Category

MIP Fund Accounting

How Data Visualization Improves Your Nonprofit Organization

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

Think about the reasons why bestselling authors like Dr. Seuss are prevalent and successful.  Is it because of the carefully selected words that grab your child’s attention?  Or could it be because of the bright, colorful images that leapt from the pages as you turned them?

In children’s books, illustrations are as central to the story as the text. They help little ones focus on the most important elements of the tale. They get readers enthusiastic about the material being read. They validate emotions and experiences; convey meaning; carry information; and help young children better understand the written words.

You may not be an Eric Carle (remember The Hungry Little Caterpillar?), but as a nonprofit or association financial professional you have an important story to tell. And, your audience – whether that’s your board, fellow executives, professional peers, donors, or other key constituents – may not want, need, or understand some of the financial complexities you deal with on a regular basis. So, providing them with data that’s presented visually will give you similar benefits to book illustrations.

Data visualization will help you, your team, and your audience:

  • Focus on the information that’s most important
  • Identify patterns and trends in your organization’s finances
  • Illustrate cause and effect
  • Pinpoint any details
  • De-emphasize unnecessary/superfluous data
  • Draw faster conclusions

The good news is you don’t have to be an expert in graphic or information design to effectively present your data visually. A modern true fund accounting system should do the work for you.

When considering financial software, look for a system that offers you:

  • Real-time financial data, so you’re telling an up-to-the-minute story
  • Dashboards that present clean, clear graphical representations of your data
  • Intuitive features and tools so staff members can get up and running with minimal training and can self-serve, going forward
  • Easy-to-use, drill-down capabilities for greater insight into the numbers
  • Operability on mobile devices, like tablets, for on-the-go access to your financial picture

In today’s all accessible and information overloaded world, you must be an effective storyteller. And your story – as a nonprofit or association financial professional – is essential, because your financial status and agency health ultimately determines your organization’s strategic opportunities.

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.

Challenges and Solutions for Allocating Indirect Costs

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

Accurate nonprofit financial reporting relies upon proper allocation of indirect costs. Indirect costs can be challenging to place properly, but once they are, they can make a significant impact on your overall budget. More importantly, they add an extra dimension to all reports reviewed by your Board and executive team and can help with budgeting, staffing, and other critical decisions.

Classifying Expenses

Although nonprofits may have multiple expense categories, many expenses actually fall into one of three simple classifications. These include:

  1. Administration: Management and General Administration
  2. Programs: Any programs that support the organization’s mission
  3. Fundraising: The cost of raising funds

Your organization may call them by different names, but upon closer examination, the major expense categories should fit into these areas. Those expenses which can be identified as belonging to one of these three categories can be quickly allocated. Others, however, fall into more of a gray area which cannot be identified with a specific program or budgeting category.

Indirect Cost Allocation and Its Effects

Indirect cost allocation impacts many areas of your organization. It impacts how donors view your organization, for example, by changing the way in which expenses are laid out in your financials. High administrative fees may be unacceptable to some donors.

Indirect costs also impact the budget for programs. If costs seem to be weighing heavily towards one area, that area may get more or less budget for upcoming years.

The allocation also impacts the final percentages that appear on Form 990 for each tax year. These are the numbers that are listed publicly and can impact the public’s view of your organization. Think carefully about how you apportion indirect costs as their ramifications can be long-lasting.

Coming Up with an Indirect Cost Allocation Method

Determining a fair and equitable indirect cost allocation method is a good solution to the problem of items that do not have an easy ‘home’ in your budget line. By examining the methods you have on file to share expenses, you can plan and allocate accordingly.

One method by which you can allocate indirect costs is to estimate what percentage belongs in each major budget line. Let’s assume that an administrative assistant works for both the donor relations and the program area. Which budget should contain his salary? If the assistant supports three people in donor relations and one in programs, then 75% of his salary budget can be allocated to donor relations and 25% to program areas.

Obviously, not every allocation will be this clean and easy. Square footage is one area that can get tricky. For instance, if you rent office space shared by multiple program and departmental areas, determining the percent of costs to be borne by each department can get complicated if many departments share the space. Sometimes, you just have to give it your best guess.

Consistency Is Key

The big thing to remember about allocation is that consistency is the key to successful indirect allocation. Whatever method you choose, put it in writing and file it in accounting and financial documents, plans, and budgets so that it is common knowledge. Then, apply the rules fairly and consistently to the budgeting process. It is this consistency of application that auditors look for to determine if an indirect allocation method is acceptable.

Indirect allocation is a common challenge in the world of nonprofit financial management. Fortunately, it’s one with a solution that makes sense and that can be rolled out fairly easily throughout your organization.

 

 

What You Need to Know About Nonprofit Payroll Taxes

By | Accounting, Audit, CPA, MIP Fund Accounting, Nonprofit | No Comments

Keeping abreast of payroll taxes can be difficult, but nonprofit payroll taxes can be especially challenging. Some nonprofit organizations mistakenly think that obtaining the tax-exempt status exempts them from recording and paying all payroll taxes. The truth may be more nuanced and complicated than that, with variances according to worker status and more. Get the facts about nonprofit payroll taxes in order to maintain compliance with local, state, and federal law.

Need help setting up or processing payroll in your Abila MIP Fund Accounting™ system? Join us for our hands on training event, Payroll in MIP.”

