Tag Archive for Massachusetts

Navigating The Crowded Non-Profit Sector

Nonprofit donors

How organizations can set themselves apart to secure—and retain—donors

By Shannon Crowley, CPA, MSA
Accounting Manager

Despite the Great Recession and the long process of economic recovery of the 2000s, the non-profit sector has become one of the country’s fastest-growing industries. According to the National Center for Charitable Statistics’ most recent research, the United States is home to more than 1.5 million registered non-profit organizations—marking a nearly 20 percent increase over the last 10 years, a time frame in which many businesses in the for-profit sector have struggled.

This rapid growth is certainly a sign of success, and—as non-profits employ nearly 11 million American workers and contribute roughly $887 billion to the national economy—it is difficult for anyone to argue against the economic value of a thriving non-profit sector.

However, the unprecedented rate at which new organizations are being created is also creating a challenge. The non-profit sector is more crowded than ever before, making it very difficult for organizations to secure—and retain—their donor bases.

On a local level, there are 33,000 non-profit organizations registered in Massachusetts—each competing with one another for precious dollars from a limited pool of individual donors, corporate foundations and other fundraising sources. In a recent cover story in The Boston Globe, many industry experts argue the field of non-profit organizations in Massachusetts is simply too large to sustain.

However, the organizations themselves, and the tens of thousands of Massachusetts residents employed by non-profits, are doing everything they can to prove those experts are wrong.

And that starts with donor retention.

The Association of Fundraising Professionals reports that, on average, donor retention rates across the non-profit sector are around 43%, meaning less than half of an organization’s 2016 donor base will contribute. In order to grow in a competitive non-profit environment, organizations have to find a way to land recurring donors. To do this, non-profits are employing several strategies. For the purposes of this article, we’ll focus on three:

Differentiating themselves from other, potentially similar organizations

Many potential donors or grant-awarding foundations would love to support every deserving cause that asks for and needs their help. Realistically, though, donors need to choose between hundreds, if not thousands, of similarly operating organizations to which they can lend their financial support. Non-profits, especially non-profits working to support similar demographics, are under enormous pressure to set themselves apart to attract new sources of funding. It’s never been more important for a non-profit to have a very clear, very specific mission.

Investing in “fundraising infrastructure”

Fundraising success is entirely beholden to the amount of time and resources organizations are willing to invest. In order to succeed in today’s hyper-competitive non-profit sector, organizations must invest in fundraising professionals, such as high-ranking development officers, and fundraising “infrastructure,” such as top-notch technology and donor databases.

The clear, specific vision makes an organization attractive to donors. Development professionals and in-depth donor databases help organizations find them.

Increase efficiency by streamlining their accounting functions

Back-office financial work is crucial to the long-term success of the organization. That said, it’s also very time-consuming. As many organizations are investing significantly more time to their fundraising operations, some non-profit leaders are finding ways to take complex financial paperwork off their desk so they can focus on the organization’s core competencies. This may entail creating new jobs for a full-time accounting team, or hiring a third-party financial organization to take on those responsibilities.

How BlumShapiro Can Help

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 >>

View Shannon’s Bio Here >>

Introducing MassTaxConnect!

123shutterstock_90695362On November 30, 2015, the Massachusetts Department of Revenue (DOR) will replace the existing WebFile for business system with the new MassTaxConnect system. All entities that file and pay taxes to the DOR electronically will now be utilizing the new online system. Tax filings and payments include unrelated business income tax, sales tax, meals tax, withholding tax and more, so this change will impact a wide variety of organizations in the Commonwealth.

Some of the new features that promise to make the tax filing and paying experience more efficient include:

  • Send and receive secure e-messages
  • View errors prior to submission
  • File early and schedule payments online
  • Assign third-party access electronically
  • 24/7 access

Click here for more information and to get an advance look at the new system.

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 have you done for your employee handbook lately?

