Armanino Nonprofit Blog

Armanino Nonprofit Blog

Welcome to the Nonprofit Blog hosted by the professionals at Armanino, CPAs & Consultants. This blog is set up to inform nonprofit organizations of trends, rule changes, best practices and free educational offerings that we have built to support nonprofit organizations. Our professionals bring you their insights from an accounting and organization perspective to help nonprofits reach their goals. We support our clients with advice, direction and best practices.

Friday, March 28, 2014

Nonprofits: Start small when it comes to big data

You’ve probably heard a current tech term that has been making the rounds: Big Data. For people in nonprofit leadership roles, it’s an important concept to explore and employ.

Big data is all about collecting and rapidly analyzing huge stockpiles of data to further your cause, whether it’s general support of your mission, fundraising or attracting volunteers. Vastly expanding troves of digital data, paired with newly available technology to sort through it, make this possible. For nonprofits, it boils down largely to this: How can data help my nonprofit support its mission and improve our operational efficiency?

Big data is already being used by some larger nonprofits, some of which attended the 2014 Conference for the Nonprofit Technology Network this past March.

One such nonprofit is the Ad Council, who helps nonprofits create multimedia communications on issues including preventive health, education and community. While still in the early stages of their big data strategy, they’ve begun changing the way they look at  their large amount of data to help answer internal questions such as “What are we supposed to do with this information?” They started by bringing in a “data scientist,” which had everyone talking about how the Ad Council should be looking at their own data. Then, they started small (picking just a handful of data sources to analyze), involved people from across the organization, and most importantly, ensured key executive team members approved of the time and resources needed to achieve their goals.

So what can midsize and smaller nonprofits learn from the Ad Council?
  1. Break Barriers: Tackling big data can enable your nonprofit to break down barrier between different groups—and previously separate data sets—by getting everyone together to brainstorm and share ideas about how you can use existing information to help your nonprofit achieve more. It’s a great way to reflect on what’s working and what isn’t, and to see how you can start operating more efficiently as a whole.
  2. Target Donors: Once you have a big data strategy in place, you can begin to compile profiles of your donors, potential donors and volunteers. By tracking past donations, you can tailor your efforts to get the best possible response from individual donors. As data collection becomes ever more detailed, comprehensive and personal, the opportunity to get a closer, more accurate picture of the people who can help your nonprofit expands.
At Armanino, we’ve helped numerous nonprofits organize and enhance their existing data, because you have to start digging into your data if you really want to understand how your nonprofit operates, and who your donors and volunteers really are.

Friday, March 21, 2014

Transparency guide for small-to-medium nonprofits

It’s been four years since the Foundation Center launched its Glasspockets initiative to encourage transparency in the nonprofit sector.

The roster of early adopters is impressive. Of the more than 55 foundations involved, 21 are based in California, including The William and Flora Hewlett Foundation ($7.7B), the David and Lucille Packard Foundation ($6.3B) and the Gordon and Betty Moore Foundation ($5.7B). In addition, a handful of community foundations have signed on including the Silicon Valley Community Foundation ($2.9B), the Marin Community Foundation ($1.3B) and the SF Foundation ($1.2B).

But there’s a challenge: to spread transparency principles and practices to the thousands of smaller foundations.

Early this year, Glasspockets introduced its new guide, Opening Up: Demystifying Funder Transparency, supported by a grant from the Carnegie Corporation of New York and produced in collaboration with Grant Craft.

The woman behind Glasspockets is Janet Camarena, the Director of the Foundation Center's San Francisco office. In a blog introducing the new guide, she wrote:
The guide’s research involved a survey of more than 700 philanthropy professionals and in-depth interviews with 25 grantmakers. From this knowledge base, a helpful roadmap emerged to help grantmakers through the hows and whys of transparency. And, indeed, one of the things I think many grantmakers will find most helpful is the step-by-step infographic that illustrates the various paths one can take to transparency, along with the following definition of foundation transparency.
The guide joins other Glasspockets offerings including the transparency template, which spells out best practices in 23 areas ranging from grantmaking processes to governance and staffing policies to investment strategies.

