Category: Meetings

Fundraising activities are now on the IRS’s radar screen. The Service issued an Audit Technique Guide on what they look for in audits of fundraising activities. 

Summary of the Presentation:

For context, the presenter gave an overview of how changes in income tax incentives could affect charitable giving, and how organizations are responding. She then provided takeaways from the recently issued IRS Audit Technique Guide, which outlines what the IRS looks for when it examines fundraising activities. She covered challenges related to cash and in-kind contributions, events, auctions, anonymous gifts, and gift acknowledgments. Lastly, she reviewed common red flags and pitfalls when reporting fundraising activities on the 990 and its schedules.

IRS Audit Technique Guide on Fundraising

The presenter suggested that nonprofit managers refer to the Audit Technique Guide (ATG) as a risk management tool when setting policy and putting procedures in place. A PDF of the guide is available from the IRS website: Audit Technique Guide – Fundraising Activities

Context: Fundraising Activity Increases in Response to New Tax Law

The presenter briefly summarized the ways in which tax incentives for charitable giving have changed:

• Increase in the standard deduction for filers
  • Estimated that proportion choosing the standard deduction will increase from 70% to 94% of filers
  • Those filers no longer itemizing will have a reduced incentive to make charitable donations
• Reduction of top marginal rate – another disincentive for charitable giving
• Increase in charitable deduction limit to 60% of Adjusted Gross Income – an incentive for giving, applies to a subset of tax filers
• The Pease limit on itemized deductions will be phased out – another incentive for giving, though only in very limited scenarios
• Elimination of the 80% deduction for payments for the right to college sports tickets
• Increase in estate and gift tax exclusions means less incentive for charitable bequests

The predictions of the effect of these changes on charitable donations have been dire, ranging from a $13B to $20B per year reduction in giving. While the new law reduces charitable giving incentives for low- and moderate-income tax filers, in some cases it increases them for high-income filers. The presenter noted increased effort, on the part of charitable organizations, to cultivate high-income donors. Overall, fundraising activity is predicted to increase. Against this background, tax reporting and compliance will become more important.

One of the trends the presenter expected to continue was the tendency to bunch contributions in a single tax year, in order to maximize the tax deduction.  One of the ways donors accomplish this is by making larger contributions to donor advised funds during certain years.

Tax Reporting Challenges and Avoiding Pitfalls

The presenter described common challenges and pitfalls.

• Cash contributions: For contributions of $250 or more, contemporaneous written acknowledgment is required for those donors who plan to make tax deductions for charitable giving. She gave an example of acceptable language for acknowledgments.
• In-kind contributions
  • No deduction allowed for donated services, or for the use of facilities
  • For noncash contributions valued from $500 to $5,000, an acknowledgment is needed in order to claim a deduction
  • For in-kind donations of more than $5,000 in value, the donor must both have an acknowledgment from the charity and file a Form 8283 in order to deduct the value. For anything other than publicly-traded securities, a qualified, independent appraisal of the donated goods is also required. Securing and paying for the appraisal is a responsiblity of the donor, not the receiving charity. Similarly, the gift acknowledgment should describe what the charity received, but not assign a dollar value to it
• Fundraising events
  • Common misconception: The fair market value of goods or services provided to the donor can be based on the cost to the organization. In fact, the IRS requires an estimate of the value based on a market equivalent. For example, if the venue and food for an event were donated to the charity, this would not reduce the quid pro quo value subtracted from a charitable gift.
  • The charity is still required to report the quid pro quo value against the donation, even when a donor does not show up to the event.
• Raffles
  • The cost of raffle tickets are not tax deductible to the purchaser
  • Items donated to be raffled off are deductible, except for time (such as services) and use of facilities (such as a vacation home)
  • In Massachusetts, before holding a raffle, an organization needs a permit from the local jurisdiction
• Auctions
  • In-kind donations of items to be auctioned off are deductible to the donor — again, excluding donated time and use of facilities
    • If the value is greater than $5,000, the donor needs to have the charity sign a Form 8283. Assuming the item valued at $5,000 or more is sold at the auction, the charity needs to file Form 8282 with the IRS, and provide a copy to the donor
  • Payments on winning bids are deductible only for the amount above the value of the item won. If the bid is the fair market value or less, no deduction is allowed
• Sponsorships
  • Corporate sponsorship is usually a charitable contribution, unless the organization provides advertising in return. In that case, it may trigger UBIT for the charity
  • But many things do not count as advertising, including the use of the donor’s name, logo, and list of products in materials. There are specific rules about the type of sponsor information will not be considered paid advertising.
• Anonymous gifts
  • If the donor is taking a charitable deduction, they need a receipt acknowledging their donation
  • It is fine for the organization to withhold the identity of the donor from the public and from people within the organization, but if the donation is over the threshold for Schedule B reporting, the charity must disclose the donor’s name to the IRS
• Receipts
  • Quid pro quo
    • Donations of more than $75 are deductible only in the amount exceeding the FMV of what the donor received or was entitled to. It is the organization’s responsibility to disclose that value to the donor, as part of the solicitation and acknowledgment
• State registrations
  • States have their own rules concerning registration and reporting. In some states, these rules may be triggered simply by having a “donate” button on a website accessible in that state
  • Parts of the state registration and reporting may be delegated to outside services, such as Labyrinth (http://www.labyrinthinc.com)

