Category: Accounting

Many nonprofits fail to realize that staying afloat in today’s economy is more than fundraising and marketing; it’s about money management. The biggest mistake organizations make is not keeping track of their money. If you do not know where your money is, how much you have or how it is being used, you do not have financial accountability.

Accounting gives a nonprofit an essential tool it needs to run the business, plan for the future, and provide donors and investors with an inside look at how the tax-exempt funds are being spent and distributed. Now, more than ever, investors want to know that donated funds are being spent in a realistic and conservative manner.

Define who is responsible for what
Good nonprofit accounting requires that an organization know where their funds are going at all times. Nonprofit law states that the board is ultimately responsible for the organization and everything it does, including the accounting and reporting of funds. While the board may handle the initial start-up and spell out the financial responsibilities, the task of accounting is most likely delegated to the organization’s staff or CPA. It is the job of this designated person or group to keep the board updated on the organization’s financial position through reports produced by the staff.

The following reports should be provided to the board of every nonprofit organization for review:

• Cash flow analysis reports
• Balance sheet
• Statement of revenues and expenses, known as “P&L” or “profit-and-loss statement” in the for-profit world, and as the “statement of activities” in the nonprofit world.

Software and Training
Once the board and staff understand their responsibilities in regards to financial reporting, it is important to provide them with the training and systems they need to perform their responsibilities. Software should be updated regularly and continuing training should be provided. Nonprofits should include funding for training within their budget so financial managers make better decisions by staying current with laws and trends in nonprofit accounting.

The software system that a nonprofit chooses is critical to the success of the organization. A smaller organization should work with their accountant to select the software system it needs, while a larger organization should form a committee to decide upon the software system. The organization should make a list of its needs, research various systems and talk to vendors in order to select the right software.

The New Form 990
With the changes in Form 990, accounting is critical in order to provide the financial information nonprofits must report to the IRS. The new Form 990 requires much more detailed information about organizational finances, management and governance. These changes are designed to improve transparency and promote accountability. Since nonprofits are entrusted with funds from various donors and government grants, all of their financial information must be accounted for, accurate and accessible. The new Form 990 requires that the information can be trusted, that issues have been investigated, and the board is informed about what is going on and has enough information to make an informed decision.

Click here for information about nonprofit financial reporting.

What is Form 990?
IRS Form 990 is the tax document that tax-exempt, nonprofit organizations file each year with the IRS. The 990 allows the IRS and the public to evaluate nonprofits and how they operate.

The Form 990 requires disclosure of potential conflicts of interest, compensation of board members and staff, and in addition to other details having to do with financial accountability and avoidance of fraud.

Who has to file a Form 990?

• Private foundations are required to file a Form 990-PF.
• Larger nonprofits that have gross receipts of more than $50,000 (as of Jan 2011) have to file Form 990 or 990-EZ.
• Small nonprofits with gross receipts of $50,000 (as of Jan 2011) or less must file the new Form Electronic 990-N (e-Postcard) in order to maintain their exempt status.
• Organizations that are tax-exempt under Sections 501(c), 527, or 4947(a)(1) of the U.S. tax code, and that don’t fall into the exemptions listed below.

Which organizations are exempt from filing Form 990?

• Faith-based
• Subsidiaries of other nonprofits
• Nonprofits not yet in the system. If you are an incorporated nonprofit in your state but haven’t applied to the IRS for exemption from federal income tax, you don’t have to file a Form 990.
• Religious schools
• Missions or missionary organizations
• Some state institutions are exempt because they provide essential services (a university is an example).
• Government corporations

When do you file Form 990?
You must file your 990, 990-EZ, 990-N, or 990-PF by the 15th day of the 5th month after your accounting period ends. So, if your fiscal year ends on December 31st, Form 990 is due on May 15th of the following year.

Which Form 990 do we file?
Forms 990, 990-EZ and 990-N are filed by tax-exempt organizations, nonexempt charitable trusts, and some types of exempt political organizations.

If I want to see Form 990 for a particular nonprofit, how do I do it?
You can get a copy of a nonprofit’s Form 990 from the IRS, or you can view it at the charity you are interested in. Nonprofit organizations are required to make their Form 990 and their exemption application available for public inspection without charge at their regional and district offices during regular business hours.

Many nonprofits now make their Form 990s available for viewing on their websites. You can also view them at Guidestar, an organization that compiles information about nonprofits.

 Thanks to Joanne Fritz, About.com Guide, for many of these guidelines.

