Nonprofits: Employment and Compensation Tips

A solid workforce is a necessity for any type of business to be successful. Even though many nonprofits rely heavily on the kindness of volunteers, employees are crucial for daily operations. Using a preplanned outline, hiring employees for your nonprofit organization does not need to be a challenging experience.

Finding the Right Employees for Your Nonprofit Organization

Being honest about your needs is a great way to attract the right staff to your organization. Many individuals will choose to work for a nonprofit due to the mission of the organization.

Know Your Needs

Do not be in a rush. Finding the right person requires patience. Consider the type of employee you want for your nonprofit. Go over education requirements, work experience, certifications, and other vital aspects.

Incorporating all your needs for the vacancy, write out a detailed job description. Include the following details:

  • Job Title
  • Work Hours: Clearly state the hours you may need the new hire to work, including shifts, weekend, and holiday requirements.
  • Compensation: A range of pay for the job title or grade within the nonprofit.
  • Responsibilities: Summary of the job, tasks, and other potential work-related demands.
  • Qualifications: Summarize the requirements for the job, including education, technical skills, background check, training, and other necessary requirements for performing the job.
  • Special Demands: Lifting requirements, ability to stand for long periods of time or travel needs.

Use the job description as a stepping stone for your hiring process.

Find the Right Candidate

After reviewing the job description, utilize available resources to help find the right candidates to fit your needs.

  • Ask current employees
  • Reach out to your donors through your newsletter or website
  • Ask friends or clients
  • Use social media platforms
  • Post job requirements on employment sites or boards
  • Reach out through your blog
  • Place a classified ad

Creating a large pool of potential employees will help your nonprofit organization find the right candidate.

Review Your Budget

Working with a strict budget, most nonprofits organizations are exempt from paying income, sales, and property taxes. Nonprofits must still pay employee taxes. Reviewing your budget allows you to set the compensation range for your new hires. Staying within budget keeps your overhead low.

Compensation and Benefits

When discussing compensation and benefits with a potential new hire, put an emphasis on the positive attributes of working for your nonprofit organization.

  • Flexible work schedule
  • No or limited weekend and holiday work
  • Health insurance benefits
  • Chance for travel
  • Paid vacations
  • Paid family leave
  • Tuition reimbursement
  • Paid training
  • Retirement fund

For the right candidate, the extra benefits often outweigh the lower compensation rate. Many job seekers will opt for nonprofits due to nature of the organization.

Promote From Within

Promoting a current employee or hiring a volunteer for a job vacancy creates a loyal workforce. Knowing the individual understands your nonprofit’s mission helps make the transition smooth.

Finding the right candidate for an open position in your nonprofit does require planning, time to implement, and effort. Working toward your vision of the future for your nonprofit, the new hire should fit easily into the company’s culture. At the same time, staying flexible about the vacancy provides you with the opportunity to change the job description and requirements to bring the right person into your nonprofit.

While you handle the hiring of new employees for your organization, let the CPAs at Ernst Wintter & Associates help your nonprofit with its accounting needs.  Our staff have over 25 years of experience, focusing on assisting nonprofits follow best practices.  Schedule an appointment with us today!

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Tax Tips for Private Foundations

Tax planning is different for private foundations than other charitable organizations. Private foundations pay an excise tax. Generally started by a large individual donation from an individual or business, a private foundation is a nonprofit charitable organization. Unable to qualify as a public charity, the private foundation produces income by investing the primary donation in a variety of money making options. The private foundation has a board of directors or trustees to manage the distribution of funds to charitable causes.

Tax Tips to Help Your Private Foundations

Tax planning is a necessity for private foundations to meet IRS criteria. Exempt from paying income tax, private foundations must pay an excise tax of 1 to 2 percent on net investment income. Your private foundation’s tax liability is dependent on numerous operating factors. Keeping all the information up to date is essential for minimizing tax liability.

