Non-Profits Archives - Page 6 of 39

Nonprofit Fundraising: From Ad Hoc to Ongoing

Non-Profits|August 11, 2021

When not-for-profits first start up, fundraising can be an ad hoc process, with intense campaigns followed by fallow periods. As organizations grow and acquire staff and support, they generally decide that fundraising needs to be ongoing. But it can be hard to maintain focus and momentum without a strategic plan. Here’s how to create one.

Building on past experience

The first step to a solid fundraising plan is to form a committee. This should consist of board members, your executive director and other key staffers. You may also want to include major donors and active community members.

Committee members need to start by reviewing past sources of funding and past fundraising approaches and weighing the advantages and disadvantages of each. Even if your overall efforts have been less than successful, some sources and approaches may still be worth keeping. Next, brainstorm new donation sources and methods and select those with the greatest fundraising potential.

As part of your plan, outline the roles you expect board members to play in fundraising efforts. For example, in addition to making their own donations, they can be crucial links to corporate and individual supporters.

Developing an action plan

Once the committee has developed a plan for where to seek funds and how to ask for them, it’s time to create a fundraising budget that includes operating expenses, staff costs and volunteer projections. After the plan and budget have board approval, develop an action plan for achieving each objective and assign tasks to specific individuals.

Most important, once you’ve set your plan in motion, don’t let it sit on the shelf. Regularly evaluate the plan and be ready to adapt it to organizational changes and unexpected situations. Although you want to give new fundraising initiatives time to succeed, don’t be afraid to cut your losses if it’s obvious an approach isn’t working.

Maintaining strong cash flow

Don’t wait until your nonprofit’s coffers are nearly dry before firing up a fundraising campaign. Fundraising should be ongoing and constantly evolving.

As always, please reach out to WCS for advice on maintaining strong cash flow.

Fiduciary Duties: What Nonprofit Board Members Need to Know

Non-Profits|July 28, 2021

It takes more than dedication and enthusiasm for your cause and programs to make a good nonprofit board member. The most critical duty for all board members is being a fiduciary. This means, among other things, that they can be trusted to always act in their nonprofit’s best interests, avoid unnecessary risk, make decisions thoughtfully and execute them efficiently.

Core duties

Not all board members are aware of their duties — and it’s up to your organization to ensure they understand them. In general, a fiduciary has three primary duties:

Care. Board members must exercise reasonable care in overseeing the organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand the nonprofit’s mission, programs and structure, make informed decisions, and consult others — including outside experts — when appropriate.
Loyalty. Board members must act solely in the best interests of the organization and its constituents, and not for personal gain.
Obedience. Board members must act in accordance with the organization’s mission, charter and bylaws, and any applicable state or federal laws.

If your board members violate these duties, they may be held personally liable for any financial harm your organization suffers as a result.

Improper Transactions

One of the most challenging — but critical — components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when a nonprofit organization does business with:

A board member,
An entity in which a board member has a financial interest, or
Another company or organization for which a board member serves as a director or trustee.

To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.

The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.

Educating your Board

To help your board carry out its duties, provide new members with an orientation that educates them in the basics of nonprofit finance and accounting. Also regularly provide an updated list of responsibilities that covers financial documents, compliance requirements and risk management.

Contact us. We can help inform your board and ensure it meets its fiduciary duties.

Pondering the Possibility of a Company Retreat

Industries|July 27, 2021

As vaccination levels rise and major U.S. population centers fully reopen, business owners may find themselves pondering an intriguing thought: Should we have a company retreat this year?

Although there are still health risks to consider, your employees may love the idea of attending an in-person event after so many months of video calls, emails and instant messages. The challenge to you is to plan a retreat that’s safe, productive and enjoyable — and that doesn’t unreasonably disrupt company operations.

Mixing Business with Fun

First, nail down your primary objectives well in advance. Determine and prioritize a list of the important issues you want to address but include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.

If one of the objectives is to include time for socializing or recreational activities, great. Mixing business with fun keeps people energized. However, if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One way to find the right mix is to consider scheduling work sessions for the morning and more fun, team-building exercises later in the day.

Craft a Flexible Budget

Next, work on the budget. Determining available resources early in the planning process will help you set limits for variable costs such as location, accommodations, food, transportation, speakers and entertainment.

Instead of insisting on certain days for the retreat, select a range of possible dates. Doing so widens site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.

The good news is that the hospitality industry is generally trying to rebound from the very difficult downturn it suffered because of the pandemic. So, you may be able to find some special deals offered to “draw out” companies that haven’t held a retreat in a while.

Also, if you wish to truly minimize the health risks, you might want to focus on venues with outdoor facilities, such as farms or golf resorts. You could hold sessions mostly outdoors (weather permitting, of course) where it’s very safe.

