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The Changing State


                                                                                   The Journal for Nonprofit Managers

California                 eing a nonprofit is never easy.                Although Sarbanes-Oxley is only appli-
Association of             Finding adequate funding and facing         cable to publicly traded companies, SOX has
Nonprofits                 continual demands for accountability        also triggered changes in nonprofit policies
                  from the government and general public is            such as new standards in document retention
                  tough enough. But now, nonprofits are also           and whistleblower and conflict of interest
                  about to see their auditing process become           policies. SOX has also affected nonprofit
                  more complex and increasingly expensive.             financial procedures. Soon after SOX was
                      The changes are due to a March 2006              passed, the Independent Sector recommended
                  revision in the American Institute of Certified      that nonprofits voluntarily incorporate certain
How Much Will

                  Public Accountants (AICPA) auditing stan-            “good governance” provisions of the Act
An Audit Cost?

                  dards. These revisions, known as the eight           (see Sidebar: BoardSource and Independent
p. 8

                  “risk assessment” standards, must be followed        Sector Checklist on page 7). The California
                  in audits of financial statements for periods        Nonprofit Integrity Act of 2004 re-enforced
                  beginning on or after December 15, 2006.             those recommendations by requiring
                  In other words, if your nonprofit finishes its       California nonprofits with over $2 million in

                  fiscal year on December 31, you’ll be one of         revenue (not counting government grants that
                  the first organizations to experience the change.    already require an audit of how the funds
                                                                       were used) to have an annual audit; for the


                                                                       Board to approve CFO and CEO compensa-

                                                                       tion; and for a Board audit committee to hire,
Efforts Pay Off
p. 11

                  Why did this change happen?
                     Two words: Enron and Worldcom. The
                  corporate accounting scandals of Enron and
                  Worldcom seriously undermined the public’s
                  confidence in the effectiveness of audits.
                  Accounting and audit reforms were inevitable.
                  In 2002, the government approved the Public
                  Company Accounting Reform and Investor
                  Protection Act, also known as the Sarbanes-
CAN Staff:
Welcomes &

                                                                        of Nonprofit Audits
                                              Oxley Act (SOX)

                                              after sponsors
p. 12

                  How to Prepare Senator Paul
                                              Sarbanes (D-MD)
                                              and Representative
                  for an Audit
                                              Michael G. Oxley
                                              (R-OH). SOX
                  in a World of
                                              provided for an
                  New Auditing
                                              overhaul of corpo-
                                              rate fraud, securities
New Form

                  By Donella Wilson
                                              and accounting
990-N Required
p. 14

                                              laws, created a
                  regulatory board to oversee the accounting
                  industry and punish corrupt auditors, and
                  established criminal penalties for executives
                  who deliberately defraud investors. This has
                  led to major changes to the regulation of
                  financial practice and corporate governance
                  and, in turn, in the rules and standards
                  followed by auditors.
Vol. 21 No. 1
 Feb/March 2008
                                                                    The Changing State continued from page 1

                                                                   review and fire an outside auditor as neces-            Auditors must also assess the organiza-
                                                                   sary.                                               tion’s commitment to having controls
                                                                      The new auditing standards apply to for-         and policies in place to prevent financial
                                                                   profits and nonprofits and are expected to          misstatements. For instance, they may seek
    Alexandrea J. Ravenelle, Editor

                                                                   provide more informed risk assessments and          to learn the following:
    Corky Retson, Designer

                                                                   improved audit procedures. In turn, these
    The CAN ALERT is published

                                                                   improvements are expected to generate               • Does the organization have bylaws that
    by the California Association
    of Nonprofits (CAN).

                                                                   more informed audits and lead to better               they review and update periodically?
                                                                                                                       • Is the Board well-structured with
    Printed by Sundance Press,

                                                                   recommendations for how all organizations
    a CAN Partner.

    CAN Board of Directors
                                                                   can tighten their internal controls.                  appropriate committees?
                                                                                                                       • Does the organization have an employee
                                                                                                                         handbook and written accounting policies
    Yolanda J. Nunn Gorman, PhD

                                                                                                                         and procedures?
    Chair, Brilliance Strategies, Inc.
                                                                   How have audits changed?
                                                                      The new auditing standards are still based
    Luis Chabolla

                                                                   on the previous rules and policies, however,            Having these policies and procedures in
    The Community Foundation

                                                                   the changes are significant. One of the biggest     place, and actively using them, demonstrates
    of Santa Cruz County

                                                                   changes is the focus on understanding the           to the auditor that the organization puts a
    Way-Ting Chen
    Blue Garnet Associates

                                                                   organization and putting its financial state-       great emphasis on the importance of internal
    Tana Davis, CPA

                                                                   ments and needs in perspective. Auditors            controls. The lack of these controls doesn’t
    Davis and Dash,

                                                                   are expected to focus on understanding the          mean that the company or nonprofit is doing
    an Accountancy Corporation

                                                                   following three issues:                             anything illegal, but it does tell the auditor
    Ernie Hernandez
    United Way of Tulare County

                                                                                                                       that they need to learn more about the organ-
                                                                   1. The organization and its operating               ization in order to understand why those
    Llewellyn Miller

                                                                      environment,                                     controls aren’t in place.
    David Ljung

                                                                   2. The needs of the users of the financial
    Gilbert Associates, Inc.

                                                                                                                           These changes have affected some of the
                                                                      statements, such as Board, senior
    Bruce Pomer

                                                                                                                       most fundamental auditing practices. For
    Pomer & Associates Health

                                                                      management, potential donors or                  most audit firms — especially those that were
    Officers Association of California

                                                                      investors, banks and lenders, and                not already using a “risk-based” approach —
    Peter Shack

                                                                      governmental funding agencies, and
    Manatt, Phelps, & Phillips, LLP

                                                                                                                       implementing the new risk assessment
                                                                   3. Internal controls or procedures that             auditing standards means making significant
    Rick Sims
    Human Systems Consulting

                                                                      prevent financial mistakes or fraud.             changes to their current activities. In some
    Audrey Yamamoto

                                                                                                                       cases, they have had to provide lengthy

                                                                       The goal is to identify the risk of “material
                                                                                                                       re-training sessions for all employees from
    CAN Staf f

                                                                   misstatement,” errors in the financial state-
                                                                                                                       the staff accountant up to the partner level.
                                                                   ments that would misinform the reader
    Florence L. Green

                                                                   (whether caused by error or fraud), and to
    Executive Director

                                                                   determine what the organization is doing to
    Lynn Bryson-Charles

                                                                   reduce those risks. Unfortunately, this level
    Membership & Development
                                                                                                                       How will this affect my nonprofit’s audit?
                                                                   of comprehension takes time. Understanding             The answer depends. If in the past your
    Gregg Davidson

                                                                   and evaluating the internal controls — and          auditor has utilized a risk-based approach,
    Education Director

                                                                   determining if they have been implemented —         you may find that your audit has not changed
    Jaime Engbrecht

                                                                   requires more of the auditor’s time and             very much. However, for most nonprofits
    Education and Communications

                                                                   increases the overall cost of an audit.             the new standards will lead to a longer and
                                                                       One way to think about the change is            more involved auditing process.
    Ken Larsen
    Public Policy Director

                                                                   that the new standards provide a framework             Nonprofits should expect that the auditor
    Kathy Lynch

                                                                   for the auditor to work within when analyzing       will now be using five additional audit
    Legislative Advocate

                                                                   an organization’s financial records. In the past,   procedures:
    Jamie Maloney

                                                                   an auditor would simply provide a checklist
    Membership and Administrative

                                                                                                                       1. Observing the organization’s activities

                                                                   for an organization to complete regarding
                                                                                                                          and operations,
    Tarra McFadden

                                                                   the policies and controls in-place to prevent
    Executive Assistant

                                                                   fraud or financial misconduct. Now, an              2. Inspecting documents (e.g. strategic plans),
    Alexandrea J. Ravenelle

                                                                   auditor must go through the checklist and              records and internal control manuals
    CAN Editor

                                                                   sit with staff members to see how they handle          (such as accounting policies and proce-
    Allen Rubinstein

                                                                   such transactions as receiving a donation or           dures manuals),
    Membership and Outreach

                                                                   payment, writing a check to a vendor and
    Jerry Soto

                                                                   entering financial records.
    Finance Manager

    Alan Strand
    Financial Services Director

2                              Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
3. Reading reports prepared by management         payroll approval, such as the Executive
                                                                                                                              CAN Insurance
                                                                                                                              Services Staff
   (such as quarterly management reports          Director’s signature. If the auditor finds that
   and interim financial statements) and by       the control is not being used, this should be
   those charged with governance (such as         reported to management. The auditor must
                                                                                                                              Pamela Akop
                                                                                                                              Employee Benefits Broker

   minutes of Board of Directors’ meetings),      then develop an alternative audit procedure
4. Reviewing previous audit reports, and          in order to obtain reasonable assurance about
                                                                                                                              Barbara Alexander
                                                                                                                              Broker Assistant

5. Visiting the organization’s premises and       the completeness and accuracy of personnel
                                                                                                                              Flory Alvarado

   any other related facilities.                  costs in the general ledger.
                                                                                                                              P/C Broker

                                                      In addition, the auditor will now put more
                                                                                                                              Roxane Anderson

