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CARES Act Introduces Forgivable Loans for Nonprofits With Paycheck Protection Program

On March 27, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While the sweeping legislation introduces a multitude of significant measures, the Paycheck Protection Program is a lifeline for nonprofits, injecting capital when they need it most. However, the hallmark of the program is that the loans can be partially or fully forgivable, provided certain criteria are satisfied.

What Is the Paycheck Protection Program?

  • The Paycheck Protection Program, which was allocated nearly $350 billion through the CARES Act, is an extension of the existing U.S. Small Business Administration (SBA) 7(a) Program.
  • Loan applicants may be granted up to $10 million with an interest rate not to exceed 4%.
  • The loans are nonrecourse, and collateral is not required to secure the loan.
  • The loan is forgivable if the employer maintains certain levels of full-time equivalents (FTEs) and payroll. The amount forgiven is based on a sliding scale through a compliance period.
  • Loan forgiveness under this program is non-taxable.
  • The new program waives the SBA’s “credit elsewhere” requirement, which determines whether the borrower has the ability to obtain some or all of the requested loan funds from alternative sources without causing undue hardship.

Is My Nonprofit Eligible?

  • Applies to certain nonprofits including 501(c)(3) organizations with fewer than 500 employees.

What Are the Borrower Requirements?

Borrowers must make a good faith certification to the following:

  • Uncertainty of economic circumstances makes the loan request necessary to support ongoing operations.
  • Funds will be used to retain workers and maintain payroll or to make mortgage, rent, and utility payments.

What Is the Maximum Loan Amount I Could Receive?

  • The maximum loan amount for any recipient is $10 million.
  • Loans will be formula-driven: the average monthly payroll costs over the prior 12 months multiplied by 2.5.
    • In this calculation, payroll costs are categorized as follows:
Included
Excluded
Salary, wages, and commission Compensation for an employee that exceeds $100,000 (prorated over the covered period from Feb. 15, 2020, to June 30, 2020)
Cash tips or equivalents Compensation to an employee with a principal residence outside the U.S.
Vacation or other leave Qualified sick wages or family leave wages paid under Families First Coronavirus Response Act for which the payroll credit is permitted
Allowance for dismissal or separation Federal employment taxes including employees and employers share of FICA (Federal Insurance Contributions Act)
Payments for group health (insurance premiums)
Retirement benefits
Payment of state or local tax assessed on compensation

 

How Can I Use the Loan Proceeds?

The loan proceeds can be used for the following:

  • Payroll (at least 75% of the forgiven loan amount must be used for payroll)
  • Continuation of group healthcare benefits during periods of paid sick, medical, or family leave
  • Employee salaries, commissions, or similar compensation
  • Interest on mortgage obligations (but not mortgage prepayments or principal payments)
  • Rent
  • Utilities
  • Interest on other debt obligations that were incurred before Feb. 15, 2020

How Much of My Loan Will Be Forgiven?

Maximum Forgiveness Amount

  • Borrowers are entitled to loan forgiveness equal to the sum of the following expenses paid during the eight-week period, which begins on the loan origination date:
    • Payroll costs
    • Covered utility payments, including electric, gas, water, transportation, telephone, and internet access for which service began before Feb. 15, 2020
    • Covered rent obligation, including rent obligated under a leasing arrangement in force before Feb. 15, 2020
    • Covered mortgage interest obligation, including a mortgage on real or personal property incurred prior to Feb. 15, 2020
  • The loan forgiveness amount will not exceed the amount of the loan.

Reduction of Forgiveness Amount

  • The loan forgiveness amount will be reduced if there is a reduction in the number of FTEs. This reduction percentage is calculated at the election of the borrower by either of the following:
    • Average number of FTEs per month (over the eight-week period)
      Average number of FTEs between Feb. 15, 2019, and June 30, 2019
    • Average number of FTEs per month (over the eight-week period)
      Average number of FTEs between Jan. 1, 2020, and Feb. 29, 2020
  • The loan forgiveness amount will be reduced by any reduction in total salary or wages of any employee that is in excess of 25%. This applies only to employees that received a 2019 annualized salary of less than $100,000.
  • There is a special rule for a reduction in seasonal employees.
  • Employers can mitigate – or eliminate these reductions – if they restore the number of FTEs and total salary by June 30, 2020.

Any balance remaining after the loan forgiveness would have a maturity of 2 years. The interest rate will be one percent for loans not more than $350,000; .50 percent for loans of more than $350,000 and less than $2,000,000; and .25 percent for loans of at least 2 million.  You will not have to make any payments for six months following the date of disbursement of the loan.

Loan Forgiveness Application

Documentation is critical for loan forgiveness. Here is a list of documentation that would need to be submitted to your lender:

  • Verification of FTEs and pay rates
  • Payroll tax filings
  • State income, payroll, and unemployment insurance filings
  • Documentation that covered mortgage, rent, and utility obligations were made
  • A certified statement that the amount of forgiveness was required to retain employees or meet the covered obligations

Lenders will have 60 days to render a forgiveness determination.

Need Help Getting Started?

We can work with you and your lender to see if you qualify.

Sustainability to Survivability: 5 Nonprofit Finance Must-Do’s in the Time of COVID

In the nonprofit sector, the fragility of life is always very present. Likewise, for nonprofit leaders, the fragility of our organizations is also always present. Fears of an impending recession and the decline in the percentages of individuals donating to nonprofits have made the sustainability of organizations a top concern for executive directors for quite some time. But none of us expected the sudden disruption of our lives and society brought on by a pandemic.

As nonprofit professionals scramble to devise new operating plans designed to serve as many as possible while protecting and caring for employees, the thought of sustainability seems almost quaint. All revenue streams, from foundations to individuals and even fees for service, are under extreme pressure. Indeed, for many executives, thoughts today are not on sustainability but survivability—and, as always, it is at these times our constituents need us most.

The initial steps to respond to the pandemic have varied by type of organization with the focus, rightly so, being on humanity—serving our clients—as well as safety and protection. Arts and culture organizations, educational institutions, and other community organizations have closed their doors for extended periods while several social service organizations continue to operate, balancing constituent service with social distancing. One constant across the sector has been the cancelling of spring fundraising events and the upheaval of development plans. As organizations struggle to maintain operations, payrolls, or both while revenue is decreasing, there are steps they can take to increase likelihood of success:

  • Understand your cash position.
  • Assess damage to revenue streams.
  • Look at the dual bottom line.
  • Include everyone in the discussion.
  • Communicate consistently.
Understand Your Cash Position

Cash is king. With expenses continuing and revenue on hold, knowing your cash position serves as a foundation for action. Certain common ratios like the quick ratio or current ratio calculate whether the organization has enough cash to pay its bills today, but they don’t provide guidance on how long it can weather this disruption. The best ratios for that help with understanding your liquid reserves:

This ratio calculates how many months of savings the organization has if it operates at its current rate and receives no additional income. The numerator subtracts restricted cash and receivables, assuming the organization will not be able to perform the work necessary to release those revenues. The denominator is simply the annual budgeted expenses divided by 12 months.

This is the purest form of a reserve. It allows leadership to understand how much time they have to stabilize the organization. For many organizations, this is somewhere between two weeks and four months.

For organizations that have ceased operations but are committed to maintain payroll as long as possible, a separate calculation that only includes essential expenses such as payroll, health insurance and occupancy-related costs in the denominator may be useful:

This formula lets leadership see how long their current position allows them to maintain these basic expenses. In this ratio we have excluded receivables, but they can be included if the organization believes there is a high likelihood of collecting them.

These formulas are the simplest way of calculating and monitoring the organization’s savings. A more strategic approach would be to prepare or update the organization’s cash flow projections for the next six months showing expected inflows and outflows of cash. With the ratios as a foundation and the cash flow projection as a tool, leadership can work with the board to build out scenarios if they have time. At the very least, leadership can monitor the urgency of the situation and make informed decisions about how to continue.

Assess Revenue Streams and Damage

The formulas above focus on the organization’s expense side, assuming no additional income. Attention should also be paid to revenue. Many foundations are attempting to continue grantmaking, and many local government agencies are seeking to fund expanded social service activities for vulnerable populations with emergency dollars. Therefore, revenue projections based on the updated development plans and budget, which take into consideration our new reality, can be inputted into the cash flow projection for a more realistic picture. While it is conservative to assume your organization will not receive any new income, acting on a worst-case scenario does not necessarily lead to strategic or beneficial decision-making.

Revisiting revenue streams also allows leadership the opportunity to discuss revised plans and to focus on those efforts where the organization has the strongest relationships and greatest likelihood of securing funds. For example, some special events have already moved online, with operas livestreaming performances and social service agencies holding online auctions and sending recorded messages to supporters. While less revenue has been raised, there may have also been fewer expenses. This is also the time to identify areas where board members might have relationships and could meaningfully engage in sharing the fundraising workload.