The Glasspockets website is also offering a series of three webinars for grantmakers explaining the philosophy, the benefits and the process of transparency. The webinars are presented in partnership with California Philanthropy and the James Irvine Foundation. Among the topics are harnessing big data and managing social media.

Overall, we think this thought-provoking undertaking is worth a look for organizations involved in the nonprofit sector. We know many nonprofit organizations often struggle to overcome their own data/financial transparency challenges—and this seems like a great initiative to help organizations get up to speed.

Wednesday, February 12, 2014

Nonprofit ‘diversions’ face scrutiny

Congress recently launched an investigation into nonprofit finances after a Washington Post investigation revealed widespread under-reporting of losses due to inappropriate diversions of assets.

According to the newspaper’s research, more than 1,000 nonprofits checked a box on page 6 of their Form 990 filing reporting they had discovered a “significant diversion” of assets. Included in this category would be losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds. The Post’s inquiry covered the period from 2008, when the question was added to the Form 990, and 2012.

And roughly have of those nonprofits did not specify the full size of the loss, although the tax document’s instructions required that disclosure, the Post reported. Losses topping $1 million were not uncommon and at least two House committees will endeavor to learn the magnitude of the problem and suggest possible solutions.

The Post found more than 100 examples of California tax-exempt groups checking the box, some more than once. Bay Area nonprofits ranged from large organizations to smaller community groups.

Susan Aurelia Gitelson, author of Giving Is Not Just For The Very Rich: A How-to Guide for Giving and Philanthropy, told the Chronicle for Philanthropy the answers lie in nonprofits doing tougher scrutiny of their own operations.

In a posting to the Chronicle’s website, she suggests nonprofits ask themselves:
  • Do they have professional and volunteer watchdogs on their boards and inside their groups?
  • Have they kept the same leaders in place on the top and throughout their structure for many years without periodic checking of how they have been handling their responsibilities?
  • Are at least half of the board members independent and not too closely connected to the organizational staff?
  • Are two or more officers and lay leaders required to approve proposals and sign checks?

Friday, January 31, 2014

Focus on transparency and messaging

Prospective donors are constantly reminded to check what percentage of their donations goes to programs as opposed to administrative costs. And it’s good advice, up to a point.

Like so many things though, one size doesn’t fit all.

Across the wide span of the nonprofit community, the litmus test of a well-run organization seems to frequently default to an allocation of 75-80% to programs and 20-25% to administrative costs. That’s a shame, as it can be misleading.

As statistical averages, these may work well. But when they are taken out of context as rules, they do a disservice to both nonprofits and their donors.

Many well-run nonprofits couldn’t possibly pay their fixed costs with 25% of their donations, while there are others that could very well be viewed as wasteful operations and yet remain well under 25% administrative costs. In fact, certain nonprofits run at less than 10% administrative costs. That’s the nature of their business.

The moral of the story: Nonprofits need to focus on transparency and messaging more than one set measure when it comes to benchmarking.

Tuesday, October 15, 2013

Partial Government Shutdown Impacts IRS

As of this writing, there is a partial federal government shutdown (it has been 17 years since the last shutdown). The failure of Congress to come to an agreement on a short-term spending bill that would continue funding the United States government led to the partial government shutdown on October 1, 2013. Consequently, the majority of IRS operations are affected by the shutdown. Underlying tax laws remain in effect and all taxpayers should continue to meet their tax filing and deposit requirements.

All tax deadlines remain in effect (including but not limited to):
• 2012 nonprofit returns are still due by November 15, 2013.
• 2012 individual returns on extension are still due by October 15, 2013.
• Payroll returns must continue to be filed timely (and deposits made timely).
• All other tax deadlines remain in effect, including those covering employers, individuals, corporations, partnerships and estates.

Which IRS services are available during the shutdown?
• For taxpayers seeking assistance, only the automated applications on the regular 800-829-1040 telephone line will remain open.
• The IRS website, www.IRS.gov, will remain available, although some interactive features may not be available.
• The IRS Free File partners will continue to accept and file tax returns.
• Tax software companies will continue to accept and file tax returns.