    These procedures are geared towards           focus on information technology (IT) controls.
                                                                                                                              Account Representative

understanding the nonprofit and its field,        The auditor needs assurance that the infor-
                                                                                                                              Mike Brierly

determining management’s objectives and           mation flowing through the accounting
                                                                                                                              Account Representative

strategies, determining how financial perfor-     system is being generated properly. Without
                                                                                                                              Tim Carpenter

mance is measured, and, of course, under-
                                                                                                                              Customer Service Assistant

                                                  this assurance, there’s no basis to rely on the
standing the internal control environment.        financial information stored in the system.
                                                                                                                              Meredeth Clark

    The auditor is specifically required to

                                                  Some auditors may use a technology
understand controls for each “significant         specialist, especially when the IT environ-
                                                                                                                              Deborah Connors
                                                                                                                              Chief Operating Officer

class of transaction.” Determining what is        ment is complex or where systems do not
considered a significant class of transaction
                                                                                                                              Mark Florez

                                                  create paper trails. However, for most audits,
                                                                                                                              Account Representative

requires considering the volume of transac-       the auditor will simply interview the IT
                                                                                                                              Coryn Gardiner

tions and their relative importance to the        manager or designated IT personnel to deter-
                                                                                                                              Account Executive Assistant

organization. For example, payroll and            mine that an IT security plan exists. The
                                                                                                                              Kirk Grundman

personnel costs are generally significant for     auditor will also confirm that the financial
                                                                                                                              Employee Benefits Broker

a social services nonprofit organization,         software does not allow users to change the
                                                                                                                              Beth Huntington

while grant awards and payments are signifi-
                                                                                                                              Accounts Receivable

                                                  code or reporting parameters and restricts
cant for a private foundation. This requires a    access to employees based on their job
                                                                                                                              Nanci Judd

two-fold understanding: the auditor needs to
                                                                                                                              Dental/Vision Supervisor

                                                  responsibilities. (For more on accounting
evaluate the design of the control (e.g. is it    software options, see Resources, page 9.)
                                                                                                                              Debbie Klug
                                                                                                                              Compliance Administrator

capable of effectively preventing or detecting        In short, clients can expect lengthier visits
and correcting material misstatements?) and
                                                                                                                              Sara Mattson

                                                  from auditors in the planning stage, and
                                                                                                                              Employee Benefits Broker

verify that the control has been implemented      increased interaction across the organization,
                                                                                                                              Stephanie Moody

(i.e. that the control exists and the organiza-   not just in the accounting department.
                                                                                                                              Customer Service Assistant

tion is using it). For instance, if a nonprofit       These new auditing standards will probably
                                                                                                                              Chanine Neff

organization notes in its policies and proce-     result in increased recommendations for

dures manual that the Executive Director          strengthening internal controls and operating
                                                                                                                              Gabriel Padia

(or another person who is independent of
                                                                                                                              Operations Associate

                                                  efficiency. However, it should be remem-
payroll preparation and timekeeping) will         bered that the purpose of an audit is still to
                                                                                                                              Monique Padia

review and approve payroll before payment,
                                                                                                                              Marketing Administrator

                                                  express an opinion on the financial state-
this is probably a good control. However,         ments, and not to express an opinion on the
                                                                                                                              Alison Parker
                                                                                                                              Delta Dental/VSP Administrator

if the Executive Director does not actually       effectiveness of the organization’s internal
conduct the final approval, the control is
                                                                                                                              John Proko

                                                  control. The walk-through tests are merely
                                                                                                                              Account Representative

worthless.                                        to verify that controls have been implemented
                                                                                                                              Nicole Ritter

    In the past, the auditor might have given     and are not intended to test their effective-
                                                                                                                              Account Representative

the nonprofit an internal control checklist,      ness. Senior management and the Board are
                                                                                                                              Pat Rodriquez

which required a yes/no/not applicable            still responsible for designing and imple-
                                                                                                                              Account Representative

response. This helped the auditor evaluate        menting effective internal controls. Having
                                                                                                                              Charity Scott

the design of established controls, but did not
                                                                                                                              Customer Service Supervisor

                                                  an annual audit cannot be considered part of
enable the auditor to determine whether the       a client’s internal control process (although
                                                                                                                              Vicky Steen

controls were actually being used. Now, an
                                                                                                                              Office Manager

                                                  an accounting firm other than the auditor can
auditor must verify that the control has been     be part of a client’s internal control.)
                                                                                                                              Herb Walker
                                                                                                                              Web Administrator

implemented. Verification typically takes
the form of a “walk-through” test, where the
                                                                                                                              Jennifer Wells
                                                  continued on page 4
                                                                                                                              Account Executive

auditor might trace one or two payrolls in the
                                                                                                                              Gary Wills

general ledger and look for evidence of final
                                                                                                                              Employee Benefits Broker

                                                                                                                              Top Dog & Treat Receiver

                                                                                          w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1                3
                                                                                                                       tion should be prepared. But it is also
                                                                                                                       important to consider and document the
CAN Sustaining Members                                          How should nonprofits prepare for the new
                                                                                                                       controls surrounding that process. For
San Fernando Valley Community
                                                                auditing process?
                                                                   When hiring your auditor, or starting your
                                                                                                                       example, if the bookkeeper prepares the bank
  Mental Health Center

                                                                annual auditing process, nonprofit staff should
Blue Shield of California Foundation

                                                                                                                       reconciliation, then it is important to document

                                                                discuss the following with their auditor:
Robert & Wilhelmina Bustos

                                                                                                                       who later reviews and approves the bank
Walter and Elise Haas Fund

                                                                                                                       reconciliation. See Figure 1, Control
Rural Community Assistance Corporation

                                                                •     The impact on audit fees,

                                                                •     The timing of the various stages of the audit,   Framework — Contribution Revenue for
Human Resources Council, Inc.
Mid-Peninsula Housing Coalition

                                                                •     Client responsibilities, and                     an example of these controls in process.
Economic Opportunity Commission of SLO

                                                                                                                          If adequate controls are in place and are
Frank D. Lanterman Regional Center

                                                                •     Access to client personnel for the various
E Center

                                                                      inquiries and walk-through tests.                working, ensure that the records illustrate
Kings Community Action Organization Inc.
California State Parks Foundation

                                                                                                                       this. For example, if one of the controls over
Genesis, Inc.

                                                                Nonprofits may find it helpful to start their          cash is that the Executive Director receives
Frank H. and Eva B Buck Foundation
Crystal Stairs, Inc.

                                                                audit with a kick-off meeting. In the past,            the unopened bank statements and reviews
Congregation Emanu-El

                                                                auditors often hosted their own internal team
Archstone Foundation

                                                                                                                       the statements for unusual transactions and
Burr Pilger & Mayer

                                                                brainstorming session before beginning the             the cancelled checks for unusual signatures,
Humboldt Area Foundation
Josephine S. Gumbiner Foundation

                                                                audit, but now, with the additional audit              then the Executive Director should initial the
California Community Foundation

                                                                procedures, it’s also essential that nonprofit         bank statement as proof of his or her review.
Family Service Association-Riverside
Children's Institute, Inc.

                                                                staff affected by the audit know what to               This demonstrates to the auditor that controls
Columbia Foundation
The California Wellness Foundation

                                                                expect.                                                are in place and are being implemented.
Flintridge Foundation

                                                                    Feel free to ask your auditor for more                Revising the accounting policies and
San Diego Association of Nonprofits
Cars 4 Causes

                                                                in-depth information about what needs to be            procedures manual may seem like a daunting
Union Bank of California
Drew Child Development Corporation

                                                                achieved in the preliminary stages of an audit         task, so many auditors recommend that clients
Davis & Dash, an Accountancy Corporation

                                                                and to request an audit strategy or audit plan.        start by first documenting and assessing
Lodi Adopt-A-Child, Inc.

                                                                An audit strategy is the broad approach of             controls over their financial reporting. At the
The Morris Stulsaft Foundation
Firelight Foundation

                                                                how the audit will be conducted and takes              minimum, clients should document the
Mel and Grace McLean Foundation

                                                                into account such factors such as the scope            following:
Family Resource and Referral Center
Irvine Health Foundation

                                                                of the engagement, audit and report deadlines
Target Corporation
Zellerbach Family Foundation

                                                                and recent financial reporting developments.           • The procedures (automated and manual)
Pacific Gas and Electric

                                                                The audit plan or audit program is more                  by which transactions are initiated,
Richard and Rhoda Goldman Fund
Edison International

                                                                detailed and describes the nature, timing,               authorized, recorded, processed and
ABC-Learn, Inc.
Wells Fargo Foundation

                                                                extent of risk assessment, and further audit             reported in the financial statements,
Majestic Realty Foundation

                                                                procedures to be performed.                            • The types of accounting records and
Alpha Grant Solutions
Turning Point Community Programs

                                                                    In preparation for the audit, nonprofit              supporting information the nonprofit
                                                                staff should revisit their accounting policies           uses, and how this information is stored
Renewing Members

                                                                and procedures manuals, with an eye toward               (e.g. the fixed asset ledger is often main-

                                                                controls, and be willing to revise their policies        tained in an Excel spreadsheet outside of
Abigail Grafton, MA
ABILITY Awareness

                                                                if necessary. Most accounting manuals focus              the general ledger),
ABS CBN Foundation