Be Proactive

Being proactive with your recordkeeping methods is crucial. Waiting until the last minute to gather pertinent information for your bookkeeper or accountant may result in errors. Remind employees, managers, trustees, or the board of directors the importance of keeping ongoing and accurate records for tax time.

Provide Documentation

Keeping track of specific information will help determine the amount of tax liability for the year. The tax rate for a private foundation depends on the following:

  • Grants: Distributing grants or donations to specific charities is the main purpose of a private organization. Document the amount of the grant, the individual or entity receiving the grant, and all the pertinent information for the IRS. As regulated by the government, a private foundation must distribute 5 percent of the non-charitable assets.
  • Expenses: Keeping track of operating expenses is critical for deductions. Qualified expenses may include rent, employee or officer compensation, advisory fees, commission, and daily operating costs.
  • Income: Continuing donations from the founder, another donor, or an investment produces a profit – record the amounts with backing documentation. Investment accounts may include stocks, bonds, real estate, interest earned, or mutual funds.
  • Market Value of Assets: The current value of the private foundation’s assets is part of the calculation of the amount of taxes due. Keep track of the market value of all current assets, depletion of value, and new purchases for tax time.

If you are uncertain about a transaction, expense, or investment, save the information. Having too much information during tax season is better than too little. Reducing your excise tax is dependent on the combination of all the daily operating components.

Know Your Deadlines

Keep track of upcoming deadline for tax filing. Failing to file by the 15th day of the 5th month in the foundation’s accounting period may result in costly penalties exceeding thousands of dollars. If you cannot gather all your information by the deadline, request an extension. The extension will provide you with a sufficient amount of time to get your paperwork in order.

Private foundations are set up to help charitable causes. Decreasing tax liability with tax planning helps promote the charitable act of giving to deserving individuals or causes.  If your foundation is looking for assistance in preparing documents for filing, contact the Certified Public Accountants at Ernst Wintter & Associates today.  Our CPAs specialize in nonprofit audit service and assisting a variety of businesses comply with accounting regulations. 

Nonprofit Basics: Three Internal Controls your Organization Needs

Operating a nonprofit organization is a great way to give back to the community or a specific cause. Managing your nonprofit’s financial records is a critical component of your daily operations. When your nonprofit organization collects cash, checks, goods, or other monetary resources, a set of specific rules and guidelines must be in place. Using internal controls are a way to prevent mishandling of the collected assets.

3 Critical Internal Controls for Your Nonprofit Organization

  1. The Need for a Paper Trail

In today’s electronically advanced marketplace, many nonprofits overlook the necessity of a paper trail. A paper trail helps you document accounts paid, cash received for payment or donations, invoices sent, and other details of your daily operation.

Example documents to include:

  • Offer duplicate receipts for cash donations
  • Keep all receipts, paid invoices, deposit slips, and other related paperwork
  • Keep all paid bills, financial statements, bank deposits, employee payroll details, and other forms of daily operations.
  • Print financial statements daily (you can also back up information on your computer or server)
  • If using checks, consider duplicate copies to have an instant receipt of payment
  • Cash on hand needs to be counted daily
  • Paying with cash requires a detailed invoice
  • Prior to sending out invoices, make copies, and keep detailed records in your general ledger.

When in doubt, save the paperwork – keeping too much documentation is better than not enough. Create a well-organized filing system to allow for instant access to needed documents. The smallest piece of information may help your nonprofit save money. If mishandling of funds occurs, the paper trail acts as a way to review the situation.

  1. Involving Employees in Financial Operations

Nonprofits rely heavily on community donations and other resources to stay in operation. Involving more than one highly responsible employee to handle financial assets benefits your nonprofit. The strict process allows a defense against the mishandled funds. Most employees understand the need for protocols involving your nonprofit’s financial information.