Which IRS services have been halted?
• Live telephone customer service
• IRS walk-in taxpayer assistance centers
• IRS examinations
• Appeals or Taxpayer Advocate meetings
• Processing of tax refunds

While the IRS is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.

For more information please visit http://www.irs.gov and http://www.irs.gov/uac/Newsroom/IRS-Operations-During-The-Lapse-In-Appropriations

Monday, September 23, 2013

Same-Sex Married Couples: The IRS ruling treats as married for all federal tax purposes

On Aug. 29, 2013 the IRS issued Revenue Ruling 2013-17 clarifying that same-sex couples married in jurisdictions recognizing same-sex marriage will be treated as married for all federal tax purposes — regardless of where they reside. The ruling is in response to the U.S. Supreme Court’s landmark decision on June 26, 2013 (in United States v. Windsor) that struck down the definition of marriage for federal benefits purposes as just being between a man and a woman.

The IRS ruling will take effect September 16, 2013. Under the ruling, same-sex married couples will be treated as married for all federal tax provisions in which marriage is a factor, such as filing status, claiming personal and dependency exemptions, tax-advantaged treatment of certain employee benefits, IRA contribution limits, claiming the child tax credit, and gift and estate tax breaks such as the marital deduction and exemption portability.

This article provides a brief overview of the guidance provided in the IRS ruling addressing federal tax provisions affecting employers and same-sex married couples. The IRS has indicated additional guidance will be published in the very near future so the information below outlines in general terms what we know today.  Please keep in mind that each situation is different so contact us or your benefits consultant to discuss your specific fact pattern.

Employers - Effective September 16, 2013

The federal ruling will affect all employers located in every state (whether that particular state recognizes/permits same-sex marriages or not).  Considerations employers will need to address now include (but are not limited to):
  • Review current health/fringe benefit plan coverage/policies to make sure any spousal coverage includes same-sex spouses as required by the IRS ruling. 
  • Update language in employment related documents (benefits plans, retirement plans, policy manuals, etc.) so that definition of marriage includes same-sex marriage and the definition of spouse includes same-sex spouse as now required by the IRS. 
  • Update payroll withholding policies to be incompliance with the new IRS federal guidelines effective September 16, 2013.  For example, cease imputing federal income tax and FICA taxes on excludable benefits paid on behalf of same-sex spouses (since now paid with before tax dollars).
  • Obtain retirement plan consent forms from same-sex couples since a same-sex spouse is to be treated as a spouse for federal tax purposes with respect to qualified retirement plans.
  • Consider advantage of amending prior federal payroll tax returns to secure refunds of employee and employer FICA taxes paid on benefits paid to same-sex spouses (we expect further guidance from the IRS soon).  Establish procedure for refunding employees’ share. 

Same-Sex Married Couples – Effective September 16, 2013

Starting Sept. 16, 2013, all original federal income tax returns filed by same-sex married couples must reflect their marital status (married filing jointly or married filing separately). Considerations same-sex married couples will need to address now include (but are not limited to):
  • Determine if advantageous to file your 2012 extended federal income tax returns as “single” since to meet the deadline the returns would need to be postmarked before September 16, 2013. Same-sex married couples who have obtained extensions to file their 2012 returns can’t use the filing status “single” after September 15, 2013.
  • Review your employer’s health and fringe benefit plans to make sure you and your spouse are taking advantage of such benefits.   
  • Project your 2013 tax liabilities using married filing status and identify any income tax planning opportunities to reduce taxes and to avoid penalties for underpayment of tax.
  • Review your estate plans and determine whether any changes are warranted to take advantage of the federal gift and estate tax benefits available to married couples.
  • Determine if beneficial to amend any prior gift tax or estate returns filed.
If you are affected by the IRS ruling, we’d be pleased to help you assess the tax impact and determine the specific steps you should take. Please contact Barbara Cyphers at 925-790-2618 or at Barbara.Cyphers@amllp.com.