Look at the Dual Bottom Line

When cash gets tight, the financial bottom line becomes readily apparent. But in stressful times, it is important to consider both bottom lines: impact and financial. Especially if challenging decisions need to be made about where to focus, consider the impact of each program and fund the highest impact programs first. This is often a difficult discussion. Everything an organization does has value, but given the current situation in which we find ourselves, which aspect of the organization has the most value today? Are there longer-term programs or projects that could be put on hold? Could unrestricted resources and staff be transferred to those efforts with the highest impact, such as direct services? Could reducing expenditures on lower impact programs allow the organization to build cash reserves?

This is especially helpful if cuts need to be made. One common response to crisis is to implement a straight percentage cut across all activities; however, this is not the most strategic decision. Yes, it avoids conflict, but focusing on those programs where there is an intersection of organizational strength and pressing constituent need is essential. Not only does this allow the organization to most effectively have impact and accomplish its mission given the resources it has available, but it also helps make the case for increased support to funders.

The matrix map visual is a helpful way of highlighting both the impact and profitability of an organization’s programs and looking holistically at how each program of an organization contributes to its impact and financial viability. While the process of completing a detailed map can take some time, a rapid version can be created in an afternoon. Remember, the map is a representation of the business model used to inform decision-making, not a 100-percent-accurate picture. In some cases, some information is better than complete information, especially when the goal is to bring others along in the discussion and make decisions. This is one of those cases.

Include Everyone in the Discussion

Speaking of bringing others along, there are no “right” answers to these challenging questions, and ideas for sustaining the organization know no positional boundaries. Engaging everyone in these candid conversations can often surface new approaches or meaningful strategies. That said, programmatic staff may be overwhelmed and overworked responding to the crisis, and leadership will need to decide whether it is appropriate to add to their workload by bringing them into the conversation. However, our default position is that nonprofits are community organizations responding to a community challenge and they benefit from the input of close community members during these difficult times. Our desire is for everyone to have a voice.

Determining the organization’s cash position, described above, will inform how much time leadership has to meaningfully engage a broad group of people in discussion. At a minimum, however, board and senior leadership should be involved in surfacing potential solutions. Ideally these positions will be informed by staff and constituents. Especially for social service organizations, it is important that the needs of those being served are well known and represented in the discussions.

Again, the easy solution in these times is for a small group at the top of an organization’s leadership to come together and make decisions, but this group may not be as well informed about constituent needs as others. By opening the discussion, unexpected opportunities might surface. Additionally, by sharing the complexity of the decision to be made and the options to consider, leadership helps to build community and buy-in for implementation.

Communicate Consistently

Our last point may be the most important. Often, in times of crisis when leadership is busy trying to serve constituents and make informed decisions to save their organization, communication can lapse. Leaders may feel they have “nothing new” to say or they might not yet have a “path forward” or solution for the organization and therefore don’t communicate to key stakeholders. Unfortunately, while understandable, this is the wrong course of action.

Nonprofit organizations are expressions of our humanity—people coming together to build stronger, more enriching and more equitable communities. By expressing the hardship that our organizations are experiencing and the difficult choices that must be made, we invite others to participate in the process. We are all joined together in this time, living through a pandemic the likes of which none of us have ever seen.

This is especially true of donors. Helping donors understand firsthand what your constituents and the organization face allows them to support you in the most effective manner. We cannot only talk with stakeholders when things are going well. Helping everyone understand that the organization is maximizing impact and leading with its values—with the needs of our constituents and staff front-of-mind—strengthens the connection and relationship donors feel with the mission. This connection will be necessary for organizations to survive this shock and ultimately be able to thrive once again.

Time is of the Essence

None of the steps here are easy—especially in a time of crisis. Given this rapidly evolving pandemic, it is tempting to put off decision making to see how the situation progresses. One lesson from the Great Recession, however, was that those organizations that assessed their situation earlier were able to make strategic decisions which resulted in less severe measures later. Nonprofit leaders face competing demands and priorities as they deliver on their missions. By inviting others in, communicating clearly, looking at the organization holistically, and understanding where we’re starting from financially, leadership can attempt to spread the workload, build commitment, surface strategies and implement solutions to help their organizations—and our communities—survive and, once again, eventually thrive.

Central Indiana COVID-19 Community Economic Relief Fund (C-CERF)

The Central Indiana COVID-19 Community Economic Relief Fund (C-CERF) is a community fund established by founding partners Lilly Endowment Inc., Central Indiana Community Foundation (through the Glick Fund and The Indianapolis Foundation), Eli Lilly and Company Foundation, Nina Mason Pulliam Charitable Trust, Richard M. Fairbanks Foundation and United Way of Central Indiana to support human services organizations and the individuals and families they serve who are affected directly and indirectly by the COVID-19 coronavirus crisis.
United Way of Central Indiana is administering C-CERF and is bringing its substantial expertise to this effort. You can also help your neighbors in this time of uncertainty and unprecedented need by donating to this fund.

TODAY’S UPDATE – MARCH 24, 2020:

  • The Task Force of the Central Indiana COVID-19 Community Economic Relief Fund announced a first wave of grants to 46 human service organizations in the six-county region today.  More than $7.3 million has been awarded from a new community economic relief fund organized to help individuals and families affected by COVID-19.
  • The first funding round, totaling $7,305,000, prioritized child care for health care workers and first responders, food access, homeless shelters, resources for seniors and immigrants, disaster planning and infrastructure support, and multi-service neighborhood centers.
  • As of today, more than $17.8 million has been donated to the Fund. 100% of all donations to the Central Indiana COVID-19 Community Economic Relief Fund’s website will go directly to organizations who are serving those in need due to the pandemic.

Congratulations to these organizations for serving our communities during this crisis.   We have worked with quite a few of these organizations over the last twenty years.

Our current clients that received this funding included the following:

Flanner House of Indianapolis

Hawthorne Community Center

Horizon House

Mary Rigg Neighborhood Center

Southeast Community Services

Despite this crisis funding, we would encourage you to financially support these organizations and our clients at this time.  Individuals may donate to the fund by texting HELP2020 to 91999 or by visiting covid19cerf.org.

    FTM Firm Response to Coronavirus (COVID-19)

    It has been a very challenging few weeks for all our clients and our communities over the last several weeks.    It seems like the only communication I have received over the last two weeks has been about the pandemic.   We just wanted to let you know that we have worked with nonprofits in crisis over the last twenty years so we are here to help when and where you need us.    Fortunately, we have been a remote CPA firm since 2017 and have capacity to help host and access your accounting software like MIP Fund Accounting and QuickBooks.   We can provide outsourced staffing to complement your existing staff or to provide staffing while a staff person is unable to work.   We can provide access to our client portal as well and have remote meeting capabilities to allow the communication to continue.  Let us work with you to ensure your essential accounting and financial services remain operable and your accounting continues.  We can  help  determine the financial impact and proper course of action going forward.  Thank you for what you do to serve our communities especially during this health crisis that has impacted everyone.  Let’s do what we can to do to help each other out during this pandemic.

     

    NonProfits Guide to Fraud Prevention

    According to the most recent Fraud study conducted by the Association of Certified Fraud Examiners (ACFE), nonprofits account for 9% of all frauds and reported a median loss of $75,000 (ACFE 2018 RTTN) along with an even greater potential cost for reputational damage.  It maybe surprising, but the external audit is only likely to detect fraud 4% of the time.  The top detection methods include tips-40%; internal audit-15%; management review-13%; accident-7%; account reconciliation-5%; and document examination-4%.  With lack of board and management involvement in finance for nonprofits, it seems like we are relying too heavily tips and accidents to detect fraud.

