Category Archives: Nonprofit Organizations

How to convince donors to remove “restricted” from their gifts

Erin MiranteFebruary 27, 20190 Comment

Restricted gifts — or donations with conditions attached — can be difficult for not-for-profits to manage. Unlike unrestricted gifts, these donations can’t be poured into your general operating fund and be used where they’re most needed. Instead, restricted gifts generally are designated to fund a specific program or initiative, such as a building or scholarship fund.

It’s not only unethical, but dangerous, not to comply with a donor’s restrictions. If donors learn you’ve ignored their wishes, they can demand the money back and sue your organization. And your reputation will almost certainly take a hit. Rather than take that risk, try to encourage your donors to give with no strings attached.

Personal touch

Some donors simply don’t realize how restricted gifts can prevent their favorite charity from achieving its objectives. So when speaking with potential donors about their giving plans, praise the benefits of unrestricted gifts. Explain how donations are used at your organization, offering hard numbers and examples where needed. Be as upfront as possible and give them as much information as you can about your organization.

To make unrestricted giving as easy as possible, give donors (and their advisors) sample bequest clauses that refer to the general mission and purpose of your organization. Also encourage them to include wording that shows “suggestions” or “preferences” for their donations, as opposed to binding restrictions. Prepare documents that give wording samples for these cases.

Words of intent

Unless you’re holding a fundraiser to benefit a specific program, include general giving statements in your fundraising materials. For example, you might say: “All gifts will be used to further the organization’s general charitable purposes,” or “Your donations to this year’s fundraiser will be used toward the continued goal of fulfilling our organization’s mission.”

Reinforce this message in your donor thank-you letters. They should state your nonprofit’s understanding of how the gift is intended to be used. For example, if a donor stipulated no restrictions, explain that the money will be used for general operating purposes.

Gentle persuasion

Obviously, you’ll need to be respectful if a donor is determined to attach strings to a gift. (Before accepting it, just make certain you’ll be able to carry out the donor’s wishes.) But if you can persuade contributors that their gifts will be used in a responsible and mission-enhancing way, many are likely to remove restrictions.

5 questions can help nonprofits avoid accounting and tax mistakes

Erin MiranteFebruary 20, 20190 Comment

To err is human, but some errors are more consequential — and harder to fix — than others. Most not-for-profit organizations can’t afford to lose precious financial resources, so you need to do whatever possible to minimize accounting and tax mistakes. Get started by considering the following five questions:

Have we formally documented our accounting processes? All aspects of managing your nonprofit’s money should be reflected in a detailed, written accounting manual. This should include how to accept and deposit donations and pay bills.
How much do we rely on our accounting software? These days, accounting software is essential to most nonprofits’ daily functioning. But even with the assistance of technology, mistakes happen. Your staff should always double-check entries and reconcile bank accounts to ensure that transactions entered into accounting software are complete and accurate.
Do we consistently report unrelated business income (UBI)? IRS officials have cited “failing to consider obvious and subtle” UBI tax issues as the biggest tax mistake nonprofits make. Many organizations commonly fail to report UBI — or they underreport this income. Be sure to follow guidance in IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations. And if you need more help, consult a tax expert with nonprofit expertise.
Have we correctly classified our workers? This is another area where nonprofits commonly make errors in judgment and practice. You’re required to withhold and pay various payroll taxes on employee earnings, but don’t have the same obligation for independent contractors. If the IRS can successfully argue that one or more of your independent contractors meet the criteria for being classified as employees, both you and the contractor possibly face financial consequences.
Do we back up data? If you don’t regularly back up accounting and tax information, it may not be safe in the event of a fire, natural disaster, terrorist attack or other emergency. This data should be backed up automatically and frequently using cloud-based or other offsite storage solutions.

If your accounting and tax policies and processes aren’t quite up to snuff and potentially put your organization at risk of making serious errors, don’t despair. We can help you address these shortcomings. Contact Langdon & Company today!

