NDANO Annual Conference The Ins and Outs of Nonprofit Finances By Kevin J. Dvorak, CFP® President & CEO North Dakota Community Foundation May 4, 2005 What you need to know! This is a very broad topic, so I’d like to know some of your reasons for coming here, so that I may give you some of the specific information that you are hoping to learn. Please state your name and what nonprofit you work. If you have a specific expectation, please state that as well. I will provide a list of references to you so that you may get more specific information about this subject for study at your leisure. You’ll receive that in the handout at the end of the session for you to take with you. Let’s start with what it takes to become a nonprofit in ND. If some of you are from Minnesota, you will have similar requirements and con probably receive help from our friend John Pratt at the Minnesota Association of Nonprofits. Incorporation in ND. Secretary of State’s office website—I just typed in North Dakota Secretary of State and went right to the webpage. I typed nonprofit organization into the search feature and found a lovely pdf with all the pertinent info. It’s a great resource. One of the biggest misconceptions that I run into is that people think that once they incorporate in ND, they are done…not so..from the Secretary of State’s website:
The Secretary of State issues the corporate charter that establishes a nonprofit corporation. The corporate charter does not grant tax exemption. The Internal Revenue Service grants tax exemption. Since specific language is required in the articles of incorporation to qualify for tax-exempt status, it is advisable to research the Internal Revenue Service requirements before drafting the articles of incorporation. (Secretary of State’s PDF on starting a nonprofit in ND)
A nonprofit corporation must file an annual report with the Secretary of State by February 1 each year with its first report being due in the year following that in which its certificate of incorporation was effective. Now you have to raise some money…wait a minute! A charitable organization may not solicit contributions from persons in this state by any means unless, prior to a solicitation, there is on file with the secretary of state upon forms prescribed by the secretary of state a registration statement containing the following information: a. Legally established name. b. Name or names under which it solicits contributions. c. Form of organization. d. Date and place of organization. e. Business telephone number. f. Street and mailing address of principal office in this state, if any. g. Name and address of the person having custody of books and records within this state. h. Total compensation, including salaries, fees, bonuses, fringe benefits, severance payments, and deferred compensation, paid to employees by the charitable organization and all its affiliated organizations.
i. Federal and state tax-exempt status. j. Denial at any time by any governmental agency or court of the right to solicit contributions. k. Date on which accounting year of the charitable organization ends. l. General purposes for which organized. m. General purposes for which contributions to be solicited will be used. n. Methods by which solicitation will be made. o. Board, group, or individual having final discretion or authority as to the distribution and use of contributions received. p. Amount of total contributions received during the accounting year last ended. Every charitable organization that is required to file or that files a registration statement pursuant to section 50-22-02 shall file an annual report along with a ten dollar fee with the secretary of state on or before September first of each year. OK, what about unemployment insurance? • Nonprofit organizations with 501(c)(3) income tax exemptions are liable if they employ four or more workers during 20 different weeks in a calendar year. Sales tax Public Schools, Private schools (only for educational items) Nursing Homes, Hospitals, Intermediate/Basic Care Facilities, and Voluntary Health Associations: Sales to nursing homes, hospitals, intermediate/basic care facilities licensed by the North Dakota Health Department are exempt from sales tax. The following are examples of property that may qualify for some form of property tax exemption: • Property owned by lodges not organized for profit. • Property owned by not-for-profit nursing homes and hospitals.
• Property owned by nonprofit historical societies operated for the public. • Property owned by a senior citizens’ club. In order to be eligible for the property tax exemption, the organization must apply annually. Application is made through the local assessing official, who makes the initial exemption determination. Exemption applications and answers to questions can be obtained from your local assessor, or from the Office of State Tax Commissioner. Insurance—In addition to the regular insurance for buildings, autos, liability, etc, you may also need some or all of these special kinds of insurance:
Board Members Liability
Potential exposures to loss are due to the liability resulting from the negligent actions or lack of action by the board of directors or officer’s. The common coverage for this exposure is Director’s and Officers Liability.
