Rylander, Clay and Opitz, LLP, a leader in not-for-profit tax, assurance, and advisory services is hosting an informative “Lunch ‘n Learn” seminar for non-profit accounting personnel. The topic of the panel discussion is “Accounting for Special Events” and will focus on various accounting issues related to raffles, auctions, sponsorships, internal controls surrounding cash collected at events, sales tax implications and other IRS reporting requirements related to special events. The seminar will be held on October 4th with registration beginning at 11:45 am. The program will start at noon and conclude at 1pm. It will be held at Easter Seals North Texas located at 1424 Hemphill St., Fort Worth. Please RSVP by September 29th by logging on to www.rcosolutions.com. The cost is $15 per person and includes lunch. For more information, please call 817-332-2301.

Effective July 1, 2011, the IRS has changed the optional standard mileage rate to 55.5 cents per mile. According to the IRS, this optional rate can be used to compute the deductible transportation costs paid or incurred for business purposes. Many non-profit organizations use this rate as a guide to reimburse employees who use their personal vehicle to conduct the organization’s business. Although 55.5 cents doesn’t sound like much, it is something that can add up quickly. Unfortunately, in tougher economic times, this could be a way that staff increase their paychecks if they think no one is watching.

Whether you use the IRS rate as your reimbursable amount or some other rate, here are some suggestions to manage these reimbursements:

1. Review the policies at least annually.
2. Ask staff how they interpret these policies, and address any ambiguities.
3. Usually organizations only reimburse employees for mileage in excess of the miles that would be driven to the place of employment. For example, a case worker drives directly to a client’s house, which is 10 miles from the employee’s house. Your office is 6 miles from the employee’s house. Typically, you would only reimburse the employee for 4 miles of travel.
4. As part of the hiring process, inform new staff of the organization’s policies and give examples of what is allowed and what is not.
5. Periodically review these policies at staff meetings.
6. Employees should keep a written log of the mileage, which should include at a minimum for each trip:  Date of travel, destination, purpose of trip, and miles driven.  If you receive federal or state grants, the granting agency may require you to keep more detailed records, such as odometer readings, address of the destination, or attach maps showing mileage.
7. Prior to reimbursement, the mileage logs should be approved by the employees’ supervisors who are knowledgeable of their activities. The logs should also be periodically reviewed for inconsistencies, errors, redundant trips, and abuse.

     Does your organization receive federal grants? If so, did you know that you are required to establish and maintain internal controls to ensure that you are following the provisions of the grant? Most of the time organizations are concerned with having proper internal controls over their routine accounting related functions, but having internal controls over compliance requirements of federal grants can be just as important.

     What are you required to do? According to OMB Circular A-133 (which governs the administration of federal awards), organizations are required to:
“Maintain internal control over Federal programs that provides reasonable assurance that the auditee is managing Federal awards in compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a material effect on each of its Federal programs.”
       To ensure that you have the proper controls in place, it is a good idea to perform an assessment of each of the compliance requirements that affect your federal grants. Here are a few questions you can ask yourself and others involved with the administration of the grant:
     “How do we know that case managers who are carrying out the program are fully informed of the provisions of the grant?”
     “What process do we have that would prevent an unallowable cost from being charged to the grant?
     “How do we know that participants in the program are eligible to receive services? Does anyone verify eligibility after the initial assessment?”
     “How do we make certain that we have paid for allowable costs before we request reimbursement from the grantor?”
     “How do we communicate changes involving the grant to those personnel who need to know?”
     “Do we routinely check the “Excluded Parties Listing System” to ensure that we are not doing business with any vendors that have been suspended or debarred?”
     “What process do we have in place to make sure that all reports were filed accurately and timely?”

     After doing this assessment, you may find that your internal controls need to be strengthened. If you need assistance with this, please give us a call.

To some, this question is equivalent to “Why would I stick a red-hot poker in my eye?” Going through an audit doesn’t have to be the worst experience in your life, but that isn’t the topic of today’s posting. I frequently get the question “Why do non-profit organizations need an audit?” There are many reasons why your financial statements should be subjected to the scrutiny of independent certified public accountants. Here are the most common ones:

• The by-laws of the organization require an annual audit of the financial statements.
• Affiliated fund raising organizations, such as United Way, may require recipient organizations to have an audit as a condition of receiving allocations.
• Lending institutions may require audited financial statements before making a loan and in each year that the loan has an outstanding balance.
• Potential donors, especially foundations, may ask for a copy of the most recent audited financial statements. Although it may not be a prerequisite to receiving funding from them, it is a tool that the foundation can use in its decision-making.
• The federal or state agency from which you are seeking funding requires an audit.
• Management and/or the Board of Directors believe that it is a “best practice” to have an annual audit.

This last reason is the one that I like the most because there is no outside interest that is forcing an audit. I have a friend who recently became a controller at a local church that had never been audited. He requested that his Board of Trustees hire a CPA firm to conduct an audit because he wanted to start his tenure with a clean slate and to have full accountability. What better way to demonstrate to your Board that you are above board, capable, and fiscally responsible than to open your books and records to professionals trained in auditing that will provide an opinion on whether the financial statements are free of material misstatements.

If you’ve never had an annual audit (or it has been a long time since your last audit), some may ask when you should start. Following are a few ideas:

• A year or two before launching a capital campaign
• If there is an expectation that you may be involved in a merger or acquisition
• Before starting a new program that may require some creative funding
• Construction of new facilities that may require interim or permanent bank financing

If you are wondering if the organization you are involved in should have an audit of your financial statements, give us a call.

