Nonprofit Accounting Blog – Page 7

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.

Using Nonprofit Accounting Audit Services for Better Business Insights

Did you know that you can glean important business insights from nonprofit accounting audits? Nonprofit accounting audit services may seem like a necessary annual expense to adhere to the law when it comes to running a nonprofit organization. However, a good audit is worth so much more. Auditing services provide valuable information that can be used to improve many areas of your nonprofit organization.

Many nonprofit organizations are leaving valuable information in the files without understanding how an audit can help them. Here’s how you can leverage your audits for better nonprofit financial management.

Improve Business Performance

According to Deloitte, audits can be used to improve business performance. Currently, more than three-fourths of respondents to the Deloitte survey state that they use their annual audits as a benchmark against which they can check business performance. By examining key areas and financial information, they can assess how well their organization is performing against goals and where they may need to focus their attention in the future.

Finding the Information Needle in the Haystack

Another area in which nonprofit audits can be helpful is finding small pieces of information that have big ramifications. Such so-called information “needles” in the haystack of information may be enough to use as a springboard for improvement. The audit process may uncover such small bits more readily than typical business processes because audits examine everything in an organization’s business and finances.

Learning About Their Market

Another area in which audits may prove valuable is to learn more about the industry and market in which nonprofits work. Auditors who work with multiple organizations may provide insights into industry trends and marketplace knowledge which can be used to improve a nonprofit organization’s ability to compete in the marketplace.

Keeping an Open Mind and Communicating with Auditors

Two things are essential to getting the most value from your audit: keeping an open mind and communicating well with your auditors.

The auditing team may make suggestions or point to information in your audit which can be difficult to accept. It can be a struggle to keep an open mind, but if you do, you can learn more from the audit.

Communicate your needs to the auditing team. Ask them for their expertise and business insights. They will probably be glad to help! Most nonprofit accounting audit services are intended to help organizations grow stronger. It’s more than about compliance with the law; it’s about building better organizations.

As part of your nonprofit financial management, you can gain many business insights from a nonprofit accounting audit service. Work with your auditing team to set expectations and build a process by which their findings and insights can be communicated to the right people within your organization so that every bit of information can be shared and used to make your nonprofit stronger.

Nonprofit Accounting Audit Service with Beck & Company

How to Deter Fraud Risk

Did you know that the typical nonprofit organization loses nearly 5% of revenues in a given year due to fraud? Or that the average loss per incident is $150,000?

These and other facts are included in the Report to the Nations in the global fraud examiners’ study. Deterring fraud should be a priority of nonprofit financial management. Ongoing fraud saps an organization’s finances and can harm its reputation among donors and other constituents. To prevent fraud, the following guidelines may be of assistance. Understanding and enacting each of these guidelines can go a long way towards preventing fraud.

Fraud Risk Governance

Fraud risk governance refers to a set of policies or procedures put in place to communicate the expectations of the nonprofit financial management team, the Board of Directors, and others. It is a system by which risks are controlled, and in which the process that organizations use to respond to fraud is outlined and shared with others. A written fraud risk governance policy is an essential first step to preventing fraud.

Fraud Risk Assessment

A fraud risk assessment conducted by your nonprofit financial management team can provide you with a broad overview of the potential risks and remedies available. As part of a fraud risk assessment, teams create a list of potential fraud schemes and risks. Then, they outline the likelihood and significance of each risk. Current fraud control methods are analyzed, and recommendations are given to mitigating potential risks.

Fraud Investigation – and Correction

Next on the list of best practices is fraud investigation and correction. Steps must be taken to ensure that anyone who is aware of potential fraud reports it and that those receiving the reports act quickly upon the information received. A coordinated investigation should be conducted in a timely manner to address, correct, and remedy any fraud situations.

Monitoring Future Activities

Lastly, steps should be taken as part of good nonprofit financial management to monitor future activities and prevent potential fraud. Learning from the past is a good way to prevent future problems. Close any loopholes, remedy poor procedures, segregate duties, and put into place strong internal controls to prevent future fraud occurrences. Consistent, ongoing monitoring is the best way to prevent and correct fraud once it occurs.

Common Fraud Schemes

Can you recognize some of the more common fraud opportunities and schemes? This list is derived from the findings found in a Report to the Nations previously cited above.

Misappropriation of an organization’s resources such as stealing office supplies, taking petty cash, using the copy machine for personal needs, etc.
Billing schemes that pad bills so that the person enacting the fraud keeps the difference between billed and owed amounts.
Check tampering schemes.
Financial statement fraud.
Ongoing, small thefts that add up to large amounts.

Your Best Defense: A Good Offense

Your best defense against fraud at a nonprofit organization is always vigilance. Good internal controls, consistent monitoring of financial information, and providing employees with a hotline or anonymous tip line to report fraud are all good ways to defend against fraud.

