Nonprofit Accounting Blog – Page 16

Tax Planning & Preparation Services

Beck & Company, Certified Public Accountants and Business Advisors is an independent certified public accounting firm serving the Greater Washington D. C. metropolitan area with clients also along the Eastern Seaboard. Our firm has been built upon a tradition of service, technical expertise, and creative thinking. Did you know that here at Beck & Company, Certified Public Accountants and Business Advisors, we provide audit, tax, accounting, nonprofit, and consulting services? Our goal is to help our clients’ financial endeavors flourish while exceeding their expectations. Our background and experience in public accounting and business allow us to offer qualified assistance in practically any area of your business. Over the past few weeks we have taken a deeper look into the services we provide so that you can take full advantage of our expertise, to help your organization meet its business and personal financial objectives. We have delved into the different client accounting, audit services, and nonprofit services offered here at Beck & Company, CPAS. In this article we want to highlight our Tax Planning and Preparation Services.

Whether you are an individual, partnership, corporation, or a not-for-profit organization, our experienced staff can develop tax strategies that take advantage of new tax laws and legislation. By seeking to provide individualized, quality tax services in a way that best suits your goals and vision for the future, Beck & Company can provide you with innovative tax solutions.

Our efficiency and cost-effectiveness are further strengthened by our use of computerized tax tools to support our staff, which can, in turn, yield tangible benefits to you. Beck & Company utilizes the latest in tax research tools.

We provide innovative tax compliance and consulting solutions utilizing automated tax tools to enhance our efficiency and cost-effectiveness for our clients, including:

Tax compliance and return preparation for individuals, corporations, partnerships and not-for-profit organizations
Tax planning and preparation to develop tax strategies that take advantage of new tax laws and legislation
Advising on the tax effects of buying/selling a business
Providing representation before taxing authorities as needed

We will help you realize your goals and achieve success through:

Investing in ongoing learning and education that keeps us current on regulations, standards and emerging issues that will help our clients maintain compliance, improve processes, and achieve their financial goals.
Uncompromising commitment to the highest standards of quality on every engagement and participation in the American Institute of Certified Public Accountants Quality Review Program that requires us to maintain quality control systems over our accounting and auditing practice.
Development of service methodologies that achieve the highest standards while maximizing efficiencies for our clients.
Ongoing communication between our staff and clients throughout each engagement to resolve issues as they are identified so we accomplish your financial goals in the timeline committed.
Creative and innovative approach to developing solutions for our clients based on our understanding of your unique circumstances, needs and objectives.
Team of experienced professionals with senior or owner involvement in all client engagements so you know you have direct access to specialized expertise on which you can rely and trust.

At Beck and Company, CPAS we’re different because we’ve been where you are – either in our professional experience in running our practice and business or we’ve seen situations similar to yours when working with clients much like you. Our broad base of managerial accounting and systems experience and our deep understanding of business process and technology enable us to apply knowledge from the past, together with up-to-date best practice know-how to help you solve your challenges and capitalize on the opportunities you face. Our creative and innovative team of experienced professionals with senior or owner involvement in all client engagements ensures you know you have direct access to specialized expertise on which you can rely and trust.

Benefitting with Outsourced Nonprofit Services

The partners and staff of Beck & Company, Certified Public Accounts are dedicated to providing high quality professional services to our clients. We will maintain the highest moral, ethical, and professional standards. We realize that we can only be as successful as our collective clientele; therefore, we dedicate all of our resources to the long-term success and general well-being of our clients. Over the past few weeks we have taken a deeper look into the services offered here at Beck & Company, CPAS. We have delved into the different client accounting and audit services. Today we wanted to focus on our Nonprofit Services.

At Beck & Company we specialize in not-for-profit accounting and auditing. We understand the unique challenge of balancing the needs of your various stakeholders – contributors, members and your board, too. We have experience serving not-for-profit organizations such as unions, homeowner’s associations, religious organizations, charities, and social service organizations. Our Nonprofit Services team is committed to assist you with your back-office accounting and financial needs so you can focus on your mission. Our nonprofit specialists provide professional advice and assistance in a number of areas, including:

Financial Statement Audits
Reviews or Compilations Accounting
Bookkeeping Services
Tax Preparation and Reporting

In addition we provide CFO Services such as business planning, budgeting, cash flow analysis, executive search, and information security.

