Monthly Archives

February 2018

Feb 26
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5 Questions to Measure Fund Accounting System Effectiveness

By | Accounting, Budget, FASB, Grant Management, MIP Fund Accounting, Nonprofit | No Comments

Mandated reporting has become increasingly complex, due to multiple funding sources and programs within nonprofit organizations. You may find yourself having to rely on spreadsheets and workarounds, which can quickly become unmanageable and have a higher risk for error. As compliance, regulatory agencies, funding sources, and complexities grow, these issues can quickly hinder mission productivity and you may be exposed to larger burdens including:

  • System constraints limiting your ability to adapt other new and vital technology
  • Poor financial control which can lead to future loss of time and money
  • Lost opportunities for additional funding because your system is not flexible or robust enough to properly handle tracking and reporting requirements

Sound familiar? If so, you may need a more robust accounting system. Time to ask yourself the following five questions.

Are you facing an upgrade or needing software built for the complexity of nonprofit finance and accounting? Download “10 Reasons Why Nonprofits Need True Fund Accounting™.”

Does my current solution incorporate nonprofit-specific accounting rules?

Audited financial statements must present information in accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 116 and 117, or Governmental Accounting Standards Board (GASB) guidelines. If your reports need heavy customization to comply with these guidelines, you should consider software that easily provides compliance-ready reporting.

 Can I easily measure performance of a program or activity?

Nonprofits typically need to measure a program or activity outcome, and track beyond basic financial information – something off-the-shelf, which is something most commercial accounting software is not designed to do. Your software needs to be robust enough to track and report performance or outcome measures on financial statements, as well as budgeting outcome measures for accurate forecasting.

 Am I able to create reports for varying fiscal years?

While commercial accounting often assumes that fiscal years end in the same months each year, nonprofits often have to report to several different audiences, with different information requirements and reporting timelines. Thus, the ability to track and report across different time periods (cross-fiscal & grant-year reporting) is critical for nonprofits.

 Can I easily show how money is tracked or budgeted?

Funds must be treated as distinct entities with their own general ledger and individual revenue, expense, income, and balance sheet reports. Nonprofits need software that will automatically handle the offset postings to cash or payable accounts by fund, as well as the encumbrance processing, grant tracking, and budget controls.

 Can I perform allocations of indirect costs by grantors?

Accuracy of allocations is critical in providing auditors and grantors a complete audit trail, but these allocations typically are not handled well by a commercial accounting system not designed with nonprofits in mind. Allocations need to be performed on virtually any account balance at the program level, department level, or grant level, and across multiple segments at one time with advanced calculation options, including fixed or dynamic percentages, unit measures, and more.

 

About 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.

Feb 19
1

What Do Grant Organizations Look For? What Funders REALLY Want When They Make Decisions About Where the Money Goes

By | Budget, Fundraising, Grant Management, MIP Fund Accounting, Nonprofit | No Comments

Funders, defined as people at grant organizations, approve fund requests. They can be a nonprofit organization’s bane or best friend. A new report, called Social Solutions: Foundation Report Study, examined the metrics by which foundations and granting organizations determine which nonprofit organizations to awards funds. The results are surprising and tell us a lot about what nonprofits can do to increase their opportunities to receive funding.

The Three Most Important Considerations for Funding

Funders overwhelmingly agreed on the main consideration for granting an award: IMPACT.

98% of those responding to the survey picked “impact” – as in the award they gave would make an impact on the project or people – as the most important consideration for funding.

Lagging behind impact but coming in second is MISSION. How well does the project or request match the fulfillment of the nonprofit’s stated mission?

And third, legal nonprofit status was cited as the third most important consideration. That was surprising given that one would assume that anyone applying to a foundation or grant organization would already have legal nonprofit status before requesting such funds.

Evaluating Impact

It wasn’t just the overall impact that was important to these funding organizations. To evaluate impact, they look at several criteria. This included:

  • Outcomes
  • Detailed data
  • Consistency to mission
  • Outputs
  • Community
  • Financials
  • Other criteria

Funders are also seeking clear, concise reporting, as well as strong community outreach. Communication around projects and nonprofit goals are also important. The funding organizations wanted to be sure that organizations are “putting their money where their mouth is” and doing what they state they will do in their mission and materials.