Reunite and Reenergize

Holding a company retreat this year may be a great way to reunite and reenergize your workforce. As convenient and practical as video meeting technology may be, there’s nothing quite like seeing each other in person. We can help you assess the costs and establish a reasonable budget that supports an enjoyable, productive and cost-effective retreat. Contact us today!

Nonprofits: Heed these Financial Danger Signs

Non-Profits|July 14, 2021

Many not-for-profits are just starting to emerge from one of the most challenging environments in recent memory due to the COVID-19 pandemic. Even if your organization is in good shape, don’t get too comfortable. Financial obstacles can appear at any time and you need to be vigilant about acting on certain warning signs. Consider the following.

Budget variances

Once your board has signed off on a budget, you should carefully monitor it for unexplained variances. Although some variances are to be expected, staff should be able to provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, work to mitigate negative variances by, for example, cutting expenses.

Also make sure you don’t:

Overspend in one program and funding it by another,
Dip into operational reserves,
Raid an endowment, or
Engage in unplanned borrowing.

Such moves might mark the beginning of a financially unsustainable cycle.

Messy financials

If your financial statements are untimely and inconsistent or aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP), you could be heading for trouble. Poor financial statements can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing.

Insist on professionally prepared statements as well as annual audits. Members of your organization’s audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Declining donations

Let’s say you’ve noticed a decline in donations. Then you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances or leadership. Investigate immediately.

Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean your nonprofit is scrambling for cash.

Faulty leadership

Even the most experienced and knowledgeable nonprofit executive director shouldn’t have absolute power. Your board needs to step in if an executive tries to ignore expense limits and breaks other rules of good fiscal management. The board also should question an executive who attempts to choose a new auditor or makes strategic decisions without the board’s input.

Don’t ignore the signs

If one of these danger signs appears, it’s important to act swiftly. Financial problems don’t disappear on their own.

Contact us for help evaluating the situation and for advice on how to get your organization back on track.

Rebuilding your Nonprofit’s Operating Reserves

Non-Profits|July 1, 2021

Events of the past year put a dent in many not-for-profit’s reserves. Perhaps you tapped this stash to buy personal protective equipment or to pay staffers’ salaries when your budget no longer proved adequate. As the pandemic wanes and economic conditions improve, you’ll need to start thinking about rebuilding your operating reserves.

Back on steady ground

Assembling an adequate operating reserve takes time and should be regarded as a continuous project. Obviously, it’s nearly impossible to contribute to reserves when you’re under financial stress. But once you feel your nonprofit is on steadier ground, your board of directors needs to determine what amount to target and how your organization will reach that target. It’s also a good time to review circumstances under which reserves can be drawn down.

Reserve funds can come from unrestricted contributions, investment income and planned surpluses. Many boards designate a portion of their organizations’ unrestricted net assets as an operating reserve. On the other hand, funds that shouldn’t be considered part of an operating reserve include endowments and temporarily restricted funds. Net assets tied up in illiquid fixed assets used in operations, such as your buildings and equipment, generally don’t qualify either.

Protection and flexibility

Determining how much should be in your operating reserve depends on your organization and its operations. Generally, if you depend heavily on only a few funders or government grants, your nonprofit probably will benefit from a larger reserve. Likewise, if personnel costs are high, your organization could use a healthy reserve cushion.

Three months of reserves is typically considered a minimum accumulation. Six months of reserves provides greater security. A three-to-six-month reserve should enable your organization to continue its operations for a relatively brief transition in operations or funding. Or, in the worst-case scenario, it would allow for an orderly winding up of affairs.

An operating reserve of more than six months provides greater protection if, for example, something similar to the COVID-19 lockdown occurs again. And a bigger reserve can give you financial flexibility. For example, you might have the funds to pursue a new program initiative that’s not fully funded, or to leverage debt funding for needed facilities or equipment.

No hoarding

Note that it’s generally not a good idea to put aside more than 12 months of expenses. Increasingly, donors want to see the nonprofits they support put funds to work, not hoard them.

Contact us for more information about operating reserves and setting policies that are appropriate for your organization.

Nonprofits: Hit your Targets with Benchmarking

Non-Profits|June 24, 2021

How committed is your not-for-profit organization to benchmarking? Perhaps you think it makes sense in the for-profit sphere, but not as much for charities and other nonprofits. If so, you’re probably missing out on benefits — including long-term sustainability. Here’s how to overcome reluctance and learn to love benchmarking.

True impact

Even if your staff and board believe benchmarking fails to capture the true impact of your programs, consider what other stakeholders think. Funders, in particular, increasingly rely on benchmarks to assess effectiveness when making funding decisions.

