Category

Accounting

Nov 08
0

How Should Your Nonprofit Handle Cryptocurrency Assets?

By | Accounting, Cryptocurrency, Donations, Nonprofit | No Comments
person holding tablet and touching virtual screen with finance and bitcoin graphics

Cryptocurrency presents many challenges to nonprofits that accept it as payment or donations. Crypto such as bitcoin, ether, and the many other digital assets on the blockchain, are becoming ubiquitous with everyone from college kids to grannies dabbling in the new financial asset. And while regulations are being discussed, companies and organizations are left struggling to understand how to track and manage it. Here are the challenges and some advice for nonprofits interested in accepting or utilizing crypto assets.

What Is a Cryptocurrency?

Cryptocurrency, or crypto, is a digital asset tracked on the blockchain—an immutable public register of transactions that enable anyone to track the original and transfer of the asset. While you may know the major “coins” from the news such as bitcoin or ether, there are hundreds of other coins on the market.

Challenges of Cryptocurrency

Crypto is a new category of financial asset and one that regulators continue examining to determine how to account for them. Are they investments (like stocks or bonds) or assets (like gold or silver)?

In addition to challenges understanding classification and the rules governing such classifications, there are additional challenges inherent in accepting them either as payment or donation, including:

  • Highly volatile value: Unlike fiat currency, which offers a stable store of value (despite inflation), the value of digital assets varies widely from day to day, even hour to hour. This makes it difficult to estimate and track over time.
  • Incompatible with ERP setup: Crypto values are tracked to the 16th decimal place, which is completely incompatible with ERP systems set up to track dollars, euros, and other common currency.
  • Difficulty tracking: GAAP rules require tracking of assets on a cost basis (the initial purchase price of the asset), the fair value of their holdings, and the book value. This is impractical with digital assets due to their volatility, but clear guidelines are lacking from regulators.

Forming a Crypto Asset Strategy

Given the many challenges, you may be wondering why your organization should even consider accepting cryptocurrencies. Donors may wish to contribute to your organization using crypto, and this is a valid reason to consider adding it as a donation method. To do so effectively, you’ll need to create a crypto asset strategy to guide your staff in handling such assets.

  • Learn first: As with any new technology, platform, or asset, it’s important to learn all you can about it before diving in. Discuss adding cryptocurrencies to your organization with your accounting team and outside CPAs (if you have one) to understand their point of view.
  • Research payment gateways: Cryptocurrency payment gateways enable you to streamline transactions. Bit Pay and others offer ways in which you can send and receive crypto in the easiest manner possible.
  • Discuss with your board: Your board needs to be fully behind the project to add crypto as a payment or donation method. Bring the issue to your board and ensure a thoughtful discussion by sharing industry statistics and information with them. Some board members will be unfamiliar or even put off by the news from the crypto world and may need some additional information prior to engaging in a discussion.
  • Engage stakeholders: Bring the issue to your internal teams, too. Ask representatives from each department to be on a committee or group to investigate adding crypto to your organization. It’s vital to hear from every department that may be impacted by the decision.

Keep in mind that if you do proceed with crypto, you may need to customize aspects of your accounting system as well as internal controls to adjust to this new method of payment.

Cryptocurrency seemed like a fad when it appeared in 2008, but it’s still going strong. If it looks like an opportunity for your organization, begin exploring it today.

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 us for more information.

Oct 27
0

Recommended Financial Controls for Small Nonprofits

By | Accounting, Nonprofit | No Comments
two people looking at financial graphics, tablet, and calculator on table

The Association of Certified Fraud Examiners (ACFE) issued a report in 2020 that provided a unique lens into the world of fraud, specifically nonprofit fraud. Fraud, including embezzlement and other redirection of funds or assets, is a continuing (and growing) problem for businesses of all types, but especially for nonprofits. According to their report, nonprofit fraud accounted for 9% of total corporate fraud with a median loss of $75,000 and an average loss of $639,000.

Perhaps more surprisingly is the fact that the ACFE found that the smallest organizations, both for-profit and nonprofit, reported the second highest amount of theft and fraud. Those with revenues under $50 million and less than 100 employees are at greatest risk of loss due to fraud.

While that may not seem like much compared to for-profit corporations, most nonprofits operate on a significantly leaner budget than their for-profit counterparts. And every penny lost to fraud is a penny that could be spent towards achieving an organization’s mission.

