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Finance for Every Board Member

Finance for Every Board Member
As a Board member for a not-for-profit organization, you wear many hats – some fun, and some very serious. Overseeing the finances of your organization is one of the more serious roles because it ties so directly to your agency’s long-term existence, reputation, and ability to provide services.

Finances Are Means To an End

While every Board member must take personal responsibility for understanding the financial condition of the organization, you must also keep in mind that the organization does not exist merely for its finances. You exist in order to accomplish a mission – some critical benefit to society. So – don’t let finances dominate your meetings. Many boards struggle with having too much information yet not feeling they know what is happening with the organization. Decide what you need to know and the best way to appropriately oversee financial operations and move on to what really matters.

But We Have a CPA On the Board

Having financial professionals on your Board is a great asset and advantage. However, far too many not-for-profits utilize the skills of their financially astute board members while letting everyone else “off the hook”.

If you have a CPA (Certified Public Accountant) on your Board, I would suggest they may be looking for a more people or program-oriented opportunity to participate.  If they are excited about supporting your financial function, then connect them on a team with others including some non-finance professionals.

In addition to continuity through board member terms, these lay people may be more effective at presenting the numbers to the board in understandable terms plus bringing insights about the “programs and activities behind the numbers”. You may also find that CPAs are not very available during certain times of the year, making your “one-person finance committee” less effective or highly stressed.

Contents
Key Differences Between Businesses and Not-for-Profits
Different Sources of Income & Expense
Why is a Budget so Important?
What to Look for in Our Financial Reports?
What are Clues to Poor Financial Management?
Why Do We Need an Audit?
What is “Conflict of Interest”?
What Does the Finance Committee Do?
What is the IRS Form 990?
What is Accrual versus Cash-basis Accounting?
Restricted versus Unrestricted Gifts
What’s The Big Deal About Fund Accounting?
We Have to Show Pledges as Income?
How Do We Reduce the Likelihood of Theft or Fraud?
Will We Lose our Not-for-Profit Status If We Run A Business?
Is It Appropriate to Have a Financial Reserve?
Managing Risks and Disaster Recovery
Staffing the Accounting or Financial Office
Sharing Services or Outsourcing
Buying Nonprofit Financial Software
Glossary of Terms
Key Differences Between Business and Not-for-Profit

Businesses and charitable not-for-profit organizations have much in common. They both have mission statements and employ people, own and lease facilities or office space, and provide a service or product that meets a need. The key difference is that a business exists to make money for its investors and owners while the not-for-profit is focused on fulfilling a need in the community that cannot typically be supported by a business – harnessing donations of time and money to fulfill its obligations, and enriching no one but the community. As a Board member, it is your job to effectively steward the organization on behalf of your local community.

Question Business Not-for-Profit
What defines Success? Profits Mission Results
Who owns the organization? Investors Community
Where does the organization get operating funds? Sales Revenue

Banks

Foundation Grants, Government Contracts, Donations, Fundraising, and Fees for Services
When revenues exceed expenses, what happens to the surplus? To owners to invest in business Expand Program Services
Who performs the work of the organization? Paid Employees Volunteers, Paid Employees, Contract Employees
What is the primary basis for decision making? Profitability Mission
How is accounting organized? Cost of Goods and Services Expenses by Funding Source/Program

Different Sources of Income and Expense
If you are new to the nor-for-profit sector, you may not have noticed that different
types of organizations receive their funding from very different sources.
• Membership organizations usually receive their income from dues,
conferences, and services sold to members.
• Churches rely primarily on donations from individuals.
• Colleges and Universities receive tuition from students (fees for
service) plus additional funding from individual and corporate
donations, sports events and licensing revenues, and often government
funds.
•Arts organizations look co ticket sales, sponsorships from businesses,
and individual donations. Foundations will often support
the education and outreach efforts of arcs organizations.
• Finally, human services organizations commonly look to foundations,
individuals, United Way, and the government for support.
• Many organizations are now exploring businesses to further their
missions or make money for programs. Goodwill is an example of a
nor-for-profit chat runs retail stores to provide financial support for
programs and to create job training opportunities. The YMCA runs
fitness centers to subsidize work with youth and urban families.

On the expense side, there is more commonality between not-for-profits. As service providers, nor-for-profits look similar to service businesses. The largest expense item is almost always staffing costs, sometimes running as high as 80% of the budget. Other major line items can include facilities, transportation, insurance, and contracted services.

The focus of this booklet is on the boards of charitable 50 I (c)3 not-for-profit organizations – organizations that are able to accept tax-deductible gifts from donors.  The advice will also apply to organizations that are on their way to forming a charitable not-for-profit.

Why is a Budget So Important?

The Board of Directors has three primary avenues to oversee and direct the organization, all very important:
1) Confirm the Mission and Establish the Strategic Plan
2) Hire, supervise and evaluate a capable Executive Director or Chief Executive
3) Review and approve an Annual Budget that ties to the current year’s implementation
of the Strategic Plan, then monitor expenditures and manpower to that budget. The budget should serve as the financial blueprint and prioritize
the organization’s objectives for the coming year.

Working With The Budget
The entire Board should look at the actual financials compared to budget at least quarterly with the finance committee or treasurer examining monthly reporting.

Keep in mind that finances are a lagging indicator, so even when you are reviewing current financials, the information is at least a month old. Don’t allow this to become casual or “take a couple months off”. You cannot expect to identify problems or spot trends in time to correct them if you are not catching chem immediately. In addition, staff should intentionally keep the Board informed of any factors that might cause funding sources or donors to increase or decrease funds. The budget should be updated, with Board review and approval, for major changes that
occur during the year in order to keep reporting relevant.

What to Look For in Financial Reports
It is easy to gee overwhelmed by Board reports that give you lots of numbers but
very little information. The financial detail that the whole board sees is driven by
several factors:
1) The size of the Board
2) The complexity and size of the organization
3) The existence of a finance or audit sub-committee
4) The financial expertise of the board “as a whole”
5) The financial expertise of the staff
Every Board will have different information needs, and it is important that overall Board reporting focus first on what the organization is accomplishing and then financials – often reported in terms of progress against the goals of the Strategic Plan.
Typical Financial Reports (Revenue/Expenses)
• Revenue/Expenses vs. Budget for month and year to date
• Revenue/Expenses vs. Prior Year for month and year to date
• Projected Year-end Revenue/Expenses vs. Budget

Questions you might ask about these reports include:
• Did we have significant unexpected income or expenses during this period?
•Why are we way over or way under budget and/or prior year income or expenses in a major category?
• Is the amount of the expense budget remaining in each category sufficient to complete the year?
• Do we have any one time or seasonal expenses in the next period?
• Do we have any open staff positions and what was their financial and programmatic impact?
• Have we changed any of the basic assumptions that we used in assembling our budget? If so, what is the impact?

Typical Financial Reports (Assets/Liabilities)
• Assets and Liabilities – Shows what we own and what we owe
• Assets and Liabilities vs Prior Year – How we compare to last year
• Cash Flow Forecast – Shows timing of anticipated cash income and expenses, identifying when shortfalls will occur and when excess funds may be available for short-term investment.

Questions you might ask about these reports include:
•What is our balance of restricted and unrestricted funds?
• Do we have cash to cover current expenses in the months ahead?
• Do we have relationships with banks or other funders to cover shortfalls?
• Has our unrestricted reserve balance increased or decreased during the past 3 months, 6 months, or year?