Form 990 Reporting

• Though there may be legitimate reasons for fluctuations in the ratio of fundraising expense to contributions, a high ratio may trigger IRS attention
• Be mindful of consistency between the disclosure checklist and the financial reports and schedules
• See questions about required filings and communication. Note that responses to other questions — e.g., about event-related income and expense or in-kind donations received — may trigger additional attention to your responses.
  • 7b, whether the organization notified donors of the value of goods and services received for payments over $75
  • 7c, whether the organization filed Form 8282 for in-kind donations sold
• Pay attention to reporting of event income and expense, and be prepared to justify the appearance of low or negative net income. Expect your Schedule G, Part II report to come under close review
• Is the reporting of professional fundraising services consistent with activities reported?
• A common error is checking the wrong box in the Schedule B list of contributors. Are in-kind donations checked as “noncash”?

The IRS and your organization

Links to specific guides published by the IRS (Overview: Audit Technique Guides (ATGs) for Exempt Organizations)

• Public Charities
• Private Foundations
• Private and Charter Schools
• Educational Organizations Other Than Schools
• Religious Organizations
• Other 501(c)(3) Organizations
• Fundraising Activities (applies to multiple types of exempt organizations)

Based on the ATGs, expect IRS attention in these areas:

• Professional fundraisers
• Fundraising events
• Substantiation rules
• Quid pro quo contributions
• Non-cash contributions
• Penalty considerations

Contact from the IRS can take multiple forms short of an audit, ranging from informational letters to compliance checks.

The presenter predicted these activities or features will become red flags for the IRS:

• Fundraising events
• In-kind donations
• Donations of art or historical treasures
• Anonymous donors

Resources from the meeting:
IRS Notice 2017-73 – DAF – IRS requests comments Audit Technique Guide for Fundraising Activities NPFM Fundraising Slide Deck

Audit Technique Guide for Fundraising Activities

IRS Notice 2017-73 – DAF – IRS requests comments

Laura J. Kenney is a tax principal in BlumShapiro’s non-profit group and enjoys providing tax services to many types of non-profit clients throughout New England for over 25 years. BlumShapiro is the largest regional accounting, tax and consulting firm in New England, with over 450 people. Our non-profit service group understands the unique needs of non-profit clients.

 

Detoxifying the Workplace:  What can we do?

High visibility coverage of workplace harassment and sexual assault have helped elevate the need to address toxic work environments.  Even if it hasn’t risen to the level of assault, many organizations foster unsupportive and hugely problematic work places.  What can be done about it—at the organizational level? 

High visibility coverage of workplace harassment and sexual assault have helped elevate the need to address toxic work environments.  Even if it hasn’t risen to the level of assault, many organizations foster unsupportive and hugely problematic work places.  Gordon Gottlieb, Human Resources Consultant, TDC, gave a presentation about what can be done about it at the organizational level. Gordon has more than 20 years’ experience at TDC, advising and supporting nonprofit organizations with their human resource and board development needs. Prior to TDC, Gordon managed human resource functions at nonprofits in the Greater Boston area, including Northeastern University and the Unitarian Universalist Service Committee.

