Nonprofit CPA Salinas, Nonprofit Audit Salinas, Nonprofit management SalinasPresentation from Hayashi &Wayland CPAs discussing how nonprofit can benefit from running their organization more like a business -

1. RUNNING YOUR NON
RUNNING YOUR NON‐
PROFIT LIKE A BUSINESS
By Hayashi & Wayland Accounting & Consulting, LLP
Rob Lee, CPA

2. Overview
 Transparency
 Accountability
 Marketing and development efforts
 Web‐based presence
 Promoting your brand

3. Transparency
 Would you invest in a business you could learn little, if anything
about?
 How open is your organization to public scrutiny?
 Finances
 Operational functions
 Decision making process

4. Transparency – Actions You Can Take
 Is your charity listed on the IRS list of tax‐exempt charities?
 Have you updated your listing at GuideStar?
 Is your charity rated at Charity Navigator?
 Does your non‐profit have a Better Business Bureau accredited
charity seal?
 Do you post your Form 990 on your website?
Do you post your Form 990 on your website?
 Do you know what the Sarbanes‐Oxley Act is?
 Do you know what the California Non‐profit Integrity Act is?

5. Is Your Charity Listed on the IRS List of Tax‐
Exempt Charities?
Exempt Charities?
 The IRS maintains a list of registered non‐profits that are eligible to
receive tax‐deductible charitable contributions
 If you are a registered non‐profit in good standing, make sure your name
appears on this list
 www.irs.gov keyword search Pub 78
 http://www.irs.gov/app/pub‐78/

6. Have You Updated Your Listing at
GuideStar?
 GuideStar publishes your Form 990 through an information sharing
arrangement with the IRS
 www.guidestar.org

7. Is Your Charity Rated at Charity Navigator?
 This watchdog organization rates 501(c)(3) charities based on their
financial efficiency and other factors including:
 The ratio of overhead expenses (particularly fundraising expenses) to a non‐
profit's overall budget
 Donors want most of a non‐profit's revenue to go toward its programs

8. Evaluating Charities Not Currently Rated
by Charity Navigator – A Donor s View
by Charity Navigator A Donor’s View
 Is it legit?
 Is it effective?
 Is it committed to the rights of donors?
 Is it financially healthy?

9. Evaluating Charities From a Donor’s View
 Is it legit?
 One of the first steps donors take to review an organization is to determine if it
is a bona fide non‐profit:
 Organization registered in the U.S.
 Donor’s contribution to the organization is tax deductible
 All charities that file a Form 990 are registered with the IRS
 Donors can be sure the organization has been granted non‐profit status at:
 Publication 78 on the IRS website, www.irs.gov
 CA Registry of Charitable Trust’s website, http://oag.ca.gov/charities

10. Evaluating Charities From a Donor’s View
(continued)
 Is it effective?
 Donors may:
 Contact the charity directly to assess its goals, accomplishments and challenges
 Explore the organization’s website and learn about the programs they operate
 A donor’s attempt to communicate with the charity can reveal a lot about the
organization
 Review of Form 990, Statement of Program Service Accomplishments

11. Evaluating Charities From a Donor’s View
(continued)

12. Evaluating Charities From a Donor’s View
(continued)

13. Evaluating Charities From a Donor’s View
(continued)
 Is it committed to the rights of donors?
 Donor's personal information
 Donor privacy policy

14. Evaluating Charities From a Donor’s View
(continued)
 Is it financially healthy?
 Four elements of the Form 990 ‐ T.I.P.S
 Types of support
 Increasing over time
 Program expenses
 Salaries of note

15. Evaluating Charities From a Donor’s View
(continued)
 Types of support
 Where does the charity get its money from?
 Take a look at Part 1, lines 8 through 12 of Form 990.
 Review Form 990, Page 9, Part VIII
 Multiple sources of revenue

16. Evaluating Charities From a Donor’s View
(continued)
Types of support
T f t
T

17. Evaluating Charities From a Donor’s View
(continued)

18. Evaluating Charities From a Donor’s View
(continued)

19. Evaluating Charities From a Donor’s View
(continued)

20. Evaluating Charities From a Donor’s View
(continued)
 Increasing over time
 Is the charity expanding or shrinking its programs?
 Charities should be consistently growing both their revenue and their expenses
 Comparing Total Revenue on the most recent Form 990 with the Total Revenue from
older Forms 990
 Compare Total Expenses, donors can evaluate whether the charity is expanding or
shrinking its programs

21. Evaluating Charities From a Donor’s View
(continued)
Increasing over
time
I

22. Evaluating Charities From a Donor’s View
(continued)
 Program expenses
 How much does the charity spend on its programs?
 Charity Navigator shows that most charities spend at least 75% of their expenses on
program services
 Many donors review this percentage for a charity they are interested in supporting
 Form 990, Part IX, Page 10: (Program Service Expenses/Total Expenses)

23. Evaluating Charities From a Donor’s View
(continued)
P
Program expenses

24. Evaluating Charities From a Donor’s View
(continued)
Program = 80%
Mgmt = 7%
Fundraising = 13%
13%

25. Evaluating Charities From a Donor’s View
(continued)
 Salaries of note
 Is the charity compensating its executives appropriately?
 There are many opinions on what level of compensation is appropriate for the
leader of a non‐profit
 Donors can see how any organization compensates their officers and key employees
by reviewing Form 990, Part VII
 It is rare that an organization can perform without any paid leadership, in this case,
donors may contact the charity directly and inquire further if they do not report
donors may contact the charity directly and inquire further if they do not report
executive salaries.

