Help for bookkeepers, accountants and finance managers of nonprofit organizations
September 2nd, 2009 Nancy
USCIS (United States Citizenship and Immigration Service) has issued a revised I-9 form, effective August 7, 2009. (Look in the lower right-hand corner for the “Rev. Date” if you’re not sure which version of this federal form you’re using.) You can retrieve the new I-9 from www.uscis.gov/files/form/i-9.pdf. Don’t worry if you didn’t know about this until now – documenting new employees’ right to work on the old form is okay, too, for a while at least. But why wait? Start using the new one now. It has some revised language that I think is helpful.
For those of you unfamiliar with the I-9, it functions somewhat like the W-4: new employees complete the form and you retain it on file. USCIS provides the following instruction:
“Do not file Form I-9 with U.S. Immigrations and Customs Enforcement (ICE) or USCIS. Form I-9 must be kept by the employer either for three years after the date of hire or for one year after employment is terminated, whichever is later. The form must be available for inspection by authorized U.S. Government officials (e.g., Department of Homeland Security, Department of Labor, Office of Special Counsel).”
Unlike the W-4 where you don’t need to verify anything, you are required to examine the documents needed to verify an applicant’s right to work in the US. The five-page packet includes instructions on pages 1-3, the form itself on page 4, and a list of documents on page 5 that applicants can show you to establish that they have the right to work here.
No matter how convenient it may seem if an applicant doesn’t have the right combination of papers, you can’t shuffle these documents – taking two from column B instead of one from B and one from C, for example - so follow the instructions carefully. Note that you don’t need to photocopy the documents. I know many people do, but it seems to me that copying opens up opportunities for fraud that are better left closed. Any thoughts?
To read about changes affecting federal contracts and verification of employment eligibility, go to www.NFPAccountingHelp.org and click on Free Resources, then choose newsletter. It’ll be posted through September 10 or so.
Posted in Employee benefits and payroll | No Comments »
August 27th, 2009 Nancy
When an employee leaves, how can you be sure they’ve repaid all the money the organization has laid out on their behalf for various employee benefits? I ask this because I’ve seen several instances lately where, because of timing differences in invoicing for benefits and payroll, staff members terminated without reimbursing everything they should have through their withholding. How did this oversight come about? The responsible accountant did not adequately prepare payroll withholding and balance sheet account reconciliations.
I’ll explain. Several types of benefit programs that reduce taxable income involve the employer’s paying in advance on employees’ behalf and then recouping its money. Examples are transportation plans (employer buys bus passes at a reduced rate for a year and collects a portion of that each payroll) and flexible spending plans for dependent care and medical expenses not covered by insurance (employee elects an annual amount, the employer withholds a ratable portion of that each payroll and remits it to the plan administrator). Withholding too little can also arise when an employee is responsible for part of the health insurance premiums for himself or his dependents and reimburses the employer through payroll deductions.
To ensure that the organization is paid back completely, watch timing carefully. For example, you may pay the bill for September health insurance in August, though you won’t withhold the employees’ portion from their checks until September. If folks are paid twice a month, you may withhold half of the total each time, which complicates matters even more. The same is true for bus passes where an agreement for a year’s worth of monthly passes is purchased. In both cases, keep close track of which month’s benefits you are withholding for. If someone terminates in September, remember that they’ll receive a full month’s worth of benefits, even if they terminate on the 1st of the month, so be sure to withhold the rest of what they owe from their final check!
I recommend using balance sheet accounts to post amounts owed to the organization and reimbursed by employees. When you book each month’s health insurance bill, post to expense only the portion that the employer is responsible for and book to a receivable account (a liability account would work, too) the part that you will withhold from employees’ pay. After you’ve recorded payroll for the month, the balance in the receivable account should be $0 or, if you’ve posted the next month’s insurance bill, it should be equal to the employee portion of that bill. If the balance is neither of those amounts, you will see right away that there’s been a mistake and investigate it.
For flexible spending account activity, use a liability account. Wait to post a new invoice from your independent plan administrator until you’ve actually withheld money from employees. Then compare the invoice to your withholding and make corrections as needed before you remit anything.
You may also want to contract with your payroll service provider to be the plan administrator – I’ve had good experiences doing it this way. Then there’s no invoicing to confuse the timing, and what had been withheld from employees is available immediately for reimbursement of claims they may have filed.