                                                                on process, such as how the bank reconcilia-
Adventures in Caring Foundation
Advisors Network
AEG Foundation
AGAPE Foundation
Alameda Health Consortium
Ali Akbar College of Music
Alliance for African Assistance
Alliance for the Arts
Almaden Valley Counseling Service                              Figure 1: Control Framework -- Contribution Revenue
Alpha Plus Corporation
Alternative Family Services
Amador-Tuolumne Community Resources
American Society on Aging
American Sports Institute                                      Questions to Ask                                        Real-life Donation Example
American Youth Hostels–Los Angeles Council
Ames Education Associates                                      What is the control objective?                          To ensure that all contributions received are recorded.
  (CA Space Grant Foundation)
Amigos Sin Barreras (Friends Without Barriers)
Angel Flight
                                                               What are the risks?                                     Contributions may be misappropriated, accidentally
Angel Island Immigration Station Foundation                                                                            or otherwise.
Antelope Valley Youth and Family Services
Antioch Christian Center                                       What is an effective, practical control,                Two people should open the mail and prepare a list of
Arc Ecology
Arcata Children’s Center                                       considering the size of the organization?               receipts. Checks should be immediately restrictively
Ark of Refuge Inc
Armstrong and Associates, Insurance Services
                                                                                                                       endorsed and deposited on a daily basis (or physically
Arts Council of Kern                                                                                                   secured until depositing). The list of checks received
Asian & Pacific Islander American
   Health Forum                                                                                                        should be later compared to cash receipt records and
Asian American Economic Dev.
  Enterprises, Inc.
                                                                                                                       bank deposit slips.

4                           Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
                                                                                                                           Asian Law Caucus, Inc.
                                                                                                                           Asian Pacific Community Fund

• How the information system captures                Smaller nonprofits may actually have
                                                                                                                           Aspire Foundation

  events and conditions (other than routine      fewer possible issues than a larger organiza-
                                                                                                                           Association of Community Human
                                                                                                                             Services Agencies

  transactions) that are significant to the      tion where things may fall through the cracks.
                                                                                                                           Association of Moving Image Archivists
                                                                                                                           Atwater Park Center

  financial statements (e.g. the notification    Since smaller nonprofits tend to have leaders
                                                                                                                           Auburn Community Foundation & Placer

  that the nonprofit organization has been       who are more hands-on, they are able to
                                                                                                                             Community Fdn.
                                                                                                                           Auburn Ski Club Associates, Inc.

  designated as an irrevocable beneficiary       access actual results and budgets much faster
                                                                                                                           Audubon Canyon Ranch, Inc.
                                                                                                                           Austism Speaks, Inc

  in a charitable remainder trust),              and tend to have a closer feel for the organiza-
                                                                                                                           Autism Research Institute

• The financial reporting process used to        tion and the people working for them. What
                                                                                                                           Autism Society of America-LA
                                                                                                                           Bay Area Community Services, Inc. (BACS)

  prepare the financial statements,              small organizations lack in segregation of
                                                                                                                           Bay Area Outreach & Recreation Program

  including significant accounting estimates     duties, they often gain in an involved manage-

  and disclosures, and                           ment team that is deeply integrated into daily
                                                                                                                           Becoming Independent
                                                                                                                           Beginnings, Inc.

• How the nonprofit resolves cases of            activities.
                                                                                                                           Beneficient, Inc.
                                                                                                                           Berkeley Place, Inc.

  incorrect transaction processing and how           Smaller organizations that don’t have strict
                                                                                                                           Bethel Church

  automated processes are overridden when        segregation of duties can show their commit-
                                                                                                                           Big Brothers/Big Sisters of Santa Cruz
                                                                                                                           Blackbaud, Inc.

  necessary.                                     ment to controls in other ways. For instance,
                                                                                                                           Blue Garnet Associates LLC
                                                                                                                           Boys & Girls Club of Santa Maria

                                                 a nonprofit can demonstrate ethical behavior
                                                                                                                           Breast Cancer Action

    Another suggestion is to look at the audit   and a commitment to ensuring adequate
                                                                                                                           Breathe California Golden Gate Public
                                                                                                                           Health Partnership

journal entries that were booked during last     controls through the comments made by Board
                                                                                                                           Burbank Housing Development Corporation

year’s audit, and ensure similar entries are
                                                                                                                           Butte Environmental Council

                                                 members in meetings and recorded in minutes,
                                                                                                                           C.G. Jung Institute Of Los Angeles

booked before the audit, if at all possible.     how the staff members interact, by how often
                                                                                                                           CA Staff Assault Task Force
                                                                                                                           Cabrillo College Foundation

If a nonprofit has numerous late journal         the officers of the organization are present,
                                                                                                                           Cabrillo Music Festival

entries, it can raise questions about the
                                                                                                                           Cabrillo Music Theatre

                                                 and by their relationship with the staff.
                                                                                                                           California Arts Advocates

financial reporting process.                     A small nonprofit can have staff who wear
                                                                                                                           California Certified Organic Farmers
                                                                                                                           California Coalition for Youth

    And finally, nonprofit staff and the Board   many hats, but their behavior and interactions
                                                                                                                           California Communications

audit committee should look at any internal
                                                                                                                             Access Foundation

                                                 can still highlight their commitment to controls.
                                                                                                                           California Council of Churches

control recommendations that were made               That’s not to say that small organizations
                                                                                                                           California Court Appointed
                                                                                                                             Special Advocate Assn.

during last year’s audit and ensure they have    should use their size as an excuse for not
                                                                                                                           California Creativity Association

been addressed. As mentioned earlier, more       implementing any controls. Even in tiny
                                                                                                                           California Historical Society
                                                                                                                           California Housing Consortium Institute

recommendations and findings are expected        organizations, controls can be implemented
                                                                                                                           California Institute for Rural Studies
                                                                                                                           California Kindergarten Association

as a result of the new risk assessment           to protect against possible problems. For
                                                                                                                           California Newsreel

auditing standards. To avoid recurring           instance, suppose one staff member receives
                                                                                                                           California Pan-Ethnic Health Network
                                                                                                                           California Partnership to End

findings, the recommended improvements           the bills, writes the checks, enters the
                                                                                                                             Domestic Violence
                                                                                                                           California Poets in the Schools

to internal control should be taken seriously    payments into the ledger and brings the
                                                                                                                           California Police Activities League

by management and addressed in some form.        checks to the Executive Director to sign.
                                                                                                                           California Shock Trauma Air Rescue (CALSTAR)
                                                                                                                           California Urban Forests Council

                                                 A different staff member, or even a Board
                                                                                                                           California Wilderness Coalition
                                                                                                                           Capital Research and Management

                                                 member, should receive the bank statements
                                                                                                                           Company Endowments

                                                 with the cancelled checks and take responsi-
                                                                                                                           CARE Foundation
                                                                                                                           Casa De Esperanza

                                                 bility for checking for unusual amounts or
                                                                                                                           Center for Community Benefit Organizations
What About Smaller Clients?
   Smaller, less complex nonprofits may use
                                                                                                                           Center for Community Dispute Settlement

less formal means and simpler processes and      signatures.
                                                                                                                           Center for Governmental Studies
                                                                                                                           Center for Investigative Reporting

procedures to achieve their internal control
                                                                                                                           Center for Living and Learning
                                                                                                                           Center for the Future of Teaching

objectives. For example, smaller nonprofits
                                                                                                                             and Learning

may not have extensive descriptions of
                                                                                                                           Centro Legal De La Raza
                                                                                                                           Century Club of San Diego
                                                 Final Thoughts
accounting procedures or detailed written           Although implementing the new risk
                                                                                                                           Charlotte Maxwell Complementary Clinic
                                                                                                                           Charter Schools Development

policies. Smaller organizations typically        assessment standards will be time consuming
                                                                                                                           Child Development Resources

have fewer employees, which may limit the        for nonprofits and their auditors, the end result
                                                                                                                             of Ventura County, Inc.
                                                                                                                           Children of Lesbians & Gays Everywhere

extent to which “segregation of duties,” a       should be well worth it. More informed audits
                                                                                                                           Children’s Book Press

                                                 should lead to better recommendations for
                                                                                                                           Children’s Book Project

key internal control, is possible. The focus
                                                                                                                           Children’s Corner

for the auditor in smaller organizations will    how all organizations can tighten their internal
                                                                                                                           City CarShare

be on the control environment, which sets        controls and prevent costly accounting
                                                                                                                           Civic Ventures

the tone of an organization. The potential for   mistakes in the future.
                                                                                                                           Coachella Valley Public Education Foundation
                                                                                                                           College Bound

management override of controls depends to
                                                                                                                           Common Counsel
                                                                                                                           Community Alliance with Family Farmers

a great extent on this control environment,
                                                                                                                           Community Assistance Network

and in particular, management’s attitudes
                                                                                                                           Community Catalysts of California
                                                                                                                           Community Child Care Council

                                                 continued on page 6
about the importance of internal control.
                                                                                                                             of Santa Clara Cty.
                                                                                                                           Community Clinic Consortium
                                                                                                                           Community Foundation of Napa Valley
                                                                                                                           Community Health Charities
                                                                                                                           Community ITP, Inc.
                                                                                                                           Community Overcoming Relationship Abuse

                                                                                         w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1                            5
Community Recovery Services dba Alcohol                                                                        Commonly Asked Audit Questions
Policy Network
Community Service Agency