Friday, September 13, 2013

Unrelated Business Income (UBI) and Sponsorships

We received a few questions regarding Sponsorships during our webinar presentation on September 5th entitled: "Unrelated Business Income (UBI): Navigating the Changing Landscape" (click here to view the replay of this webinar). I'd like to provide a bit more detail on this topic.

Qualified Sponsorships has really evolved over the years. In 1993, proposed regulations were issued addressing the difference between donor acknowledgements and actual advertising. In 1997, code Sec. 513(i) was added providing an exemption for Qualified Sponsorship Payments. So, it is not uncommon for a business to sponsor a charitable event. This payment to the organization is not UBI if it meets the definition of a “qualified sponsorship payment”, which is defined as a payment (could be in money, property or services) by the sponsor without an “arrangement or expectation” that the sponsor will receive any “substantial return benefit.” Basically, the business is giving money out of the goodness of its heart expecting nothing in return.

To be excluded from the definition of UBI, the sponsor can’t receive advertising, an exclusive provider arrangement (exclusive sponsor agreement generally okay if no advertising), goods, facilities, services or other privileges. If the exempt organization just uses or acknowledges the sponsor’s name, logo or product lines this is okay- since not a substantial return benefit. If a sponsor makes a payment contingent on the level of attendance of an event, this falls out of the definition of a QSP.

There is a de minimis rule if benefits received by a sponsor are valued at not more than 2% of the amount of payment, the value of the benefit is ignored. If valued in excess of 2%, then the benefit must be valued (and would be unrelated business income). Make sure sponsorship agreements are clear and concise. If there is a substantial return benefit, identify what it is and the value.

On a side note…how does a charitable organization report a QSP? It is considered public support and enters into the related calculations (even though the sponsor might deduct as a trade or business expense).

What about links on an organization’s website to a sponsor’s website? The regulations provide examples. For example, a sponsor’s internet address appears on a symphony’s website in the form of a hyperlink to the sponsor’s website. The symphony’s website does not promote the sponsor or advertise its products. The regulations say this is a QSP so the hyperlink does not constitute a substantial return benefit.

 Another example in the regulations is similar but the organization endorses the use of a sponsor’s product on its website. This results in a substantial return benefit to the donor and the value would be reported as advertising revenue. In the real world, such agreements are not always clear and concise.

As always, with any topic as complicated as UBI, we suggest you contact your tax professional.

Thursday, August 8, 2013

We Need To Change The Way We View Nonprofits

While watching a video a friend sent me on how to tie your shoes, I came across this video by activist and fundraiser Dan Pallotta. His talk provides interesting insights on charities, the nonprofit business model and the standards society places on nonprofits. One of his points that I found very interesting and relevant is with respect to overhead expenses.  He says that too often nonprofits are judged by how little they spend, thus forcing organizations to keep overhead low.  This in turn stifles their growth and lowers their horizon.  He has ambitious goals for the nonprofit sector, and his ideas may be what the sector needs to really change the world.

The TEDTalks are the best talks from the TED Conference. The motto is “ideas worth spreading”.

Monday, August 5, 2013

Armanino’s 2013 Nonprofit Symposium Recap

I mentioned in one of my previous blog posts that many nonprofits that I work with see the value of technology in improving their organization’s effectiveness. Because we recognize the importance of technology in helping a nonprofit thrive, we tackled the technology issue at our Nonprofit Symposium on June 18th.

Armanino’s 2013 Nonprofit Symposium brought together finance, operations and technology leaders from some of the best-run nonprofits in the Bay Area—TechSoup Global, GLIDE, The United Way and more. The Symposium challenged attendees to evaluate their technology initiatives. Each of our three panels reviewed how the finance organization could keep up with a nonprofit's demands while also thinking strategically about delivering timely, impactful information to the board, management and donors.

Participants in both panel and networking discussions vetted the most effective ways to produce results that meet key metrics and provide real-world solutions to help their organizations thrive. One recap video is below:

If you missed the Symposium or if you’d like to watch recaps of the panel discussions, visit http://www.amllp.com/nonprofitsymposium/2013/recap/

I hope to see you at next year’s symposium!