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Apr 15

Political Campaign and Lobbying Activity Regulations for Non-Profit Organizations

By Frank Monti

This year is another election year and election years usually mean an uptick in legislative activity as elected officials attempt to burnish their records.  Therefore it is a good time to review the rules and regulations affecting not-for-profit, tax-exempt entities and the campaign and lobbying process.  In this blog, I will address this subject only from the standpoint of organizations exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code.  Similar but different rules affect other types of not-for-profit organizations and you should contact us if you have a question about one of these tax-exempt entities.

In Part IV of the IRS Form 990 there are three questions dealing with campaign and lobby activity.  A yes answer to any of these questions requires the organization to complete Schedule C of the Form 990.  If you engage in either of these activities, you will be required to fully disclose your activities in Schedule C that is completed and signed, like the rest of the Form 990, under penalty of perjury.

Question #3 of Part IV asks if the organization engaged in any direct or indirect political campaign activity on behalf of or in opposition to candidates for public office.  Since this is a yes/no question with further explanation required in Schedule C, it may give the reader an incorrect impression.  Schedule C even contains an excise tax calculation associated with campaign activities.  However, a “yes” answer to question 3 will have disastrous results.  Aside from the excise tax, involvement in a political campaign (even indirect involvement) by a 501(c)(3) organization is strictly forbidden and will likely result in revocation of the organization’s tax exempt status.  The fact that the Form innocently asks the question and also allows for an excise tax payment misrepresents the seriousness of the “yes” response.

Lobbying – generally defined as any attempt to influence legislation through communication with a member or employee of a legislative body – is allowable within certain limitations.  Those limitations can be very specific or very vague.  For years the law simply said that 501(c)(3) organizations could engage in lobbying as long as that activity was “not a substantial part of the organization’s total activity”.  Therefore, one could engage in an insubstantial amount of lobbying activity.  Of course, there was never any official guidance of how much activity was substantial or insubstantial. 

Finally the IRS issued official guidance relative to the amount of allowable lobbying.  This guidance was included in Section 501(h) of the internal revenue code.  The administrative quirk about this, however, is that a tax-exempt organization must make a one-time election by filing Form 5768 in order to have its lobby efforts evaluated under Section 501(h).  If an organization does not make a 501(h) election, its lobbying efforts will continue to be evaluated under the old substantial/insubstantial regulations and the guidance included in Section 501(h) cannot be used in defense of its lobbing amounts.

Regardless of how little lobbying activity your organization may undertake, we recommend filing Form 5768 and making the Section 501(h) election.  This does not mean that you are no longer a 501(c)(3) organization.  Section 501(h) only has to do with your lobbying activity and the fact that you may not engage in lobbing activity every year is irrelevant – we still recommend the 501(h) election.

Part II of the Schedule C is where an organization discloses the amount of expenditures it incurred in connection with its lobbying activities.  Part II-A is completed by organizations that have made the 501(h) election and Part II-B by those organizations who have not made the election.  Therefore it is very clear to the IRS how they are to evaluate your lobbying activities.

The actual amount of allowable lobbying under Section 501(h) is actually fairly high and is probably of no concern to most organizations that are not politically active on a monthly basis.  However we recommend that all organizations regardless of the amount of their lobbying expenses make the 501(h) election. 

If all of this isn’t confusing enough, another complex subject is what kinds of activities constitute lobbying activities?  As you may imagine, this subject consumes pages of IRS regulations and the difference between measurable lobbying expenditures and irrelevant (from a lobbying standpoint) education activities is very slight.  We can assist you in navigating these waters if lobbying is important to your mission. 

It is important to always remember (and especially in election years) that you may not engage in any direct or indirect campaign activities but you may lobby the legislature within certain limits.  We can help you file Form 5768 and make the appropriate 501(h) election.

