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Whether You 990 or Not, Changes ARE Coming. Barbara Clemenson, CPA, CFRE. Outline. Causes of Increased Scrutiny Pressures for Increased Scrutiny Results of Increased Scrutiny Recommendations for Meeting the Pressures of Increased Scrutiny. Causes of Increased Scrutiny.

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whether you 990 or not changes are coming

Whether You 990 or Not,Changes ARE Coming

Barbara Clemenson, CPA, CFRE

outline
Outline
  • Causes of Increased Scrutiny
  • Pressures for Increased Scrutiny
  • Results of Increased Scrutiny
  • Recommendations for Meeting the Pressures of Increased Scrutiny
causes of increased scrutiny
Causes of Increased Scrutiny
  • Notorious Corruption Cases: Business, Government and Nonprofit
  • General Atmosphere of Skepticism and Economic Pressure
causes of increased scrutiny1
Causes of Increased Scrutiny

Notorious Corruption Cases: Business, Government and Nonprofit

causes of increased scrutiny2
Causes of Increased Scrutiny

General Atmosphere of Skepticism and Economic Pressure

Skepticism

  • Nonprofit Hospitals
  • Executive Compensation
  • Gifts in Kind
  • Family/Friends Relationships
causes of increased scrutiny3
Causes of Increased Scrutiny

General Atmosphere of Skepticism and Economic Pressure

Economic Pressure

  • As resources become more stretched and restricted
  • Scrutiny to reduce spending, and pressure to increase revenue, intensifies.
pressures for increased scrutiny
Pressures for Increased Scrutiny
  • Regulation in the For Profit Sector: Sarbanes-Oxley, 2002
  • General Methods of Government Intervention in the Nonprofit Sector: Federal and State Levels
  • Self-Regulation
  • Lobbying
pressures for increased scrutiny1
Pressures for Increased Scrutiny

Regulation in the For Profit Sector: Sarbanes-Oxley, 2002

If we do not regulate ourselves, we WILL be regulated by others!

pressures for increased scrutiny2
Pressures for Increased Scrutiny
  • Governmental Pay-Go Rules: If new legislation is introduced that will increase the federal budget, it must pay for itself through:
    • Increased taxes
    • Reducing other budget items
    • Closing tax loopholes
pressures for increased scrutiny3
Pressures for Increased Scrutiny
  • The Senate Finance Committee believes there is $1.8 billion being lost annually through fraudulent or inappropriate donor reporting.
  • Senator Grassley (R), former Chair, was pushing for nonprofit Sarbanes-Oxley type legislation .. But then, Hurricane Katrina happened.
pressures for increased scrutiny4
Pressures for Increased Scrutiny
  • New Approach = Piecemeal legislation  Tacking nonprofit regulation on to other laws, tackling “abuses” one at a time.
  • American Jobs Creation Act of 2004 (auto donation regulation)
  • Pension Protection Act of 2006 (August 2006)
pressures for increased scrutiny5
Pressures for Increased Scrutiny

Pension Protection Act

  • Recordkeeping for monetary donations
  • Donated clothing and household items: Good condition; Appraisals for items worth more than $500
  • Small charities, under $25,000, need to annually electronically file notice
  • Reporting payments by controlled organizations
  • Tax-free donations from IRAs by taxpayers 70 ½ + up to $100,000 for 2006 and 2007.
pressures for increased scrutiny6
Pressures for Increased Scrutiny

Current Government Intervention Areas of Interest:

  • Donor advised funds and supporting organizations
  • Technical corrections bill on the Pension Protection Act --
  • General sessions in the House Ways and Means Committee this summer on the nonprofit sector
pressures for increased scrutiny7
Pressures for Increased Scrutiny

General Methods of Government Intervention:

  • IRS in February 2007 published a draft of Good Governance Practices for Nonprofit Organizations

http://www.irs.gov/pub/irs-tege/good_governance_practices.pdf

pressures for increased scrutiny8
Pressures for Increased Scrutiny

General Methods of Government Intervention:

  • IRS Good Governance
  • This has NOTHING directly related to do with finances. The IRS’ rationale is that NPOs with good governance will be more likely to act responsibly.
  • Scope expansion!
pressures for increased scrutiny9
Pressures for Increased Scrutiny

