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Grants Central Station. presents the Fundamental Five Nonprofit Training Series. Financial Literacy & Bookkeeping. November 16, 2010. Mahalo to our Sponsors!. Office of Hawaiian Affairs – Community Based Economic Development Grant

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financial literacy bookkeeping

Grants Central Station

presents theFundamental Five Nonprofit Training Series

Financial Literacy & Bookkeeping

November 16, 2010

mahalo to our sponsors
Mahalo to our Sponsors!
  • Office of Hawaiian Affairs – Community Based Economic Development Grant
  • Tri-Isle Resource Conservation & Development – Fiscal Sponsor
  • County of Maui Department of Health & Human Concerns - Volunteer Services
  • Our Board: Anna K. Ribucan, Richard Kehoe, Keith Wolter, Faye Cummings, Susie Thieman
today s speaker
Today’s Speaker
  • Robert S. Kawahara, CPA
    • Managing Member, Kawahara & Company, CPAs, LLC
    • Vice President, Ronald A. Kawahara & Co., CPA’s, Inc.
    • Treasurer, Maui Humane Society
    • Treasurer, Lahaina Intermediate School Educational Foundation
    • Treasurer, Rotary Club of Kahului
    • Treasurer, Angus McKelvey for State House Committee
    • Director, Hawaii Association of Certified Public Accountants
    • Director, Hawaii Association of Public Accountants, Maui Chapter
    • Supervisory Committee Chairperson, Maui County Federal Credit Union
today s objective
Today’s Objective
  • Establish your baseline knowledge of financial literacy with regards to nonprofit organizations
  • Establish which areas of financial literacy that you need to work on
  • Obtain information regarding current issues affecting nonprofits
financial literacy
Financial Literacy
  • Class Participation
financial literacy1
Financial Literacy

The ability to read, analyze, manage and write about the financial conditions that affect material financial health. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to events that affect everyday financial decisions, including events in the general economy.1

1Goodbye to Complacency Financial Literacy Education in the U.S. 2000-2005

let s break it down
Let’s break it down
  • The ability to read, analyze, manage and write about the financial conditions that affect material financial health. . .
  • How do I gain that ability?
    • Foundation, Foundation, Foundation
foundation entity
Foundation - Entity
  • Gain an understanding of:
    • Mission Statement
    • What type of nonprofit
    • Employees
    • Organizational Chart
    • Funding Sources
    • Programs
foundation legal
Foundation - Legal
  • Gain an understanding of:
    • Grant Compliance
    • Tax Compliance
    • Human Resource Compliance
    • Hawaii Revised Statutes
      • HRS Chapter 414D – Hawaii Nonprofit Corporation Act
foundation environment
Foundation - Environment
  • Gain an understanding of:
    • Resources Available
    • Who are your Competitors
    • Who are you Servicing
    • Marketing
foundation accounting
Foundation - Accounting
  • Financial Statements
  • Internal Control
  • Bookkeeping
  • Recordkeeping
  • Budget
  • Basis of Accounting
  • Nonprofit accounting differences
financial statements
Financial Statements
  • Statement of Financial Position
  • Statement of Activities
  • Statement of Functional Expenses
  • Statement of Cash Flows
  • Notes to Financial Statements
types of transactions
Types of Transactions
  • Agency
    • No recognition of income
  • Contribution
    • Record at promise to give
    • Gives rise to Temporarily Restricted Net Assets
  • Exchange
    • A service is rendered
    • Gives rise to Deferred Revenue
using financial statements
Using Financial Statements
  • Vs. Budget
  • Vs. Prior Period
  • Historical vs. Projection
  • Financial Ratios
    • Revenue Ratios
      • Identify % of revenue stream
    • Defensive Interval
      • Identify how many months the organization could operate
    • Program Service Expense
      • Recommend minimum 65%
internal controls
Internal Controls
  • Why do we need Internal Controls
  • What is Fraud?
    • Black’s Law Dictionary fraud is defined as follows: “b Law. Any deliberate misrepresentation of the truth or a fact used to take money, rights, or other privilege or property away from a person or persons.”
  • 3 Categories of fraud
    • Corruption
    • Asset Misappropriation
    • Fraudulent Statements
  • Conditions present when fraud occurs
    • Incentive
    • Opportunity
    • Rationalization
internal control
Internal Control
  • 5 Components of Internal Control
    • Control Environment
    • Risk Assessment
    • Control Activities
    • Information and Communication
    • Monitoring
  • 3 Objective of Internal Control
    • Operations
    • Financial Reporting
    • Compliance
coso framework diagram
COSO Framework Diagram