    6 FRAUD RISKS SPECIFIC TO NON-PROFITS
    We’ve all heard the myths when it comes to fraud in not-for-profit organizations: “It can’t happen here. All of our volunteers and staff members are honest and committed to our mission, and besides they’ve been with us for years. If someone was stealing from us, we would have found it by now.” But the fact is that not-for-profits account for 10.1% of all frauds (ACFE 2016 RTTN) and face specific risks that make them particularly susceptible.
    1. Inadequate resources for financial oversight

    Of the roughly 1 million public charities in the United States, about three-quarters have annual expenses of less than $500,000.  Small not-for-profits often lack the resources for strong internal controls such as segregation of duties.
    2. Excessive control in one person

    Especially in small not-for-profits, the founder or executive director may be responsible for almost everything – from writing checks to approving vendors. This lack of segregation of duties creates a seedbed for fraudulent behavior. Tenure and level of authority also positively correlate with the magnitude of the fraud. Executives commit frauds with a median loss almost 10 times those caused by employees, and employees with more than 10 years of tenure are responsible for median losses 2½ times those caused by employees with less than five years of experience, according to ACFE’s 2016 Report to the Nations.
    3. All-volunteer boards with little or no financial oversight

    The risk of too much control concentrated in the hands of the executive director indicates a need for objective oversight from a financially literate board of directors. To meet their fiduciary duty of care, all board members need to understand how to read financial statements and be alert to warning signs of errors, fraud, or abuse. However, unlike many for-profit corporations and larger not-for-profits, smaller NFPs tend not to recruit board members with experience running organizations and overseeing financial responsibilities.
    4. Volunteers privy to confidential information

    In addition to the board members, volunteers perform many financial functions in not-for-profits, including collecting donations, rental fees, and other payments. In many cases, these volunteers have not been vetted thoroughly, opening the door to a potential fraudster.
    5. Nonreciprocal transactions

    A donor typically does not receive anything of value in exchange for the contribution except for a letter acknowledging the transaction. In many cases, that contribution is in cash. Both of these facts make it all too-easy to divert those funds.
    6. Susceptible to negative publicity

    In the 2016 ACFE study, more than 40% of fraud cases were not reported to the police, and the most commonly cited reason was fear of negative publicity. For many not-for-profits, negative publicity and the subsequent hit to donations could sink the organization. That knowledge exerts pressure on many executive directors to keep the fraud quiet, and the very fact that so many of these cases go unreported is an incentive to fraudsters. Because there is no record of their malfeasance, subsequent employers are none the wiser. Of the repeat offenders who perpetrated major embezzlements in the last five years, about one in six stole from not-for-profits or religious organizations.

    REDUCING THE RISK OF FRAUD-IDENTIFY THE TYPES OF FRAUD
    Due to these unique risks, if your not-for-profit organization hasn’t already suffered an instance of fraud, then there is a decent chance that you will discover one soon. And, if so, it likely has been going on for months or even years.

    But you can change the ending of this story. According to the ACFE, 29.3% of fraud cases are due to a complete lack of internal controls. Choose your own adventure by instilling a strong anti-fraud culture and a set of controls that are targeted to your organization’s unique risks.
    Start by identifying the types of fraud that could be perpetrated by your employees, board members, or volunteers. Some of the typical types of fraud experienced by not-for-profits include:
    • Billing fraud, including credit card abuse, charge personal items to organization, creation of fictitious vendors, or billing for personal items or marking up goods or services excessively. Frequency: 40% of all fraud cases, according to ACFE.

    • Skimming, in which funds are diverted before they are ever recorded on the books. This fraud is most likely to happen when the funds are in the form of cash. Frequency: 17% of fraud cases.

    • Expense reimbursement fraud, in which an employee claims reimbursement for fictitious or inflated business expenses to include mischaracterized expenses, fictitious expenses, and multiple reimbursements. Frequency: 29%.

    • Check tampering, a scheme in which an employee intercepts, forges or alters a check. Frequency: 19% of fraud cases.

    • Payroll manipulation, which includes fraudulent timekeeping, fictitious employees, and continued payment of terminated employees. Frequency: 22%.

    • Corruption, in which an employee abuses his or her influence in a business transaction including bribery, kickbacks, illegal gratuities, economic extortion, and collusion. This situation includes board members or executives with conflicts of interest, as well as bribing. Frequency: 34% of fraud cases.

    FRAUD RISK ASSESSMENT KEY QUESTIONS TO DETERMINE YOUR RISK

    Armed with an understanding of potential types of fraud and the demographics of fraud perpetrators, executive directors and board members should ask and answer some key questions that can illuminate gaps in internal controls. This process is also known as a fraud risk assessment.

    The overall question a nonprofit should be asking is:

    What are the business processes and controls around functions where money is coming in and going out of the organization?
    Specific questions include:

    • What is the tone at the top with respect to ethical behavior?

    • How often is management reviewing financial transactions?

    • Do we have a written conflict of interest policy? Are officers, directors, and key employees required to annually disclose interests that could give rise to conflicts?

    • Do we have a written whistleblower policy?

    • Do we have a written accounting policy handbook that identifies each significant accounting position and describes job responsibilities?

    • Does the accounting policy describe processes and internal controls related to each major transaction cycle? Does it spell out who should have corporate credit cards and who can write and sign checks?

    • Do we regularly monitor and enforce compliance with each of the above policies?

    IMPLEMENT CONTROLS FOR FRAUD PREVENTION, FRAUD DETECTION, AND FRAUD CORRECTION TO MITIGATE RISKS
    With an understanding of areas where fraud is likely to occur, any organization can implement simple controls to mitigate those risks by implementing internal controls that fall in the three primary areas of prevention, detection, and correction.
    Fraud Prevention

    The first line of defense includes measures that prevent perpetrators from committing an act of fraud.

    For example:

    Segregation and/or rotation of financial duties. The person who initiates a transaction shouldn’t approve that transaction, and the person who approves the transaction should be different from the person who records it.

    Credit card policies. Credit card accounts are akin to cash and should only be assigned to employees who have a clear need to use them, such as purchasing managers. Bookkeepers, with no need to make purchases, should not have credit cards. When individual cards are required, consider credit purchase contracts for employees outlining utilization responsibilities and rules, and restrict accounts with spending limits and merchant accounting codes.

    Dual signatories. Requiring two signatures on checks above a certain amount (both of which are from individuals who did not write the check) reduces the likelihood of check fraud.

    Access controls, such as strong passwords for accounting systems, restrict access and also increase traceability of actions.
    Background checks. In addition to prospective and current employees, also scrutinize vendors and volunteers who are involved with financial transactions.

    Fraud Detection

    Due to their limited resources, many small organizations can’t afford to implement robust preventive controls. Ongoing oversight through detective controls can provide the safety net such organizations need. These controls include:

    Hotline policy. This control is consistently the most common method of initial detection among frauds reported to ACFE. As shown in our symphony example, more than 47% of frauds reported in the 2016 ACFE report were detected initially through a tip from a whistleblower.

    Internal audits of financial statements (comparing actual to budget and investigating any variances), as well as credit card charges, expense reports, payroll records, and petty cash. Internal audits were the second most common method of initial detection (18.4%), according to ACFE.

    Management review of bank statements, credit card statements, canceled checks, and invoices. Management review was the third most common method of initial detection (12.1%)

    External audits of financial statements, as well as of internal controls over financial reporting. These audits may not be cost-effective for many smaller organizations. While an external financial statements audit was the most common anti-fraud control reported by ACFE respondents, only 1.8% of frauds were detected by an external audit. The reason is that financial statement audits are not designed to detect misappropriation of assets, although auditors do assess fraud risks and procedures set-up to mitigate these risks.

    Fraud Correction

    Sometimes the best defense is a good offense. If would-be fraudsters know that they will be prosecuted to the full extent of the law, then they will likely think twice about targeting your organization. An effective fraud policy should include the following components:

    Internal investigation. A forensic accounting investigation may be necessary to quantify the loss, determine how it was perpetrated, and track the money. This analysis may be necessary to support a prosecution or insurance claim(s).

    Interviews. In addition to interviewing the suspect, other employees, board members, and volunteers may need to be interviewed.

    External investigation. Pursuing prosecution creates a permanent record that can be discovered by other organizations where the perpetrator may seek employment or volunteer positions in the future.

    Be sure to seek legal counsel in establishing any policies, as well as in executing those policies in the case of an actual fraud.

    PUTTING POLICY INTO ACTION
    We’ve outlined a number of policies that you can use to rewrite your organization’s story.
    Here is an action plan that any size organization can use to putting these policies into action:

    1. Set the right tone. In addition to creating written conflict-of-interest, whistleblower, code of conduct and accounting policies, distribute hard copies of those policies at least annually. Most importantly, talk about the importance of ethical behavior and the consequences of not living up to the organization’s code of conduct and other policies.  Put policies in writing and have all employees sign documents saying they understand and will follow the rules.   You should discourage a “win at all costs” attitude so the employees and volunteers aren’t encouraged to bend rules, falsify records, or commit fraud in order to meet expectations.

    2. Know your team and hire the right people. Unfortunately, perpetrators of fraud often go on to commit schemes at other organizations, disproportionately at nonprofit and religious organizations. Conduct background checks of all prospective employees and volunteers who will be handling financial transactions to put job applicants on notice that the organization values integrity.  Also conduct periodic background checks of current employees and volunteers.  A great deal can be learned from a candidate’s references, work history, credentials, pre-employment drug testing, and criminal background checks.

    3. Recruit at least one financially savvy board member who is capable of overseeing your organization’s fraud risk. Educate that person regarding risks specific to your organization.

    4. Train board members, employees, and volunteers to be aware of and watch for signs of fraud.  Pay attention to rumors of changes in an employee’s behavior or lifestyle. Red flags include living beyond one’s means, gambling problems and other evidence of financial difficulties, an unusually close relationship with a vendor, and control issues.  You need to educate employees and volunteers to know what to look for to identify fraud and how to report it and provide training as needed.

    5. Become involved in the financials, with a focus on anomalies. Frauds discovered by management review and other proactive controls showed the greatest percent reduction in median fraud losses.

