How to Print on Pre-Printed Forms

Stuck with a preprinted form that needs to be filled out but your handwriting may not be that clear? Yes, we still get those once in a while, like the red 1099 form. Strangely enough, these forms may be scanned, and if the letters are not that clear, the information may not transfer properly and it can be a pain.  The IRS may send a letter saying that  the name and social security or employer ID don’t match, for example, because the 1099 scanned changed a letter in the person’s name.

Using a typewriter is out of the question, so, what can you do? You could use Excel to be able to print on the form properly.  Here is a quick tutorial with screenshots and pictures about how you can fill these forms using Excel —

https://www.quill.com/blog/tutorials/how-to-print-on-pre-printed-forms-using-excel.html

Basic Internal Control for Nonprofits

The idea of separation of duties is not that obvious for many organizations, specially the ones with tight budgets, having one person handle too many functions because it seems simple and straightforward.  It’s usually a mistake.

The overall goal of separating duties is to have a system osf checks and balances to prevent losses and mistakes.

See the following articles about this topic:

https://sanfranciscohotelso.weebly.com/department/organizing-an-accounting-departiment

http://www.exemptmagazine.com/management_tips/separation-duties-effective-internal-financial-controls/

http://smallbusiness.chron.com/strengthen-office-billing-accounting-procedures-3933.html

 

 

Kindle Version Available

Nonprofit Finance: A Practical Guide is available now as a kindle book on Amazon:

http://amzn.to/2GF2E8W

 

Grant Audits

Many organizations receive grants and as expected, the federal government is concerned that the grants are spent properly, requiring audits of nonprofit recipients in addition to regular visits from the federal agency staff.

Instead of having a separate audit of each major grant, the Single Audit allows for one independent audit covering all federal grant contracts. It usually combines an audit of the organization and its grants. According to the National Council of Nonprofits, “a single audit covers the entire scope of the organization’s financial operations, ensuring that:

  • The financial statements are presented fairly;
  • The organization has an adequate internal control structure, and that
  • The organization is in compliance with any special government regulations/laws that apply to the specific type of federal funding the audit covers.”

These single audits are required if the nonprofit has spent $750,000 or more in federal funds (This threshold is likely to change in the future). Single audits are performed by independent CPA firms, which usually carry out both regular and single audits within the same engagement, releasing the results in two different reports—one for the regular portion and another for the grant audit.

During a single audit, a CPA firm evaluates the fairness of the financial statements and the schedule of federal financial assistance, which contains information about grants. To this end, auditors assess risk by reviewing prior findings, internal controls, and usage of contractors. Also, CPA personnel should consider the materiality of the funds, with major grants often getting most of the attention.

The Super Circular clarifies that auditors are responsible for following up on any deficiencies, also called “findings.” The nonprofit is supposed to respond with a corrective action plan. All of these documents are forwarded to the appropriate government agency.

Management should be aware of the cumulative grant spending because as the organization gets closer to the $750,000 in annual grant expenses, it should start budgeting for the single audit. It doesn’t come cheap, and grant funds may have to be adjusted to include this cost.

Note that nonprofits may need to have a regular, less detailed audit to comply with grantor or state rules. For example, the states of Connecticut and Hawaii require the filing of audited financial statements of charities with an annual gross income of $500,000 or more regardless of federal funding. This audit is less detailed and cheaper than the Single Audit, but it needs to be done.

 

Excerpted from Nonprofit Finance: A Practical Guide — Second edition –available at Amazon — https://goo.gl/M563u9

No Audit Freak Out

One of the most common audits of a nonprofit organization is the one performed by an independent CPA firm, usually, every year. This work may be a requirement for many grantors who want assurance that the funds have been used properly. Auditors may ask detailed questions or require certain information that may not be readily accessible. However,  there is no need to panic – be prepared and understand the process, which tends to be the same every year. Some tips below are to help you deal with the audit, which is one of those processes that many organizations go through, not just yours.

Tip #1– Sometimes staff with not much experience conduct the audit,  so, try to help them and show them the way, or they may get lost and the audit may take longer. The idea here is to have a helpful, not a defensive attitude. It can be frustrating to have to do this every year with different audit staff, but it’s part of the game. The good news is that it’s common for a former team member in an audit to return the following year as a Sr. or Supervisor so that you won’t have to train auditor again.

Tip #2- Be sure to have all the reports and items mentioned on the audit list, often given to the client a few weeks before the audit. If you don’t have all, call the CPA firm and let them know. Maybe you have other reports or items that can be alternatives to what’s on the list. Your audit may also be postponed until you have all the documents. Most accounting firms schedule nonprofit audits a few months during the year, so you may have some flexibility there.

Tip #3– Hire temp workers or volunteers on an as-needed basis to get all the documentation done, prepare worksheets, and help with filing, copying, and other tasks. Some organizations also use temps to assist with the day-to-day activities while the accounting folks are busy with the auditors. Your accounting staff may not be able to do their regular jobs and at the same time give auditors the attention and information they need. So, help at the right time can lessen the stress. Usually, having temps do a specific task, such as entering invoices for payment, works the best because the work is repetitive and training time is minimum. If you’re lucky to have an accountant on your board or as a volunteer, you can give him or her more involved financial tasks.

