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.

Thursday, August 6, 2015

Nonprofit State Registration: Know the Facts

Many nonprofit finance teams have questions concerning state registrations: “Why do we have to register?  Where do we need to register?  How often do we need to register?  What happens if we don’t register?”  This is why Charity Compliance Solutions, sponsors at our latest Nonprofit Symposium in San Francisco, has helped us answer five major questions your nonprofit should be able to answer before it starts soliciting funds: 
  1. When does my nonprofit need to register? Roughly 40 states have registration requirements that nonprofit organizations must comply with BEFORE soliciting for money.  Soliciting constitutes any form of requesting money such as direct mail, phone calls, grant proposals, special events, raffles, email or website content.  Any guidance or invitation to make a donation is a solicitation and each state has their own guidelines for such activities before their residents are contacted.
  2. What is the penalty for not registering? Each state has its own penalties for soliciting without a current solicitation license.  These penalties can vary depending on how many solicitations were made, the length of time that a nonprofit was out of compliance, or even how much money the nonprofit received from the solicitations.  Penalties may include fines from $500 to $50,000, the suspension or revocation of a license, imposing a voluntary compliance agreement or even requiring that the donations be returned to the donors.
  3. How do third-party vendors affect my nonprofit’s registration requirements? If your nonprofit uses a fundraising consultant, a professional solicitor or a commercial co-venturer to help raise funds the organization is responsible for making sure that these entities are also registered and compliant with state requirements. If your nonprofit is found to be using an entity that is not registered to solicit contributions, its license could be in jeopardy.
  4. True or false, my nonprofit only has to register in the state where it is located or incorporated? False. The truth is that a nonprofit is required to register in certain states all over the United States if any of that state’s residents or corporations are contacted in any way to donate money to the organization.  Know the facts before you ask!
  5. How often do I have to renew my nonprofit’s registration? Your nonprofit’s state registration must be renewed annually! Many nonprofits think that once they register they are “good to go,” but each state requires an annual renewal form accompanied by your organization’s prior fiscal year’s financial documents.  If a renewal is not submitted by the due date, monthly penalties begin to accrue.  It is vital that your nonprofit keep an active registration status or properly withdraw your registration in order to avoid these unnecessary fees.
For more information on state registration requirements, or to get answers to any additional questions, please don’t hesitate to reach out to Michelle Boyer, Owner of Charity Compliance Solutions.

Wednesday, June 24, 2015

Nonprofit Symposium | Renovating the Nonprofit Approach to Finance

Now in its fourth year, Armanino’s Nonprofit Team is pleased to host our annual Nonprofit Symposium on July 15, 2015, at the Hotel Nikko in San Francisco. Recent to Cutting Edge: Renovating the Nonprofit Approach to Finance was designed specifically for finance executives of today’s leading, larger nonprofit organizations, the free, half-day forum offers education opportunities around today's leading nonprofit finance issues, as well as three hours of continuing education (CE) credit for attendees.

Over the years, we’ve found that our nonprofit clients and friends of the firm really appreciate the networking and educational focus of our symposium. This year’s event won’t disappoint, focusing on how nonprofits can renovate their approach to finance and address current and pending compliance issues that affect meeting mission goals.

The event will open with a keynote address from Christopher Thornberg, founding partner at Beacon Economics. He will give a comprehensive forecast on the local, regional and national economies with emphasis on issues affecting the nonprofit industry in California into the future. Then, attendees will participate in three panel and presentation sessions focused on how their nonprofit can overcome tomorrow’s funding, compliance and donor communication challenges using best practices from yesterday and today.

Interested nonprofit CFOs and their finance teams are encouraged to register today, as space is limited, by our event website: http://info.armaninollp.com/nonprofitsymposium/2015/

Wednesday, May 27, 2015

Aging and the Digital Age

Armanino's Nonprofit Practice would like to thank Saeed Mirfattah for providing this blog post on behalf of the Institute on Aging

We hope you find their crowdfunding success story as inspirational as we do. And we hope you'll join us for our Annual Nonprofit Symposium on July 15, 2015, in San Francisco. Our industry panel on expected and emerging funding will discuss some of the expected (government and bank loans) and emerging (crowdfunding, venture philanthropy and micro-lending) funding options available to nonprofit CFOs today. 

