This document summarizes a presentation about financial accountability for nonprofits. It discusses basic finance reports like income statements and balance sheets. It also covers sales tax rules for nonprofits, best practices for financial oversight, accountability requirements, and developing a risk management plan. Nonprofits must ensure financial integrity and transparency to protect themselves and fulfill their obligations.
4. What are Financial Reports?
Basic Reports
Income/Expense
Balance Sheet
Intermediate Reports
Compilation
Review
Advanced Reports
Audit
Statement of Financial Position
How Complicated Must They Be?
5. Basic Reports
Income/Expense
(aka: Profit & Loss, P&L, Cash Flow)
Reports income from all sources, all
expenses
Include Restricted Funds
Should be provided at every board
meeting
What’s missing from this one?
Nonprofits < $50,000/year annual income
Handout: Sample Financial Report
6. Basic Reports
Account Balance
(aka: Balance Sheet)
Cash account balance
Asset balance
Should be provided at every board
meeting (in some form)
What are Retained Earnings?
Accumulated net income from all
previous years
Nonprofits < $50,000/year annual income
8. Intermediate Reports
Same as Basic -PLUS:
Internal Audit Team
CPA Review or Audit
Some detailed reports
Additional Financial procedures
IRS 990 EZ (not 990N)
Annual Income $50,000 - $250,000
9. Advanced Reports
All Reports in Basic and
Intermediate
PLUS –
Additional Financial Procedures
Financial - IRS 990 required
Full Audit
Financial Information
Financial Management
Assets and Inventory
Nonprofits > $250,000 Annual Income
Also - significant government grants
10. Finance - Audit Review
Full Audit
Most Expensive
Most Comprehensive
Review of Finances,
Financial Practices,
Board practices
Review
Medium Review (and
cost)
“Reasonable Basis”
Does not review
policies, procedures,
internal controls
Compilation
Most Basic (least
expensive)
Only reviews financial
information on the
surface
Bank Statements,
Financial records
provided by client
No assurances, no
opinion
Internal
Performed “in house”
or informally
Generally not accepted
for grants or
government
Suitable for very small
nonprofits
Provides minimal
oversight and
protection
Basic Comprehensive
11. Financial Compliance - Federal
IRS – 990 Form
<$50,000 – 990 N
• Change in threshold beginning
2010
• On-line ONLY
• Due 5 + 15 after end of fiscal
year
• NO extensions of time!
>$50,000 – 990 EZ/990
• Due 5 + 15
• 6 month automatic extension
• For most nonprofits – 990 EZ
• Minimal property or real
estate
• Normal gross receipts <
$200,000
Failure to file – automatic revocation of §501(c)(3) status
12. Other Compliance - State
• Indiana Secretary of State – bi-annual
Annual Business Entity Report
• Indiana State Board of Accounts
• Financial Reporting for Government Funds
Entity Annual Report (E-1)
• Indiana Department of Revenue
NP-20
13. Sales Tax
When do you need to collect sales tax?
When are you exempt from paying sales tax?
14. Sales Tax Rules –
Collecting and Paying Sales Tax
Sales more than 30 days in a calendar year
Intermittent or consecutive
What about internet sales?
Does not apply to sales to members
Books, membership supplies, etc.
15. Getting in the System
Collecting and Paying Sales Tax
Indiana Department of Revenue BT-1
Online Application
$25 fee
Retail Merchant Certificate
Register for IN TAX (online reporting and paying)
16. Reporting Requirements
Collecting and Paying Sales Tax
Monthly reporting
Even if you DO NOT HAVE SALES
Report Zero $0.00 sales
Penalty for failing to report
Seasonal Reporting
Must be approved for seasonal reporting
Report only the months of sales
Report and Pay online
Be sure you BOTH Report and Pay
17. Sales Tax Rules –
Exemption from Sales Tax for purchases
Must be Indiana Nonprofit Corporation
Must have Tax ID#
Does not need to be STATE tax ID#
Do NOT need to file BT-1
Exemption from paying sales tax for
purchases for nonprofit purposes
Does not include meals, hotels
May not be worth the trouble (larger vendors)
Must use ST-105 Form
19. Nonprofit Financial “Best Practices”
Practice clear, decisive financial governance
Adopt Ethics and Conflict of Interest Policies
Implement Financial Controls
Engage regular, independent financial review
Promote transparency of Reporting
Develop a Risk Management Plan
Know emerging nonprofit financial issues
Compliance,
Competence, and
Confidence
20. Clear, Decisive Governance
Proper policies in place
Review all financial documents
Procedures to verify data
Safeguard Nonprofit assets
Compliance with legal and tax reporting
Best Practices for Conduct
22. Accountability
The Buck Stops with the
Board
Board reports to
•Donors
•Government
•Sponsors
•Grantors
•Constituents
Are you Good Stewards
of the resources the
public entrusts in your
care?