                                                              AICPA Audit Risk Alerts – “Understanding
Congregation Sha'ar Zahav                                     Acknowledgments                                1. Who is required to have an audit?
Conservation Corps of Long Beach

                                                              the New Auditing Standards Related to Risk
Conservation Strategy Fund                                                                                      First, having an audit or a financial review on an

                                                              Assessment” – 2006
Cornerstone Theater Company
Coronado SAFE Foundation                                                                                        annual basis is simply good management. Even
Court Appointed Special Advocates                                                                               if your organization is not required by law to

                                                              AICPA Audit Risk Alerts – “Not-for-Profit
  of Contra Costa County
                                                                                                                have an audit, it’s still a good idea. Legally, you

                                                              Organizations Industry Developments” –
Court Appointed Special Advocates
  of Sonoma County
                                                                                                                are required to receive an audit if you get more

D.E.A.F. Media, Inc.
Decro Corporation                                                                                               than $500,000 in federal funding. In California,
di Rosa Preserve

                                                              “Assessing and Responding to Risks in a
Directors of Volunteers in Agencies – L.A.                                                                      you need one if you receive over $2 million in

                                                              Financial Statement Audit” by John A.
Discovery Arts
Draper Consulting Group                                                                                         revenue, not including governmental grants that

                                                              Fogarty, Lynford Graham and Darrel R.
DrawBridge                                                                                                      mandate an accounting of how the funds are

                                                              Schubert – Journal of Accountancy, July
East Bay Community Recovery Project, Inc.                                                                       used or require an audit as part of the grant

                                                              2006 and January 2007.
Easter Seals Southern California, Inc.
Eastmont Community Center
                                                                                                                requirement. Other states have differing income
Ecological Farming Association                                                                                  thresholds for required audits.
Economic Development Corporation
Editorial Emergency
El Centro De Libertad
El Rio Mobile Home Park Cooperative, Inc.
                                                                                                             2. Who should get audited, even if it's not required?
El Teatro Campesino                                           About the Author                                  A nonprofit may need an audit to meet the
Elder Help of San Diego
Ella Baker Center for Human Rights                            Donella Wilson is a Principal in the firm of      requirements of specific funders or if they
Entertainment Industry Referral
  & Assistance Center                                         Green, Hasson & Janks in Los Angeles.             receive United Way funds or participate in a
Environmental Protection Information Center
                                                              She has ten years of public accounting            federated campaign. The organization may also
Environmental Traveling Companions
Epilepsy Foundation                                           experience providing audit, accounting and        need an audit if their by-laws require one or if
Episcopal Community Services-Sacramento
Eschaton/Resource Center for Nonviolence                      special project services to nonprofits and        they want to meet the standards of a specific
Evelyn & Walter Haas, Jr. Fund
                                                              companies in the fields of manufacturing,         watchdog group. If an organization is going
Every Child Can Learn Foundation
Fairfax-San Anselmo Children's Center                         waste management and recycling, real estate       through a major change such as hiring a new
Familia Center                                                                                                  executive director or experiencing a merger or if
Family Caregiver Alliance                                     development and home building. Wilson is
Family Emergency Shelter Coalition (FESCO)
                                                              also a member of the California Society of        there has been a report of fraud, it would be
Family Service Agency of the Central Coast
Federated Indians of Graton Rancheria                         CPAs and the American Institute of Certified      wise to undergo an audit.
Ferndale Children's Center
First Graduate                                                Public Accountants and chairs the
First Unitarian Church of Oakland
                                                              California Society of CPAs nonprofit discus-   3. What are the benefits of an audit? Does it prevent
Fleishhacker Foundation
Florence Crittenton Services                                  sion group. She can be reached via email at       fraud?
Foodbank of Santa Barbara County                                                                                An audit can give you a clear picture of where
FoodLink for Tulare County, Inc.                    
Foster A Dream, Inc.                                                                                            an organization stands financially. It may help
Foundation Center San Francisco-Library
Foundation For National Progress                                                                                with fundraising if the funder requires an audit,
Fresno Healthy Communities Access Partners
Fresno Interdenominational
                                                                                                                or it may demonstrate to a funder that the
  Refugee Ministries                                                                                            organization has their financial records and
Friends & Foundation
  of the San Francisco Public Library                                                                           controls in order. An audit does not protect you
Friends of Hearst Castle                                                                                        from liability nor does it necessarily prevent
Friends of Hospice
Friends of Lincoln Theatre                                                                                      fraud.
Friends of Oakland Parks and Recreation
Friends of the Children San Francisco
Friends of the Dunes                                                                                           In the process of an audit, an accountant will
Friends of the River Foundation
Friends of the Yorba Linda Library, Inc.                                                                       examine the organization’s financial controls to
Friends Outside In Contra Costa County
Friends Outside In Contra Costa County
                                                                                                               see if the nonprofit has controls in place and if
Friends Outside of Modesto/Stanislaus                                                                          those controls have been implemented. This
Frostig Center
General Assistance Advocacy Project                                                                            process might reveal where fraud may be
Gideon Hausner Jewish Day School
Girls Club of Los Angeles
                                                                                                               occurring or could occur in the organization. For
GLBT National Help Center                                                                                      instance, if the petty cash box is never locked,
Glendale Youth Alliance
Global Fund for Women                                                                                          someone could be taking money. But completing
Grand Lake Montessori
Grand Performances
                                                                                                               an audit does not mean that the organization
Greater Los Angeles Zoo Association                                                                            may never experience fraud or accidental
Greater Riverside Hispanic
  Chamber of Commerce                                                                                          accounting mistakes. Remember, Enron and
GreenInfo Network
Greenway Arts Alliance
                                                                                                               Worldcom had audits.
Gurnee and Daniels, LLP
Habitat for Humanity San Francisco                                                                             Answers provided by Alan Strand, CAN’s Director
Hanson Bridgett, Marcus, Vlahos & Rudy, LLP                                                                    of Financial Services.
Harmony Home, Associated
Harry E. & Rachel M. Moeller Foundation
Headland Center for the Arts
Healthview at Home, Inc.
Healthy Mothers, Healthy Babies