26. Evaluating Charities From a Donor’s View
(continued)
S
Salaries of
Note

27. Evaluating Charities From a Donor’s View
(continued)

28. Does Your Non‐Profit Have a Better Business
Accredited Charity Seal?
Accredited Charity Seal?
 Have you read the Better Business Bureau's Wise Giving Alliance
Standards for Charity Accountability?
 www.bbb.org/us/charity
 The Wise Giving Alliance at the Better Business Bureau provides a way for
The Wise Giving Alliance at the Better Business Bureau provides a way for
citizens to check up on non‐profit behavior just like they can do with
businesses

29. BBB Standards for Charitable
Accountability
 Organizations that comply with these accountability standards have
provided documentation that they meet basic standards:
 In how they govern their organization
 In the ways they spend their money
In the ways they spend their money
 In the truthfulness of their representations
 In their willingness to disclose basic information to the public

30. BBB Standards for Charitable
Accountability (continued)
Accountability (continued)
 Governance and oversight
 The governing board has the ultimate oversight authority for any charitable
organization
 This section of the standards seeks to ensure that the volunteer board is
active, independent and free of self‐dealing
 To meet these standards, the organization shall have:
 A board of directors that provides adequate oversight of the charity's operations and
its staff
 A board of directors with a minimum of five voting members
g
 A minimum of three evenly spaced meetings per year of the full governing body with
a majority in attendance, with face‐to‐face participation
 Not more than one or 10% (whichever is greater) directly or indirectly compensated
person(s) serving as voting member(s) of the board
 Compensated members shall not serve as the board's chair or treasurer
 No transaction(s) in which any board or staff members have material conflicting
interests with the charity resulting from any relationship or business affiliation

31. BBB Standards for Charitable
Accountability (continued)
Accountability (continued)
 Measuring effectiveness
 An organization should regularly assess its effectiveness in achieving its
mission
 Have a board policy of assessing, no less than every two years, the organization's
performance and effectiveness and of determining future actions required to achieve
its mission
 Submit to the organization's governing body, for its approval, a written report that
outlines the results of the aforementioned performance and effectiveness
p
assessment and recommendations for future actions

32. BBB Standards for Charitable
Accountability (continued)
Accountability (continued)
 Finances
 This section of the standards seeks to ensure that the charity spends its funds
honestly, prudently and in accordance with statements made in fundraising
appeals.
 To meet these standards, the charitable organization shall:
 Spend at least 65% of its total expenses on program activities
 Spend no more than 35% of related contributions on fundraising
 Avoid accumulating funds that could be used for current program activities
 Make available to all, on request, complete annual financial statements prepared in
Make available to all, on request, complete annual financial statements prepared in
accordance with generally accepted accounting principles
 Include in the financial statements a breakdown of expenses (e.g., salaries, travel,
postage, etc.) that shows what portion of these expenses was allocated to program,
fund raising, and administrative activities
 Accurately report the charity's expenses, including any joint cost allocations, in its
l h h ' l d ll
financial statements
 Have a board‐approved annual budget for its current fiscal year, outlining projected
expenses for major program activities, fundraising, and administration

33. BBB Standards for Charitable
Accountability (continued)
Accountability (continued)
 Fundraising and information materials
 A fund raising appeal is often the only contact a donor has with a charity and
may be the sole impetus for giving
 Have solicitations and informational materials, distributed by any means, that are
accurate, truthful and not misleading, both in whole and in part
 Have an annual report available to all or on request
 Include on any charity websites that solicit contributions, the same information that
is recommended for annual reports, as well as the mailing address of the charity and
is recommended for annual reports as well as the mailing address of the charity and
electronic access to its most recent IRS Form 990
 Address privacy concerns of donors
 Clearly disclose how the charity benefits from the sale of products or services that
state or imply that a charity will benefit from a consumer sale or transaction
 Complaints brought to the BBB

34. Do You Post Your Form 990 on Your
Website?
 Your IRS Form 990 tax return is a public document
 In addition to your Form 990 the following should be made
available on your website
 Contact information
Contact information
 List of board of directors
 List of senior staff

35. Do You Know What the Sarbanes‐Oxley Act
Is?
 The Sarbanes‐Oxley Act was passed in 2002 by Congress to remedy
some of the accounting shortcomings of publicly‐traded companies
 It applies to publicly‐traded companies and requires them to adhere to
standards in governance that increase the role board members play in
overseeing financial transactions and auditing procedures

36. Sarbanes‐Oxley and Non‐Profits
 What does it have to do with my non‐profit?
 Although the new law applies to publicly‐traded corporations, it has served as
a wake‐up call to the non‐profit community as well
 Responsible non‐profits have been using the Sarbanes‐Oxley as a standard for
their own financial practices