Special Events Liability
Potential exposures to loss are due to the liability resulting from activities associated with such events as summer camps, fund raisers, fireworks display or other unique events generally held some where other then your primary premises. Some special events coverage will be available as an endorsement to your General Liability policy, while others may have to be covered by a liability policy tailored for that type of risk.
Service Activities Liability
Potential exposures to loss are due to the liability resulting from activities related to counseling or treatment. Certain types of services may be covered by the General Liability policy or by endorsement to the General Liability p
The following information comes from the MAP website. An excellent source of information www.mapnp.org Our good friend Carter McNamara, MBA, PHD wrote and compiled this. You will need a Fiscal Policies and Procedures Manual. Once you have it in place, you must FOLLOW IT. It basically lays out your accounting procedures.
Accounting(bookkeeping) Cash or accrual. Most small nonprofits use the cash method. Basically you count it when you get it or when you spend it. Accrual, basically, you count it when you earn it and when you (accounts receivable, accounts payable) There are many fine accounting systems available for nonprofits and you may certainly use one of them. Usually, they complicate the day to day, but simplify audits/financial statements. Even Quicken can work if you use it properly. Form 990 filing requirements: Must have $25,000 in revenue annually. Complete list of requirements at: http://www.irs.gov/charities/article/0,,id=96103,00.html The NDCF pays our auditor to do our form 990. If he has done a proper audit, he already has most of the information available to him/her. This may save you some money. We ask for a bid to do our annual audit and form 990. Did someone say “audit”? I’ll talk about that in a bit… Budgeting… Boy, don’t we all hate budgeting. You should have a program budget and an operating budget. This is tricky, but some effort must be made to separate “overhead” from “program” expenses. It is sometimes more art than science what with indirect costs and all that, but it should be done and done properly. Please don’t forget to budget income as well as expenses. I took over as president of a service club that had been in business for 70 years and didn’t budget revenue, just expenses! When I did both budgets, I saw that we were overspending by $5,000 on a $40,000 budget!
Yikes! Needless to say, it is very important that you project revenue out as far as you project your expenses. Try to be realistic! I noticed that our good friend Carter suggested a “Petty Cash” fund. In my humble opinion, petty cash is a financial accident waiting to happen! Either reimburse employees for minor expenses via expense reports, or write the $5 checks. Don’t keep cash lying around waiting to be lost, stolen or misused. End of Rant! You should get some sort of monthly trial balance. This will tell you how you are doing vis-a-vis your budget (revenue and expense wise). Your board treasurer and chair should both see these trial balances. Another way for them to fulfill their fiduciary responsibility. As far as financial controls are concerned, it is sometimes difficult to satisfy all concerns in a small office, but at a minimum, one person should be responsible for opening mail and logging in checks/cash, etcs. Someone else should make all deposits. Sometimes, checks over a certain amount might require the signature of both the CEO and the board Chair or Treasurer. Might be difficult to do, but can prevent obvious fraud. AUDIT, AUDIT, AUDIT and present it to the Board Yes, you should from time to time have an independent certified audit conducted. We do it annually. In our case, the auditor comes to our annual meeting and reviews the audit with the entire board of directors. We find this a marvelous way for board members to get a second opinion on the state of the organization’s finances and also fraud protection, etc.
Resources: The North Dakota “Bible” for Nonprofits: http://www.state.nd.us/sec/nonprofit/pdf/nonprofit.pdf Great resource for many nonprofit management issues: www.mapnp.org Information about nonprofit accounting issues: www.muridae.com/nporegulation/acccounting/html#other_resouces Very good book produced in Minnesota: All the Way to The Bank— Smart Money Management for Tomorrow’s Nonprofit Published by the Stevens Group with Funding from the Otto Bremer Foundation Resources for Nonprofit accounting: http://www.1800net.com/nprc/index.html Very good FAQ on different nonprofit issues: http://www.genie.org/ Bookkeeping for Nonprofits: A Step-by-Step Guide to Nonprofit Accounting Murray Dropkin, James Halpin ISBN: 0-7879-7540-0 Paperback 272 pages May 2005, Jossey-Bass US $30.00 Great all-around resource for nonprofits: http://www.nptimes.com/