In the fast-paced digital age, crowdfunding is a growing movement, and nonprofit crowdfunding is growing at an even faster rate. A recent crowdfunding industry report, highlighted that 30% of the $5.1 billion raised on crowdfunding platforms went to social causes—making the social sector one of the most active giving category.

Yes, the market is saturated with those in need. Yes, running a campaign is difficult and time sensitive. But if your nonprofit is in search of more funds and a strong social media program to reach and engage new audiences and new donors, you should consider a crowdfunding campaign. Crowdfunding not only raises money but increases brand awareness.
“Our connection to others is what binds us to life…”
Dr. Patrick Arbore, Founder of the Friendship Line
When the Institute on Aging (IOA) recently learned that the Friendship Line (the only accredited, toll-free, 24-hour crisis hotline for U.S. seniors at risk for isolation, depression, loneliness and suicide) was facing a major funding shortfall, we turned to the crowd with a compelling and engaging reason to give.

While crowdfunding is not a quick fix for the social sector’s funding issues, it is an increasingly critical component of the fundraising toolkit; allowing nonprofits to connect with and solicit support more efficiently than ever before. Used strategically, crowdfunding will help your nonprofit build meaningful engagement, inform your work, spread your messages and expand your donor base to increase overall funding, impact and support.

What IOA Achieved

As of the writing of this post, our crowdfunding campaign has registered as the 18th most successful nonprofit campaign on IndieGoGo. We accomplished 113% of our $100,000 goal in 45 days. Through the IndieGoGo campaign, we registered 7,740 visitors (96 from outside the U.S.), received donations from 8 countries, and attained 2,724 new visitors to the IOA website. In addition, 333 people shared the campaign through their own networks.

That’s a remarkable achievement for the first time out.

What IOA Learned

  • It takes a village: Above all, conducting a successful crowdfunding campaign requires buy-in from the full organization if it is going to generate the momentum it needs to succeed. Laying the groundwork for success means setting realistic targets, but it also means socializing the campaign with your current network. Include staff, board members and other stakeholders from the beginning.
  • Preparation is everything: The more preparation you can do the better. Get your support network in place early and let them know when the campaign is launching. Plan your tweets, as well as Facebook, and LinkedIn posts—and get your team involved. One of the more fun activities we did in advance of our campaign was a “Social Media bootcamp” for our leadership team. Our entire staff is now hashtagging! 
  • Keep the campaign fresh: Once your campaign is up and running, you’ll want to promote all of your preparation with new content during the campaign. We made a video to tell our story and got on the front page of the San Francisco Chronicle for an additional boost. We offered donors incentives (one of the fastest moving incentives was ‘happy dances’ from IOA staff saying thank you for the donation), and updated our incentives as they sold out. Finally, we held celebrations and rallies for each milestone reached. 
  • Be prepared for some challenges: Throughout the campaign, we were peppered with people who promised (for a fee of course) to boost our network and exposure. Beware: while there is probably some legitimacy with these folks, most are likely opportunists that both take your money, and possibly, just want access to your campaign list. Rely on your internal social networks and keep the reminders, new content and campaign updates going on at least a bi-weekly basis. We were able to tie significant "bursts" of giving to each one of these regular efforts. While only 45 days in hindsight seems short, it’s similar to preparing for a marathon vs. a sprint. 
  • Be prepared to be blown away: Overall, we were overwhelmed by the generosity of the crowd and you may be too. If you let your awesomeness out it will attract other awesomeness in some sort of crazy awesome feedback loop. Also, be prepared for lots and lots of happy dancing. 
Happy crowdfunding!

Tuesday, March 31, 2015

A Lesson in Status: Learn from Insurer’s Tax Woes

The Los Angeles Times reports that the nonprofit Blue Shield of California—the state's third-largest health insurer—has been stripped of its state tax-exempt status, and may be on the hook for tens of millions in state taxes each year moving forward. The insurer’s California status was revoked in August of last year (it’s just now becoming public) and it lost its federal exempt status in the 1990s.