At Beck and Company, CPA’s we offer controllership services like monthly close, financial statement preparation, financial policy review and development, operational procedure review and improvement and accounting staff evaluation and management. Additionally we offer not-for-profit Account Services which include bookkeeping services such as Accounts Payable and Payroll. Audit Services, Tax Solutions, Transaction Support, Enterprise Resource Planning and SAS 70 and SSAE 16.

Danny Gray, Secretary Treasurer, Fairfax Fire Fighters and Paramedics knows first-hand the benefits of our nonprofit financial services. He stated, “Beck & Company, CPAs is truly exceptional. The fact that they have stood by our side through three different Presidents and several Secretaries and Treasurers proves that they are committed to their clients. After all, we are firefighters, not accountants. We depend heavily on the firm, and they do not disappoint. Beck & Company, CPAs has become an extension to our organization; it really has been – and continues to be – an exceptional relationship.”

Today, many nonprofits are moving toward outsourcing their accounting services. There are five primary reasons why nonprofit organizations would consider outsourcing their finance and accounting functions:

Reduce costs and save money on internal staffing
Gain a higher level of specialized accounting expertise
Save time while maintaining accurate with meaningful financial information
Improved business processes and controls
Eliminate risks associated with poor internal hires

Outsourcing is oftentimes a good fit within smaller organizations who don’t require a full-time accounting staff, but needs someone with an accounting specific education and experience. Or when the organization can’t afford or would prefer not to afford accounting staff. Whatever your reason we here at Beck and Company, CPAS are different because we’ve been where you are – either in our professional experience in running our practice and business or we’ve seen situations similar to yours when working with clients much like you. Our broad base of managerial accounting and systems experience and our deep understanding of business process and technology enable us to apply knowledge from the past, together with up-to-date best practice know-how to help you solve your challenges and capitalize on the opportunities you face. Our creative and innovative team of experienced professionals with senior or owner involvement in all client engagements ensures you know you have direct access to specialized expertise on which you can rely and trust.

Beck & Company CPA’s Client Accounting Services

Founded in 1987, Beck & Company, Certified Public Accountants and Business Advisors is an independent certified public accounting firm serving the Greater Washington D. C. metropolitan area with clients also along the Eastern Seaboard. Our firm has been built upon a tradition of service, technical expertise, and creative thinking. Did you know that here at Beck & Company, Certified Public Accountants and Business Advisors, we provide audit, tax, accounting, nonprofit, and consulting services? Our goal is to help our clients’ financial endeavors flourish while exceeding their expectations. Our background and experience in public accounting and business allow us to offer qualified assistance in practically any area of your business. Over the next few weeks we would like to take a deeper look into the services we provide so that you can take full advantage of our expertise, to help your organization meet its business and personal financial objectives.

Last week we took a look at the Accounting and Audit Services provided by Beck & Company, CPA’s. More than audit services we provide an array of accounting and other services for small and middle market organizations, privately owned companies, partnerships, not-for-profit organizations and other forms of businesses. Another valuable service is our:

Client Accounting Services

Reduce cost while increasing the value delivered by your accounting functions and better utilization of accounting resources. Nonprofit organizations are constantly looking for ways make the best use of their resources to focus on their cause. The complexity of managing the business aspects of a nonprofit organization while furthering its mission may inspire the need to seek outside support for some elements.

Almost every nonprofit can benefit from the insights and expertise of a chief financial officer (CFO) or a Controller, but unfortunately, few can afford to staff that position full-time, at this level and if they do, they may only have five to ten hours of work for this person per month. Overcoming this objective by outsourcing these functions, your organization will be positioned to access CFO and Controllership skills, tailored to meet your specialized needs.

Reducing Costs through Business Process Optimization (BPO)

With a thorough assessment and analysis of your operations and the reorganization and optimization of your processes, which can reduce cost and increase efficiency.

When you outsource some or all elements of your accounting, you will:

Significantly reduce overhead – The finance and accounting function is a cost center and does not generate income.
Optimize processes and improve workflow.
Allow management to spend more time and effort on your operation.
Improve operational efficiencies that impact your bottom-line.
Re-direct finance and accounting expenses to pay for new programs and events.
Gain faster, better financial information to help direct your leaders and drive your mission.