Reports Are Important

Reports back to the foundation are also an important part of the process. What the foundations and granting organizations seek in reports includes plenty of stories about how the money is making an impact, as well as the data to back that up. Spreadsheets, paper-based reports, and other documentation lends credibility and credence to reports and supports the nonprofits’ assertions of how money is being used or will be used.

One thing is certain: more feedback is required from nonprofits as part of the grant process than ever before. Funds are one thing, but telling a story about the funds is important.

Donors Like to See Dollars in Action

Donors like to see their money in action, making an impact, effecting change, and supporting the mission of the nonprofit. That goes for individual donors as well as foundations and granting organizations.

Large or small, all funders preferred to see stories (82%) over other forms of reports. Why stories? Stories paint a great picture of how funds have made a difference. That doesn’t mean that stories have to be written out. They can be told through images, slideshow presentations, or videos, but illustrating the impact of the funds on the lives of others was deemed very import for the funders to decide to whom to give money..

Your Take Away: Get Your Ducks in a Row

The big takeaway for nonprofit organizations is to be sure that you have your entire package prepared as best as you can before sending it to a funder. If your nonprofit status isn’t fully documented, your application may be pushed to the bottom of the pile.

Documenting achievements in both qualitative and quantitative formats is also important. Qualitative documentation such as stories, testimonials, and presentations enhances the emotional impact of your nonprofit’s work, while quantitative data support assumptions about its effectiveness.

Funders have money to give to worthy causes. Knowing what they are looking for and tailoring your grant paperwork to their requests can help you achieve your nonprofit’s funding goals.

About 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.

 

Feb 12
0

Trust, But Verify: Avoid Fraud by Maintaining Internal Controls

By | Accounting, Fraud, Internal Controls, MIP Fund Accounting, Nonprofit | No Comments

Trust, so the experts tell us, must be earned over time. In the workplace, it is earned by consistently performing one’s duties well and by successfully accepting ever-increasing responsibilities.

The nonprofit workplace, like the for-profit workplace, works best in an atmosphere of trust and mutual respect among one’s colleagues. Without it, the workplace can be hostile, unfriendly, and uncomfortable.

But there is a fine line between suspicion and performing due diligence. Nonprofit organizations should guard against allowing trust to blindside them to the potential dangers of fraud and theft in the workplace.

A Cautionary Tale of the Ramifications of Blind Trust

One story that stands out is the story of Marge (not her real name), who worked at a large nonprofit organization. She was like a second mother to the staff. Honest, always willing to work extra hours, diligent in her job duties in the accounting department, Marge was trusted with managing many areas of the organization’s finances.

Although the organization had internal controls in place, they were often waived for Marge and other senior staff members who were so well-regarded and trusted that they weren’t questioned when they dodged the procedures. Marge was especially trusted and valued and did not have anyone present when she counted out petty cash or handled the checkbook.

One day it was discovered that money was missing from the petty cash. An audit revealed that small amounts of money had been taken from the petty cash box as well as from the checking account. Because Marge controlled both, she could make slight adjustments in the entry ledgers to avoid suspicion for a long time. It took the auditors only a short while to uncover the discrepancies and for Marge to confess that her lottery ticket habit had become a necessity and that she had been stealing ever increasing amounts to fuel an obsession with gambling.

Is Marge an isolated case? We think not, and a quick survey of the various nonprofit journals reveals similar patterns of fraud. Fraud doesn’t occur in isolation. It tends to occur when gaps are left within the internal controls that are intended to prevent such situations. In this case, trust and friendship overrode common sense. Exceptions were made that should not have been made. The result was an organization poorer for the loss of both money and a trusted employee who had to be let go when the truth was revealed.

Preventing and Identifying Fraud

Trust is a wonderful thing and a valued commodity in the workplace. That said, it should not preclude the use of standards, internal controls, and audits.

