Accounting for Nonprofits – Page 2

Great Questions Asked by Great Nonprofit Managers

How well do your managers ask questions? Some might not even give any weight to this or consider it a skill. You may not even see “question asking” on any list of managerial expectations. However, asking the right questions, and the tough questions, is an effective part of a manager’s job which implies it may require more attention.

Being a manager isn’t easy. Managers have finite resources and growing task lists. They must handle people and budgets with equal finesse, and in a nonprofit organization, also manage public perception. More importantly, they must be willing to ask the hard questions and to listen and learn from the answer they get as they explore ways in which to enhance and build their organization.

Asking the Hard Questions

The difficult questions are the ones whose answers may yield an unpleasant reality for the asker. In other words, you may not like what you hear! When it comes to nonprofit organizations, these three questions are at the top of the list of the hard questions that must be asked for organizations to ensure they’re doing the best they can to fulfill their mission.

1. Am I doing my job well? Followed by, are we doing our jobs well?

Your “job” at a nonprofit is more than the list of things you are responsible for. It’s also your job to help the organization maintain and achieve its mission, to build public perception and awareness, and to help keep a positive perception in the public’s eye. It’s not an easy task. Your responsibilities in this mix may be weighted more heavily towards one area or another depending on your role in an organization. But you still need to ask if you are doing your job.

Reviewing organization-wide goals and plans and assessing how well you are achieving key performance indicators can help you answer this question.

2. Are we adapting to changing circumstances?

As the proverb goes, “change is the only constant in life.” Situations, personnel, and other facts of nonprofit life can change over time. Organizations that can grow, adapt, and change are ones that thrive.

Look around your organization. How well have you adapted to changing circumstances? If your nonprofit began with one specific task in mind, have you been able to adapt to meet new challenges?

Examine systems, technology, personnel, geography, and other factors. Each area influences how well your nonprofit can do its job. Those that change with the times are those that can continue to grow, prospect, and help others.

3. How well are we using our resources?

The push within most nonprofits is to find ever-increasing sources of donations and funding to fuel growth. Looking at how well you are using your current resources isn’t easy. It can be troubling to realize that you’ve overspent on a marketing campaign or haven’t invested other resources wisely. Yet it’s only by asking these questions and facing the truth that you can find better ways to use existing resources.

Resources aren’t limited to funds, either. They can also refer to personnel. It’s a good idea to look at your team and make sure that you are allowing individuals to work to their strengths. Place them in positions where their unique talents can help the organization thrive. Outsourcing tasks like audit prep or nonprofit accounting can free your team up to do the work they were hired to do. Make sure that you are using people as well as financial resources in the best possible way.

Practice, Practice, Practice

Asking questions is a skill and can be improved with focus and practice. Managers are in place to find ways the organization can function more effectively. The best way to determine this is to ask questions about the people, process and systems being used. Getting curious about why things are done a certain way and if there’s a better approach only makes for a stronger manager, thought process and organization. Asking questions in a way that does not make others defensive is a great skill to hone in on too. As you practice this skill, and focus on getting better in this area not only improves your management style, it sets an example for others to learn and grow too.

Accounting for Nonprofits: The Hallmarks of Top Staff Accountants

Among all the topics surrounding accounting for nonprofits, the characteristics or hallmarks of top staff accountants are things rarely discussed. Of course, it takes accuracy to be an accountant, as well as a logical mind, strong attention to detail, and good communication skills.

But going beyond these requirements is a list of highly specific skills that all top-level staff accountants share. If you’d like to be numbered among the best accountants in your field, then make these skills a priority for your own personal development.

The Characteristics of Top Accountants

The best nonprofit financial managers and top accountants share the following characteristics.

