Non-Profits Archives - Page 9 of 42

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.

ERM: A systemic approach to reducing your nonprofit’s risks

Accounting & Assurance|August 19, 2020

Do you associate enterprise risk management (ERM) with for-profit businesses? This systemic approach to risk reduction can be just as effective when adopted by nonprofit organizations. Even organizations with limited resources can — and should — use an ERM process to combat threats.

Weighing risks

ERM is a comprehensive program that considers an organization’s entire portfolio of risks. Rather than attacking every risk equally, ERM compares risks and strategically deploys resources depending on their likelihood and potential impact.

You might also have different tolerances for different kinds of threats — for example, be mildly cautious about reputational risks and very averse to financial risks. With ERM, you can contain those risks with the greatest potential impact and respond nimbly to others.

Using it effectively

Experienced financial advisors and risk-management consultants can help you set up an ERM program. Generally, you’ll want to start by establishing a risk management governance structure with assigned roles and responsibilities. Your nonprofit’s executives and board should define the organization’s risk tolerance and make clear its commitment to the program.

Next, your organization will want to:

Assemble a cross-departmental committee to develop the program. Different departments may have different perspectives on certain risks. For example, a finance manager might think inaccurate reporting of program information is less consequential because it’s unlikely to affect revenues or expenses. Your public relations manager may disagree, arguing that such errors could affect how donors and other supporters view your nonprofit.

Conduct a risk assessment. The committee’s first task is to identify risks. It shouldn’t rely on its own knowledge, but should conduct interviews with management and staff and, possibly, clients. Then, the committee will be ready to rank risks based on your organization’s tolerance and their potential impact. Which are most likely to occur? Which could cause the most harm? The bottom line: Which threats are most likely to prevent you from accomplishing your mission?

Create and implement a plan. Once risks are identified and prioritized, the committee can devise a plan to mitigate them appropriately. For each risk, it should determine whether to accept, reduce or avoid it. And it should implement controls, processes and procedures accordingly. The committee is then charged with rolling out the plan. This should include communicating it throughout the organization.

Review and revise. ERM is an ongoing process, with continual monitoring of key risks and key performance indicators to ensure appropriate adjustments. Be sure to update your initial risk assessment to reflect organizational changes (for example, new staff or services), as well as changes in the legal and regulatory environment.

Cost-effective method

Once it’s established, you should be able to manage an ERM program with internal staff and board input. So, it’s a fairly cost-effective method of containing threats. Talk to us about adopting ERM.

Why you should keep life insurance out of your estate

Tax Prep, Planning & Strategy|August 18, 2020

If you have a life insurance policy, you probably want to make sure that the life insurance benefits your family will receive after your death won’t be included in your estate. That way, the benefits won’t be subject to the federal estate tax.

Under the estate tax rules, life insurance will be included in your taxable estate if either:

Your estate is the beneficiary of the insurance proceeds, or
You possessed certain economic ownership rights (called “incidents of ownership”) in the policy at your death (or within three years of your death).

The first situation is easy to avoid. You can just make sure your estate isn’t designated as beneficiary of the policy.

The second situation is more complicated. It’s clear that if you’re the owner of the policy, the proceeds will be included in your estate regardless of the beneficiary. However, simply having someone else possess legal title to the policy won’t prevent this result if you keep so-called “incidents of ownership” in the policy. If held by you, the rights that will cause the proceeds to be taxed in your estate include:

The right to change beneficiaries,
The right to assign the policy (or revoke an assignment),
The right to borrow against the policy’s cash surrender value,
The right to pledge the policy as security for a loan, and
The right to surrender or cancel the policy.

Keep in mind that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise the power.

Buy-sell agreements

If life insurance is obtained to fund a buy-sell agreement for a business interest under a “cross-purchase” arrangement, it won’t be taxed in your estate (unless the estate is named as beneficiary). For example, say Andrew and Bob are partners who agree that the partnership interest of the first of them to die will be bought by the surviving partner. To fund these obligations, Andrew buys a life insurance policy on Bob’s life. Andrew pays all the premiums, retains all incidents of ownership, and names himself as beneficiary. Bob does the same regarding Andrew. When the first partner dies, the insurance proceeds aren’t taxed in the first partner’s estate.

Life insurance trusts

An irrevocable life insurance trust (ILIT) is an effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured person. So long as the trust agreement gives the insured person none of the ownership rights described above, the proceeds won’t be included in his or her estate.

The three-year rule

If you’re considering setting up a life insurance trust with a policy you own now or you just want to assign away your ownership rights in a policy, contact us to help you make these moves. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. For policies in which you never held incidents of ownership, the three-year rule doesn’t apply. Don’t hesitate to contact us with any questions about your situation.