What Are Clues to Poor Financial Management?
Whether you are a new Board member or a long-rime Board member who has not
had much participation in the finances of the organization, here are a few things to
look for:
• Financial reports are not timely and accuracy is often questioned.
• No one seems to know the current financial condition.
• One person controls all financial information and does not share it openly.
• Finance personnel seem to work long hours for limited results.
• The annual audit report and management letter have many comments.
• The issues from prior years audit report have nor been addressed.
• The auditor or accounting staff people turn over frequently.
• Board members routinely use their position to do business with the
organization or to get favors for family or friends.

Do We Really Need an Audit?
Yes and No. From your perspective as a Board member, an audit has several desired
goals:
1) To provide some assurance that the financial records of the organization are appropriately organized and that revenues and expenses are being tracked and recorded according to Generally Accepted Accounting Principles (GAAP).
2) To have an outside, independent party regularly examine your records to decrease the likelihood of financial mismanagement or fraud.
3) To increase the credibility of your organization to the board, donors, and other funders.

An audit is not designed to detect fraud, but all auditors must review your internal control systems and make recommendations on how they can be improved .  The audit is best performed by a Certified Public Accounting firm who is trained both in the process of auditing your financial records and is familiar with not-for-profit operations and accounting. A “free” or low-cost audit provided by a CPA “friend of your organization” who is not a not-for-profit accounting specialist may not provide the guidance and credibility you seek from this process. One test of
credibility is whether the accountant is familiar with Office of Management and Budget (OMB) Circulars.  Unfortunately, audits by well-qualified firms typically start at $5-7,000 and quickly move past $ 10,000 based on your size and if you have any complex program reporting requirements from funders. The audit is considered an indirect expense, so few funders are interested in funding it, though they expect it of well run agencies.

Alternatives – There are two less expensive alternatives to a full audit, but they also bring less credibility. If you are a small or start up organization and your financials are quite limited, they may be suitable until you have a specific requirement expressed by a foundation, government funder, or major donor.
• A “compilation” puts your records in the hands of an experienced outside party to assemble financial reporting and offer insights on improving accounting operations.
• A “review” is more thorough and looks deeper into your financial records and the way you process transactions, but falls short of the
assurances that come with an audit.

What is “Conflict of Interest”?

In terms of not-for-profit board service, a conflict of interest question arises when a board member uses their access to the organization to derive a direct benefit for themselves, their business, or their family or friends. This can be a sensitive legal issue and different organizations will have more or less lenient policies.

In general terms, as a board member, you are expected to act in the best interests of the organization – not your personal interests. This means that you encourage and respect the procedures established in the organization to solicit bids before purchasing products or services and that you do not ask special favors of the staff in hiring relatives or friends. And you respectfully open discussions around issues or transactions that could be perceived as conflicts of interest for board or staff members.

You should never join a board with the expectation that you can sell your services to the organization. To the contrary, I would suggest that you join the board expecting to give your services to the organization.

Some organizations will allow board members to submit bids to provide services along with other vendors. General practice would be for that board member to leave the meeting during the discussion and vote. If it is believed by the board that the board member’s business can provide the best value to the organization, they may choose to contract – keeping in mind the uncomfortable situation with your
board member if service is unsatisfactory.

What Does the Finance Committee Do?
The Finance Committee is typically chaired by the Board Treasurer and staffed by the lead Accounting staff member or Executive Director. A typical list of responsibilities and expectations of the Finance Committee would include:
• Regularly review financial reports with the agency staff.
• Regularly present the financials and report to the Board on the financial condition of the organization, including variances to budget.
• Report to the board any financial irregularities, concerns, or opportunities.
• Recommend financial guidelines, financial policies, and procedures to the board (such as expenditure authority or appropriate financial
reserves to maintain).
• Work with staff to design financial reports and ensure that reports are accurate and available in a timely manner.
• Recommend selection of the auditor and work with the auditor, unless there is a separate audit committee.
• Establish budget assumptions with the staff and outline the annual budgeting process.
• Review budgets drafted by staff and ensure appropriate links between the budget and the organization’s plans.
• Serve as advisors to the Executive Director and staff on other financial priorities, such as insurance or investments, depending on committee member expertise.

What is the IRS Form 990?
The 990 is the informational tax return that essentially every 50 I (c)3 nonprofits files annually with the IRS. The 990 is initially drafted by either your organization’s audit firm, accounting firm or by the organization.    Every board member is asked to review the form prior to submission.

In addition, your Form 990 is a public record and muse be made available upon request to anyone who wants to know more about your organization. Take the extra time to ensure it is accurate, conveys what your organization does, and looks neat and professional. Go to www.guidestar.org and look up your organization’s latest 990.

What is Accrual versus Cash-basis Accounting?
This is less confusing than it sounds. Accrual accounting works the same way in the not-for-profit environment as is does in business. While small agencies may run on a cash basis for several years, eventually they will grow tired of financial reports rarely matching budgets as large expenses throw off a different category each month.  The Accrual Accounting method shows what the organization owns and owes based
on when the organization earned or incurred the financial obligation not based on when the cash was received or disbursed.

An example is when three bi-weekly pay periods are paid in one month – a twice a year happening. On a cash basis, you would see three pay periods or six weeks pay in the month (overstating) with 4 weeks pay in the months surrounding it (understating).  The accrual method would show payment for the number of accrual workdays in the month – usually 21 -23.

Restricted versus Unrestricted Gifts
When a foundation, government, or a donor gives money to your organization, they have the option to designate it to be used in specific way or for a specific program.

Whats the Big Deal About Fund Accounting?
The accounting principles that have been established for not-for-profits require that revenues and expenses be classified by restriction, funding source and program.

Fund Accounting necessitates that you have:
• A separate set of books for each grant, with its own balance sheet and net asset balances to ensure that your funding resources can be
reported separately and are not commingled.
• The ability to track and report budget and actual financial information to satisfy each funding source’s unique reporting requirements
including cross or multi fiscal year reporting.
• The ability to allocate the expenses you incur across multiple grants or programs including indirect cost pools for administration and facilities.

The fact that records need to be maintained by funding source does not mean that the financial reporting for the Board must be in that format. The Board may prefer to have reporting set up by account, department, program, location, or grant. If your accountant is not able to provide reports in that format consider seeking assistance from a consultant who is expert in your accounting software package.  You may need not be using the proper accounting software and may need to switch to a Nonprofit Accounting Software that can handle fund accounting.   Our firm can help you through this evaluation.

We Have to Show Pledges as Income?
This is one of the most confusing pans of not-for-profit accounting because it defies the intuitive logic of either recognizing income when it is received or matching it to the expenses incurred to perform the agreed program. In the mid- l 990’s, the Federal Accounting Standards Board (FASB) determined that nor-for-profits were not accurately representing their financial status when they had received commitments from donors or funders to provide sizeable donations or grants, but had not yet received those funds.

In simple terms, any firm commitment for funds (not just large ones) is to be presented as income received in the year committed – even if it will be paid to the organization the following year or in installments over several years. This means that you may show big income in one year and the big expenses associated with it the next year, making financial reports very difficult to understand. Cash Row reporting can be helpful in keeping a proper understanding of when the money is actually coming in. Look to your accountant or auditor for a full explanation and reporting that is understandable for management purposes.

