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March, 2010 Contents
Not-for-Profit Services We specialize in providing not-for-profit organizations a variety of comprehensive solutions for their accounting and consulting needs. At SC&H, we know that not-for-profit organizations are unlike any other type of business. From uncertain budgets and lean accounting staff, to board relations and unusual tax issues, your goals and challenges are unique. Only a service provider with a complete grasp of these issues and a strong commitment to serving not-for-profit organizations can provide the responsiveness and quality of services that will exceed your expectations. Many of our partners and managers are active on not-for-profit boards, which provide us with a first hand understanding of your needs. This understanding is why SC&H has become the CPA and management consulting firm of choice for many not-for-profit entities including educational and healthcare institutions, associations, religious organizations and foundations. Services include:
Testimonials "SC&H has the breadth of a national firm while providing personalized local service in an efficient and customer friendly manner. I highly recommend this firm." - CFO of a not-for-profit organization "I am pleased to share my thoughts regarding my association with SC&H. They have provided tax preparation and advisory services to my organizations for over ten years. I find the professionals at SC&H to be very knowledgeable of the issues facing not-for-profit organizations. I highly recommend this firm." - CFO of a not-for-profit organization |
Governance and Accountability within Not-for-Profit Organizations
Recently, many not-for-profit organizations have begun making changes to their policies with the goal of improving governance and accountability. The policies that the majority are rewriting or establishing include conflict of interest; investment; code of ethics; records retention; whistle-blower; gift acceptance; review of tax filings; and new board member policies. Most of those surveyed have also developed an accounting policies and procedures manual, established an audit committee to oversee the financial statement audit and monitor internal controls; and included a CPA on their governing board or audit committee. These are best practices that SC&H Group encourages all not-for-profits to adopt. Board and Board Committee Minutes Minutes serve as a record of the events of the board meetings and should document all important topics discussed and decisions reached. Board minutes can be a crucial document in the event of future legal matters and in documenting compliance with IRS regulations and other regulatory issues. We suggest that the Board Secretary (or an appointed record-keeper) be responsible for taking board minutes, so that every meeting will have one set of corresponding minutes. Many times, organizations will only keep minutes for the Board meetings and not for the individual committees. However, we recommend maintaining minutes for all committees as well, to provide documentation of significant discussions and decisions with respect to important issues. Audit Committee The role and purpose of an audit committee has recently expanded in importance, especially as a result of the Sarbanes-Oxley Act of 2002. The establishment of audit committees has become more common in not-for-profit and public sector entities. All not-for-profit entities that raise funds from the public, receive grants, or have membership dues and all public sector entities that are required to be audited or are audited, should have audit committees or committees with equivalent responsibilities. Because the audit committee is primarily responsible for the organization’s financial integrity, it should be made up of directors who are independent of management of the entity, just as with a for-profit corporation. Officers and employees of the entity should not be members of the audit committee, although they should attend audit committee meetings as requested and when needed. Similar to a for-profit corporate audit committee, the committee is primarily responsible for overseeing the entity’s financial data, its internal controls over financial reporting, the external audit process, for communication with the entity’s internal auditor (if applicable), the external auditor, and the staff responsible for financial reporting. In addition, the audit committee should be responsible for engaging the independent auditors, reviewing the overall audit plan, reviewing the audited financial statements and the related management letter; creating a summary and conclusion; and reporting the resulting summary and conclusion to the Board of Directors. The audit committee should verify that internal control systems of a not-for-profit organization are appropriately documented. The audit committee should also devote special attention to the procedures and controls over sensitive and high-risk areas such as fundraising, professional and consulting fees, executive compensation, and travel and entertainment. Conflicts-of-Interest Policy In recent years, issues of conflicts have become much more visible and many not-for-profits have elected to develop or formalize a conflict of interest policy. We recommend the adoption of a formal policy covering potential conflict-of-interest situations. This policy should identify all business relationships and other dealings between the entity and its officers, directors, key employees, and other such parties with whom the entity conducts business. Record Retention Policy The availability of records can be critical to a business organization in the event of an audit by the Internal Revenue Service (or other federal or state agency), a lawsuit, an insurance claim, or a number of other circumstances. We recommend that a clear, written record-retention policy be implemented to ensure that the appropriate records are available when they are needed. Different retention periods may apply depending on the specific facts and circumstances and on the history and attributes of a particular organization. Reporting Mechanisms for Fraud, Abuse, and Misconduct Many not-for-profit organizations do not have procedures for employees to report suspected fraud, abuse or misconduct. We recommend the establishment of an effective reporting mechanism for these offenses. Internal reporting channels, such as managers’ open-door policies and thorough surveys, have been found to be effective. Hotline services have been found to perform better for anonymous tips and certain other types of suspected misconduct such as sexual harassment. Unrelated Business Activities The Internal Revenue Service (IRS) has recently been targeting nonprofit organizations with unreported unrelated business income. We recommend that not-for-profits periodically review any of their activities that the IRS may question as potentially unrelated, and document their position regarding how the source is related to the organization’s exempt purpose (or specifically excludable). These measures will prepare you for a potential audit by the IRS. An important issue for the Internal Revenue Service (IRS) is the proper documentation of costs allocated against unrelated business income activities. To accurately calculate taxable income or loss generated by these activities, you must accurately track related expenses - including staff time, administrative charges and other potential overhead costs. In addition, any new revenue sources should be reviewed to determine whether they would be considered unrelated. If they are, these revenue sources must also be considered in the assessment of unrelated business income. Quarterly estimated taxes, both federal and state, may also be required in a situation where taxes are payable with respect to unrelated activities. SC&H has a team of professionals dedicated to serving the needs of not-for-profit organizations. Please contact us if you would like additional information on the above matters or assistance in their implementation.
The DOL Establishes a 403(b) Plan Webpage The Department of Labor and Employee Benefit Security Administration have recently established a webpage dedicated to 403(b) plans and their sponsors. The webpage includes links to IRS resources, publications, information on electronic filing, reporting requirements and voluntary corrections programs. The link for the DOL’s 403(b) resource portal is:
For more information about Not-For-Profit services offered by SC&H Tax & Advisory Services, LLC, contact Michael Young or Lori Burghauser. Michael Young Lori Burghauser
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