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Accounting

Accounting for Interdepartmental Sales: It’s More Important than You Think

By | Accounting, Nonprofit | No Comments

Although the term interdepartmental sales may be reminiscent of the for-profit world, nonprofit organizations must be careful to account for transactions among departments or entities within their organization and account for them properly. When the output of one division in your organization becomes the input of another, you have an interdepartmental transfer on your hands – and a transaction that must be recorded in the accounts.

For a nonprofit organization, interdepartmental sales may be less common than in the for-profit world, but it still occurs. Let’s say that your nonprofit has a publishing division that publishes guidebooks for the industry that you serve. These books cost $20 each, wholesale price, and earn a substantial amount of margin for your nonprofit when sold through bookstores, online outlets, and at membership events. If a department orders 20 books, these books must be taken out of inventory and charged back to the department. Failing to charge back to the department ordering the books means a loss in the publishing division without accounting for the transfer. Interdepartmental transfers account for the movement of goods from one group’s budget to another in the organization.

Nonprofits that offer consulting services to members may also find that they need to account for interdepartmental transfers. If similar services offered internally generate revenue when offered externally, they should be priced and charged as interdepartmental transfers.

Conflicting Goals

There are certain problems inherent in any interdepartmental transfer. Interdepartmental transfers may be charged at a lower rate than selling the same goods or services to an entity outside of the organization. Too many interdepartmental transfers can keep a department from achieving financial goals. The department has more incentive to sell to outside entities than internal ones if they can make a higher margin on the same item sold elsewhere.

It can also be tricky to account for every service or item moving between departments. Should the creative services department charge for their graphic designer’s time when they also provide services to members?

Developing a rubric for interdepartmental transfers can pre-empty these and other questions that arise as you consider accounting for interdepartmental transfers. Not every situation is black and white, and a balance must be struck between common sense and good accounting practices. Each nonprofit will handle the situation differently depending on how they work with external and internal groups.

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Lastly, it is important to involve your organization’s managers in decisions regarding interdepartmental transfer pricing. Establishing pricing policies impacts their budgets. If their performance reviews are based on how well they achieve their goals, including managing budgets, then ensuring that this information is calculated fairly and with input is important.

Another method to assess interdepartmental transfer pricing is to review the going rate for similar goods and services. If a published average is available for your industry, item, or service, then using a published, commonly accepted rate may be a good way to begin. With input and review, this information may be enough to provide a fair range of interdepartmental pricing.

Although uncommon in the nonprofit world, transfer pricing or interdepartmental pricing is an important part of accounting for nonprofits. Having an established policy that can guide managers and staff is a great step forward.

Did you know that Welter Consulting offers the Nonprofit Enrichment Series, a free learning resource for nonprofit organizations? Check out our next free webinar.

No Margin, No Mission: Building a Surplus to Serve More Constituents

By | Accounting, Budget, CPA, Grant Management, Nonprofit | No Comments

An administrative assistant for the finance director at a nonprofit organization had a sign hanging over his desk: “No margin, no mission.”

For nonprofit organizations, having a surplus or margin is an important part of budgeting. Without budgeting for a surplus, you’ll end up scrambling to cover the inevitable times when donations do not meet goals or the roof starts leaking, necessitating an emergency repair.

Budgeting for a surplus builds up that cushion against a rainy day so that you can continue with your activities undaunted by unexpected expenses.

Budgeting for Surplus

Many nonprofits respond to shortfalls by cutting spending. There’s nothing wrong with such an approach and it can be a healthy way to keep expenses from going up. However, you can’t always cut expenses. There comes a time when expenses are cut to the quick and there’s nothing else to cut.

That’s when budgeting for a surplus comes in handy.

Budgeting for a surplus means establishing an annual surplus goal and setting aside an amount to put into the surplus fund just as you would set aside money for your operating budget, marketing budget, salaries and wages and so forth.

Mandating a surplus is the first step towards achieving a comfortable reserve. Nonprofits mandating towards surplus typically begin during the budgeting cycle by starting a budget from scratch, keeping a set figure in the baseline budget for a surplus amount. By counting the surplus from the start as a line item on the budget, it’s already built into the budget and part of the goals to achieve. It becomes an integral part of the budget rather than an item to add later.