How Do We Reduce the Likelihood of Theft or Fraud?
Experts say that there is nothing that businesses or not-for-profits can do to eliminate the risk of theft or fraud, bur there are steps that can reduce the likelihood.
• Have an annual audit by an outside accounting firm. If you are not doing that yet, consider having a couple skilled volunteers conduct
an internal audit.
• Review your internal control practices annually with your auditor. Internal controls separate the responsibilities of people receiving
money from chose recording receipts and the people dispersing money from chose approving disbursements.
• Ensure that the bank and investment statements are mailed, unopened, to someone disconnected from the hands-on accounting
function – in a large organization, this is the CFO or Chief Executive; in a very small organization, this could be the Board Treasurer
(or the Board Chair, if the Treasurer writes the checks).
• Consider outsourcing a portion of the accounting function so that a non-employee is reconciling bank statements or executing the transactions.
• Do credit and criminal history checks on prospective accounting employees.
• Look for unexplained changes in the standard of living of accounting employees.
• Consider doing annual credit checks on accounting/financial employees to identify personal crises that could impact their judgment
• Consider using an accounting system that has auditor controls built into the system to minimize the capability to commit and conceal fraud.
• Require your accounting staff members to take of at least one full week of vacation per year and rotate staff occasionally between
responsibilities.
• Provide adequate professional training to your accounting staff.
• Purchase Fidelity Bonds and other insurance on staff that handle funds.

Can We Lose Our Not-for-Profit Status if We Run a Business?
Yes, but it is very uncommon.
Not-for-Profits are given some very special privileges by the IRS – to accept tax deductible donations, nor pay property or income taxes, etc. It is not the intent of the IRS that a nor-for-profit would use their advantages to create unfair competition for the local business community.  The first adaptation that the IRS created was that not-for-profits must pay taxes on Unrelated Business Income (UBI) – they essentially put the not-for-profit on a level playing field with the business community.
Generally, income is considered unrelated if it is:
I) A Trade or Business,
2) Not Substantially Related to the Mission, and
3) Regularly Carried on – nor a weekend bazaar or once a year cookie sale.
Unrelated business income typically excludes Investment Income

Many people are afraid of paying UBI, bur it can be viewed as a good thing since you are making enough money to have taxes to pay. In reality, few organizations pay much UBI because indirect expenses of the organization can be appropriately allocated to absorb much of the “profit”.
Too much of a good thing? – If you have a successful business within your not-for-profit, at some point the IRS will begin to question whether you are a not-for-profit with a business on the side, or really a business under the cover of a not-for-profit.

Is It Appropriate to Have a Financial Reserve?
A common question presented by and to Boards of Directors relates to financial reserves.
“What about the people who will want or need your services five years from now, twenty years from now?”
Reserves can shield the organization from reductions or delays in funding or provide the flexibility to pursue a new opportunity. It is generally considered prudent to have at least several months of unrestricted funding in operating reserves to allow focus on services instead of extreme cash management.  One more factor is to define the expectations of your financial supporters. It is common wisdom that sizeable funding goes first to well-established and financially stable organizations – nor to organizations that will close if they don’t get it. If you are fortunate and your organization begins to accumulate a sizable reserve or even endowment, are your supporters the type to give more or to steer their support to
other organizations with lesser resources?  In uncertain economic rimes, organizations cannot sit on the edge of financial insolvency for very long. All it rakes is a couple grants or major donors that change plans, the loss of a critical staff person, a negative article in the newspaper – and the organization is history. And what will be the impact of your closure on the community and the people you serve?
Managing Risk and Disaster Recovery
So many activities fall into the Executive Director’s and financial staff’s “miscellaneous
duties” that important items can be overlooked. Some of these things can substantially impact the solvency or credibility of the organization.
T he Board might find it helpful to put together a reminder list that can be checked off each year to keep the Board apprised.
Some items will require more discussion and can be charged to a committee to explore. Ir might be wise to make risk management the topic for one board meeting, each year, especially if you are a hands-on service organization – invite your insurance
agent and attorney to join you.

Some finance and risk management issues to spend time on or include on your list:
• Directors and Officers Insurance
•Executive or key staff turnover, or serious illness/injury
•General Liability insurance – premises, vehicles, staff actions
•Property insurance – facility, vehicles, furniture, equipment, computers and software
• Special Liability Coverages – such as Professional, Improper Sexual Conduct, Volunteers, Volunteers/Staff use of own automobiles,
employee dishonesty or fraud.
• Workers Compensation
• Legal – HR, contracts and agreements
• Staff training on established risk reduction policies and procedures
• IRS and state paperwork to maintain nonprofit and corporate statuses
• Payroll tax payments
• Internal controls reviewed and updated
• Facility reviews with fire dept, insurance rep, etc
• Record keeping, retention, and backup – HR, Accounting, Funder, legal, insurance docs
• Emergency communications – staff, clients, media, funders – to prepare for an unfortunate program circumstance and also in case of disaster.
•Response to Natural Disaster
• Backup strategies for computer systems
• Resuming operations after a loss of facilities or computer systems
Most organizations find it helpful to identify a point person to lead the assembly of a disaster recovery strategy.
Staffing the Accounting or Financial Office
Several factors will determine the necessary staffing of the accounting and finance function of your organization.
Volume Total income is not a good measure if you have a large volume of transactions to process, even if much is “automated”, you will need staff to do the work, and to oversee and verify its accuracy.
Complexity Are you in a field that uses complex contracts and grant requirements or where specialized knowledge in real estate, financing, Medicare/Medicaid or risk management is routinely needed in day to day operations?

Variety Are all of your transactions similar, allowing you to train someone in a standard procedure or are you constantly faced with new questions and the need to create new ways of handling relationships, contracts, or transactions?
Partners What other organizations do you work with and what level of expertise do they have or expect of you? Can you expect your bookkeeper to keep up with their CFO? Or can your bookkeeper use their CFO as a resource?
Funders and Donors Do your funders or major donors expect access to a “financial professional” when they have questions about your organization? Though some of the rules are a little different, most of the functions of a not-for-profit accounting office parallel those of a business – payroll, payables, receivables, financial reporting, forecasting, cash management, etc.

Think of Staff in Six Groupings
Administrative Support Staff These are people who can follow well-defined procedures, such as processing payables or updating an accounting system, but do not have accounting training or a true understanding of how their work ties into the overall finance and accounting function.
Accounting and Data Entry Support Staff These people may have extensive accounting experience, but it may be in a limited area – such as payroll or accounts payable.
Bookkeepers These people usually have some accounting training and/or extensive experience. Often, there is overlap between the duties of a full charge bookkeeper in one organization and an accountant or controller in another.
Accounting or Financial Analyst This position often appears in larger accounting departments where they need a degreed or well-trained professional to handle particular reconciliations or provide forecasting or reporting support to the controller or CFO.
Accountant or Controller This is the in-charge accounting position that either pulls the books together every month or makes sure they come together. Most accounting department staff would report to this person.
Controller or CFO In larger organizations, this person will typically oversee the accounting area plus other areas like office management technology, facilities or human resources.

Because of the differences in operations and reporting needs of various organizations, it is difficult to suggest any “standard” staffing tied co revenue. At the same time, I would offer that it is unusual to see an experienced accountant in an organization smaller than $500,000 unless they also have other professional duties. It would also be unusual to see an organization with a budget over $1 million without
an experienced accountant or an outsourcing relationship that provides access to a qualified accountant on a regular basis.
Sharing Services or Outsourcing
As you might conclude from the information above, it is often difficult for small organizations to hire the people they really need to provide the level of financial support and expertise required to serve the organization, funders, and the board.
There are two alternatives to hiring full-time staff that organizations use with varying levels of success – Sharing Staff with other not-for-profits, and Outsourcing Services to a person or business with expertise in not-for-profit accounting. Both of these offer the possibility of improving internal controls and bringing more qualified staff.
Sharing Staff The advantages of sharing a staff person are that you get significant hours of a person, on-site, who brings the specialized skills that you need. The downside is that you must find another organization or two with compatible needs, a trusting relationship, and adequate budget/timing to bring the person on when you want them. You are also subject to staff turnover and retraining issues.
Outsourcing The advantages of outsourcing include gaining a higher level of expertise and more flexible capacity from the provider, a defined cost per month, the ability to start on your schedule, and a reduced likelihood of vendor turnover.
The disadvantages could include not having another person in the office to fill in for absence or work overflow from others, and a higher hourly rate than a typical employee.
Buying Nonprofit Financial Software
Most small not-for-profits begin their lives using one of the common small business accounting packages, looking for clever ways to change labels to make things work.  Quicken, QuickBooks, and Peachtree are three common packages and some now offer nonprofit editions that reduce the compromises involved.
For many not-for-profits, these packages can meet the routine recording and reporting needs. But as you begin to get grants from multiple sources, grants that cross your accounting year boundaries, or you get pledges or multi-year commitments – life starts to get more difficult and staff find themselves spending a lot of time exporting data to spreadsheets and telling the board that “our system won’t do reports that way”.
Often, when an organization reaches $500,000 or more in revenue, it starts to make sense to explore a specialized not-for-profit software package that has been designed to handle the challenges above plus ease your audit preparation and even prepare certain tax schedules.
Some of the most commonly used and best regarded packages are Abila MIP , AccuFund , and Araize.  Please contact us for help with your software evaluation.

