Nonprofit 411: Non-Profit Employee Classification Checklist

By Paul Holtzman, Partner, Krokidas & Bluestein

As a non-profit organization, there are many considerations to account for in the way you supervise, retain, PaulHoltzmanand compensate your workforce. From classification of employment status to compensation practices, mismanagement of personnel can be damaging for any organization and the risk is only exacerbated for nonprofits. Below are a few tips to help you navigate the murky waters between volunteers, interns and independent contractors, so that you can ensure that you are adhering to applicable laws and classifying personnel in an accurate and legal way.

They may be a volunteer if…

  • The worker does not receive or expect to receive benefits from their work
  • The activity constitutes less than a full-time occupation
  • Regular employees are not displaced by the volunteer
  • The individual is acting without having been pressured or coerced
  • The services are not the same type as those performed by employees of the organization

They may be an intern if…

  • Their activity is similar to training that would be given in an educational environment
  • The experience is for their benefit
  • The individual does not displace regular employees
  • There is no immediate advantage derived by your organization from the intern’s activities
  • There is a mutual understanding that the intern is not entitled to wages for their time spent; and that they are not necessarily entitled to a job

They may be an independent contractor if…

  • The individual is free from control and direction of the organization, both by design and in fact
  • The service they provide is performed outside the usual course of business of your organization
  • The worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in their work for your organization

Nonprofit 411: Size and Success: The Case for Capacity for NPOs

By Kim McCormick, Senior Vice President, McCormick Group

The spectrum of nonprofit organizations (NPO) in the United States ranges from $3+ billion to $250 in annual revenue. The DSC_0303pi-04Ms (1)huge disparity paired with the sheer number (1.5 million) of registered NPOs begs the question, does size matter?

SIZE

Interestingly, there are two conflicting concepts regarding size. Larger organizations have greater resources to make changes, acquire technologies and train staff, however it’s more difficult to shift system wide. Smaller organizations may shift models easily, yet lack capacity and financial resources to make impactful change. Knowing the sweet spot for your organization’s size can help you deliver your mission more effectively. Unfortunately, many NPOs are busy raising money and managing daily operations. Building capacity for greater impact is the stuff of dreams.

Capacity can be measured by in many ways; stating efficacy in relationship to size is but one. NPOs at an effective capacity level raise more money in relationship to their size than smaller organizations. Comparing average gross revenue to size, research shows that the minimum financial capacity for organizational effectiveness is between $1-5M with $10M being the beginning of the sweet spot for strategic growth.

NPOs raising less than $1-3M simply don’t have the capacity to deliver the brand, attract and train quality employees, implement major programs, deeply invest in technology or significantly impact mission. If that is the case, then how can we build capacity? There are several ways, including:

• Raise more money

• Cut staff, programs and services

• Seek collaborative agreements to broaden the footprint, gain economies of scale and reach more constituents

The focus of a collaboration solution to capacity starts with mission, not money, and is centered on ‘what we can do better together.’

SUCCESS

The first step to measuring success requires looking beyond the dashboard to multi-year trends. If a drop is noticeable or the organization is losing impact, volunteers and influence, the reason can usually be traced to capacity. Whether it’s lack of consistent funding, staff, volunteers, lack of “pick your point” there are missing elements that if present would result in positive trends. Additional factors including increased competition, the complexity of managing donors, policy shifts and environmental influences can inhibit success year after year.

Consider the impact of scale. The difference between a $1M versus a $10M organization spending 10% on branding is significant such that to achieve the desired results, the larger organization may only need to spend 7% on branding and have more funds available (in this example $300,000) to invest in strategic objectives. As scale increases, capacities increase simply because of size. There is direct evidence of entities lacking consistent financial capacity and not achieving goals due to weak brand recognition.

Donors relate to an organization on brand, but judge effectiveness on programmatic, fundraising and administration costs compared to monies raised. The larger an organization’s revenues in relationship to their expenses, the more appealing these ratios are to constituents.

Finding success through building capacity can be likened to realizing that you need something, like vegetables to sell at your market. You can either buy land, equipment and seeds, plant and tend hoping your investment pays off; or you can visit a vegetable farmer, get to know her, share resources, create a partnership and start offering high quality vegetables to your constituents quickly and inexpensively. Dream big!