Accuracy: All accountants must be accurate, but top accountants leave no stone unturned in their quest for all the details that matter. Good accountants must regularly review their own performance and look for mistakes in their own work before sending material on to others.
The big picture: Top accountants have the ability to step back and take in the big picture. They’re good at what they do, but they also have the ability to see how their work fits into the larger mission of the organization and, as such, they understand how to be helpful to others.
Deadlines: Many professions are deadline-driven, but accountants are always exceptionally deadline-oriented people. Top accountants set personal deadlines and try to achieve their goals early. They allow extra time in a project for those “just in case” moments when someone calls in sick or competing deadlines take people’s focus away from their project. Good accountants plan; great accountants plan for deadlines along with contingency plans.
Excellent communication skills: Accountants aren’t often thought of as communicators, but strong communication skills are a must for top accountants. Not only are you called upon to share facts and figures with others in your department, but you must be able to translate that information into language everyone within your organization can understand. There’s also the important matter of communicating with subordinates and managers. Keeping everyone informed, and understanding how and when to share information, is a hallmark of an exceptional accountant.
Integrity: We want everyone working with us to have integrity. Accountants must have exceptional integrity. Because they are charged with nonprofit financial management, they must be rigorously honest in everything they do. They must also be responsive to questions, complaints, and problems brought to their attention. Integrity, honesty, and ethics are part of the package that makes a great accountant.
Exceptional computer skills: Conquering spreadsheets, understanding the nuances of your company’s ERP system, and handling all reporting needs with calm assurance are all part of the job for the best accountants. They become the guru that everyone turns to when they need help with the number-crunching aspects of their company’s software. Even if you’re not a technical whiz, becoming fluent with the software package that your company has chosen is one of the ways in which top accountants go the extra mile.

Becoming the Best of the Best: Professional Development

What does it take to become and remain the best of the best? Ongoing professional development is a vital step for nonprofit financial managers and those leading accounting for nonprofits.

Such professional development need not be formal classes, although that can help. Professional development may take the form of attending seminars and online workshops, attending conferences, and networking with others in your profession.

Regardless of the form it takes, top accountants do not remain hunched over their spreadsheets all day. They are a vital and important part of the nonprofit team. Are you a leader among accountants? Set a personal goal for yourself to do all you can to be the best nonprofit accountant your organization has ever met.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

Accounting for Nonprofits: Finance and Fundraising Cooperation

Accounting for nonprofits includes both the finance and fundraising departments. These departments may be in the same division: accounting. Yet, although you work in the same office, it may feel as if you’re in entirely different organizations.

Although two entirely different groups, both share similar challenges. It’s important for both finance and fundraising to understand the duties they each perform, as well as the challenges they share. Understanding these facts leads to better communication and outcomes for all.

Similar Challenges

The finance and fundraising departments reflect different functions. Finance manages the money within a nonprofit; fundraising generates income to support programs. Both offer valuable services but have different budgeting needs. Often, these needs come into conflict.

The fundraising department wishes that the finance department could:

Understand that you must spend money on marketing to raise money for donations.
Acknowledge the inherent challenges of fundraising, especially during economic downturns.
Assist with improving and maintaining strong donor relations.
Be flexible with fundraising—it’s not always black and white in this group.

Meanwhile, down the hall or across the room, the people in the finance department also face challenges that they wish the fundraising department understood. Your colleagues in the finance department probably wish that you could:

Ask for help when you need it.
Understand and acknowledge that finance’s job is both time-consuming and complicated.
Help them by providing information when they ask for it and need it.
Learn basic accounting best practices.
Adhere to deadlines.

When you look down the list of things each group wishes the other knew, the commonalities stand out. Respect. Understanding. Better communications. It’s a simple wish list that can be a reality with the addition of a few steps and tools to help all do their work better.

Bringing Together Finance and Fundraising – Happy Together

You can help both fundraising and finance meet in the middle by offering software that makes accounting for nonprofits easier. Software such as Intacct ERP software provides support for all financial transactions and obligations, including fundraising.