Glossary of Terms – Finance and Accounting
Annual Audit – Nonprofit organizations should have an audit performed annually by a CPA firm familiar with not-for-profit accounting practices. This audit is not intended to identify fraud but to ensure that revenues and expenses are accounted for by accepted methods. Most funding organizations and major donors require audited financial statements.
Audit Committee-May be a separate committee or often performed by the finance committee. Selects the auditor and receives the report from the auditor.  The staff is usually involved but the committee needs a direct link to the auditor to ensure that all information is communicated directly to the Board.
Check Signers – In smaller organizations, it is common for board members to act as the check signers as a part of the internal controls process. This provides an opportunity to review expenditures as they are made.
Director’s and Officer’s Insurance – Liability insurance to protect the board in case of a lawsuit. Policies should be reviewed regularly and explained to board members. Lawsuits are becoming more frequent and often involve issues related to employee termination, accidents on premises, insufficient financial oversight, or inappropriate actions of employees or volunteers.
Endowment – Contributions that are permanently set aside in compliance with donor restrictions to provide perpetual income to the organization. Once funds are established as an endowment, the organization is limited to withdrawing only a small share of the funds – usually a % or a formula based on investment earnings. Planned gifts from donors are often designated to endowment funds.
Fees for Service – Many not-for-profits structure their services in a way that clients or the government pays $X per treatment/visit/session, etc.
Finance Committee – Reviews financial reports, annual audit results, creates financial policies, and supports staff in assembling the annual budget. Reports to the board at each meeting on the financial status of the organization. Commonly chaired by the board treasurer.
Fiscal year – The accounting or financial year that the organization uses. Most organizations are on either a January 1 – December 31 or July 1 – June 30 year. The decision is commonly based on matching the fiscal year to significant funders or the organization’s peak service delivery season.
Fund Accounting – A fundamental difference between not-for-profits and businesses. When a foundation, or the government provides funds for a program, those funds must be tracked for assets and liabilities with the related expenses and revenues reported back to the funder.
Grant Tracking or Reporting – When a foundation or the government provides a grant, there is regular reporting due back to the granting organization detailing how the funding is being used and the program is progressing.

Are you Considering Moving MIP to the Cloud? Contact FTM for help

Did you know within MIP there is more than one cloud option available?

We continue to see more of our MIP users migrate to the cloud so contact us for our help.

Some of the primary reasons our clients have moved to the cloud include the following:

  • Secure access to information and data from anywhere
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  • Fewer expenses for hardware and IT related costs.  Also, no large capital expenditures
  • SSAE 16 compliant data centers that are typically more secure and reliable than  on-premise installations
  • Data that is easily available in case of a natural disaster or emergency
  • More timely backups to avoid and minimize data loss

For more information about the MIP cloud or hosting options, please contact Jim Simpson at jsimpson@ftmllc.com or 317.819.0780 for a FREE review and quote.

Common Form 990 errors for Nonprofit Organizations

Many Forms 990 are prepared incorrectly or incompletely.

Because the Form 990 is a public document — nearly all are posted on GuideStar.com and many organizations post them on their websites — it is important that the Form 990 be prepared completely, correctly and consistently.

An incorrect Form 990 could reflect negatively on the organization when reviewed by possible donors, the community or even the media. More importantly, an incorrect Form 990 might be viewed as an incomplete filing by the IRS, subjecting the organization to late filing and other penalties even though a Form 990 was filed.

Here are some of the most common errors we have encountered.

Missing the deadline. The 990 is due on the 15th day of the 5th month after the organization’s year-end.  That means May 15th for calendar year organizations and November 15th for organizations with a June 30th year-end.  There is a 6-month extensions available but this has to be filed by the deadline.  Final deadline after all extensions is November 15th for calendar year-end organizations and May 15th for June 30th organizations.  Late filing fees can be as high as $50,000.  Failure to file for 3 consecutive years results in loss of exempt status.  If the organization has unrelated business income, it must file an extension for the 990 and a separate extension for the 990-T.

Filing an incomplete return.  The IRS can consider an incomplete return as never filed in which case late filing penalties up to $50,000 can apply.  Missing schedules is one of the most common reasons for incomplete returns.  Listed below are some of the most common schedules.  Keep in mind that some schedules only apply to organizations filing a 990 and some schedules apply to both the 990 and the 990-EZ.

  • Schedule A – Required of all public charities
  • Schedule B – Required of organizations that received donations of $5,000 or more from a donor
  • Schedule C – Lobbying activities are reported in this schedule
  • Schedule D – Most common reasons for filing this schedule are fixed assets, endowment funds, escrow funds, and/or audited financial statements.  Endowment funds includes those administered by someone else such as a community foundation.  An example of escrow funds is security deposits from building tenants.
  • Schedule G – Required if the organization had over $15,000 in expenses for professional fundraisers (not employees) or if it had over $15,000 in gross income from either fundraising events or gaming activities.
  • Schedule I – Required if the organization gave more than $5,000 in grants and contributions to other organizations or individuals in the United States.  Schedule F is completed if the grants were given to organizations or individuals located outside of the United States.
  • Schedule M – Required if the organization received over $25,000 in donated non-cash contributions.  Common mistake is not realizing that donated stock is considered a non-cash contribution.
  • Schedule R – Required if the organization was related to any other organizations or if it owns 100% of a disregarded entity.

Voting members of the governing body.

Line 3 of Part I asks for the number of voting members of the governing body.  This should be the number as of the end of the organization’s year end.  For a calendar year organization, this is the number of voting board members at December 31.  This number should never be more than the number of board members listed in Part VII.  Part VII should include the name of any individual that served on the organization’s board at any time during the fiscal year.  There may be individuals listed in Part VII that were not board members as of the last day of the organization’s year but served earlier in the year.

New significant programs.

Line 2 of Part III asks if the organization took on any significant program services during the year which were not listed on the prior form.  Nonprofits need to check this box yes and provide a description for any new programs that began during the year.  When an organization applies for tax-exempt status, it must describe its program services in its application for exemption.  It is important the nonprofit notify the IRS of any new programs so that the IRS can ensure that these new programs coincide with the organization’s exempt purpose.  The IRS may be able to challenge any new programs as unrelated which could result in unrelated business income taxes.

Policies.

Part VI asks if the organization has various policies in place.  Nonprofits will not lose their exempt status simply because they do not have these policies in place; however, it is best practices to have them.  Two of the questions address provisions of the 2002 Sarbanes-Oxley Act.  Although most provisions of the Sarbanes-Oxley Act apply to public companies, two provisions apply to nonprofit organizations – a whistle-blower policy and document retention and destruction policy.  In addition, if a nonprofit is required to file Schedule L, Transactions with Interested Persons which reports financial transactions or arrangements between the organization and disqualified persons, there should be a conflict of interest policy in place.