37. Sarbanes‐Oxley and Non‐Profits
(continued)
 The aspects of Sarbanes‐Oxley that are most relevant to non‐
profits are:
 The Act governs the Board of Director's Audit Committee
 Audit committees are expected to have at least one financial expert or
Audit committees are expected to have at least one "financial expert" or
explain why not
 Most non‐profits, even if they do not conduct outside audits, have one or
more board committees that deal with financial issues
 Independence of the members of the audit committee or other financial
committees
 Sarbanes‐Oxley governs the responsibilities of auditors

38. Sarbanes‐Oxley and Non‐Profits
(continued)
 The aspects of Sarbanes‐Oxley that are most relevant to non‐
profits are (continued):
 The audit firm must also report to the audit committee "critical accounting
policies and practices"
 Non‐profits also are encouraged to not mix auditing and non‐auditing services
to prevent any conflict of interest
 Chief executive and the chief financial officer of a publicly‐held company
certify the company's financial statements
 Non‐profits are encouraged to require their CFO to certify the organization's
financial statements
 The CEO of the non‐profit ultimately must be responsible

39. Sarbanes‐Oxley and Non‐Profits
(continued)
 Other provisions of Sarbanes‐Oxley regulate:
 Insider transactions and conflicts of interest
 Disclosure or transparency to the public
 Whistle blower protection
Whistle‐blower protection
 Document destruction

40. California Non‐profit Integrity Act of 2004
 Oversight by the CA Attorney General’s Office – California Registry
of Charitable Trusts
 Registration
 Independent Audit of Annual Financial Statements
I d d t A dit f A l Fi i l St t t
 Establish an Audit Committee
 Executive Compensation
Executive Compensation
 Commercial Fundraisers

41. California Non‐Profit Integrity Act of 2004
(continued)
 Oversight by the CA Attorney General’s Office – California Registry
of Charitable Trusts
 The Attorney General regulates charities and the professional fundraisers who
solicit on their behalf
 Investigate and bring legal actions against charities that misuse charitable
I i db i l l i i h ii h i h i bl
assets
 Statutory registration program
 The Attorney General makes available various guides and publications
The Attorney General makes available various guides and publications
 The Attorney General also offers guidance to help Californians make important
personal decisions on charitable giving
 http://oag.ca.gov/charities
p // g g /

42. California Non‐Profit Integrity Act of 2004
(continued)
 Registration
 30 days to register and file rather than 6 months
 Independent Audit of Annual Financial Statements
 Gross revenue threshold of $2 million
G th h ld f $2 illi
 Government grant exception
 Establish an Audit Committee
 Gross revenue threshold of $2 million
 Government grant exception
 Appointed by governing board
pp yg g
 Members of the Audit Committee
 Audit Committee responsibilities

43. California Non‐Profit Integrity Act of 2004
(continued)
 Executive Compensation
 Review and approval
 Just and reasonable
 Timing of compensation reviews
Timing of compensation reviews
 Compensation includes benefits
 Commercial Fundraisers
 Must report to Attorney General’s Office
 Contract in writing
 Obligations
 Fee arrangements

44. Accountability
 It is not enough simply to be transparent
 Supporters want an accurate accounting of how their money is being spent
and what impact it is making
 Touting we make a difference doesn't cut it these days
Touting "we make a difference" doesn t cut it these days
 Today’s funders are not satisfied with simply knowing how many people your
organization served last year
 The more measurable results and outcomes you can document, the more
The more measurable results and outcomes you can document the more
businesslike—and better—you look to large, serious donors

45. Marketing and Development Efforts
 Can you name a successful for‐profit company that doesn't have a
strong marketing or research development component?
 It is very difficult to grow programs and services if you're not actively out there
raising funds or promoting your organization

46. Web‐based Presence
 You would be surprised to learn how many non‐profits still don't
have a website
 An organization’s website is the first place many donors go to learn more
about an organization
 If you already have a website, it is important that it:
 Accurately reflects your brand
 Is easy to navigate
Is easy to navigate
 Is updated on a regular basis
 Make sure to regularly communicate to current and prospective
donors with a newsletter, preferably an e‐newsletter that is brief
and compelling

47. Promoting Your Brand
 How well are you communicating this information through a solid
brand image and good brand messaging?
 How easy is it for motivated funders to find you?
 Do funders you seek to attract truly understand:
D f d k t tt t t l d t d
 Who you are?
 What you do?
 How you do it?
 And why they should care enough to support you?

48. References
 How Business‐Like is Your Nonprofit? By Larry Checco
 6 Actions You Can Take to Make Your Nonprofit More Transparent
By Joanne Fritz, About.com Guide
 Internal Revenue Service, www.IRS.gov
 GuideStar, www.guidestar.org
 Charity Navigator, www.Charity Navigator.org
 Better Business Bureau, www.bbb.org
, g
 CA Registry of Charitable Trusts, http://oag.ca.gov/charities
 What Is the Sarbanes‐Oxley Act? And What Does It Have to Do
With My Nonprofit? By Joanne Fritz, About.com Guide
y p y ,
 Accountability‐central.com

49. Questions?