Posted in Employee benefits and payroll | No Comments »
July 30th, 2009 Nancy
Recently, a client had an unfortunate experience that has reminded me of a theft that occurred years ago and took me completely by surprise. I had worked all morning at a client’s, side by side with the bookkeeper. The client’s facilities were closed to the public that day, and anyway, the administrative offices were isolated on one side of the building where access by the public was not allowed. Eager to complete our project, neither one of us took an actual lunch hour – we each went into the lunch room for a short break. There was a span of perhaps two minutes when neither of us was in her office.
After I left for the day, I picked up my daughter from daycare and we went to get ice cream. That was when I noticed that I had no cash – it had all been taken. And my debit card was missing, too. Whoever had done it was very adept – they had left no clue that anyone had disturbed my purse.
Under the circumstances, I didn’t see how anyone but the bookkeeper could be the culprit: she knew where my purse was stashed and she had been in her office alone. I was due to return to that client’s the following Monday, and I spent the weekend wondering how I was going to bring this up, feeling very disappointed in her.
Monday morning came, and when I arrived at the client’s, I told the bookkeeper without hesitation what I had discovered. Much to my surprise, she told me that another purse had been stolen that same afternoon, this time from a colleague whose office was next to hers.
The security camera by the front door had been on all that day, and the film was viewed. Yes, this was back when there was actually film in security cameras! Unfortunately, the perpetrator could not be identified, but we did learn a lot about how he operated.
An employee of the organization had been working outside on a project and had made frequent trips into and out of the building, unlocking and locking the front sliding glass door each time. The camera showed the figure of the thief pacing up and down the street across from the building, his head down far enough that his face could not be seen. After a few trips back and forth, he saw his opportunity and followed the employee into the building, his head still down. Less than two minutes later, his back appeared on the film: he had already done his work and was leaving the building.
Charges were made to my debit card, but only on the day of the theft. I was able to get the bank to cover them, since the grocery stores where the charges were made had not done a good job of checking ID.
Remember the fraud triangle: motivation, rationalization and opportunity? Remember, too, that opportunity is what we have the most control over when we make efforts to prevent theft? For me, the point of this story is that practiced thieves don’t need much opportunity, and you never know when one might cross your path, looking just like your next client - or the even girl next door.
Posted in Fraud in nonprofits | No Comments »
June 2nd, 2009 Nancy
If you’ve worked at all with the 2008 Form 990, or if you’ve talked with any nonprofit accountant about it, you know that it’s been greatly rearranged, redesigned, and made much longer. While the balance sheet and statement of activities haven’t changed all that much, there are new sections full of questions that seem to be causing a great deal of worry and flurry, and this seems to be true most of all of Part VI: Governance, Management and Disclosure. If management hasn’t gotten around to passing and instituting a whistle-blower protection policy, a conflict of interest policy, or a document retention and destruction policy, they feel concern at answering “no” to those questions.
I offer you some soothing words about this section. First, remember that your organization will only need to file the full-length Form 990 for 2008 if its gross receipts hit $1,000,000 in the fiscal year that began sometime in that year and its total assets exceed $2.5 million on the last day of the year. The alternate form for smaller organizations, the 990 EZ, doesn’t include the section on Governance, Management and Disclosure, which is not to say that it won’t in the future. (Remember, though, that the filing threshold drops next year to $500,000 and again the year after, to $200,000 where it stays. The total asset threshold drops, too.)
Secondly, in its 2009 Work Plan, IRS explains that it is conducting five compliance initiatives, and Governance is one of them. Form 990 Part VI makes it very clear that the policies being asked about are not required by the Internal Revenue Code – it says so in parentheses right after the title. So why is IRS asking about them?
In the description of their “compliance initiative”, they say they “will begin identifying Form 990 governance questions that could be used in conjunction with other Form 990 information in possible compliance initiatives, such as those involving executive compensation, transactions with interested persons, solicitations of noncash contributions, or diversion or misuse of exempt assets.” I understand that to mean they are gathering information about the best questions they could ask to uncover abuse in these arenas. They have made it clear that there will be no negative consequences to organizations that answer “no” to these questions when it seems that “yes” should be the only acceptable answer. At least for the time being.
That said, the advice I heard from more than one presenter at the Not-for-Profit Conference I attended earlier this month is that each and every organization should take these issues seriously, putting the policies and practices in place in the coming year. For some organizations, this will not be easy due to lack of interest on the part of management or to understaffing or to board meetings spaced months apart, so I encourage you to read Part VI Sections A & B and make a work plan now to address each issue.
