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Category Archives: Nonprofit Organizations

10 best practices of a nonprofit/donor relationship

Erin Mirante0 Comment

The Donor Bill of Rights was designed about 25 years ago as a blueprint of best practices for not-for-profits. Some critics have since asserted that the rights are out of date or not comprehensive enough. However, revisiting the list’s basic principles can help you build solid relationships with donors — and even boost fundraising.

10 rights

Here are the rights and what they might mean for your nonprofit:

1. To be informed of the organization’s mission, how it intends to use donated resources and its capacity to use donations effectively for their intended purposes. This information is the bedrock of your outreach efforts and should be clear to your board, staff and anyone reading your organization’s materials.

2. To be informed of who’s serving on the organization’s governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities. You must be transparent about who serves on your board, their responsibilities and the decisions they’re making.

3. To have access to the organization’s most recent financial statements. Make your nonprofit’s financial data easily accessible to constituents, potential donors and charitable watchdog groups.

4. To be assured gifts will be used for the purposes for which they were given. Donors expect that you’ll minimize administrative expenses so their funds are available for programming and that you’ll honor any restrictions they’ve placed on gifts.

5. To receive appropriate acknowledgment and recognition. In addition to thanking donors, provide them with the substantiation required for a federal tax deduction and information about the charitable deduction rules and limits.

6. To be assured that donation information is handled with respect and confidentiality to the extent provided by law. Post your organization’s privacy policy on your website and be clear about what information you’re gathering about donors and how that information will be used.

7. To expect that relationships between individuals representing organizations and donors will be professional. Staff and board members should be trained in proper donor interaction — both off- and online.

8. To be informed whether fundraisers are volunteers, employees of the organization or hired solicitors. Again, transparency about your operations is critical.

9. To have the opportunity for donors’ names to be deleted from mailing lists that an organization may intend to share. Donors, not your nonprofit, get to decide whether their information can be shared. Make it easy for donors to opt out of email and other lists.

10. To feel free to ask questions and receive prompt, truthful and forthright answers. Open dialogue between your nonprofit and your donors fosters respect and deepens relationships.

Contact us for help implementing these 10 tenets or developing a customized donor bill of rights.

© 2018

Charitable Solicitation License Refresher

Pam Williams0 Comment

By Rebecca Lunn

In the nonprofit arena, charitable solicitation licenses are a necessity for certain fundraising efforts. If you are an organization or individual that asks the public for contributions or donations to support a charitable purpose, a charitable solicitation license (“CSL”) is needed, unless specifically exempt by law. As many states have laws regulating the solicitation of funds for charitable purposes, it is important to check the requirements for each state your organization operates in to ensure compliance.

For organizations based in North Carolina whom are currently registered with the NC Secretary of State (SoS) Charities Bureau, keep in mind the following renewal requirements:

·       The NC SoS notifies by mail all organizations who already hold licenses 65 days prior to their annual renewal date of the renewal requirements.  Typically, each organization files its own CSL renewal directly with the NC SoS.

·       The NC SoS has published on its website that all organizations who have a current CSL should disclose its licensure status, such as including a statement with the following wording on all solicitations: “Financial information about this organization and a copy of its license are available from the State Solicitation Licensing Branch at 919-807-2214 or 888-830-4989 for NC Residents.”

·       Licenses are generally due 4 ½ months following the fiscal year-end date of the organization; however, all organizations in “current” standing with the NC SoS receive a 60-day extension without having to request it.  For example, a calendar year organization in current standing has a CSL renewal due date of July 15th in reliance on the automatic 60-day extension.  Absent current standing status, an organization will be subject to late filing penalties upon its eventual updating of its record with the NC SoS.

·       If more time is needed to file the CSL renewal, an additional 30-day extension is available to the organization by filing a copy of the Federal Form 8868 (extension for IRS Form 990) prior to the expiration of the automatic 60-day extension.  As a result, a calendar-year organization may, by timely-filed request, extend the period of time for CSL renewal to August 15th.

