Nonprofit Answers & Questions

A narrative discussion and additional financial reports samples can be found in the Oregon Nonprofit Corporation Handbook.

These samples were used in our Making QuickBooks Work for Your Nonprofit workshop in Portland on December 7, 2006.

Financial Report Samples

• Sample Report for Very Small Nonprofit - non-GAAP
• Sample NP Statement of Financial Position - GAAP Format
• Sample Statement of Activities - GAAP Format
• Sample Revenues and Expenses with Comparison to Budget - GAAP Format
• QuickBooks Sample Balance Sheet - non-GAAP Format
• Sample QuickBooks Statement of Activities - non-GAAP Format
• QuickBooks Statement of Financial Position - GAAP Format
• Sample Quickbooks Statement of Activities - GAAP Format
• QuickBooks Functional Statement Using Classes
• Quickbooks Program Report Using Classes
• QuickBooks Foundation Report Using Customer/Job and Classes
• QuickBooks Foundation Report

Check your organization

Do an Organizational Self-Assessment to see if you have the policies, systems, tools, and practices needed to ensure accountability.

• TACS Organizational Self Assessment Tool (PDF)
• TACS Financial Management Self Assessment Tool (PDF)
• 360 Degree Nonprofit Self Assessment at www.philanthropynow.com

Other Resources

• Accreditation for Nonprofits: Many nonprofits are accredited through membership in state or national associations of similar purpose organizations. Those who are not part of a sector specific accreditation process, can check out a proposed sector-wide accreditation tool at: www.standardsforexcellence.org
• Also, check-out the discussion of accountability issues at www.independentsector.org and www.nonprofitquarterly.org
• For a glimpse into the world of accountability for national charities and some useful ideas on how your organization "rates" as a responsible charity, check out www.charitywatch.org
• For the Better Business Bureau's Wise Giving Alliance system for rating charities, check out www.give.org

Conflicts of Interest

For most nonprofits, public perception of conflict of interest is a bigger threat than the actuality of running afoul with the law. Compensation to board members for services or goods they provide to the nonprofits they govern may comply with the legal conflict of interest rules but still fail the “sniff test” of public perception.

The Law

Oregon law requires board members to declare any potential or real conflict of interest they may have. The law focuses on transactions where a board member could personally gain financially. Once a conflict is declared, the law permits them to participate in the discussion and even vote on the transaction. However, many nonprofits bylaws go beyond this approach and require board members to excuse themselves from both discussing and voting on the matter of conflict.

Examples

• A founding board member of a nonprofit leases the use of his facilities to the nonprofit.
• A board member of nonprofit A, who is also program manager for nonprofit B, participates in a board discussion of A’s strategy for responding to a County Request for Proposals. Nonprofit B submits a competing application.
• A board member resigns in order to apply for a new staff position after substantial board discussion about the new position’s qualifications.

Issues to Consider

In the first example above, the board member wishing to lease his facility has a clear conflict of interest: he stands to gain income. Even if the board member/facility owner declares his conflict of interest and removes himself from the discussion and vote, fellow board members should be cautious when considering the lease proposal. They are treading close to the IRS issue of private inurement – the possibility that a charitable organization might use its resources to benefit a private individual. Board members should make certain that the proposed lease terms are in the best interest of the nonprofit and do not offer undue benefit to the landlord. They may want to obtain a professional evaluation to be certain that the lease is typical and fair to the nonprofit.

While most conflicts of interest that come up don’t involve direct personal financial gain, Oregon law also requires that board members observe the duty of loyalty — putting the interest of the nonprofit they serve above all other interests. In example two above, any disclosure of information that might help nonprofit B compete for funds could well compromise the board member’s duty of loyalty as a board member of nonprofit A.

The board member resigning to apply for a staff position poses primarily a “sniff test” issue – will the public or other staff believe that a fair judgment can be made when a candidate may well return to the board if she or he is not hired? Issues of the candidate’s friendships with board members and access to information could also be potential “hot” items.

When in Doubt, Call it Out

So how will your board steer clear of the conflict of interest realities or perceptions? One important step would be a board agreement to “when in doubt, call it out," inviting every board member to discuss their concerns about conflicts with the board chair or the full board. A second important step would be adoption of and adherence to a conflict of interest policy.

Here's an article about conflict of interest policies and a sample policy from Board Source.

Virtually every nonprofit organization knows that donors prefer believing that their contributions go entirely for mission-focused program activities. They also know that actual dollars will be spent to raise the funds needed to carry out valuable programs.

So, the challenge of defining what is and is not included in the category "fund raising cost" goes far beyond the realm of accountants, into the magic kingdoms of marketing and public relations. Fortunately, or unfortunately depending on your point-of-view, the accounting profession has created fairly specific guidelines to answer many of the most frequently asked questions about fund raising costs. Statement of Position (SOP) 98-2 has been in effect for more than three years, but actual practices in nonprofits still vary widely.

The "confusion" about fund raising costs is heightened by IRS Form 990 directions that haven't quite caught up with GAAP. The IRS is much more liberal in its approach to allocating the joint costs of activities carried out for both fund raising and program purposes, for example - newsletters which both address program issues and ask for contributions. As a result of the differences between GAAP and the IRS, and the pressure to minimize fund raising costs experienced by most nonprofits, the reporting of fund raising costs on the Form 990 is alarmingly inconsistent, and comparing the percentage of dollars raised used for fund raising among organizations is almost always misleading.

