All posts by Erin Mirante

To find new revenue opportunities, think like an auditor

Erin MiranteOctober 27, 20200 Comment

Want to increase your not-for-profit’s revenue? First try analyzing current income as a professional auditor might. Then, you can apply your conclusions to setting annual goals, preparing your budget and managing other aspects of your organization.

Compare contributions

Compare the donation dollars raised inpast years to pinpoint trends. For example, have individual contributions been increasing over the past five years? What campaigns have you implemented during that period? You might go beyond the totals and determine if the number of major donors has grown.

Also estimate what portion of contributions is restricted. If a large percentage of donations are tied up in restricted funds, you might want to re-evaluate your gift acceptance policy or fundraising materials.

Measure grants

Grants can vary dramatically in size and purpose — from covering operational costs, to launching a program, to funding client services. Pay attention to trends here, too. Did one funder supply 50% of total revenue in 2015, 75% in 2016, and 80% last year?

A growing reliance on a single funding source is a red flag to auditors and it should be to you, too. In this case, if funding stopped, your organization might be forced to close its doors.

Assess fees

Fees from clients, joint venture partners or other third parties can be similar to fees that for-profit organizations earn. They’re generally considered exchange transactions because the client receives a product or service of value in exchange for its payment.

Sometimes fees are charged on a sliding scale based on income or ability to pay. In other cases, fees are subject to legal limitations set by government agencies. You’ll need to assess whether these services are paying for themselves.

Membership dues

If your nonprofit is a membership organization and charges dues, determine whether membership has grown or declined in recent years. How does this compare with your peers? Do you suspect that dues income will decline? You might consider dropping dues altogether and restructuring. If so, examine other income sources for growth potential.

By performing these exercises, you should be able to gain a basic understanding of where funds are coming from and where greater potential lies. For specific tips and help applying revenue data strategically, contact us.

What to do when the audit ends

Erin MiranteOctober 14, 20200 Comment

Financial audits conducted by outside experts are among the most effective tools for revealing risks in not-for-profits. They help assure donors and other stakeholders about your stability — so long as you respond to the results appropriately. In fact, failing to act on issues identified in an audit could threaten your organization’s long-term viability.

Working with the draft

Once outside auditors complete their work, they typically present a draft report to an organization’s audit committee, executive director and senior financial staffers. Those individuals should take the time to review the draft before it’s presented to the board of directors.

Your organization’s audit committee and management also should meet with the auditors prior to the board presentation. Often auditors will provide a management letter (also called “communication with those charged with governance”), highlighting operational areas and controls that need improvement. Your nonprofit’s team can respond to these comments, indicating ways they plan to improve the organization’s operations and controls, to be included in the final letter. The audit committee also can use the meeting to ensure the audit is properly comprehensive.

Executive director’s role

One important audit committee task is to obtain your executive director’s impression of the auditors and audit process. Were the auditors efficient, or did they perform or require redundant work? Did they demonstrate the requisite expertise, skills and understanding? Were they disruptive to operations? Consider this input when deciding whether to retain the same firm for the next audit.

The committee also might want to seek feedback from employees who worked most closely with auditors. In addition to feedback on the auditors, they may have suggestions on how to streamline the process for the next audit.

No material misrepresentation

The final audit report will state whether your organization’s financial statements present its financial position in accordance with U.S. accounting principles. The statements must be presented without any inaccuracies or “material” — meaning significant — misrepresentation.

The auditors also will identify, in a separate letter, specific concerns about material internal control issues. Adequate internal controls are critical for preventing, catching and remedying misstatements that could compromise the integrity of financial statements. The auditors’ other suggestions, presented in the management letter, should include your organization’s responses.

If the auditors find your internal controls weak, promptly shore them up. You could, for example, implement new controls or new accounting practices.

Should your nonprofit accept that new grant?

Erin MiranteOctober 2, 20200 Comment

Current financial pressures mean that your not-for-profit probably can’t afford to pass up offers of support. Yet you need to be careful about blindly accepting grants. Smaller nonprofits that don’t have formal grant evaluation processes are at risk of accepting grants with unmanageable burdens and costs. But large organizations also need to be careful because they have significantly more grant opportunities — including for grants that are outside their current expertise and experience.