Nonprofit Accounting with Beck & Company

Importance of Internal Controls

In the world of nonprofit financial management, internal controls are the steps organizations put into place to guard against theft, loss, and fraud. Think of internal controls as locks or safeguards against temptation. With the right internal controls in place, you’re less likely to find yourself in the uncomfortable position of discovering employee fraud.

These tips or best practices for internal controls can help your organization take good care of its finances.

The Need for Internal Controls

Some organizations may question the need for internal controls. After all, you trust your employees, right? Trust has nothing to with good nonprofit financial management. They are an important step to remind employees of your organization’s commitment to ethics and integrity.

Internal controls provide a shared set of guidelines that outline exactly what procedures should be followed when employees handle the organization’s finances. This shared set of expectations avoids guesswork and builds a common understanding of the way in which you expect finances to be handled. By making things clear to all, you’re avoiding gray areas which can be exploited as loopholes.

Best Practices for Nonprofit Financial Management and Internal Controls

Some organizations have multiple steps when outlining internal controls, but these four steps have been found to be quite effective at helping to avoid fraud and mistakes. Use these four nonprofit financial management tips to outline expectations around internal controls with your team.

Document the process: The first step is to document all of the procedures that you want followed around the handling of donations, checks, cash, and other financial assets. When information is in writing, it is easy to share and use to train others. A simple, streamlined process for nonprofit financial management is best since it is easier for people to remember and follow. Outline the process for each task, and use bulleted lists of steps. Share the documentation, post it publicly in your company, and train everyone on the steps so that the entire team has a shared understanding of the expectations.
Segregate duties: One person should not be assigned the job of handling money. Anytime money is counted, transferred, or prepared for a bank deposit, two people should be present. The person who signs the checks should be different from the person who writes the checks. Separating or segregating duties around money makes it difficult for one person to perpetuate fraud.
Monitor operations: Keep a close eye on your bank statements, credit card charges, and accounting system. Review accounting reports monthly. Do not wait to reconcile bank and credit card statements as reconciliation can uncover problems quickly such as unauthorized charges or withdrawals. When you keep a close, attentive eye on your finances, it is harder for someone to sneak money out of an account without getting caught.
Stay consistent: Maintaining a consistent amount of money in your checking accounts helps you watch the financial situation. Sudden changes in the account balance may signal a problem unless you anticipate paying large bills or receiving hefty donations. Consistently paying bills at the same time each month, reconciling bank statements on the same day or week, and monitoring charges are all part of keeping a healthy eye on your financial situation.

Nonprofit Financial Management Starts with Vigilance

The best tool for nonprofit financial management is vigilance. Monitoring your organization’s finances signals to all that not only do you care about it, but that you are going to take steps to intervene if something goes wrong. Hopefully, nothing ever will. But with the right internal controls, you can make sure of it.

Nonprofit Financial Management and Consulting from Beck & Company

Beck & Company can help you create your own set of internal controls or with any nonprofit financial needs. We are a Washington DC area of nonprofit advisors and 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.

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.

Nonprofit Financial Management Challenges: New Boss, New Day, New Communications Needed

Change can be unnerving, and nothing can be as unnerving as finding out you have a new boss coming into work with you. But part of nonprofit financial management is forming teams, alliances, and working partnerships with everyone in your organization, including your boss. Even if you will miss your old supervisor greatly, it’s important to welcome a new one to the team and to set the right tone from day one so that your working relationship will be one of mutual trust, support, and productivity.

Tips for Building a Great Rapport with a New Supervisor

Do you remember your first day in your new role in nonprofit financial management? You were probably quite nervous, wondering if you would fit in with the team and wanting to do a great job for the organization.

The same goes for your new manager. New managers want to be successful but may need help learning the organization’s politics, goals, and structure

You can be a great help to the success of your new manager. These tips will help you get started.

Support success: Make it your primary goal to support your new manager’s success. What do they need to succeed in their role?
Communicate openly: Communicate openly and honestly with your new supervisor. While you may not want to harp on the negative, certainly let the new boss know of the challenges and problems in the department that they may face. Clear and honest communications build trust and rapport quickly.
Ask for what you need: Ask for what you need to complete a project or get a job done. Don’t be afraid to make reasonable requests of your new supervisor. Your success reflects on their success, and they want to help you do a great job for the organization.
Offer help (but don’t be offended when it’s turned down): Your new supervisor is juggling the stress of a new job, a new organization, and challenges you might not be aware of, so be kind and offer help when you can. But don’t be offended or upset if it is turned down. Be available but not overpowering as you offer to help.
Be a team: Work with your new supervisor, not against him. Be a team. Even if you were turned down for the promotion, your job should be a supporting player, not fighting for the lead role.

Avoid These Common Mistakes

In addition to what you can do to create and build a supportive, mutually beneficial relationship with your new supervisor, there are also things you should avoid.