Two issues that will require more than simply passing a policy are conflict of interest and the process for setting executive compensation. Line 12a asks about a written conflict of interest policy and 12b asks “Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?” Further, 12c asks “Does the organization regularly and consistently monitor and enforce compliance with the policy? If yes, describe in Schedule O how this is done.” Questions about the process for setting executive compensation are in 15 – 15b and they are equally specific.
Start now to get these policies and procedures in place, if you haven’t already. The effort of getting any needed changes underway will bear fruit soon and leave you feeling good after filing your next 990 rather than wishing you could hide under your desk.
Posted in Form 990-Nonprofit Tax Return | No Comments »
May 19th, 2009 Nancy
Anna Mueller was a volunteer bookkeeper for the Booster Club at Benson High School in Portland, Oregon. As reported by the Portland Tribune newspaper, she has now pled guilty to embezzling more than $10,000 from the club, which supports athletics at this technical high school. How was she able to take that much money? She had total control over both the records and the money, and she had access to the bank account.
The Booster Club’s predicament is a common one. It’s an all-volunteer organization and last year was its first year. At the time he started the Club, the coach was more than willing to accept help from an experienced parent who had skills he knew were important and didn’t possess. Through the school district, he ran a background check on Mueller, but it failed to uncover her prior conviction in another state for a similar crime because the district’s procedure only checks for crimes involving children.
He left the door of opportunity wide open by not setting up relationships and procedures so that Mueller would be dependent on others to complete her work, others who could participate in the processes so that duties were at least somewhat segregated, others who could review the records she kept.
Benson High’s athletic director, Bruce Alton, now says he thinks that the amount embezzled was closer to $17,000, but because “most of it was undocumented cash, it couldn’t be accounted for”. Booster clubs sell things: refreshments, sweatshirts, other “school spirit” items. It seems that Mueller must have been the enthusiastic volunteer, waving away help from others, saying she was happy to take care of everything so others could have a good time. And nobody documented a cash count or looked to make sure the amounts they had documented actually made it into the bank.
The Tribune quotes Alton as saying he will make sure he follows any protocols for any volunteers, district employees, everybody. “I tried to use her sincerity to my advantage as well. I own that.” Other groups, he says, should take his experience to heart when accepting the services of eager volunteers.
Posted in Fraud in nonprofits, nonprofit accounting | No Comments »
April 21st, 2009 Nancy
Balance Sheets With Classes in QuickBooks
My client - let’s call him Bob - is a mild-mannered guy, so when I heard him muttering swear words under his breath the other day, I had to ask what was wrong. “QuickBooks!” he exclaimed. “I wish it would export to Excel without wiping out everything I had set up in my financials last month!”
A few days later, K2 Enterprises sent their April e-newsletter and a highlighted article about QuickBooks caught my eye. (K2 is a technology education firm based in Louisiana that puts on high-quality training for CPAs and others. I’ve taken two or three of their classes over the years and found them excellent.) Intuit has put out a report writer for QuickBooks. It’s called ISW, or Intuit Statement Writer, and it functions by pulling data out of QuickBooks into Excel. Before you get too excited, you should know that ISW is for QuickBooks Premier only, and it doesn’t work with versions prior to 2009. Still, if you spend hours every month formatting and proofing financial statements, upgrading QuickBooks and purchasing ISW at $149.95 may be worth it to you.
According to K2, ISW makes producing a balance sheet with classes in columns– similar to income statements by class – very easy. If you’d like to see a demonstration of how it works, you can go to http://www.youtube.com/watch?v=WOzPORNs-NA and view K2’s video. Why would you want a balance sheet by class? The most common instance in the nonprofit world is probably to separate restricted assets from unrestricted ones. A columnar balance sheet by class could also be useful for organizations with fixed assets in different locations, where locations were set up as classes, or for reporting operations and capital projects separately. You can probably think of an application for your organization.
When you report balance sheets this way, remember that in each class, assets should still be equal to liabilities plus net assets. Achieving that in QuickBooks will almost assuredly take you some extra time each month. As you do your daily work, you’ll need to remember to post accounts payable, accounts receivable, and all journal entries affecting balance sheet accounts to classes – something QuickBooks doesn’t normally prompt you to do. Then, as part of your month-end closing, run a balance sheet by class and verify that each class is in balance. Don’t expect that it will be, and allow enough time before any deadlines to correct errors.
Once you’ve gotten each class to balance, you’ll need to run an unclassified balance sheet and compare it to the total column on your classified one to see that they agree. This will ensure that the classes you’ve set up truly capture all of the balances in the GL.
