Many organizations are aware of their ratio of program service expenditures to total expenditures. And in fact, there are a number of charity rating systems that make recommendations as to the appropriate overhead ratio. This causes some nonprofit entities to manage to that ratio.
Here’s the problem. The idea that charities should put as much money as possible into their program activities without investing in overhead – the management and support of the organization, can cause an organization to have significant difficulties in meeting its mission and goals down the road. There have been a number of examples of organizations struggling to deliver their services because they haven’t invested enough in the infrastructure necessary to support their programs.
Public pressure contributes to this dilemma. There is a perception that it is unreasonable for an organization to put significant money into building and maintaining its infrastructure. Some donors will limit their donations to program-only uses or will not donate at all to organizations that spend more on overhead. In the long run, the nonprofits that are deliberate about building and maintaining their infrastructure will be able to efficiently deliver their programs on a long-term basis and to effectively create new programs to benefit their communities.
The Department of the Treasury has issued its Priority Guidance Plan which contains projects that are priorities for the allocation of resources during the 2012-2013 plan year.
The current plan has 317 projects listed as priorities that will be actively worked on during the year. Of these projects, 13 are specifically focused on exempt organizations. Areas identified include regulations on requirements for community health needs assessments, program related investments, supporting organizations, and new excise taxes on donor advised funds.
The Exempt Organizations division of the IRS has divided its work plan into 4 categories. Under Legislative Implementation, auto-revocation for non-filers and activities related to tax-exempt hospitals are the major topics. Compliance: Using the Form 990 describes a plan to use information from the revised Form 990 to review self-declarers, political activity, UBIT, and governance issues. The Collaborative Efforts topic includes examinations of organizations with international activities, an initiative related to academic institutions, and participation in the National Research Program looking at employment tax matters. Lastly, General Work covers other areas such as colleges and universities, disaster relief communications, private foundations, and mortgage foreclosure assistance activities.
The IRS EO annual report and work plan can be accessed at http://www.irs.gov/file_source/pub/irs-tege/fy2012_eo_work_plan_2011_annrpt.pdf.
Many organizations rely heavily on year-end giving to meet their fundraising goals. What can they expect as 2012 winds up?
The Blackbaud Index, which is a broad-based index reporting on the charitable giving trends in almost 3,000 nonprofit organizations, released its October 2012 index. Their findings indicate that overall giving declined by 3.8% during the three months ended in October 2012 compared to the same three months in 2011. The rolling 3-month revenue change over prior year had been improving, but the October results continued a three month period of declines.
Is this indicative of a long-term trend, or will there be a return to comparative increases in year over year giving? It will be interesting to see whether year-end giving meets or exceeds prior year results.
While performing audits of nonprofits, we work with management of organizations to identify risks that may cause the financial statements to be materially misstated due to fraud. Sometimes these conversations start with the executive director or other member of the management team claiming they have no risks of fraud, because their employees are all committed to the mission of the organization and would never steal from them. Maybe their bookkeeper has been there for years, and they have complete trust in him/her.
Unfortunately, that is an environment that can be conducive to fraud. When management is unable to look at the situation dispassionately, without putting personalities and personal feelings into it, a fraud can occur. All too often an embezzlement of thousands or hundreds of thousands of dollars is uncovered and it is the trusted bookkeeper or long-time employee who hatched the scheme.
Strong organizations identify the risks of fraud and put controls in place to mitigate those risks. Board members and management evaluate the controls to be certain they are being followed. They ask questions and investigate things that don’t look right. They understand the controls protect their employees as well as the organization. Many nonprofits use outside consultants to perform an internal control examination to address process weaknesses – before the shock of a fraud is uncovered.
Management and finance teams in nonprofit organizations often ask for an update as to what is ahead in the world of nonprofit accounting. As of now, we see a couple of things that may be issued or clarified in the coming months.
The long-awaited revised AICPA Audit and Accounting Guide for Not-for-Profit Entities will be issued in the spring. The Financial Reporting Executive Committee (FinREC) of the AICPA issued a working draft of the accounting content of the guide. This proposed guide addresses many new accounting issues that have emerged over the years and includes guidance dedicated specifically to not-for-profit entities. There will be sections that address reporting relationships with other entities, reporting and measuring noncash gifts, programmatic investments and microfinance loans, reporting the expiration of donor-imposed restrictions, and a discussion of the legal and regulatory environment.
The FASB has requested comments on its EITF Issue 12-B “Not-for-Profit Entities: Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation”. A final document is expected during the first half of 2013.
The FASB also has a couple of projects in process. Non-for-Profit Financial Reporting: Financial Statements is a standards setting project and Non-for-Profit Financial Reporting: Other Financial Communications is a research project. Currently there are no expected dates of completion for these projects.
It’s the time of year when organizations are preparing for year end tasks, including W-2 and 1099 reporting of compensation. There are many aspects to this process, and it can be complex.
The accounting services team at Eide Bailly has prepared a very helpful resource – The 2012 Year-End w2/1099 Guide.
The 1099/W2 book provides instructions for common 1099 and W2 reporting issues including:
- How to complete various forms, as well as making corrections to those forms
- Common tax reporting and employee benefit issues
- Changes for the following year, such as new tax rates and wage limits
The guide is available for download on the website – www.eidebailly.com/services/accounting-services/.