Exceeding Goals

A happy circumstance for any nonprofit is exceeding its financial goals for the year. If your organization finds itself ahead financially, the Finance Committee can negotiate with the managers to lower the surplus over a period of one to several years. This spreads the benefit of a boom year across multiple years and maintains a surplus without keeping too much in reserve.

Potential Obstacles

To budget for a surplus, you must marry a reasonable approach to budgeting with an encouraging nod towards cutting expenses. You can’t control income, only influence it through activities. Expenses, however, can, for the most part, be controlled. Yet there are some fixed expenses that must be maintained for the good of the organization, such as rent, health insurance, and so on.

Balancing the need to cut expenses with the need for a surplus can be challenging. Including representatives from all departments in the budgeting process helps accounting and finance see the big picture view and understand potential conflicts in the budgeting cycle.

Final Thoughts on Surplus Budgeting

Obtaining surplus margin ensures that your nonprofit organization can weather the storms of recession, unexpected expenses, or boom years when donations and other revenue sources flow into the organization.

Additional tips for surplus budget include:

* Analyze the organization’s current budget and balance sheet to understand all potential sources of revenues and expenses.

* Communicate and educate all departments on how to read the budgets and financial statements. Help team leaders understand how their contributions to each budget line impact the whole.

* Develop consensus on the surplus budget amount.

* Align organization-wide goals to achieving the surplus.

* Develop strategic plans, marketing, and operational plans that support goals.

With the right planning, you too can have enough margin to achieve your mission – and a surplus, too. Budgeting towards surplus is an achievable goal.

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your budgeting processes along with many other accounting needs. We offer hands-on training as well as online webinars to take you to the next level with your fund accounting system. Check out the full schedule of our training events here.

Encrypt an Email and Secure Your Gmail – Tips and Tricks for Email Communication

By | Abila, Accounting, CPA, Data, HR, MIP Fund Accounting, Nonprofit | No Comments

The greatest threat facing the CPA community isn’t legislation or competition. It’s security as it pertains to our technology. CPAs must be cognizant of the latest security measures to protect sensitive, confidential client data. Technology has made it easy to send information to clients with the touch of a button, but where does that information end up – and how long does it remain accessible?

Such considerations are no longer academic questions. Instead, they are essential to running a secure and confident CPA practice.

Email Encryption: Protecting Sensitive Communications

Emails are by far the biggest offender when it comes to potential data breaches. Most email systems aren’t sent using encryption. Because emails are automatically shared across multiple devices these days, your email lives on long after you attempt to retract or erase it. It’s almost impossible to completely erase all traces of an email from hard drives, backup servers, and the recipient’s servers and devices.

The best way to protect emailed information is through encryption. Encryption “locks” messages so that only the recipient can read them. The recipient’s software automatically unlocks the message so that it can be read. If some third-party swoops in and somehow accesses the email, it cannot read it.

To encrypt your email transmissions, you can use a service that includes encryption. Gmail and Outlook are both good, solid email programs that incorporate encryption into their programming. Both services also include cloud storage, spam filtering, and IMPAP/POP support.

The drawback to using these services is that they use their own extensions rather than your company’s extension address. To rectify this situation, you can important Gmail or Outlook messages into Outlook Desktop.

The steps include:

1. Turn on two-step verification: Go to google.com/landing/2step, click the Get Started button, and follow the steps to set up two-step verification. A code is texted to your smartphone, which you enter to verify the account.

2. From your Outlook 2010, 2013, or 2016 ribbon, select File, Add Account to launch the Auto Account Setup screen.

3. Enter your name, email address (Gmail or Hotmail/Outlook.com), and password, and then click Next.

4. Set up a Gmail alias with your company name:

a. Open your Gmail account.

b. Sign in.

c. Click the Settings gear in the top right corner.

d. Choose Settings.

e. Select from the horizontal menu the Accounts and Import tab, Import mail and contacts,

f. Enter the email address you want to use as a Gmail alias.

g. Enter the password, and if necessary, enter the Pop username and Pop server.

h. Click Continue.

i. Sign in to the account you added

j. Open the confirmation message you received from Gmail

k. Click the link in the email to confirm and establish the connection.

l. To complete the setup, change the From line to reflect your newly added alias email address. For more details on how to set up a Google email address alias, visit Google support.

