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Wednesday, May 23, 2012
Wednesday, May 9, 2012
What's the Difference?
Posted by: Carrie Minnich
As a nonprofit, you may be required by your board of directors or funders to have financial statements reported on by a CPA. There are three types of reports issued by CPAs – audited, reviewed and compiled financial statements. The type of report depends on the level of service provided by the CPA.
Compilations provide no assurance. The accountant takes the information from the client’s general ledger and presents it in the form of financial statements. Any obvious errors from generally accepted accounting principles are corrected. For example, if the organization had fixed assets but no depreciation has been recorded for the year, the accountant will make a journal entry to record depreciation. The accountant is required to have an understanding of the organization’s industry, obtain knowledge of the client and consider whether the financial statements are in an appropriate form and free from obvious material errors. Compilations involve the least amount of work which results in a lower fee compared to an audit or a review. The compilation report reads:
“We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with generally accepted accounting principles.”
Reviews are one step up from a compilation and provide limited assurance. Reviews include inquiries of management and staff as well as analytical procedures (looking at numbers to make sure they make sense) performed by the accountant. The review report reads:
“Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.”
Audits involve inquiry and analytical procedures, similar to reviews, but also require the auditor to gain an understanding of the organization’s internal controls and include confirmations of balances by outside sources. The goal of an audit is to provide reasonable but not absolute assurance that the financial statements are fairly presented in accordance with general accepted accounting principles. Audits require the most amount of work of the three and therefore cost the most. The audit report reads:
“In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nonprofit Organization as of December 31, 2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.”
It is up to each organization to determine which type of service will meet their needs. The level of service required by a nonprofit organization often depends on funding requirements. Many funders will require organizations to have an audit in order to obtain grants. Sometimes a review will satisfy a funder’s request but rarely will a compilation due to the level of assurance provided. If the organization is an Indiana entity that receives state and government assistance, the state of Indiana may require an audit. The organization should also review its bylaws to see if there is a requirement for a specified level service included in the organization’s governing documents.
As a nonprofit, you may be required by your board of directors or funders to have financial statements reported on by a CPA. There are three types of reports issued by CPAs – audited, reviewed and compiled financial statements. The type of report depends on the level of service provided by the CPA.
Compilations provide no assurance. The accountant takes the information from the client’s general ledger and presents it in the form of financial statements. Any obvious errors from generally accepted accounting principles are corrected. For example, if the organization had fixed assets but no depreciation has been recorded for the year, the accountant will make a journal entry to record depreciation. The accountant is required to have an understanding of the organization’s industry, obtain knowledge of the client and consider whether the financial statements are in an appropriate form and free from obvious material errors. Compilations involve the least amount of work which results in a lower fee compared to an audit or a review. The compilation report reads:
“We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with generally accepted accounting principles.”
Reviews are one step up from a compilation and provide limited assurance. Reviews include inquiries of management and staff as well as analytical procedures (looking at numbers to make sure they make sense) performed by the accountant. The review report reads:
“Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.”
Audits involve inquiry and analytical procedures, similar to reviews, but also require the auditor to gain an understanding of the organization’s internal controls and include confirmations of balances by outside sources. The goal of an audit is to provide reasonable but not absolute assurance that the financial statements are fairly presented in accordance with general accepted accounting principles. Audits require the most amount of work of the three and therefore cost the most. The audit report reads:
“In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nonprofit Organization as of December 31, 2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.”
It is up to each organization to determine which type of service will meet their needs. The level of service required by a nonprofit organization often depends on funding requirements. Many funders will require organizations to have an audit in order to obtain grants. Sometimes a review will satisfy a funder’s request but rarely will a compilation due to the level of assurance provided. If the organization is an Indiana entity that receives state and government assistance, the state of Indiana may require an audit. The organization should also review its bylaws to see if there is a requirement for a specified level service included in the organization’s governing documents.
Wednesday, April 25, 2012
IRS Releases New Select Check
Posted by: Carrie Minnich
The IRS has recently released an on-line search tool for exempt organizations called the Exempt Organization Select Check (EO Select Check). The tool allows the public to select a tax exempt organization and check on whether an organization is eligible to receive tax deductible charitable contributions, has filed a Form 990-N (e-Postcard) or has had its tax exempt status automatically revoked due to not filing the required Form 990 for three consecutive years.
The new Select Check combines previously available information in one easy to find location. Users can now search and sort by the following criteria.
Search for:
- Organizations eligible to receive tax deductible contributions by employer identification number, name, doing business as, city, state, country or deductibility status.
- Organizations that have had their tax exempt status revoked by employer identification number, name, city, state, zip code, country, exemption type or revocation posting date.
- Organizations that have filed Form 990-N by employer identification number, name, city, state, zip code, country or tax year.
Both the organizations eligible to receive tax deductible charitable contributions and those that have had their tax exempt status automatically revoked will be updated monthly, while the list of organization that have filed Form 990-N will be updated weekly by the IRS.