Data that is entered into one central database can be shared without barriers. It makes communication around issues related to the data easier. Finance can offer insights and support to fundraising; fundraising can share their needs and goals with finance. It’s a simple best practice that facilitates better communication and shared goals.

Other best practices that both finance and fundraising might consider implementing include group meetings, stand up meetings, and meetings with the entire accounting team. Such meetings need not be lengthy. “Stand Up” meetings come from the literal requirement that people remain standing during a meeting. Because you can’t get comfortable, you keep the meeting short. Each person reports quickly and succinctly on their team’s accomplishments and needs for the week. It’s also a time when groups can ask questions of one another and share information so that everyone is on the same page.

Accounting for Nonprofits: Improvements with Communications

Accounting for nonprofits includes both fundraising and finance. By focusing on what you hold in common and on the shared goals that support your organization’s mission, you’ll find that many aspects of your work improve. Software such as Intacct ERP software facilitates this transition as it provides enhanced reporting and insight into your organization’s data.

Beck & Company

Accounting for Nonprofits Update: Implications of Revenue Recognition changes

Here’s an update from the world of accounting for nonprofits on FASB Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606), perhaps the most comprehensive set of changes to accounting principles ever released by the organization. These changes in revenue recognition impact almost every company in the United States applying GAAP. In fact, any company with tax compliance requirements should consider themselves affected by Topic 606.

Find out how Beck & Company can help work smarter the easy way with Outsourced Accounting. Contact Beck & Company online for more information, or call us directly at (703) 834-0776 x 8001. We look forward to hearing from you.

Effective Date

If you handle accounting for nonprofits, you need to know the effective dates. These are the dates by which you should begin applying the changes in revenue recognition. The current dates are as follows:

December 15, 2017: Public entitles, certain not for profits, and certain employee benefits plans.
December 15, 2018: All other entities.
Interim periods in fiscal years after December 15, 2019, will impact other entities.

Improving Transparency and Clarity

FASB launched these recommendations after lengthy consideration, considering feedback from many quarters in the world of accounting for nonprofits and for profits. The goals of Topic 606 are to improve transparency, clarity, and usefulness of reported accounting information.

The goals include the desire to:

Streamline statement preparation
Reduce essential guidance
Offer a more robust revenue framework
Improve comparability across entities
Remove inconsistencies
Fix and remove weaknesses in prior revenue standards

These sweeping changes were well received by most accountants, but as the date for implementation draws nearer, there are some concerns being voiced.

Over time, industry-specific revenue reporting nuances and eccentricities crept into accounting, until the actual revenue reporting became complex and difficult for people outside of the accounting world to understand. The new standard seeks to streamline reporting so that all industries report along similar lines.

Questions and More Questions

Those responsible at nonprofits for implementing Topic 606’s guidelines have voiced several important questions related to implementation.

FASB has, to date, released four sets of clarifications:

ASU No. 2016-08, addressing principal versus agent considerations;
ASU No. 2016-10, identifying performance obligations and licensing;
ASU No. 2016-12, a clarification of narrow scope improvements and practical expedients (directed at items such as the reporting of noncash consideration, contract modification and completed contracts at transition, collectability matters, and other concerns); and
ASU No. 2016-20, 13 specific corrections and/or improvements on an array of issues, including loan guarantees, contract costs—impairment testing, and provision for losses on construction-type and production-type contracts.

People responsible for accounting for nonprofits are encouraged to follow the FASB’s updates online in case additional clarification is released before the first date arrives.

Revenue Recognition and Accounting for Nonprofits

Revenue recognition is one of the biggest areas impacted by Topic 606. The new guidelines request that nonprofits recognize revenue when they reasonably expect to receive it. This may impact donations, such as donations made in wills or trusts bequeathed to a nonprofit. In the past, it was up to the nonprofit to decide when they chose to recognize the revenue. Now, FASB recommends as part of GAAP, that nonprofits only recognize the revenue when they have a reasonable chance of receiving it.