    6. Create an easy and comfortable method for reporting suspicions. Keep in mind that, while employees are the primary source of tips about fraudulent activity, they may also come from outside sources – such as vendors, customers, competitors, and anonymous sources. Create a mechanism, such as an anonymous hotline, that is accessible by any of these sources.  Cost and fear of notoriety keep some organizations from exposing fraud and taking legal action, but lax attitudes make it easier for the next person to commit fraud with the fear of reprisal.

    7. Perform a fraud assessment. Consider a review of your fraud risks every three years, or more frequently if your organization does not perform regular internal audits.  You need to make sure you have internal controls in place that are preventive and detective for fraud.  Mandatory vacations and job rotation make it difficult for an employee to continue to conceal a crime.  You need to have appropriate personnel policies and procedures and make sure policies are applied fairly and equally.   An employee assistance program can help prevent fraud by providing professional help with personal problems such as alcoholism, drug abuse, marital problems, or gambling.

    If you’re looking for help identifying fraud risks and implementing cost-effective internal controls to mitigate those risks, contact us for our free assessment about your current situation and how we can help. But most importantly, don’t wait until a fraudster strikes your organization.  We can help you ask the right questions and determine the red flags for fraud.  Please contact us to discuss our certified fraud examination services for fraud prevention and forensic accounting which are available as a CFO service.

    Understanding the 501(c)(3) Public Support Test

    We have found the public support test to be among the least understood topics by nonprofits, especially smaller organizations.  But, it is absolutely critical to understand how it works, lest your nonprofit lose its public charity status.

    Background

    Before we get into the specifics of the public support test itself, it’s helpful to step back a bit and talk about a subject we’ve covered before, namely, private foundations vs. public charities.  Both organizational types are considered tax-exempt 501(c)(3) nonprofits, but the requirements regarding donor support are quite different.  Private foundations are typically closely-governed nonprofits, and the purpose of most private foundations is to fund the work of public charities.  In addition to being allowed to have close control, private foundations also can be closely funded, even by just one individual.  Many family foundations are governed and funded by members of a single family.

    Public charities, on the other hand, the preferred organizational choice of most 501(c)(3)s, are expected to have both diverse control and diverse funding.  On the control side, the IRS expects charity boards to have a majority of members who are unrelated by blood, marriage, and outside business ownership.  As for funding sources, charities are required to have a broad base of public support, which is where the public support test comes in.

    How It Works

    The simplest definition of the IRS public support test states that at least 1/3 (33.3%) of donations must be given by donors who give less than 2% of the nonprofit’s overall receipts.  Exceptions include any gifts received from other donative public charities and/or a government source, such as a state or federal grant.  For organizations that also get funds from sales of goods or services (this is called program revenue), such revenue counts toward the public support test also.

    As you can expect with IRS compliance issues, however, it’s much more complicated that it appears.  There are several subcategories of 501(c)(3) public charities, including 509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4).  We’ll focus primarily on 509(a)(1) and (a)(2).  When an organization first requests 501(c)(3) determination from the IRS, the Form 1023 application asks which subcategory the nonprofit is seeking status under, based on its purpose, programs, and revenue sources.  509(a)(1) status has several sub-subcategories, some of which are self-defining by the organization’s purpose:  church (170(b)(1)(A)(i)), school (170(b)(1)(A)(ii)), hospital (170(b)(1)(A)(iii)).  Others falling into 509(a)(1) are more generically defined by source of revenue (donations and grants), assuming their purpose doesn’t fit a predefined category.  They are considered 509(a)(1)/170(b)(1)(A)(vi).

    509(a)(2) are those charities that are not slotted into 509(a)(1) status by virtue of purpose, plus have a mix of donor support and program revenue.

    At this point, you may be getting lost in the weeds.  But stick with us…the public support test is calculated differently on Form 990, Schedule A, depending on 509(a)(1) or 509(a)(2) status, and source of revenue.

    Let’s consider some examples:

    ABC CHARITY, INC. – Scenario 1:

    ABC Charity is a 509(a)(1) public charity that receives substantially all of its support from donations from individuals, families, and businesses.  Here’s how the numbers break out.  Assuming the organization brought in exactly $1,000,000 in cumulative donations over the past 6 years, at least $333,000 must have come from donors giving less than $20,000 each (cumulatively) in order to pass the public support test.  Here’s how their numbers broke out:

    Total donor support:  $1,000,000

    Total support under 2% (< $20,000):  $882,000

    Total support above 2% (>=$20,000):  $118,000

    Public support percentage:  88.2%

    ABC CHARITY, INC. – Scenario 2:

    Instead of individual support only, let’s say ABC Charity also received donations from several other public charities.  How does that affect the calculation?

    Total donor support:  $1,000,000

    Support from public charities:  $425,000

    Individual support under 2%:  $115,000

    Individual support over 2%:  $465,000

    In this case, the public support test is a little more complicated.  Donations received from other public charities is often considered public support, regardless of amount, but not always.  For the most part, the donating charity needs to be a 509(a)(1)/170(b)(1)(A)(vi) organization or a church.  Schools, for example, are 509(a)(1) nonprofits, but donations above 2% do not count as public support.

    Assuming the $425,000 above is from other 170(b)(1)(A)(vi) organizations, the calculation on this one is $425,000 + $115,000 = $535,000, for a resulting 53.5% public support.  If not, the $425,000 would have to be further broken out and part of it moved into the “over 2%” column.

    XYZ NONPROFIT, INC. – Scenario 1:

    XYZ Nonprofit’s situation is different from ABC’s.  While XYZ, a children’s dance school, does gladly accept donations, it also receives part of its revenue from participation fees and from selling tickets to its performances.  As such, it is sub-classified as a 509(a)(2).  Let’s see how their numbers work:

    Total revenue:  $1,000,000

    Participation fees (program revenue):  $760,000

    Ticket sales (program revenue):  $80,000

    Individual support under 2%:  $60,000

    Individual support over 2%:  $100,000

    XYZ’s resulting public support percentage is 90% ($760,000 + $80,000 + $60,000 = $900,000).

    There are many more scenarios we could present, but this sample gives you an idea of how complex this can be.  We need to additionally point out that the public support test is calculated on a 5-year cumulative basis, not any individual year.  In addition, the IRS does not require new public charities to demonstrate public support until year 6.

    Why Does It Matter?

    Failure to pass the public support test will result in your nonprofit having its public charity status retroactively reverted to private foundation.  For the majority of nonprofits, that would be a potentially devastating outcome.  Private foundation status is ideal for those organizations that specifically need that structure.  For charities that find themselves downgraded, however, the consequences include having to file Form 990-PF for 6 prior years, along with the potential for loss of charitable deductibility for larger donors, again retroactively.  Even worse, the organization cannot convert back to a public charity for at least 5 forward years.

    There IS a Possible Escape Clause

    Even if your nonprofit fails the public support test, it may still be possible to retain public charity status, so long as your public support is at least 10%.  When that happens, charities must fall back on what’s called the facts and circumstances test.  It’s a subjective request to the IRS on Form 990, Schedule A to allow the organization to retain charity status.  The organization must assert that it is operating as a charity, not a foundation, and that they are actively working to get their public support percentage back up to 33% or more.  There’s no guarantee that the IRS will grant the request, but typically they do if the situation seems reasonable.

    It is entirely possible to fall into this situation multiple years in a row.  It is certainly a risk, as this is a subjective IRS decision.  But, we have seen nonprofits take 2 or more years to get back above water and still retain status.  Should your public support test drop below 10%, however, and your nonprofit WILL be downgraded.

    Wrapping Up

    The public support test is critically important.  Understand how it works, keep great records, and work hard to ensure your charity has at least 33% public support.

    What’s New in MIP Versions

    What’s New in MIP Version 2020.1.1

    The MIP 2020.1.1 release includes key updates to the Federal Tax tab and W4 information screens in Payroll, HR and EWS enabling employees to keep their pre-2020 withholding on file or submit updated 2020 W4 information. New employees and existing employees updating their Federal Tax withholding will be required to use the 2020 W4 method. More details are available in the Payroll, HR and EWS online help.

    MIP Fund Accounting™ Improvements

    State Tax Updates
    ◦California
    ◦Colorado
    ◦Illinois
    ◦Iowa
    ◦Kentucky
    ◦Maine
    ◦Maryland
    ◦Michigan
    ◦Missouri
    ◦New Mexico
    ◦New York
    ◦North Carolina
    ◦North Dakota
    ◦Ohio
    ◦Oregon
    ◦Rhode Island
    ◦South Carolina
    ◦Vermont

    Processing Year-End Forms:

    For more information on processing W2s, 1095s, and 1099s, please reference the following guides:
    •W2 User Guide
    •Aatrix 1095-C Preparation Guide for Payroll Users With HR
    •1095-C Preparation Guide for Payroll Users WITHOUT the HR Module
    •1099 User Guide

    MIP™ Idea Portal

    You can find the MIP Idea Portal on the MIP Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    What’s New in MIP Cloud Version 2020.1

    This release demonstrates our commitment to building out industry standard value APIs and offers considerable upgrades, including State Tax Withholding updates, the delivery of value APIs and a number of quality improvements across MIP.