How should your nonprofit define fund raising costs?
Here are a few suggestions:

• Set up a fund raising cost center in your chart of accounts and track fund raising expenses throughout the year.
• Identify all the ways your nonprofit seeks contributions - direct mail, special events, major donor compaigns, foundation proposals, etc.
• Identify all the costs associated with these efforts, including the cost of staff time to organize events, send out mailings, coordinate volunteer solicitors, etc.
• Check to see if any of the activities fit an "exception" from being considered fund raising costs. SOP 98-2 provides an exception for the cost of exchange transactions - for example, the cost of hotel food service at a fund raising event. Since the purchasers of tickets to the event are not allowed to include the fair market value of the dinner as a charitable gift, you do not need to consider the actual cost of purchasing their dinner as a fund raising cost.
• Remember that fund raising costs refer to soliciting contributions. In many cases, "grant proposals" are prepared in response to a request to submit a proposal. You may be responding rather than soliciting.
• Check out 98-2 to understand how to discern whether an activity should be considered as a fund raising purpose rather than programmatic or administrative. The key elements of the distinction are: purpose, content, and audience. If you've chosen who will recieve a letter or other invitation based upon their ability to contribute or past history of giving, you are engaged in fund raising even if the letter or event contains a tremendous amount of program information.

Need more help? Check with your auditor or submit your question to us. We can also refer you to fiscal consultants who can help you set up the systems and policies you need to "do the right thing" about fund raising costs.

A large part of nonprofit accountability is minimizing your risks. Read our tips on protecting your nonprofit from fraud and mis-management in the risk management section of Helpline Online. We provide tips on board oversight, strong fiscal management and financial policies to help you reduce your risk.

Accountable Nonprofits Check Their 990’s Before Filing
Nonprofits are fully responsible for the information they submit to the IRS on Form 990. Every national study of 990’s has found alarming error rates, even in reports prepared by professionals.

In May, 2004, Reed Drew, Charitable Audit Coordinator with the Charitable Activities Section of the Oregon Department of Justice forwarded these tips about the five most common 990 errors to Public Accountants throughout Oregon.

1. Underreporting of gross contributions and related fundraising expenditures
   Many organizations solicit contributions themselves or engage outside professional fundraising firms to solicit on their behalf. Instead of reporting the gross contributions collected in the charity's name, many Form 990 tax returns incorrectly report only the net contributions. Organizations are required to report gross contributions on Part I; Line 1a - 'Direct Public Support', regardless of whether the contributions are collected by the charity itself or its professional fundraiser. The related fundraising expense incurred by the organization and/or fees paid to its professional fundraiser are to be reported on Part II; Column (D) -'Fundraising Expense'.
2. SOP 98-2 as it relates to fees paid to professional fundraising firms
   If an organization allocates joint costs for a combined educational and fundraising solicitation for book purposes in accordance with AICPA Statement of Position 98-2 'Accounting for Costs of Activities of Not -for-Profit Organizations and State and Local Government Entities That Include Fund Raising', it must also make the same allocation on its tax return. Many organizations fail to properly allocate joint costs amongst the program service, management & general, and fundraising expense columns on page 2 of the Form 990. A common mistake is not allocating to fundraising expense 100% of fees paid to a professional fundraiser when those fees are calculated as a percentage of contributions raised.
3. Reporting of bingo and raffle activity
   Many tax exempt organizations utilize bingo and raffle gaming as a means of raising funds for their charitable programs. Regulation of nonprofit gaming is the responsibility of the Department of Justice and we require those organizations exceeding certain minimum levels to obtain a license. Many organizations fail to properly report their bingo and raffle activity correctly on their Form 990 under Part I; Line 9 -'Special Events'. The gross revenue from gaming activities is to be reported on Line 9a without reduction for cash or noncash prizes, cost of goods sold, and compensation. The related expenses of conducting the bingo or raffle event must be reported on Line 9b. The corresponding net profit raised is then to be reported on Line 9c.
4. Failure to report lobbying activity

While 501(c)(3) public charities may engage in some limited lobbying (i.e. attempting to influence legislation), they may not engage in any political activities (i.e. supporting or opposing any candidate for public office). Any lobbying activity must be at an insubstantial level or else the organization's tax exemption status will be endangered. Many organizations fail to properly report all their lobbying activity on Schedule A, Part VI-A/Part VI-B. Which part of the schedule is to be completed depends on whether the Form 5768 election has been made. Due to the importance of completing this section accurately, please review with your clients what lobbying was performed during the year. This activity should then be reported in sufficient detail to describe all the organization's lobbying performed by its directors, employees and volunteers even if certain of those activities did not involve the expenditure of funds. This may require the preparation of a detail schedule. If the organization had no lobbying activity then questions should be answered as 'No' or '$0' instead of as 'N/A'.

5. Failure to answer questions and attach schedules
   There is a general failure to answer all questions completely and to attach all required supporting schedules. We ask that you follow the instructions to ensure an accurate tax return is filed.

Thoughtful Boards can adopt far more useful policies and practices to ensure accountability, including:

• Create of an independent audit committee with at least one financially expert member. Independent means that no staff members serve as voting members and that all committee members serve as uncompensated volunteers.
• Have the audit committee select the auditor and communicate directly with the auditor before, during, and at the conclusion of the audit.
• Require the Executive Director/CEO and the Fiscal Manager/CFO to take direct responsibility for the accuracy, completeness, and fairness of the financial statements and 990, and to state directly that the organization has adequate internal controls.
• Establish procedures for staff and interested parties to report accountability concerns anonymously and ensure that all reports are fully investigated and resolved.
• Pay close attention to auditor independence which requires that auditors not provide bookkeeping, financial systems implementation, appraisal, or certain other services for audit clients.
• Adopt a conflict of interest policy for Board, management, and staff.
• Review accounting and records retention policies
• Let the public know about your commitment to accountability and the policies and practices you have adopted.

Sarbanes-Oxley Act is legislation passed in 2002 in response the corporate accountability scandals in which corporate boards failed to protect the interest of investors, top management practiced unimaginable deceit in preparation of financial statements, and “independent” auditors appeared to be more interested in protecting lucrative consulting relationships with clients than in providing truly independent judgment about the degree to which readers should rely on management’s financial info.