Beck & Company, Certified Public Accountants and Business Advisors is an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. At Beck and Company, CPAS we’re different because we’ve been where you are – either in our professional experience in running our practice and business or we’ve seen situations similar to yours when working with clients much like you. Our broad base of managerial accounting and systems experience and our deep understanding of business process and technology enable us to apply knowledge from the past, together with up-to-date best practice know-how to help you solve your challenges and capitalize on the opportunities you face. Our creative and innovative team of experienced professionals with senior or owner involvement in all client engagements ensures you know you have direct access to specialized expertise on which you can rely and trust.

Helping companies reach their financial goals through Accounting and Audit Services

Founded in 1987, Beck & Company is an independent certified public accounting firm serving the Greater Washington D. C. metropolitan area with clients also along the Eastern Seaboard. Our firm has been built upon a tradition of service, technical expertise, and creative thinking. Did you know that here at Beck & Company, Certified Public Accountants and Business Advisors, we provide audit, tax, accounting, nonprofit, and consulting services? Our goal is to help our clients’ financial endeavors flourish while exceeding their expectations. Our background and experience in public accounting and business allow us to offer qualified assistance in practically any area of your business. Over the next few weeks we would like to take a deeper look into the services we provide so that you can take full advantage of our expertise to help your organization meet its business and personal financial objectives.

Accounting and Audit Services Overview

We provide an array of accounting and audit services for small and middle market organizations, privately owned companies, partnerships, not-for-profit organizations and other forms of businesses. They include:

Financial Statement Audit In a financial statement audit we will examine an entity’s financial statements and accompanying disclosures and provide a report which attests to the fairness of presentation of the financial statements and related disclosures. This service provides the client with the highest level of assurance.
Financial Statement Review A financial statement review of the annual and quarterly financial statements, will include some analytical procedures and result in limited assurance. We will verify that there are no material modifications that need to be made to your financial statements for them to be in conformity with the applicable financial reporting standards, such as GAAP, General Accepted Accounting Practices.
Compilations of Annual and Quarterly Financial Statements. A process in which we will read through financial statements and considers whether they are appropriate in form and free from obvious material errors.

Additional accounting and audit services include, financial statement preparation, bookkeeping and payroll services on an interim or long-term basis, outsource CFO or controllership services, and other services as needed for public companies where Beck & Company is not the auditor of record. In public companies where we are not the auditors, Beck & Company can assist the audit committee and management in a wide variety of services that are considered prohibited, non-attest services; services that cannot be provided by the auditor of record. Simply stated, we are a full-service firm committed to providing you the best possible service. Our goal is to earn your trust and respect and to be considered part of your team

Is My Nonprofit Organization Susceptible to Fraud?

It is hard to believe that an organization dedicated to improving society and filled with well-meaning, hard-working people would be susceptible to fraud. However, even the most well-meaning nonprofits can find themselves in financial hot water.

All too often, when financial issues arise, there is a temptation to mask them. This can be particularly tempting for nonprofit managers. One reason for this is that federal law only requires nonprofits to report financial inconsistencies which are over $250,000, or five percent of the organization’s annual gross receipts.

Sometimes, by the time a nonprofit realizes their misappropriation of funds, they find themselves at risk for losing significant amounts of money should they choose to come clean. Here are two things to look for that could indicate you may be experiencing some financial irregularities.

1. Financial statements are difficult to obtain. Most healthy nonprofit organizations are financially transparent. Stakeholders and constituents should have unfettered access to financial numbers. In fact, certain documents should be available at all times for review such as:

• Bank Statements including all cash balances

• Accounts Payable reports showing money owed to vendors. You will want to ensure vendors are being paid in full and on-time. Any issue here could mean financial fraud.

• A report showing credit lines with the amounts borrowed.

• Accounts receivables reports.

• A list of fixed expenses.

2. Income and cash flow statements as well as balance sheets should be automatically sent to stakeholders on a monthly basis. It is important to read these reports and have an open line of communication should anything seem out of place.

One of the best tools you have is to be proactive in mitigating financial fraud risk. You can conduct a fraud risk assessment by creating a risk map and linking it to your internal controls. Ensure your internal controls are being followed, and test their functionality. Arm your staff with training so that they can become aware of things to look for that may be fraudulent activities.

Organizations with fewer employees oftentimes have less segregation of duties with fewer internal controls. Having a smaller staff often leads to closer relationships and trust, which can create a false sense of security. There are ways to protect a small organization to mitigate their risk. Creating a fraud prevention environment with the following tools is a great start.

1. Use an accounting software solution. Utilizing accounting software can mitigate fraud risk as it automates transactions, provides user security levels, and creates an audit trail and Internal Accounting Review.

