NONPROFIT

Nonprofit organization managers and boards of directors are continuously challenged to keep up with new tax laws, reporting requirements, and practice standards. Our professionals provide a variety of management and governance resources to help you anticipate and prepare for new developments in nonprofit management.

The board of directors is responsible for hiring and establishing the compensation (salary and benefits) of the executive director/CEO by identifying compensation that is "reasonable and not excessive," but that also is attractive enough to retain the best possible talent to lead the organization. The recommended process for determining the appropriate compensation is to conduct a review of what similarly-sized peer organizations, in the same geographic location, offer their senior leaders. Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit’s responses on the annual return.

There is a three-step process to determine the appropriate compensation starting with board arranging for an independent body to conduct a comparability review. This independent body should take a look at comparable salary and benefits data of those firms with a similar size, geography, budget and mission focus. The board needs to document this review process as well as the minutes of the meeting where the board decided to approve the executive director’s compensation.

We help you determine if your nonprofit organization needs an audit by the following:

1. Requirements of Governmental Agencies

If a nonprofit organization receives financial assistance/awards from a state or local government or receives federal awards directly from a federal funding agency or indirectly through another level of government, it may be subject to the following audit requirements:

• An organization that expends $750,000 or more of federal awards in one year must have an audit performed in accordance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) to ensure it complies with federal grants management procedures
• Those promulgated by U.S. Department of Housing and Urban Development (HUD)
• Those promulgated by the Provider Agency Audit Guide (PAAG) issued by the Wisconsin Department of Health Services
• Those promulgated by the Department of Health Services Audit Guide, 2014 revision, issued by the Wisconsin Department of Health Services
2. State Charity Registration

Many states have charitable registration requirements that include submission of an annual report when the organization’s revenue exceeds a certain specified amount. In Wisconsin, if a charitable organization receives contributions in excess of $400,000 during its fiscal year, an audit by an independent certified public accountant is required.

3. Requirement of a Grantor or National Fundraising Organization

Private grantor or federated fundraising organizations, such as the United Way, may require an audit as part of the grant agreement or as a condition to receive grants.

4. Requirement of a National or Regional Organization or Association

Central governing boards of national or regional organizations with affiliates or local units in various parts of the country may require those affiliates or local units to submit audited financial statements.

5. Self-Governance

Nonprofit organizations can implement self-imposed audit requirements in order to build public confidence. This requirement can be established in the organizations by-laws.

Form 1023 is used by an organization seeking tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The completed Form 1023 and its accompanying statements must show that all of the following are true:

• The organization is organized and operated exclusively for one or more of its purposes
• The organization will not be organized or operated for the benefit of private interests
• The organization will not attempt to influence legislation or participate in a political campaign

Documents that must be completed by your organization prior to submission of Form 1023 to the Internal Revenue Service include:

• Articles of Incorporation
• Articles of Association or other enabling documents
• Bylaws (if structured properly)

In addition, your organization is required to apply for and receive an Employer Identification Number (EIN) prior to filing for tax-exempt status. An EIN can be obtained by applying by phone, online at www.irs.gov, or by completing and submitting the Form SS-4 Application for Employer Identification Number.

The organization should complete and attach Form 2848 Power of Attorney and Declaration of Representative to its Form 1023 application if a person other than the principal officer will represent the organization on matters concerning the application.

Form 1024 is used by an organization seeking exemption under Section 501(a) of the Internal Revenue Code. Documents that must be completed by your organization prior to submission of Form 1024 to the Internal Revenue Service include:

• Articles of Incorporation
• Articles of Association or other organizing document
• Bylaws (if structured properly)

In addition, your organization is required to apply for and receive an Employer Identification Number (EIN) prior to filing for tax-exempt status. An EIN can be obtained by applying by phone, online at www.irs.gov, or by completing and submitting the Form SS-4 Application for Employer Identification Number.

The organization should complete and attach Form 2848 Power of Attorney and Declaration of Representative to its Form 1024 application if a person other than the principal officer will represent the organization on matters concerning the application.

Tax-exempt organizations must file some version of Form 990 with the IRS each year to meet federal regulations. Private foundations must file Form 990-PF which includes disclosures of the foundation’s assets, financial activities, trustees, officers and a complete list of grants awarded during the year. Review the tips when filing Form 990 and Form 990-PF to ensure you are meeting your requirements.