Nonprofit Payroll Taxes: Tax Status

Tax exempt status is obtained by completing the appropriate forms and receiving notification from the IRS that it has been granted to a nonprofit organization. This is a federal tax exemption and not a blanket exemption from paying all taxes. That’s an important distinction.

You may be exempt from paying federal corporate income taxes, but your employees must still pay their payroll taxes. Social Security and Medicare taxes are also not exempt and are important contributions that must be made and recorded to remain compliant with the law.

FUTA Taxes

The IRS states that “Religious, educational, scientific, charitable and other organizations described in section 501(c)(3) and exempt from tax under section 501(a) are not subject to FUTA tax and do not have to file form 940.” You must receive and keep on file a designation from the IRS.

States, however, can have different rules from the federal ones, so you may be required to pay taxes on the state level. Check with your state taxation department or your accounting firm to determine state taxation requirements.

FICA Taxes

Like for-profit corporations, nonprofits are required to pay employment taxes on compensation to employees. There are a few exceptions to this which include:

  • Churches and some religious organizations can elect an exemption from FICA (Social Security and Medicare).
  • Ministers and other members of the clergy or religious organizations can exempt certain services from FICA taxes.
  • FICA compensation paid to students may be excluded.

 

Volunteer Compensation

By the nature of volunteer work, it is usually uncompensated time. However, many nonprofits give gifts to volunteers. Small gifts of appreciation such as an award plaque are usually untaxed, but major gifts such as gift cards, gift certificates and any gifts of significant value may be subject to taxes. Generally speaking, non-cash gift items with token value only or sentimental value aren’t taxed, but anything that can be construed as cash or the equivalent of, like a gift certificate, may be taxed.

Who Is In Charge?

Who is on the hook if mistakes are made on taxation? You may be surprised to learn that it is the Board of Directors. The Board has ultimate oversight on all financial matters, and that includes taxes paid. If mistakes are made, the responsibility lies with the Board.

Board members should be aware of this requirement and take precautions to ensure that all employment taxes are paid accordingly. Reviewing this information with your nonprofit’s accounting and financial management staff is vital to ensure compliance.

Although it may seem, by virtue of being a nonprofit organization, you should not have to pay any taxes, there are still some which might need to be paid. A bit of research now and prudent oversight from your Board can ensure that you are in good standing with federal and state taxation laws.

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.

Attract and Retain the Best Employees with Job Flexibility Offers

By | Accounting, HR, MIP Fund Accounting, Nonprofit | No Comments

Have you ever wondered what helps attract and retain the best employees in your industry? Is it a great working environment, challenging work, or a generous benefits package? It’s all of the above plus some surprisingly easy to offer benefits. Job flexibility is one area that requires little financial outlay on your part but does indeed help attract and keep the best and brightest talent.

What Candidates Really Want

Each generation wants different things based on their state of life and future goals. Baby Boomers, on the cusp of retirement or already entering retirement, want security for their old age and legacy to pass onto their children and grandchildren. Generation X, the generation following the Baby Boomers, values both monetary security and flexibility and Millennials, the new group entering the workforce, really likes job flexibility. Depending on what positions you are recruiting for – senior or entry-level – your company may wish to consider various flexible work arrangement offers as part of a benefits package.

What is job flexibility? Each company or organization defines it differently, but in general, it’s an attitude toward working hours that breaks free from the typical 9 to 5 workday. Flextime can include varying working hours, “banking” extra hours to “spend” as employees need, and telecommuting options, to name just a few of the many ways in which companies are now viewing employment arrangements.

How can organizations survive with workers arriving when they want to and leaving when they want? The answer is, they really can’t. That’s why structure and boundaries placed around flextime are critical both for your peace of mind and to serve your clients and constituents. Some simple guidelines can help you launch flextime options within your organization to recruit and retain talented people.

Is Job Flexibility New?

Not according to a survey published in the Journal of Accountancy. In fact, if your organization is now offering some form of flex time, you may be behind the curve. According to this survey, two-thirds of all companies in six out of seven revenue categories offer some form of flex time. Most of the companies answering the survey reduce staff during the off-peak season. Some offer telecommuting, but the smaller the company, the less likely they are to allow it.

How You Can Make Job Flexibility Work

As we mentioned previously, to make job flexibility work, you must put boundaries in place around it. That means having a written human resources policy about job flexibility options and guidelines in place about how to use them.

  • Flex time: Flexible working hour policies include clearing work hours one week or more in advance with supervisors, limits on how many days per that employees may change hours, and similar guidelines.
  • Hour “banking”: Hour banking means allowing employees to work a nine hour day when scheduled for an eight hour day and “saving” the extra hour in a bank that can be applied to personal time or vacation time. Such banking works best when hours are clocked carefully, and you may need to limit the number of hours banked during a calendar year and establish rules about carrying over hours.
  • Telecommuting policies: Telecommuting policies may limit the number of days per week out of the office or may require employees to be available during specific business hours.
  • Cloud Technology Makes Telecommuting BetterCloud technology makes telecommuting a viable option even for the smallest companies. Software that is cloud-based can be accessed anywhere, anytime. Shared data and files are also stored in a central system that can be accessed through any internet connection. Employees can use their personal computers for telecommuting just as easily as their work computers because both can access cloud systems.

    The world has changed from the days when a strict, 9 to 5 policy was in place at most jobs. Now, employees crave work-life balance, and one way to offer it to them is through flexible job options. It’s a benefit that yields many perks for both employees and employers alike.

    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.