When there are only a few staff in an organization, it is very difficult to obtain the appropriate level of segregating duties.

In January 2010, Carl Ho, CPA posted an article on Blue Avocado (http://www.blueavocado.org) titled “Five Internal Controls for the Very Small Nonprofit” that gives some insight as to what the most important controls are for small organizations. The most important controls relate to checks and balances. Establishing a “tone at the top” so that policies are in place and all employees including management follow them. Other importants considerations include clearly defined responsibilities, locking up checks, using protected passwords on computers, having two people count cash together, reconciling bank statements timely, review of reconciliations or bank statements by someone other than the bookkeeper or preparer, requiring two signatures on checks, and not allowing the bookkeeper to be a check signer. Even with these procedures in place, fraud can occur if there is collusion or if management circumvents the policies or controls. For the full article visit, http://www.blueavocado.org/content/five-internal-controls-very-small-nonprofit.

Governance plays a significant part in the control environment. Listed below are a few links from the IRS website regarding governance practices for non-profit organizations.

Governance and Tax-Exempt Organizations – Examination Materials

http://www.irs.gov/charities/article/0,,id=216068,00.html

http://www.irs.gov/pub/irs-tege/governance_check_sheet.pdf

Governance of Charitable Organizations and Related Topics

http://www.irs.gov/charities/article/0,,id=178221,00.html

Has your nonprofit organization ever considered lobbying activities? An organization exempt from taxation under section 501(c)(3) will lose its tax-exempt status and its qualification to receive deductible charitable contributions if a substantial part of its activities are carried on to influence legislation.

However, there are circumstances where lobbying is allowed for certain eligible 501(c)(3)s. Read the rest of this entry »

Entities that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes may be eligible for federal income tax exemption. What does exempt from federal income tax mean? The organization does not pay federal income tax on the net earnings of the operation. An organization that has applied and received their exemption under Code 501(c)(3) may be receive charitable contributions that are tax deductible by the donor.

So how does an organization receive exempt status? Read the rest of this entry »

Nonprofit organizations must meet certain requirements to maintain its tax-exempt status. To protect your tax-exempt status, make sure your organization complies with the following rules:

• The articles of incorporation must limit the corporation’s purposes to one or more of the exempt purposes set forth in IRC section 501(c)(3). If your exempt purpose has changed since inception of the corporation, your tax-exempt status could be at risk. In addition, the corporation must pay taxes on income from activities unrelated to its exempt purpose and cannot make substantial profits from these unrelated activities.

• Upon dissolution, the corporation’s assets must be distributed to another charitable corporation.

• The corporation cannot contribute to or participate in political campaigns directly or indirectly. The corporation also cannot endorse or oppose (either verbally or in writing) a particular candidate.

• The corporation can engage in only limited lobbying activities. Excessive lobbying is prohibited.

• The corporation cannot be organized to financially benefit its members, officers, or directors. A dividend may not be paid to, and no part of the income of the corporation may be distributed to the corporation’s members, directors, or officers. However, reasonable salaries and expense reimbursements are permitted.

For additional information, go to http://www.irs.gov or contact us.