Trouble for the California “Blue” started with a state audit investigating the insurer’s justification for its tax-exempt status. In the past, Blue Shield has been criticized for rate increases, executive compensation and large financial reserves.

And it’s not just the Golden State.

Community advocates, state and municipal tax commissions, and state attorneys general across the country are crying foul, saying that modern not-for-profit hospitals and health systems have violated their "explicit or implicit contract" to serve uninsured patients in return for significant tax breaks.

A number of hospitals and health systems have received letters from the IRS requesting documentation on executive compensation and benefits, deferred compensation plans and charitable care. In some circumstances, these soft audits have led to full-blown IRS scrutiny.

Could Your Organization be Next?

The battle being waged over the legal status of not-for-profit hospitals and health systems underscores just how important it is for nonprofits of every stripe to actively maintain their tax-exempt status. Here are a few things to watch:
  • Compensation: If executive compensation is too high relative to the job performed, an organization can find itself caught up in the web of “intermediate sanctions”—special punitive taxes created by Congress.
  • Inurement: The area that poses the greatest risk of inadvertent noncompliance is what the IRS calls “private inurement.” Here, regulations prohibit any part of the organization’s net earnings (or operations) from accruing to the benefit of private shareholders or individuals.
  • Political activities: While 501(c)(3) organizations are legally entitled to lobby and advocate for the causes and constituents they represent, they are prohibited from participating in partisan politics—working directly for a political party or candidate, for example. In addition to revoking nonprofit status, the IRS can assess a special excise tax against the organization and its managers, which includes board members.
  • Mission: To ensure adherence to your organization’s mission, board members should regularly review the mission statement, organizing documents and programs. If your 501(c)(3) organization decides it wants to change its mission, you must make sure that your new activities are, in fact, a permitted purpose under your home state’s nonprofit corporation statute and, if so, amend your articles of incorporation. You would also need to amend the registration(s) you have on file with state charitable solicitations officials as well as notify the Internal Revenue Service through a letter specifying the changes from your original application, Form 1023.
In this era of increased scrutiny, nonprofits must take steps every day to protect their tax-exempt status. Start by reviewing the IRS’ informative online training tools at www.stayexempt.org.

Monday, January 12, 2015

Five Executive Directors Went for a Walk

At a recent retreat of the Alliance of Arizona Nonprofits, an apocryphal tale made the rounds and helped frame the discussion. Here’s the way Mark Rosenman, a professor emeritus at the Union Institute & University, tells the tale: 
During a break at a nonprofit leadership retreat, five executive directors went for a walk beside a small river near the conference center. Suddenly, they noticed a group of toddlers being swept downstream. As they looked on in horror, the number of babies in peril grew.
One of the EDs jumped into the river and started to grab kids, throwing them one-by-one up onto the dry riverbank to save them. A second ED also jumped in and steered some of the babies toward a section of the river that was calmer, where she began to teach them how to swim.
Then a third ED jumped in and began to organize the now-swimming toddlers to teach their non-swimming peers how to help themselves. The fourth ED turned and started to run back to the conference center, telling the others he would round up some volunteers, solicit donations of dry clothes, raise as much money as he could to support rescue efforts, and secure technical assistance with the goal of making those efforts more efficient and effective.

The last of the EDs ran off in the other direction. When her confused colleagues asked where she was going, she said she was headed upstream to see why so many babies were falling or, worse, being thrown into the river.
In his blog, Rosenman wrote, “We know that nonprofit organizations, to be successful, need to use all five of those strategies—and more—but that even the best-run charity is doomed to a Sisyphean future unless its leaders think about what's happening upstream. It's not enough for a nonprofit to provide services; it must always be thinking about the factors that created the problem in the first place, and what it can do to address and ameliorate the problem.”

This seems a good time for the nonprofit community—executives, donors and staff, and even recipients—to look in the mirror. The goal of being all things to all people clearly isn’t sustainable. But neither is business as usual.

In the private sector, cooperation in the form of partnerships are ‘in.’ Perhaps the same should be true among nonprofits. That way, we can rescue more babies from the river, teach them survival skills, stop the underlying cause at the source and achieve broad financial support for our efforts.

