Dec 06
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Three Common Nonprofit Board Governance Mistakes

By | Nonprofit | No Comments
board meeting at office table

Mistakes happen. That’s why they put erasers on the end of pencils. But some mistakes are harder to erase than others. These include common mistakes that nonprofit boards make in their governance. And while there are certainly more than three possible mistakes to be made, the following list includes the ones most consultants see—and the ones that are the most easily corrected. If you see yourself and your board in this list, take steps now to correct mistakes before they turn into big problems.

  1. Failing to Comply with Legal Statues and Laws

All corporations must work within a legal framework, and nonprofits are no exception. Laws pertaining to employment, taxes, fundraising, and reporting are just some of the legal issues nonprofits must navigate in their daily operations.

Failing to comply with these laws is more than just a headache. It can lead to financial penalties, lost reputation, and lost confidence in the organization. Board members may also be held liable, if only in the court of public opinion, for failing to follow the law.

Your nonprofit board must fully understand the laws governing nonprofit operations and comply with them. Take time to ensure that board members are fully briefed on any discussions pertaining to legal hot button issues: employment, fundraising, human resources, payroll, and more. And, when in doubt, consult with a professional to ensure you are following best practices and the letter of the law.

  1. Ignoring Fiduciary Duties

Board members have an obligation to perform their fiduciary duties with care. This means ensuring that financial reporting and possible conflicts of interest are handled ethically and legally. Ignoring these duties may expose a nonprofit organization to significant risks.

When board members lack a comprehensive understanding of their fiduciary duties or don’t take them seriously, it can lead to mismanagement of financial resources, conflicts of interest, and decisions that deviate from the organization’s mission and harm its long-term viability. Neglecting fiduciary duties has the potential to erode trust among stakeholders, jeopardize funding opportunities, and may even result in legal repercussions for both the organization and its board members.

Take time to fully brief the board on their fiduciary duties. Establish training that covers both the legal duties (#1) and fiduciary duties (#2) to ensure that the entire board is aware of what’s required of them and the seriousness of failing in their duties.

It may be helpful to establish an ethics code, one that clearly spells out what is considered a conflict of interest. This can ward off many potential problems within the board.

  1. Lack of Financial Oversight and Controls

Financial oversight and control refer to the day-to-day handling of the organization’s finances. While such matters are typically left to a controller, CPA, or accountant or department, the board has ultimate responsibility for the organization’s money. Without proper oversight and controls, fraud may result, leading to legal action, lost reputation, and even the demise of the organization.

To ensure your board is carefully watching the organization’s finances, consider appointing a finance committee. Under their leadership, establish financial policies and procedures. Regularly review financial statements and engage an independent auditor. Consider providing additional financial literacy training to board members to ensure everyone has shared knowledge of what it means to properly develop and monitor a budget and the finances for a nonprofit organization.

Nonprofit Board Governance Success: It’s in Your Hands

Boards make mistakes, but with the right approach and mindset, you can prevent many of them. Education, training, and adequate knowledge offset many possible problems. Communication and collaboration also help prevent mistakes. Your board’s success is in your hands, so take steps now to help them do their job to the best of their ability.

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.

Dec 01
0

Payroll Tax Credits May Be Available to Businesses That Paid Emergency Leave

By | Accounting, Nonprofit, Tax | No Comments
person at desk with pen, ledger, and mobile device

If your business paid for emergency leave during the COVID-19 pandemic, you may be eligible for certain payroll tax credits.

Billions of dollars in aid resulted from a series of laws passed around March 2020. These laws were intended to offset the financial burden from small business owners who continued to pay employees wages and paid emergency leave during the pandemic. Now that the national health emergency is over, businesses must be vigilant and claim any rightful tax credits that remain from the pandemic-era laws.

Family First Coronavirus Response Act and Tax Credits

Under the Families First Coronavirus Response Act (FFCRA), private American employers with fewer than 500 employees could receive payroll tax credits to offset the costs of the requirement to provide employees with qualifying paid leave for specified reasons related to COVID-19.

The mandate ended in 2020. However, the American Rescue Plan Act (ARPA) extended and expanded the payroll tax credits, allowing covered employers to take the credits until Sept. 30, 2021, if they voluntarily provided employee paid leave under the FFCRA framework. Keep in mind that the credit could be affected by local and state COVID-19 leave requirements and the interaction with the requirements under FFCRA. Another caveat is that an employer could only qualify for the federal tax credit if the leave met the requirement of the original FFCRA mandate.

