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

Purpose of Schedule D
Schedule D is designed to provide additional information regarding information presented in the financial statements of Form 990.

Information You Will Need to Prepare Schedule D
You will need to gather or prepare the following information:

• Details regarding your donor advised funds, (Part I).
• Details regarding your conservation easements, (Part II).
• Details regarding your collections of art, historical treasures, and similar assets, (Part III).
• Details regarding your trust, escrow, and custodial arrangements, (Part IV).
• Details regarding your endowment funds, (Part V).
• Details regarding your assets, investments, and liabilities, (Part VI, VII, VIII, IX, and X).
• Your audited financial statements, (Part XI, XII, and XIII).
• View the IRS Website for additional instructions for preparation of Schedule D.

How to Prepare Schedule D

Part I, Organizations Maintaining Donor Advised Funds or Other Similar Funds or Accounts

A donor advised funds allow donors to maintain advisory privileges regarding the distribution or investment of their donated funds. Generally a donor advised fund is a fund or account:

1. That is separately identified by reference to contributions of the donor;
2. That is owned and controlled by your organization; and
3. For which the donor or donor advisor has or reasonably expects to have advisory privileges in the distribution or investment of amounts held in the donor advised funds of accounts because of the donor’s status as a donor.

Read the rest of this entry »

The IRS recognized the need for transition relief related to information included in Form 5500 by some 403(b) plans. It was noted that some of the filings would be rejected under ERISA because the filing would be incomplete due to the administrator’s inability to identify all participant contracts and accounts that should be included in plan assets. The filing would also be rejected if the audited financial statements contained an adverse, qualified or disclaimed opinion (other than disclaimers related to limited scope audit provisions in 29 C.F.R. 2520.103-8 or 103-12).

Administrators of 403(b) plans do not need to treat annuity contracts and custodial accounts as part of the employer’s plan assets for purposes of ERISA’s annual reporting requirements (further, the employer is not required to count the individual as a participant under the plan for Form 5500 reporting purposes) provided that:

1. The contract/account was issued to a current or former employee before 1/1/09
2. The employer ceased to have any obligation to make contributions and has ceased making contributions to the contract/account before 1/1/09
3. All of the rights and benefits under the contract/account are legally enforceable against the insurer or custodian by the individual owner without any involvement by the employer
4. The individual owner of the contract account is fully vested

The Department will not reject a Form 5500 on the basis of qualified, adverse or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts/accounts were not covered by the audit or included in the plan’s financial statements.

The above information obtained from Field Assistance Bulletin 2009-02.

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 »

Governance, as defined by Webster’s dictionary, comes from the noun word, government. Government, in it’s purest form, is a political function of policy making, distinguished from the administration of policy decisions.

Since the summer of 2004, tax-exempt entities have experienced continued pressure from regulatory and legislative agencies. Consider the following important dates:

1. Spring 2005 – Panel on the Nonprofit Sector issues interim report on charitable reform measures.
2. June 2006 – IRS releases new Form 1023 with new governance questions.
3. August 2006 – Pension Protection Act of 2006 signed into law.
4. February 2007 – IRS publishes a discussion draft of good governance policies
5. Fall 2007 – Commissioner of Exempt Organizations begins giving speeches on governance issues.
6. December 2007 – Redesigned 990 released.
7. December 2008 – Form 990 (core form and related schedules) finalyzed.
8. 2009 – IRS pledges to release a checklist for its agents to use during audits to determine how governance relates to tax compliance.

Why is the IRS interested in governance? The first and prominent answer, according to Steven T. Miller, IRS Comission, Tax Exempt and Government Entities,  a well-governed organization is more likely to be compliant with the tax law, while poor governance can easily lead to trouble. Good governance also allows organizations to self-identify and self-resolve problems. Governance practices influence whether an organization is operated to further exempt purposes, and whether the organization serves public, rather than private, interests.  Good or bad governance dictates whether the organization’s executives are compensated fairly or excessively. It influences whether the organization makes informed and fair decisions regarding its investments or its fundraising practices, or whether it allows others to take unfair advantage.

According to Miller, Read the rest of this entry »

Special events are an effective way for a non-profit to both raise money and also raise awareness of the organization and its mission in the community. Special events that are well planned and consistent year to year are often very successful. An important aspect, however, is the tax deductibility of purchases or contributions made by the attendees. Often the organization and the attendees incorrectly assume that all purchases of tickets, tables, registrations, auction items, etc., are 100% tax deductible. 

The IRS clearly states that, “If a donor received something of value in return for the contribution, a common occurrence with fund-raising efforts, part or all of the contribution may not be deductible.” 

So what is deductible? The amount that is deductible is actually the amount given over and above the fair market value of the event or purchase. This is where the organization should step in and give some assistance to the attendees.  Read the rest of this entry »

The redesigned Form 990 asks a number of new questions about policies and procedures. In Section C of Part VI Governance, Management and Disclosure, the IRS asks each exempt organization if Forms 1023/1024 and 990, and 990-T are available for public inspection.

How does an organization make this information available to the public? Does your organization post these documents on:
1. its own website
2. another’s website or
3. is it available upon request.

This requirement is not at the discretion of the board or organization, but it is technically the law, under Section 6104.

Has your organization complied?

On Aug. 19, 2008, the Internal Revenue Service released the revised instructions that tax-exempt organizations will need to fill out the redesigned Form 990. This redesigned form is effective for the 2008 tax year, filed in 2009.

According to IRS Commissioner Doug Shulman, “These instructions are the final step in a tremendous effort to bring the Form 990 up to date and to reflect the diversity and complexity of the tax-exempt community. The revised form will give the IRS and the public a much better view of how exempt organizations operate. The improved transparency provided by these changes will also benefit the tax-exempt community.”

To allow organizations time to adjust to the new forms, the IRS is phasing in the filing requirements during a three-year transition period, depending on the org’s financial activity. Click here to review the filing requirements during the transition period.

This redesigned form has a core form with eleven parts, and depending on certain activity, an additional 16 schedules. The IRS believes the new filing requirements:
• provides enhanced transparency,
• promotes tax compliance and
• minimizes the burden on the filer.

For more information on the core form and schedules, go to www.irs.gov