·       When the CSL renewal is actually prepared, organizations must comply with the annual financial disclosure requirements via submission of one of the following: (1) a copy of the duly executed Form 990, (2) copy of the Audited Financial Statements, or (3) completing a NC SoS “Annual Financial Report” signed by 3 members of the organization’s board of directors, finance committee or audit committee. 

If you are an organization who needs assistance or has additional questions on the Charitable Solicitation License requirements or renewal process, our accounting professionals at Langdon & Company would be glad to assist. Please contact us at 919-662-1001 for further information.

Also, for further information specific to the North Carolina filing requirements, please visit https://www.sosnc.gov/csl/ThePage.aspx. 

Rebecca [email protected] is an Audit Senior who works primarily with non-profit organizations.

Nonprofits: Choosing or Changing the Fiscal Year-End

Pam Williams0 Comment

by Lee Byrd

What is a fiscal year? A fiscal year is the period used for calculating annual (“yearly”) financial statements in businesses and other organizations. Many nonprofits have a fiscal year-end of June 30th. However, this is not a requirement and the organization’s fiscal year can end whenever the nonprofit should chose, as long as the end date is specified in the organizational documents.

So how should a nonprofit chose the best fiscal year-end for the organization? Some things to consider include:

  • Program year – the organization’s fiscal year should coincide with its program year so that one year’s program activities should not fall into two fiscal years. For example, if the majority of the nonprofit’s programs fall during the summer months, June 30th is most likely not the best option for that nonprofit’s fiscal year-end.
  • Grant cycles – Some organizations may find it helpful to align their fiscal year-end with the terms of the organization’s major grants and/or funders. This enables the organization to develop a clean cut-off for grant reporting and simplifies the grants process.
  • Audit evidence – Nonprofits who require an audit generally need time subsequent to year-end to close out the books and gather audit evidence in preparation for the audit. Having a year-end that falls during the organization’s busiest time of year may impact the availability and timeliness of sufficient audit evidence.
  • Debt covenants – For organizations with significant debt covenants, the cyclical nature of the organization’s operations and the impact on the calculation of those covenants should be considered when choosing a year-end.

Once the above factors have been considered and a year-end has been chosen, many nonprofits question the audit and reporting impact of a fiscal year-end change. A year-end change will affect how the nonprofit presents its audited financial statements in the year of change and in the subsequent fiscal year. An organization can chose to extend the period under audit in the year of change or undergo an audit for the short period, plus the original fiscal year. For this reason, it is often common for single year financial statements to be presented rather than comparative statements in the year of change. The need for a comparative financial statement presentation and the costs of an extended or additional audit period should be considered in the year of change.

Lastly, in order to change the organization’s year-end with the IRS, Form 1128 “Application to Adopt, Change, or Retain a Tax Year” will need to be filed along with Form 990 for the short period to bridge the gap between the original year-end and the new year-end. A copy of the nonprofit’s tax exempt ruling letter from the IRS will need to be submitted with along with Form 1128. If an extension is needed for the short-period Form 990, the extension must be filed prior to the initial due date of the new fiscal year. Additionally, the nonprofit will want to review and amend any organizational documents (such as bylaws) that refer to the fiscal year-end.

If you are considering a change to your nonprofit’s year-end, contact Landon & Company LLP for further guidance on your specific situation.

Lee ([email protected]) is an Audit Manager with Langdon & Company LLP.  She works with many healthcare nonprofit organizations.

Gift Tax Exemptions and Avoidance Strategies

Pam Williams0 Comment

by Eric Murphy

Under current IRS regulations, when a donor makes a gift in excess of $14,000, they must file Form 709 to report the gift and pay tax on the excess above $14,000.  This exemption is applicable to each donee the donor makes a gift to in 2016, so they can make one gift for $11,000 to one person and another gift of $12,000 to a different person and they won’t be subject to the tax liability or filing requirement.  Under IRC Sec. 2513, this threshold is increased for married couples to $28,000 per donee, with the donor and spouse having the option of making “Split Gifts”, which essentially result in each of them making half of a gift to a particular donee.  An example of this is a donor giving his friend $26,000 in cash to buy a car.  Under the rule of “Split Gifts”, the donor and his spouse each made a gift of $13,000 to the taxpayer’s friend, therefore neither exceeds the exemption threshold.  However, a gift tax return would need to be filed indicating the gift split option was utilized, even though no tax would be due.