Benchmarking also provides critical information when developing and executing strategic plans. It can help you identify strengths, weaknesses and opportunities. And benchmarking allows not-for-profits to keep a steady eye on financial health.

Choose the right metrics

When you’re ready to move ahead with benchmarking, it’s critical that you select the right metrics. They could relate to a variety of areas, from fundraising (for example, dollars raised or average gift amount) to online presence (number of followers or retweets).

Many nonprofits, though, begin by focusing on:

Program efficiency (program expenses / total expenses). This is a popular metric with funders. It measures the amount you spend on your mission vs. administrative expenses. The ideal ratio is 1:1, but because this is unlikely, benchmarking your score against your peers’ is necessary to evaluate your efficiency.

Organizational liquidity (expendable net assets / total expenses). This measure considers the percentage of annual expenses that can be covered by expendable equity (as opposed to reserves or restricted assets). Higher scores mean greater liquidity.

Operating reliance (unrestricted program revenue / total expenses). This calculation shows whether you could pay all your expenses solely from program revenues. A figure close to 1:1 is very strong. But, again, comparing it with your peers’ ratios will tell you if you’re on solid ground.

You must be able to gather the requisite data, whichever metrics you end up using. That’s where nonprofit rating sites such as Charity Navigator and GuideStar are useful. The sites calculate scores for some of the most common metrics and provide data on other, comparable organizations. You also might tap trade association and government databases (for example, the IRS’s Tax-Exempt Organization Search) for information, including audited financial statements.

Getting started

Start benchmarking by conducting a root-cause analysis of the areas with the lowest scores to get to the bottom of the problems. Then develop short- and long-term solutions.

Contact us with your questions and for help choosing the right benchmarks, collecting data and developing improvement plans.

Whistleblower Policies protect both Staffers and your Nonprofit

Non-Profits|June 16, 2021

According to the Nonprofit Times, only 41% of not-for-profits have whistleblower policies. Perhaps nonprofit leaders believe their organizations are too small or collegial to worry about illicit activities — let alone people reporting them. Or perhaps a whistleblower policy seems like one more thing that requires time and money they don’t have. This is a mistake. Here’s why.

Why you should bother

No federal law specifically requires nonprofits to protect people who risk their jobs to report illegal or unethical practices. Instead, various federal, state and local laws contain whistleblower protection provisions, including the Sarbanes-Oxley Act and The Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, nonprofits are asked on IRS Form 990 to report whether they’ve adopted a whistleblower policy.

Adopting a whistleblower policy increases the odds that you’ll learn about activities before the media, law enforcement or regulators do. Encouraging stakeholders to speak up also sends a message about your commitment to good governance and ethical behavior.

What it should say

Your policy should be tailored to your organization’s unique circumstances, but most policies need to spell out who’s covered. In addition to employees, volunteers and board members, you might want to include clients and third parties who conduct business with your organization, such as vendors and independent contractors.

Also specify covered misdeeds. Financial malfeasance often gets the most attention. But you might also include violations of organizational client protection policies, conflicts of interest, discrimination and unsafe work conditions.

And how should whistleblowers report their concerns? Must they notify a compliance officer or can they report anonymously? Is a confidential hotline available? Whom can whistleblowers turn to if the designated individual is suspected of wrongdoing?

What to do with a report

Covered individuals need to know how you’ll handle reports once they’re submitted. Your policy should state that every concern will be promptly and thoroughly investigated and that designated investigators will have adequate independence to conduct an objective query.

Also describe what will happen after an investigation is complete. For example, will the reporting individual receive feedback? Will the individual responsible for the illegal or unethical behavior be punished? If your organization opts not to take corrective action, document your reasoning. Finally, explain in your policy that although you’ll do everything possible to maintain the whistleblower’s anonymity, you can’t guarantee it if the whistleblower needs to act as a witness in criminal or civil proceedings.

How to act now

Make sure you have your attorney review your whistleblower policy before releasing it. For more information about encouraging staffers to speak up when necessary, contact us. We can help you strengthen internal controls and implement a confidential reporting hotline.

Defrauded? How to Help your Nonprofit Recover

Non-Profits|June 3, 2021

Thousands of not-for-profit organizations fall victim to embezzlement schemes every year — some even losing millions of dollars. But losses go beyond actual dollar amounts. The hit to a group’s reputation may scare off donors, grantmakers and other supporters. However, with the right response, nonprofits can bounce back from fraud. Here’s how.