To learn more read our whitepaper: Political Campaign Activity and Lobbying Activity for 501(c)(3) Organizations

Apr 9

Finding the Right Accounting Software for Your Nonprofit Organization

By Frank Monti

Selecting accounting software can be especially difficult for nonprofit organizations.  Usually the accounting staff have little to no experience with accounting software and most consultants have equally little experience with not-for-profit organizations.  In addition, many of the best known packages seem expensive when you are working within the typical nonprofit budget. 
Ensuring that the software you select meets your organizational needs is your primary goal.  A decision concerning which tool is right for your organization needs to be based on a myriad of factors, including:

  • Budget
  • Existing software
  • Complexity of the accounting challenge

Match Your Requirements to Your Goals

The first step in software selection is to adequately define your needs.  Understand your organization’s long-term and short-term strategic goals, and identify how those goals fit in to your software selection process.  Create a team of decision makers and end users to ensure that the software you select matches everyone’s needs and abilities, now and down the line. 
Identify all potentially affected areas of the organization:

  • Who will use it?
  • Who will need to integrate with it?
  • Decide how much involvement each area will have in the decision process

It is also important to create a timeline, including:

  • Purchase
  • Training
  • Implementation

Training and implementation are equally important as the purchase decision.  All too frequently, organizations fail to recognize the need for training and do not provide for an adequate implementation schedule.

Ensure that you have the proper resources to support your selection

  • Do you have the budget for the initial purchase, upgrades, implementation and maintenance?
  • Does the staff have the required skills to utilize the software?
  • Do you have the time to properly train them?
  • How extensively do you need to modify your existing business processes to conform to the new software package’s processing and reporting capabilities?

And be sure to consider additional costs:

  • Additional hardware
  • Additional software, advanced modules or add-ons
  • Custom report creation
  • Employee time and effort related to the training processes

Outline your specific vendor needs and requirements

You want to hire the right vendor for your particular situation.  While the software product may be the same, the services provided by different vendors can vary significantly.  Don’t assume anything.

  • Will you require the vendor to perform the installation and maintenance?
  • Will the vendor be needed to integrate the new software with existing software?
  • Do you need to customize the software to fit within your operations and will you require the vendor to do that?
  • Do you have specific and customized reporting requirements that you will need the vendor to program?

The RFP Process

Before starting the RFP process, you should have answered the above questions and request responding vendors to:

  • Demonstrate how their solution falls within guidelines you specified
  • Explain how they will meet your specific requirements
  • Describe similar installations they have undertaken and ask to speak to those references

Create a short list of vendors that submitted proposals before assembling your decision team.  There will likely be some responses that can be eliminated easily.  Bring only the most qualified respondents to the entire committee.

Of course, you may also acquire software without going through a formal RFP process. This process will likely involve more of your time answering questions and interviewing possible vendors selected via referral or the internet.

Making a final decision

When your team is making a final decision, remember that you are not just buying software.  You are investing in the future of the organization.  Software has the potential to provide a high return on your initial investment.  It can provide access to information never before available and it can streamline current processes to take a significant burden off your staff.

In making your decision, remember to take everything into consideration.  Take into account ongoing training costs, maintenance, reporting, efficiencies and return-on-investment metrics.  Make sure you are comfortable with all aspects of the decision, such as the selected vendor, software and hardware, and technical support.  Think back to the strategic goals you outlined at the beginning of the process to help prioritize each aspect of the project.  Remember that the primary purpose of the accounting software is to generate timely and accurate reports to allow you to make management decisions.  As such, the design of the chart of accounts, custom reports and staff training are the most critical areas.


Apr 2

5 Things To Consider Changing at Your NPO

By Frank Monti

In my previous blog, I spoke about some of the successful things we have seen implemented at the over 220 not-for-profit organizations.  This week, I will share with you some of the actions and activities that organizations have stopped doing.  This does not necessarily mean that if you are doing some of these things you must stop immediately, but perhaps it should precipitate a discussion.