There are also some othgift moneyer ways a donor can make gifts in excess of the exemption without being subject to the filing requirement and liability on the excess, under IRS Publication 950.  Some of these include:

  • Paying the medical expenses for anyone, as long as the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying the tuition expenses for anyone, as long as the payments are made directly to a third party educational institution. Similar to a gift for a donees’ medical expenses, the gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Donors can make unlimited gifts to their spouses.
  • Donors can make gifts to qualified Political Organizations for their objectives. However, these gifts don’t qualify for a charitable contribution deduction on their personal Tax Return.  Gifts to qualified charitable organizations formed under IRC 501(c)(3) are allowed as deductible contributions on the donor’s return and are exempt from the limitation.

The preceding information is a summary of some basics of gift taxation.  If you are in the process of estate planning or want to help out someone in need, please contact Langdon & Company, LLP.  Our tax professionals can discuss your goals with you and develop a strategy that insures that you’ll have more to give to those you care for.

Eric ([email protected]) is a Tax Senior with Langdon & Company LLP.  He works primarily on medical practices, real estate holding companies, and multi-state corporations.

FASB Update

Pam Williams0 Comment

by Josh Bryant

Throughout the calendar year, the Financial Accounting Standards Board, or FASB, meets in order to deliberate on proposed standards and amendments. On March 30, 2016, the authoritative board redeliberated on Topics 954 and 958- of which relate to the presentation of Financial Statements of Not-for-Profit Entities. These pronouncements affect entities that are required to evaluate whether they should consolidate certain legal entities either using the variable interest entity, or the voting interest entity model for consolidation of limited partnerships and similar legal entities.

The discussion was primarily focused on the effective date and the transition method utilized for any not-for-profit or health care entity for which the standard applies.

Effective Date

The Board has decided that the amendments will take affect for financial statements relating to fiscal years beginning after December 15, 2017, and for interim statements following December 15, 2017.

Transition Method

“The Board has decided that not-for-profit entities, or NFPs, should apply the amendments on a retrospective basis for all years presented in the financial statements.”  The Board also made concessions for NFPs during this transitional stage to enable the organization to do so cost effectively. The following two items are optional for any organization that uses presents financials statements on a comparative basis for any years before adoption:

  • Analysis of expenses by both functional and natural classification.
  • Disclosures regarding liquidity and availability of resources.

Furthermore, the Board decided it would be permitted for NFPs to present interim financial statements in the year of adoption as they did prior to the amendment, however, subsequent restatement of the financial statements at year-end would be required on a retrospective basis.

The Board also discussed the application of the consolidation process for not-for-profit entities that are a general partner in a for-profit limited partnership. A result of these discussions is still forthcoming, however, they have decided to reinstate the current guidance that existed in Subtopic 910-20, Consolidation- Control of Partnerships and Similar Entities, and included it within Subtopic 958-810, Not-For-Profit Entities- Consolidation.

To conclude, however long it may be before these amendments become effective- it is always prudent to plan ahead in order to maintain forward longevity in the competitive business environment for not-for-profits.

If you have additional questions about these differences, please contact our office.  We would appreciate the opportunity to share with you the impact to your organization and ways to prepare for the upcoming changes.

Josh ([email protected]) is an audit staff working primarily with not-for-profits and healthcare organizations.

 

Refer to this site for additional updates.

Changes in NC Behavioral Healthcare

Pam Williams0 Comment

by Rachel Owens

Consolidation of the state-funded management organizations has been officially declared!

