organization’s website, to gather additional information.

4.    What protections are available to the organization’s board members?

You should confirm the extent that board members of the organization will be entitled to protection of laws limiting liability of volunteers under federal and any applicable state law, as well as the protections of a business judgment rule and of statutory indemnification under state law. More importantly, you should determine the extent that the organization’s board members will be protected by:

  • Contractual indemnification; and
  • D&O insurance policies

The most important of these protections is likely volunteer protection. Typically, you lose volunteer protection if you are paid other than reimbursements of out-of-pocket expenses or you are enriched through a conflicting relationship.

5.    Can you be a valuable asset for this organization and are you willing to dedicate the time and effort to be that valuable asset?

Assuming the questions above were all answered to your liking, the true question is whether or not you are willing to make the sacrifices necessaryto help the organization in whatever way you can.  If the organization is something that you truly believe in and it appears that they have their house in order, then it’s a matter of determining how much you are able and willing to offer.  If you feel like you have a little extra to give (pro bono) back, there are plenty of organization that would love the help.  I hope you find a great organization that you can be proud to be a part of and I know they’ll be proud (and glad) to have you.

Sean Niland, Intacct ConsultantSean Niland is a manager in our Consulting Group, Sean provides implementation, conversion assistance, training and ongoing support for the firm’s clients.  His industry experience includes privately held businesses such as hospitality and professional service firms; non-profit organizations such as health and human service agencies and arts and cultural organizations; and municipalities.

Sean is certified in Intacct, AccuFund and Tagetik.