October 27th, 2008 Nancy
The new clients I’ve been working with have shown me that there’s still wide misunderstanding about the new auditing standards that went into effect more than a year ago. Statement on Auditing Standards No. 112 is titled, “Communicating Internal Control Related Matters Indentified in an Audit”, but the guidance it provides to auditors isn’t limited to “communicating”. It describes standards, responsibilities and procedures they must follow in order to conduct an audit and pronounce an opinion on financial statements. Auditors have to follow what it says.
The three experts I’ve read on the subject agree: there is no question that a client cannot make their auditor “part of their internal control system”. If that were to happen, the auditor’s independence would be impaired and they wouldn’t be able to express an opinion on the financial statements. So can your auditor prepare your financial statements without becoming part of your internal control system?
What’s your experience with auditors who’ve prepared - or helped prepare - your financial statements? Are you worried that you’re not ready for an audit that’s coming up soon? Read the full article at www.NFPAccountingHelp.org and then post your comments here.
Posted in Nonprofit Financial statements | No Comments »
October 21st, 2008 Nancy
Have you looked at the new Form 990, the one for years beginning in 2008? Last summer, three issues of the Not-for-Profit Accounting Help newsletter were devoted primarily to the financial sections of the 990, but I think you’ll agree that the biggest changes to the form are in the non-financial parts. IRS has taken it upon itself to gather a lot of information about how exempt organizations are governed, and there’s a fair amount of discomfort with that decision among my professional colleagues.
Whether you agree that it’s a good move or think that IRS should stay out of these areas, you’ll be faced with preparing the form – or assisting your auditor or accountant in preparing it - sooner or later. The task will require that you understand thoroughly the structure and authority of the board and its committees as well as the organization’s policies in more depth than you may otherwise have the need to.
Completing the 990 may be more of a challenge than you would like if your organization hasn’t completely achieved good governance yet. Do you know where the board policies are? I hope they’re collected safely in a binder that’s kept in the office, given to each new board member, and recorded digitally as well. Has your board passed a whistleblower policy or a conflict of interest policy? Has it written a job description for its members?
If you believe you’re not completely prepared, here’s a resource. Friends of mine, Randa Cleaves and Jonathon Abramson, are partners in Avenue2possibilities LLP. They provide planning, development and training services to non-profit organizations. They have put together a workbook and checklist of actions “to ensure that your nonprofit organization will be ready” for the changes in the 990. And they are making this wonderful tool available to you on their website. www.accga2p.com/materials takes you directly to the page you’ll want.
“IRS Form 990 Revisions Made Easy” will lead you through those tasks you may have been putting off for months, such as finding the version of your mission statement that was submitted to the IRS with your application and making sure it’s up-to-date, or drafting a record retention policy for your board to pass. Each section discusses an issue thoroughly, giving background and a description of what IRS believes constitutes good governance, and then poses questions, suggests actions, and makes related recommendations.
Topics it covers include organizational documents, governing body, governance and management policies, investments, fundraising, conflicts of interest, and more. All the sources are footnoted so you can go to the original material if you want to for any reason.
In addition to the workbook, you’ll find examples of entire policies, such as fundraising, and whistleblower protection. If your board or management team has found the task of crafting policies to be difficult, these should be a great help.
Posted in Form 990-Nonprofit Tax Return | No Comments »
September 14th, 2008 Nancy
October 21, 2008
Note: Lots has changed in the month since I wrote this post! Among other things, the FDIC insurance limit is now $250,000; otherwise, the article below remains current.
Quick, what does FDIC stand for? Most accountants, finance managers and board members know that cash deposits in banks are insured for up to $100,000 per depositor, and the Federal Deposit Insurance Corporation is the insurer. They also know that any deposits in excess of $100,000 are at risk: if the bank fails, you are not likely to get all of your money back.
A year ago, bank failures may have seemed like a remote bad dream. Now, we are watching as large banks go under. Is your nonprofit at risk? Its board or management team may think of their organization as small and cash poor, yet even small not for profits can find themselves with more than the FDIC insured amount deposited in their bank.
If your organization is at all successful in building reserves, it’s likely to have well over that $100,000 amount in cash or money market deposits. If it receives large grants in advance, chances are it’s in the same leaky boat. You can reduce your risk of losing those excess amounts to 0% (yes, zero) by opening accounts at several banks and moving money around when it’s needed. That means, if you have $500,000 in reserves, you’re dealing with at least five different banks. There’s an easier way to get to 0% risk that you may want to consider.