Charitable donations: Unraveling the mystery of motivation

Erin MiranteJanuary 22, 20190 Comment

Traditionally, Americans have supported charities not only for tax breaks and a vague sense of “giving back,” but also for a variety of other financial, emotional and social reasons. Understanding what motivates donors and how their motivations vary across demographic groups can help your not-for-profit more effectively reach and engage potential supporters.

Money matters

Asset protection and capital preservation traditionally have motivated many wealthy individuals to make charitable donations. And certain strategies — such as gifting appreciated stock or real estate to get “more bang for the buck” — may be particularly appealing to donors who make charitable giving a piece of their larger financial plans.

But high-income donors sometimes have less-obvious financial motivations, such as a wish to limit the amount their children inherit to prevent a “burden of wealth.” Warren Buffett, for example, plans to leave the vast majority of his wealth to charity rather than to his children. As he told Fortune, wealthy parents should leave their children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” To appeal to these kinds of donors, you may want to offer to work with the entire family so that they can begin a multigenerational tradition of giving.

Social considerations

Research by the Center on Philanthropy at Indiana University has found that younger donors — those between 20 and 45 — as well as wealthier and better-educated individuals are more likely to want to “make a difference” with their gifts. Those with lower incomes and a high school degree or less often donate to meet basic needs in their communities or to “help the poor help themselves.”

Donors of all stripes are motivated by the perceived social effects of giving. Research published in American Economic Review reported that donors typically gave more when their gifts were announced publicly.

Similarly, numerous studies have found that people are more likely to give — and to give in greater amounts — if asked personally, particularly if they know the person making the appeal. These donors may want to make an altruistic impression, and some may seek the prestige of being connected with a well-established and admired nonprofit “brand.” Such individuals are more likely to buy pricey tickets to annual galas or join a nonprofit’s board to meet and socialize with others in their socioeconomic group or business community.

Get — and keep — their attention

There are probably as many motivations as there are donors, and most people have more than one reason to support a particular charity. To get — and keep — donors’ attention, perform some basic market research to learn who they are.

Financial best practices for religious congregations

Erin MiranteDecember 19, 20181 Comment

Churches, synagogues, mosques and other religious congregations aren’t required to file tax returns, so they might not regularly hire independent accountants. But regardless of size, religious organizations often are subject to other requirements, such as paying unrelated business income tax (UBIT) and properly classifying employees.

Without the oversight of tax authorities or outside accountants, religious leaders may not be aware of all requirements to which they’re subject. This can leave their organizations vulnerable to fraud and its trustees and employees subject to liabilities.

Common vulnerabilities

To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, pay attention to:

Employee classification. Determine which workers in your organization are full-time employees and which are independent contractors. Depending on many factors, such as the amount of control your organization has over them, their responsibilities, and their form of compensation, individuals you consider independent contractors may need to be reclassified as employees.

Clergy wages. Most clergy should be treated as employees and receive W-2 forms. Typically, they’re exempt from Social Security taxes, Medicare taxes and federal withholding but are subject to self-employment tax on wages. A parsonage (or rental) allowance can reduce income tax, but not self-employment tax.

UBIT. If your organization regularly engages in any type of business activity that’s unrelated to its religious mission, be aware of certain tax and reporting rules. Income from such activities could be subject to UBIT.

Lobbying. Your organization shouldn’t devote a substantial part of its activities in attempting to influence legislation. Otherwise you might risk your tax-exempt status and face potential penalties.

Trust and protect

Faith groups can be particularly vulnerable to fraud because they generally foster an environment of trust. Also, their leaders may be reluctant to punish offenders. Just keep in mind that even the most devout and long-standing members of your congregation are capable of embezzlement when faced with extreme circumstances.

To ensure employees and volunteers can’t help themselves to collections, require that at least two people handle all contributions. They should count cash in a secure area and verify the contents of offering envelopes. Next, they should document their collection activity in a signed report. For greater security, encourage your members to make electronic payments on your website or sign up for automatic bank account deductions.