Nonprofit 411: Goodbye Obamacare & Hello Trumpcare? Not so fast…

By Colleen Doherty, SPHR, SHRM-SCP, SVP, Compliance & Client Service, Eastern InsuranceColleen Doherty

From the day that the Patient Protection and Affordable Care Act (aka Obamacare, The Affordable Care Act, or the ACA) was signed into law back in 2010, its opponents have been vowing to repeal it. During the Obama administration, repeal was a moot point given that President Obama could veto any bill that attempted to dismantle his signature legislation. Under the new Trump administration, the repeal of the ACA is a primary objective of the new president as well as the Republican majority House and Senate.  However, a full repeal of the law is highly unlikely given that Senate Democrats will most likely block any attempt to fully repeal the law.

What is an ACA opponent to do?
[Read more…]

Nonprofit 411: Benchmarking: Satisfy your Board and Gain a Competitive Advantage

By Tyler Butler, BerryDunn

Benchmarking doesn’t need to be time and resource consuming. Read on for four simple steps you can take to improve efficiency and maximize resources. [Read more…]

Nonprofit 411: New Financial Reporting Standards for Nonprofits Aimed at Greater Transparency

By William B. Ford, CPA, and Linda J. Kramer, CPA, MBA
G.T. Reilly & Company

You may have heard that new financial reporting standards are coming down the pike that will affect your organization. The good news is that the new standards don’t take effect for more than a year, giving you plenty of time to familiarize your organization with any new requirements. A review of your organization’s financial reporting practices may be beneficial in preparation for the new standards.

Bill Ford-WEB

William B. Ford, CPA

Linda Kramer

Linda J. Kramer, CPA, MBA

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements for Not–for-Profit Entities. This ASU is the first phase of a two-phase project and is intended to make nonprofit financial reporting more transparent.

Specifically, the new standards will improve net asset classification requirements and information presented in the financial statements and notes about a nonprofit entity’s liquidity, financial performance and cash flows.

The changes are effective for organizations with fiscal years beginning after December 15, 2017, although early implementation is permitted. These amendments should be applied on a retrospective basis. The nonprofit has the option to omit certain information for any period presented before the period of required adoption.

Main provisions

  • The current presentation of three categories of net assets (unrestricted, temporarily restricted and permanently restricted) will be reduced to two categories: net assets without donor restrictions and net assets with donor restrictions.
  • The statement of activities also will reflect two classes of net assets.
  • Cash flows will continue to be presented using either the direct or indirect method with the requirement to reconcile the direct method being eliminated.
  • Enhanced disclosures will be required, including amounts and purposes, for any board-designated appropriations.
  • Enhanced disclosures will be required for composition of donor-restricted net assets at the end of the period and
    for how those restrictions affect the use of resources.
  • Disclosure will be required to communicate how the organization manages its liquid resources available to meet cash needs for general expenditures during the next year.
  • Expenses will be presented by both natural classification and functional classification. This may be done within the statement of activities, as a separate statement, or in the notes.
  • Disclosures will be required concerning the methods used to allocate costs among program and support functions.
  • Underwater endowment funds will be reported as part of net assets with donor restrictions; previously these were reported with unrestricted net assets.
  • Investment returns will be shown net of external and direct internal investment expenses with no disclosure necessary for the amount of the expenses.
  • Release of net assets with donor restrictions for long lived assets will be required when the asset is placed in service, thus eliminating the option of release over the estimated useful life of the asset.

If you have questions about whether your current practices will be in compliance with the new standards, or if you would like assistance with implementation of the new accounting rules, please contact us at 617-696-08900.

Nonprofit 411: Comprehensive Fiscal Sponsorship Helps Foundations Support the Most Promising New Nonprofits

Josh Sattely, Esq., Third Sector New England

How can the philanthropic sector best identify and support promising new initiatives? A different way to ask the question is what’s the difference between a ham sandwich and a new public charity? Not much these days as far as the IRS is concerned as there is no meaningful vetting being done on new applicants filing the Form 1023-EZ.2013100312_04_418682

For those not familiar with the 1023-EZ, it is an ill-advised solution to address the previous astounding backlog of public charity applications sitting with the IRS.  Thought leaders in the field fear this open door policy will greatly dilute what it means to be a public charity and cause a myriad of problems down the road.

So, how can foundations and other mindful donors interested in supporting new and promising charitable initiatives separate the promising wheat from the chaff and ensure these groups are effectively navigating a complex compliance environment? One increasingly utilized solution is fiscal sponsorship, more specifically comprehensive fiscal sponsorship where the charitable initiative is positioned and supported as a semi-autonomous program or business division of an established nonprofit for the duration of the relationship.  