6                         Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
  BoardSource and Independent Sector Checklist                                                                                                  Help Me Help You
                                                                                                                                                Help The World See
                                                                                                                                                Hillside Developmental Learning Center
                                                                                                                                                HIV Education & Prevention Project (HEPPAC)
                                                                                                                                                Hmong Women's Heritage Association
                                                                                                                                                Homeless Health Care Los Angeles
                                                                                                                                                Homeless Service Center
  BoardSource and Independent Sector recommend              4. Certified Financial Statements                                                   Horse Power Sanctuary, Inc.
  that nonprofits and foundations voluntarily                                                                                                   Hospice of the Foothills
                                                            • CEO and CFO should sign off on all financial                                      Hostelling International
  incorporate the provisions of the Sarbanes-Oxley Act         statements (either formally or in practice), including                           Housing Rights Center
                                                                                                                                                Housing Trust of Santa Clara County
  that make good governance sense.                             Form 990 tax returns, to ensure they are accurate,                               Human Care Alliance
                                                                                                                                                Human Response Network, Inc.
                                                               complete, and filed on time.                                                     Humboldt Senior Resource Center
1. Insider Transactions and Conflicts of Interest           • The board should review and approve financial state-                              Hydrocephalus Association
                                                                                                                                                Hydrologic Research Center
• Understand and fully comply with all laws regarding          ments and Form 990 tax returns for completeness                                  Infant Development Association
                                                                                                                                                Inland Agency
   compensation and benefits provided to directors and         and accuracy.                                                                    Inner Circle Foster Care & Adoption Services
   executives (including "intermediate sanctions" and                                                                                           Innerkids Foundation, Inc.
                                                                                                                                                Institute for the Advancement
   "self-dealing" laws).                                    5. Disclosure                                                                         of Human Behavior
                                                                                                                                                Institute for Wildlife Studies
• Do not provide personal loans to directors and            • Disclose Form 990 and 990-PF in a current and easily                              Institute of Classical Homoeopathy
   executives.                                                                                                                                  Insulin Pumpers
                                                               accessible way (also required of all nonprofit organi-                           Interfaith Community Services
• In cases in which the board feels it is necessary to         zations by IRS law).                                                             Interval House
                                                                                                                                                Irvine Campus Housing Authority
   provide a loan, however, all terms should be             • File 990 and 990-PF Forms in a timely manner,                                     Jacob’s Heart
   disclosed and formally approved by the board, the           without use of extensions unless required by unusual
                                                                                                                                                Janet Fohrman
                                                                                                                                                Japan Pacific Resource Network
   process should be documented, and the terms and             circumstances.                                                                   John Valenzuela
                                                                                                                                                Joy for Mourning, Inc.
   the value of the loan should be publicly disclosed.      • Disclose audited financial statements.                                            Kaiser Permanente
• Establish a conflict of interest policy and a regular     • Move to electronic filing of Form 990 and 990-PF.
                                                                                                                                                Karina B. Alvarez, CPA
                                                                                                                                                Keith Umemoto
   and rigorous means of enforcing it.                                                                                                          Kids In Sports
                                                                                                                                                Kingdom Historical Trust, Inc.
                                                            6. Whistle-Blower Protection                                                        KPFK Pacifica Radio Los Angeles
2. Independent and Competent Audit Committee                                                                                                    K-Tech Computer Services
                                                            • Develop, adopt, and disclose a formal process to                                  Labyrinth, Inc. West
• Conduct an annual external financial audit (the              deal with complaints and prevent retaliation.
                                                                                                                                                Lake Family Resource Center
                                                                                                                                                Land of Medicine Buddha
   boards of very small organizations, for whom the cost    • Investigate employee complaints and correct any                                   Larry Thornton
                                                                                                                                                LEAD San Diego, Inc.
   of an external audit may be too burdensome, should          problems or explain why corrections are not                                      Leadership Monterey Peninsula
   at least evaluate carefully whether an audit would be       necessary.
                                                                                                                                                League of Volunteers Of Newark
   valuable).                                                                                                                                   League of Women Voters of California
                                                                                                                                                League of Women Voters of Los Angeles
• Establish a separate audit committee of the board.        7. Document Destruction                                                             Leakey Foundation
• Board members on the audit committee should be                                                                                                Legal Aid Society of San Mateo County
                                                            • Have a written, mandatory document retention and                                  LightHouse for the Blind
   free from conflicts of interest and should not receive                                                                                         and Visually Impaired
                                                               periodic destruction policy, which includes guidelines                           Little Brothers, Friends of the Elderly
   any compensation for their service on the committee.                                                                                         Local Government Commission
                                                               for electronic files and voicemail.
• Include at least one “financial expert” on the audit                                                                                          Lompoc Housing Assistance Corporation
                                                            • If an official investigation is underway or even                                  Long Beach BLAST
   committee.                                                                                                                                   Long Term Care Ombudsman Scvs.
                                                               suspected, stop any document purging in order to                                   of SLO Cty.
• The audit committee should select and oversee the                                                                                             Los Altos Community Foundation
                                                               avoid criminal obstruction.
   auditing company and review the audit.                                                                                                       Lotus Outreach
                                                                                                                                                Lupus Foundation International
• Require full board to approve audit results.                                                                                                  Make A Noise Foundation c/o SEG, Inc.
                                                              For a discussion of the law and recommendations                                   Mammoth Lakes Foundation
• Provide financial literacy training to all board                                                                                              Manion & Bell Insurance Association
                                                              for nonprofits and foundations, see the BoardSource-
   members.                                                                                                                                     Marin Community Clinic
                                                              Independent Sector publication, The Sarbanes-Oxley                                Marin Community Foundation
                                                                                                                                                Marin Education Fund
                                                              Act and Implications for Nonprofit Organizations                                  Marin Treatment Center
3. Responsibilities of Auditors                                                                                                                 MBIRA
                                                              available online at                             Mendocino Cancer Resource Center
• Rotate auditor or lead partner at least every five          PDFs/sarbanesoxley.pdf                                                            Merritt Community Capital Corporation
   years.                                                                                                                                       Metropolitan Community Church
                                                                                                                                                  of S.F. and Fdn.
• Avoid any conflict of interest in staff exchange            Reprinted with special permission of Independent                                  Micro Enterprise Solar Harvest
                                                                                                                                                Middle East Children's Alliance
   between audit firm and organization.                       Sector, a nonprofit, nonpartisan coalition of approxi-                            Mimi and Peter Haas Fund
• Do not use auditing firm for non-auditing services          mately 600 charities, foundations, and corporate                                  Miners Foundry
                                                                                                                                                Monterey County CASA
   except tax form preparation with pre-approval from         philanthropy programs that advances the common                                    Monument Crisis Center
                                                                                                                                                Morongo Basin Counseling
   audit committee.                                           good by leading, strengthening, and mobilizing the                                  and Recovery Center
• Require disclosure to audit committee of critical           nonprofit community.                                   Mothers’ Club Community Center
                                                                                                                                                Mountain & Sea Educational Adventure
   accounting policies and practices.                                                                                                           Move A Child Higher (MACH 1)
                                                                                                                                                My Stuff Bags Foundation
• Use audit committee to oversee and enforce conflict-                                                                                          National Academy of Recording Arts
   of-interest policy.                                                                                                                            & Sciences
                                                                                                                                                National Brain Tumor Foundation
                                                                                                                                                National Center for Employee Ownership
                                                                                                                                                National Hispanic Scholarship Fund
                                                                                                                                                National Korean American Services
                                                                                                                                                  & Education Consortium
                                                                                                                                                Natividad Medical Foundation

                                                                                                               w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1                       7
                                                                How Much
                                                                Will An
Nat'l. Council on Alcoholism & Drug
  Dependence, Silicon Valley
Near & Arnolds School of Performing Arts
Network on Women in Prison
New Image Emergency Shelter                                                                                       that can be audited. For example, if they are

                                                                Audit Cost?
  for the Homeless
Nonprofit Council of the Greater Fresno Area
                                                                                                                  a new organization, their internal controls
Nonprofit Management Solutions                                                                                    may be lacking or their accounting staff
Nonprofit Support Center
  of Santa Barbara County                                                                                         may not have the books computerized and
Nonprofits’ Insurance Alliance Of California                                                                      on an accrual basis. Not that they can’t
North Coast Small Business
  Development Center                                                                                              have an audit, but they will require addi-
Northern California Adaptive Living Center, Inc.
Northern California Community Loan Fund
                                                                                                                  tional work to get ready for the audit."
Northern California Indian Development
  Council, Inc.

Northtown Housing Development Corporation
Novato Chamber of Commerce                                                                                        “Are they in an industry that requires special
Oakland St. John Missionary Baptist Church
Ombudsman Advocate, Inc.                                        by Alan Strand                                    reporting such as health care or education?”
ONTRACK Program Resources, Inc.

                                                                                                                     These responses come from firms of all
Open Gate Ministries
OPICA Adult Day Care Centers, Inc.

                                                                                                                  sizes and rates. Some of these firms often
Options-A Child Care & Human Services Agency

                                                                                                                  charge close to $20,000 for an audit. Others
Organic Farming Research Foundation

                                                                         very once in a while, I am asked how     sometimes offer much lower rates due to
Pacific Coast Youth Homes, Inc

                                                                         much an audit costs, and I can never     their focus on volume. Don’t assume that a
Pacific Resident Theatre Ensemble
Pacifica Library Foundation

                                                                         give a specific answer. The cost of an   small firm will charge more or that a large
Pacifica Resource Center
Pajaro Valley Prevention & Student

                                                                 audit depends on the size of your organiza-      firm will give a volume discount.
  Assistance, Inc

                                                                 tion, the complexity of your funding and the        However, as noted, the new auditing stan-
Pajaro Valley Shelter Services
Palomar Family Counseling Service, Inc.

                                                                 state of your books (organized or otherwise.)    dards will also impact price — some experts
Papermill Creek Children’s Corner

                                                                     However, the new audit standards,            suggest the increase could range from 20 to
Parent Education Network
Partner of Parks

                                                                 including the new Statement on Auditing          40 percent more!

                                                                 Standards 112, will dramatically impact how
Partners In School Innovation
Pasadena Neighborhood Housing Services, Inc.

                                                                 audits are conducted and how much they              How can you reduce your audit cost?
Pasadena Senior Center

                                                                                                                     Here are some tips:
Patti L. Wiley

                                                                 cost. I asked several friends of CAN —
Pen USA Center USA c/o Antioch University

                                                                 accountants I turn to for help on many occa-
Peninsula School Ltd.

                                                                                                                  • Many firms will bid on your job with the
People Acting in Community Together (PACT)

                                                                 sions — how they cost an audit. Here are
People In Progress, Inc.

                                                                 some of their responses:                           assumption that your books are clean and
Plumas Rural Services. Inc.

                                                                                                                    organized. If the organization’s records
Policy Link
Portals House

                                                                                                                    aren’t in shape, it will take the auditor
Positive Alternative Choices Today

                                                                                                                    more time to complete the audit and that
Prevention Institute
Progressive M.B.C. of Berkeley

                                                                                                                    will result in a higher bill.
Project Independence
Project Inform
Project New Hope                                                 “It’s not how much total revenue a

                                                                                                                  • Initial engagements always cost more
Project Restore                                                  nonprofit has, but how many different

                                                                                                                    than subsequent engagements. Finding
Project Sanctuary
Provident Credit Union                                           sources of funding they receive that compli-

                                                                                                                    an auditor you like and trust and sticking
Quest for Excellence                                             cates an audit (for instance, multiple
R. House, Inc.

                                                                                                                    with him or her is helpful, but your
Ramona Animal Shelter                                            government contracts versus one or none.)

                                                                                                                    organization might have policies
Randall Museum Friends
Reach Our Community Kids
                                                                 Another factor is how complicated their

                                                                                                                    requiring a change every five or so years.
Reading Is Fundamental of Southern California                    balance sheet is: do they have split interest

                                                                                                                    I would recommend going out to bid at
Reason Foundation
Red Hen Press                                                    agreements, many notes or capital leases,

                                                                                                                    least every five years just to make sure
Redwood Community Radio
Regional Access Project Foundation, Inc.
                                                                 or deferred compensation plans, etc."

                                                                                                                    you are getting the best service and rates.
Resources for Rural Community
  Development, Inc.