In November 2014, Massachusetts citizens voted to entitle Massachusetts workers to earn and use paid sick time. In April 2015, the Attorney General released proposed regulations in order to help businesses comply with the new law. All employers are impacted by the law; however, only employers with 11 or more employees (not full-time equivalents (FTE’s)) during the calendar year are required to provide paid sick time to any employee whose primary workplace is located in Massachusetts, including part-time, full-time, seasonal or temporary employees. The new law takes effect on July 1, 2015.

According to a summary and the draft regulations published by the Attorney General’s office, some of the highlights of the new law are as follows:

• Massachusetts workers whose employers have 11 or more employees for at least 20 weeks during either the current or preceding calendar year (whether consecutive or not) can earn and use up to 40 hours of paid sick time per calendar year

• For employers with less than 11 employees for at least 16 weeks during either the current or preceding calendar year, workers can earn and use unpaid sick time

• The use of earned sick time can be used for:

o Caring for a physical or mental illness, injury or medical condition affecting the employee, spouse, child, parent or parent of a spouse

o Attending routine medical appointments for the employee, spouse, child, parent or parent of spouse

o Addressing the effects of domestic violence on the employee or employee’s dependent child

• Employees will earn at least one hour of sick time for every 30 hours worked

• Hours will begin to accrue on the date of hire, or July 1, 2015 (whichever is later) and employees can begin to use the sick time 90 days after that date (July 1, 2015 or date of hire, whichever is later).

• Up to 40 hours of earned sick time can be carried over to the next calendar year, but the employer is not required to provide more than 40 hours of paid sick time in one calendar year

• Earned sick time is not required to be paid out upon termination from employment

• Employers cannot require workers to make up the used sick time

• Other provisions exist within the law regarding requirements to provide notice, certification, documentation, retaliation, confidentiality, breaks in service, exempt employees and other responsibilities on the part of the employer and employee.

The above highlights are just a sample of what is in the draft regulations. All employers should be reviewing their employee handbooks containing human resource and PTO policies to ensure that their policies are up-to-date and compliant with the new law. An experienced employment attorney is recommended to ensure that circumstances specific to each organization are considered when reviewing for compliance.

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.

Payroll Fraud: A Risk & How to Address It

We often hear stories in the news about fraud affecting non-profit organizations. Frequently, such organizations are victimized when an individual in a position of financial authority makes unauthorized withdrawals or disbursements from bank accounts or misdirects cash deposits. In response to these risks, many organizations have added controls that are intended to prevent and detect fraud relating to cash, but what is often overlooked is the potential for payroll fraud. 

According to a 2014 report by the Association of Certified Fraud Examiners (ACFE), payroll fraud is the top source of accounting fraud and employee theft. The ACFE indicates that payroll fraud occurs in 27% of businesses (for-profit and non-profit) and happens twice as often in organizations with less than 100 employees than in larger ones. Finally, they note that the average payroll fraud lasts approximately 24 months. So, for not-for-profit organizations, who typically have limited resources, the risk is too great not to be addressed. While adding additional controls and steps in the payroll process may seem cumbersome, the benefit of reducing the risk for payroll fraud is worth it. Following are a few simple steps that can be taken to prevent and detect fraud in this important area:

  • An organization should maintain timecards for all employees, and supervisors should be required to review and approve them each pay period. Particularly, overtime (for hourly employees), sick time, vacation and other leave time should require an approval. The timecards should be filed as support with the payroll registers each period so they can be reviewed along with the registers.
  • An organization should maintain an adequate segregation of duties within the payroll processing function. For example, the individual who posts the payroll to the general ledger should not be the same individual who processes the payroll within the payroll module of the accounting software or with the third party payroll provider. This will allow for a reasonableness review of each period’s payroll at the time it is paid.  
  • Payroll registers should be reconciled to the general ledger payroll accounts quarterly. This exercise will assist in detecting if payroll has been mis-posted to another area of the general ledger or if other fraudulent transactions (i.e. cash-related fraud or fraudulent financial reporting) have been posted to payroll accounts in attempt to “bury” it within typically large numbers.
  • Many organizations prepare a detailed payroll budget each fiscal year. Comparing actual payroll results to budget monthly or quarterly can be helpful in identifying fraudulent activity. Any significant variances from budget should be easily explainable. Reviewers should also keep in mind known variances from budget (i.e. an open position that was budgeted for) and ensure that these variances are being realized.
  • An executive of the organization, who is independent of the payroll and accounting function (such as the president, executive director, treasurer, etc.), should review the payroll registers periodically for unusual or unexpected activity. For example, he or she should review the hours worked (for hourly employees) along with employee pay rates to ensure they are consistent with expectations. Further, he/she should review the listing of employees paid to identify potential “ghost employees” (individuals being paid who do no work for the organization), or terminated employees who continue to be paid. Many organizations outsource their payroll processing to a third party provider. Through the online platforms made available by payroll providers or within payroll modules embedded in the accounting software, organizations typically have access to a variety of useful reports, including an “audit report” which can be run for a specific payroll period or longer period of time and provides a detail listing of all changes made within the payroll system, such as employees added, employees terminated, rate changes, withholding changes, etc. This is an especially important control for smaller organizations in which the individuals processing and posting payroll also have responsibility for maintaining the employee database, pay rates, withholdings and deductions. Reviewing such a report in connection with a review of the payroll registers can be very useful. Changes identified by an “audit report” should be supported by the appropriate paperwork and authorizations within the employee files. 

In the end, the key to payroll fraud prevention is identifying how it could occur within your organization and adding reasonable controls, such as the ones recommended above, to address the risks. 

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.

Massachusetts Update: A Step-Forward in the Creation of Non-Profit Retirement Plan

In June, the non-profit sector achieved a favorable step forward in allowing employees of small non-profit organizations to participate in a retirement savings plan.

Connecting Organizations to Retirement (CORE) 401(k) Plan

At the Massachusetts Non-profit Network’s Non-profit Awareness Day celebration in June 2014, Treasurer Steven Grossman announced that the Internal Revenue Service (IRS) has ruled favorably on the proposed Connecting Organizations to Retirement (CORE) 401(k) plan. This type of plan would allow employees of smaller non-profit organizations to have access to a qualified tax deferred retirement plan. While additional approval from the IRS is still needed, this is a step forward in the process.

Click here for further information on the above proposal >>

 

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.

DATA ACT Passes House and Senate

This past Monday, the House unanimously passed The Digital Accountability and Transparency Act of 2014 (The DATA Act). The DATA Act was passed by the Senate earlier this month and President Obama is expected to sign it into law, based on his support of this Act in the past.

The Data Act

The DATA Act is an extension of the 2006 Federal Funding Accountability and Transparency Act and mandates the adoption of consistent government-wide data standards in its reporting on government spending. Using this consistent language in its financial reports enhances accessibility for policy makers and tax payers. A public, searchable and reliable database of government spending will be accessible on a new and improved www.USASpending.gov, allowing users greater access to information regarding government grants and contracts between the federal government and grantees and contractors. The result is anticipated to be greater accountability of those who spend tax payer dollars, as well as those who grant and monitor government dollars. The DATA Act will commit the Office of Management and Budget (OMB) and the Treasury to utilizing more robust data standards throughout all aspects of funding, including budgets, grants, contracts and other financial reporting.

The DATA Act aims at reducing waste and fraud and increasing the transparency and effectiveness of government spending across agencies. Many believe this bill will greatly modernize the way the government tracks and monitors agency spending, as well as increasing the ease of information gathering. Under the current system, all budgets, grants, contracts and disbursements are largely reported in manual formats, such as tedious forms and spreadsheets.  As a result, obtaining information regarding agency spending and grant reporting is extremely cumbersome and time consuming. In addition, the current system lacks methods for enforcing existing regulations regarding reporting certain information. The hope under the DATA Act is that a universal automated system will help to enforce existing requirements.