For example, common communications mistakes made with new supervisors include:

Divulging too much personal information right away: In an attempt to build rapport, some people tell all their secrets. Some personal information may be fine but too many details can be intrusive.
Expecting the new person to manage like the old: Every person is unique. Some managers delegate while others have a more hands-on management style. Never assume that a new supervisor is identical to an old one. Each will have their own way of working, communicating, and managing.
Assuming your new boss has the same knowledge: It’s also important not to assume that your new boss has the same level of knowledge and information as your former boss. They may lack invaluable institutional knowledge that you have.
Scoffing at new ideas: The reason managers are brought into an organization is to bring new ideas with them. Be open and receptive to new concepts and ideas. Demonstrate your willingness to try them!

Change is difficult, and getting a new supervisor, especially when you had a great working relationship with the former one, can be especially difficult. But if you use these tips, you can start off on the right tone and keep the relationship humming along for many years to come.

Nonprofit Accounting with Beck & Company

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

The Urgency of Preventing Cyberattacks Hits Nonprofit Financial Management

The urgency of preventing cyberattacks is being felt at nonprofit financial management meetings nationwide. Since the latest string of viruses including Wanna Cry, which hit government agencies and nonprofits in the U.K. and to a lesser extent in the United States, causing millions of dollars in damages and lost work, nonprofits are taking another look at their cybersecurity preparedness.

It’s not a question anymore of “if” an attack will happen, but “when” – and to some extent, what kind. If you think we’re being alarmist, consider this. In 2014, approximately 40% of corporate directors discussed cyberattacks at their board meetings. Today, that figure jumped to 90%. Closing loopholes that keep your organization open to cyber attacks and taking measures now to prevent them is an important step in nonprofit financial management. And that discussion starts at the top of the organization with executive stakeholders, nonprofit boards, and others leading the nonprofit financial management teams.

Risks of Cyberattack: What Is at Stake?

If you haven’t dealt with a bad virus or attack you may not be aware of how much disruption it can cause throughout the organization. Some examples of the ramifications of a cyberattack include:

Extortion: Extortion is an ugly word but it accurately describes the FBI or Wanna Cry viruses that infected nonprofit organizations, for-profit organizations and to some extent with the FBI virus personal computers as well. These viruses encrypt data on infected machines so that users cannot move beyond the equivalent of a digital ransom note. Either pay up or face locked and useless data. While some systems can be cleaned after infection, computers may never fully recover.
Expenses: The expenses of a cyberattack can be astronomical. Consider how many consultants, freelancers, and temps you may need to hire to clean out an infected network. Data backups may need to be restored and everything cleaned, checked, and checked again. The average cost of recover from a cyberattack is $4 million – regardless of organization size.
Lost productivity: While the network and hardware are being restored, valuable time is wasted. Cyberattacks account for a great deal of lost productivity annually and nonprofit organizations are not immune.
Loss of intellectual property: Thefts can take up to 100 days or more to be noticed. If hackers make off with confidential data, plans, and financial information, your organization could face significant damages from loss of intellectual property.
Public relations nightmare: News of a cyberattack can be a public relations nightmare. You will have to conduct damage control PR and counteracts negative publicity. This is the time that could be better spent promoting your organization’s mission and more.
Lost trust: Unfortunately, when news of a cyberattack breaks, there is a sense of lost trust in the affected organization even if they did everything right and nothing wrong. People may be afraid to visit your website, make donations online, or share information with you if it is stolen.

Nonprofit financial management includes making your Board of Directors aware of the potential risks of a cyberattack. Only after understanding such risks can they review the information presented to them to prevent such problems and make sound decisions.

Steps to Take

Nonprofit financial management leaders should take every precaution when dealing with potential cyberattacks. By learning all you can about the dangers and the steps to take to prevent them, you can then share this information with your Board and other leaders to take preventative measures.

Steps you can take to prepare for discussions around potential cyberattacks include:

Taking an inventory of all software and systems, along with associated risks factors for each system such as access levels, password protection, etc.
Formulate a response plan now so that team members know what to do in the event of a cyberattack.
Purchase cyberattack While not preventing an attack per se, it can cover damages and losses so that your organization doesn’t suffer serious financial hardships from a cyberattack.
Hire a good consultant in the event you need extra help with an attack. A nonprofit financial management firm such as Beck & Company can be your backup plan to help you cope with potential attacks, conduct risk inventories, and create response plans.

Just as you cannot prevent every virus (like the common cold) from infecting you personally, you may not be able to prevent every instance of a computer virus from affecting your nonprofit organization. But just as you can wash your hands, get plenty of rest and avoid contagion from people already sick with the cold or the flu, you can also take important steps to prevent infection of your computers from occurring. Make cyberattack awareness, prevention, and recovery a priority this year.

Nonprofit Financial Management and Consulting from Beck & Company

If you need help planning, preventing, and formulating a response to cyberattacks, Beck & Company can help. We are Washington DC area nonprofit advisors and 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.

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.