  1. Don’t ignore the smaller and medium size gift.  Everyone likes to bring in the big gift and no one forgets to recognize the big giver.  However, there are a number of people who give $500 to $10,000 annually to the charity of their choice who seem to fall through the cracks.  These donors should be on the radar of your major-gift fundraisers.  Perhaps you should have only one development person with the responsibility of these donors and a specific program for deepening those donors involvement with the organization.
  2. Don’t use social media indiscriminately.  You don’t want to jump on every bandwagon that comes along and do none of them well.  The key is to find out where your donors, volunteers and supports are, where they want to hear from you and then devote sufficient resources to that area to do it correctly and completely.  If you do not have the time or the resources to commit to publishing to - social media so that it remains current, it is better to not participate at all and concentrate your efforts on keeping your website updated, fresh and relevant with new information.
  3. Don’t hoard information.  You may produce an annual report but if you have good news and information about the successes experienced in a program, let the public know.  Publish this on your website, send an e-mail to donors and volunteers and let local organizations or public figures know. A good rule of thumb is to be in touch with your constituency on a monthly basis.  Many organizations are making effective use of an e-newsletter and once you get started you will be surprised how easy it is to come up with new information each month.
  4. Stop using generic language.  Not-for-profit organizations are great at saying very little: we empower; we help educate; we help the community.  Stop using those broad generalizations of your work and be specific.  “We help adults raise their math skills two or more grade levels.” As I mentioned in my previous blog, donors are specific and want to know exactly what their donation is contributing to. Using language that is also specific will help your donor get a better sense of what you do and how that it is actually happening.
  5. Don’t be afraid of failure.  Failure is the price of progress and organizations that avoid failure are probably not taking big risks. Innovation is the path to progress.  Don’t be afraid to experiment with new ideas.  Failure is not a problem when it is a learning experience.


Mar 27

Best Practices for Your Nonprofit Organization

By Frank Monti

One of the advantages of being in a CPA firm with so many not-for-profit clients is that we get to see many different operations.  We get to see the things and operations that are working well and, unfortunately, some that are not.  My next two blogs will share some of each.  In an effort to start on a high note, this blog will be about some ideas worth considering for your organization.

1. Implement a practice that is intended to improve performance.  All too frequently programs continue to run year after year without change.  However, some organizations identify key pieces of data from each program and track these on a regular basis while implementing small changes that are designed to improve the program and be reflected in the tracked data.  Some call these data points Key Factors for Success (KFS) and focus on these points at staff meetings.

2. Donor management. Everyone knows that when you ask for a sandwich at McDonald’s they ask “do you want fries with that?”  This is a standard operating procedure at McDonald’s and other eating establishments because it is easier to sell an existing customer more than it is to find a new customer. The same principal exists with your donors. Asking donors who are already contributing to give more is easier than finding new donors.

When you receive the first gift from a new donor, this is when you begin working on the second gift from that same donor.  Thinking ahead to the next gift immediately upon receipt of the present gift will impact your response and relationship with that donor forever.  The goal is to make the donor feel like a part of the organization – like a partner in your mission.  Realizing the difference between an existing donor and a prospective one is critical to building long-lasting relationships that benefit your program and mission for years.  You should always be trying to increase your donor’s knowledge and commitment to the organization.

Also, you should consciously work to have your repeat donor keep pace with inflation.  Don’t wait years and then ask your donor to double their annual gift amount.  We have a client who sends very personalized annual giving letters out and it is not unusual for the letter to a $50 donor to ask if they could donate $53 to this year’s annual campaign.  This organization’s giving growth rate from repeat donors is much higher than other organizations soliciting an annual support donation.

3. Demonstrate the impact of your efforts. This is also part of donor management.  However, today more and more we hear of donors, especially younger ones, wanting to know more about how their funds were used and what change did funding this program bring about.  Measurable output is the new phrase of the day.