Now that’s a story with a happy ending.

Click here to read the complete post from Rosenman’s blog post "How the Charitable Sector Keeps Us All Afloat" on Philanthropy News Digest.

Monday, December 15, 2014

5% of Total Revenue: The Cost of Fraud

Whether it’s misappropriation of funds, corruption, kickbacks or filing misleading financial statements, fraud is costing businesses 5% of total revenue, new figures suggest. That’s $3.7 trillion, with a median loss of $142,000 per incident. And businesses recover some of the losses in only half the cases. In virtually none of the cases is restitution complete.

The picture is even worse for nonprofits, where disclosure of fraud can raise questions about management controls and sap the enthusiasm of donors.

Yet just 19% of private companies are taking the single most effective step to deter fraud, Armanino Partner Jeff Stegner and Natalie McFarlin, Manager in Armanino’s forensic and valuation services practice, said in a recent webinar. That tool?  A simple employee hotline for reporting tips.

“Red Flag” systems allow employees to call a toll-free hotline or log into a website 24/7. Tipsters can remain anonymous. Tips are routed through independent third parties who then turn over the details to the appropriate company officials for investigation and action.

The Sarbanes-Oxley Act requires such hotlines for public companies, but private companies and nonprofits have been slower to adapt the simple measures. Statistics offered by the Association of Certified Fraud Examiners show 43% of fraud cases come to light because of an employee tip. That’s by far the most effective counter-measure available. Fraud cut off by hotline tips are also 41% less costly and are detected 50% more quickly than those uncovered by other techniques from surprise internal audits to management controls. 
Fellow employees are best positioned to spot some of the behaviors that should cause concern:
  • Employees who like to work early or late, when they are alone in the office
  • Employees who never take time off and resist training anyone else in their duties
  • Employees who live above their means
  • Employees who are unusually close to vendors or customers
There are certain patterns that characterize most fraud:
  • Pressure on the employee, from family emergencies to simply a need to keep up with the Joneses
  • Opportunity, usually a combination of misplaced trust and substandard controls
  • Rationalization, a belief that the actions are justified for some reason—from a feeling their efforts are undervalued to a belief they funds can be repaid before anyone notices
There are a lot of steps nonprofit management can take to reduce the risk. But none is as inexpensive or as effective as the employee hotline. It sends a clear message management cares and is setting an expectation of ethical behavior. And it works.

To learn more about fraud prevention and Armanino’s new fraud hotline, visit Armanino's events page, click on "archived" tab, and select the webinar recording titled Fraud - What Every Nonprofit Needs to Guard Against.

Saturday, November 22, 2014

New Reports Show Foundations Lead the Way as Nonprofit Sector Continues to Grow

Back in 2012, America was slowly climbing out of the Great Recession, and foundations were leading the way by distributing a then record $52 billion. A year later, foundations again broke the record by distributing $54.7 billion. The numbers come from a new report—Key Facts on U.S. Foundations—released by the Foundation Center in New York City, and they paint an encouraging portrait of a nonprofit industry that continues to move forward.

The Foundation Center’s report showed there were 86,192 foundations with an aggregate $715 billion in assets. Here is how that breaks down:
  • Independent foundations control 82% of the assets ($584 billion) and gave 68% of the 2012 $52 billion total, or $35.4 billion.
  • Community foundations made up only 1% of the total number of foundations but had 9% of the assets and gave 10% of the total dollars. 
  • Health and education led the way as the top focuses for grants, at $5 billion and 22% of total giving each. Grants for human services accounted for the highest number of grants, at 42,037. The median grant amount was $30,000. Some 58,000 organizations worldwide received these grants, but nearly half of the $22.4 billion went to 1%of the recipients.
  • Internationally, health was the greatest focus for grants, with $2.2 billion going overseas for health causes. International development and disaster relief organizations received $1.2 billion. The Gates Foundation, which gave $2.6 billion internationally in 2012, has been the top international funder since 2004. The Switzerland-based World Health Organization was the top recipient of international grant dollars in 2012.
The Foundation Center’s report comes on the heels of the Nonprofit Times’ recent 25th annual snapshot of the nation’s largest charitable organizations. The 2014 NPT Top 100 reported total revenue of $70.067 billion, up 3.19% compared to last year while public support was up 5.6%, to $34.931 billion.