Why does this help anyone you ask?  For starters, when done right, the fiscal sponsor has a seasoned board of directors committed to the success of both their immediate organization and all projects operating under their purview. They vet potential partners not only on mission compatibility but also assess risk profile, and sponsors work closely with the project to ensure continual movement towards sustainability while not inadvertently driving off a compliance cliff.  

Once a fiscal sponsorship relationship is established, projects benefit from the flexibility and experience of experienced nonprofit professionals; the most common supports being financial management and oversight, legal compliance, risk management, and human resources and benefits administration.  A growing number of sponsors also provide additional capacity-building supports such as trainings, coaching and, eventually, succession planning.  Fiscal sponsors are not profit-making centers but need to cover their costs and typically do so via an overhead cost allocation.  To determine if the cost allocation is reasonable, be sure to take a close look at what supports the project receives.  

The fiscal sponsorship incubator approach described above is exactly how the Massachusetts Nonprofit Network (MNN) began its journey. MNN operated under TSNE for its first three years so it could focus on business model development and internal capacity building while TSNE shouldered the administrative and compliance burdens.  Once it had built its own infrastructure, it transitioned to independence and all assets held by TSNE for the benefit of MNN were transferred to the new entity to be deployed in advancement of MNN’s mission.

In sum, well-vetted and nurtured nonprofits change the world.  The turnkey model of comprehensive fiscal sponsorship serves both as a runway for groups such as MNN and as a long-term home for thriving initiatives where the need for independence is less compelling.  Because of this unique relationship, fiscal sponsors have a vested interest in the long-term success of those they partner with whether the legal relationship lasts for a few years or a few decades.

Josh Sattely, Esq., is the Compliance and Legal Affairs Specialist for Third Sector New England (TSNE). TSNE’s Fiscal Sponsorship Program works with 88 nonprofit projects across the country, stewards $27 million in project funds and offers an effective shared services platform adding financial management and risk management, assuring legal and grants compliance and administering employee compensation and benefits for innovative social justice initiatives. TSNE has nearly 60 years of experience in the field of Fiscal Sponsorship and also partners with other nonprofits, foundations, community-based groups by providing a dynamic mix of management and consulting services, training programs, and grants to grassroots networks. Visit their website: www.tsne.org.

Nonprofit 411: Navigating The Crowded Non-Profit Sector

How organizations can set themselves apart to secure—and retain—donors

By Shannon Crowley, CPA, MSA, BlumShapirocrowley-shannon3

Despite the Great Recession and the long process of economic recovery of the 2000s, the non-profit sector has become one of the country’s fastest-growing industries. According to the National Center for Charitable Statistics’ most recent research, the United States is home to more than 1.5 million registered non-profit organizations—marking a nearly 20 percent increase over the last 10 years, a timeframe in which many businesses in the for-profit sector have struggled.

This rapid growth is certainly a sign of success, and—as non-profits employ nearly 11 million American workers and contribute roughly $887 billion to the national economy—it is difficult for anyone to argue against the economic value of a thriving non-profit sector.

However, the unprecedented rate at which new organizations are being created is also creating a challenge. The non-profit sector is more crowded than ever before, making it very difficult for organizations to secure—and retain—their donor bases.

On a local level, there are 33,000 non-profit organizations registered in Massachusetts—each competing with one another for precious dollars from a limited pool of individual donors, corporate foundations and other fundraising sources. In a recent cover story in The Boston Globe, many industry experts argue the field of non-profit organizations in Massachusetts is simply too large to sustain.

However, the organizations themselves, and the tens of thousands of Massachusetts residents employed by non-profits, are doing everything they can to prove those experts are wrong.

And that starts with donor retention.

The Association of Fundraising Professionals reports that, on average, donor retention rates across the non-profit sector are around 43%, meaning less than half of an organization’s 2016 donor base will contribute. In order to grow in a competitive non-profit environment, organizations have to find a way to land recurring donors. To do this, non-profits are employing several strategies. For the purposes of this article, we’ll focus on three:

  1. Differentiating themselves from other, potentially similar organizations

Many potential donors or grant-awarding foundations would love to support every deserving cause that asks for and needs their help. Realistically, though, donors need to choose between hundreds, if not thousands, of similarly operating organizations to which they can lend their financial support. Non-profits, especially non-profits working to support similar demographics, are under enormous pressure to set themselves apart to attract new sources of funding. It’s never been more important for a non-profit to have a very clear, very specific mission.