We have a client who raises funds to bring kids to a water park in the summer.  After the event, the organization posts pictures and videos on their website of the kids having fun and thanking the donors for their support.  Every donor receives a thank-you e-mail with a link to the website.  Additional pictures and videos are saved for the following year’s fundraising campaign.  This has been an extremely effective way for them to communicate and show people the impact of their donation. Even if you do not raise funds for such a specifically targeted purpose, that doesn’t mean you cannot communicate targeted results back to general donors.

Individual donors are a gateway into a multi-generational family of givers.  A growing number of donors want to involve their children and grandchildren into philanthropy and will welcome the opportunity to do so.  These donors are looking for opportunities for people of different ages to volunteer and learn about the work of your organization.  Think of ways of helping your donors instruct their families in the pleasures of philanthropy.

As I have mentioned, photos and videos are great tools to demonstrate exactly how donations are used. Posting this type of media to your website, social media sites and in an e-newsletter is an excellent way to share this content with even more potential donors. Make sure the quality of your visuals and videos are top notch, these are what will make that connection to your donors and a quality video can make all the difference.

If hiring a professional isn’t an option, bringing them in to teach your staff might be a nice alternative. Recently a shelter had a photographer go to the shelter to teach staff how to photograph animals available for adoption.  The shelter also invited volunteers and donors (all of whom own pets) to the education session.  Now they have a greater supply of trained photographers, donors who know more about the shelter program and volunteers who have been exposed to another facet of the operation.  All of this is a positive for everyone involved.

Read my next blog 5 Things to Consider Changing at your NPO.

Mar 20

Mandatory Auditor Rotation – Not Happening

By Frank Monti

In August 2011 I wrote about The End of the Audit Industry as we Know It. In that blog I reported about the disturbing proposal from the Public Company Accounting Oversight Board or the PCAOB wherein they wanted to impose a regulation calling for the mandatory rotation of audit firms every x number of years.  The exact number of years was never really pinned down.

I am happy to report that the PCAOB recently announced that it is no longer pursuing this project.  This is their conclusion after nearly three years of study – three years marked by negative reactions by almost everyone in the financial community.  Some of the resistance that the PCAOB received came from Congress where some accused the PCAOB of overreaching on its mission and in July of last year, the House passed a bill to prevent the board for ever requiring mandatory auditor rotation.

Although this initiative is dead in the water in this country, it is still moving forward in other countries.  Last year India proposed corporate auditor rotation every 10 years and the European Union agreed in principal to require companies to rotate auditors every 10 to 24 years.  While PCAOB chair James Doty indicated that they are no longer moving forward on term limits for auditors they will continue to think about what impacts auditor independence.  So while this specific proposal is gone, the concept of imposing some regulation to strengthen auditor independence continues.

We at KLR understand that auditor independence is the backbone of the auditing industry.  This is one of the reasons we made the strategic decision to grow the size of the firm and better enable us to rotate staff on jobs right up to the partner level.  New staff provides a fresh look at a client’s fiscal health while still having access to the organization’s historical information maintained by the firm from years of previous experience.  In this way, clients have a continual fresh perspective while still maintaining the expertise and history afforded by a long-term relationship.

Mar 13

Overview of Possible New Revenue Raising Legislation

By Frank Monti

At the beginning of March, the House Ways and Means Committee introduced new legislation that gives us some insight on how politicians view not-for-profit organizations. Below is an overview of the proposed legislation and how, if passed, it would impact NPOs. 

The first proposal is to impose a tax on nonprofits that pay employees $1-million or more in compensation.  The tax would be 25% of the excess compensation for the five highest paid employees.  Congress has estimated that this tax would bring in $4-billion over the next 10 years. 

The next proposal is to require that money deposited into donor-advised funds be paid out to the charity within 5 years.  That means that the donor-advised fund will have a life of 5 years or less.  If the money is not paid out to the charity after 5 years, there would be a 20-percent excise tax on the money remaining in the donor-advised fund.  The National Philanthropic Trust estimates that there is currently more than $45-billion in donor advised funds.