Here’s how accepting the wrong grant may backfire in costly and time-consuming ways.

Administrative burdens

Some grants could result in excessive administrative burdens. For example, you could be caught off guard by the reporting requirements that come with a grant as small as $5,000. You might not have staff with the requisite reporting experience, or you may lack the processes and controls to collect the necessary data. Often government funds passed through to your nonprofit still carry the requirements that are associated with the original funding, which can be quite extensive.

Grants that go outside your organization’s original mission can pose problems, too. Managing the grant may involve a steep learning curve. You could even face an IRS challenge to your exempt status.

Cost inefficiencies

Another risk is cost inefficiencies. A grant can create unforeseen expenses that undermine its face value. For example, new grants from either federal or foundation sources may have explicit administrative requirements your organization must satisfy.

Additionally, your nonprofit might run up expenses to complete the program that aren’t allowable or reimbursable under the grant. Before saying “yes” to a grant, net all these costs against the original grant amount to determine its true benefit.

Lost opportunities

For any unreimbursed costs associated with new grants, consider other ways your organization might spend that money (and staff resources). Could you get more mission-related bang for your buck if you spend it on existing programs?

Quantifying the benefit of a new grant or program can be equally or more challenging than identifying its costs. Evaluate every program to quantify its impact on your mission. This will allow you to answer the critical question when evaluating a potential grant: Are there existing programs that can be expanded using the same funds to yield a greater benefit to your mission?

Do your homework

Grants from the government or a foundation can help your nonprofit expand its reach and improve its effectiveness in both the short and long term. But they also can hamstring your organizations in unexpected ways. Contact us for help or more information.

Employers should approach payroll tax deferral cautiously

Erin MiranteSeptember 23, 20200 Comment

As you’re probably aware, President Trump signed an executive memorandum on August 8 creating a payroll tax deferral. The development has brought with it much uncertainty regarding administrative compliance and the long-term impact of this pandemic-related relief.

Deferral details

Under the memorandum, an employer may choose to postpone withholding, deposit and payment of the employee’s share of Social Security tax (6.2%) on wages paid from September 1, 2020, through December 31, 2020. The wages in question must be less than $4,000 on a biweekly pay period basis or an equivalent amount in other pay periods. The threshold is determined on a pay-period-by-pay-period basis.

The IRS recently released Notice 2020-65, which postpones the withholding and remittance of the employee’s share of Social Security tax ratably between January 1, 2021, and April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes. The Notice states that, if necessary, an employer may arrange to collect the total applicable taxes from the employee.

Your decision

The postponement of the withholding and remittance of the employee’s share of Social Security tax is optional. You may seek input from employees about their desire to participate but doing so isn’t required. Whether to permit employees to opt in or opt out of the postponement is also at your discretion and not addressed in recent guidance.

An IRS spokesperson has explained that Form 941 is being revised for the third quarter of 2020 to report postponed taxes for employers who elect to participate in the deferral. The final Form 941 will be released in late September for filing in October.

The Notice permits employers who have elected the postponement to begin withholding the employee’s share on January 1, 2021, but such withholding may have unforeseen and detrimental consequences. Specifically, unless Congress passes a law to forgive the deferred taxes, employees will end up receiving less in take-home pay in the first four months of 2021.

Further developments

With so many questions remaining, employers should proceed carefully when deciding whether to opt for the postponement. The IRS has stated that, regardless of whether the amounts are recovered from an employee, the employer will remain liable for the employee’s share and must remit the postponed withholding of the employee’s share of Social Security tax by April 30, 2021.

However, if you choose to elect the postponement, it’s a good idea to provide a notice to employees that clearly states that the employee’s share of Social Security is postponed until December 31, 2020, and withholding for these amounts will occur ratably between Jan. 1, 2021, and April 30, 2021. That extra withholding will be in addition to employment tax withholding otherwise required on wages for January through April 2021. Our firm can provide more information on the payroll tax deferral and keep you updated on further developments.