What You Need to Know About FFCR Act

From April 1, 2020, through March 31, 2021, American private employers with fewer than 500 employees and self-employed individuals could claim certain COVID-19-related leave credits. The maximum leave days varied based on the situation and the calculation was dependent on regular work hours. Qualifying reasons for leave during this period included various COVID-19-related circumstances, and part-time employees received leave equivalent to their regular hours.

From April 1, 2021, through September 30, 2021, healthcare providers and certain governmental employers became eligible for the credits, and the limit on self-employed family leave credit increased. Non-discrimination rules were also established. Also, during this period, more reasons for leave were added, including COVID-19 testing and vaccination-related leave.

Wage calculations for paid sick leave depended on the reason for the leave, with varying pay rates.

The American Rescue Plan Act (ARPA) introduced changes in the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLEA), affecting the refundable portion of credits and other details.

Under EFMLEA, the maximum leave amount and eligibility were modified, allowing for an increase in the aggregate amount and extending eligibility to healthcare workers and emergency responders.

Organized Recordkeeping Is Critical for Compliance and Reimbursement

Regardless of whether you granted leave, you must keep all the requests and time tracking information for up to four years. The Department of Labor requires employers to maintain the following documentation for four years:

  • Documentation demonstrating how the employer determined how much paid leave an employee was eligible for
  • Documentation showing how the employer determined the amount of qualified health plan expenses that were allocated to wages
  • Copies of completed IRS Forms 7200 and 941 that employers submitted to the IRS (If you use a third-party payer to meet employment tax obligations, you’ll need a copy of their records to meet this requirement).

Although the pandemic may be over, many of the record-keeping and reporting requirements for businesses will carry over for several years as the reconciliation between applications for tax credits and reimbursements continues. It is always a good idea to maintain clear, consistent records, in an organized fashion, for the required time so that you can back up any claims when needed.

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.

Nov 29
0

Converting from INFR to GAAP: Considerations

By | Accounting, Nonprofit | No Comments
person using computer at desk

One unusual question that may arise is when a client wishes to change from INFR (international financial reporting) standards to the GAAP (generally accepted accounting principles) standards. Most of the available literature covers the opposite: GAAP to INFR.

Currently, there is no authoritative standard to refer to when changing from INFR to GAAP. Financial Standards Accounting Board FASB ASC 250 provides guidance solely for reporting accounting changes within the same basis, not for moving from one basis to another. However, we can refer to several nonauthoritative sources and draw inferences to guide the transition.

INFR: Not a Special Purpose Framework

A publication by the AICPA’s Center for Plain English Accounting (CPEA), “Common Questions About Special Purpose Frameworks” points out that IFRS does not constitute a “special purpose framework.” Why is this important? Because nonauthoritative guidance for special purpose frameworks does exist. The AICPA designated the International Accounting Standards Board (IASB) as the body to establish professional standards, including those pertaining to international financial accounting and reporting principles. Because of this, INFR may be considered generally accepted accounting principles. Most literature refers to changes within the same accounting basis, not moving from one basis to another.

Suggestions to Make the Standards Switch

So, if there are no authoritative guidelines, and the nonauthoritative guidelines aren’t clear, then what? Deloitte published a paper in 2020 attempting to address this issue as well. First-time adoption of GAAP after using INFR is a bit more complex than converting INFR to GAAP, but it can be done.

Deloitte’s authors suggest the following:

  • Organizations should review all historic transactions since their inception to determine whether the accounting for such transactions would have been different had U.S. GAAP been applied. If that sounds tricky it’s because it is. For example, you’ll need to consider all historic business combinations and whether there should be any amounts (goodwill, fair value adjustments to long-lived assets) that should be included in the opening balance sheet.
  • Companies moving from INFR to GAAP usually complete a full retrospective application. One of the key principles of IFRS 1 is to apply retrospectively all standards effective as of the reporting date of the entity’s first IFRS financial statements (with some exceptions and exemptions). However, U.S. GAAP requires the application of the standard effective as of the transaction date and apply new or changes in accounting policies in accordance with the respective transition requirements of each standard.