CDARS stands for Certificate of Deposit Account Registry Service, LLC. Banks become members of the Service and then make deposits on behalf of their customers at other member banks. The service makes sure that none of the deposit accounts carries a balance in excess of $100,000. The interest rate you negotiate applies to all the accounts, and they are all presented on one monthly statement to you.
More than 2,200 banks are members of CDARS as of this writing. Most of them are community or regional banks that are too small to be able to compete with big banks in this arena, so it’s likely that there’s a bank in your area that offers access to this system.
I’ve researched CDARS a bit in an attempt to find out what’s in it for the banks on the theory that someone is making money on this set-up. What I’ve discovered is that small banks benefit from having a network to help them with their own cash flow and depository issues, so they benefit directly without charging or - it seems - paying a fee.
The one draw-back to buying CDs through CDARS may also be an advantage. When you sign a CDARS agreement and deposit money with your bank, you will negotiate a CD rate that will apply to all the CDs your money purchases, even if the bank that ultimately ends up with your money would have offered you a higher rate if you had deposited it directly. It’s also true that you might have been offered a lower rate by said bank, in which case it becomes an advantage to be with CDARS. And you haven’t had to spend time making a phone call or visiting a bank or requesting a proposal - and that seems like a true advantage!
You can find a list of banks that participate in CDARS at www.cdars.com, where you can search by state or by bank name.
Posted in Nonprofit Finance | No Comments »
July 24th, 2008 Nancy
An executive director new to her position showed me the QuickBooks set-up she had inherited from her predecessor and his bookkeeper today. The “profit and loss by class” report was four pages wide - in landscape format! It was so wide, you couldn’t really make any sense out of the report. So what good was it really?
QuickBooks has only a few ways to sort data - accounts, classes, and customer:job combinations - and while they are inadequate for many nonprofits’ needs, it’s also true that many people don’t realize how they can best use what QuickBooks has to offer.
The best way to use classes is to set up one for each program (aka activity). Don’t use them for grants or you’ll end up with a monster report like I saw today! Keep your programs to a maximum of five or six, plus the two you’ll need for reporting to the IRS - Management & General and Fundraising. (Those two are quite useful for managing your organization as well.) You can also make good use of a class for your shared cost pool.
If you really can’t be satisfied with five or six classes, you can set up sub-classes. You’ll get a finer level of detail and when you create a P & L by class, you can hit the “collapse” button to get a report that presents the parent classes instead of all that detail.
The real key to elegant reporting is understanding the logical relationships between classes/activities and “natural” accounts so your reports express meaningful summaries of the sources and uses of your organization’s resources.
Posted in QuickBooks | No Comments »
July 9th, 2008 Nancy
The IRS has mostly completed its project of revamping the Form 990, the one most nonprofits file each year. It’s now got a main form of eleven pages and a checklist of required schedules with 37 questions on it to determine how many of the possible 18 schedules you’ll need to complete. It’s MUCH longer than the old one.
The good news for accountants, boookkeepers and finance managers who work for nonprofits is that the basic accounting required to complete the form hasn’t changed much. I’ve been digging into the detail lately; you can read my newsletter on the Form 990 at www.NFPAccountingHelp.org - go to Free Resources from the home page.
What about this new form worries you? Have you updated your accounting system to make it easy to pull the numbers you’ll need when you prepare this form? What have you figured out - or not - about the new 990?
Post a comment and tell us about your experience so far!
Nancy
Posted in Form 990-Nonprofit Tax Return | No Comments »
July 8th, 2008 Nancy
Guidestar has over a million 990s available on its website. IRS reports it’s processing about 90,000 applications for tax-exempt status each year. And as far as I can tell, there’s a shortage of qualified bookkeepers and accountants who understand the peculiarities of nonprofit accounting in my city and I’m curious whether that’s the case in other places, too.
Where do you go when you have a question about a new type of transaction? Who do you commiserate with when your executive director asks you to prepare a report or projection by tomorrow and doesn’t understand the complexity of the assignment? Have you found community on-line or in your town?
That’s what I’m hoping to offer here at NonprofitAccountingHelp.org.
Go ahead and introduce yourself - I look forward to talking with you!
Nancy
Posted in Introductions | No Comments »