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The Importance of Internal Controls for Your Nonprofit Organization

By | Internal Controls | No Comments

He may be your most trusted employee, someone who has been with your organization for years. Nevertheless, no one should be exempt from internal controls. Not even the CEO of your nonprofit should be allowed an exception to the controls put into place to safeguard your nonprofit’s financial integrity.

Although nonprofits tend to attract trusting (and trustworthy) sorts of people, according to figures reported on GuideStar, the median loss to fraud at nonprofits is $100,000. That’s a lot of money that could be better spent helping your organization achieve its mission rather than helping Mr. or Miss Thief buy luxuries.

People are often surprised when learning the identity of the person who committed the fraud. “I never thought she would do something like that!” or “Him? He’s the most loyal employee I know!” are common refrains. Fraud often occurs when people succumb to temptation. It may be spur of the moment or planned, but it doesn’t exist in isolation. Fraud happens because situations are favorable for theft.

Locking the Virtual Door

Would you leave your door unlocked when you leave your house to go to work? Of course not. It’s not that you don’t trust or like your neighbors. You may live in a beautiful neighborhood surrounded by lovely people, but that’s not the point. An open door is an invitation for thieves to come in and enjoy themselves. A locked door discourages casual entry and provides a simple barrier that turns thieves away.

Similarly, your nonprofit must create its own “locked doors” in the form of internal controls.

Internal controls consist of the steps, policies, and procedures enacted around the handling, storage, and recording of money. Safeguarding assets as well as ensuring accurate data (recorded transactions and financial information) are two critical steps to prevent nonprofit fraud.

Guidelines for Internal Controls

The general guidelines for internal controls include a clear separation of duties, accountability, and transparency.

  1. Separation of duties: Different people should be assigned the responsibility of recording transactions, authorizing transactions, and maintaining control over assets. For example, the person who locks the cash box in the safe should not be the same person who records all the transactions. The person who can authorize a return at a charity shop should not be the same person who is authorized to open the register and remove the money at the end of the day. Keeping duties separate ensures that one person alone cannot be tempted to take the money and cover it up by altering the records. It puts into action a sequence of checks and balances against the finances that should catch any mistakes or at least deter people from considering theft.
  2. Accountability: Audits are a great way to ensure accountability. An official annual audit should be supplemented by ad hoc, unannounced audits to discourage fraud. Another aspect of accountability is record-keeping. Clear, consistent recording of financial information is vital for accountability. Make sure that all accounts receivable are updated daily, and that bank deposits are made promptly. Do not leave checks in drawers waiting for deposit day. The same goes for cash boxes; have an additional person present when cash boxes are opened, and petty cash is counted or distributed. Each of these steps improves accountability.
  3. Transparency: All policies regarding internal controls should be documented in writing. Staff must be trained on such policies and reminded of the exact policy if adherence becomes lax. Lastly, enact a confidential reporting mechanism in which people can alert management if they discover fraud. Take all reports seriously and follow up on them promptly.

It may seem like an unnecessary layer of bureaucracy to enact these procedures, but as they say, an ounce of prevention is worth a pound of cure. How much is an hour or two of your time worth? Surely it is worth more than $100,000, the median amount lost to nonprofit fraud every year. Take an hour or two now to enact internal controls and prevent nonprofit fraud.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Ready, Set, Go – File W2 Forms Easily with Our Handy Tips

By | Year-End | No Comments

We’re rapidly coming to the end of the calendar year. As the festivities celebrating the holidays and the New Year are underway, it’s not too soon to start thinking about W2 requirements for nonprofits.

Nonprofits are subject to the same regulations concerning employee taxes and social security taxes as for-profits, with a few exceptions. Clergy may opt out of social security, for example, and thus, religious institutions may choose to exempt their clergy from paying into social security.

Employees sometimes erroneously believe that working for a tax-exempt organization makes them tax-free too. It does not. It is incumbent upon your organization to issue W2s in a timely fashion and to assist employees with any background paperwork they need to report income and taxes accurately.

W2 Preparation

Preparing W2 forms doesn’t have to be a laborious process. Take time now to run through this simple checklist of what you need to prepare W2 forms for your employees and gather together all the paperwork and info you need so that you have it on hand.

  1. W4 Forms: You are required by law to have a W4 form on file for every employee of your company. Each employee should complete the W4 form upon being hired by your nonprofit. It includes their legal name, federal income tax withholding, marital status, number of dependents, and any additional information to assist with withholding accuracy. Employees can update their W4 forms at any time and should review them annually to make sure that no information has changed. They may also update their additional withholding at any time.
  2. Legal identification information: Ask employees to verify all of their legal information including their name, social security number, and mailing address. You’d be surprised at how many people forget to alert the HR department when they move or change names.
  3. Organization information: Confirm the organization’s information for W2 forms as well. You will need the legal entity name, address, contact name, email address, state and federal ID numbers.
  4. Annual payroll reports: Even if your nonprofit operates on a different fiscal year, the W2 is always calculated on the calendar year. Run your reports now. These should include Payroll Summary Report, Employer Summary Report, Master Adjustments Report for Deductions, Contributions and Other Income, and quarterly 941s.
  5. Generate W2 forms: You can use an automated system to generate W2 forms or use the IRS W2 form to prepare each employees’ forms.
  6. Print the W3: The W3 remains in your offices and provides a copy of all of the data submitted.
  7. File W2: The W2 forms must be filed with the appropriate government agencies by January 31.

Do Small Nonprofits File W2 and W3 Forms?

All nonprofits, regardless of the number of employees, must file W2 and W3 forms. You may think it’s silly to file these forms if it’s only yourself and a handful of others who work at your nonprofit. But you and others will need W2 forms to complete your income tax forms and to adhere to all government regulations.

