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Applying Segregation of Duties Beyond Standard Checks and Balances [SUBSCRIBERS-ONLY]
Segregation of duties is a bedrock principal of internal accounting control systems and is visible in many elements of nonprofit organization accounting policies and procedures. Without segregation of duties, internal accounting control systems would not be safe or effective. Less often recognized is the powerful impact segregation of duties can have when applied to operational planning and resource management.
Q&A #125 – Are in-kind contributions by Board members considered conflict of interest transactions?
Nonprofit conflict of interest policies are generally aimed at ensuring the organization’s assets are not used to provide excessive benefit to the people who run the organization. While purely donative arrangements (such as providing free office space to the organization) are not typically considered conflict of interest transactions, it is best to err on the side of full disclosure and review by independent Board members because individuals sometimes benefit from these transactions in ways that are not immediately apparent.
To Be Sustainable, Nonprofits Need to Have Profits
It is difficult to search for a single aspirational goal that works for all nonprofit organizations because nonprofits are a lot like people, with no two organizations exactly alike. However, I believe there is one aspirational goal that most nonprofits have in common: to have a long, stable, and sustainable existence. To achieve this goal, nonprofits need to commit to making a profit.
Q&A #124 – Can the volunteer exception to the unrelated business income tax (UBIT) apply if the business is partially run by paid staff?
Under section 513(a)(1) of the Internal Revenue Code, an activity that otherwise meets the definition of an “unrelated trade or business” does not trigger unrelated business income tax (UBIT) if “substantially all the work in carrying on such trade or business is performed for the organization without compensation.” Having paid staff does not disqualify an organization from using the volunteer exception if paid staff’s role in the activity is sufficiently minimal that the “substantially all” standard is still satisfied.
Building Trust and Connection with Financial Reports
Financial reports for nonprofit organizations are important. Most people agree on this point. The challenge lies in getting people to connect with and trust financial reports. When trust and connection are absent, financial reports go unused. Getting users to trust financial reports requires mostly routine tactics while getting them to connect with financial reports requires more personalized creative approaches.
Q&A #123 – Are merchandise sales considered a related activity for unrelated business income tax (UBIT) purposes?
The sale of t-shirts and other merchandise can, under some circumstances, be considered “related” to an organization’s tax-exempt purpose and therefore avoid unrelated business income tax (UBIT). However, it is necessary to show that the merchandise sales directly further the organization’s mission without regard to how the revenue is used. Only certain types of items will satisfy this standard.
CHECKLIST: Simplified Balance Sheet Assessment
Balance sheets are part of standard nonprofit organization financial reporting, but are intimidating to most individuals and often misunderstood. This 3-step checklist uses easy-to-understand “Yes” or “No” questions to help you to work through a new balance sheet and make a quick assessment of an organization’s current financial position and changing financial health trends.
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Determining When to Involve the Board in HR Matters [SUBSCRIBERS-ONLY]
Nonprofit organizations must be extra vigilant when it comes to managing unexpected and often rapidly changing human resources (HR) issues. Hesitation to react can lead to dire consequences. However, reacting without meaningful contemplation can be equally dangerous. One critical consideration is how to develop guidance for discussions and messaging with Board members on changing HR issues.
Q&A #122 – Why would a nonprofit, tax-exempt organization form a single-member LLC?
When properly formed, a single-member LLC (SMLLC) that is wholly owned by a tax-exempt organization protects the parent organization from liability for the SMLLC’s activities while providing the SMLLC with the benefits of the parent organization’s tax-exempt status for federal tax purposes. The SMLLC structure is also generally easier to establish and more flexible than a subsidiary corporation.
Q&A #121 – Is a nonprofit permitted to compensate Board members for their Board service?
Nonprofit organizations are generally permitted to provide reasonable compensation to Board members for their Board service, provided this is not prohibited by the organization’s Articles of Incorporation or Bylaws, and subject to certain provisions of the applicable state nonprofit corporation statute.
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Capital Campaigns and the Impact of Donor Fatigue [SUBSCRIBERS-ONLY]
Capital campaigns generate a lot of excitement and buzz for nonprofit organizations. Leveraging and harnessing this energy feeds hope for a brighter future. However, nonprofits must maintain a focus on protecting long-term financial health. At the conclusion of the capital campaign, the organization must be in a stronger position. One critical consideration is gauging the negative impact on current and future cash in-flows resulting from donor fatigue.
Q&A #120 – Can a program be transferred from a 501(c)(3) organization to a 501(c)(6) organization?
Internal Revenue Service rulings suggest that it is possible to transfer a program from a 501(c)(3) organization to a 501(c)(6) organization so long as the transfer is subject to certain restrictions that ensure the assets remain dedicated to proper 501(c)(3) purposes. However, the specific circumstances are likely to impact the analysis of this issue so retaining legal counsel to advise the organization on the transaction is highly recommended.
Three Steps to Simplify Monitoring the Balance Sheet
Balance sheets are part of standard nonprofit organization financial reporting. However, balance sheets are intimidating to most individuals and often misunderstood. Simplifying the monitoring process is key to improving engagement, enhancing understanding of the balance sheet, and helping individuals to fulfill their financial oversight roles and responsibilities.
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Use This Simple Question to Improve Board and Committee Member Engagement [SUBSCRIBERS-ONLY]
Keeping nonprofit organization Board and committee members engaged is often more art than science. The reason this task is so difficult is because of the delicate balancing act between gratitude and appreciation. It is relatively easy to show gratitude and thank volunteer leaders for attending meetings. It is another thing to make sure these volunteer leaders leave each meeting with a feeling that it was a good use of their time, that they were actively involved in discussions, and the organization appreciated and valued their input.
Q&A #119 – Are officers of a nonprofit required to be Board members?
Whether the officers of a nonprofit organization are required to be Board members is determined by the organization’s Bylaws. Many organizations specify in their Bylaws that officer positions such as the President, Secretary, Treasurer must be filled by Board members (hence the common but potentially misleading term “Board Officer”). However, it is also common to have Bylaws that allow officers to be appointed from outside of the Board such as from senior management staff positions.