    The new, robust set of API endpoints includes:
    •All GL endpoints
    •Customer API endpoints
    •Vendor endpoints
    •Chart of accounts endpoints

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    What’s New in Abila MIP Fund Accounting™ Version 2019.3
    •Reporting: ◦Group Code Tables – Added indexes and statistics to improve the speed in reporting
    ◦Reports – Financial Statements – Statement of Cash Flows – Added the default format for the <Indirect> method
    ◦Reports – Financial Statements – Statement of Activities – Added option ‘Include Unposted Transactions’ in the report
    ◦Reports – Accounts Payable – Vendor Activity – Added filter ‘Zero Activity’ to get vendors with no activity

    •Organization ◦Organization Preferences – Activated Account Code Combinations – Removed the single user mode requirement
    ◦Data Integrity Checks – Removed the single user mode requirement and replaced with a system lock (disallow when posting or close–year is in progress)

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    What’s New in Abila MIP Fund Accounting™ Version 2019.2

    This release contains quality updates, as well as a number of customer-driven improvements across MIP Fund Accounting™.

    MIP Fund Accounting™ Improvements
    •Application improvements: ◦Upgraded budget worksheet to allow a save while work is still in a draft form
    ◦Changed journals to include additional filtering options
    ◦Vendor reporting- additional report highlighting vendors with no recent activities
    ◦Form 1099 updates for 2019
    ◦Financial Statement formatter-addition of Account Type column and filters
    ◦Modify payroll, so that the ACH file can be regenerated and resent as needed in case of error

    •Quality improvements across MIP

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    What’s New in Abila MIP Fund Accounting™ Version 2019.1.2

    This release contains routine tax updates and quality changes to enable a smooth and efficient tax season across MIP Fund Accounting™.

    MIP Fund Accounting™ Enhancements
    •Application Enhancements: ◦Continuing enhancement of algorithms around encryption to maximize data security

    •2019 Tax Updates: ◦Social Security Maximum Wages and W-2 changes
    ◦Iowa
    ◦Georgia
    ◦North Carolina
    ◦Maine
    ◦New York
    ◦Ohio
    ◦California

    •Quality enhancements across MIP and Drillpoint

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    What’s New in Abila MIP Fund Accounting™ Version 2019.1.0

    Finance and accounting professionals need a secure, robust system with cutting edge usability, technology and reporting capabilities. In this release, we’ve made key performance improvements and reporting enhancements across MIP Fund Accounting™.

    MIP Fund Accounting™ Enhancements
    •Application Enhancements: ◦Upgraded security encryption algorithms and system messaging to continually enhance application security
    ◦Timesheet enhancements to simplify reporting and tracking of large numbers of employees

    •2018 Tax Updates: ◦Illinois
    ◦New Jersey
    ◦Maryland

    •Payroll changes to meet Arizona specific pay law changes
    •Quality enhancements across the application

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    Download the What’s New in MIP™ 2019.1 PDF

    What’s New in Abila MIP Fund Accounting™ Version 2018.1

    Finance and accounting professionals need a high performing system that helps them save valuable time. In this release, we’ve made key performance improvements and reporting enhancements across MIP™. In addition, we’ve launched a new MIP™ Idea Portal, enabling you to conveniently submit new feature and enhancement requests to your Abila MIP™ team.

    MIP Fund Accounting™
    •Performance Improvements ◦Performance enhancements have been made systemwide
    ◦Quality enhancements have been made systemwide

    •EFT and Payroll Modules ◦Configure whether EFT for AP and Payroll Direct Deposit ACH files have filler rows at the end of the file.
    ◦Specify if the ACH file should be configured for same-day clearing.

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    Download the What’s New in MIP™ 2018.1 PDF

    What’s New in Abila MIP Fund Accounting™ Version 2017.2.1

    Finance and accounting professionals need a high-performing solution that helps save valuable time and improve decision making. In this release, we’ve made key performance improvements and reporting enhancements across MIP™. In addition, we’ve expanded our MIP™ application programming interface (API) to support product integrations.

    MIP Fund Accounting™
    •Performance Improvements ◦New default dates for payroll and aged payables reports improve load time

    •Reporting Enhancements ◦New filters for posted general ledger (GL) transaction reports

    •Expanded API for Cash Receipts Integrations ◦Our REST-based API (application programming interface)can be used for a variety of integration needs
    ◦Available Product Partner solutions can be found in the Abila Marketplace

    •MIP™ 2017.2.1 also contains more than 20 quality resolutions

    MIP™ Idea Portal

    You can find the MIP™ Idea Portal on the MIP™ Menu at mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for quickly submitting your ideas. You can also vote for other ideas submitted by your peers and check statuses of all ideas.

    Download the What’s New in MIP™ 2017.2.1 PDF

    What’s New in Abila MIP Fund Accounting™ Version 2017.2

    We understand nonprofit finance and accounting professionals need a high performing system that helps save valuable time. So, in this latest Abila MIP Fund Accounting™ release, we’ve made key performance and reporting improvements across the product. In addition, we’ve launched a new MIP™ Idea Portal for you to conveniently submit new feature and enhancement requests directly to our Abila MIP™ teams.

    MIP Fund Accounting™
    •Performance Improvements ◦Load time for the void check form has been decreased by initially applying a date filter
    ◦Transfer of all payroll data to Accounting is streamlined
    ◦MIP™ database upgrades are faster

    •Email Reporting Options ◦When sending reports via SMTP you can provide name information for the sender

    •MIP™ 2017.2 also contains over 19 quality resolutions

    Human Resource (HR) Enhancements
    •HR Reporting Enhancements ◦Employee ID changes are now available in reporting
    ◦Reporting formatting is standardized across HR reports

    •MIP™ 2017.2 also contains more than a dozen quality resolutions specific to HR

    New MIP™ Idea Portal

    You can find the new MIP™ Idea Portal from the MIP™ menu or at https://mipideas.abila.com. This portal contains 20-plus unique categories across MIP™ for you to quickly submit your ideas. You can also vote for ideas submitted by your peers and check statuses of all ideas.

    Download the What’s New in MIP™ 2017.2 PDF

    WHAT’S NEW IN ABILA MIP FUND ACCOUNTING™, VERSION 2017.1?

    Nonprofit finance and accounting professionals need more visibility into both their finances and personnel. In this release, we’ve expanded reporting capabilities across Abila MIP Fund Accounting™ to improve your ability to track and report on what’s important to your team and stakeholders.

    We’ve also enhanced key Accounts Payable workflows, added new administration options supporting your audit trail, and expanded the human resource management features integrated within MIP.

    UPDATED ACCOUNTS PAYABLE WORKFLOW
    •Designed to save valuable time by providing scalable invoice payments and check printing.
    •Easily create batches of invoices to pay and auto-reversals of invoices with voided checks, as well as check address validation on email addresses.

    BROAD REPORT ENHANCEMENTS
    •Improved ability to filter, provide additional fields, and generate key Accounts Payable, Accounts Receivable, and General Ledger reports.
    •This includes debit and credit columns for transaction reports and new print code options for working trial balance reports.

    NEW ADMINISTRATION OPTIONS
    •Increased visibility into users, security reports, and the organization’s overall audit trail.
    •The summary organization audit log will show Accounts Payable status changes and Payroll updates. The User Information report can show security group and user IDs for improved tracking.
    •Attachments will default to the recommended encrypted option for users. (Note: SMTP-based email settings are now required in MIP and replace older MAPI email settings.)

    NEW PAYROLL AND HUMAN RESOURCE FEATURES
    •Payroll – Enhancements include a new form for reprinting paystubs as vouchers. Plus, employee status is now an available filter and field for timesheet reports.
    •Human Resources – This module offers a new OSHA claims form with available query and related reports.
    •Employee Web Services (EWS) – Gender dropdown is now editable.
    •Benefit Enrollment – Usability enhancements and additional query options for enrollment processing are included.

    ABILA ADVANCED REPORTING
    •Improve the ability to compare your current financial position to budget.
    •New dynamic column display option for actual vs. budgeted comparisons is now available.

    EXPANDED ACCOUNTS PAYABLE API
    •Our REST-based API (application programming interface)can be used for a variety of integration needs.
    •Available Product Partner solutions can be found in the Abila Marketplace.

    Download the What’s New in MIP 2017.1 PDF

    WHAT’S NEW IN ABILA MIP FUND ACCOUNTING™ VERSION 2016.2?

