Having trouble viewing this email?Click here Showing you how to stay tax exempt and run a successful organization. In This Issue Change of Responsible Party Reporting Meet a Hawkins Ash Accountant Know Your Funding Risk Management Finding Information Quickly in QuickBooks Unrestricted Funds How to Retroactively Reinstate Taxexempt Status We Value Your Feedback Clients and non-clients alike, we value your insight. We use survey responses in ongoing coaching and training, product and service development, and for employee recognition. Please take a moment to help us provide you more value. We have two surveys available: Client Survey Relationship Enhancement Survey Change of Responsible Party Reporting Form 8822-B has always been used to report to the IRS a change in your mailing business address, but effective January 1, 2014, organizations will be required to report a change in the identity of a responsible party on this form as well. May 2014 Risk Management: How to Contain Threats Before They Become Critical Financial risks may be the most obvious threats to the well-being of nonprofits, but these organizations need to worry about other risks as well - from their reputation in the community to their volunteers' conduct. If you don't have a comprehensive risk management plan, your nonprofit may be courting unnecessary danger. Your Risk List The first step is to identify your organization's greatest risks. Some are common to most nonprofits, such as: Dishonest staff, volunteers, donors or clients, Financial losses, Threats to physical and intangible property, The unexpected departure of key employees, Loss of donor and community goodwill, and Revocation of tax-exempt status. What are your organization's specific risks? For example, you may rely heavily on state governmental grants. Your endowment may be invested in high-performing but risky securities. Board members may not always adhere to your conflict-of-interest policy, or volunteers may accept cash donations without staff oversight. Increasingly, online hackers and the unmonitored use of social media by staffers threaten nonprofits. Identify your areas of greatest risk exposure, and then determine how you'd act if forces beyond your control challenged them. For example, if your cash-strapped state government eliminated your funding, where would you apply for new grant money? How would you keep your programs operating in the meantime? Prioritize Financial Threats Managing and protecting financial resources is the biggest challenge for most nonprofits, so start building your risk management plan there. Address any acts that could lead to the loss of value of financial assets including theft, fraud, misuse of funds, poor investment decisions, and inappropriate selection of sponsors and partners. Then establish policies and procedures to prevent such losses. For instance, by requiring your organization to maintain a certain amount in a cash reserves account, your board can manage the risk that at some point you'll confront a budget shortfall or financial emergency. Formal internal controls also are essential. Mandate proper oversight by senior management and board members, and document procedures for authorizing transactions, securing assets, and preventing and detecting fraud. Cover All the Bases Don't try to develop a risk management policy alone. To ensure you're covering all the bases, involve your board, managers, insurance company, legal counsel, and financial advisors. Depending on the risk, you might also want to talk to staff members and volunteers for a ground-level perspective. If, for example, your organization serves children, you can't afford to overlook a single risk. Some measures may seem obvious, such as obtaining liability waivers from parents, conducting criminal background checks on adults who will work with the children, and maintaining up-to-date records of the children's allergies and medications. But have you considered a photo-taking policy? What about procedures to follow For nonprofits, a responsible party is defined as the person who has a level of control over, or entitlement to, the funds or asset in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets. The form is to be filed within 60 days of the change. Currently there are no penalties for failure to file Form 8822-B or failure to file within the specified time frame. Join Our Mailing List Hawkins Ash CPAs has several monthly and quarterly newsletters geared toward specific industries. Find one to fit your business and get regular news updates, helpful articles, and accounting tips: The Nonprofit Connection Employee Benefit Plan Resources Training Center Resources Construction News Tax and Business Alert Meet a Hawkins Ash Accountant Chuck Krueger, CPA Chuck Krueger joined Hawkins Ash CPAs accounting and auditing staff in 1987. As a senior manager in the firm's Manitowoc, WI office, he provides audit services to school districts, municipalities, and nonprofit entities. In the community Chuck is President of the Kiwanis Club of Greater Manitowoc and Treasurer for the Manitowoc Family Aquatic Center Here are some