2. Conduct employee background checks.

3. Ensure the senior leadership reviews the monthly bank statements. This provides a level of accountability as well as mitigating check tampering.

4. Look for missing or altered checks–anything signed by an unauthorized individual or other inconsistencies.

5. Payroll oversight. Centralize the payroll program in order to eliminate “ghost” employees, which could be fictitious persons on the payroll.

6. Ensure compliance to internal controls.

7. Offer fraud prevention training. Remember, by nature, fraud is hidden. There are no 100% solutions to avoiding fraud. Research has shown that one of the most important deterrents to fraud is “tone at the top.” Management’s stance on ethics has a direct effect on employee behavior. The first goal is to prevent fraud, and the second is to catch it as quickly as possible.

Beck and Company Certified Public Accountants and Business Advisors are here to help. We are passionate about helping nonprofits get their financial reporting in order so that they can reduce the risk of fraud. Learn more about all of the nonprofit services we offer in addition to auditing services. Contact us to lo let us know how we can help your organization with financial services, internal audits, and other services to keep your finances in check and to prevent fraud.

Internal Control Best Practices for Nonprofits

Internal controls are the accounting and financial business processes and procedures that help to protect your organization’s assets. Regardless of the size or mission of a nonprofit, it is necessary to establish policies and procedures that prevent misuse and misappropriation of assets. These internal controls will ensure that all staff or volunteers, who have access to spending or collecting monies, understand their fiduciary responsibilities, all assets are properly managed, and the primary purposes of the nonprofit are carried out. When these criterion are not met, it results in a breach of fiduciary duty and financial liabilities.

The most effective procedures are those that have the greatest segregation of duties. This is the concept of having more than one person required to complete a task. The separation by sharing of more than one individual in one single task is an internal control intended to prevent fraud and errors. The more people involved in the process, the less likely it is that an error will occur. For example, the person who writes checks should not be the person signing them. The person who orders the service or product should approve the invoice. The person with budget responsibility should also approve the expenditure and code the invoice.

Typically, internal controls are written policies that detail agreed-upon procedures that the nonprofit will adhere to, as well as outlining who the responsible parties are. The goal of internal controls is to create business practices that serve as “checks and balances” on staff or outside vendors in order to reduce the risk of misappropriation of funds.

The following are examples of some basic internal controls:

Requiring two signatures on a check.
Establishing safety protocol ensuring all doors are locked when no one is monitoring the entrance.
Preapproving spending, as a prerequisite to guaranteed reimbursements.
Requiring multiple persons to be present when collecting and counting cash donations.
Regularly reviewing vendors who are receiving money from the nonprofit for services or supplies.
Ensuring that the same person isn’t authorized to write and sign a check.
When opening mail, endorsing or stamping checks “For Deposit Only,” listing checks on a log before turning them over to the person responsible for depositing receipts, and periodically reconciling the incoming check log against deposits.
Requiring that cash be stored in a locked drawer or safe.
Requiring background checks for employees or volunteers who handle money.

Another facet to consider is the actions of executive staff and leadership to adhere to internal controls. Leading by example is the best way to ensure compliance of rules by the rest of your staff and volunteers. Additionally, acknowledge that these controls are being implemented as a measure to protect the staff and organization and not due to mistrust. If you are wondering where to begin establishing internal controls for your nonprofit, a good place to start is with:

Any person who has access to your bank accounts or
Any person with permission to spend money on your organization’s behalf.

Without establishing these procedures, your nonprofit is vulnerable to misuse and misappropriation of assets. At Beck and Company Certified Public Accountants and Business Advisors, we are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish.

Serving small and mid-sized organizations and individuals, we provide audit, tax, accounting, and consulting service that address all aspects of your business with one goal in mind – exceeding your expectations. We are able to do this by drawing on our combined business backgrounds and experience in public accounting to help you in virtually any area of your business. Contact us for more information on our accounting and consulting services that can help you.

What to Look for When Preparing Financial Statements for a Nonprofit Audit

There are a number of steps your nonprofit can take to ensure you are prepared for a smooth audit. One of those things is collecting necessary documentation and getting them ready for the auditors. Unfortunately, this can take days, weeks, even months. Creating an audit process can ease the burden of preparing for an audit and buy back valuable staff hours. With time saved, you can spend your time on what’s most important to your nonprofit organization.

