Aug 11
0

The Essentials of Unclaimed Property Reporting Compliance

By | Nonprofit, Unclaimed Property | No Comments

In recent years, states have become more aggressive in their pursuit of unclaimed property audits. The reason is simple: unclaimed property can be a source of revenue for states.

Nonprofits aren’t immune, with a full 60% of unclaimed property audits occurring at nonprofit organizations. Legally, all unclaimed must be declared. Each state issues their own guidelines for reporting unclaimed property. Washington state, for example, requires that unclaimed property of $75 or more be reported. Their reporting deadline is October 31.

Failing to comply with unclaimed property laws is a serious matter which can result in fines or criminal prosecution. There’s no statute of limitations, either, so reporting errors can be costly!

Definition of Unclaimed Property

Before talking about reporting unclaimed property, it’s helpful to have a shared definition of what it actually is. Unclaimed property may be defined as any financial account that has no activity in over a year or any property remaining with a company for longer than a year. An example common to nonprofit organizations is an uncashed paycheck, or checks returned without being forwarded to a sender. Other examples may include gift certificates or customer overpayments that go unclaimed after a full year.

5 Steps to Unclaimed Property Reporting Compliance

It’s the responsibility of the organization to take the proper steps to track down the owners of unclaimed property. A few steps to take include:

  1. Review ledgers and accounts: Review all your ledgers and accounts to find potentially unclaimed property. If your organization has multiple EINs, document each list of unclaimed property by EIN.
  2. Ask all departments for their reports: Ask all departments to supply lists of potentially unclaimed property, too, and check it against your records.
  3. Review journal entries and accounts receivable reports: Thoroughly review journal entries and accounts receivable reports to identify possible unclaimed property.
  4. List all possible unclaimed property and note which steps have already been taken to contact the owners before initiating a formal contact process.
  5. Documentation: Many states require that you send a physical letter to the property owner’s last known address. The letter should include the name of the property owner, the name of your organization, a description of the unclaimed property, and the language required by your state to notify the person they have unclaimed property. Give the person a timeframe and process for claiming the property, too.

Submitting Reports: Software Simplifies the Process

One tool that greatly simplifies and streamlines the unclaimed property reporting process is having the right software. MIP Fund Accounting can track and report unclaimed property and provide a standard file format that can be uploaded to most states’ unclaimed property reporting system. It makes the entire process a lot easier than manually creating spreadsheets, and removes much of the potential for human error, too.

What Triggers an Unclaimed Property Audit?

If you’ve taken the right steps, you’ll hopefully avoid an unclaimed property audit. But there are certain red flags that states look for that can trigger an audit. These include:

  • Not filing reports on time. Even if you have no unclaimed property, some states require you to complete and submit a report. Check your state requirements and submit the reports by the deadline.
  • Not following the correct reporting standards.
  • Providing inadequate detail on the unclaimed property, the owners, or the steps taken to find the owners.
  • Reporting property before it’s officially unclaimed. Don’t report an uncashed paycheck a month after it’s been sent to the recipient, for example, if the law declares it unclaimed only after a year has elapsed. Check your state laws.
  • Not taking adequate steps to find the owners. The due diligence process is important, as is the documentation that the process was followed in accordance with state law.

Unclaimed property reporting is something many nonprofits overlook. Be sure to review your state’s guidelines and follow them to avoid an audit.

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.

Aug 04
0

Gifts in Kind: Upcoming Changes to Presentation

By | Accounting, Nonprofit | No Comments

Philosophers tell us the only thing constant in the universe is change. When it comes to accounting rules, that seems to be the norm as well. The past year we had a little break from the constant stream of changes coming from FASB, but a new change to the presentation of gifts in kind is on the horizon. Here’s what nonprofits need to know about ASU 2020-07, changes to the presentation of gifts in kind.

What Are “Gifts in Kind”?

The term “gifts in kind” may refer to fixed assets or intangible assets. Examples of gifts in kind that are included in the updated accounting rules include fixed assets such as land, buildings, and equipment. It also includes the use of fixed assets, so if a donor allows you the use of a building, for example, that must be included as well.

Other donations must be included: utilities, food, clothing, medicines, and medical supplies. Lastly, intangible assets such as contributed services are also categorized as gifts in kind and should be described as such in your accounting documents.