Let’s assume that someone leaves $100,000 in their will to the local animal shelter, a nonprofit organization. The animal shelter should wait until the will is in probate and the executor announces all debts have been settled and there is $100,00 left to give to the shelter before recording it.

Accounting for Nonprofits and Tax Implications: Call Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting and accounting services to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.

Accounting for Nonprofits: The Basics of Charitable Deductions

Accounting for nonprofits includes understanding the basics of charitable deductions. Many nonprofit organizations promote the fact that donations count towards charitable deductions on the donor’s income tax without truly understanding what this means and the ramification of such deductions. This primer will help you understand the basics of how charitable deductions work, the limitations on them, and what this means for your nonprofit organization.

Accounting can be easy with the wide range of nonprofit services from Beck & Company. Get trusted answers and solutions when you contact Beck & Company.

Cash and Noncash Deductions

Both cash and noncash donations may qualify for deductions. Nonprofit donors can deduct the gift of money or the gift of an automobile, for example.

To be a valid tax deduction, however, your donation must contribute towards the overall good of the organization. It must also be a contribution to an eligible organization. An eligible organization is defined as any organization the IRS has recognized as a nonprofit. This may include a social, religious, medical, political, or other nonprofit organization.

Why People Donate – Financial Management for Nonprofits

Why people choose to donate to a nonprofit organization is an intensely personal decision. Many choose the nonprofit because of its mission; they believe in what the organization stands for or want to support its projects.

As part of accounting for nonprofits, however, the budget that you help prepare annually can be a powerful tool to support someone’s decision to donate or discourage them from donating. Building an effective budget that supports programs first and puts donations behind programs is an important step. Preparing an annual report that the general public can read and understand is also critical to help people choose your organization as the recipient of their donations.

Maximums for Charitable Deductions

Of course, you want to encourage people to donate as much as they can. But only a certain portion of their donation can count towards a charitable deduction. Charitable cash donations, for example, are limited to 30 – 50% of a patron’s gross annual salary, depending on the type of organization.

You should always provide donors with a receipt for their cash or noncash donation. Cash receipts can be for the face value of the donation, but noncash donations can sometimes be tricky to calculate. How much is a used living room set or a bag of clothing worth to a charity? Many charities can offer you a receipt with a set amount of the donation on it such as $25 for noncash items that are difficult to evaluate and estimate.

Generally, charities give receipts out for donations exceeding $250. However, most charities provide receipts for most donations, no matter how small the amount. Online giving makes it very easy for nonprofits to issue receipts automatically, which can then be printed by the donor and saved for tax purposes.

Affix a Value

Do you give items to donors as a thank you gift? For example, many nonprofits give tote bags away at events. Assigning a value to that tote bag helps recipients deduct the value of it from their charitable contribution. For example, if you give away a $5 value tote bag with every $50 donation, the charitable deduction is only valued at $45.

Although you can’t control how donors will ultimately prepare their taxes, by providing gift receipts, documenting thank-you gift costs, and preparing accurate budgets, you can encourage donations. Accounting for nonprofits isn’t only about numbers on a report; with the right accounting approach, you can help your nonprofit meet its mission goals.

Nonprofit Accounting with Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting, auditing, and accounting services and blend knowledge from the accounting and nonprofit worlds to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.

If You Need Nonprofit Accounting Audit Services, You’re Not Alone

Many companies struggle to find employees who can perform audits. Here’s why.

Nonprofit accounting audit services can be handled by staff or by a consulting firm, CPA, or another nonprofit accounting service. Larger nonprofits who seek employees to perform audits may find the task harder than it looks. Research suggests that filling internal auditing positions is challenging.

A study conducted by Deloitte found that 13% of chief audit executives (CAE) were very satisfied with the skills of their audit teams. That’s a lot of people who are less than thrilled with their teams! More than half are dissatisfied with the skills of their teams, which leaves a lot of room for improvement.