Image from

internal control1
Internal Control
  • COSO defines internal control as a process, effected by an entity’s board of directors, management and other personnel. This process is designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.
  • Internal control is a process. It is a means to an end, not an end in itself.
  • Internal control is not merely documented by policy manuals and forms. Rather, it is put in by people at every level of an organization.
  • Internal control can provide only reasonable assurance, not absolute assurance, to an entity’s management and board.
  • Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.
  • Can internal controls prevent fraud?
  • What is the relationship between principle based vs. rules with regards to polices and procedures
  • List types of Fraud to Internal Control
  • Basis of Accounting
    • Cash
    • Tax
    • Modified
    • Accrual
  • Fund Accounting
  • GAAP
    • Generally Accepted Accounting Principles
  • Elements of a good recordkeeping system
    • Organized
    • Permanent File
    • Relevant
    • Leverage available software
      • Quickbooks
      • MIP
      • MAS 90
  • How many of you do a budget?
  • Why do a budget?
  • How effective has it been?
  • What is an audit?
    • An audit is a formalized process designed to obtain reasonable assurance that a financial statement(s) is free of any material misstatements whether caused by errors, frauds, and/or direct legal acts with respect to the management assertions embodied in the financial statement(s).
  • Financial Statement Audit
  • Single Audit
sample audit checklist
Sample Audit Checklist
  • Lease agreements
  • Bank statements & reconciliation
  • Grant reports
  • Year-end investment summary
  • Physical inventory
  • Fixed asset and depreciation schedule
  • Year-end accounts payable & accrued expenses
  • General Ledger
  • Schedule of grant awards
  • Grant contracts
  • Board of Directors & Committee Meeting Minutes
  • Personnel manual
  • Accounting manual
  • Payroll tax reports, W-2’s, 1099’s
  • Who is responsible for the financial statements of an organization?
elements of a good bookkeeper
Elements of a Good Bookkeeper
  • Well organized
  • Questions
  • Strong communication skills
  • Able to problem solve
  • Double-entry bookkeeping
  • Financial statement presentation
  • 3 years of experience
  • Who does the bookkeeper work for?
  • Who does the accountant work for?
  • Who does the auditor report to?
more free workshops
More Free Workshops!

Upcoming Fundamental Five workshops

from Grants Central Station

form 990
Form 990
  • Why the fuss all of a sudden?
    • In 2008, the Form 990 was completely redesigned by the IRS
      • Last revision 1979
    • The purpose was to:
      • Increase transparency
      • Good governance
      • Reduced burden (total opposite)
        • Replaced with increased accountability
form 9901
Form 990
  • It’s not all that bad . . .
    • The Form 990 is a publicly disclosed document.
    • Provides organizations the opportunity to:
      • Tell the organization’s story by effectively stating its mission and program service accomplishments
      • Market and development tool
form 9902
Form 990
  • Types of Form 990
    • Form 990
      • Return of Organization Exempt from Income Tax
    • Form 990-EZ
      • Short Form of Organization Exempt from Income Tax
    • Form 990-N
      • Electronic Notice (e-postcard)
      • Churches are exempt
form 990 faqs
Form 990 FAQs
  • All nonprofit organizations can file a Form 990, but not all nonprofit organizations can file a Form 990-N
  • Unlike most income tax returns that are quantitative in nature, Form 990 is heavily qualitative
form 9903
Form 990
  • Most Siginificant Changes
    • Front page summary that provides a snapshot of key financial and operating information
    • A governance section (page 6 of Form 990)
    • Revised compensation and related organization reporting (page 7 of Form 990)
form 990 filing thresholds
Form 990 – Filing Thresholds
  • Form 990
    • Gross receipts of $500,000 or more (2009)
    • Gross receipts of $200,000 or more (2010)