In-kind.

Donated services and facilities should not be recorded in Part VIII as revenue or in Part IX as expenses.  Items such as donated advertising or the use of materials, equipment or facilities are recorded in the organization’s financial statements prepared using generally accepted accounting principles but they are excluded from Form 990.

FORM 990, PAGE 1, PART I

Page 1 of Form 990 includes summary information relating to the organization and creates a first impression for the reader.

Organizations should consider a concise description that fits in the allotted space on the first page, so the reader can gain a clear idea of the organization’s most significant activity without searching through the voluminous disclosures in Schedule O.

Part I of Page 1 also includes summary information regarding the number of voting board members, employees and volunteers. Unpaid board members are considered volunteers for purposes of reporting the number of volunteers on Page 1.

Organizations with unpaid board members often fail to count them as volunteers on Form 990.

FORM 990, PART VI

Total members of the governing body and total independent members of the governing body are often counted incorrectly on Form 990.

The IRS instructions ask for the total number of voting members of the governing body, which may not be the same number listed in Part VII of Form 990.

In addition, the concept of independent members of the governing body is defined differently for purposes of Form 990 completion. Often, members of the governing body who are compensated for services performed outside their service as a board member, as well as members of the governing body who have interested person transactions reported on Schedule L, are counted as independent board members in error.

Business and family relationships often are not disclosed as required in question 2. Exempt organizations that have large numbers of board members — more than 20 — or are located in rural areas are likely to have a business or family relationship with fellow board members. This question is often answered “no” in error.

FORM 990 PARTS VIII & IX

While reporting revenue and expenses of an exempt organization should be routine, many times items of revenue or expense are not properly reported. Common reporting issues include:

  • Reporting fees paid for services rendered (contract services) incorrectly.
  • Contributions and revenue reported in the incorrect column.
  • Security sales, fundraising and/or gaming events not reported properly.
  • Incorrect or lacking allocations of a reasonable amount of expense to either management G&A or fundraising expense.

SCHEDULE A PUBLIC CHARITY STATUS

Schedule A reports the public charity status of an organization. Many times, organizations select the wrong public charity type in Part I. For organizations classified as publicly supported, one of the public support tests included in Part I or Part II must be completed.

These computations often are completed inaccurately with incorrect amounts reported throughout. A common error is the omission or incorrect computation of excluded support on Line 5 of Part II or Line 7 of Part III.

SCHEDULE L TRANSACTIONS WITH INTERESTED PERSONS

Schedule L reports a variety of transactions with interested persons. Many organizations define interested persons too narrowly and only inquire as to possible transactions with board members.

Interested persons are defined differently depending on the type of transaction reported on Schedule L, and inquiries regarding these transactions should include not only officers, directors and trustees but also key employees, highest-paid employees and, in some cases, certain donors.

Organizations should take care to inquire about interested-person transactions regarding all interested persons.

Once a transaction with an interested person is identified, the organization reports certain information in Schedule L. Business transactions tend to be the most often reported transaction on Schedule L. Part IV requests the name of the interested person (and not the ODTKE), the relationship and amount of the transaction. In many cases, the ODTKE of the organization is reported in error as the interested person.

SCHEDULE O MISCELLANEOUS DISCLOSURES

Schedule O is used to provide required disclosures based on the answers to certain questions contained in the core form of Form 990. The disclosures range from expanded program service descriptions and internal Form 990 review processes to availability of certain documents for public access and compensation-setting processes.

Often the disclosures are incomplete, not updated for current reporting information or so lengthy the purpose of the disclosure is lost to the reader.

Care should be taken to read each disclosure to ensure it answers the question or describes the issue completely, correctly and concisely.

Please contact us to review your current Form 990 for any errors or let us prepare your Form 990 and we will make sure you comply with the IRS requirements.  Also, we work with our clients on a daily basis so we typically know the organization very well which also contributes to a better prepared return with little effort from our busy clients.

 

 

Common Financial Statement Errors for Not-for-Profit Entities

The following series is a listing of some of the financial statement errors found in Not-for-Profit organizations.   I have broken it down by the different financial reports.

The Statement of Financial Position which is commonly referred to as a Balance Sheet may have the following financial statement errors:

  • Display of current/noncurrent assets without displaying current/noncurrent liabilities when a classified statement is used.
  • Improperly including items in cash and cash equivalents, such as cash held or other assets that are restricted or not available for current use.
  • Failure to report cash, contributions receivable, and other assets that are restricted for a long-term purpose separately from unrestricted cash and cash equivalents, contributions receivable or other assets.
  • Recording deferred revenue for amounts received under a “grant” instead of recording temporarily restricted revenue in circumstances where the “grant” is, in substance, a temporarily restricted contribution and not a true cost-reimbursement arrangement.
  • Improper reporting of beneficial interests in assets or net assets held by others, such as in the instance of an entity transferring assets to a community foundation and naming itself beneficiary.
  • Failure to distinguish between operating leases and capital leases and apply the proper accounting under the circumstances. A capital lease is recorded as both an asset and a liability on the statement of financial position. An operating lease is not reported on the statement of financial position and is expensed as incurred.
  • Missing one or more of the required totals: total assets, total liabilities, total net assets, permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets.

The Statement of Activities which is commonly referred to as an income statement or statement of revenues and expenses may have the following financial statement errors:

  • Improperly releasing temporarily restricted net assets that are subject to both a time and purpose restriction when one, but not the other, restriction is met.
  • Reporting revenues from exchange transactions as increases in restricted net assets. Only those revenues related to contributions with donor-imposed restrictions can result in restricted net assets.
  • Reporting amounts receivable under a cost-reimbursement contract/grant as temporarily restricted (may be legally limited as to use, but it is an unrestricted activity for which unrestricted costs have been incurred).
  • Recording amounts as a receivable under cost-reimbursement contract/grant for which costs have not been incurred.
  • Failing to properly classify revenue transactions (or portions thereof) as contribution or exchange transactions.
    Improperly including expenses in temporarily or permanently restricted net assets. Expenses should decrease unrestricted net assets.
  • Erroneously reporting just one program service function when the NFP has more than one major class of program services. For example, an NFP may have programs for health or family services, research, disaster relief, and public education, among others.
  • Failure to recognize contributions of services that meet the recognition criteria or recognizing
    contributed services that do not meet the criteria as discussed in paragraphs 16-17 of FASB ASC 958- 605-25.
  • Not reporting contribution revenue for gifts-in-kind (free or below-market rent, services provided by another organization, donated supplies, donated media, and so on.)
  • Not reporting costs of soliciting contributions, including costs of soliciting contributed services that do not meet the recognition criteria, as fundraising costs.

The Statement of Cash Flows may have the following financial statement errors:

  • Failing to display donor restricted capital-type contributions (permanently restricted gifts, gifts restricted for acquisition of property) as a financing activity.
  • Failing to display information about noncash gifts for endowment or property, plant and equipment purposes.
  • Failing to disclose indebtedness incurred for the acquisition of assets as a noncash activity.
  • Netting amounts for purchases and sales of property, plant and equipment.
  • Improperly reporting unrestricted contributions that were subsequently designated by the governing board for long-term purposes as a financing activity rather than an operating activity.
  • Failure to report as investing activities the cash flows from purchases, sales, and insurance recoveries of unrecognized, noncapitalized collection items.