One best practice

A study published in the Journal of Accounting, Ethics & Public Policy makes the case that the specific steps an organization takes following a fraud incident can mitigate significant reputational damage. In its hypothetical example, the study lists several ways a nonprofit might act after discovering money has been embezzled:

Make a formal apology,
Undergo an external audit,
Improve the board of directors’ oversight function,
Pursue legal action against the guilty party,
Improve internal controls, and
Terminate the executive director.

The study found that improving board oversight was the only response to elicit a statistically significant positive effect on supporters’ intentions to donate. Stronger oversight also helped restore an organization’s perceived trustworthiness.

To signal improved board oversight to would-be donors, the authors suggested that an embezzled organization start requiring board members to be completely independent from management and bar employees from serving on the board. Researchers also informed study participants that a nonprofit should increase the number of voting board members and mandate that at least one member has a financial or accounting background. Participants were further told that all board members must review the financial statements at least monthly.

Comply with regulations

The study’s authors call improving board oversight “an ideal image repair strategy” because it comes at a relatively low cost. But while reputational repair is of utmost importance, it’s not the only consideration for victimized nonprofits. If your nonprofit loses funds to fraud, it must comply with federal and state reporting obligations, too.

The IRS generally requires organizations to report any “significant diversion” of assets on Form 990. A significant diversion happens when the gross amount of all diversions discovered during the tax year exceeds the lesser of 1) 5% of gross receipts for the year, 2) 5% of total assets at year end or 3) $250,000. Check with your state for other required reporting.

Act now

You may be able to save yourself a lot of heartache by preventing rogue employees from committing fraud in the first place. Tighten internal controls and board oversight now. And just in case a criminal slips through the cracks, be ready with a fraud contingency plan that can guide you in the aftermath of an incident.

Contact us for help with controls or to investigate fraud.

digital sales tax | CPAs in Baltimore County | Weyrich, Cronin & Sorra

Maryland Sales and Use Tax on Digital Products

NEWS|March 18, 2021

The Maryland legislation recently overrode Governor Hogan’s veto of House bill 932. The bill expands the current 6% sales and use tax to include the sale of digital products. Maryland recently published Business Tax Tip #29 Sales of Digital Products and Digital Code which gives a nonexclusive lists of possible digital products such as but not limited to:

A sale, subscription or license to access content online
A sale, subscription or license to use a software application
Photographs, artwork, illustrations, graphics and similar products

The release points out that the sales and use tax does not apply to the sale of a non-taxable service performed electronically unless the service results in a digital product. To view the Comptroller’s release click here.

For more details on the recent change to the sales and use tax rules please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

A reminder that the Comptrollers Office Of Maryland recently extended the Sales and Use tax deadline for sales taking place in March, April, and May of 2021 to July 15, 2021.

Get smart when tackling estate planning for intellectual property

Tax Prep, Planning & Strategy|August 20, 2020

If you’ve invented something during your lifetime and had it patented, your estate includes intellectual property (IP). The same goes for any copyrighted works. These assets can hold substantial value, and, thus, must be addressed by your estate plan. However, bear in mind that these assets are generally treated differently than other types of property.

4 categories of IP

IP generally falls into one of four categories: patents, copyrights, trademarks and trade secrets. Let’s focus on only patents and copyrights, which are protected by federal law in order to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to benefit economically from their work for a certain period.

In a nutshell, patents protect inventions, and the two most common are utility and design patents. Under current law, utility patents protect an invention for 20 years from the patent application filing date. Design patents last 15 years from the patent issue date. For utility patents, it typically takes at least a year to a year and a half from the date of filing to the date of issue.

When it comes to copyrights, they protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, film and photographs. Unlike patents, which must be approved by the U.S. Patent and Trademark Office, copyright protection kicks in as soon as a work is fixed in a tangible medium.

Valuing and transferring IP

Valuing IP is a complex process. So, it’s best to obtain an appraisal from a professional with experience valuing this commodity.

After you know the IP’s value, it’s time to decide whether to transfer the IP to family members, colleagues, charities or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will affect your decision. But you also should consider your income needs, as well as who’s in the best position to monitor your IP rights and take advantage of their benefits.

If you’ll continue to depend on the IP for your livelihood, for example, hold on to it at least until you’re ready to retire or you no longer need the income. You also might want to retain ownership of the IP if you feel that your children or other transferees lack the desire or wherewithal to take advantage of its economic potential and monitor and protect it against infringers.

Whichever strategy you choose, it’s important to plan the transaction carefully to ensure your objectives are achieved. There’s a common misconception that, when you transfer ownership of the tangible medium on which IP is recorded, you also transfer the IP rights. But IP rights are separate from the work itself and are retained by the creator.

Revise your plan accordingly

If you own patents or copyrights, you probably have great interest in who’ll take possession of your work after you’re gone. Contact us with any questions on how to incorporate IP in your estate plan.