Seek expertise

Although your congregation is subject to less IRS scrutiny than even your fellow nonprofit organizations, that doesn’t mean you can afford to ignore financial best practices. Contact us for help.

Make your nonprofit’s accounting function more efficient

Erin MiranteNovember 13, 20180 Comment

How efficient is your not-for-profit? Even tightly run organizations can use some improvement — particularly in the accounting area. Adopting the following six tips can help improve timeliness and accuracy.

Set cutoff policies. Create policies for the monthly cutoff of invoicing and recording expenses — and adhere to them. For example, require all invoices to be submitted to the accounting department by the end of each month. Too many adjustments — or waiting for different employees or departments to turn in invoices and expense reports — waste time and can delay the production of financial statements.
Reconcile accounts monthly. You may be able to save considerable time at the end of the year by reconciling your bank accounts shortly after the end of each month. It’s easier to correct errors when you catch them early. Also reconcile accounts payable and accounts receivable data to your statements of financial position.
Batch items to process. Don’t enter only one invoice or cut only one check at a time. Set aside a block of time to do the job when you have multiple items to process. Some organizations process payments only once or twice a month. If you make your schedule available to everyone, fewer “emergency” checks and deposits will surface.
Insist on oversight. Make sure that the individual or group that’s responsible for financial oversight (for example, your CFO, treasurer or finance committee) reviews monthly bank statements, financial statements and accounting entries for obvious errors or unexpected amounts. The value of such reviews increases when they’re performed right after each monthly reporting period ends.
Exploit your software’s potential. Many organizations under use the accounting software package they’ve purchased because they haven’t learned its full functionality. If needed, hire a trainer to review the software’s basic functions with staff and teach time-saving shortcuts.
Review your processes. Accounting systems can become inefficient over time if they aren’t monitored. Look for labor-intensive steps that could be automated or steps that don’t add value and could be eliminated. Often, for example, steps are duplicated by two different employees or the process is slowed down by “handing off” part of a project.

The fine art of valuing donated property

Erin MiranteOctober 27, 20180 Comment

Not-for-profits often struggle with valuing noncash and in-kind donations. Whether for record-keeping purposes or when helping donors understand proper valuation for their charitable tax deductions, the task isn’t easy. Although the amount that a donor can deduct generally is based on the donation’s fair market value (FMV), there’s no single formula for calculating it.

FMV basics

FMV is often defined as the price that property would sell for on the open market. For example, if a donor contributes used clothes, the FMV would be the price that typical buyers pay for clothes of the same age, condition, style and use. If the property is subject to any type of restriction on use, the FMV must reflect it. So, if a donor stipulates that a painting must be displayed, not sold, that restriction affects its value.

According to the IRS, there are three particularly relevant FMV factors:

Cost or selling price. This is the cost of the item to the donor or the actual selling price received by your organization. However, note that, because market conditions can change, the cost or price becomes less important the further in time the purchase or sale was from the contribution date.
Comparable sales. The sales price of a property similar to the donated property can determine FMV. The weight that the IRS gives to a comparable sale depends on the:
- Degree of similarity between the property sold and the donated property,
- Time of the sale,
- Circumstances of the sale (was it at arm’s length?), and
- Market conditions.
Replacement cost. FMV should consider the cost of buying or creating property similar to the donated item, but the replacement cost must have a reasonable relationship with the FMV.

Businesses that contribute inventory can generally deduct the smaller of its FMV on the day of the contribution or the inventory’s basis. The basis is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution. If the cost of donated inventory isn’t included in the opening inventory, its basis is zero and the business can’t claim a deduction.

Important reminder

Even if a donor can’t deduct a noncash or in-kind donation (for example, a piece of tangible property or property rights), you may need to record the donation on your financial statements. Recognize such donations at their fair value, or what it would cost if your organization were to buy the donation outright. Contact us for more information.