Wednesday, April 11, 2012
Is Your Executive Director Leaving?
Posted by: Carrie Minnich
Is your organization prepared to handle the challenges faced with changing leadership?
A succession plan outlines the steps needed to make the transition from one leader to another as smooth as possible. Both the current executive director and the board of directors should be involved in succession planning. The board must start by determining goals for the future of the organization in order to select the appropriate individual to lead them there. It will also need to be decided if a new leader will be chosen from within the organization or from outside, how much overlap the current executive director will have with a new director and an exit strategy for the current executive director.
The plan, itself, should address the following issues:
The leadership of an organization is essential to its success. It is inevitable that over time your organization’s leadership will need to be replaced. To be ready for the transition, make sure your organization has a succession plan in place.
According to a 2011 national survey done by CompassPoint Nonprofit Services, 67% of nonprofit executives anticipated leaving their jobs within 5 years. Of the 67%, only 7% have given notice of their intention to leave.
Is your organization prepared to handle the challenges faced with changing leadership?
A succession plan outlines the steps needed to make the transition from one leader to another as smooth as possible. Both the current executive director and the board of directors should be involved in succession planning. The board must start by determining goals for the future of the organization in order to select the appropriate individual to lead them there. It will also need to be decided if a new leader will be chosen from within the organization or from outside, how much overlap the current executive director will have with a new director and an exit strategy for the current executive director.
The plan, itself, should address the following issues:
- The executive director’s responsibilities. Not just a formal job description (which should be reviewed and updated if necessary) but what the executive director does each day, week, and month.
- Will an interim director be hired or will other individuals within the organization perform the director’s duties?
- A timeline for filling the executive director’s position.
- Who will be responsible for interviewing and hiring a new executive director?
- An organizational calendar, detailing regular events occurring throughout the year (i.e. fund raising events, audits, grant deadlines, etc.).
- An organizational chart noting lines of authority and any changes in the chart caused by the current executive director’s absence.
- An inventory listing of key information (i.e. IRS determination letter, bylaws, mission statement, Form 990’s, audited financial statements, sales tax exemption, check stock, financial and donor records, computer passwords, etc.)
- A listing of key organizational contacts (i.e. banks, investment company, lawyer, insurance agent, accountant, payroll provider, etc.)
The leadership of an organization is essential to its success. It is inevitable that over time your organization’s leadership will need to be replaced. To be ready for the transition, make sure your organization has a succession plan in place.
Tuesday, April 3, 2012
Mission Minded is Moving
Dulin, Ward and DeWald is happy to announce our new website. In conjunction with our new website, our Mission Minded blog will be moving to
http://www.dwdcpa.com/blog/category/nonprofit.
Please check us out at our new location where we will continue to provide you with best practices for noprofit organizations. We encourage you to subscribe to our RSS Feed for Mission Minded at our new site so that you can recieve the latest information delivered directly to your inbox.
http://www.dwdcpa.com/blog/category/nonprofit.
Please check us out at our new location where we will continue to provide you with best practices for noprofit organizations. We encourage you to subscribe to our RSS Feed for Mission Minded at our new site so that you can recieve the latest information delivered directly to your inbox.
Wednesday, March 28, 2012
5 QuickBooks Tips for Nonprofits
Posted by: Carrie Minnich
1. Require Passwords. Each user should have a unique password for accessing QuickBooks to prevent unauthorized access to your organization’s financial information.
2. Use Classes. Generally accepted accounting principles require nonprofit organizations to report expenses by functions – program, management and general, and fund raising. Classes provide a way for organizations to track these expenses. Classes should be set up for each program, as well as management and general and fund raising. By using classes, the necessary reports your nonprofit will need can easily be created with a few mouse clicks.
3. Use Jobs. Using the jobs feature in QuickBooks allows you to track the revenue received and expenses paid from various grants. Each grant should be set up as a separate job. As you are recording receipts and paying checks, the respective job should be assigned to each transaction. You will then be able to easily run a profit and loss statement for each grant.
4. Budgets. By setting up a budget inside of QuickBooks with projected revenue and expenses at the beginning of the year, you can easily compare budget to actual at any time throughout the year to determine how your organization is performing.
5. Turn on the Audit Trail. The audit trail feature keeps track of all transactions entered and changes made, as well as who did it. Not only does it show what accounts were affected but it also shows the exact date and time the change was made. This feature provides an added control for your organization against fraudulent activity.
1. Require Passwords. Each user should have a unique password for accessing QuickBooks to prevent unauthorized access to your organization’s financial information.
2. Use Classes. Generally accepted accounting principles require nonprofit organizations to report expenses by functions – program, management and general, and fund raising. Classes provide a way for organizations to track these expenses. Classes should be set up for each program, as well as management and general and fund raising. By using classes, the necessary reports your nonprofit will need can easily be created with a few mouse clicks.
3. Use Jobs. Using the jobs feature in QuickBooks allows you to track the revenue received and expenses paid from various grants. Each grant should be set up as a separate job. As you are recording receipts and paying checks, the respective job should be assigned to each transaction. You will then be able to easily run a profit and loss statement for each grant.