                                                                                                                  • Reviews cost about half as much
Richmond District Neighborhood Center, Inc.
Richstone Center                                                 “We need to know if the nonprofit has affili-

                                                                                                                    as audits. What’s the differ-
Ride On Therapeutic Horsemanship
Riverside Community Health Foundation                            ated organizations, a subsidiary or if it’s a

                                                                                                                    ence? In a financial review,
Rural Communities Housing Development                            member of a parent organization. We need

                                                                                                                    an accountant may
SACNAS                                                           to know what the nonprofit is looking for in

                                                                                                                    spend several
Sacramento Healthy Marriage Project                              requesting an audit. Do their grants require

                                                                                                                    days in your
Sacramento Mutual Housing Association
Sacramento River Discovery Center                                special reporting even though they do not

                                                                                                                    office reviewing
Safe Alternatives for Everyone, Inc.
SafeQuest Solano                                                 meet the threshold for a Yellow Book or

                                                                                                                    a series of finan-
San Diego International Sports Council                           compliance audit?”

                                                                                                                    cial documents.
San Diego River Park Foundation
San Diego Second Chance Program

                                                                                                                    The accountant
San Francisco Camerawork

                                                                                                                    checks the
San Francisco Film Society
San Francisco Paramedic Association                              “Sometimes there are covenants from banks

                                                                                                                    accuracy of the
San Francisco Parks Trust
                                                                 or grants that must be tested. When deter-

                                                                                                                    documents and
San Francisco Performances
San Francisco Planning & Urban Research                          mining whether to take on an audit, we
San Jose Museum of Quilts and Textiles
San Lorenzo Ruiz Center, Inc.                                    need to know if they have books and records
San Luis Obispo Literacy Council
Santa Ana Watershed Association

8                            Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
                                                     Resources                                                                 Santa Cruz Community Credit Union

   then presents a financial report to the
                                                                                                                               Santa Cruz Community Ventures
                                                                                                                               Santa Cruz County Child Abuse

   organization. In an audit, the accountant
                                                                                                                                 Prevention Council
                                                     Check out these online resources:
   takes the additional step of verifying the
                                                                                                                               Santa Cruz County Parents Association, Inc.
                                                                                                                               Santa Monica Bay Restoration Commission

   accuracy of those documents and
                                                                                                                               Save Mount Diablo
                                                     CPA and Accounting referrals:                                             School on Wheels, Inc.

   confirming individual transactions.
                                                                                                                               See the Sea, Charitable Foundation

   Audits check more detail than a review
                                                                                                                               Sensory Access Foundation
                                                     label/Accountant%20Referral                                               SHARE Fdn.: Building A New El Salvador

   and may involve sending confirmation

   letters to funders and your bank. It’s
                                                                                                                               Shoes That Fit
                                                     New Audit Standards, including SAS 112:                                   Siskiyou Training & Employment Program, Inc.

   those extra steps of verification that can
                                                                                                                               Skirball Cultural Center

   cost up to $10,000 more. A review is
                                                                                                                               Smart Business Resource Center
                                                                                                                               Sober Living Network

   less comprehensive than an audit, but it’s
                                                                                                                               Society of California Pioneers
                                                     Attest+Standards/Authoritative+Standards+                                 Sonoma County Center for Peace and Justice

   often sufficient. Audits are certainly the
                                                                                                                               Sonoma County Tourism Bureau

   best option and they provide the most
                                                                                                                               Southwest Wetlands Interpretive Association
                                                                                                                               Spanish American Institute

   information on a nonprofit, but unless you
                                                                                                                               Spectrum Group Inc.
   are subject to SB 1262, the California
                                                                                                                               Spinal Cord Injury Network International
                                                                                                                               STAR Foundation

   Nonprofit Integrity Act, it might not be
                                                                                                                               Stewards of the Coast & Redwoods
                                                     The AICPA Audit Committee Toolkit: Not-for-                               Susan E. Goranson, CPA

   necessary to do one every year. You may
                                                                                                                               Sweet and Hot Music Foundation
                                                     Profit Organizations

   be able to do an audit every two or three
                                                                                                                               Switzer Learning Center
                                                     Audcommctr/toolkitsnpo/homepage.htm                                       Tahoe Youth and Family Services

   years and reviews on the in-between years.
                                                                                                                               Tanya’s Adoption Network
                                                                                                                                 4 Young Animals, Inc.
                                                     American Society of Association Executives                                Team Up for Youth

• Preparation is the key to a good audit.
                                                                                                                               The Arc of Amador and Calaveras
                                                     (ASAE) & The Center for Association
  The auditor will provide a list of things to
                                                                                                                               The Armenian EyeCare Project
                                                                                                                               The C.G. Jung Institute of San Francisco

  do, documents to complete and reports to
                                                     Leadership article on Nonprofit Audit                                     The California Channel

  have ready before anyone arrives in your
                                                     Committees: A Toolkit, reprinted from                                     The Children’s Village of Sonoma County
                                                                                                                               The Coral Reef Alliance

  office. Preparing those documents in
                                                     the Non-Profit Legal & Tax Letter                                         The Crime Victims Fund
                                                                                                                               The Fellowship Center

  advance saves the auditor time and saves
                                                                               The Foundation for Mythological Studies

  your nonprofit money. If you have ques-
                                                     Resources/content.cfm?ItemNumber=1793                                     The Golden Gate Center for Spiritual Living
                                                                                                                               The Healdsburg Animal Shelter

  tions about a request, don’t hesitate to call
                                                                                                                               The Ink People Center for the Arts

  the auditor in advance.
                                                                                                                               The John Bayliss Broadcast Foundation
                                                     Sources for Nonprofit Accounting Software:                                The Museum of Art and History
                                                                                                                               The National Film Preserve, Ltd. dba

• Take care of possible issues when they
                                                     AccuFund Accounting Suite                                                 Telluride Film Festival
                                                                                                                               The New Media Studio

  arise. When you have an unusual trans-
                                            877-872-2228                                             The Parenting Teens Resource Network

  action you don’t know how to handle,
                                                                                                                               The Schow Foundation
                                                                                                                               The W Foundation
                                                     Araize Fast Fund

  ask your auditor. This is where having
                                                                                                                               Thomas P. Tenorio

  a relationship with a trusted auditor is
                                                                                                                               Trauma Intervention Programs, Inc.–
                                                                                                                                 San Marcos

  invaluable. It is cheaper and easier to get
                                                                                                                               Tribal Law and Policy Institute
                                                     Blackbaud                                                                 Trinity CHANGE, Inc.

  guidance in the beginning than to fix an
                                            800-443-9441                                            Ukiah Valley Association for Habilitation

  error later.
                                                                                                                               Under the Bridges and on the Streets
                                                                                                                               United Cancer Research Society
                                                     Cougar Mountain                                                           United Way of Fresno County

   Do you have questions, comments or
                                                                                                                               United Way of Tulare County
                                            800-388-3038                                            University of the West

suggestions on how CAN could assist in your
                                                                                                                               Urban Ecology, INC

auditing issues? CAN is more than happy to
                                                     D. R. Frey & Co. BUCS Budgetary                                           Urban Indian Health Board, Inc.
                                                                                                                               Vallejo Music Theatre

answer questions, give referrals or consult on
                                            800-659-3739                                               Vallejo Neighborhood Housing Services Inc.

pre-audit preparation. Contact Alan Strand,
                                                                                                                               Vanguard Public Foundation
                                                                                                                               Vicenti Lloyd & Stutzman LLP
                                                     FUND E-Z Fund Control System

CAN’s Director of Financial Services, at
                                            877-696-0900                                               Visual Aid – Artists for AIDS Relief

(213) 347-2070, ext. 206 or astrand@
                                                                                                                               Vitamin Relief USA
                                                                                                                               Voice of the Environment
                                                     GMS Accounting Software                                                   Volunteer Center Of Santa Cruz County
                                                                                                                               WATCH Resources, Inc.
                                            800-933-3501                                              Watsonville Wetlands Watch
                                                                                                                               West Angeles Community Development Corp.
                                                     Kintera Fundware                                                          West Marin Senior Services
                                                                                                                               Western Center on Law and Poverty
                                                                                             Western States Youth Scvs. Ntwk.–
                                                     866-Kintera (546-8372)                                                      Sonoma Cty.
                                                                                                                               Wexford, Inc.
    Want to see how the Nonprofit Integrity                                                                                    Wheels for Humanity
    Act of 2004 applies to your organization?        QuickBooks Premier                                                        Whittier Area First Day Coalition
                                                                                                                               Wild Farm Alliance
    Check out the CAN Advocacy section of our 888-729-1996                                           Wildlife Associates
                                                                                                                               Wildlife Center of Silicon Valley
    website for helpful information and resources:
                                                     Serenic Navigator Nonprofit Edition                                       Wildlife Rescue, Inc.                                                                                     Will Rogers Institute
                                            877-737-3642                                              WISE & Healthy Aging
    staffroom/advocacy/                                                                                                        Women in Film
                                                                                                                               Women's Initiative for Self Employment
                                                     Traverse NFP                                                              Woodcraft Rangers
                                            800-328-2276                                                 Worksite Wellness LA

                                                                                              w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1                       9
Yellow Ribbon Suicide Prevention Program
  of Southern California
Young Ideas Community Home
Young Storytellers Foundation
Youth and Family Service, Inc.
Youth for Environmental Sanity (YES)
Youth Science Center
Youth Service of California
Youth with a Mission (YWAM) San Francisco
YSK Consulting
YWCA – North Orange County
YWCA of San Gabriel Valley
Zen Monastery Practice Center
Zero Breast Cancer