Sarbanes-Oxley addresses corporate governance, financial disclosure and the practice of public accounting in the for-profit world. With two limited exceptions, it does not apply to nonprofits. And while proposals have been introduced in other states to extend its provisions to nonprofits, Independent Sector and other well respected nonprofit leadership groups have made it clear that little will be gained by wholesale adoption of provisions that do not speak directly to the big issues of the nonprofit sector.

Gary McGee, CPA focuses his CPA practice entirely on nonprofit organizations. At the 2004 Oregon Society of CPA's Not-For-Profit Conference, Gary shared his insights about Sarbanes-Oxley and his suggestions for how nonprofits can adapt the concepts behind the federal legislation to increase their own accountability. Read excerpts from his article here.

The media, charity watchdog groups, the IRS, donors, and nonprofit board members are all looking more closely at potential conflicts of interest among nonprofit boards. Learn about the law around board member conflict of interest and what issues to consider in the Accountability section of our Helpline Online.

The current law in Oregon specifies that you may only hold a meeting in which all the board members can hear each other. We interpret this to mean that you could have a meeting by conference call, but email would not meet the criteria.

Yes. Organizations serving youth are often interested in including them in the decision making process. If you do decide to have youth on your board you might consider the following suggestions:

• Be sure to provide an adequate orientation to new youth members
• Pair youth members with adult mentors who can help them understand how to be productive participants and be resources when they have questions they’re embarrassed to ask at a meeting

Remember that minors cannot sign legal documents or be solely responsible for financial/legal matters

A good resource on this topic is Youth on Board.

Yes. However, it is most common for staff members to attend board meetings when their input is needed on an issue, but to not be actual voting members of the board. If you do choose to have staff on the board there are two areas of concern:

• Conflict of interest. Whenever the board is considering an issue from which the staff board member stands to benefit, the staff board member must declare a conflict of interest and not participate in the decision.
• Funders may find it disturbing if the board is composed primarily of staff members.

You might want to read this interesting article: Should the CEO Have a Vote on the Board

The frequency of board meetings may vary from organization to organization. There is no legal requirement that boards meet at regular intervals, but it would be very unusual not to have at least one meeting a year. Some of the factors that may influence the frequency of board meetings are:

• The amount of activity in the organization
• The age of the organization
• The location of board members

It is very important to keep board members well informed and provide them with adequate opportunities to learn about current issues, ask questions and make good decisions.

The Board of Directors has the legal responsibility and authority to manage the affairs of the nonprofit corporation. How this is defined in a particular organization depends in part on the size and complexity of the corporation. Generally, the Board of Directors carries out these responsibilities:

• Sets the direction and makes the policies for the corporation
• Raises money, or makes provision to have adequate resources available
• Oversees the finances, including adopting the budget, ensuring that financial safeguards are in place, ensuring that taxes are paid and creditors are provided for
• Adopts personnel policies
• Hires, evaluates, and may terminate an Executive Director
• Links the organization to its community by helping the nonprofit form relationships

All corporations are governed by a board of directors. ORS Chapter 65 requires that public benefit nonprofit corporations in Oregon have a board of at least three members.

Read ORS Chapter 65.

You know that donors want to believe that all of their dollars are going to support mission-focused program activities. You also know that you need to spend donor dollars to support fund raising programs. The challenge is defining what is and is not included in the category "fund raising cost" on your IRS Form 990. This isn't an issue only for accountants, but one that Executive Directors and Fund Development staff to consider. Read our guidelines about about how to define fund raising costs so you tell the truth in your financial statements so you can do the right thing in the Accountability Section.

• In Oregon the best resource is The Oregon Foundation Databook. It is available at many libraries or you might ask other organizations if they have a copy you can borrow.
• The Foundation Center provides a lot of helpful information and links to many foundations.
• The main branch of the Portland Public Library has a Foundation Center Collection that includes books on funders, grant writing resources and access to a national database, GrantSelect that allows user to search for funders using specific criteria. There are additional Foundation Center Collections in both Oregon and Washington.

There are many resources that will fit most budgets and most learning styles.

Classes/workshops

There are a variety of local and national resources available.

• Check out our upcoming training events for grant writing workshops
• PCC or your local community college
• The Grantsmanship Center

Probably the best way to learn is by doing. If you would like some coaching you may want to hire an experienced grant writer to review your work.

Books

Our favorite is Grassroots Grants by Andy Robinson. It is inexpensive, straight forward, easy to understand and has good examples.

Tutorials

Take a tutorial on The Foundation Center web site.

The library has a grants collection that contains books on grant writing, books listing grants, software to search for grants and a librarian who will help orient you. Check your local library to see what they might have to offer. Click here to go to the Multnomah County Library grants collection website.

There are ways to raise funds while you are waiting for your determination letter. You may:

• Hold fundraising events where participants do not expect to receive a tax-deduction for any money they might spend. Examples: a benefit dinner, a benefit performance, a garage or bake sale.
• Work through a fiscal sponsor. See the Tax-exempt Section for more information about fiscal sponsorship.

There is no problem with people giving you a contribution as long as you are clear with them that you do not yet have tax-exempt status and cannot guarantee that their contribution will be tax-deductible. Often, friends and family are willing to take the risk.

If your nonprofit will seek tax-exempt status, you'll need to have the wording required by the IRS. For this wording, look on the Corporation Division Website for Form 112.

The most common additional optional provisions are: limitations on the liability of board members, limitations on the board’s powers and a series of provisions related to membership corporations.

The incorporators do not have any liability. Their responsibilities consist  of filing the Articles of Incorporation, paying the fee, and calling  the organizational meeting after the filing has occurred.

Only one incorporator is required, but you may have as many as you wish.  All incorporators must sign Form 112.

There is a great deal of confusion about the term “members.” When used in relationship to a nonprofit corporation the legal meaning of this term refers to a defined group of individuals who play a role in the governance of the organization. It can complicate your situation if you use the term "members" to indicate people who contribute to the organization. A much better term for this group is “supporters.”