Volunteers are assets nonprofits must protect

Erin MiranteOctober 8, 20180 Comment

How much are your volunteers worth? The not-for-profit advocacy group Independent Sector estimates the value of the average American volunteer at $24.69 an hour. Volunteers who perform specialized services may be even more valuable.

Whether your entire workforce is unpaid or you rely on a few volunteers to support a paid staff, you need to safeguard these assets. Here’s how.

1. Create a professional program

“Professionalizing” your volunteer program can give participants a sense of ownership and “job” satisfaction. New recruits should receive a formal orientation and participate in training sessions. Even if they’ll be contributing only a couple of hours a week or month, ask them to commit to at least a loose schedule. And as with paid staffers, volunteers should set annual performance goals. For example, a volunteer might decide to work a total of 100 hours annually or learn enough about your mission to be able to speak publicly on the subject.

If volunteers accomplish their goals, publicize the fact. And consider “promoting” those who’ve proved they’re capable of assuming greater responsibility. For example, award the job of volunteer coordinator to someone who has exhibited strong communication and organization skills.

2. Keep them engaged

A formal program won’t keep volunteers engaged if it doesn’t take advantage of their talents. What’s more, most volunteers want to know that the work they do matters. So even if they must occasionally perform menial tasks such as cleaning out animal shelter cages, you can help them understand how every activity contributes to your charity’s success.

During the training process, inventory each volunteer’s experience, education, skills and interests and ask if there’s a particular project that attracts them. Don’t just assume that they want to use the skills they already have. Many people volunteer to learn something new.

3. Make it fun

Most volunteers understand that you’ll put them to work. At the same time, they expect to enjoy coming in. So be careful not to make the same demands on volunteers that you would on employees. Also, try to be flexible when it comes to such issues as scheduling.

Because many volunteers are motivated by the opportunity to meet like-minded people, facilitate friendships. Newbies should be introduced to other volunteers and assigned to work alongside someone who knows the ropes. Also schedule on- and off-site social activities for volunteers.

4. Remember to say “thank you”

No volunteer program can be successful without frequent and effusive “thank-yous.” Verbal appreciation will do, but consider holding a volunteer thank-you event.

How to boost the potential of your nonprofit’s special event

Erin MiranteSeptember 29, 20180 Comment

Not-for-profits use special events to raise large amounts in a short period of time. Most often, the donor receives a direct benefit from the event — such as dinner or participation in a gaming activity. But special events don’t always meet their fundraising goals. In fact, organizations can lose money on them. Following these steps can help boost your event’s potential and enable you to decide whether to hold it again in the future.

Step 1: Make a budget

Planning and holding a successful event is a process that should start with a budget. Estimate what you anticipate revenue to be. If costs are likely to be greater than revenue, consider forgoing the event. Of course, you can also come up with a less costly event or look for sponsors to help defray expenses.

Step 2: Develop a marketing plan

Determine the target audience for your event and the best way to reach that audience. For example, bingo nights are often popular with seniors. And they may be more likely to read about the event in the local newspaper than on your nonprofit’s blog.

Step 3: Account for everything

Track all of your event’s costs to arrive at an accurate net profit amount. For example, a gala’s costs could include:

• Amounts paid to market the event, such as printed invitations and paid advertisements,
• Amounts paid related to the direct benefit that the participant receives, such as food, drinks and giveaways, and
• Other actual event costs, such as rental space and wait staff.

Step 4: Evaluate the event

After the event, review a detailed statement of its revenue and expenses, and compare them to what was budgeted. Take a look at ticket sales: Did you bring in the amount you had anticipated? Was the attendance worth the amount of planning and organizing that went into the event? Next, evaluate money raised at the event itself. How much did your silent auction or raffle raise? Did you make more than the fair market value of the items donated?

Also review unexpected expenses. Were these “one-time” or “special” costs that aren’t likely to occur yearly, or are they recurring? The answers to these questions can help you determine if the event was a true success.

Crunching the numbers

Consider these results — along with changes in your organization and evolving economic conditions that could affect profitability — when determining whether your event is likely to be successful in the future. If you’re unsure, contact us. We can help you crunch the numbers.