CAN New Members
53rd St Pipe Band Organization dba Cabar
Feidh Pipe Band
826 LA
Abraham’s Vision
Affirming Community Initiatives
African American Heritage Society
  of Long Beach
All-American Boys Chorus
Alliance for a Better Community
Anza Borrego Foundation
Art in Action
Arts & Entertainment Ministries
Asian American/Pacific Islanders
  in Philanthropy
Bay Area Adoption Services
Berkeley Food & Housing Project
Board Resource Center
Breakout Prison Outreach dba California
  Youth Outreach
California Council of Land Trusts
California Grower's Collaborative
California School Health Centers Association
California State Rural Health Association
California Trails Association
Capitola/Soquel Chamber of Commerce
CARECEN (Central American Resource Center)
Center for Community Action
  & Enviromental Justice
Center for Creative Growth
Center for Land-Based Learning
Center for Medical Technology Policy
Center for the Arts
Change a Life Foundation
Charles Watson
Child Family Health International
Christian Legal Aid of Los Angeles
City Arts and Lecture, Inc
Coachella Valley Housing Coalition
Coastal Community Preschool
Community Health Partnership
  of Santa Clara County
Community Investment Corp
Consumer Credit Counseling
                                                                                  Your Career
Cultural Council of Santa Cruz County
Cyntron Payroll Solutions, LLC
Defend Our Village Enviroment
                                                                                  Success Begins
Diana Chang
Dientes! Community Dental
Diocese of SJ Valley/The Protestant Episcopal
                                                                                  Right Here!
Disabled Sports USA Far West
Door to Hope/MCStart
Down Syndrome Association of Orange County
                                                                                  The California Nonprofits Career Center
Emily Davis Consulting                                                            gives employers and job-seeking
Employment and Community Options
Empowerment Institute, Inc.                                                       professionals a better way to find one
Engage Network                                                                    another and make a perfect career fit.
Esperanza Community Housing Corporation
F.R.O.D.O. – Foundation for the Relief
  of Disabled Orphans
Family Service Agency of San Bernardino
                                                                                  Visit the California Nonprofits
Family Stress Center                                                              Career Center today at
Fresh Start Foundation
Friars Charitable Foundation                                            
Friends of Rowland Unified Schools Foundation
Friends of Sierra Montesorri Academy, Inc                                         to post jobs or search listings.
From the Heart
Girl Scouts of California Central Coast
Girls Club of the Midpeninsula
Global Majority
Good Cents for Oakland
Hayehwatha Institute
Health Access Foundation
Health and Social Policy Institute (HASPI)
High Sierra Energy Foundation
Hospice of Amador
Human Development Foundation

10                        Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
   NALEO Civic
                                                                                                                                  International Association for Property

                                                                   Latino voters from the polls. As a
                                                                                                                                    and Evidence, Inc
                                                                                                                                  Japan Society of Northern California

                                                                   result, the nonprofit reaches out to
                                                                                                                                  Jewish Family Services of Silicon Valley

   Efforts Pay Off
                                                                   registered Latino voters who have
                                                                                                                                  Kenyon Yeates, LLP
                                                                                                                                  Kidsave Los Angeles

                                                                   a poor history of making it to the
                                                                                                                                  Kronos Quartet
                                                                                                                                  Latino Resource Organization

                                                                   polls. Using a phone bank,

                                                                                                                                  Legal Services of Northern California

                                                                   NALEO Ed Fund staff contact
                                                                                                                                  Life Remedies & Celebrations
                                                                                                                                  LifeLine Community Development Corporation

                                                                   voters directly to answer any ques-
                                                                                                                                  Lighthouse Community Center

                                                                   tions they may have and confirm
                                                                                                                                  Live Again Recovery Homes
                                                                                                                                  Los Alamitos Youth Center dba

                                                                   that they know where to go to vote.
                                                                                                                                    The Youth Center
                                                                                                                                  Los Angeles Community Reinvestment

                                                                      The organization also maintains

            here are some organizations that are      a national bilingual, toll-free hotline,
                                                                                                                                  Los Angeles Dependency Lawyers
                                                                                                                                  Los Angeles Housing Partnership, Inc

            simply in the right place, doing the      1-888-VE-Y-VOTA (Spanish for “Go Vote”)
                                                                                                                                  Love in the Name of Christ

            right thing, at the right time. For the   for answering questions about polling locations
                                                                                                                                    of Greater Merced
                                                                                                                                  Mary Lind Foundation

   National Association of Latino Elected and         and hours. Open year-round during West
                                                                                                                                  Mattole Salmon Group

   Appointed Officials Educational Fund               Coast business hours, the call center increases

   (NALEO Ed Fund, pronounced Na-LAYo),               its hours during primaries and election days.
                                                                                                                                  Mesothelioma Applied Research Foundation

   that time is now.
                                                                                                                                  Mid-County Children's Corner

                                                      The hotline currently receives as many as 5,000
                                                                                                                                  Mono Lake Foundation

       With the focus on Latino and Hispanic          calls in some months — a number that’s only
                                                                                                                                  Mustard Seed Tutoring Center
                                                                                                                                  National Association of Christian Educators

   voters a deciding factor in the 2008 presi-        expected to increase as the actual election
                                                                                                                                  Nest Feathers

   dential election, NALEO Ed Fund’s civic            draws near.
                                                                                                                                  Nonprofit Alliance of Monterey California

   engagement efforts are capturing attention.            NALEO Ed Fund is using its 26 years
                                                                                                                                  Oneness Movement

       “There have been unprecedented efforts
                                                                                                                                  Organización en California de Lideres

                                                      of experience to build the capacity of other

   by candidates from both political parties to       nonprofits.
                                                                                                                                  Pacific Clinics
                                                                                                                                  Pacific Forest Trust

   reach out to Latino voters and that has                “We’ve begun moving in the direction of
                                                                                                                                  Parents Helping Parents

                      increased community             also helping other nonprofits,” Bernal-Martinez
                                                                                                                                  Park Bixby Tower, Inc
                                                                                                                                  Pasadena Conservatory of Music

                      interest in participating in    said. “We’re sharing what we’ve learned
                                                                                                                                  Peninsula Open Space Trust

                      the election,” notes Erica
                                                                                                                                  Project Angels Bearing Gifts

                                                      because we know that there’s so much work
                                                                                                                                  Raha Kudo

                      Bernal-Martinez, Senior         still to be done and we’re in a position where
Nonprofit Profile                                                                                                                 Reality Mentor, Inc.
                                                                                                                                  Rebekah Children's Services

   Director of Civic Engagement for NALEO             we can help build the capacity of other civic
                                                                                                                                  Rebuilding Together Silicon Valley

   Ed Fund. “People feel like they have a             engagement organizations.”
                                                                                                                                  Return to Freedom American
                                                                                                                                    Wild Horse Sanctuary

   chance to make a difference.”                          NALEO Ed Fund’s partners include
                                                                                                                                  Richard Watson, CPA

       Founded in 1982, by the late former            COFEM, Hermandad Mexicana (Mexican
                                                                                                                                  RocnSpark Ministries
                                                                                                                                  Salinas Police Activities Club

   California Congressman Edward R. Roybal,           Brotherhood) and the Coalition for Humane
                                                                                                                                  San Francisco Bird Observatory

   the NALEO Ed Fund is a 501(c)(3) non-
                                                                                                                                  San Francisco Botanical Garden Society

                                                      Immigrant Rights of LA (CHIRLA).
                                                                                                                                  See Above Productions

   partisan organization. Its sister organization,    The nonprofit has also been
                                                                                                                                  Sierra Cascade Family Opportunities, Inc
                                                                                                                                  Sierra Family Medical Clinic

   NALEO, is a 501(c)(4) membership organiza-         working with the Asian
                                                                                                                                  SOAR Foundation

   tion for the nation’s more than 6,000 elected      Pacific American Legal
                                                                                                                                  Social Solutions, Inc.
                                                                                                                                  Somos Amigos Medical Missions

   and appointed Latino officials. The Los            Center (APALC) to share
                                                                                          Contact Online:                         Sonoma County Vintners

   Angeles-based nonprofit focuses on helping
                                                                                                                                  Step One School

                                                      best practices.
                                                                                                           Stephanie Marie Frazier Memorial Fund

   the Latino community to participate fully in           “What’s most exciting
                                                                                                                                  Stepping Stone
                                                                                          Contact by Phone:                       The Albert Baker Fund

   the American political process in everything       for NALEO is that Latinos
                                                                                                                                  The Alexandria Acadamey

   from gaining citizenship to providing more         are finally being recognized
                                                                                                                                  The Children's Project
                                                                                                                                  The Classical Academy

   effective public service.                          as not different from other Americans,” Bernal-
                                                                                                                                  The International Wilderness Leadership

                                                      Martinez said. “We care about the same things
                                                                                                                                    (Wild) Foundation, Inc
                                                                                                                                  The Your American Story Foundation

   NALEO Ed Fund groups its efforts into three        as everyone else and we’re eager to participate
                                                                                                                                  Tia Chuchas Centro Cultural

                                                                                                                                  Transgender Law Center

                                                      in the electoral process to make it stronger.
                                                                                                                                  Trichotillomania Learning Center

1. Helping eligible Latinos apply for citizen-        Our vision and mission are connected to that
                                                                                                                                  United Way California Capital Region

   ship, register to vote, and vote,
                                                                                                                                  Vallejo Community Access TV