All of the forms that you need to complete, along with detailed instructions, may be found on the IRS website. It’s easy to complete W2s, just tedious to collect and confirm the data needed. Start now to ensure that you’re all set in January to get those form files.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Storytelling for Fundraising – But What Do I Say?

By | Fundraising, Uncategorized | No Comments

In our last article, we talked briefly about the importance of getting your board “on board” with fundraising efforts. Boards should lead the way in the fundraising department and set the tone for the entire organization to encourage support and donations.

One way in which you can encourage your board members to participate in fundraising activities is to change the mindset around fundraising from a chore to a pleasure. How can asking for money be a pleasure? When it’s framed as a story with a message at the end, it becomes much more fun to talk to people about your nonprofit and yes, ask for a donation.

If you’re not a natural storyteller, never fear. We have several tips to help you think on your feet.

What Stories Should I Tell?

Stories for fundraising take several forms. These include:

  1. Stories about the organization: Talk to people about how your organization became involved in its work. Who was the founder? What did he or she do? Where did you start? Most board members know their organization’s story by heart. It’s a great place to start. The ending can be, “We need your help to keep the story going…” and then the call for a donation.
  2. Stories about individuals: Individual stories stick in people’s minds the best. Who are the people you have helped? Tell their individual stories and include details (without compromising anyone’s privacy, of course). For example, a nonprofit that donates mosquito netting to villagers in Central and South American can share how it helped one woman give birth to a healthy baby by preventing zika virus infection. It’s stories like this that connect people emotionally to the charity to which their funds are donated.
  3. Ask the other person their story: This is an interesting twist on storytelling for donations. Instead of telling your story, or the organization’s account, ask the other person their story in reference to your organization’s mission. Someone seeking donations for an education nonprofit may ask, “Where did you go to college?” and the answer may lead to a story about how the potential donor chose their college. This can segue into a discussion about how they paid for college, the opportunities a college education opened for them, and so on. From there, you can weave the story of how your nonprofit helps people go to college and why their donation is essential. You use their story as a springboard for the donation request.

Connecting the Dots, Story-Style

Stories connect the dots between the work an organization does and the impact it makes upon those it serves. Data about the organization is important; after all, people do want to look up nonprofits on sites such as GuideStar and Charity Navigator to ensure that their donation is going to an organization that manages its work responsibly.

But it is the stories that people remember, not the facts. An animal shelter helps place dozens of dogs and cats annually, but it’s the story about the shelter dog who woke his family up by barking and saved them from a fire that will keep donors interested. It’s asking the donor if they’ve ever rescued a dog from a shelter and seeing their eyes light up when they tell you about Duke and what a great dog he was, and then reminding them that the Dukes of this world also needs a home. Stories, and the emotion they convey, connect the dots between heart and mind, donor and organization.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Help Your Board with Fundraising – Teach Them to Be Storytellers

By | Fundraising | No Comments

There’s an “F” word that even the most seasoned board hates to hear: fundraising. Boards should be your primary cheerleaders and fundraisers, leading the charge to support the organization’s mission and development through effective fundraising.

Yet many nonprofits struggle to achieve their fundraising goals and find their boards sadly lacking in that department. How can you overcome your board’s reluctance to be part of the fundraising team?

Three Tips to Make Fundraising FUN!

These three tips can help turn fundraising from the dreaded “F” word and put the FUN back in fundraising.

  1. Speak positively about fundraising: Many nonprofits bring up fundraising reluctantly as if it were a chore like cleaning out the garage. Instead of starting your fundraising discussions with sentences such as, “I know no one likes fundraising, but…” try to be positive about it. “Here is your opportunity to truly make a difference in our organization.” Help board members understand the positive impact their efforts make. Reframing the discussion around fundraising can help turn it into a positive activity rather than a dreaded chore.
  2. Provide training: Fundraising is more than asking people for money. Board members may not be aware of effective methods of fundraising such as storytelling (which we’ll get into in a minute). They may need coaching, encouragement, and examples to understand how to raise funds for the organization.
  3. Offer supporting materials: One way to make fundraising easier for your board is to provide them with supportive marketing materials and other items to make it easier for them to share the nonprofit’s story. For example, a video on your website or social media pages showing the positive outcomes of your foundation’s work can make it much easier to share the message with others about how your organization is making a difference. Powerful marketing materials can make it much easier to open up conversations around the organization and then close by asking for support.

Storytelling: Part of the Art of Fundraising

Communication professionals know that generalized information is difficult for people to grasp. Talk about a famine in Asia and people skip over it in the news. Share an image of one starving child and tell his story and people are galvanized into action.

The same goes for fundraising activities. It’s easy to say no to someone asking for a donation if you just ask for it for an organization. If you tell a story, with a beginning, middle and end, and a personalized message, people grasp the meaning. They are more likely to donate money to an organization.

Help your board understand the power of fundraising through storytelling by sharing with them:

  1. Personal stories and anecdotes they can use as part of fundraising conversations.
  2. Emphasize emotional connections. Emotions are remembered long after dry facts are forgotten.
  3. Draw people into the story. Listen to the best storytellers (TED talks are great places to go for inspiration and to learn how to frame a story).
  4. Teach your board members basic storytelling techniques – pacing, emotional connection, specific examples.
  5. Share examples on your website and social media platforms, too.

Stories hold great power. That’s why we start children off with fairy tales, fables, and imaginative stories when they are young – it boosts the imagination and helps kids frame the world around them. Stories for nonprofits help them illuminate their mission and vision and make it feel genuine to the people who can contribute funds to support the accomplishment of their goals. It’s the opposite of “begging” or “arm twisting” for donations. And best of all, it feels good to share the positive!

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.