There would be a 1-percent tax on private colleges and universities investment income.  It would apply only to institutions with more than $100,000 per enrolled student. 

The last item is a requirement that all not-for-profit organizations file their Form 990 tax return electronically.  This is certainly aimed at getting all of that data contained on the Form 990 into the IRS system in a format that is easily accessible and able to be analyzed. 

Although many believe this legislation will never become law, we will keep you posted on further, if any, developments.

Mar 6

Fraud in the Not-for-Profit Organization

By Sandy Ross, CPA, CFE

When people think of fraud, they generally do not think of not-for-profit organizations (NPOs) as likely victims.  However, a recent report by the Association of Certified Fraud Examiners (ACFE) indicated that approximately 10% of frauds occur in NPOs.  The median loss for NPOs was approximately $100,000.  And, while these figures are significant, I am concerned because I wonder if every fraud at a NPOs is actually reported to the authorities.  The general feeling in the not-for-profit community is that many incidences of fraud are unreported.

Identifying the potential fraudster is not easy.  ACFE statistics indicate that most employees (and others) who commit fraud are first-time offenders.  This means that the typical background check for new hires will not highlight a potential threat.  Seventy seven percent of the fraud is committed by people involved in one of the following areas:  accounting, customer service, executive management, operations, purchasing or sales.

Billing scams are the most frequent not-for-profit frauds followed by check tampering and fictitious expense reimbursement.  One of the reasons why these schemes are most popular is because the fraudster does not have to physically take cash to perpetuate the fraud and receive an economic benefit.

What is it that makes the NPO especially vulnerable to fraud?  The primary reason appears to be trust.  NPOs tend to confer a higher level of trust in executive leaders, trustees and founders and even among rank and file employees.  Blind trust is an invitation to management override of well-designed control systems or worse, the failure to even implement well-designed control systems.

Lack of sufficient oversight is the next vulnerability that exists.  Many organizations, especially the small and medium size charities, may have volunteer boards that lack the skills, training or time to provide adequate financial oversight.  Frequently boards lean toward mission oriented volunteers at the expense of volunteers with more general business training and skills.  Operational budgets often experience fiscal pressures which translate into fewer workers engaged in more jobs leaving key functions like finance, bookkeeping and accounting duties concentrated in the hands of only a few individuals.  This makes segregation of duties a challenging task.

To minimize your exposure to fraud risk consider the following:

Create a control environment.  Senior leadership can help reduce potential fraud activity by setting clear ethical boundaries and demonstrating consequences for behavior outside of those areas. Unreported frauds are just an invitation to additional larger issues down the line.

Perform a risk assessment.  This should begin with a candid discussion of existing anti fraud programs and controls followed by an evaluation of potential internal and external fraud risks.  This exercise should also include an assessment of the likelihood of the various fraud risk scenarios and a consideration of how each could affect the organization.

Implement control activities.  These are the policies and procedures that help ensure that management directives are carried out.  Basic control activities include limiting physical access to valuable assets.  Supervisory control activities include management reviews and spot checks, enforcing segregation of duties and reconciliation of accounts on a regular basis.

Communicate and inform.  Steps taken to control fraud should be clearly communicated to employees, customers and others.  This reinforces a strong tone of control at the top and encourages reporting of suspicious activity or other fraud.

Implement a monitoring program.  All control activities should be monitored to assure that they are in place and functioning on a day-to-day basis.  Monitoring also includes a regular re-assessment of activities in place and re-assessment of risks in order to react timely to changes. 

Reducing fraud in a not-for-profit organization first entails recognizing its potential and then reacting to that potential.  Every organization should implement a fraud prevention program and have a series of internal controls to limit any possible fraudulent activity. For more information on developing internal controls to reduce fraud in you organization, contact a Certified Fraud Examiner.