Non-Profit Industry Impact

How this will impact the non-profit industry is yet to be determined. Some question if implementation of new reporting standards will be a burden. Others feel that once up and running, a more modern system will save organizations a great deal of time and effort automating much of their financial reporting. Bill Co-sponsors, Sen. Mark R. Warner (D-VA), Sen. Rob Portman (R-OH), Rep. Darrell Issa (R-CA) and Rep. Elijah Cummings (D-MD) explained in a Congress blog post published on thehill.com, on December 16, 2013 that a new system would greatly decrease the burden on entities that are awarded taxpayer dollars, such as state and local government agencies, as well as higher education institutions, citing the current system of duplicative forms and reporting. The lawmakers claim that “If this reporting were streamlined, our institutes of higher education and our state and local governments could direct more funding to programs and less to overhead costs.”

While the implementation issues and questions have yet to be answered, most agree that the requirements set forth in this proposed legislation will create greater accountability, accuracy and efficiency in overall government spending and help to tackle the ongoing concern of government waste and fraud.

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.

Written Acknowledgements for Donors

As a tax-exempt entity, you are provided with the privilege of receiving charitable donations from the general public; however you are also responsible for complying with federal laws applicable to charities and churches that receive such tax-deductible donations.  These rules exist for not-for-profit entities in order to facilitate the strict recordkeeping and substantiation requirements imposed on donors, in order to receive a tax deduction on his/her federal income tax return.

Rules for donors:  A donor must have a bank record or written communication from a charity for any contribution before taking a tax deduction.  A donor is responsible for obtaining a written acknowledgement from a charity for any single donation of $250 or more.  For in-kind donations, the donor is responsible for obtaining/assigning the fair market value of the donated item.

Written Acknowledgements for gifts over $250

While this requirement is technically the donor’s responsibility, the donor may not claim a tax deduction without this written acknowledgement.  Therefore, to best serve its generous supporters, the organization should provide a timely statement containing the following information:

  • Name of Organization
  • Amount of cash contribution
  • Description (but NOT the fair value) of non-cash donations
  • Statement that no goods or services were provided by the organization in return for the contribution (if that is a factual statement)
  • Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution (commonly referred to as “Quid Pro Quo” – see below)
  • All acknowledgements should be contemporaneous – typically no later than January 31st  of the calendar year following the donation. Best practice would be to provide this acknowledgement within 30 days of receiving the gift.
Written Disclosure for Quid Pro Quo

When a charity provides any goods or services in exchange for a donation, this is partly an exchange transaction and partly a contribution.  A donor may only take a contribution deduction to the extent that the contribution exceeds the fair market value of the goods or services received.  It is the organization’s responsibility to provide the estimated fair market value, which must be in writing if the original payment exceeds $75. Penalties may be assessed if an organization does not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing.

The written disclosure statement must:

  • Inform the donor that the amount of the contribution that is eligible for deduction for federal income tax purposes is limited to the excess of money (and fair market value of property other than money) contributed by the donor over the value of goods and services provided by the organization.
  • Provide the donor with a good-faith estimate of the fair value of the goods or services provided by the organization.
  • Be in writing and be made in a manner that is likely to come to the attention of the donor.  The statement may be included in the solicitation of the donation or provided along with a receipt of the donation.

There are exceptions for certain “token gifts” and “intangible religious benefits” which are received by the donor in exchange of gifts, in which case written acknowledgements are not required.

Other:

  • Unreimbursed expenses may be another form of contribution, such as out of pocket transportation expenses in order to perform donated services or provided supplies for a program activity.  In this case, the donor must obtain a written acknowledgement from the organization containing the same information listed above for donations over $250, except it also should include a description of the goods or services provided by the donor.
  • Non-cash donations with claimed fair market value greater than $5,000 generally require a qualified appraisal, which is the responsibility of the donor, not the charity.

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.

 

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.