Idemnification  is the promise of the corporation to cover the legal  expenses/judgements incurred by a board member as a result of their  board service.

No. The Corporation Division does not require this information. The Articles of Incorporation requires at least one incorporator. The incorporator(s) may be the same person(s) as the board of directors, but the function is completely different. You will be identifying your board when you register with the Department of Justice or request tax-exempt status from the IRS.

Yes. Unless you are establishing a church, all nonprofit corporations are required to have a board of directors with a minimum of three members. If you are setting up a church you may choose to have a “corporation sole” in which case there is no board and the organization is governed by its religious head and their successors.

Make sure to read our Board of Directors questions and answers.

The registered agent is the person who will be served with any legal papers  regarding corporation business. The registered agent is not liable or  required to respond, but should be someone who will be responsible to  see that the papers reach the appropriate person in the organization.

It  takes 1-2 weeks for the Corporation Division to process your  application to create a nonprofit corporation if you mail it in. If  you’re in a hurry you can fax the form or take it to Salem and walk it  through the process.

The fee for filing the Articles of Incorporation is $50.

Articles of Incorporation, Form 112. This is available on the Corporation Division Website.

If you plan to apply for tax-exempt status, you will need to be sure to include certain IRS-required wording in your Articles of Incorporation. Attached to the Corporation Division's Form 112 is a page with the required language. When submitting Form 112, you can attach this page and write "See attached." for items 5 (optional provisions) and 8 (distribution of assets upon dissolution).

What you file with the Secretary of State constitutes your legal Articles of Incorporation. If you submit a completed Form 112 and attach a sheet with the IRS-required language, your Articles' provisions will correspond to the numbers on the form: e.g., Article 1 will be the organization's name, Article 2 the name of the registered agent, etc. Alternatively, you can collect all your Articles into a separate document and attach it to Form 112. In each relevant section of Form 112, you would write "Please see attached."

Oregon nonprofits can be either unincorporated associations or corporations. An unincorporated association is defined as a group of people who come together for some purpose other than to do business.

The positive aspects of associations are:

• There are no registration or reporting requirements to the Oregon Corporation Division or Dept. of Justice Charitable Activities Section
• There is greater flexibility in how the organization is run
• Change in membership doesn’t impact the existence of the organization

The negative aspects of associations are:

• There is no protection for the members. Everyone involved is equally liable for debts and in the event of a suit
• It is not possible to open a bank account using the federal ID# (EIN#)

Corporations provide a much higher degree of legal protection for the individuals involved. They are also subject to more reporting requirements and to Chapter 65 of the Oregon Revised Statutes. The legal protection is often enough reason enough to decide on this structure.

NOTE: It is possible to apply for federal tax-exempt status as an unincorporated association, but if you should decide to incorporate at a later date, you will have to re-apply. The IRS considers the new corporation a different entity.

Unincorporated associations are probably most appropriate for groups like book clubs, garden clubs, small hobby groups, etc. They are a poor choice if your organization will be engaging in any activities with potential financial risk or that might result in physical or emotional injuries.

There are several issues to consider before you try to set up a new nonprofit:

Structure
Nonprofits differ significantly from partnerships or sole proprietorships:

• A nonprofit is controlled by a board of directors
• There is no private ownership or personal financial interest
• Success is more likely if a nonprofit is started by a group rather than an individual
• If you want sole control and decision-making power this is not a good choice
• You cannot sell a nonprofit

Funding
Many people think it is relatively easy to obtain grant funding to support a nonprofit. This is not necessarily true.

• A nonprofit must have tax-exempt status to apply for grants or solicit tax-deductible contributions
• Competition for grants is high
• Funders prefer to fund organizations with a track record
• New organizations should plan for several years of low/no funding unless a funder has already stepped forward

Community Support
Nonprofits are often created by individuals with a strong personal vision. This can be a tremendous help but sometimes ends up a hindrance:

• Nonprofits are intended to fill a community need
• Most successful nonprofits are started by a group of people who share the vision AND the responsibility
• Individuals who want to start a nonprofit will be more successful if they can involve others in their vision
• The Internal Revenue Service (IRS) looks for evidence of community support in evaluation of applications for tax-exempt status

Maintenance
Since most people who start nonprofits are motivated by the desire to provide a particular program or service they often fail to realize that there is a significant amount of administration required:

Areas you must attend to if you hope to succeed:

• Board support & development
• Fiscal management
• IRS & state reporting requirements
• Insurance and risk management
• Grant writing & other fund raising

It is critical to have enough active participants to share the responsibility for these tasks. Organizations that depend on one or two people for these tasks have a high rate of failure.

Read FAQs about applying for tax-exempt status in the Tax-Exempt section.

If D&O insurance premiums are out of reach, your board may find some protection via riders to home owner insurance policies.

• Have board members contact their insurance company to ask about riders covering volunteer service
• If a board member is able to purchase a rider, they can be reimbursed for the expense. They must be able to provide documentation indicating the exact cost of the rider.

The organization can provide the best protection for board members by acting responsibly in creating adequate policies and controls and taking them seriously.

D&O insurance is one option that many nonprofits know about. The Nonprofit Genie has a description of D&O insurance with helpful answers to common questions. But the cost of D&O insurance is sometimes prohibitive, and even if you are able to carry such coverage, there are other steps you should consider:

• If you have employees, good personnel policies that are followed are an absolute necessity
• Designate a staff/board person who is/will become knowledgeable about employment law
• Consider volunteer insurance
• Have clear policies that explain expectations of volunteer/staff conduct
• If you conduct fundraising events, be sure the venue is insured, either by the owner or yourselves. Be aware of additional liability issues related to serving alcohol.
• If your organization is liable for employment taxes, have adequate fiscal controls to insure the board knows they are being paid.