It is a risky effort to attempt to gather information from a variety of disparate sources and systems. Working with data stored in too many different systems typically creates inconsistencies in reporting and makes it very difficult (if not impossible) for an auditor to follow audit trails and replicate reports on a consistent basis.

In the long run, disjointed and inconsistent reporting and data can cost your organization money, extend audit time, increase risk for mistakes, and raise possible compliance issues for your organization. Worst of all, a troubling or failed audit can put an organization at further risk of losing important board and donor trust.

It is possible to avoid this nightmare by being proactive. Better non-profit financial management, tracking, and reporting across the entire organization that ensures you’re always audit-ready is just a few steps away. Take a good, hard look at your accounting software to ensure it’s built to meet the needs of your nonprofit organization and offers true fund accounting capabilities.

Ask yourself:

• Does my current system provide the flexibility needed in the chart of accounts?

• Am I able to track and report out on spending and revenues associated with each of our programs? How much time am I spending in my current system to do so?

• Could my auditor easily review the creation and approval process of any requisition in my system?

• Does my current system allow me to track and allocate revenues and expenses to the right funds?

• Can I be sure that I have maintained financial data that allows me to easily prepare recurring or ad-hoc reports for internal audits, external audits, or board member reviews?

• Do I seek to show accountability and transparency through reliable data and consistent reporting?

When dealing with public funds, accountability and transparency are critical. Organizations have to be able to account for every dollar or risk losing trust from donors and constituents. But, if your reports aren’t consistent, at best it may show an apparent lack of oversight. At worst, your auditor may determine the financial health of your organization is at risk.

An organization’s inability to accurately and consistently produce financial statements and reports that are the same EVERY time is problematic. If you and your team cannot consistently duplicate reports, neither can your auditors.

The risk for exposure is tremendous and can lead to a lack of apparent oversight for the handling of finances, increased potential for mistakes that can cost time and money, misrepresentation or inaccurate portrayal of the organization’s financial health, and greater exposure to potential fraud.

Follow these steps for better nonprofit financial management, tracking, and reporting across the entire organization.

• Take an honest assessment of your current accounting software:

Does my software offer true fund accounting capabilities?

Does my accounting solution offer access to a custom report writer and standard reports that are designed for nonprofits?

Can I produce reports consistently and accurately each and every time with little to no fuss?

Can my auditor easily recreate reporting to ensure accuracy in our organization’s financial statements?

Ensure you can produce financial reports that are accurate, timely, in context, and readily available on a monthly or quarterly basis. They should include a configurable chart of account, year-end donor summaries, and other standard reports.

Evaluate your ability to create reports that match the purpose. Most boards look at financial reports for these reasons:

• To comply with financial standards

• To evaluate effectiveness

• For forward planning

These tips for preparing for an audit will make the audit process more successful and smooth. To find the right auditor for your organization and take advantage of the many audit services Beck and Company Certified Public Accountants and Business Advisors provide, contact us.

Nonprofit Changes Coming Following Updated FASB Accounting Standards

In an effort to increase transparency and continuity in the preparation of financial statements, the Financial Accounting Standards Board (FASB) has proposed significant changes for nonprofits. In the past 20 years, generally accepted accounting practices (GAAP) have not clearly specified a way of reporting performance. That is all going to change. Nonprofits can be optimistic that these changes will have great benefits for them. They will allow nonprofit organizations to become more comparable, generating easier-to-interpret financial statements that will aid in the evaluation of financial statements for the purposes of obtaining stakeholders and loans.

Changes to net asset classification

The proposed Accounting Standard Update (ASU) changes the nonprofit accounting requirement for what information must be presented in the statement of financial position. The current three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) will now be reduced to two classes of net assets (net assets with donor restrictions and net assets without donor restrictions). This change is intended to simplify financial reporting.

In addition, the FASB has revised how underwater donor restricted endowment funds are to be classified. They believe it is confusing to classify the spending from underwater endowments as unrestricted, and thus, the FASB has proposed that underwater amounts be classified in net assets with donor restrictions. The FASB is also now requiring disclosure of the combined amount of funds that are underwater and the original endowment amount, along with any rules or restrictions on spending from such funds.

Statement of activities

Along with the changes to net asset classification, a corresponding change to the statement of activities has been proposed. Now, all nonprofits are required to report income or losses from operating and non-operating activities separately. This is because certain non-operating activities, like investment earnings or losses, can affect the operating bottom line. The FASB believes this will help to clearly show both income and costs that are related to accomplishing the nonprofit’s mission.