    • Total assets of $1.25 million or more (2009)
    • Total assets of $500,000 or more (2010)
form 990 ez filing thresholds
Form 990-EZ Filing Thresholds
  • Form 990-EZ
    • Gross receipts of $500,000 or less (2009)
    • Gross receipts of $200,000 or less (2010)


    • Total assets of $1.25 million or less (2009)
    • Total assets of $500,000 or less (2010)
form 990 n filing threshold
Form 990-N Filing Threshold
  • Form 990-N
    • Gross receipts of $25,000 or less (2009)
    • Gross receipts of $25,000 or less (2010)
  • Are there any other IRS filing that a nonprofit must file?
  • Yes, besides the Form 990 or equivalent a nonprofit must still file:
    • Payroll returns
    • Unrelated business income tax return (UBIT) return: Form 990-T
form 990 t
Form 990-T
  • Exempt Organization Business Income Tax Return
    • To report unrelated trade or business income.
    • An unrelated trade or business is any trade or business, the conduct of which is not substantially related to the exercise or performance by the organization of its exempt purpose.
    • The fact that an organization needs or uses the profits from a business activity to support its program services has no bearing on the determination of whether the activity is unrelated.
  • Unrelated Business Taxable Income
    • See IRS Publication 598 – “Tax on Unrelated Business Income of Exempt Organizations”
    • There are a lot of exceptions to the rule and is considered to be a fairly “gray” area with a lot of room for interpretation.
    • Be conservative and remember your fiduciary responsibility
form n70 np
Form N70-NP
  • State of Hawaii – Exempt Organization Business Income Tax Return
  • By the way, the State of Hawaii wants their cut too.
current issues affecting nonprofits
Current Issues Affecting Nonprofits
  • Hawaii’s Charity Registration
  • General Excise Tax
  • Sarbanes-Oxley Act of 2002
  • Concentration of Funds
hawaii s charity registration
Hawaii’s Charity Registration
  • Chapter 467B, HRS requires charities that solicit contributions to register with the Attorney General unless exempted from the registration requirement.
  • Effective January 1, 2009
  • Purpose is to protect donors from fraud and promote donor confidence in and an accountable transparent charitable sector.
hawaii s charity registration1
Hawaii’s Charity Registration
  • Covers your traditional nonprofits as well as any other organization that employs a charitable appeal as the basis of any solicitation or an appeal that has a tendency to suggest there is a charitable purpose to the solicitiation
hawaii s charity registration2
Hawaii’s Charity Registration
  • A grant received from the government, or another 501(c)(3) charity or private foundation is not a contribution.
  • Membership dues and assessments are also not deemed to be contributions.
hawaii s charity registration3
Hawaii’s Charity Registration
  • Filing requirements:
    • Annual filing
    • Audited financial statements if the charity has gross revenues over $500,000, or where the charity prepares an audited financial statement pursuant to a requirement by a governmental authority or third party.
    • Fees
      • From $10.00 to $750.00
hawaii s charity registration4
Hawaii’s Charity Registration
  • Exempt from requirements:
    • Churches
    • PTAs
    • Hospitals
    • Government or instrumentality of any state or the United States
    • Charities with less than $25,000 annually, and does not compensate person responsible for solicitations
    • Prohibits charities from contracting with un-registered professional solicitors and professional fundraising counsels.
general excise tax
General Excise Tax
  • Form G-6, Application for Exemption from General Excise Taxes
  • If you don’t file the form all forms of revenue are taxable.
general excise tax1
General Excise Tax
  • Tax Information Release (TIR) No. 2010-05
  • Act 155, Session Laws of Hawaii 2010, Relating to General Excise Tax; The General Excise Tax Protection Act
  • Two Sections
    • Denial of General Excise Tax Benefits
    • Trust Fund Liability
  • Prospective July 1, 2010
general excise tax2
General Excise Tax
  • Denial of General Excise Tax Benefits
    • Obtain a GET License
    • File annual reconciliation
  • If Form G-49, is not filed within 12 months from the due date for the return, the business may lose the benefit
general excise tax3
General Excise Tax
  • Trust Fund Liability
    • Creates liability for certain key individuals involved in the financial management of taxpayer
    • Liability is prospective from July 1, 2010
sarbanes oxley act of 2002
Sarbanes-Oxley Act of 2002
  • Two provisions that affect nonprofits
    • It is illegal for any corporate entity to punish whistleblowers or retaliate against any employee who reports suspected cases of fraud or abuse
    • It is a crime to alter, cover up, falsify, or destroy any document that may be relevant to an official investigation
  • The Act has many practices that may become best practices for governance of nonprofits
concentration of funds
Concentration of Funds
  • Today’s economic climate will force many nonprofits to reevaluate their past reliance on funding sources
  • Specifically, nonprofits that do little fundraising due to grant awards
more free workshops1
More Free Workshops!