2. Investing in “fundraising infrastructure”

Fundraising success is entirely beholden to the amount of time and resources organizations are willing to invest. In order to succeed in today’s hyper-competitive non-profit sector, organizations must invest in fundraising professionals, such as high-ranking development officers, and fundraising “infrastructure,” such as top-notch technology and donor databases.

The clear, specific vision makes an organization attractive to donors. Development professionals and in-depth donor databases help organizations find them.

3. Increase efficiency by streamlining their accounting functions

Back-office financial work is crucial to the long-term success of the organization. That said, it’s also very time-consuming. As many organizations are investing significantly more time to their fundraising operations, some non-profit leaders are finding ways to take complex financial paperwork off their desk so they can focus on the organization’s core competencies. This may entail creating new jobs for a full-time accounting team, or hiring a third-party financial organization to take on those responsibilities.

Shannon Crowley, CPA, MSA, is an Accounting Manager at BlumShapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. The firm, with over 400 professionals and staff, offers a diversity of services which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.

Nonprofit 411: Is a Cause Marketing Campaign Right for Your Nonprofit?

Nonprofit 411: Is a Cause Marketing Campaign Right for Your Nonprofit?

By Ellen Lubell, Attorney-at-Law, Tennant Lubell, LLC

Cause marketing campaigns – also referred to as “charitable sales promotions” and “commercial co-venturer campaigns” – are mutually beneficial collaborations between a for-profit business and a nonprofit charity to increase recognition of the nonprofit’s name and cause, and to generate goodwill for the business because of its association with the nonprofit. It may also generate revenues for the nonprofit and profits for the business.e-lubell-photo

Cause marketing has been around since the mid-1970s. For example, the “Buy One Give One” campaigns involving businesses such as Toms Shoes guarantee that social or environmental good will be done through their charitable partners each time a shopper purchases their products. General Mills and the American Heart Association (AHA) teamed up to give a “heart check” stamp of approval to products such as Cheerios to certify that these products meet certain nutritional standards, thus advancing AHA’s educational mission and promoting sales of General Mills products.

Since cause marketing is intended to have an impact on the success or failure of the nonprofits involved, state charity regulators —typically Attorney General offices—scrutinize these campaigns to assure that nonprofits’ assets are being used appropriately and are not unduly benefiting private businesses.

If you are contemplating a cause marketing campaign for your organization, questions you should ask include:

1. Is the business partner you’re considering likely to be trustworthy and aligned with your interests?

Due diligence is important. Check out your partner’s financial and legal health; investigate its management practices and reputation; find out its record on issues relevant to your mission and ensure that their practices will not prove to be embarrassing; and make certain that you are compatible.

2. Are there risks to the use of your name and logo? The primary resource a nonprofit has to offer to a campaign may be its name. Permitting use of your name may seem like a no-brainer, but consider that the excellence and goodwill it represents—which your organization has developed over time with substantial effort—is exactly what your business partner wants to associate with its brand. If your business partner thinks your name is valuable in the marketplace, so should you. Consider also that the loss of your good name can be extremely costly. If your partner’s products or services become associated with fraud or greed or carcinogens, then so may your organization.

3. Will the campaign require you to undertake activities that will divert you from your nonprofit mission? Consider whether you will need to use your resources and staff in ways that are a greater benefit to your business partner than to you.

4. Are there legal compliance requirements associated with the campaign? Massachusetts charitable solicitation laws require you and your business partner to register with the Attorney General prior to commencement of the campaign, to file a written contract setting forth the terms of the campaign, and to prepare and maintain final accountings to demonstrate compliance with regulations. Make sure your partner understands that transparency and regulators are the norm in the nonprofit world, that limits will be placed on the way it can promote its brand, and that you will need to approve promotional materials that bear your name.

Is a cause marketing campaign right for your nonprofit? Engage your organization’s Board and senior staff and make sure the campaign will advance your mission.

Nonprofit 411: Safeguarding Against Fraud at a Not-for-Profit Organization

Safeguarding Against Fraud at a Not-for-Profit Organization

By Barbara Andrews, CPA, Senior Audit Manager, Kevin P. Martin & Associates, P.C.

barbaraandrews

Not everyone believes that fraud can happen at their organization.  You know your employees and you have shared professional and personal milestones.  However, the reality is that fraud does happen, and it could happen to your organization.  A 2016 Global Fraud Study issued by the Association of Certified Fraud Examiners (ACFE) reported that the median loss for a Not-for-Profit organization was $100,000.  For a small not-for-profit organization this is a huge hit to the bottom line and most likely a bigger hit to the organization’s reputation.  The cost of fraud is much more than stolen money, a stolen identity or the misreporting of financial statement information.  It can cost the organization future funding plus the time and effort expended by employees and the Board to repair the organization’s reputation.