Presentation of Cash Flow

Changes to the statement of cash flows have been proposed in order to provide more useful information to key stakeholders on the overall operating performance of the nonprofit. First, the board is proposing the use of the “direct method” of reporting cash flows from operating activities. The second change will realign the reporting of certain items to be consistent with how items in the statement of activities are being reported. Items such as operating, financing, and investing categories will be affected. The FASB believes these changes will result in easier-to-read financial statements which will prove to be more useful for the average user of financial statements.

Assessment of liquidity

The FASB has also proposed changes they hope will result in a clearer picture to stakeholders of an organization’s liquidity. Donor-imposed restrictions and confusion about how they affect the availability of assets have caused a lack of clarity regarding the assessment of liquidity. The proposal requires both qualitative and quantitative information regarding the liquidity of assets and cash demands as of the reporting date. Along with the changes to net assets, classification of this information should allow users to assess the liquidity risk of the nonprofit.

Impacts

As with any change, an investment of time for nonprofits and their accountants will be necessary to implement the required changes. The FASB’s proposal will allow stakeholders to better examine financial performance as well as the need for funding and overall stewardship of donor funds. In the end, the nonprofit should experience significant benefits from the extra work as better information is provided to decision makers

At Beck and Company Certified Public Accountants and Business Advisors, we would love to be of service to you as you consider implementing these required changes for your organization. We are a certified public accounting firm serving the Greater Washington D. C. metropolitan area with clients also along the Eastern Seaboard. Our firm has been built upon a tradition of service, technical expertise, and creative thinking. Our services are highly personalized, cost effective, accurate, and dependable. Our commitment to excellence is demonstrated in our team’s understanding of your business and personal financial objectives and then delivering innovative solutions to achieve them.

How Often Can I Revise My Nonprofit Budget?

A budget is a financial plan and should be a simple tool which helps you detail unique categories of income and expenses necessary to your nonprofit. Typically a business will create an annual budget, however, it is also necessary to regularly evaluate the budget in turn providing the freedom to make necessary adjustments. Having a budget revision process will help you cut down on unnecessary spending, redirect funds and create space for unplanned expenses.

Looking back and looking ahead

Taking account of the current budget and comparing its allocation against actual spending is a great first step in the revision process. You will begin to see patterns in your monthly assessments. Certain areas that consistently fall short and others that show a surplus are ripe for revision. With this information you are then able to reallocate funds from surplus line items to the line items showing a consistent deficit. The most efficient and effective budget revision process include multiple people within the staff. Department heads and team leads will need to be invited into the budget revision process. They should be speaking into their departments spending habits and revenues in order to maximize bottom line potential for the overall organization.

Short-term Projects

There are other great reasons to make monthly budget revisions. For instance, a short term project develops and is estimated to take 2-3 years to complete. This new venture will require regular budget checks to account for unplanned expenses and delays. Once the project is complete you may be able to slide right back into a fixed budget. Additionally should you introduce a new product or service your budget would require regular revisions until you uncover actual numbers to substantiate the new endeavor.

One of the benefits of the budget revision process is to create space for one-time events that have affected the budget. A set-back, delay or unexpected cost could throw an entire year’s budget off if adjustments are not made.

The Goal Is Zero

The ultimate goal of a zero based budget is to ensure that your income and expenses equal zero at month’s end. Should you cover all of your expenditures and still have income left over at the end of the month your budget process is not done. Allocate those additional funds somewhere, tell it where to go. Skipping this step compromises your chance to make that variance work for you.

Utilizing this strategy within your budget planning process can help you get out of debt, increase annual bottom line revenue, and/or invest back into your company so that your overall potential and effectiveness is maximized.

Keep it up

It is a smart move to continually look at the budget and the budgeting revision process. This isn’t a one-time project. With each change in process or budget be sure to evaluate the effectiveness of the revisions and efficiency of the process. Ultimately you want to increase profits while maintaining the excellent standards and quality your customers have come to know and love about your organization.

At Beck & Company, Certified Public Accountants and Business Advisors, we want to help you. We are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. Ultimately we want to see your nonprofit reach its goals and we would love to help you. Contact us to learn more.