    As a financial professional, you need flexible, integrated solutions to help drive your organization’s mission forward. With this release, we’ve expanded Abila MIP Fund Accounting™’s rich REST-based API (Application Programming Interface) to support Accounts Payable integrations.

    We’ve also added a new way for you to manage your workforce with an integrated companion to our Human Resources and Employee Web Services (EWS) modules providing employee benefit enrollment online.

    EXPANSION OF THE MIP PLATFORM AND LAUNCH OF NEW BENEFIT ENROLLMENT
    •New Benefit Enrollment module for your employees – An integrated companion to our Human Resources and Employee Web Services (EWS) modules, this module equips you to offer open enrollment via a Web-based portal for your employees. Manage the initial setup and enrollment processing using highly configurable options that utilize your existing MIP HR benefit plans and employee/dependent data. Your employees are guided through enrollment with instructions you customize to help them review current benefits and elect new choices from offered benefit plan group(s).
    •Further API expansion that enables Accounts Payable invoices to be created, edited, and posted from other systems. Our REST-based API can be utilized for a variety of integration needs. Available Abila Product Partner solutions can be found in the Abila Marketplace.

    Download the What’s New in Abila MIP Fund Accounting™2016.2 PDF

    WHAT’S NEW IN ABILA MIP ADVANCE™ VERSION 2016.1?

    With Affordable Care Act (ACA) reporting around the corner, and the ever-present pressures of data integrity and organizational efficiency, managing your financials is a constant challenge. With this MIP release, we focus on key changes to the system to ensure ACA compliance, along with expanded API capabilities for seamless system integrations.

    ENHANCED FUNCTIONALITY TO MAINTAIN COMPLIANCE AND STEWARDSHIP
    •Protect your organization’s funds with expanded alerting. Continuing to expand on the alerting functionality available to all customers, version 2016.1 includes a new alert for check writing. Should a check be written without an associated Vendor ID, selected members of your distribution list (both within MIP and outside the system) will receive a notification, and can take the appropriate action.
    •Synchronize ledger entries and budget transactions with external systems. Continuing to expand the REST-based API introduced in MIP version 2015.2, Abila announces an expanded REST-based API to cut down on time-intensive exporting, data transformation, and importing activities at your organization. With budget transactions now included in the REST-based API, you can configure the API to automatically import and export budget AND general ledger transactions to other systems, whether on-premises or in the cloud.
    •Stay in compliance with ACA reporting. Key changes to data transferred between MIP and reporting partners ensure your organization easily complies with crucial reporting requirements.
    •Save time and keystrokes with auto- MIP Advance™ now features auto-incrementing of journal entries and other transaction types, decreasing the time spent entering transactions.
    •Simple budget transaction entry within the MIP Advance™ user interface to help you create and maintain your organization’s budget in your office and on the road.

    Download the What’s New in MIP Advance 2016.1 PDF

    WHAT’S NEW IN ABILA MIP™ VERSION 2015.2?

    As a financial professional, you’re pressed to maintain accurate data and produce reports on demand. With this release, we’ve delivered a more streamlined user experience and improved usability and efficiency across the product, incorporating feedback from our customers in many of these enhancements. We’ve also opened MIP both on-premises and in our private cloud to securely expand integration capabilities and cut down time spent entering data from other systems at your org.

    IMPROVED USABILITY
    •Consolidation of Payroll, Administration, Accounting and Requisitions modules into one, easily accessible MIP icon helps you save time when entering transactions or searching for data.
    •The ability to customize and save your organization’s HR reports for future reference helps you easily produce frequently used reports.

    EXPANDED INTEGRATION CAPABILITIES
    •A new Application Programming Interface (API) provides you with the ability to send and retrieve information from other systems without the need for manual entry or even importing or exporting data manually, reducing the potential for error and eliminating time-intensive data processes.

    ENHANCED REPORTING
    •Advanced Reporting now features a report wizard for easy, step-by-step production of detailed reports and improved placement of key icons for increased usability.

    What’s New in Abila MIP™ Version 2015.1?

    You’re pressed for time, with limited resources and staff to serve your mission. With this release, we’ve improved MIP’s ability to inform you of changes to your organization’s financials, as well as advise you on how and where to take action.

    IMPROVED FUNCTIONALITY TO INFORM AND ADVISE
    •Address complex, advanced reporting needs much more quickly and simply with the Advanced Reporting module, with DrillPoint.
    •Easily track spending against planned budget with a budget tolerance alert. Set a percentage to budget threshold for your organization and receive notifications when spending hits or exceeds this mark.
    •Spend less time troubleshooting and correcting import files. With this release, the rows of your import file that are generating errors are clearly identified in an exception file, so you can easily fix them and reimport.

    COMPLIANCE UPDATE
    •In accordance with industry standards, Payroll users will now see a pre-note lead time of 3 banking days.

    CONTINUED SECURITY ENHANCEMENTS
    •Masking of both employee and vendor Social Security Numbers

    What’s New in Abila MIP™ Version 2014.6?

    Our most recent release, 2014.6, provides users with tools to prevent fraud within their organizations. Fraudulent activity can occur in an organization every day, with the people you trust most. The new features this release delivers will help you put the day-to-day processes in place to help you detect and deter fraud and take action before it is too late:

    ABILA MIP™ – FRAUD DETECTION FUNCTIONALITY
    •Alerts are created to keep users informed about important activities going on within the application. This includes potential day-to-day fraudulent activities that might otherwise go unnoticed.
    •Auditors can more easily navigate your organization’s records and access key information on MIP users and their job function. This can help pinpoint suspicious activity or rights abuse within the organization.
    •Ensure terminated employees are no longer allowed to access MIP. Lock out former employers to prevent them from being able to commit fraudulent or damaging activity.
    •Organizations are at risk for fraudulent activity when single users consistently work with a vendor for an extended period of time. Easy visibility to specific user and vendor relationships can be very helpful for internal investigation and audit purposes.
    •MIP Fund Accounting Version™ 2014.6 allows you to prevent users who should not have access, from being able to view actual account numbers.
    •Your organization can decide to have users be forced to change their passwords at specific times or time intervals.
    •With custom payroll vouchers now available in email format, a full digital trail allows you to track where payroll information is sent.

    What’s New in Abila MIP Fund Accounting™ Version 2014.5?

    This tax release contains state withholding tax formulas for the state of Wisconsin. This information is based on changes to tax withholding formulas taking effect on April 1, 2014.

    Reminder: to complete the tax update process you may need to manually update your state unemployment tax and/or other tax code rates, wage limits and/or amounts.

    Enhancements have been made to our Human Resources and Employee Web Services modules as follows:

    Human Resources
    •There are new queries for the Timesheet Submit Log and Leave Requests.
    •The new Timesheet Form VI is an additional option for the default timesheet in Employee Web Settings.

    Employee Web Services
    •A new timesheet form (VI) has been added that allows employees to enter time in a grid format. The grid shows all days in a pay period, and all valid cost center and wage code combinations.
    •A new form has been added in the Personal menu that allows employees to add their own dependent information.
    •Staff Timesheet Pivot Table now has a filter called ‘Role’ that allows you to filter the table to show only the employees for which you are the manager, supervisor, or secondary supervisor.
    •The timesheet Entry Log now includes changes to cost centers and earnings codes.

    What’s New In Abila MIP™ Version 2014.3?

    Abila MIP™ version 2014.3 tax release contains state withholding tables that will be effective for the 2014 calendar payroll year. Changes in state withholding tax formulas apply to:
    •Illinois
    •Oklahoma
    •Oregon
    •Massachusetts
    •Michigan
    •North Dakota
    •Puerto Rico
    •Vermont

    What’s New in Abila MIP™ Version 2014.1?

    Abila MIP™ version 2014.1 tax release contains federal withholding tables that will be effective for the 2014 calendar payroll year. The release also contains the latest Federal published tax information, as of 12/11/13.
    •The Social Security wage base increased to $117,000 and the Employee Social Security withholding rate remained 6.2%.
    •The withholding allowance and the percentage method income tax withholding tables were updated.
    •The nonresident alien salary gross up increased.

    Additionally, changes in state withholding tax formulas apply to:
    •California
    •Connecticut
    •Delaware
    •Kansas
    •Kentucky
    •Maine
    •Minnesota
    •New Mexico
    •New York
    •North Carolina
    •Rhode Island

    Human Resources Module
    •HR Processes now allows you to add a process on multiple dates. For example, an annual performance review can be added one time but the process can reoccur each year.

    The new fields related to emailing payroll vouchers are added to Details> W2/Voucher tab.

    Abila MIP™ Version 2014 provides Major updates to the Abila MIP™ Mobile App. Other enhancements have been made to Accounts Receivable Billing, Accounts Payable, and include the ability to email Payroll Vouchers.