Examples of needing two employees to help protect your financial operations include:

  • Using two signatures to release a check for payment.
  • Paying funds for invoices need documentation of check number, person authorizing payment, and date of payment.
  • If transferring funds electronically, set up a system to produce documentation for payment.
  • Implement a two-step authorization process for electronic payment.
  • Prior authorization of materials or services for reimbursement of purchase involving an employee.
  • Require a receipt or invoice for reimbursement.

When asking employees to be part of your daily financial operations, you instill a sense of loyalty to the company. Most employees recognize the importance of your nonprofit’s mission and goals.

  1. Reporting to Your Financial Statements for Review

When using computerized software for financial statements, upload regular reports to a committee, board, or accounting firm. Consistent uploads allow another person to review the statement for possible problem areas. If you are not using computerized software or need a hard copy, create detailed reports for members of the board or committee to review.

The main reason for using internal controls is protecting your nonprofit’s financial well-being. Without strict internal controls, the chances of fraud increase. Loss of donations or other assets from the lack of strict policies can damage your nonprofit’s financial status.  While setting up these controls may take some time, it will certainly be beneficial in the long run.  If you need help getting organized, contact the accountants at Ernst & Wintter Associates today.  Our professional staff are available to help with you basic account organization to complex and specific questions, unique to your organization.

Nonprofit Finance Reporting: Upcoming Changes to be Aware Of

Owning and operating a nonprofit organization can be a rewarding experience. Keeping accurate business records is critical. The daily operations of your nonprofit must match the documentation required by local, state, and federal agencies. Failure to follow rules and regulations could result in fines or the termination of your sales tax exemption status. Staying up to date on new changes will help you limit the chances for inaccurate reporting.

Use the new changes to go over reporting procedures within your nonprofit. The implementation of all the new requirements provides you with a chance to review any areas with less than efficient track records. Fixing small problems prior to the implementation of the new standard procedure is a cost effective practice for your nonprofit organization.

Changes Affecting Your Nonprofit

Starting in December 2017, new guidelines will be in place affecting your nonprofit organization. The new policies allow you to slowly implement the changes until the procedures become binding. Implementing the new rules into your organization will improve financial statements. Designed to reduce costs and the complex procedures for financial reporting, efficiency is the main goal.

  1. Classification of Net Assets

Classifying net assets will be simpler after the new regulation goes into effect. Replacing the current three category listing, the classification breaks down into two separate categories: assets with donor restrictions and without donor restrictions. By switching over to the two classifications, keeping an accurate record of donor enforced restrictions will be easier. Saving you valuable time and money, your nonprofit will no longer need to classify assets as unrestricted, temporarily restricted, or permanently restricted.

In addition to eliminating the three classifications, the changes affect other net assets, including:

  • Underwater Endowments: An endowment with less market value than in the past requires accurate tracking. Your nonprofit must show the exact nature of spending the funds.
  • Board-designated Net Assets: Funds or other assets met for specific causes within the nonprofit organization will no longer be able to receive time restrictions.
  1. Cash and the Liquidity of Assets

A designated plan must include the management of liquid assets, an established credit line, and available cash. Your nonprofit will need to show the handling of the cash on hand for daily expenditures. The balance sheet must provide all information relating to the transactions.

  1. Income Expenses and Investment Reporting

Prior to implementing the new changes, reporting was optional. Now, reporting all investment income against the investment expense is mandatory. Ensuring consistency in reporting is the goal.

  1. Cash Flow

Continuing to allow you to choose the best practice for your nonprofit, the use of indirect or direct cash flow method is still allowed. Using a direct method eliminates the need of indirect method reconciliation.

Implementing new standards will help your nonprofit organization to continue to run in a smooth, efficient manner. Your new financial statements should be able to give exact details of your nonprofit’s financial story. The changes will help your team keep accurate, consistent records for future tax reporting.

Navigating these new changes can be tricky for nonprofits.  Speaking with a reputable auditing and accounting firm, such as Ernst Wintter & Associates, will give you peace of mind in knowing that their staff are up to speed on what is necessary for your business to comply.  To prepare for these changes, contact us today and schedule a meeting with one of our Certified Public Accountants. 