Accounting For Corporate Sponsorships

Many nonprofits receive donations from corporations wanting to support their endeavors. These “corporate sponsorships” have been in question by the IRS as to whether or not they would be subject to certain taxes. The IRS released regulations concerning these corporate sponsorships in 2002 prompted by several rulings in court cases. The core of these rulings identify whether donations will be considered “corporate sponsorships” which are excluded from unrelated business income or considered advertising which would be subject to unrelated business income tax. The IRS would see advertising to be a “substantial return benefit”.

The bottom line is an exemption from the unrelated business income tax (UBIT) for donations that qualify as a corporate sponsorship. Income generating activities for Exempt organizations such as a trade or business which is regularly carried on; and unrelated to their exempt purposes will be subject to UBIT.

However, exclusions from UBIT do exist such as “corporate sponsorships” and provide guidelines for activates and/or actions for which taxes will not be incurred. The final rulings declared six elements of corporate sponsorship that would not be considered “substantial return benefits”.

Listing the name, logo, or product line of the sponsor;
Awarding exclusive sponsorship
Providing logos or slogans that do not contain any qualitative language or comparative description of the products;
Listing the payer’s locations, addresses, phone numbers, and Internet addresses;
Providing value-neutral descriptions of the sponsor’s product display; and
Listing the sponsor’s brands or trade names.

On the other hand, there are also four things that would be deemed substantial return benefits, including “advertising.” They are:

Advertising;
Designating a sponsor as an exclusive provider;
Providing facilities, services, or other privileges to the sponsor unless they are of “insubstantial value;” and
Granting either exclusive or nonexclusive rights to use the sponsor’s intangible asset (e.g., name or logo).

Let’s take a look at a hypothetical situation. The local little league, an NPO considered exempt is given a $2,000 donation from the local sporting goods store. In return a banner is created to display on the outfield fence of the home field. This banner contains the name of the store, its logo, and website address.

According to the regulations this banner would not cause the sporting goods store to be taxed and would qualify as a “corporate sponsorship”.

There are a few areas within the rules that can be tricky and cause problems:

Substantial return benefits
Services provided
Internet issues

Substantial Return Benefits

The question of what is a substantial benefit can cause some confusion. According to the rule, if a sponsor receives anything in return for their donation it must have a value of 2% or less of the sponsorship payment. Should its market value be more than 2% then the entire value of the return benefit would be subject to UBIT.

Example 2:

A music teacher donates $500 to the local community theater. The teacher receives a notation in the program with her name and website listed. In addition she receives 2 season tickets to the three productions for that year. The market value of these tickets is $120. Given that the value of the tickets is more than 2% of the $500 donation, the $120 “return benefit” would be considered the value of the advertising and subject to UBIT.

Services Provided

Should a sponsor make a donation and in return require the beneficiary to provide a service, the value of that service may be considered return benefit and be subject to UBIT. Once the services are rendered, the fair market value of those services would be considered unrelated business income. It can be tricky to accurately assess the value of said services.

Example 3:

Remember the little league team from Example 1? Let’s say that same situation occurred however in addition to the banner the sporting goods store agrees to provide the entire little league team with one specialty coaching session. The fair market value of the coaching session is $500.

Because services are required as part of the sponsorship agreement, the $500 fair market value of the training received is considered unrelated business income.

Internet Issues

Although the IRS has not released specific protocol in the area of internet promotion it is important to also consider the following. Should a sponsor require a hyperlink to their website is included on the organization’s website you will need to be sure unrelated business income is not generated. Up until now hyperlinks to a sponsor’s website are not supposed to result in unrelated business income providing the tax-exempt organization is not endorsing the sponsor’s products.

Example 4:

The same little league from Example 1 includes the sporting goods store logo on its team website, along with a hyperlinked logo to the sponsor’s website. As long as the team website only includes the sponsor’s logo with a link to the website – and does not have any promotional language or endorsements no unrelated business income should be generated from the linked logo.

Recent Tax Reform

In early 2014, the House Ways and Means committee released a draft with several proposed changes to the tax code. This draft includes revisions specifically to how sponsorships are treated for UBIT purposes. Based on the proposal should an organization use the name or logo of a sponsor’s produce line, then that sponsor’s donation would be considered unrelated trade or business income.

It is expected more information will be provided regarding these potential changes in the coming year. Here at Beck & Company, Certified Public Accountants and Business Advisors, we want to help you. We are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. Ultimately we want to see your nonprofit reach its goals and we would love to help you. Contact us to learn more.