He led the discussion about policies and procedures, about creating a positive work climate, and about the need for leadership.

First, there is no clear, obvious path to detoxifying the workplace and no clear definition of what constitutes a toxic workplace. The spectrum of a toxic workplace ranges from awful to unlawful.  There are a lot of negative activities that are destructive, but not unlawful, such as shaming, hostility, and showing a lack of respect for others.  In fact the largest amount of toxicity in the workplace is lawful.  However, sexual harassment is unlawful and is less frequent than nonsexual harassment and hostility. It is more insidious because it is more covert.   Toxic work activities or practices usually need to be either severe or pervasive to justify disciplinary actions.

Organizations should have written anti-harassment policies in place to cover sexual harassment and behaviors such as bullying, disrespect, etc.  Employees and managers should receive training about these policies.  And finally, anti-harassment policies need to have the have the support and leadership by senior agency managers and executives.  Senior managers need to be clear about what values it supports (such as diversity) and what behaviors are unacceptable (such as bullying).

An example of case that might need to be addressed is the star manager who gets great results, but is verbally abusive to other staff. Often, the attitude of his/her superiors is “that is just the way it is.”  The abusive employee may not be doing anything illegal and may be a good asset to the organization.  However, the situation still needs to be addressed in an appropriate manner.   If the person being abused cannot go to their supervisor, then he/she should go to the Human Resources Dept. or to the Executive Director.   Confidentiality is a very big issue in the complaint process and having a written investigative procedure is very important.  You can go to the EEOC website for guidelines for conducting an investigation.   If there is a hearing for a grievance, there should be two hearing personnel present, one male and one female.   Sometimes it is helpful to ask the complaining employee what outcome they hope to accomplish.

The nonprofit sector is generally conflict averse and often finds it difficult to have conversations about abusive and hostile behaviors.   Senior management needs to be very clear about what the expectation are for acceptable and unacceptable behavior. Often, remedial steps can be included in the offending employee’s performance evaluations, with clear expectations for improvement.  The Massachusetts Commission Against Discrimination (MCAD) can help with agency wide trainings.

 

 

Have you ever reviewed your internal or external financial reporting and questioned its usefulness to your stakeholders?  Many have asked this question but have struggled with how to enhance financial reporting to be more than just numbers—but a strategic tool for decision making.  In this session participants discussed best practices for financial reporting in an interactive environment and learned techniques and strategies to begin transforming today’s financial reporting into an effective decision-making tool.

 

Write-up from the Session:

Tim Warren, CPA, a principal in the nonprofit group for CliftonLarsonAllen, gave a presentation on using financials as a strategic decision making tool for nonprofits. CliftonLarsonAllen   does wealth advisory work, outsourced services, and audit, tax, and consulting work. The firm works with approximately 400 nonprofit organizations in Massachusetts.

One of the main roles of the modern CFO is to be one of the chief storytellers for an organization. The CFO can use his/her access to the data and skill set to tell the story of the agency.  The story should probably not start with the numbers.  It should start with reporting about the organization’s strategy – what it is doing, what is it looking to accomplish, and how is it going to do that.  The CFO needs to translate the story of the 990 back to Agency management and show them the impact of the 990.  The CFO also has to keep the Board of Directors engaged.   Some of the issues that the CFO faces when telling that story are as follows:  1) does the CFO have the capacity to do this; 2) CFOs often struggle with using the appropriate graphics; 3) trying to communicate too much information; and 4) a lot of organizations are just used to seeing and hearing about the numbers and bottom line, not a story.  The story has to include both financial and nonfinancial information.

The story that the CFO tells should start with a focus on the purpose of the presentation. Who is your audience and what is important to them.  Identify the financial and nonfinancial data that is important for your presentation, and finally select the best presentation techniques (not just the Statement of Revenue and Expenses and Balance Sheet).    You may be presenting the same information to different audiences, but you can present it in different ways.  Tim suggested that you can create one PowerPoint template that you can use for all audiences, but use new data as it occurs.