Nonprofits should be prepared for sudden outpouring of support

Rachel OwensAugust 25, 20180 Comment

Americans gave unprecedented sums to charity in response to the devastating hurricanes last year. Large organizations, such as the American Red Cross, were equipped to handle the huge influxes of donations. However, some smaller charities were overwhelmed. Although it may seem like an unlikely problem, your not-for-profit needs a plan to handle a potential outpouring of support.

Know what’s normal

Perhaps the biggest lesson to learn from recent disasters is to always have an expansion plan in place. When the influx of online giving reached critical mass, many organizations found that their websites overloaded and went offline. Their sites had to be moved to more powerful servers to handle the increased traffic.

Keep track of “normal” website hits, as well as the numbers of calls and email inquiries received, so you won’t be caught off guard when you start to surpass that amount. Also, know your systems’ ultimate capacity so you can enact a contingency plan should you approach critical mass.

Mobilize your troops

Having an “early warning system” is only one part of being prepared. You also need to be able to mobilize your troops in a hurry. Do you know how to reach all of your board members at any time? Can you efficiently organize volunteers when you need extra hands quickly? Be sure you have:

• An up-to-date contact list of board members that includes home, office and mobile phone numbers,
• A process, such as a phone tree, so you can communicate with the board quickly and efficiently, and
• One or more emergency volunteer coordinators who can call and quickly train people when you need them.

Also conduct a mock emergency with staff and volunteers to learn where you’re prepared to ramp up and where you’re not.

Build relationships

A surge in donor interest may mean a surge in media attention. While it might be tempting to say, “not now, we’re busy,” don’t pass up the opportunity to publicize your organization’s mission and the work that’s garnering all the attention.

In most cases, the immediate surge of interest eventually wanes. Before that happens, start to build lasting relationships with new donors and media contacts. Inform them about the work your organization does under “normal” circumstances and suggest ways to get them involved.

3 ideas for recruiting nonprofit volunteers

Erin MiranteAugust 9, 20180 Comment

Most charitable not-for-profits have a never-ending need for volunteers. But finding new ones can be time-consuming — and volunteer searches aren’t always successful. Here are three recruitment ideas that can help.

1. Look nearby

Is your nonprofit familiar to businesses, residents and schools in the surrounding community? People often are drawn to volunteer because they learn of a worthwhile organization that’s located close to where they live or work.

Start to get to know your neighbors by performing an inventory of the surrounding area. Perhaps there’s a large apartment building you’ve never paid much attention to. Consider the people who live there to be potential volunteers. Likewise, if there’s an office building nearby, learn about the businesses that occupy it. Their employees might have skills, such as website design or bookkeeping experience, that perfectly match your volunteer opportunities.

Once you’ve identified some good outreach targets, mail or hand-deliver literature introducing your nonprofit as a neighbor and describing your needs. Consider inviting your neighbors to a celebration or informational open house at your offices.

2. Fine-tune your pitch

By making your pitches as informative and compelling as possible, you’re more likely to inspire potential volunteers to action. Specifically, explain the:

• Types of volunteer jobs currently available
• Skills most in demand
• Times when volunteers are needed
• Rewards and challenges your volunteers might experience

When possible, incorporate photographs of volunteers at work — along with their testimonials. And make it easy for people to take the next step by including your contact information or directing them to your website for an application.

3. Reach out to your network

Develop a system for keeping those closest to your organization — major donors, board members and active volunteers — informed of your volunteer needs. These individuals often are influential in their communities, so a request from them is more likely to get people’s attention. They may even frame a request for assistance in the form of a challenge, with the solicitor being the first to volunteer their time or funds, of course.

Remain in pursuit

No matter how precise or thorough your initial recruiting efforts, remember that one-time or sporadic efforts are insufficient to attract a steady supply of volunteers. To get the resources you need, make volunteer recruitment a continuous process that draws on several strategies.