What if your company has a very long history? Long-established companies converting to GAAP may need to refer to the previous accounting hierarchy and original pronouncements to determine the appropriate accounting for a particular transaction.

Disclosing Such a Change

For successor auditors, the question arises as to how to report such a change. Such changes should be reported as a “change in accounting standards” or “change in accounting basis” (not change in accounting) within reports. This makes it clear what has changed. Successor auditors would be wise to proceed with caution if inheriting such a situation and carefully consider all options. The lack of authoritative guidelines makes it challenging, but not impossible. Reading between the lines, making decisions that err on the side of transparency and full disclosure, and common sense can go a long way towards making statements clear.

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.

Nov 27
0

From On-Premises to the Cloud: A Digital Transformation Strategy

By | Cloud, Nonprofit, Technology | No Comments
person using touch screen

Adopting forward-thinking digital strategies is critical for small and medium-sized businesses to remain competitive. This means not only updating existing systems but also moving in new directions.

One such direction is cloud native. Cloud native refers to a design and development approach that focuses on building applications and services specifically designed from the start to reside in the cloud. Companies began to shift from on-premises financial software during the pandemic. It quickly became apparent that on-premises solutions were not meeting their needs when people were forced to work from home. Companies with cloud-based solutions were able to move rapidly to work-from-home situations, keeping workers and customers safe. Now, many realize that cloud-based solutions offer more benefits than just the flexibility of the work environment.

But before shifting from on-prem to cloud, it is essential to have a strategy. Here’s how you can come up with a sound cloud-first plan that can help your company remain agile and competitive now and in the years to come.

Why Small and Midsize Businesses (SMBs) Are Moving to the Cloud

If you’re currently using an on-premises system for financial management, you may wonder what all the fuss is about cloud-based solutions. According to Gartner, 85% of SMBs are moving towards cloud solutions. Here’s why.

  • Cost: Cloud solutions cost less than their on-premises counterparts. Cloud solutions require no special hardware to run. The cloud provider updates the software. And, although you may want a good consultant for training, implementation, integration, or advice, no additional staff are needed to keep a cloud platform running.
  • Security: On-premises systems are generally secure from a cyberattack perspective if not connected to the internet. However, data can still be lost due to natural disasters, power failures, or hardware and equipment failures. Backups must be maintained and kept secure. Cloud systems, on the other hand, often provided multiple geographic locations to back up their clients’ data so if a natural disaster hits in one area, their data is protected. Data and systemwide backups may also be automatic, ensuring that nothing is lost due to equipment malfunction.
  • Remote Work: On-prems generally do not support remote work. Cloud platforms can fully support remote work. Although many larger companies have switched back to in-person or hybrid work, workers themselves continue to be supportive and eager for work-from-home opportunities. The ability to offer flexible work arrangements can help you attract talent from a wider talent pool and hire a more diverse team than you might find in the local area. It’s an important consideration.
  • Flexible: On-premises or monolithic systems are difficult to adapt to user needs. Vendors often lock users into their ecosystem, resulting in a poor fit between customer needs and software. These limitations can keep a company from finding the best software for their needs. Cloud systems are easily scalable. Even integration can be easier with the use of APIs (application programming interface) to enable different platforms to “talk” to each other as needed.
  • Scalable: Systems that are on-premises can be hard to scale without a full lift and shift or an entirely new license. Cloud systems are often sold by the user or access, meaning you can add staff without huge price increases or new systems needed.

Plan Your Digital Strategy

With so many benefits and few drawbacks, it’s no wonder that more companies than ever are moving to cloud-based solutions. Plan your digital strategy accordingly. If you are convinced that cloud solutions are the right move for your company, begin by assessing your current system noting what is working and what is not. Consider what you may need now, three, and five years into the future. Assemble a cross-functional team with representatives from all major company areas to participate in a selection team. Interview and choose a good consultant who will help you navigate the many considerations to find the exact system you need.

For nonprofits shifting to the cloud, consider Sage Intacct. It’s a cloud-based financial management solution that empowers nonprofits by removing IT obstacles. Not only is it 100% supported online – and needs no special IT personnel to manage it—but Sage Intacct also includes many automated workflows to reduce repetitive functions and tasks.

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.