Those gains were posted against strong headwinds. Government support declined 5.6% and investment income was down 6.26%. Nonprofits compensated by leveraging “other revenue”—that which comes from sources outside the nonprofits core mission—to post a 20.5% gain. The larger category of ‘program revenue’ was up 2.19% for the same period.

Download the Reports

You can download a PDF version of Foundation Center’s Key Facts on U.S. Foundations report here. A copy of the Nonprofit Times’ 2014 NPT Top 100  report can be found here.

Monday, November 10, 2014

Not All States Are Equal: Fundraising Campaigns and Professional Solicitors

Many of America’s largest and best-known nonprofits trace their success, at least in part, to fundraising campaigns handled by professional solicitors. But in an era when states, and even some localities, are busily trying to register and regulate fundraising activities, what happens when something goes wrong?

A new case in South Carolina puts a sharp point on the question with a $1.054 million fine levied against Strategic Fundraising, a well-established firm based in St. Paul, Minn. According to various media reports, Secretary of State Mark Hammond cited the fundraising firm on Oct. 22 for a series of violations involving misrepresentation and failure to register individual solicitors as required by state law.

The charges are based on state officials monitoring 350 calls after receiving citizen complaints. What they found, according to a report in The Nonprofit Times, involved failure to disclose that the fundraisers were paid professionals, failure to disclose the name and location of the soliciting firm, and misrepresentation of the percentage of donations going to the nonprofit’s programs.

“What makes this case so egregious is that these were ‘robo-calls’ in which the individual solicitors were using pre-recorded scripts,” Hammond said in a statement. “This wasn’t a situation in which an individual caller made a mistake and went off script, these disclosure violations were a result of deliberate choices made by a professional fundraiser.”

And this isn’t Strategic Fundraising’s first brush with South Carolina law. In 2009, it signed a voluntary agreement of compliance promising to toe the line. Instead, it is now facing the largest fine of its type in a decade. Often in such cases, fines are reduced after negotiation. But that can’t undo the black eye suffered by the charities involved.

The takeaway here is the responsibility doesn’t end when the contract is signed. Your name, your reputation rests on every interaction with a potential donor. Due diligence extends to reviewing the script and asking about compliance procedures. Anything less has the potential to backfire with disastrous repercussions that may take years to undo.

Friday, October 31, 2014

Benchmark your way to donors

Nonprofit CFOs have a responsibility to be their organization’s fiscal educator. In fact, an estimated 75%  of the staff at any nonprofit doesn’t understand the financial side of the operation, and that’s a missed opportunity.

For example, think of a child trying to raise money as part of a school project. The child can turn to relatives and achieve one level of results. But if the child can take the message to everyone in the social media contact list of all of those family members, the results rise exponentially.

The same can be true for nonprofits, if they can successfully arm their staff and even their volunteers to tell the nonprofit’s story. The only way that can happen is if the CFO can use the numbers to validate the nonprofit’s position and give this army of new fundraisers a compelling story to tell.

Building that story starts by benchmarking your nonprofit’s performance in the key areas of financial stability, operational efficiency and areas of focus.  Identifying your peers isn’t as simple as it sounds. Perfect matches are rare and smart nonprofit CFOs look for similarities first before considering differences. Look at mission and size. Turn to your sector’s associations for ideas, help and in some cases data. Dig into the numbers from 990 forms, annual reports and Charity Navigator.

When identifying metrics, don’t identify more than 10 that tell your story best. Then, list the most important key performance indicators (KPIs) for nonprofits as:
  • Liquiity
  • Cash flow
  • Operating reliance
  • Program efficiencies
  • Fundraising efficiency

Armed with a story that uses benchmarked numbers that validate the nonprofit’s performance, an organization’s staff can be energized to share that story with their network, opening a whole new realm of potential donors. 

Of course, there are many other good reasons to benchmark your nonprofit’s performance. Executives and the board need the information to set policy and steer the ship. And talking with others who may have mastered a particular area can provide important insights that can improve your performance.