Does your organization struggle in determining “what” policies would mitigate loss when cash collections are decentralized? This post is a continuation of my previous post on internal controls at remote locations. If you just can’t get enough piece of mind (and who doesn’t love that), you might find these other “processes” useful.  And now, the continued list of suggestions:

• Determine staffing during collection times. For receipts over a certain dollar amount, always have at least two employees present (counting/depositing) to help lower this heightened risk factor.
• If receipts are provided to the donor or client: consider using a triplicate form. One copy to the donor/client, one that is included in the deposit report sent to the accounting office , and one to be retained in numerical sequence for accountability over the forms used.
• Maintain a cash receipts log when using numbered receipt forms. The log should include receipt number, date received, name of payor, amount of payment, form of receipt (cash, check, money order, etc.), check number and date (if applicable), and purpose of payment (if known or applicable).
• Posting signs at collection areas informing payors that they should get a receipt showing their transaction.
• When transporting cash receipts from the remote location back to the central office or bank, utilize a courier service if possible or appropriate. Minimally, keep receipts in a locked security bag with a trustworthy employee not involved in the recording or reconciliation process transporting the bag. If there is a large amount of receipts being transported, have two employees be involved for additional safety. Read the rest of this entry »

According to Nanette Downing, the IRS has announced that “another major initiative during the remainder of fiscal year 2010 will be examining charitable organizations’ sources and uses of funds.” On the source side, the IRS is interested in high levels of fundraising income and high levels of unrelated business income. For the use or expendiures side, focus will continue on private inurement and private benefit issues. 

Is your organization vulnerable for this scrutiny? Remember the key terms for establishing tax-exemption…organized and operated. Form 990 is the tool for reporting information annually to the IRS, substantiating the organization’s exempt purpose. Sources and uses…this will be interesting as the IRS moves forward in looking for additional revenue streams.

Is your organization vulnerable to this type of inquiry?  Call me. We can perform assessments to determine the organization’s risk.

For more information on this initiative, see this blog post by Land Trust Alliance.

If your organization utilizes remote locations collecting cash receipts, such as community centers or branches, you probably already know that this is an easy area for things to go wrong. You have likely considered designing and implementing, or have already implemented controls over your cash receipt procedures. These controls can include things such as developing written policies and procedures, implementing adequate separation of duties, ensuring timely deposits, and establishing reconciliation procedures that include accountability and management review. 

One of the most important controls you can implement Read the rest of this entry »

A recent question came from a relatively large church that is considering raising funds to cover legal support related to property. Are these types of contributions allowable and deductible?

Allowable and deductible can mean 2 different things?  First to the donee and then to the donor.

As long as the qualified charitable entity maintains control or “use of the funds” and uses these to further their exempt purpose, the contributions are allowable for the organization and deductible by the donor.

Donors may designate a program, ministry, event, project, endowment etc., of the qualified charitable entity as long as the church controls the funding. Be careful in not designating a specific individual as the recipient, this often disallows the deduction for the donor and the church is then required to report the funds as an “agency” transaction.

So the church can solicit contributions for general, administrative and fundraising functions? Yes, as long as the church retains control or “use of the funds” and the church is operating within its exempt purpose, as designated by its IRS code.

Questions? Give me a call or post a comment.

Think again. Every two years the Association of Certified Fraud examiners publishes its Report to the Nations on Occupational Fraud and Abuse. It’s amazing to me to see how consistent the results are from period to period and across industries. The report also reminds me how dangerous and costly blind trust can be to organizations. Many of our nonprofit clients tell us that fraud is just not a significant risk for their organization because their employees are commited the cause.  And who could be more trustworthy than someone willing to serve an important cause?

If that’s really true, then why are are nonprofit organizations involved in almost 10 percent of all fraud cases reported in the study?

We often let our desire to trust other people cloud our judgment. Especially people we hired personally and have spent years building relationships with Monday through Friday. Deep down, we all believe we’re exceptional judges of character.

And that’s when it happens. 

If the most important fraud control in place in your organization is the ability to judge character in the people you hire, you may already be a victim.

If you’re concerned that you may be the victim of a fraud, or want more information on preventing fraud, we can help.

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. Major benefits include tax cuts, business credits and subsidies for state and local construction bonds. Two specific areas affect tax-exempt organizations:

1. Exemption  of payroll taxes for qualified employees. For qualified employees hired between February 3, 2010 and January 1, 2011, the employer’s share of Social Security taxes (6.2%) on salaries/wages earned after March 18 will be “credited” as reported under the quarterly payroll tax filings. Beginning with the second quarter (March – June) filing, Form 941 has been revised to include the exemption. In order to be considered a “qualified employee” the individual must have been unemployed during 60 days prior to starting work or have worked fewer than 40 hours during the 60 day period; didn’t replace another employee unless separation was voluntary or for cause; and no relationship to employer.
2. $1,000 annual business tax credit for each new employee retained for a least one year. This credit is 6.2% of the employee’s wages during the 52 consecutive week period, up to $1,000.

So what are the reporting requirements?

Beginning with the 2nd quarter reporting period, complete the additional items on Form 941, beginning with line 5a. The exemption can be applied to a future reporting period, are an overpayment may be requested.

For each “qualified employee”, retain a completed copy of W-11, “Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit”.

How does a tax-exempt organization claim the business tax credit? The IRS has not finalized how T-E organization will report the tax credits, but speculation has been Form 990-T. Stay posted for future clarification.