How to make the most of your multigenerational workforce

Erin MiranteFebruary 21, 20201 Comment

Many of today’s businesses employ workers from across the generational spectrum. Employees may range from Baby Boomers to members of Generation X to Millennials to the newest group, Generation Z.

Managing a workforce with a wide age range requires flexibility and skill. If you’re successful, you’ll likely see higher employee morale, stronger productivity and a more positive work environment for everyone.

Generational definitions

Definitions of the generations vary slightly, but the U.S. Chamber of Commerce Foundation defines them as follows:

Members of the Baby Boomer generation were born from 1946 to 1964,
Members of Generation X were born from 1965 to 1979,
Members of the Millennial generation were born from 1980 to 1999, and
Members of Generation Z were born after 1999.

Certain stereotypes have long been associated with each generation. Baby Boomers are assumed to be grumbling curmudgeons. Gen Xers were originally consigned to being “slackers.” Millennials are often thought of as needy approval-seekers. And many presume that a Gen Zer is helpless without his or her mobile device.

But successfully managing employees across generations requires setting aside stereotypes. Don’t assume that employees fit a certain personality profile based simply on age. Instead, you or a direct supervisor should get to know each one individually to better determine what makes him or her tick.

Best practices

Here are just a couple best practices for managing diverse generations:

Recognize and respect value differences. Misunderstandings and conflicts often arise because of value differences between managers and employees of different generations. For example, many older supervisors expect employees to do “whatever it takes” to get the job done, including working long hours. However, some younger employees place a high value on maintaining a healthy work-life balance.

Be sure everyone is on the same page about these expectations. This doesn’t mean younger employees shouldn’t have to work hard. The key is to find the right balance so that work is accomplished satisfactorily and on time, and employees feel like their values are being respected.

Maximize each generation’s strengths. Different generations tend to bring their own strengths to the workplace. For instance, older employees likely have valuable industry experience and important historical business insights to share. Meanwhile, younger employees — especially Generation Z — have grown up with high-powered mobile technology and social media.

Consider initiatives such as company retreats and mentoring programs in which employees from diverse generations can work together and share their knowledge, experiences and strengths. Encourage them to communicate openly and honestly and to be willing to learn from, rather than compete with, one another.

A competitive advantage

Having a multigenerational workforce can be a competitive advantage. Your competitors may not have the hard-fought experience of your older workers nor the fresh energy and ideas of your younger ones. Our firm can help you develop cost-effective business strategies while utilizing a multigenerational workforce.

Some basics facts about wage garnishment

Erin MiranteFebruary 17, 20201 Comment

The prospect of having to garnish an employee’s wages isn’t a pleasant thought, yet it’s a situation that many employers face. As with any onerous task, the more prepared you are, the better. Let’s look at some basic facts about the process.

Various types

The word “garnishment” is defined as any legal or equitable procedure through which an individual’s earnings are required, under a court order, to be withheld for payment of a debt. This may include:

Creditor garnishments,
Child support,
Garnishments to repay nontax debts owed to the federal government,
Student loan garnishments, and
Tax levies.

As a garnishment, wage withholding for child support usually takes priority over the other types.

There are both federal and state laws covering garnishment. For those issued at the state level, the law that’s most beneficial to the employee is generally followed. However, for garnishments issued at the federal level, state law typically takes a back seat to federal law. (Voluntary wage assignments aren’t considered garnishments and, therefore, fall outside the scope of federal law.)

Consumer Credit Protection Act

Title III of the Consumer Credit Protection Act (CCPA) is the federal law that controls garnishment. The law limits the amount of an employee’s disposable earnings that may be garnished in any one week. The CCPA also protects employees from discharge because of garnishment for any one form of indebtedness. The law’s purview includes city, county and state employees’ earnings — unless a state law exempts them from garnishment.

The CCPA defines “earnings’’ as compensation for personal services. This includes wages, salaries, commissions, bonuses or other compensation (including periodic payments from a pension or retirement program, or payments from an employment-based disability payment program).

For tipped employees, earnings also include cash wages paid directly by the employer and the amount of the tip credit claimed (if any) by the employer. Tips received in excess of the tip credit amount, or in excess of cash wages (if no tip credit is claimed or allowed), aren’t earnings under the CCPA. Lump sum payments may be included in earnings for garnishment purposes. Payments that don’t meet the definition of earnings under the CCPA aren’t protected by the law’s deduction limitations.