• Are you having trouble finding affordable insurance?
• Are you having trouble finding a company willing to insure your organization?

These experiences are becoming more common as the insurance industry is going through a period of financial stress. Fortunately, there is now an option for Oregon and Washington nonprofits! The Alliance of Nonprofits for Insurance (ANI-RRG), a nonprofit insurance company based in California, was created to provide stability in the insurance market for nonprofits.

For more information and to obtain the names of brokers in Oregon who can help you access their services: visit ANI-RRG

The most basic coverage should include:

• General liability insurance
• Bonding insurance
• Auto insurance if cars are used in the work of the organization

Other types of insurance to consider are:

• Directors & Officers Insurance
• Errors & Omissions Insurance
• Volunteer Insurance
• Property Insurance that will also cover agency records

For more information about risk management and insurance check out:

• The Alliance for Nonprofit Management
• Nonprofit Risk Management Center
• Alliance of Nonprofits for Insurance

Also check out a booklet titled Coverage, Claims, and Consequences: An Insurance Handbook for Nonprofits.

Bad news from nonprofits sells papers and helps ratings. As a sector, nonprofit leaders are still more respected than used car sales people, lawyers, or politicians, but we may wonder how much longer or credibility will last. There are steps nonprofits can take to avoid becoming another good organization with a bad reputation (or worse, actual financial losses, resigning board members, and endless legal bills).

Top 6 tips to avoid a bad reputation

1. Invest in strong fiscal systems, trained staff, and quality audits, reviews or alternate independent checking of your practices and reports
2. Have your board appoint knowledgeable board members to an audit committee to choose your audit firm and fully review the audit findings with your auditor.
3. Make knowledgeable fiscal oversight a nonnegotiable expectation of your top executive officer. Make sure management has time and resources to check out discrepancies and red flags.
4. Make board oversight of financial policies real, with clear consequences for noncompliance
5. Recognize that a fund raising opportunity which sounds too good to be true probably is
6. Provide high level board review of major vendor relationships, especially when executive staff have close relationships with vendor staff or investors.

We have someone coming to our free informational meeting. This person is deaf & has requested a sign language interpreter. Is this something we arrange, & then bill this person for, or are we obligated to provide an interpreter at our expense for all services rendered?

There are a few things to consider in this situation.

What are the legal ramifications?

First thing to consider is the law and compliance with the American Disabilities Act. The Act states that “Places of public accommodation must give persons with disabilities equal opportunity to participate in and to benefit from their services. They cannot provide unequal or separate benefits to persons with disabilities. They must modify their policies and practices when necessary to provide equal access to services and facilities.” … “all public accommodations are required to provide auxiliary aids and services to ensure effective communication.” Auxiliary aids include interpreter services.

In addition, the law states, “It is not permissible to charge an additional fee or ‘surcharge’ to disabled persons to cover the costs of auxiliary aids or barrier removal.”

Now, you may not fit under the category of “Places of public accommodation.” This would be the case if you “lease or hold your meetings in hotels, convention centers, stadiums, and any other places of public gathering.” And if you do hold meetings in these places, the landlord may be responsible, or perhaps a shared fee contract could be drawn up.

There is a clause in the law that allows organizations to claim undue financial burden and be exempt from providing the auxiliary aid: “…unless the public accommodation can demonstrate that taking those steps [of providing auxiliary aids and services] would fundamentally alter the nature of the goods, services, facilities, privileges, advantages, or accommodations being offered or would result in an undue burden, i.e., significant difficulty or expense.

You can review the American Disabilities Act III Technical Assistance Manual here.

How much will this really cost?

Depending on the day/time(s) of the meeting, you’ll pay between $60 and $75 per hour per interpreter for the service. Legal interpretation is more expensive and if your meeting is longer than 1 ½ hours, you are required to have 2 interpreters. Prices differ depending on the types of auxiliary services you use, as interpreters are not the only option. You might want to consider how often you think this will really come up.

What is your organizational philosophy?

Many nonprofits could easily claim undue financial burden, especially if you have not included these kinds of costs in your budget. However, you may want to review your mission and/or philosophy statements to see if NOT providing these services would go against what you believe is fair and just. For example, if your organizational philosophy statement includes nondiscrimination wording, would you feel that you are being discriminatory if you denied the ASL service?

Donors seeking to deduct charitable contributions for 2007 and after will need written proof of all their cash gifts, even of gifts under $250. This changes the longstanding rule that donors could use their own notes about smaller gifts as the basis for their corresponding deduction. Under this new rule, donations of less than $250 must be supported by either:

• a bank record – i.e., canceled checks, bank and credit union statements and credit card statements; or
• written acknowledgement from the charity showing the name of the charity and the date and amount of the contribution.

Charitable gifts (either money or property) of $250 or more will still require written acknowledgement from the charity to be deductible.

To read the IRS' explanation of the rules that became effective under The Pension Protection Act of 2006, click here.

For information about the rules specific to donations made by payroll deduction, click here.

Fiscal sponsorship is a relationship between an organization that has tax-exempt status (the fiscal sponsor) and one that does not (the sponsored project). One of the most common uses of fiscal sponsorship is to enable the sponsored project to apply for grants and solicit tax-deductible contributions through the fiscal sponsor.

Fiscal sponsorship is complex and should not be taken lightly. As you develop a written fiscal sponsorship agreement to outline your relationship, consider consulting the following resources:

• An excellent resource is "Fiscal Sponsorship, 6 Ways to Do It Right" by Gregory Colvin (can be ordered from Study Center Press at 800.484.4173).
• Chapter 10 of The Oregon Nonprofit Corporation Handbook explores fiscal sponsorship issues.
• CompassPoint has a number of useful FAQs on fiscal sponsorship, including about the risks associated with serving as a fiscal sponsor.