Many companies today struggle to fill vacancies on their internal audit teams. It’s not your imagination – it’s hard to find skilled auditors, and here’s why.

Lack of Formal Training in Auditing Skills

Nonprofit audits require extensive knowledge of both the nonprofit world and accounting. Specialized programs to teach auditing skills are few and far between, with only a handful of universities offering auditing majors and courses. Students interested in auditing tend to have general accounting or taxation majors, which does not prepare them adequately to fill vacancies on auditing teams. It’s no wonder that a PWC report found that the number one challenge facing auditing teams is finding qualified candidates and managers for existing employees.

New graduates entering the accounting profession who have majored in taxation or general accounting are more likely to obtain positions in the accounting department of an organization rather than in the auditing area. If they do land an entry-level position in the auditing area, it will be years before they’re able to lead teams. And during that time, senior level people may retire or move to other positions, leaving vacancies that are difficult to fill.

Leaders Needed

Companies seeking experienced nonprofit auditors may find it even harder to fill open vacancies. The hardest task is to find people with 5 to 10 years of experience in the field. People with experience in the industry are in great demand and may be courted by larger firms, drawing talent out of smaller nonprofits just when it’s needed the most.

More Training Needed

Even among those who work in the internal audit department, more training is needed. Auditing professionals need more training, especially in areas of risk management such as cybersecurity. All professionals need advanced training to keep their skills fresh, but for nonprofit auditing professionals, it’s critical that they keep abreast of the latest changes in the field. A mistake in this area could be costly.

Opportunities for Professional Development

Keep your eyes open for professional development opportunities for your team so that they can obtain the skills needed to help with audits. You may need to send them to conferences, seminars, or other events where such classes are offered. By investing in your team’s professional development, you’re demonstrating to them that they are valued, which goes a long way towards employee retention.

Nonprofit Accounting Audit Services

For companies struggling to fill vacancies, outsourcing nonprofit accounting audit services may be the answer. Firms such as Beck & Company are Washington DC area nonprofit accounting auditors and CPAs that provide services nationwide to nonprofits. Services include auditing, of course, but also consulting on a wide range of accounting areas that impact nonprofits.

For more information, please contact us at 703-834-0776 x 8001.

Using Project Management Systems for Better Nonprofit Financial Management

What do project managers and accountants have in common? Both professions seek to minimize and manage risk. Although the two at first do not seem to have much in common, it is this commonality that makes project management a great field to study for hints on how to improve nonprofit financial management. Accounting for nonprofits can be improved by using the terminology, processes, and systems developed by the world of project management.

Partnering with Project Management

Good project managers know that every project begins with fact-finding and the creation of a project document, called the project charter, that provides the scope of the project with goals, milestones, and action steps. Accountants can take this concept even further.

Accountants understand the scope and flow of information within a company. Although they may not create the project charter, they can review it when created by other team members to ensure that nothing is missed. By collaborating with the project management team, they can act as support for the project rather than gatekeepers to the budget. It’s a subtle shift in roles that can make them more of a partner than an adversary within an organization

Managing Project Risk

Every project carries with it some risk. Accountants dislike risk even more than project managers! To mitigate project risk, you can take several steps.

Remain involved in the project. Although you may feel as if you can delegate the project to others and provide only cursory feedback, it is best to remain actively involved in any projects. Watching and monitoring the work as it unfolds and progresses allows you to step in with advice and guidance as needed. As the project unfolds, your assistance may be invaluable.
Ask questions like an auditor. Auditors look at each area and ask probing questions to uncover gaps that need to be fixed. You can work with stakeholders to uncover gaps, problem areas, and untapped resources within a project. Think like an auditor and ask insightful questions.
Adjust for pressure points. Like a load bearing wall, there are going to be some people in the project management team who bear most of the load, especially around delivery time. Adjust around their schedules to free time for the project needs. Work with the project management team to apportion resources and prioritize around major tasks.