4. Budgets. By setting up a budget inside of QuickBooks with projected revenue and expenses at the beginning of the year, you can easily compare budget to actual at any time throughout the year to determine how your organization is performing.
5. Turn on the Audit Trail. The audit trail feature keeps track of all transactions entered and changes made, as well as who did it. Not only does it show what accounts were affected but it also shows the exact date and time the change was made. This feature provides an added control for your organization against fraudulent activity.
Wednesday, March 14, 2012
Does Your Organization Have Policies?
Posted by: Carrie Minnich
The existence of written policies and procedures is an indicator of a nonprofit organization’s commitment to good stewardship and accountability.
Below is a list of written policies and procedures that every nonprofit organization should have.
Accounting procedures
Documents the internal accounting procedures to ensure a proper segregation of duties, as well as, who is responsible.
Allocation policy
Describes the method for allocating shared expenses across programs and departments.
Board roles and responsibilities
Describes expectations and duties of board members.
Capitalization policy
Sets a dollar amount and useful life in number of years for purchases that will be capitalized as opposed to expensed when purchased.
Conflict of interest policy
Requires board members and management to disclose any potential conflicts of interest.
Disaster recovery plan
Describes a plan of action to continue to carry out the organization’s mission after a disaster.
Document retention and destruction policy
Describes how, where, and for how long the organization’s documents are kept, as well as, how and when documents are destroyed. It should also include a statement that all destruction will be suspended immediately upon any indication of an official investigation or when a lawsuit is filed or appears imminent.
Endowment policy (if have an endowment)
Describes the purpose of the endowment, how funds are to be invested, and the spending policy so that the funds are prudently managed.
Gift acceptance policy
Sets forth the organization’s policy on accepting noncash gifts.
Investment policy
Details how the organization’s assets will be invested, goals of the investment and the organization’s fiduciary responsibilities related to the investments.
IT and Internet security plan
Details specific security steps to prevent unauthorized access to the organization’s computer network, as well as, performing backups and employee email and internet usage.
Job descriptions
Describes roles and responsibilities for each employee.
Personnel policy manual
Sets guidelines for employees within the organization including but not limited to dress requirements, working hours, confidential information, vacation and benefits, holidays, sick leave, medical leave, discipline and employee evaluations.
Petty cash fund policy
Describes the purpose of the petty cash fund and the reimbursement procedures, as well as, how the fund is replenished.
Strategic plan
Describes future goals for the organization, how it is going to accomplish the goals and how it will determine if it has met the goals.
Whistleblower policy
Provides a procedure for reporting violations, as well as, prohibiting retaliation against the individual.
990 review procedures
Describes how the governing board reviews Form 990 prior to filing with the IRS.
The existence of written policies and procedures is an indicator of a nonprofit organization’s commitment to good stewardship and accountability.
Below is a list of written policies and procedures that every nonprofit organization should have.
Accounting procedures
Documents the internal accounting procedures to ensure a proper segregation of duties, as well as, who is responsible.
Allocation policy
Describes the method for allocating shared expenses across programs and departments.
Board roles and responsibilities
Describes expectations and duties of board members.
Capitalization policy
Sets a dollar amount and useful life in number of years for purchases that will be capitalized as opposed to expensed when purchased.
Conflict of interest policy
Requires board members and management to disclose any potential conflicts of interest.
Disaster recovery plan
Describes a plan of action to continue to carry out the organization’s mission after a disaster.
Document retention and destruction policy
Describes how, where, and for how long the organization’s documents are kept, as well as, how and when documents are destroyed. It should also include a statement that all destruction will be suspended immediately upon any indication of an official investigation or when a lawsuit is filed or appears imminent.
Endowment policy (if have an endowment)
Describes the purpose of the endowment, how funds are to be invested, and the spending policy so that the funds are prudently managed.
Gift acceptance policy
Sets forth the organization’s policy on accepting noncash gifts.
Investment policy
Details how the organization’s assets will be invested, goals of the investment and the organization’s fiduciary responsibilities related to the investments.
IT and Internet security plan
Details specific security steps to prevent unauthorized access to the organization’s computer network, as well as, performing backups and employee email and internet usage.
Job descriptions
Describes roles and responsibilities for each employee.
Personnel policy manual
Sets guidelines for employees within the organization including but not limited to dress requirements, working hours, confidential information, vacation and benefits, holidays, sick leave, medical leave, discipline and employee evaluations.
Petty cash fund policy
Describes the purpose of the petty cash fund and the reimbursement procedures, as well as, how the fund is replenished.
Strategic plan
Describes future goals for the organization, how it is going to accomplish the goals and how it will determine if it has met the goals.
Whistleblower policy
Provides a procedure for reporting violations, as well as, prohibiting retaliation against the individual.
990 review procedures
Describes how the governing board reviews Form 990 prior to filing with the IRS.
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