An organization’s control environment is the first line of defense against fraud.  When developing internal controls, an organization’s policies typically focus on the major transaction cycles and the areas of information technology/general computer controls, compliance and financial close/reporting.  The size of an organization doesn’t matter.  The effectiveness of the policies in place to mitigate identified risks is what matters.

An organization’s internal control policies and procedures should be written and made available to all employees.  A whistleblower policy should be adopted and employees should be provided with clear instructions on how to report suspected fraudulent activity.

Don’t let the internal control policies collect dust!  Just as an unsupervised employee has a higher risk of committing fraud, stale internal control procedures minimize an organization’s ability to detect and prevent fraudulent activity.  It is essential that the policies and procedures be assessed for risk at a regular basis.  The review requirement could be triggered by a change in environment such as a new program, key staffing change or compliance requirements.   There should also be an annual review that focuses on the “what could go wrong” scenarios and the determination of whether the controls are adequate to safeguard against fraud.

Is your organization’s technology environment secure or is it vulnerable to a breach?  The internal control environment should also consider and address cybersecurity risks.  A cyberattack can impact the organization, its employees and the clients that are being served.  Identity theft is a legitimate threat that should be assessed and addressed.  The Commonwealth of Massachusetts has adopted privacy laws to protect personal information and an organization’s control environment should incorporate the provisions of the privacy laws.  A regularly scheduled risk assessment by a qualified IT professional may help to reduce the organization’s exposure to risk in this area.

In summary, as a safeguard against fraud, an organization should design, implement, communicate and monitor its internal control system to determine that the system is functioning as designed.  An organization’s internal control system should be thought of as a living breathing document.   To be effective, it needs to change with an organization, whether it be due to a change in key personnel, billing system or a merger.  The Board should monitor the organization’s internal control procedures and assessments.  To assist with its monitoring function, an organization may want to engage a third party to perform a fraud prevention assessment.  This assessment includes an assessment of the entity’s information technology/general computer program controls and is designed to highlight possible weaknesses in the internal control structure.

Nonprofit 411: How Decision Tools Can Help Nonprofit Leaders

Jay W Vogt and Judy A Ozbun

judy-and-jayFounders of EssentialWorth

You’re facing a tough decision, and you’re stuck.  You’d love some perspective, but you don’t know how to get it.  If only you could see your situation in a new way.

Here’s how we often gain perspective on tough decisions.  First we take a step back, and try to see the big picture.  Often choices are hard because they bring together two competing and compelling interests, in a dynamic tension, pulling you in different directions.  Seeing this tension as creative helps us map the landscape of a challenge, and place our specific choice in its general context.  In seeing that context, we often experience insight, and then our decision is made.

Here’s an example of how it works.  Let’s say you have to make choices regarding which programs you keep, which you grow, which you add, and which you drop.  The competing and compelling interests are mission and revenues.  Some programs are closer to the mission core than others.  Some programs attract more revenues than others.   Thinking about your programs holistically – in this context – means seeing how your program and revenue strategy fit together as a whole, in a sustainable portfolio.  That perspective tells you whether the one you’re considering is a fit, or a misfit.

If you are a visual learner, it helps to map out this tension graphically, as an x and y axis in creative tension.  Thus we would map the prior example in this way:

 

 

Low Mission

 

High Mission
High Revenues low mission

high revenues

high mission

high revenues

Low Revenues low mission

low revenues

high mission

low revenues

 

Seen this way, the insights are immediate.

 

 

Low Mission

 

High Mission
High Revenues grow sparingly to subsidize grow aggressively
Low Revenues divest or joint venture the heart and soul of the agency

 

We love these two-by-two cell matrices.  They are simple yet powerful tools.  They help individuals make decisions.  And they help teams frame choices for discussion.  We love the insights they generate.  We introduce a series of graphic decision tools – in this format – online through short videos at our YouTube channel, EssentialWorth Moments.  They only take a moment; and they’re essential!

 

We would love to hear from you:

  • What other decisions are you wrestling with at the moment?
  • What decision frameworks have you used recently to make an important decision?