The CFO should explain how he/she is advancing the strategic plan of the organization – meeting the goals and supporting the mission.   Identify a few key performance indicators that help tell your story.  You need to be strategic, define your audience, choose a business model and key performance indicators, and then plan the presentation.  You need to give a quick snapshot of the financial health of the organization.  The story must address the past, the current situation, and the future.  Show how the agency performed against budget and how it did compared to the previous year at the same time.   You can use a bar graph to help with the presentation.

To summarize, the CFO needs to become the story teller of the nonprofit organization. You should always start you planning process by asking the audience what is important to them. When developing financial reporting start with the key strategies of the agency. Then you should ask yourself, how you can address those issues and what you can change or do differently to improve your presentation and keep the audience engaged.  Finally, use the output of the reporting to make decisions on the direction and strategy of the organization.

Materials: Financials as Strategic Decision Making Tool

Leading Indicators: The Sophisticated CFO’s Guide to Choosing Key Performance Indicators That Matter & Dashboarding

A critical component of nonprofit effectiveness is the organization’s ability to identify and track meaningful “leading indicators” that serve as mile markers to tell you if you are headed in the right direction—a course charted by your strategic plan. Carla McCall, Co-Managing Partner, and Robin Leet, Business and IT Advisory Manager, from AAFCPAs provided guidance for nonprofits on the leading, predictive metrics that may have a significant impact on an organization’s operational and financial results.

We went beyond the classic financial KPIs, providing guidance on making correlations between non-financial and financial metrics. AAFCPAs also provided insights to bring clarity to your data, and tools to make more meaning out of the information in our systems through dashboarding.

Summary of Presentation:

Leading Indicators: Choosing Key Performance Indicators That Matter & Dashboarding

Carla McCall, Co-Managing Partner, AAFCPAs

Robyn Leet, Business & IT Advisory Manager, AAFCPAs

Summary

A critical component of nonprofit effectiveness is the organization’s ability to identify and track meaningful “leading indicators” that serve as mile markers to tell if your organization is headed in the right direction—a course charted by your strategic plan. The presenters provided guidance on the leading, predictive metrics that can have a significant impact on an organization’s operational and financial results.

Key Performance Indicators

The presenters differentiated leading indicators from lagging indicators. Lagging indicators are output-oriented. They are easier to measure, but harder to improve and influence, since they measure past performance. Leading indicators are input-oriented. They are harder to measure, but easier to influence.

Leading indicators tend to relate to activities undertaken by employees. The idea is to break down activity into measurable inputs. For the indicators to have the greatest impact, the whole team needs to be involved in the process of identifying inputs and measuring outcomes. We want indicators that tell us:

• How the team performs as a whole
• How special sub-teams perform
• How each individual on the team performs

They offered suggestions for choosing and implementing KPIs:

• Choose indicators that go beyond financial measurements
• Don’t track too much at once; limit it to the most important indicators
• As a motivational strategy, it can be helpful to gain “early yardage” by doing an activity that will get results quickly. Hit the biggest impact items first.
• Lay out KPIs in a visually clear format, not just an array of figures
• If it doesn’t work, try something else
• Celebrate the team’s successes



Dashboarding

A dashboard displays information from databases, and graphically represents KPIs in real time for management. A dashboard is customized to your organization’s operations and outcomes, and serves to focus attention on the activities and decisions that matter most.

The presenters described the key functions of a dashboard:

• Analytics: KPI metrics, to enable analysis of trends
• Information: reports on key activities
• Operations: To keep the organizations moving with workflow queues, quicklinks, and tasks–to enable performance of responsibilities more timely and effectively

The audience and presenters discussed the relative advantages of various platforms that enable dashboarding:

• Netsuite (discount for nonprofits available through Techsoup)
• Adaptive
• Intacct
• Tableau (also available through Techsoup)
• MS Power BI

Keys to a successful dashboard:

• Limit the number of items. Keep it focused.
• Present high-level information. If detail is really needed, the user can always drill down.
• Mix graphical with statistical representation

 

Meeting Presentation: KPI Dashboardinag – AAFCPAs