Tip #4– Communicate often with the manager responsible for the audit to identify issues or bottlenecks. Sometimes auditors use too technical language that the nonprofit staff may not understand and panic. Or maybe there’s a problem in finding information or explanations for certain transactions that you may be familiar with. The goal is to have a quick, clean audit with no major issues or conflicts. The quicker you know of problems, the smoother the process will be.  Make a point to contact the manager at least once every few days.

Tip #5- Notify everyone in the organization of the upcoming audit, since auditors may need to talk to people in other areas of the nonprofit, such as programs and HR. Warn managers and staff that they may need to present certain things to the auditors, including showing them confidential HR and payroll files and reports. Since auditors usually request the same items and calculations, such as vacation accruals every year, the requests shouldn’t be that surprising. But it’s always good to let people know beforehand.

Other Considerations -Freaking out with questions asked by auditors makes no sense— usually, they follow a pre-set program that may not fit your organization 100%, so you can explain to them the situation in a respectful way and offer alternatives.  Ask the auditors what goals they’re trying to get at.  Maybe they are looking at mitigating a risk that doesn’t really apply to your nonprofit, so let them know about it. CCH – Wolters Kluwer Audit guides, for instance, are very popular with many CPA firms that use their audit programs to guide them through this process.  If you’re interested, you could buy the guides, even if it’s expensive.

You can check the new edition of the book Nonprofit Finance A Practical Guide at https://goo.gl/M563u9

Nonprofit Finance and Management Explained

The second edition of my book, “Nonprofit Finance: A Practical Guide,” is out.  It includes detailed coverage of FASB update regarding reporting, details about liquidity and other details effective in 2018.   For example, the official financial reporting will show only two net assets, but internally, a nonprofit should maintain the three net assets separately and combine the temporarily and permanently restricted for reporting only.

Internal controls are covered in detail for cash, payables and computerized systems, giving ideas about how to minimize certain risks specific to the nonprofit sector.

Like the first edition, nominated for a McAdam Book Award, this second one has many examples and suggestions based on real-life experience, not just theories.  It was written with both the accountant and the non-accountant in mind, so that people of different backgrounds can benefit from the material and put it to good use right away.

You can check the new edition at https://goo.gl/M563u9

2018 Changes to Nonprofit Reporting

Financial statements of nonprofits will look at bit different in 2018. The changes may not be that noticeable to the untrained eye, but they will happen due to FASB (Financial Accounting Standards Board) attempt to make financial reporting easier to understand. Even though current reporting rules have been in place for over 20 years, many people have complained that the financial statements of nonprofits are confusing not providing enough information to assess liquidity and ability to pay bills. This update, known as ASU 2016-14, focuses on these concerns.

“Not-for-profit organizations that will be affected include charities, foundations, colleges and universities, health care providers, religious organizations, trade associations, and cultural institutions, among others” (FASB.org)

The main changes regarding this accounting update are:

Only two classes of net assets

As you may know, net assets are elements that hold information about nonprofits, accumulating increases and decreases in revenues and expenses throughout the years. A nonprofit account always belongs to a net asset, traditionally classified as unrestricted, temporarily and permanently restricted. No more. After this update, we will have only two classifications of net assets:

1-Net Assets Without Donor Restrictions, comparable to the “old” unrestricted net asset
2-Net Assets With Donor Restrictions, combining the “old” temporarily restricted and permanently restricted net assets.

So, instead of reporting on three net assets, as has been the case until now, with statements showing three columns or lines, there will be only two net assets.  It doesn’t mean that the accounting of temporarily and permanently restricted net assets need to change internally, but these are now combined in the “official” financial statements.  Most likely, the reporting on the accounting software will need to be modified to accommodate the update requirements.

Underwater value of endowments 

Organizations may receive endowment funds that are held for long-term or perpetuity. When the fair market value of such investments is lower than the original value of the gifts, they are said to be “underwater.” Unfortunately, that has been the case with the volatility of the stock market and other losses. Currently, such losses are reported under the unrestricted net assets area. However, after this update, accumulated losses are to be shown within the endowment fund — net assets with donor restrictions.

Detailed information about endowments is also required as disclosures on the official financial statements, such as the current fair market value of the endowment, any amount required to be maintained, and any deficiencies of the underwater endowment fund.

Liquidity

Liquidity is the ability of a nonprofit to pay its bills, a valid concern to many donors and grantors. As many donors restrict gifts, it can be hard to determine if an organization has the money necessary to pay its current bills. Financial flexibility is essential for any nonprofit to be viable long-term, so this update requires disclosures about how an organization will be able to meet its financial obligations for the next 12 months. Specific resources available should be disclosed, such as prior year’s reserves and any money restricted by the board.

For more information, check out the book “Nonprofit Finance: A Practical Guide –  Second Edition”