23. What is Financial Accountability?
The Board is Responsible for:
Knowing the financial status of the NP
Understanding the financial status
Acting on financial needs of the NP
Preventing financial mishaps
Mitigating financial crisis
24. Financial Accountability
Basic Requirements
Financial Policies
Financial Controls
Monitor appropriate use of nonprofit
funds
Rules for Charitable Donations
Audit - review
Handout – 10 Financial Priorities for Nonprofit Boards
26. Accountability - Financial Oversight
Watch the money - Watch the people
Financial Oversight is the review of both finances and financial practices
Ensures safe, ethical financial procedures
Protects Nonprofits and the Directors/Staff
Provides integrity and transparency to the public
Catches financial difficulties before they become financial impossibilities
Handout – 10 Tips for Keeping an Eye on Finances
27. Accountability - Charitable Donations
• What can be considered a donation?
• What paperwork is required?
• Donations of goods or funds > $250 require written
acknowledgement
• Magic language: “No goods or services were provide in
exchange for this donation”
Watch the Rules regarding
charitable donations!
NOTE – donations of TIME and
EXPERTISE are NOT deductible!
Handout: Top 10 Rules for Charitable Donations
28. Accountability - Governance
• Personal Benefit
• Abuse of Status
Conflict of Interest
• Board – Staff – Volunteer - Donor
Ethical Standards
Handout – Conflict of Interest Policy
Handout – Document Destruction Guidelines
29. Ethics/Conflict of Interest
Conflict of Interest Policy
Signed by Board and Staff annually
Practiced openly
Transparency critical to credibility!
Ethics
Newspaper Headline Test
Appearance of Impropriety
Best Practices for Integrity
30. Improving Fiscal Health
General Tips for Healthy Nonprofits
Pay attention to finances as well as mission
Recruit Board members based on need
Embrace in-kind donations – but have a plan
Make smart decisions about facilities
Growth is not always good – watch “mission
creep” and inadequate capacity
32. Risk Management for
Nonprofits
Best Practices to Prevent Financial Crisis
Identify Risk
Ranks Risk
Identify Policies to manage risk
Implement protections
Implement procedures in event of crisis
33. General Liability Insurance
Don’t Leave
Home Without It!
“Slip and Fall”
insurance for basic
activities
Personal Injury
Property Damage
Most places
require it
Facility rental
Working with other
organizations
NOTE – Usually
DOES NOT
COVER
MEMBERS
35. Risk Management Plan
Types of Risk to Manage
• Board members, volunteers, employees,
clients, donors, the public.People
• Buildings, facilities, equipment,
materials, copyrights, trademarks
Property
• sales, grants, contributions,
sponsors, fund raising
Income
• reputation, stature in community, ability to raise
funds and appeal to prospective volunteersGoodwill
36. Risk Management - People
Embezzlement by employees
Embezzlement by officers
Embezzlement by members
Fraud from “outsiders”
Trust But Verify
37. Who Commits Fraud?
High-level fraudsters (Officers/Directors) cause greatest damage –
more than 3x more costly, and take longer to detect.
More than 85% have never been previously charged or convicted.
Behavior warning signs: Living beyond means and experiencing
financial difficulty
YES – The 2014 Global Fraud Study found that organizations that
had common controls in place had
Significantly fewer losses (in # and $)
Shorter time-to-detection
2014 Global Fraud Study, Association of Certified Fraud Examiners
Do anti-fraud measures help prevent fraud?
38. Primary Control Weaknesses for Victim Orgs.
Handouts – 10 Ways to Catch Fraud and Mistakes from Outside
Handout – 15 Ways to Minimize Employee Fraud
1%2%2% 4%
5%
7%
8%
19%
20%
32%
Lack of Reporting Mechanism Lack of Clear Lines of Authority Lack of Employee Fraud Ed
Lack of Independent Audit Other Lack of Competent Oversight
Poor Tone at the Top Override of Existing Controls Lack of Management Review
Lack of Internal Controls
39. Preventing Fraud
Have and use financial control policies
Know who handles the money
Remove temptation
Review financial information
• ALSO - have independent review of finances
Be aware that it can happen to
your nonprofit!
40. Know Emerging Nonprofit Issues
Subscribe to Nonprofit forums
Board Source, INRN workshops
Listen to your stakeholders
What concerns affect them?
Listen to your professionals
Attorney, CPA
Best Practices to Staying Current
42. Thank you for your attention!
Any Questions?
Miriam Robeson, Attorney
Today’s materials are available
on Miriam’s Website:
www.lawlatte.com
Contact Miriam at:
MiriamRobeson@lawlatte.com