5 Required Disclosures

Under the revised ASU 202-07, nonprofits are now required to disclose five things related to each item included as a gift in kind.

  1. Qualitative information
  2. Nonprofit policies
  3. Donor restrictions
  4. Valuation technique
  5. Principal market

Let’s unpack each one.

Under qualitative information, nonprofits are asked to disclose whether the asset was sold or utilized. If the asset was used by the nonprofit for its work, the disclosure should include information about which project the asset was used for and how it was used.

Nonprofit policies refer to the organization’s written policy regarding gifts in kind. Some organizations have written policies about how gifts in kind are monetized. For example, are assets sold at auction or sold in a charity shop? How are they valued? Such policies should be included as part of the description.

Donor restrictions include any conditions that donors place upon how the asset is used or disposed of; for example, if the donor restricts an item to use by the nonprofit rather than allowing it to be monetized.

Valuation techniques are described in FASB ASC Topic 820, Fair Value Measurement. The technique used to value items at initial recognition should be described and recorded.

Principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient not-for-profit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

Reporting Changes to Gifts in Kind Are Retroactive

FASB has stated that these reporting changes should be applied retroactively, so nonprofits should begin immediately to assess gifts in kind and how they are reported. The amendments take effect for annual reporting periods beginning after June 15, 2021 (for example, fiscal years ending June 30, 2022, and December 31, 2022). And, if you’re so inclined, you may report early—FASB is allowing early adoption of the updated reporting standard.

Everything changes, and that includes FASB standards. If your organization accepts gifts in kind, now is the time to act on these updates.

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.

Jul 29
0

Become a Data-Driven Organization

By | Data, Nonprofit | No Comments

Nonprofits today have more data at their fingertips than perhaps at any other time in history. But if this data remains hidden among reams of reports, it’s useless. Data that is difficult to read, interpret, or use offers no benefit to anyone.

You can change that by helping your nonprofit transition into a data-driven organization. True data-based decision making can be challenging to implement and may take years as you add more data-focused people to the staff, update technology, and provide training to everyone on how to use data (more on that later). But it is worth it in the long run.

Why Become a Data-Driven Organization?

Data-driven organizations can provide stakeholders with facts to substantiate their claims. They can offer donors, granting organizations, and others the proof through verifiable data of program efficacy and responsible stewardship of funds.

Perhaps more importantly, using data, these nonprofits can make better decisions on which programs to fund and where to put their efforts. Instead of guesswork, data driven organizations look at the facts to support their choices. They can better fulfill their mission when they see the facts that support their choices.

Steps to Becoming a Data-Driven Organization

As you shift your organization’s focus toward using data to make decisions, you may need to take several steps to help the transition.

  1. Provide staff with the tools they need.

Your current software may be unable to produce or analyze the data available. You may need to update or upgrade software. You may need to add business intelligence software, grant reporting software, and true fund accounting. A thorough assessment of the systems used to collect, support, and share data is necessary before choosing new software. But, in order to use data, staff must be able to collect it and access it easily, and that calls for the right software.

  1. Offer training and support.

Few people are trained in the use of data, and fewer still know how to analyze data. You may wish to find a consultant to work with your team to help them learn how to access, analyze, and report on data.

  1. Share data.

Another important step is to ensure all data from your organization can be shared easily and quickly. Silos may exist now that must be breached in order to ensure data is shared among all departments. A data-driven organization is no place for “data misers” who hoard their information. Make it an organization-wide expectation that data should be shared, within reason.

  1. Make data gathering a priority.

Ask key questions and add data gathering to all projects where it makes sense to do so. Ensure new initiatives get the green light only if there is enough data to support their launch. Make sure your teams know you expect efficacy data, retention data, and other key data to support projects and goals.

The Marriage of Data and Storytelling: A Match Made in Heaven

Data alone rarely sticks in people’s minds. Data, when combined with stories, does. Using storytelling techniques and having a hero, a villain, a wise guide, a quest, and other traditional story points, underscored with data to support the story, can make data come alive for your audience.

For example, a food bank may know that hunger affects 5% of their local community. What does 5% mean? What does it look like?

Telling a story about a hardworking single parent of four who is juggling two jobs to pay the rent and needs a weekly grocery supplement from the food bank makes that 5% statistic come alive. Now, it’s clear how donations to the food bank are used and who that 5% represents.