There are both pros and cons to consider with fiscal sponsorships:

Pros:

• Allows new organizations to access funding during early stages of existence
• Provides an opportunity to test a program before applying for tax-exempt status
• Fiscal sponsor may provide administrative support that takes burden off sponsored project

Cons:

• Ability to apply for grants may be limited – most foundations will only consider one grant/year from an organization and may not distinguish between the fiscal sponsor and the sponsored project
• Sometimes either the sponsor or the project finds the relationship frustrating or restrictive. This is usually due to a lack of understanding about the requirements of the relationship. It is important that there be good communication, trust and responsible behaviour on the part of both groups for a fiscal sponsorship to succeed.
• The funds the firscal sponsor receives are legally a donation to it and will appear on its books. Consequently, if the sums are large, they may distort the sponsor’s true financial position and create problems with its own donors/funders.

If the public charity does not meet any of the exceptions described in section B of the Form 990 Instructions and its annual gross receipts are normally more than $25,000, it must file a Form 990 or Form 990-EZ.

Effective for fiscal years beginning in 2007, exempt organizations whose gross annual receipts were normally less than $25,000 must file an annual information return – Form 990-N – with the IRS. Filed electronically, the return includes such basic information as the exempt organization’s name, DBA, mailing address, website address, tax ID number, name and address of principal officer, and evidence of the continuing basis for the organization’s exemption from filing Form 990.

If an organization is required to file Form 990, 990-EZ, or 990-N but fails to do so for three consecutive years, the organization's tax exempt status is revocable.

The determination letter you receive from the IRS upon approval of your application to be treated as a tax-exempt public charity under 501(c)(3) indicates whether you are a 509(a)(1) organization or a 509(a)(2) organization.

When your organization filed Form 1023 with the IRS in order to apply for 501(c)(3) tax-exempt status, you would have indicated on that form whether you wanted the organization to qualify for 501(c)(3) public charity status under 509(a)(1) or under 509(a)(2). Alternatively, you could also have indicated that you wanted the IRS to select whichever of these designations is the more appropriate for your organization. The IRS will have evaluated and approved your eligibility for tax-exempt status on that basis and then issued the corresponding favorable determination letter.

For more information about 509(a)(1) and 509(a)(2) organizations, see the above FAQ about PSOs and FSOs.

• Hire an attorney, an accountant, or someone who has had experience with the tax-exempt process. We can provide you with referrals if you email us at info@tacs.org.
• Work with one of the books available on filing for tax-exempt status. Our favorites are The Oregon Nonprofit Corporation Handbook and Prepare Your Own 501(c)(3) Application.
• Use the web. There are a variety of sites that address tax-exempt status. We suggest you check out Form 1023help.com. This site belongs to Sandy Deja, a former IRS agent who specialized in exempt organizations.
• Attend TACS' four-hour 501(c)(3) Tax-Exempt Status Clinic, offered on a bi-monthly basis. Check out TACS' training events for more information.

The main concern of the IRS is that funds intended for tax-exempt purposes be used in a similar manner abroad and that there are adequate fiscal controls to see that this happens.

• Your application for tax-exempt status should include a clear explanation of how funds will be spent and how you plan to monitor expenses abroad. The more direct your control of the funds, the easier it will be to gain IRS approval.
• If you plan on doing work in a part of the world that is a current “hot spot” it may take longer to get your determination. The IRS is referring applications that involve sending funds to places such as the Middle East to a special unit to be sure there are no connections to suspected terrorists.

Organizations that do not wish to be classified as private foundations and don’t fit one of the more specific categories provided by the IRS must meet the criteria of a PSO or a FASO.

PSO (Publicly Supported Organization):

• A substantial part of the support received consists of contributions from the public, a publicly supported organization (such as United Way) or a governmental unit.
• Substantial support can be generally interpreted as 1/3 of all revenue for the period in question

FASO (Fee & Activity Supported Organization):

• At least 1/3 of its support is from contributions, membership fees and gross receipts from activities related to its tax-exempt purpose
• It does not normally receive more than 1/3 of its support from gross investment income.

If yours is a relatively young organization the IRS will grant you provisional tax-exempt status for a period of time – usually 5 years – after which you are required to file additional financial information before receiving a definitive, or final, ruling. During the advance ruling period an organization has the opportunity to demonstrate it meets the criteria to qualify as a "PSO" or an "FASO" (see below for information about these terms).

Do not worry!!! It is quite common for this to occur. The important thing to know is that you must respond to such letters within the time frame provided. Your response does not have to be complete. Often, a call to the agent involved asking for more time is appropriate. If you do not respond, the agent is free to assume that you are no longer interested and may discard your application. In this case, you will have to re-apply and pay a new fee.

You should receive a determination within 4 months of submitting your application. However, there are factors that may cause the process to take longer:

• The IRS is slowed down by too many applications and too few staff
• Your application is incomplete
• The person reviewing your application has questions or wants more information
• Your application includes some factor that triggers a more thorough examination of your organization

To address long delays in processing, the IRS has developed a Where's My Exemption Application? page on its website. The page includes information about the application review process and indicates the month the IRS received the applications that it is currently assigning to Exempt Organizations specialists for additional development. For example, in early July 2007, the site said the IRS was assigning applications it received in March 2007.

There is a filing fee for Forms 1023 & 1024. The current fees are as follows:

• For an organization that has had annual gross receipts averaging not more than $10,000/year during the preceding 4 years or a new organization that anticipates gross receipts averaging not more than $10,000/year during the first 4 years: $300
• For an organization that has had annual gross receipts averaging more than $10,000/year during the preceding 4 years or a new organization that anticipates gross receipts averaging more than $10,000/year during its first 4 years: $750

This is a one-time fee and is non-refundable.

Organizations that are applying for 501(c) status file:

• Form 1023 for 501(c)(3) status
• Form 1024 for all other 501(c) designations

All IRS forms are available on the IRS web site or can be ordered by phone at 1.800.829.3676. Click here to go to the IRS Website.