Important: As mentioned, the CCPA’s restrictions on garnishment are based on an employee’s disposable earnings. These are the portion of earnings remaining after deductions required by law have been made (not to be confused with “net earnings,” which is the amount left after all deductions have been made). Examples of these deductions include withholding for federal and state income tax, Social Security tax, state unemployment and disability taxes, and deductions required by state employees’ retirement systems.

Contentious undertaking

As you might well imagine, having to garnish an employee’s wages is an often-contentious undertaking fraught with legal risk. Consult an attorney before doing so. For further information about wage garnishment, contact us.

Conflict-of-interest policies are too important for nonprofits to neglect

Erin MiranteFebruary 10, 20201 Comment

Does your not-for-profit organization have a conflict-of-interest policy in place? Do your board members, trustees and key employees understand how the policy affects them? If you answer “no” to either (or both) of these questions, you have some work to do.

A duty

Nonprofit board officers, directors, trustees and key employees all must avoid conflicts of interest because it’s their duty to do so. Any direct or indirect financial interest in a transaction or arrangement that might benefit one of these individuals personally could result in bad publicity, the loss of donor and public support, and even the revocation of your organization’s tax-exempt status.

This is why nonprofits are required to have a written conflict-of-interest policy. To stress the importance of this requirement, the IRS asks tax-exempt organizations to acknowledge the existence of a policy on their annual Form 990s.

Define and provide procedures

In general, conflict-of-interest policies should define all potential conflicts and provide procedures for avoiding or dealing with them. For example, to prevent a board member from steering a contract to his or her own company, you might mandate that all projects are to be put out for bid, with identical specifications, to multiple vendors.

It’s critical to outline the steps you’ll take if a possible conflict of interest arises. For instance, board members with potential conflicts might be asked to present facts to the rest of the board, and then remove themselves from any further discussion of the issue. The board should keep minutes of the meetings where the conflict is discussed. You should note the members present, as well as how they vote, and indicate the final decision reached.

Making it effective

As with any policy, conflict-of-interest policies are only effective if they’re properly communicated and understood. Require board officers, directors, trustees and key employees to annually pledge to disclose interests, relationships and financial holdings that could result in a conflict of interest. Also make sure they know that they’re obliged to speak up if issues arise that could pose a possible conflict.

For help crafting a thorough policy, contact us.

401(k) plan highlights of the SECURE Act

Erin MiranteJanuary 28, 20200 Comment

Late last year, Congress passed, and the President signed into law, the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Among its most notable rule changes are those pertaining to 401(k) plans. Here are some key highlights.

New tax credit

Starting in 2020, the new rules create a tax credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

The credit, available for three years, is in addition to an existing plan startup credit. Employers who convert an existing plan to a plan with an automatic enrollment design may also claim this tax break.

Auto-enrollment safe harbor plans

An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two safe harbor plan designs and meets certain other requirements. (Certain other required rights and features must also be met, as well as a notice requirement.)

One of the safe harbor plans is an automatic enrollment safe harbor plan. Starting in 2020, the new rules increase the cap on the default rate under an automatic enrollment safe harbor plan from 10% to 15%, but only for years after the participant’s first deemed election year. For the participant’s first deemed election year, the cap on the default rate is 10%.

Other safe harbor plan enticements

Under another type of 401(k) safe harbor plan, the plan either:

Satisfies a matching contribution requirement, or
Provides for a nonelective contribution to a defined contribution plan of at least 3% of an employee’s compensation on behalf of each nonhighly compensated employee who’s eligible to participate in the plan.

Starting in 2020, new rules eliminate the safe harbor notice requirement but maintain the requirement to allow employees to make or change an election at least once per year.

The rules also permit amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time are allowed if the amendment provides a nonelective contribution of at least 4% of compensation (rather than at least 3%) for all eligible employees for that plan year. Also, the plan must be amended no later than the last day for distributing excess contributions for the plan year (in other words, by the close of following plan year).

