Spokes | Resources for Nonprofits

Find Us On Social Media:

Contracting for Fundraising

by

We recently had the question at Spokes, “What are the pros and cons of using independent contractors for fundraising and basing their fee on the amount of money raised?” Good question!

The answer? Well, when done correctly, it is legal, but there are lots of steps that must be taken. In addition, there are ethical and practical issues that you really need to consider before taking this route. If you or your board is considering this approach, Spokes recommends you carefully review the following references, in order.

Compensating Nonprofit Fundraisers – this is a good overview that gives pros and cons.

Professional Fundraising Consultants and Grantwriters  – Pay particular attention to the section, “Did you know?”

California Attorney General’s Guide for Charities – California is a state that does require both the fundraising professional or company to be registered and the charity/nonprofit to follow specific procedures as to contracting, etc. See Chapter 9 beginning page 68.

AB5 issue. – Finally, be aware that California now has very stringent rules with regard to employees versus independent contractors. Basically, a person is an employee unless “proven otherwise.” There is a list of exceptions that includes “grant writer” but not fundraising consultants.

Do You File IRS Form 990-EZ?

by

The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The requirement to file electronically generally became effective for tax years beginning after July 1, 2019. However, for small exempt organizations, the legislation specifically allowed a postponement (“transitional relief”). As a result:

  • For tax years ending before July 31, 2021, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax.
  • For tax years ending July 31, 2021, and later, Forms 990-EZ must be filed electronically.

IRS will be sending an educational letter (Letter 6194) to organizations that filed paper Forms 990-EZ previously.

Policy or Procedure?

by

Setting policy is an important responsibility of the board of directors of a nonprofit organization. Determining procedures is not. That’s why board members need to know the difference!

Policies are general statements that express principles or requirements of behavior for the organization. They don’t change often. What are some examples of basic policies nonprofits should have in place?

  • Conflict of Interest
  • Whistle Blower
  • Document Retention and Destruction
  • Gift Acceptance
  • Financial Control
  • Investment

By contrast, procedures lay out the steps and processes by which the policies will be implemented. They do change, as often as needed, to make sure they are working right.

When a nonprofit has paid staff, generally it is the Board’s responsibility to establish polices and the staff’s responsibility to develop the procedures to implement the policies. In an all-volunteer nonprofit, the job of developing procedures probably should be delegated to a committee. In either case, the goal is for the board as a whole to work at the level of policy and strategic direction, and avoid “micromanaging” the organization.

Two good resources to learn more:

What Governance Policies Should Your Nonprofit Have?
Creating Nonprofit Policies

Conflicts of Interest

by

“Looking at the agenda, does anyone see that they may have a potential conflict of interest?”

As president of a nonprofit board of directors, I routinely ask that question at the beginning of each board meeting. Rarely does anyone speak up, and we go on about our business. We also have a conflict of interest policy and each board member must sign an annual acknowledgement that they have received and read a copy. When it comes to conflict of interest, our board is on top of things, right?

Not necessarily. At a recent meeting of leaders of some of our Spokes member organizations, the topic of conflict of interest came up. These leaders were concerned that their board members did not have a very sound understanding of what constitutes a conflict of interest. That prompted me to do a little research and guess what? I learned that my own concept of conflict of interest, while not wrong, was far too narrow.

Duality of Interests

First of all, the concept of conflict of interest relates to more than direct financial gain. Let’s imagine a board needs to hire a general contractor for some job. Let’s also imagine that one of the board members happens to be a general contractor. We probably all would say that board member should recuse him or herself from the discussion and decision on what contractor to hire for the job. On the other hand, what about a board member who also serves on the board of another nonprofit in the same community. Is that a problem? Could be!

Two considerations can help us to a broader, more complete understanding of conflict of interest. First, we need to think in terms of ethics rather than legality. An action can be strictly legal yet not necessarily the right or good thing to do. Second, we need to remember that among the three “duties” that board members owe to their organization is the Duty of Loyalty—essentially, that they will put the organization’s welfare first.

As the National Council of Nonprofits puts it, “Conflicts can be nuanced and have more to do with a “duality of interests” than a financial conflict.”

What now?

Based on my new understanding, I want to go back and re-read our conflict of interest policy. Are we following it? Does it reflect this broader concept? Does it say anything about how we will manage conflicts of interest that do come up? What should we consider adding or changing? My hunch is there will be work to do.

Want to educate yourself and/or your board on this topic? Here are some excellent resources to share.

Conflicts of Interest | National Council of Nonprofits

Charity Conflicts of Interest: A Guide – Non Profit News …

Nonprofit Conflict of Interest: A 3-Dimensional View – Blue …

Nonprofit Accounting Best Practices

by

Nonprofit accounting can be a daunting task due to its specific and detailed nature. Here we have compiled some basic information about nonprofit accounting including best practices and software choices. 

Basics of nonprofit accounting 

Since nonprofits have no ownership interests, receive donations from third parties, and have goals other than making a profit, accounting is much different and often more complex than for-profit accounting. 

What makes nonprofit accounting so much different? Business.com’s “A Nonprofit’s Guide to Accounting” sums up three key differences: 

  • Since a nonprofit does not have stakeholders, it produces a statement of financial positions, which outlines assets and debts rather than a balance sheet. 
  • Nonprofits do not have equity, so this item is referred to as net assets, which are labeled as restricted or unrestricted. 
  • Rather than an income statement, nonprofits produce a statement of activities that tracks revenues and expenses for each program. 

Nonprofit accounting best practices 

When managing your books, protecting your nonprofit’s financial data should be a top priority. Aplos’ “Ultimate Guide to Nonprofit Accounting” and National Council of Nonprofits’ “Internal Controls for Nonprofits” both list important tips for responsible financial management. These can be policies or plans which reduce risk surrounding your nonprofit’s funds or assets. 

  • It may seem obvious, but creating a budget and a multi-year plan is a great way to prepare for spending ahead of time. Both should be realistic for your organization.
  • Understand the requirements of the IRS and GAAP and remain aware of any rule changes. 
  • Make sure everyone in your nonprofit understands how money travels through your organization. Creating a flowchart can help your staff visualize different responsibilities and risks at different points. 
  • Delegate financial duties among multiple employees.This can prevent fraud and increase accountability. 
  • Manage your fundraising expectations. Use past data to set realistic goals and adjust them if anything goes wrong—or right!

Software 

When it comes to accounting software, Best Accounting Software has compiled one ranking of software for nonprofits. Their recommendations: 

  • Aplos as best overall software: Aplos has features important to nonprofits such as fund accounting, membership management, and fundraising capabilities. 
  • QuickBooks Online best for small nonprofits: QuickBooks is an inexpensive software that has the basics of program and fund accounting, donation management, and more.  
  • Blackbaud Financial Edge most flexible for nonprofits: more suitable for large nonprofits, Blackbaud offers user-level permissions tools, customization, and flexibility in financial reporting and analysis.  

For more information on nonprofit accounting: 

Cal Nonprofits’ Nonprofit Compliance Checklist

Indiana Attorney General’s Best Practices for Nonprofits Checklist (pdf)

Guiding nonprofits to achieve their goals through support and expert resources.

How Can We Make A Difference Together?

Spokes welcomes local professionals who would like to share their expertise in support of the nonprofit sector.

Get Started Contributing

Recent Articles