Upcoming Fundamental Five workshops

from Grants Central Station

  • Internal Revenue Service (IRS)
    • Tax information for Charities & Nonprofits
    • Publication 526, Charitable Contributions
    • Publication 557, Tax-Exempt Status for Your Organization
    • Publication 598, Tax on Unrelated Business Income of Exempt Organizations
  • State of Hawaii
  • Tax Facts
    • Tax Facts No. 96-1, General Excise vs. Sales Tax
    • Tax Facts No. 98-3, Tax Issues for Hawaii Nonprofit Organizations
  • Tax Information Releases
    • TIR No. 89-13, Application for Exemption from the General Excise Taxes for Nonprofit Organizations
    • TIR No. 91-2, Taxability of Gross Proceeds Received by a Nonprofit Organization from the Sale of Donated Services or Tangible Personal Property
    • TIR No. 91-4, Hawaii Tax Obligations of Nonprofit Organizations
  • Accounting
    • Generally Accepted Accounting Principles
    • Financial Accounting Standards Board (FASB) Accounting Standards Codification
    • AICPA Audit and Accounting Guide, Not-for-Profit Entities
      • Wealth of material on nonprofit financial management
review section 1
Review Section 1
  • Section 1:
    • What is your Organization’s basis of accounting?
    • When is your Organization’s fiscal year end?
    • Does your Organization prepare compliant financial statements?
review section 2
Review Section 2
  • Section 2:
    • What type of Form 990 does my Organization file?
    • Does our Organization have Unrelated Business Taxable Income (UBTI)?
    • I will read my Organization’s Form 990 and I will look at another relevant organization’s Form 990 on Guidestar
review section 3
Review Section 3
  • Section 3
    • I will check to see if my Organization has a GET number
    • I will check to see if my Organization has filed it’s G-6 exemption
    • I will check to see if my Organization is current with registration with the DCCA
  • Robert Kawahara
  • Mark Moser
  • Kerry Cullins
mark moser
Mark Moser
  • Mr. Moser was most recently the Director of Finance for the Ritz Carlton Kapalua. Prior to that, he was the Director of Finance for the Washington Dulles Airport Marriott. He holds a bachelors of science in Business Administration with Distinction, from the George Mason University in Virginia. He has been a licensed Certified Public Accountant since 1992
kerry cullins
Kerry Cullins
  • Kerry Cullins moved to Maui in 1996 and founded Maui Bookkeeping Consultants in 2001. Maui Bookkeeping Consultants services a wide variety of clients including restaurants, contractors, non-profit organizations, retail, realtors and more. Kerry is the president of the company and specializes in consulting, training and forensic bookkeeping as well as overseeing the day to day operations. Kerry has worked with many different non-profit organizations in professional and voluntary roles by helping to set up  and clean up bookkeeping systems, organize silent auctions and acting as Treasurer.

Robert Kawahara

Mark Moser

Kerry Cullins

test your knowledge
Test Your Knowledge
  • Our funder (and we!) want to know how effective this workshop was for you.
  • This 5-minute Post-Workshop Quiz helps us gauge your progress and our success.


help us serve you better
Help Us Serve You Better!

Please take 5 more minutes to complete the Workshop Evaluation so that we can improve this and future offerings from Grants Central Station


more free workshops2
More Free Workshops!

Upcoming Fundamental Five workshops

from Grants Central Station


Robert Kawahara, CPA

Kawahara & Company, CPAs, LLC

(808) 244-5531


Grants Central


For More Information or to

Register for an Upcoming Workshop on Lana`i or Moloka`i

Leslie Mullens (808) 875-0500 or