    Download What’s New in MIP version 2014

    ABILA MIP™ MOBILE ENHANCEMENTS
    •Interactive Reports provide users with the ability to review their Balance Sheet and Statement of Revenues and Expenditures with drill down functionality.
    •Interactive Reports allow users to view custom report formats created in the desktop version of MIP for the Balance Sheet and Statement of Revenues and Expenditures.
    •Interactive Reports can be viewed on the mobile device or exported to Excel or PDF for sharing with others.
    •MIP Reports allow users to review their General Ledger Analysis reports directly on their mobile device or in Excel.
    •Users with the available security rights are able to clear User Seats directly from their mobile device.
    •Hosted MIP users can view logs of recent backups of their MIP database hosted by Abila.
    •On-premises users have the ability to initiate a backup their MIP database directly from their mobile device.

    ACCOUNTS RECEIVABLE AND BILLING ENHANCEMENTS
    •New reports are available for Accounts Receivable Billing updates include: calculated invoices, calculated finance charges and calculated invoices and finance charges.
    •The pre-payment process has been enhanced to a better user experience.
    •The addition of a prepayment Transaction Source Code has been created for use with distribution codes.
    •Prepayments can no longer be made In Accounts Receivable Credits; users must go through Accounts Receivable Receipts.

    ACCOUNTS PAYABLE ENHANCEMENTS
    •Users are able to reverse the voids of individual items in a voided batch.
    •Users are able to edit an unposted batch and access the session if a check is voided by mistake.

    ALSO INCLUDING THE ABILITY TO EMAIL PAYROLL VOUCHERS

    What’s New in Abila Human Resources Version 2014?

    Please note: You must be on the Abila MIP Fund Accounting™ v2014.0 or higher before upgrading HR and EWS to v2014.0.0

    HUMAN RESOURCE ENHANCEMENTS
    •The Check For Updates menu item in Help is no longer available. Future updates to the HR product will be made available via Abila Auto Update.
    •Timesheet Approver is now an option in the Employee info query.
    •Users will now see a Required checkbox if an HR Process is set as required in the HR Processes setup.
    •A Process Log is now created when Regular/Supplemental Timesheets are loaded in HR. This will allow users to see who and when timesheets were loaded.
    •Audit records are created when HR processes are assigned to employees.
    •When job codes are assigned to employees the exempt and OT eligible defaults flow through to the employee record.
    •Mass updates can now be made to EWS Employee Web Settings. Mass update options include: Default Cost Center, Default Earnings Code, Default OT Earnings Code, Cost Center for OT, Default DT Earnings Code, Default Leave Cost Center, Default Earnings Code for Leave, Timesheet Approver.
    •Double Time is now included as a part of the Earn|Def map in the timesheet import process.
    •Employee Certifications that are expired are now grey so you can tell which ones are expired which ones are active.
    •The Report Writer now has a default data set for HR processes.
    •The Web Timesheet by Cost Center Report now has a grand total on the report.

    What’s New in Abila Employee Web Services Version 2014?

    EMPLOYEE WEB SERVICES ENHANCEMENTS
    •The Timesheet I now has the option to have OT and no Unpaid Breaks
    •When an HR process is assigned to a user, the user will receive a message in the message center alerting them of the task to complete.
    •A message will be sent to the employees’ message center one week prior to the start date of a leave request. This will keep employees from forgetting to enter their leave time for an approved leave request.
    •Travel Date has been changed to Expense Date to better describe all expense entries in the expense entry form.

    Beyond Financial Oversight: Expanding the Board’s Role in the Pursuit of Sustainability

    This article is reprinted from NPQ’s spring 2011 edition, “Governing amid the Tremors.” It was first published online on April 26, 2011.

    Throughout the ten years prior to the recession, it seemed that whenever anyone talked about boards and finances in the same sentence they were making a point about accountability. They were warning us that our Form 990s were now on GuideStar, so we’d better make sure that our boards were reading them. They were telling us to have an audit committee and a “Conflict of Interest” policy. They were telling us that we should study Sarbanes-Oxley and apply whatever we could to our own boards. They were making constant reference to a handful of nonprofit fraud cases, suggesting that this was what awaited us if our boards did not get very serious about oversight and accountability.

    Now, as community-based organizations continue to weather the severe, and in many cases permanent, shifts in their operating environments caused by the recession, those accountability concerns seem downright quaint. The truth is that one of the roles that most decently functioning boards play quite well is providing financial oversight. Compared to other board functions, financial oversight is relatively clear: there is a dedicated officer role, the treasurer; nearly all boards have a finance committee; and there are tangible products such as an annual budget to approve, financial statements to distribute, and an auditor to select.

    The problem is none of those tangible products in and of themselves has anything to do with nonprofit sustainability. And it is sustainability that is keeping executive directors up at night, not financial oversight. In a new book I coauthored, Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, my colleagues and I define sustainability as being both programmatic and financial:1

    Sustainability encompasses both financial sustainability (the ability to generate resources to meet the needs of the present without compromising the future) and programmatic sustainability (the ability to develop, mature, and cycle out programs to be responsive to constituencies over time).

    In other words, board finance committees can look at annual budgets, financial statements, and audits forever, but if some group of board members is not considering those financial results in light of the organization’s programming mix and its results, then their efforts are very unlikely to contribute to sustainability.

    Our boards, not unlike many of our staffs, are artificially siloed into groups that consider financial results, groups that consider programmatic results, and groups that consider fundraising results. Yet, for those of us without an endowment or many wealthy annual donors, program results in large part drive financial results. It is how many clients we case-manage that yields a particular contract reimbursement. It is how many units of housing we build that yields a particular developer’s fee. It is how popular our new play turns out to be that yields a particular box office revenue. And just as critically, it is how many people respond to our direct mail campaign and to our special event invitation that determines how much subsidy we can raise for programs that don’t cover their own costs. Put another way, if the board finance committee doesn’t like the financial results it is seeing as it provides oversight, what is it going to do about it? It has to look to the programs and the fundraising activities of the organization to yield different financial results; that’s the only way to make the financial statements say anything better.

    So while financial oversight is absolutely critical, it is hardly sufficient. Boards of directors charged as stewards of an organization have to be fundamentally knowledgeable about and actively engaged in the business models of the organizations they govern. And nonprofit business models are typically the antithesis of siloed; they are instead a very interdependent mix of programs and fundraising activities that work together to achieve a set of impacts and financial results. How engaged are most boards in that interdependence? And if they are not engaged, how can they meaningfully assist with the dogged pursuit of sustainability in which so many of their executives find themselves?

    The complex challenges facing community-based nonprofits require that we shift our mental model from boards being primarily about financial oversight and accountability, to boards being concerned in an ongoing way with the financial sustainability of their organizations.

    Is Your Board Sustainability-Focused?
    If you are considering making the pivot from an oversight orientation to a sustainability orientation, consider using these discussion questions to start off the conversation at your next board meeting:

    1. How financially literate are we as a group? If we have knowledge gaps, how will we work together to close them, and by when?
    2. Is our finance committee engaging in the key business-model questions facing our organization, or is it focused primarily on monitoring budget variance and preparing for the audit?
    3. What major sustainability decisions are before us as an organization, and how will we structure our board and committee-meeting agendas over the next three to four months to ensure we make those decisions effectively?
    4. Overall, how healthy is our organization financially? Is it healthier today than it was three years ago? Why or why not? When our board terms end, where do we want to leave the organization financially?
    5. How strong is our partnership with staff leadership around issues of sustainability? Are we sharing information and ideas across staff and board in a way that truly leverages our individual and collective strengths and networks as board members in the sustainability pursuit?

    When pivoting a board of directors from a strictly oversight orientation to a sustainability orientation, there are a number of things to consider. For instance, a board with a sustainability orientation requires board members who are financially literate. By this I mean that everyone has, or is actively developing, an understanding of the financial statements they receive. They have the fluency, for instance, to ask how a core program is performing both financially and programmatically. If only two or three people on the board can read the financial data, the board is unlikely to have holistic conversations that take both mission impact and financial return into account. With a sustainability orientation, financial statements become a useful tool in the ongoing discussion of where the organization should go next rather than merely reports that the treasurer assures everyone she has reviewed on their behalf.

    Practically, this means that board chairs and executives need to team up in creating a board culture that expects and supports financial literacy from all members. During the recruitment and orientation of new board members, thorough and transparent discussion of the organization’s business model and its current financial challenges and opportunities should be central. A board with a strong sustainability orientation will most likely pass on the potential recruit who uses stale language such as, “I am not a numbers person. I leave that stuff to the treasurer.” The response should be, “Our board is focused holistically on the sustainability of this organization, so everyone engages with our financial results. We will train you and support your development as a financial leader, but you have to be committed to our stance on this point to be successful on this board.” In addition to this kind of strategic recruitment and orientation, board chairs and executives should prioritize financial training opportunities and consider mentoring among board members to support members who are in active development of their financial literacy. Once a year, all board members should receive a one-hour refresher on how to read and interpret the organization’s particular set of monthly financial statements.