The process to set up Outlook aliases is similar.

1. Open Outlook.com.

2. Click the Settings gear.

3. Select Options.

4. In the Options menu in the left menu pane, select Connected Accounts, Other email accounts.

5. Enter the alias email address and your email password then click OK.

Keep in mind that encryption through Gmail or Outlook only works if both sender and receiver are using the same service. In other words, your message is encrypted only if you are using Outlook and your client is also using Outlook. If only you are using Outlook or Gmail, messages are encrypted on your end, but not the client’s end.

If you’d prefer, a computer consultant can help you set up a secure, encrypted email system for your business. Or make it a rule that confidential information must be delivered in person or via snail mail, rather than through email. If you’d prefer that no one else see your message, a phone call or letter through traditional mail may be appropriate.

We live in an age where technology can make our businesses more productive and efficient. It can also compromise sensitive client data. Fortunately, a few steps are all that’s needed to secure your email information.

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.

Could Your Data Be at Risk?

By | Abila, Accounting, Audit, CPA, Data, Grant Management, HR, MIP Fund Accounting, Nonprofit | No Comments

Could your nonprofit associations’ data be at risk? Even with good security, you may still find yourself in the unpleasant position of ransoming your data from an unscrupulous hacker.

New viruses such as the notorious “FBI” virus do not hijack your computer for their own nefarious purposes. Some viruses lock your computer down so that you cannot access any of its information. Instead, once you pay a fee – like a random in a kidnapping – the hijackers ‘release’ your computer.

If you think this can’t happen to you, think again. What used to be a threat to major targets such as large corporations or government organization is now a threat to anyone at any time. In fact, smaller nonprofits may be targeted more frequently than larger ones because small organizations do not have the means to fight back when they’re the victim of crime. Criminals such as data hijackers look for easy targets or organizations that do not have the financial resources to fight back. Any organization is at risk.

What Is Data Hijacking?

The best prevention against data hijacking is awareness. It’s important to understand what data hijacking looks like and how to prevent it from occurring.

Data hijacking occurs when a computer program called ‘malware’ enters your system. Malware means malicious software. A specific type of malware called “ransomware” enters your system through an infected email or computer virus. Most often, users inadvertently click an email link or download software containing the malicious program.

Ransomware installs on the end users’ computer and encrypts the data on the target computer so that it can no longer be read. The encryption is so sophisticated that only the operator of the program has the key that unlocks it. Hijackers demand payment for the data ‘key’ that un-encrypts or unlocks the data.

How Ransomware Gets Past Security

There are many ways in which data hijackers bypass your organization’s secure to target your computers. One common way is to clone an executive or CEO’s email address or LinkedIn profile. They then use the fake profile to send an email with a link to people in your company. They often target top executives but anyone can be targeted.

Once the link is clicked, it downloads the ransomware and locks the target computer. A message appears on the computer screen demanding payment to release the computer. Hijackers often request payment in bitcoin, an untraceable digital currency that’s easy to convert into cash.

Even after paying the ransom fee, there’s no guarantee your computer will be released. In some cases, the hijackers themselves are unable to decrypt the computers after payment is made to them. In other cases, the hijackers simply disappear with your money – and your data is lost forever.

Preventing Data Hijacking

The best way to combat data hijacking is through prevention. The following steps should be undertaken to protect against lost data from data hijacking:

1. Be vigilant when screening your emails. Do not click on links within emails unless your are absolutely certain it’s from a known sender. The same goes for attachments which can also harbor viruses and malware.

2. Keep your computer programs updated at all times. Patches and updates protect against various forms of malware, including ransomware.

3. Backup your data frequently. Store it on the cloud as well as in storage devices NOT connected to computers or the internet.

4. Use firewalls to segment company data. This way if part of your network is affected by ransomware, you may not lose all of it if some is protected behind a firewall.

5. Block pop ups and disable macros in key programs, which are often used to distribute malware.

If you suspect that your company’s cybersecurity has been breached and ransomware or malware has been launched, disconnect your computer from the internet as soon as possible. That may prevent the malware from downloading entirely or from infecting others.

Next, contact Welter Consulting. We can help you with both the immediate problem and creating a long-term strategy to protect against viruses, malware, and ransomware.

Welter Consulting

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

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