Feb 26

Worldwide Reaction to KLR Board Development Series

By Frank Monti

In 2012 we published a ten-part board development series that covered the Ten Basic Responsibilities of Not-for-Profit Boards.  Some of those blog items referenced KLR White Papers for a more in-depth discussion of the issues at hand.  Many of our clients are executives that serve as volunteer board members at nonprofit organizations throughout New England. We had hoped that this series would act as a resource for those executives and friends of the firm, providing further insight on the day-to-day activities and challenges of being a board member. 

Recently we received a question from a reader in Queensland, Australia (awesome), that we wanted to share with you in hopes that this special circumstance may apply to your board. My additional thoughts on the subject for our reader from Down Under are also included below.

The situation: The background I received had to do with board minutes specifically a controversial motion that was made at a meeting, seconded and approved by board vote.  Record of the motion and the vote did not appear in the minutes of the meeting and this fact was pointed out at the beginning of the subsequent board meeting.  However, at that subsequent meeting another motion was made, seconded and approved by board vote to rescind the previous motion and vote with the intention to make it look like it had never happened. 

The question was whether the minutes of the two board meetings needed to reflect the initial motion and its passage at the first meeting and the next board meeting’s minutes to reflect the rescinding of the initial vote.  What do you think? 

I could not find a definitive answer in Roberts Rules of Order Newly Revised (RONR), but this question brings up a number of interesting points.  The most pressing is to determine if there is anything in the organization’s bylaws regarding the rescinding of a previous motion.  For example, a common policy may be to require a 2/3 majority to rescind a previously passed motion and/or that the potential rescinding motion must appear in the meeting agenda distributed prior to the date of the meeting.  At the RONR discussion forum somewhat similar situations appeared to call for each action to be duly recorded in the minutes of the respective meetings.

However, in regards to this particular question they indicated that during the discussion of the omission from the previous board minutes, the motion to rescind was put forth and affirmatively voted upon.  Although it may have been improper to allow a motion during the time that the body was only to be reviewing the minutes of the prior meeting, in my opinion, it was obvious that the board had reconsidered the appropriateness of the prior motion and the affirmative vote to rescind it probably should result in no mention of the motion in the minutes of either meeting. 

The purpose of board minutes is to record the decisions of the Board and I believe that should guide us when deciding what material should be included in meeting minutes. Although, not all situations are the same, keeping this general thought in mind should aid in the decision making process. Has something similar happened on a board you served on? We would love to hear your reaction to how this was handled.

Feb 18

Special Written Disclosure Rules for Quid-Pro-Quo Payments

By Frank Monti

It’s winter and charitable organizations frequently run special events that are part party and part fundraising activity.  The IRS calls the payments that change hands for these events quid-pro-quo payments.  This means that the donor who attends receives something in return for their payment.  This fact changes the payment from the straight charitable contribution (which is a unilateral transfer from the donor to the charity with nothing going back to the donor except good feelings) into something a bit more complicated.

A charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.  This is a requirement that, if not performed, may subject the charity to fines and financial penalties for lack of compliance.

The written disclosure must inform the donor of the amount of charitable contribution they are entitled to when their payment is greater than $75.  Therefore, if your organization sponsors a Valentine’s Day dinner dance and the cost is $300 per couple, each couple purchasing a ticket must be provided with written disclosure indicating how much of the $300 is deductible as a contribution to the charity.

How do you determine how much is deductible?  The donor cannot deduct the fair market value of the good or services received in return for their payment.  In the Valentine’s Day dinner dance example, if the fair market value of the dinner and dancing was determined to be $125, then the donor could only deduct $175 of their $300 ticket price.  This fact must be disclosed to the donor in writing.  That disclosure may be done at the time the ticket is purchased or in a thank-you letter after the event.
In addition to disclosing the amount of the ticket price to which the donor is entitled to deduct as a contribution, the charity must also make sure that none of their other communications relating to the event give the donor a different impression.  For example, even if the charity intends to provide the required written disclosure to donors after the event, using terminology in the pre-event advertising such as “Donation $300” is forbidden.

