We know that many not-for-profit leaders wear multiple hats. You’ve got the strategy, the mission, and the vision set. But to grow the organization, you need to know the ins and outs of running a business, too. That’s why Barnes Dennig and Impact 100 hosted this 1-hour session on tax, accounting, and financial hot topics that our not-for-profit clients want to know more about.
So many great questions, and while we couldn’t get to all of them in our limited time, we’ve collected them here, with answers and insights from our not-for-profit pros.
Do you provide support or consultation to help with QuickBooks Online? It’s impossible to get ahold of anyone through their helpline.
Yes, Ducks In A Row offers support for QuickBooks Online. We do training and we also help with doing financials for non-profit organizations. Contact us via the Ducks In A Row website, or give us a call at 513.831.1000.
If an organization could file a 990-N, can it instead file a 990-EZ?
Yes, absolutely – you can file a full 990 if you want to. Of course, that requires a lot more disclosure, a lot more information to be provided, and there’s an extra cost to do a 990-EZ versus a 990-N. The 990-N is five simple questions you can answer online on the IRS’s website. So, you’ll always have those factors to consider, but absolutely if you’re under $50,000 and you want something to perhaps provide to a funder or an organization that’s asking you for a little bit more detail, you can certainly file a 990-EZ.
Some foundations include public information (grants) as attachments. How can you find these attachments?
The 990 specifically does not allow you to attach anything but the form itself. If you have additional information that falls outside of the parameters of the form, they provided a free-flow form to type anything else that you want, that the organization perhaps thinks is important for the reader on that form, Schedule O, and you can provide as much detailed information as you want.
I’m guessing you’re asking about foundations wanting to give the Schedule B to them, and that’s a sticky wicket to not provide a funder something they’re wanting in order to not give you the money. As long as you don’t have something in your Schedule B that you don’t want to disclose, such as an anonymous donation, I would be hesitant to not provide that information to the foundation. I’m sure they just want to see where your information is coming from. I have heard that it’s been asked many times by foundations, and I guess you have to weigh the value of getting the money versus not providing that information to them.
Can you give an example of an exempt organization’s unrelated business income?
Sure. There are specific things that the IRS just lays out and says “this is unrelated business income” and one of them is debt-financed rent. So, if you own a building and you’re only using perhaps one floor, and it’s two floors, you rent out the second floor and you have debt associated with the purchase of that building, automatically that rent would become unrelated business income. So, I would just always understand what your exempt purpose is, understand the revenue streams that are coming in your organization, and qualify what that revenue stream is and how it is directly connected to your exempt purpose.
How do you find/acquire a more current 501c3 document? Ours is very old.
Very old is okay – it just proves that you’re an organization that has existed and done well. You can request the IRS to provide you one with a more current date. Although during the pandemic, I’m not quite sure how good they’ve been at responding to those requests if it was written on paper because it could be in a pile of paper somewhere at the IRS. Your 501ce letter from the IRS should have a phone number you can call to request an updated letter.
We received a one-time donation to cover sub-contractor costs for the year. Should we set up a liability account for the sub-contractor?
In terms of grants and donations, there are a few factors that determine how to handle this. Typically, if you receive a contribution that’s restricted for a general purpose, you would go ahead and recognize all the revenue and then release it from a restriction as you meet that purpose, but there’s also this topic of conditional contributions, which might be something where the grant that you received has a right of return or release and a more specific barrier on what you must do to earn those funds, and then have to pay back anything that you didn’t end up spending.
If this was considered a conditional contribution, you would record that gift as a refundable advance, which would be a liability, and then you would recognize the revenue as you pay the subcontractor cost. So, there are a couple of things to look at here in terms of whether it’s unconditional or conditional and what that donor restriction is in order to really decide the timing of when that revenue would be recognized.
Is there a way to display the dollar value of volunteer participation somewhere on the 990 so donors can see how well an organization is stewarding this resource? For example, if we paid our volunteers, it would cost over $100,000 each year. Also, how/where can you display the amount of the salaries that go towards programs, fundraising, and general admin expenses on the 990?
Unfortunately, the IRS does not allow you to quantify a general volunteer value. If it’s specific to perhaps an accounting person, a professional, or legal, you can value those and put those on your financial statements, but the IRS would still say on the 990 you cannot quantify those hours as revenue and/or expense. As a free form spot, you could under a program perhaps describe “there were 100 volunteers that performed this program and we quantify it as that,” but it would not go in an expense or a revenue side at all on the 990. And as for the allocation of salaries, there is a statement of functional expense on the 990, it’s page 10 of the full 990 that you allocate based on a reasonable factor of whether those salaries are for program, admin, or for fundraising as well.
Regarding functional expenses, traditionally, non-profits have been encouraged to keep admin and non-program expenses to the absolute minimum. Of late, my sense is that there’s been some rethinking about this – that is, non-profits were not always well-served by this approach. Could you share your perspective?
There has always been a tough thing with non-profits in terms of making sure that those expenses stay within the historical percentages that watchdogs might have provided. So, some funding sources still will put a stipulation on how much expense can go to management in general and fundraising, but I will say a lot of that will depend on the organization, the type of non-profit industry you’re in, and perhaps where the organization is going in terms of some strategic growth or other changes that might be impacting or moving around where those expense percentages typically have fallen. So, I think the Better Business Bureau likes to see program percentage at least 65%, some funding sources like to see that at closer to 75%.
Depending on the type of organization, we’ll often see that program percentage falling somewhere in the 80 to 85% range, but I think it’s really important for the organization and the community to understand that to continue to grow the organization, and provide those services, that those supporting costs and fundraising costs are important. This is something that is continually thought about and talked about, and hopefully, there’ll be a little bit of change in terms of what people are considering when they’re looking at those percentages from a watchdog standpoint.
How often should a non-profit have an internal audit?
If you want to have an independent audit, compilation, or review, that would be conducted annually based on the fiscal year of the organization. Now, whether or not it’s an audit, a review, or a compilation that you’re getting annually will depend on who the users of the financial statements are and what the board and management determines as the type of service they want.
In terms of internal audits, this really will depend on the size of the organization, whether or not that is a function that the organization needs, but it’s important to look at your internal controls and constantly reevaluate them to make sure that there is appropriate segregation of duties, and as there’s turnover in a position, or as the organization grows, that you have all of those controls and processes in place to protect the organization and its assets.
What’s the average cost of an audit for a non-profit < $250,000?
It’s difficult to put an amount on what an audit would cost without knowing the organization – the fees depend on the complexity of the work. We’re happy to consult with you if that’s helpful.
Do you know if QuickBooks Online can report by class?
Yes, QBO can be reported by classes and locations and is utilized by many non-profits. Examples of classes used for non-profits: to track income/expenses for different programs/events, fundraising, and operations. You can even have subclasses. Example Class = Fundraising – under that class you could have several subclasses for different fundraising campaigns. Locations can be used by non-profits to track Restricted and Non-Restricted Funds.
Using classes and locations allows you to run Statement of Activity Reports by Class or Location. It is a great way to see how a specific fundraising campaign or program or event performed.
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