I haven’t used ISW myself, but since it causes Excel to extract data from QuickBooks, the possibilities for creating templates for financial statements are tantalizing. I’d love to hear about your experience with it. Post a comment!
Posted in Nonprofit Finance, Nonprofit Financial statements, QuickBooks formatting, nonprofit accounting | No Comments »
March 2nd, 2009 Nancy
I’ve had a very busy winter with lots of client work in addition to writing this newsletter and getting my next project ready to announce to you. My desk top – the physical one – is beginning to show signs of incomplete projects, plans not yet realized, and working until interrupted by the next appointment. What does that look like? Clutter, in a word.
The worst clutter I think I’ve ever seen was many years ago during my accounting studies. I served for a couple of years on the finance committee of a local grass-roots organization (Let’s call it GRO). I was quite inexperienced; I didn’t know a journal from a subsidiary ledger. The bookkeeper at this GRO had always kept books by hand, but computers had arrived and it was time to make the switch. He was very nervous about the change, but was more or less told by the executive director and the more experienced members of the finance committee that he needed to do it.
At the time of the conversion, his office was neat but there were stacks of undone work here and there. He was clearly not caught up. I only hope he had some good help with the conversion and got some training in the new software – I don’t really know because I wasn’t involved in the process. What I do know is that about nine months later, IRS suddenly impounded about $10,000 from the GRO’s bank account for nonpayment of payroll taxes and the bookkeeper took a mental health leave of absence. He never returned to his job.
The executive director’s response was to engage a contract bookkeeper to come in and straighten things out. Her first challenge was organizing all the papers in the office, and she tackled the project with energy and skill. It wasn’t long before she found a cardboard box, about the size of a box of copy paper, full of unopened mail. In that box were months worth of IRS notices about the payroll tax problem.
To this day, I believe the bookkeeper was well-meaning: he thought he was doing what he needed to do to manage cash when GRO didn’t have much. But he kept silent about it when he should have alerted the executive director and the finance committee so they could do their jobs and manage the situation. Not only were the consequences tough for the GRO, but the bookkeeper’s reputation suffered, too.
Ever since, I’ve understood clutter as a signal that overwhelm is on the horizon. Sometimes the workload is too great, sometimes clutterers are too optimistic about what they can accomplish, sometimes there’s a simple lack of filing cabinets or storage space, sometimes skills to do the work are lacking, sometimes procrastination is a factor. Whatever the cause, the person at the center is at risk for reduced performance and perhaps worse.
If you work for or supervise someone with a clutter problem, take it seriously enough to find out how long-standing a problem it is and notice whether it gets better or worse over time. Don’t let it go on long if you’re the supervisor. If you’re the one supervised, be extra careful to get what you need to do your job – including an annual review.
And if you’re the clutterer, devote some time to addressing the elements of chaos in your immediate surroundings. Consider using experts: a recently-arrived executive director I know hired a professional organizer to help him get settled in the disorganized office he inherited and she did a great job. What works best for me is setting an intention before I go into my office that I will not read email or do any research or writing; I am going there to create a desk-top that won’t distract me the next time I sit down to work. Looking around me, I see that it’s time.
Posted in Nonprofit Finance, nonprofit accounting | 1 Comment »
January 20th, 2009 Nancy
Recent client engagements have reminded me how easy it is to become overwhelmed with requests and expectations from our colleagues. On any given day, you could find that one comes to you for help with her time sheet, another needs a check by 3:00, the development assistant “reminds” you – for the first time! – that a grant report is due tomorrow and she needs the financial report from you. Your own work plan can get lost amid the distracting requests. It can be challenging to both accomplish it and serve the needs of the organization your department is there to help.
It is certainly key to making progress that procedures be clearly and efficiently designed so that accurate information is gathered timely and you can be as efficient as possible. But just as important is managing your own reactivity.
Today is inauguration day. The news is full of information about Barack Obama, yet there’s one story I recall hearing on the election day evening news that I haven’t heard again. On that night, the NPR reporters said that the reason Obama hadn’t spoken on the news shows as early as people expected him to was that he was having a family dinner with his wife and daughters and he wasn’t answering his pager or his cell phone. Yes, it was the night he would learn whether the time and energy he had spent over the last two years of his life had been enough to achieve a most daring goal. Important as that was, he and Michelle isolated themselves from all speculation, drama, excitement and news so that they could have a quiet homecoming dinner with their children in their own dining room. They decided what mattered most and then protected it from everything until they were ready.