    To signal and reinforce this sustainability stance, chairs and executives should consider renaming their finance committees and adding nontraditional members—folks who are financially literate but who have program or fundraising as their primary orientations, for instance. A board committee called “Finance and Sustainability” that is composed of both finance experts and programmatic folks actively engaging with the business model’s concerns will support the pivot to a “beyond oversight” board. When a diverse group of members is reviewing and discussing the numbers, not only can it go beyond merely reporting to the full board how close to its budget the organization is or is not, it can also frame for the board the questions of “why?” and “what might we do about it?” With this approach, the treasurer role evolves from that of a CPA, who is among the only people able and willing to review financials, to a full leadership role that supports the full board’s meaningful focus on the complex questions and difficult decision making of the sustainability pursuit.

    Another key shift required for a sustainability orientation is the normalizing of profit. Profit, like program impact, is fundamental to sustainability. A board of directors that is uncomfortable budgeting for surplus and unwilling to face the brutal facts about the prospects for profitability of core activities is not operating with a sustainability orientation. It is important not to conflate profitability with earned income, however. Many community-based nonprofits achieve profitability—that is, consistent annual surpluses—through a mix of earned and donated income. A special event can be just as profitable as a fee-based service to the community. The key is for boards to be looking for profit wherever it can be generated in the model, and to be ensuring that, as a set, the organization’s activities yield more than they consume.

    Through the recession, many leaders have had to face the reality that they can no longer subsidize core activities that do not cover their own costs. The fact that an activity is core to an organization’s mission and very needed by its constituency does not necessarily mean that the organization can afford to keep it in its business model. So many executives I talk to now lament not having faced those realities sooner. I attribute this reticence to act on unsustainable deficits in part to boards of directors not deeply engaging in why and how their organizations were incurring deficits. That is, they didn’t deeply understand which activities in their business models were losing money, and how much; instead, they talked in macro terms about the organization’s overall “not hitting budget.” Part of pursuing sustainability is determining the desired profitability of every core activity—programmatic and fundraising. While most community-based organizations will elect to subsidize a handful of money-losers—allow the profits from an annual event to offset the losses in the government-funded job training program, for instance—the board should be very clear on these decisions and ensure that those subsidy decisions do not result in deficits for the organization overall.

    The nature of financial plans and reports shifts too with a sustainability orientation. Ironically, the classic tools of annual budget, monthly financial statements, and an audit can actually keep a board focused on oversight rather than business model sustainability. When boards focus too much on annual budget variance, for example, I find that they are often not sufficiently engaging in projection. Rather than focusing all of their analytical energy on how close the organization is to numbers it predicted six or eight months ago, members of the Finance and Sustainability Committee want to be anticipating the next several quarters’ results, too. We spend too much time providing oversight on things that already happened, and not enough time considering the financial road ahead. For-profits engage in rolling projection, and I believe that nonprofits should do this as well.

    Rolling projection moves the board of directors away from the silly obsession with “hitting the year-end budget” and toward the capacity to make earlier and better decisions given the economic forces happening in real time. Fiscal years are artificial time frames. All major decisions will have economic impact far beyond the current fiscal year. Put another way, it is just as important to have a good July as it is to have a good June. When boards focus only on predicting the coming twelve months (annual budget), monitoring variance from that increasingly outdated prediction (monthly financial statements with budget variance), and reviewing the past year’s statements (audit), they risk not actually engaging in the pressing and emerging business issues facing their organizations right now. Again, financial oversight is critical but insufficient for sustainability.

    A board that is focused on sustainability will be working a handful of key business-model issues all the time. In this economic climate, very few community-based organizations do not have to rethink some aspect of their business models. The Finance and Sustainability Committee members will partner with staff leadership to articulate those issues and find meaningful ways for the full board to understand them and, where possible, contribute to their resolution. For instance, the committee may come to the realization that the organization needs to close or transfer its drop-in program for teen dads because, while valued by the community, it has lost money for three years in a row, and its government contract is unlikely to survive the next round of county budget cuts. A committee member can partner with the executive director to craft a presentation to the full board, laying out the data and framing the key questions for board decision making: Are we prepared to end this program, and if so, by what date? Are there elements of this program that we can transfer to a collaborator or competitor? Are there financial implications of closing this program that we need to understand (for example, laying off staff, alienating a key funder, or losing the contract’s modest contribution to defraying overhead costs)? One board member can be engaged in reaching out to another community organization about the potential for program transfer; another board member can join the executive director in breaking the news to the government funder; and so on. In this fashion, the full board is actively engaged in decision making and execution on a business-model issue essential to the organization’s sustainability.

    For too long, too much of our boards’ finance focus has been on reviewing the past. For many nonprofits, this meant decision making was too slow in the face of the mounting recession. Modest reserves were depleted, and organizations were left exceedingly vulnerable during a time of great community need. The lesson of the recession is that boards must engage not only in financial oversight but also in the pursuit of sustainability. To do this well, boards have to be composed of financially literate members who engage in real-time analysis and focus on answering the complex business-model questions their organizations face today.

    Notes

    1. Jeanne Bell, Jan Masaoka, and Steve Zimmerman, Nonprofit Sustainability: Making Strategic Decisions for Financial Viability. San Francisco: Jossey-Bass, 2010.

    IRS improves online Withholding Estimator to reflect new W-4 for 2020

    The Internal Revenue Service unveiled an enhanced Tax Withholding Estimator on its website Tuesday, designed to help workers fill out the new W-4 withholding form and hopefully avoid the problems seen last year when many taxpayers found themselves owing more taxes or receiving less of a tax refund than they expected.

    The new Tax Withholding Estimator incorporates the changes from the recently revamped Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year.

    The IRS is encouraging taxpayers to find out if they need to adjust their withholding by using the Tax Withholding Estimator to do a Paycheck Checkup. If an adjustment is needed, the Tax Withholding Estimator offers recommendations on how to fill out their employer’s online Form W-4 or provides the PDF form with key parts filled out.

    To assist workers with more effectively adjusting their withholding, the enhanced Tax Withholding Estimator offers a customized refund slider that enables taxpayers to select the tax refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by that user.

    Based on the refund amount selected, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. The new feature permits users who prefer either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

    The new Tax Withholding Estimator also offers a number of other improvements over last year’s version, including one enabling anybody who anticipates receiving a bonus from their employer to indicate whether tax will be withheld. On top of that, improvements added last summer by the IRS continue to be available in the latest version of the app, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

    The Tax Cuts and Jobs Act of 2017 eliminated a host of traditional features of the Tax Code, including the personal and dependent exemptions that had long been the key ways that employees were filling out their W-4 forms. The IRS was slow to revise the W-4 form after some early draft versions of the W-4 prompted complaints that it was asking for too much information, such as about a spouse’s income. The IRS finally released a new W-4 form last month (listen to our podcast episode Meet the new W-4 to hear more about it). But that was too late for many taxpayers who discovered last tax season that they ended up owing thousands of dollars on their tax bills when they were accustomed to receiving tax refunds every year. Even though the Tax Cuts and Jobs Act reduced the overall tax burden for most taxpayers, the actual tax cut for many workers was so small that many people never noticed the difference on their paycheck, particularly if other items like health insurance went up.

    The changes may be even more dramatic this year. Starting in 2020, the IRS noted, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is typically going to be based on the worker’s expected filing status and standard deduction for the year. In addition, workers can choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year.

    The IRS stressed the importance of people who have more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little money in taxes withheld from their paychecks. The revamped Tax Withholding Estimator promises to provide a more accurate way to do this. As in the past, employees can also opt to have their employer withhold an extra flat-dollar amount each pay period to cover, for example, the income they receive from a gig economy side job, self-employment income, or other sources that aren’t subject to withholding.

    Nonprofit Tax Alert: Parking Tax REPEALED

    As part of a bipartisan year-end spending and tax package agreed to this week, Congress repealed IRC Section 512(a)(7) that required tax-exempt organizations to pay a 21% unrelated business income tax (UBIT) on qualified transportation benefits provided to employees (the “Parking Tax”).

    President Trump is expected to sign this legislation today to avoid a partial government shutdown at midnight December 20. Once signed, the repeal of the “Parking Tax” is retroactive to the original date of enactment. Taxpayers should be able to file amended Form 990-T to claim a refund for any UBIT paid related to providing qualified transportation benefits to their employees after December 31, 2017.

    The legislation also amends IRC Section 4940 private foundation excise tax on net investment income to a single rate of 1.39%. The 1% or 2% tax rates have been eliminated. This single rate rate of 1.39% will be effective for tax years beginning after the legislation’s date of enactment.  The new rate is effective for tax years beginning after December 20, 2019.

    For additional details, refer to the law (H.R. 1865, Division Q, AKA the Taxpayer Certainty and Disaster Tax Relief Act of 2019, SECs. 207 and 302) or visit irs.gov/charities-and-nonprofits.

    As always, let us know if you have any questions.