The Statement of Functional Expenses may have the following financial statement errors:

  • Failing to include certain expenses in the statement (for example, expenses netted against revenues or non-operating expenses).
  • Failing to include the statement when one is required (voluntary health and welfare entities).
  • Management and general expenses are inappropriately or completely reallocated to other functional categories. For example, costs associated with soliciting funds other than contributions, including applications for and administering certain grants and contracts, are allocated to program services or fundraising activities.
  • Within the listing of natural expenses in a Statement of Functional Expenses, including a function or program line item. For example, within the listing of natural expenses listing the line item “grant expenses” which might have already been allocated such items as payroll, occupancy and supplies.

The Notes to the Financial Statements may have the financial statement errors:

  • Failing to include the required disclosure for summarized financial information.
  • Failing to disclose an adequate description of the organization’s activities, including each major class of
  • Failing to disclose the capitalization policy for property, plant and equipment.
  • Failing to disclose discount rates used in present value measurements, such as in measuring unconditional promises to give or split-interest agreements.
  • Failing to disclose information about the nature of temporary or permanent restrictions on net assets.
  • Failing to disclose information about the programs or activities for which contributed services were used.
  • Failing to present reclassifications which are in effect corrections of errors as restatements. However when reclassifications are not corrections or errors, failing to describe the nature of reclassifications made to prior-year amounts to conform to current year presentation when such reclassifications are significant, even if such reclassifications had no effect on the prior year’s change in net assets.
  • Failing to disclose total fundraising costs. When a statement of functional expenses is presented and certain fundraising costs have been netted against revenue, such netted costs need to be included in total fundraising costs.
  • Failing to disclose total program expenses if the components of total program expenses are not evident from the details provided on the face of the statement of activities (for example, if cost of sales is not identified as either program or supporting services).
  • Failure to disclose material related party transactions as set forth in FASB ASC 850-10. Related parties include, but are not limited to, the following: officers, board members, founders, substantial contributors, and their immediate family members; members of any related party’s immediate family; parties providing concentrations in revenues and receivables; supporting organizations; financially interrelated entities; or other entities whose officers, governing board members, owners, or employees are members of the NFP’s governing board or senior management, if those individuals have significant influence to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

We hope you find this list helpful as your review and evaluate your current financial statements.   The notes to the financial statements are typically only included in the audited financial statements which means the organization is typically unaware of these disclosures.  We work with our clients on a daily basis to review and update the financial statements on a regular basis so let us know if you would like us to review and update your financial reports.

Are you in Compliance with ASU 2016-4? Financial Statement Presentation of Not-for-Profit Entities

Update:

White Paper Available: “Understanding. Preparing. Implementing.  FASB ASU 2016-14 reporting requirements for Not-for-Profit Organizations

Overview

In November 2011, the Financial Accounting Standards Board (FASB) added a project to its agenda focusing on the financial reporting of not-for-profit (NFP) entities. The project has resulted in the issuance of Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The update strives to improve how a NFP organization classifies its net assets and provides information in its financial statements and notes about its financial performance, cash flows and liquidity.  We have summarized the full 270-page standard into this brief guide which outlines the primary changes to the financial statements of not-for-profit organizations.

Net Asset Classes

  • Replaces the current three net asset classes with the following two:
    • Net assets with donor restrictions
    • Net assets without donor restrictions
  • Removes hardline distinction between temporary and permanent restrictions
  • Enhances disclosure requirements:
    • Amounts and purposes of board-designated net assets
    • How restrictions affect the use of resources

In order to implement the new changes, you will need to modify your financial report formats and chart of accounts to insure your internal financial reports are modified for the new financial reporting requirements.  You will need to determine appropriate level of disaggregation of the net assets for Statement of Financial Position, Statement of Activities, and footnote disclosures.

Underwater Endowments

  • Presents deficits relative to original gift amounts of donor-restricted within the donor-imposed restrictions class of net assets
  • Enhances disclosure requirements:
    • Governing board’s policy related to appropriations from such funds
    • Any action taken during the period related to such funds
    • Original gift amount or level otherwise required to be maintained by the donor or law
    • Amount of the underwater endowments in the aggregate

In order to implement the changes, you will need to recast your note to conform to the new two net asset categories.  Remember that the underwater portion of endowments is now presented entirely in net assets with donor restrictions.  The investment return is now presented net of external and direct internal investment expenses, and does not require a separate break-out of the components of investment return.

Expiration of Restrictions – Long-lived Assets

  • Requires use of the “placed-in-service approach” for determination of when restrictions expire
  • No longer allows the recognition of the expiration of restrictions over the asset’s useful life

Statement of Cash Flows

  • May continue to elect either the direct or indirect method
  • When using the direct method, no longer requires the reconciliation of changes in net assets to cash flows from operating activities

Liquidity and Availability of Resources

  • Requires disclosure of qualitative information about how liquid resources are managed
  • Requires disclosure of quantitative information related to availability of financial assets to meet cash needs for general expenditures within one year, including impact of the following on financial assets:
    • Nature of the financial assets
    • External limits by donors, grantors, laws and contracts
    • Internal limits by the governing board

In order to implement the changes, you will need identify all financial assets, and any limitations on availability for expenditure in the next 12 months.   You will need to determine the format to present the required quantitative disclosure.   You can either display amounts of financial assets then adjustments to arrive at an available for expenditures amount or you can display only the net amounts available for expenditure.  You could determine whether presenting a classified statement of financial position could enhance or simplify the quantitative disclosure requirements considering other effects elsewhere in the financial statements and related notes.  You might want to develop a formal policy for managing the organization’s liquidity needs which might be disclosed in the qualitative portion of the note disclosure.

Investment Return

  • Requires external and direct internal investment expenses to be net against investment returns
  • Removes requirement to disclose amount of investment expenses net against investment returns
  • Clarifies what activities constitute direct internal investing activities:
    • Salaries and related expenses of staff responsible for the development and execution of investment strategy
    • Allocable costs associated with internal investment management and supervising, selecting, and monitoring of external investment management firms
  • Permits separate, appropriately labeled line items on the statement of activities for net investment return managed differently or derived from different sources
  • Eliminates the requirement to present investment return components for changes in endowment net assets

Reporting of Expenses

  • Requires all NFPs to report expenses by nature
  • Retains requirement to report expenses by function
  • Requires expense analysis by nature and function to be presented in one location, in either:
    • The statement of activities
    • A separate statement of expenses (similar to the statement of functional expenses)
    • A schedule in the notes
  • Enhances disclosures related to methods used to allocate costs among functions
  • Updates descriptions of management and general activities

In order to implement the changes, you will need to determine where and how to present all expenses by nature and function in one place which might a in the statement of functional expense, statement of activities, or a note to the financial statements.  You will need to evaluate whether your current accounting system will support preparation of this required information.  You will need to develop formal allocation methodologies to be used to allocate expenses among program and supporting services categories.  You will need to draft note disclosure of the methods utilized in the expense allocation process.  It might be time to put together a formal cost allocation plan.

Effective Date and Transition

  • Annual financial statements issued for fiscal years beginning after Dec. 15, 2017
  • Early application is permitted
  • Requires adoption on retrospective basis for all years presented, except for:
    • Analysis of expenses by nature and function
    • Disclosures related to liquidity and availability of resources

Don’t forget to take advantage of our free resource.   “Understanding. Preparing. Implementing.  FASB ASU 2016-14 reporting requirements for Not-for-Profit Organizations

Essential Nonprofit Financial Governance – Frequently Asked Questions (FAQs)

We will cover 15 commonly asked questions and mis-perceptions of financial governance. Please provide this to your board and especially new board members and leaders to help educate them on the roles and responsibilities on Nonprofit Leadership and Governance. Please register for our November forum to review this topic in more detail and invite your board treasurer, finance committee, and leaders.