Nonprofits Lack Internal Controls

Internal controls are defined as the methods, processes, and procedures used for accountability and transparency in accounting departments. Good internal controls describe the means, methods, and people who can access the organization’s funds and provide guidelines for how funds should be handled.

The ACFE Report, as well as a statement on the Oregon Department of Justice website, attribute lack of internal controls in nonprofit organizations as the primary weakness by which thieves are able to siphon funds from nonprofits. For example, the ACFE report indicates that the majority of nonprofits (more than 50%) lack surprise audits, formal fraud risk assessments, management review, and internal audit departments, all of which combined deter fraud.

The Solution: Implement Best Practices to Prevent Loss

There are several internal controls that nonprofits can implement to prevent loss. These best practices include:

  1. Separation of financial duties

One individual should never oversee two or more phases of a financial transaction. For example, the person who signs the checks should not be the person who approves the expenses. Having two or more people review, approve, and/or issue the check ensures there are steps in the process in which fraud can be detected.

  1. Reconcile bank and credit card statements

It’s a basic accounting function, but the reconciliation of both bank and credit card statements is often delayed or even overlooked in busy and short-staffed accounting departments. Yet the reconciliation of each of these types of accounts can quickly uncover potential embezzlement and fraudulent charges. The faster that fraud is uncovered, the faster your organization can act upon the information to determine the source.

  1. Enact clear procedures to handle cash

Cash is one of the most tempting items to steal; even people who might not normally embezzle from corporate accounts may be tempted to slip a bill into their pocket. Having clear guidelines for handling cash such as petty cash or a cash box at an event or function is vital to protecting this asset. Guidelines may include having two people present every time the petty cash box is removed from the safe—one person witnessing while another counts the amount, signing receipts for petty cash, etc.

  1. Control disbursements

All disbursements by cash or check should be controlled by two people; one who approves the disbursement and the other who can sign for it. This eliminates one person from having the power to issue disbursements, presumably to themselves.

  1. Limit debit and credit card access

Lastly, if your organization issues credit cards, it is important to have strict guidelines in place about who can receive such a card and when and how they can be used. Such guidelines may include the amount that may be spent and the purpose for which it may be spent without prior authorization, the necessity of providing detailed receipts, and so on. Limiting cards to only those with a clear need, such as managers who travel frequently, also prevents abuse.

As inflation continues to rise and everyone feels the pinch in their pocketbooks, theft becomes tempting. Removing temptation through strong internal controls is the key to preventing 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.

Sep 13
0

Nonprofit Accounting Topics to Watch

By | Accounting, Nonprofit | No Comments

One of our goals is to ensure that our clients are always up to date on the most important nonprofit accounting topics. To that end, we bring you this update on trends of note. Additional information will be shared on similar topics as it becomes available.

Financial Impacts of COVID-19

Although much of the nation has returned to “business as usual,” the effects of the global COVID-19 pandemic are still being felt throughout much of the accounting and financial world.

Financial managers, auditors, accountants, and others leading finance and accounting at nonprofits must be aware of the following.

  1. Paycheck Protection Program (PPP)

In March 2020, the government passed the CARES Act, which set aside $2 trillion in funding. This was followed by the American Rescue Plan Act in March 2021 with $1.9 trillion in funding.

Under the aegis of these programs come many sub-programs, such as the Paycheck Protection Program. Many nonprofits availed themselves of this program which enabled them to tap into the SBA’s loan program for forgivable loans. These loans could be used to cover payroll, mortgages, rent, and utilities—in other words, necessary expenses to keep a business or nonprofit afloat.

Additionally, the American Rescue Plan Act of 2021 enabled many large NFPs to apply for PPP loans for the first time. This act provided additional or extended employment-related funding and benefits, as well as provided additional federal funding for numerous nonprofit programs (e.g., childcare, arts and humanities, food assistance, and homeless prevention).

  1. Charitable Giving Threshold Changed

Also, under the CARES Act came added incentives for charitable giving. The Act raised the limitations on deductible charitable contributions of cash by individuals who itemize. It also included a $300 above-the-line deduction to individuals who do not itemize and raised the cap for deductible charitable contributions of cash by corporation. These changes were intended to increase charitable gifts to assist nonprofits.

