Now that you have determined the need for a nonprofit financial statement audit, it is time to select an accounting firm and begin the process. This can be an overwhelming experience, but it doesn’t have to be. With the right team on your side and all the documentation you need prepared ahead of time, you’ll be ready to execute a successful audit.

Choosing a Firm

As soon as the need is determined, you can start the process of selecting an accounting firm for your financial statement audit. In addition to selecting a firm that’s certified to perform audits in the state of Illinois, you’ll want to make sure that you choose a team that truly understands your operations and transactions. It’s critical that the firm has extensive nonprofit experience since the regulations differ significantly from those of for-profit businesses. It is highly recommended to ask all potential accounting firms to provide a copy of their most recent peer review certificate and report.

Beginning the Process

After your firm has been selected, you’ll start the organizational and preparation processes.  Your audit team should clearly communicate what documentation you’ll need to have ready initially. You’ll also meet with your auditors to understand what metrics, such as key balances from your balance sheet, will be important to the process. The auditors will go over your risk assessment and internal controls to ensure that they’re working properly. In a perfect world, those meetings should take place throughout the year so that nothing is missed. Finally, the team will review your accounting and personnel policies to ensure everything is up to date. Based upon these discussions, your audit team will determine the procedures that will take place during the audit.

Communication is Key

Once you’re ready to move forward, the most critical element of a successful audit is good communication between the auditors and your internal team. The audit team will relay which key documents will be necessary. Having all of your documentation and reporting ready in advance of any on-site visits will save you time and money. Since most firms bill by the hour, the less time that’s spent on the audit means more resources to devote towards fulfilling your mission.

2018 Changes

As a final note, there are going to be updates to the financial statements themselves. There are new reporting standards that will take effect for 2018’s audits. These changes are going to require major revisions to the current accounting policies and reporting for nonprofits. It’s important to start implementing these changes prior to the end of this year so that you’re prepared for next year. Click here for more information.

An unqualified audit report from the audit firm will provide reasonable assurances to your governing bodies, lenders, and donors that you’re running your organization responsibly. It can help open doors for more funding so that you’ll be able to pursue your mission to the fullest. Contact us today if you have questions about whether you need an audit or to see how we can make the process as seamless as possible.

Managing a nonprofit organization is quite a balancing act, and the IRS doesn’t make it any easier. Nonprofit-specific tax laws can be even more complicated than those regulations for for-profit businesses. Are you up to date on recent changes in nonprofit tax law? Check out our nonprofit news and tips to ease your 2017 tax season.

NONPROFIT NEWS

Uniform Guidance 

Don’t make the mistake of thinking that uniform guidance does not apply to your organization because you aren’t using federal money. Often money awarded through states originates with the federal government. Be sure to confirm the initiation point for all funding your organization accepts.

Uniform guidance, enacted at the end of 2015 for the 2016 tax year, regulates how nonprofits account for federal awards in excess of $750,000. Uniform guidance, which was previously covered by the OMB A-133 audit, is designed to ensure that money awarded by federal agencies is being used as intended. Many organizations hire consultants to prepare them for this annual audit. An outside accounting firm must complete your audit within nine months of the end of your organization’s fiscal year.

Net Asset Classifications

For years you’ve been classifying your net assets into three classes: unrestricted, temporary restricted and restricted. The temporary restricted class is being combined into the restricted class, leaving only the restricted and unrestricted classes. This change will impact how nonprofit organizations’ financial statements are presented and is intended to reduce errors.

Extension Changes

In the past, the extension process had two parts. The first extension due May 15^th (calendar year filers) extended the deadline for three months until August 15^th.  Then, if additional time was needed, a second extension could be filed on August 15^th, extending the deadline another three months until November 15^th.

For tax years beginning in 2016, the original May 15^th extension will now extend the 990 return for six months, thereby eliminating the need for the August 15^th extension. The extended return will be due on November 15^th, 11 ½ months after the close of the year.