Currently, there are eight LME/MCOs across North Carolina.  The consolidation will reduce the number of LME/MCOs down to four, by combining the catchment areas into contiguous regions.  The LME/MCO’s that are merging are: Smoky Mountain + Partners, Cardinal + CenterPoint, Trillium + Eastpointe, and Alliance + Sandhills. LME_MCO_ConsolidationMap

No timeline has been established for the transition, but the hope is that it will not take more than two years to implement.  The first merger will be between CenterPoint and Cardinal Innovations – somewhere between May 1 and June 30. This change affects each county from “Murphy to Manteo.”  Read more about the consolidation in Rose Hoban’s recent article in NC Health News .

Langdon & Company LLP is committed to assisting the mental health provider population in any way we can.  Please contact our office if you have questions on how these changes will affect your organization.

 

New Registration Requirements for 990-N postcard Filers

Pam Williams0 Comment

by Kendall TysonIRS_logo-233x300

Effective February 29, 2016, the IRS will launch a new website for submitting Form 990-N filings.  Most organizations exempt from income tax under section 501(a) must file an annual information return or submit an annual electronic notice (990-N).  An organization that normally has gross receipts of $50,000 or less must file the 990-N if it chooses not to file Form 990 or Form 990-EZ.

Previously all 990-N filings were completed and filed through the Urban Institute Form 990-N submission website.  However, their website will permanently close on February 28, 2016.  Per the Urban Institute website, “any Form 990-N filings in the Urban Institute system  that have not been completed and submitted by 11:59 pm (eastern) on February 28, 2016, will be lost and will not be submitted to the IRS.  Those Form 990-N filings will need to be entered into the new IRS system beginning February 29, 2106.”

Beginning on February 29, 2016, all 990-N users will need to complete a one-time registration with the IRS before they can complete the 990-N filing.  Form 990-N is due every year by the 15th day of the 5th month after the close of an organization tax year.  There is no paper form for the filing, and all 990-N filings must be completed and filed electronically.

All 990-N filers should plan their filings according to the new website and registration requirements in order to avoid any unexpected delays in completing their annual filing.  Langdon & Company LLP will be happy to help deal with this regulatory change.  Please contact our office for additional information.

Kendall ([email protected]) is a Manager in our Tax practice.  She focuses on various corporate clients and their industry-specific issues.

Thanking Donors – What’s required by the IRS?

Pam Williams0 Comment

by Meagan Bulloch

As year-end fundraising drives have now ended, the development departments of many non-profits are busy preparing contribution acknowledgements or “thank you” letters.  So, how can these non-profits ensure they give the donors what they expect and what the IRS requires?

If a monetary contribution was made for which the organization did not provide any good or service in return, the donor is required to have a bank record or written acknowledgement of the gift before they can claim a charitable contribution deduction on their federal tax return.  It is acceptable if the acknowledgement is provided electronically to the donor but many organizations still find value in mailing personalized thank you letters.

If the donation received is greater than $250, a basic thank you note not will not suffice as adequate support for the IRS.  To aid your donors the organization should provide the following information in the acknowledgement/thank you letter:

  • Name of your organization
  • Statement that the non-profit is a recognized tax-exempt entity under IRS under Section 501(c)(3)
  • Amount of cash contribution or description of non-cash donation (but NOT the value)
  • Date the donation was received
  • A statement that no goods or services were provided by the organization in return for the contribution

Separate acknowledgements can be provided for each contribution exceeding $250, or an annual acknowledgement can be provided if more practical. Best practice is that acknowledgement(s) should be provided to donors no later than January 31 of the year following the donation.

If your organization received a quid pro quo contribution, when a donor makes a payment exceeding $75 that is comprised of both a contribution and a good or service provided by the organization, the organization is required to provide a written disclosure.

Example – The organization holds a dinner valued at $40 and charges a ticket price of $100, the donor’s tax deduction is limited to $60.  However, because the total amount paid was greater than $75, the organization must provide a disclosure statement to the donor even though the value of the contribution is less than $75.  The disclosure statement provided to donors should include:

  • A statement informing the donor of the amount of the contribution that is tax deductible – limited to the excess of the contribution less than fair market value of the goods or services received
  • A good faith estimate of the fair market value of the goods and services

A penalty is imposed on charities that do not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may avoid the penalty if it can show that failure to meet the requirements was due to reasonable cause.