Like many of you I have been following with interest and astonishment the U.S. government’s efforts to manage the current financial crisis. $700 billion to help US banks rid themselves of bad debt after years of too much leveraging and bad loan practices. Fannie Mae/Freddie Mac awash with rotten assets with congressional oversight asleep at the wheel. Additional bailouts, for Citigroup announced just last week. On October 6th the US Federal Reserve announces plans to buy massive amounts of short-term debt from companies in an effort to unfreeze the money markets.  On November 25th the Federal Reserve says it is to inject another $800 billion into the US economy in a further effort to stabilize the financial system. About $600 billion will be used to buy up mortgage-backed securities while $200 billion is being targeted at unfreezing the consumer credit market. Today, U.S. automakers drew fresh skepticism from lawmakers in a rocky confrontation over their pleas for an expanded $34 billion rescue package they say they need to survive.

Whatever happened to management following best practices in good times and in bad? What has become of business risk management, internal controls, planning and budgeting, working capital and free cash flow management, aligning incentive and compensation systems with goal achievement, strategic cost management, quality management, and improvement principles such as Six Sigma? While I am, of course, oversimplifying, and fully realize that it is never possible to avert the next economic or financial crisis, surely, best practices in these important disciplines were not adequately followed.

Highly competent and skilled management accountants, are vitally necessary now more then ever to help organizations create growth, manage risk, manage and predict cash flows, design and implement quality improvement systems, design and implement strategic cost management systems such as activity-based costing, implement internal controls, and much more. They should be trusted business advisors to CEOs, in good times and in bad and management needs to wake up a leverage their skills.

You and your employees could be the biggest security threat to your organization’s data. Confirming earlier research, a recent study by Ponemon Institute, sponsored by IronKey, has identified that the main threat to your company’s security isn’t viruses or attacks against your server, storage and network but is instead, your own employees.
While not malicious in their intent, many employees are opting to do their jobs the easiest and fastest way possible, even when that means cutting corners and disregarding policy. From downloading data onto unsecured mobile devices, sharing passwords, to using web-based personal email and social networking sites in the office – employees are putting companies at risk.

Specific percentages of the ways data integrity is being compromised are as follows:

• 61% download data onto unsecured mobile devices
• 47% share passwords
• 43% loose data-bearing devices
• 21% turn off their mobile devices and/or security tools
• 52% use Web-based personal email in the office
• 53% download Internet software onto the organizations devices
• 31% engage in online social networking while in the workplace

For more information click here…

For the second consecutive quarter, the percentage of CFO’s who anticipate hiring more Accounting and Finance workers has gone up. While those who plan to hire more employees in the 2nd quarter of 2010 stands at just 7%, it is still a sign of good news because it is the highest forecast since the 1st quarter of 2009. In addition, the number of those expected to decrease staff has gone down the past two quarters.

A survey of 1400 CFO’s in the United States found that 84% are ‘somewhat confident’, and 34% are ‘very confident’ of the near future. The survey, conducted by Robert Half International also noted that the Mountain states are expected to hire the most new workers, many of which are in the education and health services sectors. Robert Half International chairman and CEO, Max Messmer said, “While most businesses remain cautious, some companies are beginning to hire selectively to ensure they have the employees in place to capitalize on opportunities that may arise as a result of an improving economy. In some cases, firms are using temporary professionals to help meet workload demands and as a way to evaluate individuals for potential full-time positions.”

Ultimately, this may be a good sign of things to come in our economy. To read more about this, click here.

According to a recent survey performed by Unit4 Coda, Accountants are under added unnecessary stress. The survey found that accountants feel they are being held to unrealistic deadlines and have an over-reliance on spreadsheets due to inefficient accounting systems. Further, among the top contributors to unnecessary stress is an apparent disconnect between executive management teams and accountants.

A report of the survey’s findings on unit4coda.com states, “Over 66 percent of the survey’s respondents(1) said an average close period takes over five days to complete, but the survey also revealed that more than 55 percent of accountants are expected to complete a close in a maximum of five days.”

Other items noted were:

• 70 percent of respondents reported that inadequate reporting from their financial systems was a source of stress.
• 58 percent spent more than four hours reconciling subsystems to the GL with 25 percent taking two days or more.
• 53 percent of accountants reported clocking overtime hours during a period close.

It appears as though many companies are still struggling with antiquated processes and software which is adding unnecessary pressure on accountants and employees as well as increasing the likelihood for error. If this situation sounds familiar, it is definitely time to take a look at how a better system and automation process can improve the overall operations of your organization.