Widespread impact

These are only some of the provisions of the SECURE Act that might affect your organization. The law’s provisions address not only 401(k) plans, but also defined benefit plans, IRAs and 529 plans. Contact us for help determining precisely how the act may affect your existing retirement plan or any you’re considering.

Cost management: A budget’s best friend

Erin MiranteJanuary 22, 20200 Comment

If your company comes up over budget year after year, you may want to consider cost management. This is a formalized, systematic review of operations and resources with the stated goal of reducing costs at every level and controlling them going forward. As part of this effort, you’ll answer questions such as:

Are we operating efficiently? Cost management can help you clearly differentiate activities that are running smoothly and staying within budget from the ones that are constantly breaking down and consuming extra dollars.

Depending on your industry, there are likely various metrics you can calculate and track to determine which aspects of your operations are inefficient. Sometimes improving efficiency is simply a matter of better scheduling. If you’re constantly missing deadlines or taking too long to fulfill customers’ needs, you’re also probably losing money playing catch-up and placating disappointed buyers.

Can we really see our supply chain? Maybe you’ve bought the same types of materials from the same vendors for many years. Are you really getting the most for your money? A cost management review can help you look for better bargains on the goods and services that make your business run.

A big problem for many businesses is lack of practical data. Without the right information, you may not be fully aware of the key details of your supply chain. There’s a term for this: supply chain visibility. When you can’t “see” everything about the vendors that service your company, you’re much more vulnerable to hidden costs and overspending.

Is technology getting the better of us? At this point, just about every business process has been automated one way or another. But are you managing this technology or is it managing you? Some companies overspend unnecessarily while others miss out on ways to better automate activities. Cost management can help you decide whether to simplify or upgrade.

For example, many businesses have historically taken an ad hoc approach to procuring technology. Different departments or individuals have obtained various software over the years. Some of this technology may still be in regular use but, in many cases, an expensive application sits dormant while the company still pays for licensing or tech support.

Conversely, a paid-for but out-of-date application could be slowing operational or supply chain efficiency. You may have to spend money to save money by getting something that’s up-to-date and fully functional.

The term “cost management” is often applied to specific projects. But you can also apply it to your business, either as an emergency step if your budget is really out of whack or as a regular activity for keeping the numbers in line. Our firm can help you conduct this review and decide what to do about the insights gained.

Congress rolls back burdensome UBIT on transportation benefits

Erin MiranteJanuary 16, 20200 Comment

A much-hated tax on not-for-profit organizations is on the way out. At the end of 2019, Congress repealed a provision of 2017’s Tax Cuts and Jobs Act (TCJA) that triggered the unrelated business income tax (UBIT) of 21% on nonprofit employers that provide employees with transportation fringe benefits. Unequipped to handle the additional administrative burdens and compliance costs, thousands of nonprofits had complained — and legislators apparently listened.

Same benefits, new costs

At issue is the TCJA provision saying that nonprofits must count disallowed deduction amounts paid for transportation fringe benefits such as transit passes and parking in their UBIT calculations. UBIT applies to business income that isn’t related to the organization’s tax-exempt function. Thus, simply by continuing to provide some of the same transportation benefits they’ve always provided employees, nonprofits were liable for additional tax.

For example, employers were forced to assign a value to parking spaces provided to employees. Such activities were time-consuming and burdensome, and the additional costs forced nonprofits to divert funds from pursuing their missions. Nonprofit coalition Independent Sector estimates that the transportation tax and related administrative costs set back nonprofits by an average $12,000.

Fortunately, the repeal of the UBIT provision will be retroactive. Although the details haven’t yet been hammered out, nonprofits that paid the tax on applicable transportation benefits in 2018 and 2019 are expected to get their money back.

Other developments

Repealing the UBIT on certain transportation benefits isn’t the only recent legislation of interest to nonprofits. Last month, Congress also streamlined the foundation excise tax. The current two-tiered tax that many foundations protested will be replaced with a 1.39% revenue-neutral tax.

Congress is likely to address other nonprofit demands — for example, for the introduction of a universal charitable deduction — in future sessions. We can help you stay current with the latest tax developments affecting nonprofits. Contact us.