  1. How many board members should we have?  At least 5-9 members which are unrelated to each other.
  2. What should be discussed during a board orientation? Mission, organization chart, bylaws, audit and form 990, responsibilities and expectations including fundraising, and frequency of board and committee meetings.
  3. Are there best practices for planning and conducting meetings?  Draft agenda in advance and be strategic and focus attention on priorities.  A consent agenda can be a good tool to move through routine procedures and information that can be provided prior to the meeting.
  4. Do I have to have an audit or finance committee?  Organization’s benefit from a finance committee and may benefit from an independent audit committee.  It is important to have the right financial experts to move you in right direction.
  5. Do I have to have accounting or finance experience to serve on a board?   A successful board is generally made up of diverse individuals who are focused on furthering the mission of the organization.  Board members may need training to fulfill their fiduciary responsibilities.   It might be best for these board members to not serve on the finance or audit committee however.
  6. Are Not-for-Profits supposed to have term limits?  Term limits seem to be a good idea yet make sure you have a staggered term process to support continuity and prevent large turnover of board members.  It might be import to change the responsibilities of long-term board members to keep them engaged and refresh their duties.
  7. Is it common for board members to have fundraising expectations?  Asking board members is very common and especially expected if donations is a major revenue source.  It is always a good idea to know the fundraising expectations and make sure you are comfortable with the commitment.
  8. What is a conflict of interest?  a conflict of interest arises with a board member has a transaction with the organization.  Transactions should be discussed and possible disclosed before they take place.  A robust conflict of interest policy covering the financial and non financial conflicts is a means to establish procedures that will offer protection against charges of impropriety involving officers or directors.
  9. Are not-for-profits required to have an annual audit?  It depends on many triggers that may cause or require an audit.  Receiving federal or state funds over certain thresholds can trigger audit requirements.  Some foundation grants may have audit requirements as well.    Some organization’s may choose to have an audit even when not required to demonstrate good financial stewardship and transparency.
  10. What alternatives exist to an annual audit?  A review typically costs 50-60% of an annual audit.   A compilation is another option but does not provide a basis for obtaining or providing assurance regarding the financial statements.
  11. What should board members know about the Form 990?  It is a public document and should be reviewed by the board before it is filed with the Internal Revenue Service.  Board members should fully understand and verify the information on the Form 990, and should feel comfortable asking questions until they are satisfied.
  12. Am I required to post my financial information on my website?  There is no federal requirement to provide your financial information on your website.  The IRS requires you to make your Form 990 publicly available.    In the interest of transparency, it is considered a good industry practice to post the IRS Form 990 and the annual financial statements.  The annual financial statements might be the audited financial statements and/or the annual report.
  13. Should we have an operating reserve?  An operating reserve is a valuable tool to manage changes to the finances.  By building and maintaining an operating reserve, an organization can better manage its cash flow on a day-to-day basis.
  14. How long do I keep my financial records?  There is no easy answer for this as many laws are state specific and federal government grants may have specific requirements for document retention.  A formal document retention and destruction policy is considered an important best practice.
  15. Are not-for-profits allowed to make a profit?  They should and a modest surplus maybe a good goal as well.  This will allow the organization to build up reserves and helps to contribute to long-term financial sustainability.    The term not-for-profit comes from the fact that the organization exists to benefit the public and has no owners.

Please be advised that this is only an introduction to financial governance and does not address all the areas that an organization should be concerned with.  We would be glad to assist your organization with training and make sure you meet the requirements of financial governance and leadership.

What is the best way to segregate financial duties in a small to medium sized Nonprofit?

Small to medium sized NPF’s struggle with segregating financial duties. Volunteers and Outside experts may play key roles in ensuring the proper segregation of duties. The best course is to segregrate duties to minimize risks and prevent fraud. The following reference charts are available for organizations with two, three, or four employees involved in the outsource function. If you only have one employee, we would recommend including our firm or another outside expert or volunteer to help with segregation of duties.

The following reference charts are provided to provide examples of segregation of duties.  Please contact us before you implement any of these suggestions.

Sample Organization with two employees

Sample Organization with three employees

Sample Organization with four employees

This would allow be good time to evaluate your financial department including updating your financial policies and procedures manual for the finance departments responsibilities.

2018 Central Indiana Nonprofit Salary Survey is Available

2018 Central Indiana Nonprofit Salary Survey is Available

By Jim Simpson, CPA and director, Financial Technologies & Management

It is becoming more difficult to attract and retain talent.  Also, it is important to review your salaries and benefits compensation compared to the market.  It is becoming clear that long term-sustainability and staff retention with competitive wages are linked.  We have provided this resource through our free white paper so please feel free to download this resource.

We hope this resource will help to provide nonprofit leaders from all service sectors and sizes to explore compensation and benefits for over 25 typical positions with the ultimate goal or attracting and retaining the talent to achieve your organization missions.

We serve quite a few clients outside this service area so we thought we would share it to all as the sample size is almost twice the typical sample size and is provided at no charge by Charitable Advisors and their sponsors which we have been in the past.

We invite you to download ‘2018 Central Indiana Nonprofit Salary Survey

Financial Technologies Management LLC (FTM) has been serving the accounting services and technology needs of nonprofits since 1999. Our exclusive focus on nonprofit organizations means we have the experience and proven track record to guide you to the best combination of accounting resources to provide the optimal capacity, utmost stewardship and ability to fulfill your mission.

Abila MIP Fund Accounting and Abila MIP Advance Version 2019. 1 Available and Current MIP Promotions includes FREE Payroll and/or HR

What’s New in Abila MIP Fund Accounting Version 2019.1

Tax Enhancements Completed:

  • New Jersey Tax Updates
  • Maryland Tax Updates
  • Illinois Tax Updates
  • MIP: Aatrix – Add Oregon State Transit Tax code #5666 to Maintain Other Taxes

Reporting Enhancements Completed:

  • MIP: Financial Statements – Includes an option to add the Unposted Transactions to the Balance Sheet and Statement of Financial Position reports to allow more flexibility and understanding of current financial state.

Security Enhancements Completed:

  • MIP: Attachments – Enhances the attachment encryption process when encrypting documents using a new, modern algorithm.
  • MIP: Added a reminder message to both Forms Designer forms when the Insert Picture (related to signatures) is selected and both ACH forms.

Administration Enhancements Completed:

  • MIP: Data Integrity Checks – The Organization Name has been added to the results message for clarification.

Payroll Enhancements Completed:

  • MIP: Employee Information – A change was made to the employee page where the Social Security Number is entered.  If not entered at this time, a warning message will be displayed but the user can continue onwards, in order to match the functionality in the HR module for increased usability.
  • MIP: Payroll – The Timesheet Reference field now flows through several parts of the application to allow tracking and reporting on large numbers of employees.  It will flow through the calculation and history processes, as well as thru the processing and historical reports. Additionally, in Forms Designer, “Add Timesheet Reference” will be made available as a Data field.
  • Changes made to address new payroll requirements in Arizona
    • MIP: Set Up Modules – Payroll – Added checkbox ‘Include Historical Pay Code Information on Stubs’ and changed Print Checks/Vouchers and Reprint Stubs to enable display of changes made for the AZ tax code payroll changes.

Resolved Issues

With the 2019.1 release, we resolved 18 outstanding defects, including three HR defects. Defects

included in DLL releases from 2018.1 to 2019.1 are also included in this list.