Complete Schedule B (Form 990, 990-EZ, or 990-PF)
All organizations must complete and attach Schedule B or certify the organization is not required to attach Schedule B by checking the box in Line 2, Form 990-PF.

Part XV, line 3 must be completed
If Part I, line 25 has an amount. Be sure to state the purpose of the grant or contribution. If the foundation only makes contributions to pre-selected charitable organizations and does not accept unsolicited applications for funds, check the box on line 2, Part XV.

Complete Part XV, lines 2a through 2d
For lines 2a through 2d, if the foundation had assets of $5,000 or more at any time during the year, unless the box in Part XV, line 2 is checked.

Be sure to complete all required Parts
Enter amounts in all applicable lines. For Parts or lines that do not apply, enter "N/A" (not applicable). Answer "Yes", "No" or "N/A" to each question.

Complete Part II, Balance Sheets
Foundations with total assets of $5,000 or more at any time during the year must complete all of columns (A), (B) and (C). Foundations with total assets less than $5,000 at all times during the year must complete all of columns (A) and (B) and only line 16 of column (C).

Complete Part XV, Supplementary Information
Part XV must be completed if the foundation had assets of $5,000 or more at any time during the year.

Sign the return
An officer of the organization must sign the return. An officer is the president, vice president, treasurer, assistant treasurer, chief accounting officer, corporate officer or tax officer. If the return is filed by a trust, it must be signed by the authorized trustee or trustees.

Complete Part X
All domestic foundations, foreign foundations claiming status as a private operating foundation, and private operating foundations described in 4942(j)(3) or 4942(j)(5) must complete Part X.

Reminder: protect personal information
Do not include unnecessary personal identifying information.

SVA’s fraud professionals are well versed in the new laws and standards affecting nonprofits. Together with SVA’s nonprofit professionals, we advise your organization in developing an internal control system that provides the necessary checks and balances. Already have internal controls in place? Our fraud risk assessment helps to uncover weaknesses in specific areas while offering recommendations to strengthen and secure those aspects.

We also work with nonprofit organizations, like yours, to recommend governance policies designed to protect the interests of management, staff, donors and recipients.

Governments at all levels – local, state, and federal – that hire nonprofits to deliver services are now required to reimburse nonprofits for the reasonable indirect costs (sometimes called “overhead” or “administrative” costs) they incur on behalf of governments when federal dollars are part of the funding stream. The new mandate is embedded in grant making rules that the federal Office of Management and Budget (OMB) put into effect at the end of 2014. In addition, the OMB Uniform Guidance streamlines and clarifies cost allocation and other rules related to government grants and contracts, removing some areas of confusion and inconsistency while treating more of a nonprofit’s expenses as direct (reimbursable) costs.

One of the fundamental challenges that many board members face is the lack of understanding of their role as a board member and the related fiduciary and governance responsibilities.

Our Board Building Training Series addresses the fundamental elements of service common to most board of directors. As a nonprofit leader you and your board will understand board member responsibilities, how to structure the board in the most effective manner, and how to accomplish governance work that aligns with the mission of the organization.

This series can be selected ala cart or in total depending upon the needs determined in our initial discovery meeting. The modules are:

1. Basic Responsibilities
2. Legal Considerations
3. Overall Financial Considerations
4. Fundraising Responsibilities
5. The Board’s Role in Mission, Planning and Evaluation
6. Building and Leading the Board

Our customizable training modules include training for the leadership team as well as board members, real-life examples, sample forms and policies, and key takeaways from each session.

If you are interested in discovering how your board could operate more effectively and with greater impact and value to your organization visit the Board Building Training Series page or contact:

Kirsten Houghton, CPA, MBA
Principal-in-Charge Nonprofit Services
houghtonk@sva.com

“Nonprofit” encompasses a wide variety of concerns including education, health and social services, government agencies, foundations, membership associations, and religious organizations. Generating sufficient revenue to provide services – while simultaneously qualifying for federal tax-exempt status – requires a clear commitment to your organization’s mission.

Our professional advisors work closely with management and the board of directors to help organizations articulate their vision. We work with you to present your organization’s activities and mission to assist you in presenting the organization in such a way as to be recognized as tax-exempt by the Internal Revenue Service.