By staying close to the project from start to finish, you’ll have your finger on the pulse of the work and can offer advice and make adjustments to the project schedule as needed.

What About Scope Creep?

Nearly every project suffers from scope creep, that uncomfortable feeling that more tasks than originally anticipated are being piled onto the original scope of work. Some level of scope creep is inevitable, if undesirable. Changes may occur because new information comes to light, vendors have altered requirements, and other unexpected problems arise.

But other types of scope creep include the human element, or stakeholders piling work onto the project. If that’s the case, then accounting can act as the team member who validates and allows the request to go forward or pushes it to another project. As the person in charge of nonprofit financial management, you have a good sense of whether tasks might be requirements for the project or whether someone is padding it to help get work done. In that case, you know what to do…

Risk Assessment Post-Project

After the project is complete, an accountant’s job isn’t finished. Assessing post-project risk is another area where accountants can use their unique skills to contribute to the project.

Management may require a report on the project’s completion, budget, and open items. Nonprofit financial managers can lead and guide this effort to help uncover any areas left to complete and how these are best delegated.

The world of nonprofit financial management continues to grow and evolve. No longer limited to spreadsheets, audits, and taxes, the nonprofit accountant is an integral part of the leadership team. Project management skills can be learned and shared with groups to add value from an accountant’s perspective.

Nonprofit Accounting with Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting, auditing, and accounting services and blend knowledge from the accounting and nonprofit worlds to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.

Thoughts from Beck & Company Nonprofit Accounting Services – Fixing the Internal Audit Problem

Internal audits are integral for accounting for nonprofits, but the state of the internal audit profession is shaky. According to a Deloitte study, only 13 percent of Chief Audit Executives (CAEs) are “very satisfied” that their functions have the skills to meet stakeholder expectations. Only 28 percent believe that their internal audit functions have a strong impact and influence on their organizations.

There are many challenges in nonprofit accounting audit services, specifically in the realm of internal audits. The dissatisfaction with the internal audit function stems, in part, from a lack of qualified candidates for internal audit positions.

Major colleges and universities rarely, if ever, offer majors in internal auditing, with new graduates entering the internal auditing field with degrees in general auditing or taxation. While both are valuable degrees, neither is an exact fit for the needs of internal auditing. Students must learn on the job and work their way up the ranks of the internal auditing team. But if senior internal auditors have too much on their plates, or retire before new entrants are hired, knowledge and skills aren’t passed along.

Internal Audit at the Crossroads

It’s no surprise, then, that Deloitte’s report entitled Internal Audit at the Crossroads indicates that the entire Internal Audit function stands at the crossroads between past and future, historical functions and evolving needs. Once seen as the guardians and interpreters of past history, CAEs know that the demand for their services is now in the realm of predictors of the future, not people who look back. The trick lies in how to transition to the past and future of internal audits.

The Evolving World of Internal Audits

Key stakeholders such as the audit committee and the executive team must support the Internal Audit’s desire for change. The world of Internal Audits is changing to keep pace with stakeholder demand, but stakeholders must also be open to the new role that Internal Audit can play within a nonprofit.

Most CAEs surveyed by Deloitte know they need to change. About 85% know that their organization is likely to undergo moderate to a significant change in the next three to five years. Around 77% anticipate that Internal Audit must change to meet that demand. But how do you move to the next step?

Key Findings and Action Steps

The Deloitte report is, of course, only one among many to peer into the mind of CAEs and examine the role of Internal Audit. Among the key findings of this report are:

Internal Audit needs and desires more impact and influence within their organizations.
Skills and educational gaps must be addressed. This may be done at the organizational level or within regional groups that can influence higher education organizations, industry groups, and others who provide education and professional development.
Demand for dynamic reporting will increase.
Use of alternative resource models will expand.