  1. Extended Family Leave

Also, as part of the pandemic response, the Families First Coronavirus Response Act was signed into law on March 18, 2022. It temporarily expanded the Family and Medical Leave Act, permitting certain employees to take up to 12 weeks of leave for specified reasons relating to COVID-19.

  1. Grants for Venues Forced to Close

Many nonprofit organizations such as galleries, performing art venues, and similar artistic services were forced to close during the pandemic to ensure patron safety. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted in December 2020 and provided grants to venues temporarily closed due to the pandemic. Included in this act was $15 billion in grants for museums, zoos, aquariums, and performing arts organizations who meet the criteria outlined in the grant. Entities who qualified for this grant were able to apply for 45% of their gross earned revenue (up to $10 million).

Did Your Organization Avail Itself of These Opportunities?

If your organization took advantage of these opportunities to make it through the pandemic, it is important to note how to account for such finances, whether funds need to be repaid, and so on.

Here are several resources.

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.

Jun 21
0

Top 3 Challenges Faced by Nonprofit CFOs

By | Accounting, Accounting Software, Nonprofit | No Comments
woman standing at desk looking down at laptop computer

Nonprofit CFOs face many challenges, but the following three may not be ones that immediately come to mind. We often assume that our own challenges are unique—that no one else suffers from spreadsheet overuse, for example—or other organizations are more efficient than we are. But we can tell you from experience that nonprofit CFOs all face similar challenges. And the solutions to these challenges are similar, too.

Challenge 1: Over Reliance on Spreadsheets

Spreadsheets are everywhere. They are easy to use and come with most office productivity suites. Most accounting and financial professionals know how to use them and are very comfortable with them. They enable nonprofits to get their accounting up and running quickly. We’re not knocking spreadsheets, but if your organization is past the startup phase, it’s time to think beyond spreadsheets and look for a more robust accounting solution.

They are myriad problems with using spreadsheets for complex accounting functions. Problems include:

  • Unless cloud hosted, spreadsheets are single user, meaning that only one person at a time can work with a spreadsheet. They must be emailed after updates.
  • Working with complex financial analysis across multiple spreadsheets can be extremely time-consuming and difficult.
  • Formulas are notoriously finicky—one mistaken input and suddenly the whole sheet is off. Worse, mistakes multiply if copied and pasted, making it very hard to find and fix them.
  • They aren’t secure. You can password protect a spreadsheet in some programs, but they can be shared and accessed easily. A compromised password can make them accessible. A computer virus can make them completely inaccessible. They are very risky.

Solution: Transition Your Team to an Accounting Program

It is vital to transition your team away from spreadsheets as soon as possible. Cloud accounting software made specifically for nonprofit organizations provides the structure and resources needed to handle the complex needs of nonprofit finances.

Sage Intacct is an excellent cloud-based accounting program for nonprofits. It offers a cloud-based solution that requires no special hardware to run. The chart of accounts can handle the often-complex reporting needs of nonprofits, and it includes multiple nonprofit-specific accounting functions, such as grant management, FASB accounting accommodations, and more.

Challenge 2: Reports Take Too Long to Produce

Another challenge many nonprofit CFOs face is producing accurate and timely reports. This challenge often goes together with reliance on spreadsheets which produce only limited reports.

Accurate and timely financial reports enable nonprofit managers to make smart decisions about using organizational resources. Without insight into the finances, managers lack an important piece of information.

The solution is to find a good nonprofit accounting program that enables on demand reports. Flexible, customized reporting would be ideal, since managers can then run the reports they need. Automating your accounting will shift the burden of producing reports from the CFO and enable more self-service reporting.

Challenge 3: Billing mistakes.

Nonprofits using spreadsheets often fail to account for their employees’ time properly. They may under- or over-count billable hours, miss expense reports, and generally struggle to adequately track billable time and projects. This can result in a significant shortfall over time and a huge, missed opportunity.

Using Sage Intacct and/or a time tracking software can help you more accurately track such expenses. And, by aligning staff time with specific programs, you can judge how effective specific programs are and whether such time is being used wisely.

Financial Software for Nonprofits

Although spreadsheets can adequately handle basic accounting, they quickly become inefficient as a nonprofit grows. The recent trend towards cloud accounting software has added additional value to software licenses, making them more affordable than ever. If the challenges outlined in this article resonate with you, we invite you to explore Sage Intacct or other cloud accounting solutions through Welter Consulting.

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.