FA‐20024 An ARS session allows duplicate document numbers to be created. For those document numbers that are used twice in one session, AR reporting doubles the amounts on the report output

FA‐21915 Aatrix: Info in AUF not Sorted or Grouped Properly

FA‐22185 The posting process taking an excessive amount of time

FA‐22929 MIP Closes when attempting to export report to XLS using the Red Door

FA‐23145 Changing one Employee in Review/Modify for a Supplemental Payroll triggers all employees to be recorded in the Summary Organization Audit with no associated user ID

FA‐23149 Appending or Prepending to an Excel Worksheet Removes Decimals That End in 0

FA‐23201 After exporting a report to Excel, formulas create #VALUE!

FA‐23262 Hourly Rate Change on Salaried Employees Does Not Save

FA‐23281 Append to Excel files with file type XLSM Fails (macros)

FA‐23316 HR: ‘dg2_initializeLayout’ error when adding Certificates in HR 2 14 of the defects on this list were from the prioritized Support Top 25 defects list.

FA‐23320 Rename Employee is Creating New Employees Instead of Renaming

FA‐23339 HR: Payroll Check printing rather than voucher

FA‐23343 HR: Misspelling in Ethnic Drop‐Down Options

FA‐23376 Some Report Types Printed from Excel Exported from MIP are Improperly Formatted

FA‐23395 Electronic Funds files have wrong Object Count when filler rows not included on a Data File ending in a perfect 10 count

FA‐23437 Reprint Pay Stub subtracts Workers Comp from Net Pay

FA‐23445 Reprint Pay stubs Produces Incorrect YTD Earnings for Local Taxes

FA‐23605 After applying the DLL to fix FA‐23281, Running the Bank Rec report to screen causes MIP to close. It also replaces the ‘from’ field

with the name of the database rather than the email address of the user attempting to email a report.

Abila MIP Advance™

The focal point of the 2019.1 release was the debut of the MIP Advance™ Reporting module.  Extensive refinement to the UI along with the introduction of 57 previously unreleased reports are the highlight of the features included here. See below for more detailed information.

Reporting

New Reports ‐ Inclusion of 57 new reports to the Advance user interface. A list of report

categories and sub‐categories is included below.

 Aged Payables, Detail A/P Ledger, Invoices Selected for Payment, Summary A/P Ledger, Vendor 1099 Adjustments List, Vendor Activity, Vendor Information List

 Aged Receivables, Customer Activity, Customer Information List, Detailed A/R Ledger, Summary A/R Ledger

 Bank Reconciliation – Checks/Vouchers, Combined Reconciliation, Deposits, Other Cash Items, Suspense Items

 Budget – Budget Worksheet, Detail Budget/Actual Transactions, Posted Budget Transactions, Summary Budget Comparison, Unposted Budget Transactions

 Check/Voucher Register

 Financial Statement – Balance Sheet, Combining Balance Sheet, Statement of Cash Flows, Combining Statement of R&E, Statement of Activities, Statement of Cash Flows, Statement of Financial Position, Statement of R&E, Statement of Revenues and Expenditures by Period

 General Ledger Analysis – Comparative Trial Balance, Expanded GL, Normal Trial Balance, Standard GL, Working Trial Balance

 Journals – Cash Journal, Expenditure Journal, Revenue Journal

 Lists – Account Code Combinations, Attachments, Chart of Accounts, Closing Account Assignments, Distribution Codes, Email Templates, Financial Statement Format, Group Information, Offset Account Assignments, Report Group Assignments, Security, UDF Default Sources, User Defined Fields, User Information List

 Transactions – Memorize/Recurring Transactions, Unposted GL Transactions, Posted GL Transactions

Current MIP Promotions:
Prospect Promotion:
Free Payroll, HR, or both for 1 year: On Premise only pays M&S after year one; Subscription gets 12 months free
Client Promotion: Discount on HR, EWS, and/or Benefits Enrollment with 10% off one module or 20% for two or more modules; Free Module with Renewal for 12 months and choose from Forms Designer, Advance Security, Extended Support (Gold), Electronic Requisitions, Additional Users or E Requisition Users; Renewal Amnesty for clients 6 months overdue may pay only a 50% catch up fee.

Why your Nonprofit should consider using Nonprofit Accounting Software?

Why your Nonprofit should consider using Nonprofit Accounting Software?

By Jim Simpson, CPA and director, Financial Technologies & Management

Your organization like every other nonprofit is feeling the pressure to deliver more transparency. The demand for more timely information is coming from a multitude of interested parties: board members, major donors, potential funders, and watch dog organizations.

The goal of transparency can’t be easily accomplished without sound nonprofit accounting software-financial reporting is the foundation upon which transparency is achieved.

As the number of nonprofits have proliferated, accounting software is more tailored and can help manage these complexities. But taking the time to select the right software for your nonprofit is critical.

Before your purchase, start with a software evaluation and assessment to see if you’re a good candidate for nonprofit accounting software. The software evaluation and assessment will review your current system to determine its level or utilization and functionality. It is probably a good idea to perform a software evaluation any time there is a major change within the organization either positive or negative.

Here are eight reasons Nonprofit’s should consider Nonprofit Accounting Software.

  1. Flexible report writer
  2. Grants Management capability
  3. Budget Management capability
  4. Cost-allocation functionality
  5. Strong audit trails
  6. Integration with payroll, fundraising, and other applications
  7. Expanded capabilities as organization grows
  8. Various financial segment or element tracking to include funding sources, programs, projects, locations, and other essential financial information.

Here are features and functionality of the software that can provide optimum efficiency.

The flexible report writer allows you to use the accounting software to meet the internal and external complex reporting requirements. Generating reports should be able to be varied to meet the board, program, and funder reporting requirements and easily modified to meet the changing program and funder needs. Accounting Solutions for your Nonprofit

The grants management capability allows you to track the financial results for each grant, and report back to the funder in the required format, using one accounting system.  Grants management helps to insure maximum reimbursement and reconciliation to claims including encumbrances.

The budget management capability allows you to manage multiple budget versions for board approved version and projections.  Easily make budget revisions and maintain budget trail to track various revisions.   Budget management allows you to distribute annual budget monthly, quarterly, or annually.

Cost-allocation functionality allows you to easily allocate transactions on a real-time basis to multiple programs and funding sources all within the system. It should allow to you to pool various cost pools like facilities and overhead and allocate these to the various program and funding sources to provide a full-cost accounting.  Allows the cost allocation basis like hours worked to be modified on a regular basis for more accurate funding source and program accounting.

Strong audit trails keep track of what users are doing within the accounting system. The system should allow you to provide your annual auditors and program monitors with the financial information they need to meet their requirements and reduce the chances of fraud. Those involved in the finance function should have segregated permissions in the accounting system to protect the organization and its staff.  Strong audit controls include the ability for management to produce the audited financial statements.

As organizations look to be more efficient, it is important they look at software that allows them to integrate their critical functions like payroll, fundraising, human resources, and other areas. Nonprofit accounting software typically has this functionality built into its various modules or it allows for third party product integration. It is typically modular based, which allows your organization to add functions and capabilities as the organization grows and needs additional tools.

One of the most important reasons to look into nonprofit accounting software is the ability track financial information different ways.

For example, an organization may want to track its various funding sources to see what funds are available. It may want to track my various programs and projects to see what the programs costs are and how the organization is doing financially. It might have various locations and want to know how each location is doing. It might have donor and endowments restricted assets and wants to do a separate accounting for these donations to know what assets are left and make sure donor restrictions are met.

It is important, too, that staff remains efficient and effective, enabling them to focus on the long-term planning of the organization and not just keeping up with the day-to-day-accounting.

There are several purchase options that include direct purchase or subscription pricing to pay-as-you-go.

You will need to insure that you include software advisory services to include planning, implementing, and training. In some cases, you will need to also include data conversion and integration services.

Please contact us to help you determine if your organization will benefit from Nonprofit Accounting Software.  We will help you with your software evaluation and assessment project.