Ready for a Data-Driven Approach?

If you’re ready to focus more on data but you aren’t sure where to start, we can help. 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.

Jul 28
0

Four Important Tax Matters for Nonprofits

By | Nonprofit, Tax | No Comments

While there are many tax issues that nonprofits must be aware of, these four are often misunderstood or overlooked. Between unusual circumstances and foreign income tax, how many of these tax matters does your nonprofit face?

Line Items

Recent updates from the IRS may be to your organization’s advantage.

  • IRS Announcement 2021-7 states that amounts paid for hand sanitizer, sanitizing wipes, personal protective equipment and masks by the taxpayer may be treated as paid for medical care under Sec. 213 (d). That’s if these expenses were incurred primarily to prevent the spread of COVID-19. If your organization purchased this equipment, IRS 2021-7 may apply. Unreimbursed amounts are deductible as an itemized medical expense to the extent that, along with other allowable medical expenses, they exceed 7.5% of adjusted gross income. Or they may be paid for or reimbursed from a health savings account. Check to see if your organization’s Group Medical Plan has been amended to also cover protective and sanitizing equipment.
  • The IRS also posted COVID Tax Tips which guides employers through how to pay for their portion of Social Security tax of certain employees that were deferred from Sept. 1, 2020, through Dec. 31, 2020. This information supersedes Notice 2020-65 and Notice 2021-11. According to the latest update from the IRS, employers can make the deferred payments through the Electronic Federal Tax Payment System (EFTPS) or by credit or debit card, money order, or check. The IRS asked that employers separate these payments from other tax payments and promised that an option for ‘deferral payment’ would be added to the EFTPS system to make it easier to identify the tax payment as one for the deferred Social Security tax.

T.D. 9940 issued by the IRS provides helpful information on how to correct tax funds that are misdirected or direct deposited to the wrong bank account. The procedures are mandated in Sec. 6402(n) in the Taxpayer First Act, P.L. 116-25.

Key takeaway: Nonprofits may be able to deduct the cost of sanitizing supplies to combat COVID. Guidelines are also out now to help employers pay their portion of deferred Social Security.

Charitable Bequests

For those organizations that receive charitable bequests, it is worth noting that the Tax Court has examined the issues of charitable bequests; it redetermined the value for gift and estate tax purposes of interests in limited liability companies (LLCs) holding real estate, ground leases, and leased-fee interests. The court upheld the IRS’s determination that a discount applied to property should be split between two charitable donees. The case that the court ruled on may be read in full in Tax Bulletin 2021-17.

Key takeaway: Nonprofits should check with their accountants regarding charitable bequests, especially if they involve real estate.

Gambling Losses

In another update, the Tax Court recently ruled that a taxpayer sufficiently substantiated gambling losses of at least as much as gambling winning reported for the year.

The case that brought about this ruling centered on John Coleman, an insurance agent whose compulsive gambling offset his earnings as an agent. Despite gambling winnings in excess of $350,00 in 2014, Coleman failed to file his income taxes. Typically, taxpayers who do not gamble for their trade may itemize their deductions to including gambling losses, to the extent of any gambling winnings.

Coleman, through a detailed retrace of his receipts and expert testimony, presented his evidence. The court found reasonable evidence to support Coleman’s substantiation of his losses. (The complete case may be read at TC 2020-146.)

Key takeaway: Records from the casinos, plus expert evidence on the probability of slot machines, were upheld by the court as evidence in a tax-related case. Casinos should take note that their records of patron activities might be called upon to substantiate an IRS filing.

Should You Opt-In for a PIN?

PIN numbers are ubiquitous. You’ve probably used a person identification number (PIN) in the last week or two to access your bank account or conduct other secure transactions.

Now, the IRS is offering taxpayers the option of using PINS to verify their identity online. The program is voluntary and allows taxpayers to opt-in to receive a PIN to prevent identity theft.

Key takeaway: The FTC stated that in 2020, over 167,000 people reported identity theft. It’s a continuing problem. If you were the victim of identity theft, it may be a good idea to request an IRS PIN. Or, if you feel like your organization may be open to tax refund or identity theft, talk to your tax preparer about requesting a PIN.

Keeping up-to-date with tax changes can be challenging, but following this blog makes it much easier. We hope you’ll bookmark our site to watch for future updates.

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.