General Methods of Government Intervention:

  • IRS Good Governance
  • The IRS will monitor other self-regulation proposals, looking for an emergence of good practices.
  • Might those practices be legislated in the future?
pressures for increased scrutiny10
Pressures for Increased Scrutiny

General Methods of Government Intervention: State Levels

  • States increasing reporting and regulation of the NPOs
  • States passing Sarbanes-Oxley type laws: CA was the first
pressures for increased scrutiny11
Pressures for Increased Scrutiny

Self-Regulation

  • Independent Sector: Panel’s Advisory Committee on Self Regulation Draft Principles
  • http://www.nonprofitpanel.org/selfreg/index.html
pressures for increased scrutiny12
Pressures for Increased Scrutiny

Self-Regulation

Independent Sector Draft Principles cover:

  • Facilitating Legal Compliance
  • Effective Governance
  • Strong Financial Oversight
  • Responsible Fundraising
pressures for increased scrutiny13
Pressures for Increased Scrutiny

Lobbying

  • Alliance for Charitable Reform, a project of The Philanthropy Roundtable.
  • http://www.acreform.com/
results of increased scrutiny
Results of Increased Scrutiny
  • Revised 990
  • Increased Oversight of New Nonprofits
  • Pressure for Disclosure
results of increased scrutiny1
Results of Increased Scrutiny

Revised 990

  • Increased scrutiny of donor advised funds:
    • Line 1a
    • Line 22a
results of increased scrutiny2
Results of Increased Scrutiny

Revised 990

  • Increased scrutiny of compensation and related party transactions
  • Lines 23 and 24
  • Lines 25a, b and c  Schedule A Part 1.
  • Lines 50 a and b
  • Line 63
  • Part V-A, V-B
results of increased scrutiny3
Results of Increased Scrutiny

Revised 990

  • Increased scrutiny of compensation and related party transactions
  • Part XI
  • Schedule A Part VII: Relationships to other NPOs
results of increased scrutiny4
Results of Increased Scrutiny

Increased Oversight of New Nonprofits

  • Seeds of Grace, Mission
  • Postcard Annual Registration for small NPOs (under $25,000)
results of increased scrutiny5
Results of Increased Scrutiny

Pressure for Disclosure

IRS forced disclosure on 990 

Expected public information for funders and media

Best practices

recommendations
Recommendations
  • Governance
  • Finances
  • Employment
  • Relationships
recommendations1
Recommendations

Governance

  • Widen your community representation.
    • Conduct a board assessment to determine strengths and skill needs of your present Board.
    • Perhaps use the resources of a third party to find new Board members. [We tend to recruit people we know, who are like us.]
recommendations2
Recommendations

Governance

  • Widen your community representation. The IRS is looking boards reflecting broad public interests, rather than the interests of a small group of donors or related parties. Specifically they are reviewing boards for the inclusion of:
    • Public officials
    • Individuals with expertise in organization’s area of operations
    • Leaders from the local community
    • Representatives of the constituency the organization serves
    • Others representing a broad cross-section of community interests.
recommendations3
Recommendations

Finances

  • Honestly report, understand and explain your finances.
  • “Acceptable percentages”
  • CFO Cover Story, Misgivings

http://www.cfo.com/article.cfm/8477078?f=search

Both of these resources are in the convention notebook.

recommendations4
Recommendations

Employment

  • Make sure you are following all federal, state and local labor laws.
recommendations5
Recommendations

Employment

  • Are you paying a

living wage?

recommendations6
Recommendations

Relationships

  • Move towards NOT having people from the same family working at the Mission or on the Board.
  • Move away from doing business with related parties. It’s not illegal right now, as long as those transactions are disclosed, but that is an area where it might well become prohibited in the future.
recommendations7
Recommendations

Relationships

  • Advantages:
    • Looks better in the eyes of the community
    • By having family and friends out in the community working at other organizations, you extend the outreach of and connections with the Mission.
conclusion
Conclusion
  • Man looks at the outward appearance, but the LORD looks at the heart. I Samuel 16:7
    • Man DOES look at the outward appearance!
  • We are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of men.

II Corinthians 8:21

    • We might be within our legal rights, and still be doing things that don’t pass the “smell” test in the eyes of our community.