TOP THREE TIPS

1. Take the time to complete journal entries to accurately allocate expenses. When potential donors review your statement of activities, they will see how funds are allocated between program (mission related expenses) and general and administrative (G & A) costs of the organization. This added tier of reporting informs potential donors how much money goes to the purpose of the nonprofit organization. A simple bookkeeping error, like allocating an entire executive director’s salary or the entire amount of the rent to G & A, could give the impression that the organization isn’t allocating as much of their resources to functional uses as they say they are.

2. Check the verbiage on any financial documents that donors, potential donors and media can access, such as Form 990. Do the financials match the story being told? Do the financial policies reflect the content? Compare the financials to the verbiage and ask yourself if you would donate. If no, why not? Is G & A too high? Is it misclassified? Depending on how you answer these questions, adjustments may need to be made to the content or financial policies.

3. Carefully consider your efforts to increase funds to ensure that they cannot be considered for-profit activities. Collecting any funds from activities that could be considered for-profit puts your exempt status at risk. For example, renting out space or selling advertising on a website could be considered for-profit activities that would generate scrutiny from the IRS.

If you have any questions about changes in nonprofit tax law or how to implement our nonprofit tips, call us today. Our nonprofit experts are ready to help you with your balancing act.

Hearing marketing advice from your accountant may be surprising and unexpected, but if you are working on your IRS Tax Form 990—the return filed by non-profit organizations—it’s exactly what you should hear. At Cray Kaiser, we refer to Tax Form 990 as your “resume for big donors.”

Yes, your accountant checks over every detail to be sure that the IRS—the number one audience for Form 990—continues to consider the organization tax-exempt. But did you know that Form 990 is also available to and frequently read by the general public?

The audience goes far beyond the IRS, and the information contained on the form answers important questions for a wide variety of interested readers, including:

• Donors
• Researchers
• Foundation program officers
• Corporate giving officers
• Media
• Researchers
• Legislators
• Job applicants

Imagine a potential donor who is planning to make a large donation and is choosing among three organizations, one of which is yours. The donor pulls up the three 990 forms to learn more. She reviews mission statements, achievements and financials. She considers how much money went to the mission versus how much was spent on advertising and overhead. She examines Board of Trustees and senior management lists, possibly researching more about those involved with the organization.

How does your Form 990 compare? Will she choose your organization over one with a Form 990 that effectively communicates the mission of the organization and persuades readers to support the cause?

Using Form 990 as a marketing tool can be achieved with a few simple steps:

• If you have writers, marketers or public relations resources available to you, use them.
• When answering questions, attempt to grasp and hold on to the reader’s attention by writing in an interesting but concise manner. Consider your target audience. How can you answer the questions in a way that would most appeal to them?
• Use every opportunity to promote the organization. Rather than directing a reader to another response that seems to answer a similar question, answer every question to showcase your organization’s strengths.
• Tap into your company’s available assets. Refer to language and content in your grant proposals, annual report, marketing materials, social media, blogs, mission statements and any marketing materials.
• As you fill out this annual return, stay motivated and attentive. Review each and every question each year. Emphasize new accomplishments and new programming. Many organizations leave the narratives pro forma from prior years. This allows their descriptions and activities to look and sound dated.  Donors, like all consumers, want to partake in or contribute to fresh ideas and new causes.  Consider any changes in the organization, any new materials, language or content that could improve the form’s ability to persuade donors and other readers.

It’s not often that your tax form serves as a marketing tool, but in this case, that’s exactly what it is. Use this opportunity to persuade that donor with money to bestow that your cause it the most deserving one. And while you may not turn to your accountant for advice on your new logo or advertising campaign, the advice to use your Form 990 as a marketing tool can make the difference between getting that big donation or having it pass you by.

If you have questions about Tax Form 990, please contact Cray Kaiser today. We’re here to help!