fun facts about Chuck: Hometown: Manitowoc, WI Describe a perfect day: allergies and medications. But have you considered a photo-taking policy? What about procedures to follow in the event of an accident? Do staff members and volunteers know what to do if they spot a stranger lurking outside your playground? After you develop a detailed plan to address such risks, communicate that plan to staff and volunteers, and provide training, if necessary. Also keep in mind that risk management is an ongoing process, so your nonprofit should continually review and revise policies and procedures to address emerging risks. Insurance Protection Insurance also helps nonprofits offset risk. Aside from general (or commercial general liability) policies, some specialty products are available, including: Property, Accident and injury, Auto, Product liability (if your nonprofit sells anything to the public), Directors and officers (D&O), and Professional liability (malpractice). An insurance professional can help you decide which policies you need and provide information about limits, deductibles, and cost. Of course, insurance won't solve all of your risk issues. Tax-exempt status and fundraising capacity can't be protected by insurance. And not even the best or most inclusive insurance policy will help you repair damage to your reputation. That's why you need a complete risk management plan in place to complement your insurance coverage. Complex Undertaking Risk management is a complex undertaking. You likely already have some policies and procedures in place, but to ensure you've taken steps to mitigate the biggest and most costly risks, consult with your financial and legal advisors. Finding Information Quickly in QuickBooks An organization stores more and more data in a QuickBooks file as time goes on. At times you may need a quick and easy way to find and retrieve specific information. The Find window can help find any form or other transaction based on search criteria, including the date, customer/vendor name, form number, transaction amount, check number, and more. You can even use multiple criteria. There are three ways to access the Find window. Click on the Find icon in the icon bar or click on the Edit menu and choose the Find command or use the <Control> F key to open it. Describe a perfect day: Spending the day with his wife at their camper in Door County. Favorite Food: Chicken spaghetti What is your favorite sports team? Green Bay Packers What is your favorite restaurant? Texas Roadhouse Why do you like to work with nonprofits? Observing the passion nonprofit employees have for the organization's mission is inspiring. This motivates Chuck to do everything he can to help the organization accomplish its mission and achieve its goals. Contact Chuck: 920.684.2547 ckrueger@hawkinsashcpas.com Know Your Funding As a 501(c)(3) nonprofit, your organization likely receives a mix of contributions it can use in different ways. Decide from the onset what type of funds you want to solicit - and what types you're willing to accept. Here are three categories to consider: Unrestricted funds are free of donor stipulations. Nonprofits need an adequate and steady supply of unrestricted funds to meet ongoing operating expenses and unanticipated costs. Board-designated funds are included in this category because they aren't restricted by the donor. Although the board has decided to use these funds for a certain purpose, it can "undesignate" the funds at a future date. Temporarily restricted funds are subject to donor-imposed stipulations that can be removed with the passing of time or when spent for the purpose intended by the donor. Permanently restricted funds,often called endowments, are subject to lasting donor stipulations, which mandate that the funds be "held in perpetuity." The earnings can be used for a specific purpose or to support operations. When you find the information that you are looking for, you can open it by selecting the entry in the table in lower part of the window and click Go To. Unrestricted Funds: The Stairway to Flexibility The Greater Anytown All-Needs Association is in trouble. Individual, corporate and state funding has dwindled in recent years. And the 501(c)(3) organization doesn't know where the money will come from to pay its bills - and its staff - next month. Greater Anytown has over $2 million in endowments, but all of these funds' earnings are earmarked for food and shelter programs. And a recent bequest of $450,000 is restricted for funding educational activities for the next 10 years. What a pickle the 20-year-old nonprofit has found itself in! Wanted: Funding without strings The above example is fictitious and, with responsible planning, could likely be avoided. But it illustrates an elementary point: Charitable organizations need cash to carry out their daily operations. And having an adequate and steady stream of funds without strings attached - also known as "unrestricted funds" - is the best way to keep a charity's operations and programs strong and sustainable. Unlike temporarily or permanently restricted funds (see the