  • Preventing Fraud
    • Standards are the accepted norms for an industry. Accounting standards, security standards, and workplace standards can be codified and recorded in written manuals provided to all employees. Everyone can then be held to the same shared standard of conduct and behavior.
    • Internal controls are the processes and procedures put into place around access to the organization’s finances. These controls should be written down and shared among staff. Training sessions and refresher training session are also important to ensure consistent understanding of the controls among everyone.
  • Recognizing Fraud:
    • Audits bring in outside consultants such as CPA firms, well-versed in accounting for nonprofits to examine your organization’s financial records, provide recommendations, and discover discrepancies.
    • Provide staff with an anonymous method to report incidences of fraud to their supervisors or to the managers in your organization.

Trust doesn’t have to be blind. Assuring people that their work matters, listening to their ideas, implementing their suggestions and other positive examples of trust can build bonds among workers that engender loyalty to your organization. Don’t leave your nonprofit open to fraud or theft due to blind trust. Trust, but verify, and stick to accepted norms and standards of behavior and internal controls to prevent problems before they occur.

About 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.

Feb 05
0

Helping Donors Choose You: Encouraging Charitable Deductions

By | Accounting, Fundraising, Nonprofit | No Comments

Many nonprofit organizations rely upon charitable donations for their operating budget, to fund special projects, or to accomplish specific goals. Your organization can do a great deal to encourage donations by making it easy for potential donors to identify your tax-exempt status and receive receipts for donations that they can use with their tax returns. Here, we present a checklist of things you can do to assure the public of your organization’s tax-exempt status and facilitate their donations.

Valid Tax Deductions: Contributions to an Eligible Organization

To benefit from a valid tax deduction, contributions must be made to an eligible organization which is defined as a. nonprofit organization. Religious organizations such as churches, synagogues, and other houses of worship may qualify, as do some schools, war veterans associations and the like.

Provide Proof of Eligibility

Your marketing communications should provide proof of tax-deduction eligibility for potential donors. Your website should have a link to GuideStar, an organization that specializes in providing information on nonprofits to the public. A listing in GuideStar provides a great third-party proof point that goes a long way with the public.

Offer Receipts

Automatically offer any donor a receipt. The proof a donor needs to respond to a question from the IRS about a deduction includes the following: A letter on your organization’s letterhead, with the tax-exempt certificate number included, that identifies the donation amount, donor’s name, and date of the donation.

IRS Maximums

Although all donations are welcome, the IRS sets a limit on the amount of money that can be declared on an individual’s tax returns. Currently, cash deductions are set at either 50% or 30% of a donor’s annual adjusted gross income, depending upon the type of the organization.

Cash versus Non-Cash Donations

Cash and non-cash donations are also treated differently. Stock, for example, is treated differently than cash. Appreciated, publicly-traded stock held for more than 12 months must include information on capital gains as part of the donation. Donors can claim the amount, but not the capital gain, from the date of the transaction from their account into yours.

Other non-cash items may follow different rules. Household items, automobiles, furniture, and real estate can all be donated to a nonprofit organization. There are specific rules, timelines, and proof required for your donors to deduct non-cash donations of $5,000 or more. Non-cash donations of $5,000 or more may require a professional appraisal, by an IRS-approved appraising firm, to ascertain the value you can put on the donation receipt. Speak with the donors and discuss any potential ramifications before concluding the transaction so that both you and the donor have what you need to benefit from such a generous gift.

Giving Something in Return

If you give donors something in return for their donation as a thank you, whether something as simple as a tote bag or as wonderful as free tickets to the opera or ballet, the amount of the return gift must be deducted from the donation.

Let’s say that you receive a $500 cash donation from the Millers. In return, your charity, a local performing arts nonprofit, provides the Millers with two free theater tickets worth $100. If the Millers claim the deduction, they should claim $400, rather than $500, on their tax return.

Obviously, that’s up to the Millers. But you may wish to provide them with all of the facts so that they can make an educated decision about how to claim deductions on their tax returns.

The Bottom Line: Make It Easy to Give

The bottom line is a simple one: make it easy for people to donate to your organization. The easier it is for people to donate and receive receipts for their donation, the more likely they are to give.

About 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.