Here is an important point to know, the regulation requires that the donors not deduct the market value of the goods or services received in connection with their ticket purchase.  The cost of these good or services to the charitable organization does not matter.  Take our Valentine’s Day dinner, if the venue donated the space for the dinner and the food to the charity and the band donated their services, so that the event cost to the charity is next to nothing, it would not change that fact that of the written disclosure requirement or the amount to be disclosed.  The charity must still inform the donor of the fair market value of the goods or services received in exchange for their payment.
If, in addition to dinner and dancing, each person attending the event also received a gift from the charity, that requires an entirely different analysis.  In general, the fair market value of the gift must be added to the fair market value of the dinner and dancing, but because there is an exception in the Internal Revenue Code for low-cost items, the gift may fall into this exception.  What adds to the confusion in this case is the fact that the cost of the gift is important in this circumstance while above I indicated that the cost of the dinner, dancing and band did not play a role in the written disclosure amount.

The rules and regulations applicable to quid-pro-quo contributions are complicated and our white paper titled: Quid Pro Quo Charitable Contributions addresses this topic in more detail. For help with your written disclosure for quid-pro-quo payments please contact Frank Monti, CPA or any member of our Not- for-Profit Services Group at trustedadvisors@kahnlitwin.com.

Feb 7

Top 5 Areas Commonly Reviewed During a Federal Audit

By Frank Monti

First, I hope your agency is never subjected to a Federal Inspector General (IG) audit or any government audit.  It would be a disruption to your agency’s operations – sometimes for months – and cause for concern.  It also might result in the need to return money spent with good intentions as a result of an innocent mistake or incorrect interpretation of the law or regulations.

When we at KLR audit you for the purpose of determining if your annual financial statements are presented fairly in accordance with generally accepted accounting principles, we also keep in mind what the federal auditors look for when they audit and we try to make recommendations to you that will help you in case of a federal audit. Here are five areas that we frequently see in the federal literature that pop up in their audit reports.

  1. Internal Controls – Without a system of controls, you’ll have difficulty assuring the auditors that transactions are recorded consistently and correctly.  If you don’t have a procedures manual enumerating the controls, it is difficult to affirm that you have a system of controls in place.
  2. Payroll – The government finds it very difficult to reimburse you for your payroll costs without a payroll system that includes time sheets signed by the employee and approved by their supervisor.  Allocating payroll costs based on budget or job descriptions is not going to fly with the federal auditors.
  3. Occupancy costs – This is another cost, like payroll, that is usually allocated among several program activities.  It is important to have a simple, written, well thought out allocation methodology.  Charging programs based on funding availability is problematic.  Also, remember, if you acquire a new program in mid-year, be sure to re-do your occupancy allocation to include the new program.
  4. Fixed assets – Control over these assets purchased with federal dollars is absolutely essential.  Numbered asset tag labels are now readily available over the internet at prices that are extremely low compared to just a few years ago.  Technology has helped bring this control device down in price so that every organization can afford to control fixed assets the right way.
  5. Attitude – If you made a mistake, admit it and try to minimize its impact in some creative way.  Although your mission is most important to you, watching out for federal dollars is most important to the federal auditor.  Demonstrating that you too are concerned about spending federal money inappropriately is important.  Do not try to minimize your error by noting how the inappropriate expenditure advanced the organization’s mission.

Treat federal dollars the way you hope your kids will treat the money you send to them while they are away at college!  As always, our team understands the Federal Audit process and we are always here to assist you. You can contact any member of the Not-for-Profit Services team at trustedadvisors@kahnlitwin.com or call 401-274-2001 for more information.

See all Mission Matters blog articles in the archives.