Alternative resource models include working with nonprofit accounting audit services, outsourcing nonprofit accounting services, flexible working arrangements to add skilled Internal Audit specialists to teams, and working with independent consultants to fill specific needs within projects. Outsourcing internal audit functions to a specialized nonprofit accounting firm such as Beck & Company makes excellent sense in light of the challenges presented in the Deloitte report.

Change is inevitable, and smart nonprofit organizations embrace, rather than fight, change. The role of Internal Audits is ever-changing and is expected to undergo major changes in the next three to five years. Will you be ready?

Nonprofit Accounting Audit Services from Beck & Company

Nonprofit accounting audit services are available from Beck & Company. If you need to fill gaps within Internal Audit teams, need support for CAEs, or seek experienced nonprofit accounting specialists, Beck & Company can help. Beck & Company are Washington DC nonprofit advisors. We also are Virginia certified nonprofit accountants. We work with nonprofits of all sizes serving many different constituents nationwide, providing a variety of consulting, auditing, and accounting services. For more information, please contact us at 703-834-0776 x 8001.

Accounting for Nonprofits: Mastering Nonprofit Payroll

An important aspect of accounting for nonprofits is mastering the rules and regulations of nonprofit employee payroll. Even though nonprofit organizations may be tax-exempt, you must still contribute payroll and other taxes at the federal and state level. It’s time to master nonprofit payroll accounting, so get your pencils sharpened or your tablet ready and take notes. This is something you really don’t want to make a mistake with when you’re handling payroll.

But We Are Tax Exempt!

A tax-exempt organization is one that has been granted tax-exempt status by the federal government. Your organization does not have to pay federal corporate taxes, but your employees are still responsible for filing and paying state and federal income tax. Both you and your employees are also required to file and pay the appropriate federal, state, and local Medicare and social security taxes. Tax exempt does not mean you are forever free from paying all taxes – just exempt from certain ones.

Exemptions

If you must file Medicare, social security, and other payroll taxes, are any exempt? Yes, some organizations may be exempt from paying specific payroll taxes. These include:

Some churches and church-controlled organizations may take an elective exemption from paying FICA (social security and Medicare) taxes.
Some services performed by ministers or members of religious orders may be exempt from FICA.
Compensation paid to students may be exempt from FICA.

FUTA Taxes

The IRS has stated that “Religious, educational, scientific, charitable and other organizations described in section 501(c)(3) and exempt from tax under section 501(a) are not subject to FUTA tax and do not have to file form 940.”

But before you celebrate, keep in mind that you must receive a favorable determination letter from the IRS to qualify for this exemption. State and local laws may also disregard the exemption, so you should check with your local government offices to ensure you are in full compliance with local tax laws.

What About Volunteer Compensation?

Volunteer compensation falls into a bit of a gray area. Thank-you gifts to volunteers that hold little cash value, such as a goody bag for helping out with a charity event or a plaque to honor volunteers isn’t taxed. Gift cards, cash awards, and other types of remuneration may be taxable. When in doubt, speak with an experienced firm that specializes in accounting for nonprofits.

What If I Don’t File Payroll Taxes?

Ignorance may be bliss for many people, but not when you’re running a nonprofit organization. Don’t remain ignorant of your duties to file and pay taxes on your employees’ payroll.

If you do neglect to file and pay important taxes, the responsibility ultimately lies on the shoulders of your board of directors. Voluntary board members can be held liable for unpaid taxes and the resulting consequences, so if you serve on a nonprofit board, it’s wise to pay attention to accounting for nonprofits and to pay attention to how payroll taxes are determined and filed.

Keeping Payroll on the Right Track

To keep your nonprofit payroll running smoothly, consider investing in accounting for nonprofits software, payroll software, or a combination software product that provides you with both accounting and payroll functions. Such software can be customized with local, state, and federal tax information so that if your nonprofit operates across multiple states, you can manage local laws easier.

Accounting for nonprofits can be complex, but fortunately, with the right diligence and research, you can ensure that your organization’s payroll is handled correctly.