sidebar "Know your funding"), unrestricted funds can be used to cover the cost of operating expenses, such as rent, utilities, salaries, and other dayto-day expenses. The grants and individual donations a nonprofit receives for general operating support allow it to refocus its efforts from raising funds to improving its programs and responding to emerging community needs. Not Always an Easy Task Before an organization sets out to solicit unrestricted funds from individual and corporate donors, it should understand what it's up against: There's a public sensitivity toward nonprofits that spend too much money on administrative costs and too little on programs that fulfill their mission. To secure funds without restrictions, prove to donors that you'll use their money wisely. One way to do that is by presenting a healthy program service expense ratio and results-focused information on your Form 990, which you should make publicly available. Direct is Desirable When asking for unrestricted funds, being direct is best. The University of California at Los Angeles, for example, is clear in telling alumni that its UCLA Fund is a collection of approximately 70 unrestricted funds that help it in myriad ways. Also explain in your fundraising materials how unrestricted gifts offer greater flexibility than restricted gifts and how they help ensure you have adequate funds to keep the doors open. Moreover, encourage donors to make multiyear commitments for unrestricted gifts. Ask funders to designate their donations "as unrestricted funds that help the organization." You also might consider naming a fund after a family or individuals who only give unrestricted funds. It might just help encourage contributions of this type. Sometimes grantors, such as government agencies, require that funds be restricted to a particular program or function. If that's the case, you may still be able to factor in an administrative component of, say, 8%-10% to help cover operational costs. Widen Your Net Even with unrestricted funds, make sure you're involving a variety of funding sources. If one large source of unrestricted funding dries up, for example, you'll still have a number of other sources to draw from. Look for and identify new sources each year that fund organizations with missions on a par with yours. Is There a Way to Have My Tax-exempt Status Retroactively Reinstated Due to a Failure to File? Written: Sandy Jensen, CPA Written: Sandy Jensen, CPA Contact: 608.784.7737 or sjensen@hawkinsashcpas.com Yes, organizations may be able to apply to have their tax-exempt status retroactively reinstated. Organizations will receive a notification of its tax-exempt status being revoked because it failed to file the required informational returns (990, 990EZ or 990-N) for three consecutive years. Smaller nonprofit organizations (those that are required to file a 990E-Z or 990-N) that have not previously had their tax-exempt status revoked can have their status reinstated by completing the steps listed below: Complete Form 1023 (application for Recognition of Exemption under Section 501(c) 3 of the Internal Revenue Code) or Form 1024 (application for all other not- for -profit entities) to the IRS. Clearly write "Revenue Procedure 2014-11, Streamlined Retroactive Reinstatement" on the top of the application Submit the appropriate user fee. Mail to the IRS within 15 months of the revocation. Properly filing all outstanding Form 990-EZ will still be required, but no penalties for filing late will be associated with these returns. Larger organizations that file Form 990 will not qualify for the streamlined retroactive reinstatement process, but may still be able to have their tax-exempt status retroactively reinstated. These organizations must: Complete and submit Form 1023 or 1024 within 15 months of the revocation. Clearly write "Revenue Procedure 2014-11, Retroactive Reinstatement" on the top of the application. Include a statement explaining the reasonable cause why they were unable to properly file the required annual informational return for one of the three consecutive years. Include a statement that they are in compliance with filing all past and present returns. Write "Retroactive Reinstatement" on any of the annual returns that they are filing to be in compliance. Larger organizations that apply for reinstatement beyond 15 months after revocation may still qualify for retroactive reinstatement of their tax-exempt status. They must complete all the steps included above for larger organizations and include a statement that demonstrates they had reasonable cause for failing to file annual returns for all three consecutive years in which they failed to file. Hawkins Ash CPAs Wisconsin: Green Bay | La Crosse | Manitowoc | Marshfield | Medford Minnesota: Rochester | St. Charles | Winona www.HawkinsAshCPAs.com 1.800.658.9077 Forward email This email was sent to cgutierrez@hawkinsashcpas.com by info@hawkinsashcpas.com | Update Profile/Email Address | Instant removal with SafeUnsubscribe™ | Privacy Policy. Hawkins Ash CPAs, LLP | 500 South Second Street | Suite 200 | La Crosse | WI | 54601