Writing a Charter for a Nonprofit

Nonprofits play an integral role in your local community, state level, and worldwide organizations. Providing a broad spectrum of services, nonprofit organizations include charities, churches, hospitals, universities and other foundations. Writing a charter for a newly formed nonprofit is vital, as the charter explains the main purpose of forming your nonprofit organization.

The Basics of Writing a Charter for Your Nonprofit

The formation of the charter is critical for gaining tax exempt status. Using an exemption status allows your organization to save money. Failing to incorporate the necessary information into the charter may result in a delay or rejection for tax exemption status at both the state and federal level.

When forming your nonprofit’s charter, you may want to consult or hire a reputable accounting firm to ensure the proper document development. Remember the charter document outlines the structure of your organization.

  • Name of the Nonprofit: The charter document must include the legal name of your organization. The legal name should stand out among similar organizations. Using strong descriptive words will help draw members, clients, and others to your nonprofit. Generally, the nonprofit’s legal name is at the top of the charter document.
  • Location: The next step is naming the location of the nonprofit organization. You want to ensure interested parties are able to find your nonprofit organization. The location information will include the nonprofit’s business address and the county. In addition to the address, the location information should state the name and phone number for the primary contact of the nonprofit.
  • Nonprofit’s Purpose: In the charter document, you need to state the reason for forming the nonprofit organization. Inform the readers of the charter how the nonprofit organization will serve the community, members or group. For example, the nonprofit organization may be a charitable organization working with the area’s homeless or a church serving the local community. By stating the reason for the nonprofit’s formation, the readers of the charter will understand your purpose in the community.
  • Board of Directors: The charter document must include the full names and addresses of the board of directors or the initial trustees in the nonprofit organization. Along with contact information, you need to inform the readers of the nonprofit charter the position of the members of the board.
  • Statement of Earnings Clause: The charter needs to ensure any monetary earnings are not for profitable use. Trustees, the board of directors, officers, members and other interested parties will not benefit from the formation of the nonprofit organization. Employees will receive reasonable compensation. Paying invoices, distributors, vendors and other needed services are justifiable from the earnings.
  • Dissolution Statement: The last portion of the nonprofit charter should include a statement informing the readers the process for the dissolution of assets.

Upon writing the charter for your nonprofit organization, the document requires the signature of a witness. The nonprofit charter is an important document for your organization. Forming the nonprofit charter to meet specific criteria may require the assistance from a tax professional to ensure exemption status.

At Ernst Wintter & Associates, our professional staff can assist your nonprofit in making sure it has the appropriate documentation in place, specifically when it comes to a charter and declaring nonprofit status.  Call or email us today to schedule a meeting with our Certified Public Accountants and ensure your nonprofit is on the right track.

How Addressing Open Audit Issues Can Help Increase Your Audit Rating

Increasing your audit rating by addressing open audit issues is an effective strategy for your organization. An open audit allows the audit committee to focus on the various aspects of the business and set priorities to ensure continuous success. As a manager or preparer of the audit process, you will need to show the audit committee the rationale behind your choices.

Increasing Your Audit Rating by Focusing on Open Audit Issues

Businesses have different ways to record and document daily performance. Increasing your audit rating requires an effective audit management system. Begin by addressing open audit issues. When meeting with you audit committee, provide them with all the necessary materials. If you leave out information, the findings will not be accurate.

Exact Representation of the Issues

Provide accurate findings in an audit report. An exact representation helps to calculate risks. If you provide the wrong or overstated details, the full business picture is not accurate. Overrated or understated audit ratings may greatly affect the business in the upcoming fiscal cycle.

  • Provide detailed information on current risk assessments
  • Show current trends affecting your business
  • Use automated software to help develop accurate report documents

If an audit committee spends more time going over suspected issues, the committee may decrease your rating or continue to debate the existing rating. Providing clear findings of the audit issues will help the committee to track trends. Basing appropriate actions to address the open issues from the trends will help move the company forward.