The kernel of this story that relates to the common predicament of nonprofit accountants is that you don’t need to let other people throw you off course. You don’t need to get caught up in their drama. You don’t need to comply immediately with their requests. It helps, certainly, to have an executive director or some members of your management team who can help reduce reactivity in an organization, but even without that, you can set your timelines, priorities, and processes and stick to them.
When someone comes to you with a demand, talk with them until the reasons for urgency are clear, and then make your own determination about the critical timeline. Keep smiling, keep listening, keep asking questions, stay calm, and when you have a clear picture of the task, tell them what you will do and when they can expect the finished product. Then follow through and deliver it. Letting them down will cause a breach of trust it may take a long time to repair. Performing as you said you would places another solid rock in the foundation of a great working relationship.
Posted in Nonprofit Finance, nonprofit accounting | No Comments »
December 16th, 2008 Nancy
The accountant for a nonprofit pays the bills each week. After she cuts the checks, she clips them to their backup, puts them in a folder marked “for signature”, and puts them on the executive director’s desk. If the ED is out for a while, she puts them in a locking drawer in his office. Once he has signed them, the ED hands them back to the accountant; if she’s not in, he puts them back in the locking drawer and emails her that they’re ready to be mailed.
The accountant then places each check and any remittance advice in an envelope, seals it, and hands the stack to the office manager, who runs them through the postage meter and then puts them in a box marked “outgoing stamped mail” that sits on a shelf behind the receptionist’s desk so it’s easy for all staff to toss mail into it. Around noon each day, the mail carrier picks up everything that’s in that box.
Last month, this accountant cut a check to her state taxing authority and was reminded that, according to the normal tax remittance schedule, she should have sent them a check last summer. She didn’t remember cutting such a check, so she reviewed her records, which showed that a payment had indeed been made. She remembered that she had been on vacation at the time and someone else had done her job. When she was telling me this story, a puzzled look crossed her face at this point.
“I don’t know what made me do this,” she said, “but I went to the bank statement envelope and actually found the physical check. I couldn’t believe what I saw there: it wasn’t made out to the taxing authority! It was made out to another company that I’d never heard of!”
Then she called the taxing authority and discovered not only that they hadn’t received the check, but that they had levied thousands of dollars in fines and interest on her agency in the meantime without sending any notice that the taxes were late. Puzzled and shocked, she took a closer look at the check: the font was the same throughout and the signature was clearly that of the executive director…but then she realized that the payee’s name was written in a slighter larger version of the font. She didn’t understand how this could have happened. Fraud had clearly been committed…but how?
The check was probably intercepted someplace along the way – either as it waited in the box behind the receptionist’s desk or after it arrived at the taxing authority’s office – and then it was washed. That is, the original payee’s name was washed away carefully with a solvent and then a new payee was carefully added. The bank didn’t notice when it accepted and paid the check. The organization now has its work cut out. It may never get the fines and interest waived and it will almost certainly not recover the original $20,000 – the face value of the check.
Here’s what you might do to prevent this: Follow closely the route checks take through your office and make sure they are secure until they are handed over to a postal worker. Professional thieves need only a few seconds to take your valuables; deny them the chance.
Visit www.NFPAccountingHelp.org for more resources - some free, some not - related to internal control, accounting and finance for nonprofit accounting folks.
Posted in Fraud in nonprofits, Nonprofit Finance | No Comments »
November 17th, 2008 Nancy
One day a check arrives from a foundation with a letter that says, “We have approved your request for funding and enclosed is a check for $60,000.” Is that money really your organization’s to spend as it wishes? How can you, the accountant, record this transaction correctly?
To record the receipt of the check properly, you’ll need to know quite a lot about the terms of the grant, so locate the application and any budgets that were submitted with it and copy them for your own files, if you haven’t already. Using a “grant summary form” can be very helpful because you can use it to document all the information you’ll need to locate repeatedly over the life of the grant, making the task of looking up this information an easy one to accomplish. You’ll want to note the following: the term of the grant, the date the grant was awarded, how and when the money will be paid to your organization, reporting requirements, including the due dates of the reports, and the number the grantor has assigned to this grant.
Once you have answered these questions for yourself, you’ll need to understand your accounting system, especially how and whether it handles more than one fund (QuickBooks cannot, by the way) as well as how to record the spend-down of the grant.
A new article posted at www.NFPAccountingHelp.org in the free resources section tells you a lot more about how to navigate accounting for restricted cash. It’ll be there for a week or so; after that, email me for a copy.
Nancy@NFPAccountingHelp.org
Posted in nonprofit accounting | No Comments »