2014 Giving Guide: KPM CPAs, PC

by Keith Seiwert • CPA

Non-Profit Governance

Non-profit organizations face many issues, key among those being donor relations and organizational management. Addressing common concerns and providing simple resolutions can help alleviate these issues.

Donations & Donors

Donors may believe any money given to non-profit organizations is deductible as a charitable contribution. However, some payments are not deductible as individual contributions. The organization should ensure donors understand the difference.

Raffles, auctions, and admission tickets are often integral to fundraising events. Raffle ticket purchases are generally not deductible as a charitable contribution. Payments for auction items or admission tickets are deductible only for the amount paid exceeding fair market value of the goods or services. The charity must provide fair market value of purchases to donors.

Donors may also believe non-attendance entitles them to a charitable deduction for the full amount of tickets purchased. To receive full deduction, donors must return tickets prior to the event and receive written acknowledgement from the organization. Donors wishing to make donations should decline tickets and indicate a contribution is being made. Organizations can add a checkbox option on purchase forms for donors to decline tickets and receive a charitable deduction.

The Importance of an Organization’s Form 990

Every non-profit organization is required to file an annual information return. Depending on organization size, a 990-N, 990-EZ, or 990 must be filed. The IRS uses information in the return to identify organizations that do not comply with good governance policies. The Form 990 contains a series of governance questions the IRS considers important for organizations. The IRS recommends organizations:

• Have a written mission statement

• Have a written conflict of interest and document retention and destruction policy

• Use comparability data for compensation decisions

• Have controls in place to protect assets

• Have their board review the tax return prior to filing

The IRS is also developing indicators and testing theories related to fundraising and compensation expenses. They pay special attention to organizations having:

• Large fundraising expenses and low charitable

activity

• Large fundraising expenses and low fundraising income

• Unrelated business income reported on their Form 990s with a failure to file Form 990-T

Complete and accurate returns are a necessity. The board and management should consider hiring a CPA to prepare the annual tax return.

Avoiding Financial Fraud

A few simple steps allow an organization to reduce fraud risk.

First, a proper tone conveyed by management and the board of directors permeates the entire organization. Employees quickly grasp policy enforcement strictness. All levels of management must be involved in control of organizational assets, and employees must know these controls are for their protection.

Next, engage a CPA and develop a strong working relationship. A CPA can provide expertise on best practice internal controls, finance and accounting policies and industry knowledge. A CPA’s value is widely recognized by governments and organizations providing grants and demonstrated by mandates requiring organizations to obtain audits from an independent CPA. An audit, however, is not designed to catch or prevent fraud.

Lastly, consistent and concise finance reviews should be an integral part of each board meeting. The board should have as much information available to them as they want, but meeting time should be spent on key areas and deviations from approved budgets.