The following organizations, otherwise eligible for 501(c)(3) status, need not file Form 1023 to be considered tax-exempt:

• Churches, including synagogues, temples, and mosques;
• Integrated auxiliaries of churches and conventions or associations of churches;
• Any organization that has gross receipts in each taxable year of normally not more than $5,000.

Even though the types of organizations listed above are not required to apply for an IRS determination to be considered tax-exempt, some decide to apply for 501(c)(3) status in order to be more attractive to prospective funders.

No. A "nonprofit" is a type of entity formed at the state level under state law. Whereas being "tax-exempt" is a federal designation that typically requires application to and approval by the Internal Revenue Service.

When an organization receives tax-exempt status under any of the 501(c) sections, it becomes eligible for a variety of tax-related benefits that include:

• Exemption from state and federal corporate income tax
• Exemption from some local taxes such as the Tri-Met tax in the Portland Metro area
• Postal rate reductions

If an organization is 501(c)(3) public charity, it receives additional benefits:

• Ability to solicit donations that may be tax-deductible to the donor as charitable contributions
• Eligibility for foundation grants
• Possible exemption from local property taxes
• Exemption from Federal Unemployment Tax

This is a decision you need to make based on the needs of your specific organization. There are many factors that go into this decision. Things to think about in terms what type of support you need:

• How many computers do you have?
• Are they networked?
• What other systems does this person need to support (eg: database, website, phones, etc.)?
• What can you afford?
• How much work is there to do on a regular basis - in other words - how often do things break?
• Do they need to be on-site regularly?

Here are some resources that can help you answer some of these questions:

• Staff Support Model (XLS) - This excel spreadsheet will walk you through figuring out how much support you need.
• IT Staffing (PDF) - This document has information about IT staffing, including resources on salary ranges, job descriptions and interview questions.
• Working with Consultants (PDF) - This document has information about things to consider when working with an IT Consultant.
• IT Interview Questions (PDF) - This document has sample interview questions you might ask to different IT staff for different positions.

Spam is a continuing problem these days. Even with spam-blocking software and spam-filters, spammers seem to find us and bother us. Though there is no way to completely eliminate spam from your life, here are some tricks to minimize the amount you receive.

Do NOT use “click here to remove yourself” links in Email.

You may have noticed at the end of some Junk mail, there’s an option to ‘remove’ or ‘opt out’ so you no longer receive messages from that company. Do NOT use this. The simple fact of the matter is, spammers LIE. There ARE some companies/people who WILL remove you from their lists, but the MAJORITY will NOT, and in fact only use this method to verify they have a valid email address which will only lead to more spam. The ONLY time you should use these ‘remove yourself’ options is when you personally know the company, like Microsoft, IBM, the New York Times, etc.

Don’t give your personal Email address out to anyone you don’t personally know.

Don’t use your personal/work email address to sign up for ANYTHING on the Internet, unless you KNOW the company first hand. If there is some sort of odd-ball thing you want to sign up for, open a free Email account through hotmail or yahoo and use that address instead. If you want to sign up for a discussion group or an Internet forum, for example, a lot of them will verify your registration by sending an Email to you, which is why they ask for it in the first place. Use a free yahoo or hotmail account for these types of companies who want your email address, again unless you know the company first hand.

Out of Office Assistant can be a bad thing, despite its benefits.

Consider NOT using Out of Office assistant in many email clients. Spammers fish for valid Email addresses by sending out massive amounts of Email to common names within a domain (eg: tacs.org). They address blind Emails to addresses like bob@tacs.org, john@tacs.org and all sorts of other variations. If they manage to guess your address which currently has the Out of Office Assistant enabled, you will automatically send them a message and they will know they’ve just found a valid address. I guarantee you will be added to at least one, if not multiple spam lists because of this.

Don’t be a spammer yourself

When you are sending a message out to multiple people, put all the addresses in the BCC field (Blind Carbon Copy) instead of the To or the CC field. This way, email addresses stay private (no-one on your list will see anyone else’s email address) and your list can’t fall into the wrong hands.

When you get a message trying to raise money for a child’s surgery or telling you to delete a file on your computer or warning of a new computer virus, check first to see if it is a hoax. Most of these messages turn out to be FAKE stories or warnings and any time one of us sends this message out, we are creating spam and encouraging abuse of the Internet. Instead, take a minute to check this message out on one of the hoax websites, like hoaxbuster.ciac.org or www.symantec.com/avcenter/hoax.html. If this turns out to be a hoax email, delete it and tell the person who sent it to you how to investigate hoaxes before sending them out.

Just be careful and try to use common sense when using the Internet

Try to use common sense when surfing the net. Not only to help fight spam, but to help fight against Internet abuse in general. The best way to develop common sense for Internet usage is to ASK someone who might know, like a technology consultant or TACS.

Think of your computer as your home. Keep it private except to those you trust. If a website wants to install something on your machine, click NO (unless you are expecting it). Do not open Email attachments unless you are expecting them.

If you would like more information about Spam/Junk mail, visit spam.abuse.net

Nonprofits need to keep up-to-date on hardware and software upgrades. But, the costs can be too high and it can be a challenge to find funds to support technology investments. Here are a few links to resources that offer discounts to nonprofits on software and hardware.

Discount Tech
Discount Tech offers discounts on a wide range of commonly used software products for nonprofits. Examples include: Microsoft products, Norton AntiVirus, Quickbooks, Dreamweaver, etc.

Gifts In Kind
Gifts in Kind international offers discounts on products and services to nonprofits, which includes hardware and software.

Techmarketplace on Techfoundation
Techmarketplace on Techfoundation.org has negotiated deals with hardware and software vendors to offer nonprofits the best available prices.

FreeGeek
You can recycle your old computers at freegeek and with a few hours of volunteering you can earn a refurbished computer loaded with Linux. Freegeek is located in Portland, Oregon.