But what if…

Gifts in-kind with a market value in excess of $5,000 may require an appraisal (that the donor can be required to pay for)

The above guidelines are detailed in the IRS Publication 1771, these rules do not apply to a donated motor vehicle, boat or airplane if the claimed value exceeds $500.  (See IRS Publication 4302, A Charity’s Guide to Vehicle Donations and IRS Publication 4303, A Donor’s Guide to Vehicle Donations).

Meagan ([email protected]) is an Audit Manager at Langdon & Company LLP.  She works primarily with non-profits in various industries.

Adult Care Home News

Pam Williams0 Comment

by Rachel Owensdhhs

We now have some clarity when it comes to DHHS compliance for Adult Care Homes (ACH).  Last year, the North Carolina General Assembly passed General Statute 131 D-4.1-4.3. It was under this statute, that the Adult Care Cost Report requirement returned.  These cost reports are mandatory for facilities receiving State/County Special Assistance Program funds. Types of facilities subject to this requirement include nursing home combination facilities with adult care beds, mental health supervised living facilities, and all other  adult care homes (Licensed under general Statute Chapters 131E, 122C, and 131D, respectively).

In addition to these cost reports, any of these facilities that are licensed for 7 or more beds, are to be audited.  This audit is of the cost report information in the form of Agreed-Upon-Procedures (AUPs), that must be done by a certified public accountant (CPA)/independent accountant.

The requirements for the combination facilities are slightly different since they are based on the Medicare’s requirements of Skilled Nursing facilities.  Combined nursing facilities should submit a cost report and related AUPs based on their last completed Medicare cost report, which in most cases covers October 2013 through September 2014.

Important Dates:  For the mental health facilities, the reporting period is July 1, 2014 through June 30, 2015.  The reporting period for adult care home facilities is October 1, 2014 through September 30, 2015.

The due date is December 31, 2015 for all facilities.

All facilities that do not receive any funds through the State/County Special Assistance Program are considered exempt and an exemption form must be completed.  This form can be found on the DHHS Office of the Controller’s website at www.ncdhhs.gov/control.

Nursing-homeThe ACH cost report software is also available online, here.  All questions related to the AUPs can be addressed to [email protected].  If you have questions about cost report and AUP preparation, please contact our office.

Building an Effective Board of Directors

Pam Williams0 Comment

by Rebecca Lunnhands raised

For many organizations, the board of directors is one of their most important tools. A good board of directors can steer the organization in the right direction by adopting comprehensive governance and financial management policies, and ensuring the prudent use of all assets. However, in order to provide sound financial oversight, board members must have a certain level of financial literacy to properly understand the organization’s financial statements.

L&C audit partner, Pam Williams, notes that a board member orientation including information on the financial statements and accounting and audit processes, as well as mission and operational matters, is a good way to educate new board members. An effective board should also have at least one member with a financial background. The organization could even consider having the board member with financial expertise, or the organization’s CFO or Controller, conduct an annual training session for the full board.

Audit partner Karen Stanley states, “You will often rely on the financial experts on the board and outside consultants, such as the organization’s CPA, to interpret the statements for you. But it’s important to remember that everyone has a duty of care to the board.” Perhaps most importantly, board members should be encouraged to ask questions when trends or budget versus actual comparisons appear unreasonable. A simple task, such as reviewing the board financial packets prior to the meeting, can help a board member increase their financial knowledge and be more prepared to ask questions during the board meetings. By taking steps such as these, board members can increase their level of financial expertise in order to fulfill their role and responsibility to the organization.

Additional information can be found online here and here.  Please also feel free to contact our office with any questions you have!

Rebecca is an audit senior with Langdon & Company LLP.  She has experience working with various non-profits, across many industries.