                                                      reality and helping the capacity of our part-
                                                                                                                                  Ventura County Adult Abuse

2. Providing three-day seminars for appointed         ners — that’s what our work is about.”
                                                                                                                                    Prevention Council

   and elected officials on enhancing their
                                                                                                                                  Ventura County Community Foundation
                                                                                                                                  VIP Tots

   policy-making skills, and
                                                                                                                                  Vista Center for the Blind
                                                                                                                                    and Visually Impaired

3. Providing policy research and advocacy on
                                                                                                                                  Vista Guidance Centers

   issues including election reform, redis-
                                                                                                                                  Warm Line Family Resource Center

   tricting, immigration and naturalization and
                                                                                                                                  Western Electronic Distribution

   the census.
                                                                                                                                  YMCA of Orange
                                            CHOW                                                                                  Youth Guidance Center Improvement

       NALEO Ed Fund’s policy research shows
                                                                                                                                  American Red Cross Orange County Chapter
                                                                                                                                  American Red Cross Morongo Basin Chapter

    that it’s the lack of information about voting,
                                                                                                                                  American Red Cross Claremont Chapter

    such as where to go and when, that keeps
                                                                                                                                  American Red Cross High Desert Chapter
                                                                                                                                  American Red Cross Inland Empire Chapter
                                                                                                                                  American Red Cross Riverside County Chapter

                                                                                                 w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1                    11
                                                                                                                  Lynn Bryson-Charles is our new Membership &
                                                                                                                  Development Director. Lynn comes to us from
                                                                                                                  a project management position with L.A. Care
                                                                                                                  Health Plan; prior to that, she was Membership
                                                                                                                  Manager for several years with the Natural
                                                                                                                  History Museum of Los Angeles County where
                                                                                                                  she assisted in managing direct mail, tele-
                                                                                                                  marketing and membership marketing
                                                                                                                  campaigns and oversaw the redesign of the
                                                                                                                  Museum’s membership website. Before moving
                                                                                                                  to California seven years ago, Lynn spent
                                                                                                                  ten years as Membership Coordinator for the
                                                                                                                  Service Employees International Union
                                                                                                                  headquarters in Washington, D.C. where she
                                                                                                                  managed the member benefits program and
                                                                                                                  coordinated member outreach campaigns.

                                                               “Lynn brings a keen understanding of member needs and a honed ability to integrate member
                                                               outreach, communications and benefits for a successful membership experience,” said Flo
                                                               Green, CAN’s Executive Director.

                                                               Lynn is excited to work with CAN to ensure members feel supported and have the resources
                                                               needed to fulfill the mission of their nonprofits.

                                                               Also in February, Alexandrea Ravenelle makes her
                                                               debut as Editor of the CAN Alert and Nonprofit
                                                               Neighborhood. Alexandrea started her career
                                                               as a reporter for several newspapers in the
                                                               American south. She then moved into nonprofit

      CAN Staff:                                               communications through work with such organi-
                                                               zations as A Better Chance, National Council
                                                               on Economic Education and The Elie Wiesel

     Welcomes &                                                Foundation for Humanity.

                                                               Alexandrea has also managed markerting and

       Farewells                                               communications activities for TCC Group, a
                                                               national consulting firm that works with
                                                               nonprofits, philanthropies and corporate giving
        CAN would like to welcome                              programs. Among numerous other projects,
      two new members to its team!                             Alexandrea directed the re-launch of the organi-
                                                               zation’s website, developed the firm’s Core
                                                               Capacity Assessment Tool marketing efforts, and edited and designed numerous white papers
                                                               including Community of Learners, Deeper Capacity Building for Greater Impact and Maximizing
                                                               Foundation Effectiveness. We are excited about the broad scope of knowledge Alexandrea
                                                               brings to our publications.

                                                                            Finally, this month we also bid good-bye to longtime staff member Kathy Crabb,
                                                                            who left CAN in mid-February to spend more time with her toddler and develop
                                                                            her counseling practice.

12     Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
                                                                                      CAN Calendar

  Recruit Top                                                                                         April
  Nonprofit                                                                                           Earned Income Ventures:
                                                                                                      Using Social Enterprise
  Professionals                                                                                       to Advance Your Mission
                                                                                                      and Sustain Your Organization

  Through CAN’s                                                                                       Los Angeles
                                                                                                      Tuesday, April 8
                                                                    The 7th Annual
  Career Center                                                 CAN Money Matters
                                                                  Nonprofit Finance
  Trying to find qualified applicants is never              Conference will be held:                  Nonprofit Accounting Boot Camp
  an easy task. CAN is proud to offer its                                                             Watsonville (Santa Cruz County)
                                                            August 13 - Los Angeles
  members the California Nonprofits Career                                                            Thursday, May 15
                                                              August 20 - Riverside
  Center. It’s an easy solution to your hiring             September 10 - Oakland
  needs and provides access to nonprofit
  professionals throughout California.
                                                             September 17 - Fresno                    August
                                                          The up-to-date conference                   Money Matters
  Special CAN member discounts and                                                                    Los Angeles
                                                         for Resources, Reporting &
  benefits are available, including:                                                                  Wednesday, Aug. 13
• Targeted advertising exposure
                                                           Visit                 Money Matters
• Easy online job listing management
                                                                            for more                  Riverside
• Email notification when job seekers match
                                                                        information.                  Wednesday, Aug. 20
  your requirements

  Whether you’re currently hiring or planning
  to open a search soon, sign up today to                                                             September
  start posting your jobs!                                           Nonprofit                        Money Matters
                                                                Congress 2008                         Oakland
  Visit:                        Convene,                         Wednesday, Sept. 10
                                                                   Connect &                          Money Matters
                                                                      Commit                          Fresno
                                                                                                      Wednesday, Sept. 17

  Earned Income                                                                                       October
  Ventures                                                                                            Building Strong Nonprofits:
                                                              From June 1-4, 2008,                    17th Annual CAN Conference
  Sponsored by CAN, in association with                                                               Los Angeles
  the Social Enterprise Institute, this one-day                   over 800 nonprofit
                                                         professionals will converge                  Wednesday & Thursday,
  conference will provide you with the tools                                                          Oct. 22 – 23
  for creating positive social change within the          on Washington, DC to act
  context of sustainable business models.                    collectively for positive
                                                            change in the nonprofit                   Affiliated Events
   When:     Tuesday, April 8, 9 am to 4:30 pm           sector. Meeting highlights
   Where:    The Center for Healthy Communities             will include a nonprofit                  NCNA Nonprofit Congress
             at the California Endowment                           expo, networking,                  Washington, DC
   Cost:     $149 for CAN members; $199                   educational sessions and                    June 1 – 4
             for non-members                                       a day of lobbying.                 California CPA Not-For-Profit
                                                                    To register, or for               Conferences
  Hurry, the registration deadline is Friday, April 4.       additional information,                  Los Angeles (May 21)
                                                           visit http://www.nonprofit                 and San Francisco (May 22)
   Visit: to register. 

                                                                                             w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1   13
                                                              New Form 990-N
                                                              Required for
                                                              with Budgets Less
                                                              Than $25,000
                                                              Tax-exempt organizations that normally
                                                              have annual gross receipts of $25,000
                                                              or less and do not have to file Form
                                                              990 or 990-EZ now must file a new
                                                              electronic form — Form 990-N,
                                                              more commonly known as the e-Postcard.
                                                              For more information, see the IRS's website at:

                                                                                              Postal Rates Are Going Up
                                                                                              Postal rates will increase on May 12. The increase
                                                                                              will affect First-Class Mail, Standard Mail, Periodicals,
                                                                                              Package Services, and Special Services. Sending a one
                                                                                              ounce first-class letter will increase to $0.42 while a two
                                                                                              ounce first-class letter will cost $.59. For additional rate
                                                                                              changes, visit

                                                             Building Strong Nonprofits
                       Save                                  The 17th Annual CAN Annual Conference

                     theDate!                                Wednesday –Thursday, October 22–23, 2008
                                                             in Los Angeles

                                                             More than 300 executive directors and other
                                                             professional staff, board members, fundraisers,
                                                             program officers, consultants, volunteers and
                                                             students will gather to network, gain valuable
                                                             tools and build momentum to continue their
                                                             important work for our communities.

                                                             Visit for more information.

14   Vol. 21 No. 1 w w w . C A n o n p r o f i t s . o r g
Sundance ad pick-up

                      w w w . C A n o n p r o f i t s . o r g Vol. 21 No. 1   15
                                                                                             CAN106 03/08
                                                    Tuesday, April 8, 2008
                                                    9:00 am - 4:30 pm
                                                    The Center for Healthy
                                                    Communities at The
                                                    California Endowment
                                                    1000 N. Alameda Street

 Earned                                             Los Angeles CA 90012

   Income                                           For more info and to register:

      Using social enterprise to advance
your mission and sustain
              your organization

                                                    Jerr Borschee
                                                    Opening Keynote Speaker
                                                    Founder and Executive
                                                    Director, The Institute
                                                    for Social Entrepreneurs

      California Association of Nonprofits (CAN®)
      520 S. Grand Ave., Suite 695                                              Presorted
      Los Angeles, California 90071                                             Standard                                                     US Postage
                                                                                 P A I D
                                                                                Tucson, AZ
                                                                               Permit #271

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