Beck & Company

Beck & Company are Washington DC nonprofit advisors. We also are Virginia certified nonprofit accountants. We work with nonprofits of all sizes serving many different constituents nationwide, providing a variety of consulting, auditing, and accounting services. For more information, please contact us at 703-834-0776 x8001.

Accounting for Nonprofits: The Challenge of Revenue Recognition

Let’s face it – accounting for nonprofits can be complicated. Revenue recognition is one area, for a nonprofit organization, that can be especially complex.

Revenue recognition for many organizations is straightforward. But if your organization’s revenues arrive through multiple, separate channels, you may need to develop a procedure for categorizing revenues so that their recognition is consistent.

Added to these challenges, of course, is the new FASB revenue recognition rules for nonprofits and the new reporting standards. Taken together, it may seem like an unwieldy group of challenges. If, however, you begin to sort through each point separately, you can make sense of it all and put into place a streamlined, standardized method of accounting for nonprofits that make sense.

Accounting for Nonprofits: Revenue Categories

Revenue may fall into the following general categories:

Contributions
Exchange transactions
Promise to give

Within the “promise to give” category, you must also determine whether the gift is conditional or unconditional and whether the promise is legally enforceable. For example, a will is a legally enforceable promise to give if the deceased specifies an amount to be given to your nonprofit upon their death; a verbal promise is not legally enforceable.

Such as the general categories. Let’s delve into each one and explore how revenue recognition fits into each category.

Contributions or Exchange Transactions

Most your revenues are likely to be contributions or exchange transactions. Contributions, as the name implies, are generally resources donated to a nonprofit for its use. Monetary contributions, donations of equipment, automobiles or building supplies, and other items are generally accepted as contributions. The donor gives them to the organization without receiving any monetary or tangible property in return.

Exchange transactions, on the other hand, usually occur when a nonprofit indicates that it is seeking resources in exchange for unspecified benefits. Payment by the resource provider equals the value of the assets, or the value plus a markup. The nonprofit may be penalized for nonperformance, or some other expectation may be affixed to the transaction.

An example of an exchange transaction is when a nonprofit contracts lectures, seminars, or professional development activities to their members. There is a fee given to the nonprofit in anticipation and expectation of specific services to be performed. There may be a penalty for failing to provide these services.

It can be challenging to distinguish between these two types of revenues in certain circumstances. Accounting for nonprofits has its share of gray areas, and this may be one of them. Accountants preparing the financial statements for a nonprofit organization may wish to consult with auditors before preparing the financial statements to discuss how to recognize tricky revenues. Then, guidelines can be put into place to categorize similar revenues in the future.

Conditional and Unconditional Gifts

FASB Accounting Standards Codification (ASC) Section 958-605-25 states that nonprofits wait to recognize revenues from gifts until they are reasonably sure that they will receive the gift; in other words, that there is a low likelihood that the conditions surrounding the gift will not be met.

An example is a donor who decides to give an organization $100,000 on the condition that matching revenues are raised. The donation isn’t recognized until the conditions are met.

On the other hand, that same donor may give the organization $100,000 with very easy conditions attached to it. They may require an annual report demonstrating how the finances are to be used or a personal tour of the organization each year. In such a case, the revenues may be recognized immediately since the conditions are so easy to meet.

If you aren’t sure what to do, you have several options. Speak with your accountant and discuss the matter together to determine the appropriate method to recognize revenues for gifts. If the conditions surrounding the gift seem murky, then a call to the donor may be in order to ensure that you are adequately meeting their conditions for the gift. It doesn’t hurt to ask.

Help with Accounting for Nonprofits

As you can see, there are many challenges with revenue recognition for nonprofits. Some items may be quite easy to categorize, while others may be difficult. When in doubt, contact a professional accounting firm that works exclusively with nonprofit organizations. Beck & Company is one such firm with the experience and insight into the world of nonprofits to help you with these and other issues pertaining to accounting for nonprofits.