Provide Documentation

Showing and providing the committee with accurate documentation for your findings ensures the credability of your organization. By focusing on your records, reports and generated findings, you may increase your audit rating.

  • Always provide reports with up to date information
  • Provide graphs and statistics for the visual use during the meeting
  • Provide links to other materials that support your findings and trends

Failing to provide the right documentation at the audit meeting will decrease your internal audit quality. The result may negatively affect your audit rating.

Resolutions

With any form of issue or problem within a business, the focus must be on finding an effective solution. Addressing open issues will move the audit committee away from the problem to the resolution. Understanding all aspects of the audit report will allow the committee to move away from a rating debate.

  • Reassess your current audit rating system. Is the type of system still a recommended choice for your organization? Has your company outgrown the current method?
  • Focus on current issues. How are the current issues affecting the daily running of the business?
  • Develop effective communication methods to convince the audit committee the nature of your findings. Are the results being represented correctly in the meeting?
  • Assess risk factors and implement control options. What are the next available moves to increase the current audit rating?

Audit management is an effective strategy for increasing your audit rating. You will need to provide quality audit findings to ensure your organization is operating at the desired level of performance.  At Ernst Wintter & Associates, we are committed to offering businesses accurate and detailed audits.  If you are looking for tips on how to gather the appropriate documentation or finding an effective solution to a problem that has arisen, contact us today at  info@winttercpa.com.

Private Foundations and Public Charities – What’s the Difference?

Operating with a specific goal or mission is the main purpose of a nonprofit organization. Functioning as a nonprofit, your organization must continue to further your goals without any profit or gain to benefit shareholders or board members. Any forms of access funds must cycle back into the organization to continue with the mission.

Structuring a business to fall under the 501(c)(3) organization allows you to obtain federal income tax exemption. During daily operations, the federal exempt status is a way to save your organization money. Using the nonprofit arrangement allows you to obtain other various tax credits and benefits to continue to operate at lower costs.

Yearly changes to the tax system mean you must stay current to maximize the benefits for your nonprofit. Consulting with a reputable CPA firm or tax accountant should be a priority. As a leader in your nonprofit organization, you want the best results. Further classification for a 501(c)(3) organization will place your nonprofit into the private foundation or public charity category. Each will have specific tax implications.

Private Foundations or Public Charities

The main differences between a private foundation and a public charity are the amount of public involvement and the nature of the work.

1. Private Foundations

Generally managed by an individual, trustees or board of directors, a private foundation supports or maintains other forms of nonprofit organizations including religious, educational, and community support facilities. The funds to operate a private foundation often come from individuals or corporate sources.

Transforming the funds into gifts or grants allows the private foundation to help others. Specific guidelines or requirements may be part of the gift-giving contribution to an individual or charity. For example, a scholarship from a private foundation may require a specific field of study prior to awarding.

Using the private foundation status allows you to obtain more control over your nonprofit organization. Since the goal is to help other nonprofit organizations, private foundations can operate with minimal overhead.

2. Public Charities

Public charities create the largest amount of 501(c)(3) nonprofit organizations. Being a public charity, the nonprofit organization has more interaction with the public. The interactions help the nonprofit in many ways. Mainly, the public charity receives the majority of revenue from the general public to help further the mission. Making the public charity category more attractive to newly formed nonprofit organizations. Other sources of funds come from private organizations or governmental grants.

Along with reaching a larger source of revenue from the general public, a public charity has many benefits over private foundations. A public charity is able to receive higher donations from individuals due to the increased giving limits. Receiving public charity status also allows your nonprofit organization to receive funds from other public charities and private foundations.

Simplifying the complexities of private foundations and public charities, a CPA firm can help you with tax regulations, guidelines, and other legal requirements.  If you are unsure which category your nonprofit falls into, contact the CPAs at Ernst Wintter & Associates for assistance.