MacRenewal
A Macintosh recycling center in Eugene, Oregon

Microsoft has changed its donation policy (again) and now nonprofits can request software once every year, so you'll want to plan ahead for any request for software to meet your needs throughout the year. You can find some detailed information about the donation policy at Techsoup

It is always a good idea to check the company’s website to see if they have any direct software donation program. Oftentimes the company will have a program in cities where they have a presence or will have certain types of charitable organizations that are eligible to receive free or donated software.

Examples of sites with their own donation programs:
Adobe
Filemaker
Symantec

In order to receive donations, you will have to offer proof of your 501(c)3 status and be prepared to pay at least for administrative fees or discounted rates.

Organizations typically expect several outcomes when they plan to hire a consultant grant writer:

• Research about appropriate funding opportunities
• One or more targeted proposals ready for submission
• Templates and strategies for future grant applications

In order to meet these goals effectively the grant writer must be oriented with a clear understanding of the organization, including its strategic direction, budget, capacity, and current services. His or her work plan should include teaching the organization the aspects of planning and writing a grant proposal so that it doesn’t become too reliant on the consultant for fundraising success. A professional grant writer will also be transparent in their work and disclose any conflicts of interest that may arise from work with other clients.

Keep expectations about the outcome of the grant proposal realistic. Success depends as much on a well thought-out plan and steps for execution as the writing and relationship-building skills of the grant writer. Recognize that factors beyond the grant writer’s control, such as organizational credibility, a realistic relationship between the proposed activities and the budget, the board of director’s level of engagement, and evidence of past collaboration with other community partners can impact the success of the proposal. Finally, although you may have submitted a strong proposal, funders simply don’t have enough to give every organization.

Do not hire a grant writer or other fundraising consultant under an agreement to pay her/him on a commission basis (a percentage or portion of funds raised). This practice is considered unethical by the Association of Fundraising Professionals and is discouraged. To read more about this issue, go to www.apfnet.org.

One aspect of the arrangement between a client and consultant is that the client typically does not have to pay benefits and workers compensation, match Social Security payments, and withhold income taxes. Consequently, the IRS is quite concerned that clients accurately classify their service providers as "employees" or "independent contractors." There are certain guidelines a nonprofit can follow to minimize the likelihood that IRS will deem a service provider to be an employee and demand that the organization pay back taxes and penalties.

Whether a service provider is deemed an employee or an independent contractor depends primarily on the extent of control the client organization has over the consultant: the less control in the relationship, the less likely the IRS will consider the service provider to be an employee. Consider the following actions when attempting to define the relationship with an independent contractor:

• In a written document clearly specify your relationship with the service provider as an independent contractor who is responsible to pay their own taxes and describe the terms of the relationship (e.g., services, deliverables, fees based on results or tasks rather than time, project start and stop dates).
• The service provider should have all or considerable discretion in how services are carried out, including the process and scheduling.
• The service provider should be responsible to obtain and pay for their own training to carry out the services.
• The service provider should not be required to carry out his or her services at the offices of the client and should have his or her own place of business.
• The service provider should have or be making obvious efforts to advertise and retain business with other clients.
• Note that the more a service provider appears as a manager (e.g., makes operating decisions, supervises people, is responsible for resource allocations), the more likely the service provider will be deemed an "employee" by the IRS.

Prepare a contract for signature by both parties before work begins. It should include:

• a list of specific deliverables (e.g., logos for web and print use, a new personnel manual)
• specific start and completion dates
• a payment schedule and description of reimbursable expenses
• evaluation checkpoints and procedures
• a bail-out clause for either party
• the name of the person in your organization with authority to agree to expenditures and approve work
• agreement on who will do the actual consulting

Help the consultant understand the mission, culture, and work of your organization by providing him or her with the appropriate written materials such as brochures, mission statements, annual reports, strategic plans, and organizational charts. This is an especially important step if the consultant has been engaged to address non-technical needs.

Include regular check-in opportunities and establish criteria for more formal mid- and end-point evaluations of the project. Conduct a three- and six-month evaluation after the project’s conclusion to assess whether the consultant’s recommendations were implemented and if the project’s goals were reached.

• Develop a written Request for Proposals (RFP) to help you describe your organization and define your particular need in a clear and concise way. The RFP can also provide talking points in direct conversations with interested parties.
• Interested consultants should respond to an RFP in writing so that all decision makers in your organization have access to the same information about the consultant’s expertise and approach.
• The RFP should require a specific discussion of timelines, deliverables, and how fees and reimbursable expenses will be handled.
• Disseminate the RFP widely to professional organizations, consultants you’ve worked with in the past, and your local nonprofit community in order to attract a number of proposals.
• Develop interview questions prior to meeting with the strongest prospects. Ask about their training, the extent of their expertise, their willingness and ability to adapt to your organization’s culture, successes and challenges they’ve met in their work, coaching experience, and availability. Note their listening skills, preparation (e.g., are they well-versed in your mission), and what kinds of deeper information they seek from you in the interview.
• Develop a written protocol for checking at least three client references on your strongest candidates. Ask specific questions about the consultant’s style, ability to deliver product according to established timelines, the utility and ease of implementing his or her recommendations, and whether the organization would hire the consultant again.
• It’s tempting, but nearly always a mistake, to choose a consultant based solely on price.

• No one on your staff or board of directors has the expertise or availability to address a specific organizational need, such as designing a new logo or managing an executive director search.
• The need is of relatively short duration (less than a year) and can be met within a definable time frame.
• You may have tried to address the need internally in a way that was not successful, or only partially satisfactory.
• Staff and/or board disagree about how to meet the need and seek assistance in coming to consensus.
• You want an objective perspective that isn’t swayed by your organization’s past or current issues.
• An outside organization requests that a consultant be brought in. For example, a funder may ask for an audit to ensure that a grant will be well-managed.