November 27, 2006
Number games | Nonprofit organizations face stiff financial reporting rules, but many don't have the resources to hire high-priced accountants. The solution? Befriend a CPA.
By Sean Donahue
Peter Montano, a director at the South Portland accounting firm Macdonald Page, specializes in serving nonprofit organizations. But over the years, he's noticed that his 50 or so nonprofit clients face a dilemma that for-profit businesses don't when it comes to using his services: Nonprofit organizations, he says, have to contend with far more regulations and financial reporting requirements than for-profit entities. Yet many nonprofits ˆ particularly smaller organizations ˆ have far fewer resources to pay an expert like Montano to help sort through the paperwork.
In addition to the basic Internal Revenue Service reporting requirement known as Form 990, nonprofit organizations often must submit to additional federal audits to detail how they've spent grant money. Maine also has reporting requirements for state grants. And such documentation comes on top of nonprofits adhering to generally accepted accounting principles for all financial matters. While such oversight might not be a problem for the biggest nonprofits ˆ such as heath care operations or social service agencies with annual budgets in the millions of dollars and well-staffed business offices to keep track of paperwork ˆ the same isn't always true for Montano's smaller clients. "If you're a large entity, you've got the resources to do it all. If you're a small entity, you don't, and keeping up with the requirements becomes a lot more difficult," says Montano.
Just as Maine is primarily a small-business state, the nonprofit sector also features a large percentage of small entities. Of the 2,164 nonprofits in Maine required to file IRS Form 990 ˆ which includes organizations with $25,000 or more in gross annual receipts ˆ 40% had expenditures of less than $100,000, according to the Maine Association of Nonprofits. Tack the annual tax preparation bill onto other services, such as an annual auditing of financial statements that must be performed by an outside accountant, and these organizations face bills of several thousand dollars to tens of thousands of dollars a year, accountants and nonprofit managers say.
Adding to the challenge is the fact that many nonprofit managers say keeping track of all the financial details and paperwork can make their heads hurt. "The issue I find myself struggling with is that a lot of folks in the nonprofit sectors are involved because of the mission and their passion as an advocate," says Jeffrey Miller, executive director of the Augusta-based Bicycle Coalition of Maine. "Paperwork and regulations are not their forte or first preference of activities."
Though there's only so much accounting firms can do to mitigate these challenges, many nonprofits and the professionals that work with them have found ways to make their accounting bills take a smaller bite out of the budget. The keys, they say, are better education about regulatory requirements, seeking a professional's help throughout the year and relying on a few well-chosen volunteers to carry some of the load.
The value of a quick phone call
Staying on top of paperwork ˆ and staying in touch with an accountant throughout the year ˆ is essential to minimizing the bill for big projects. Take an annual audit of the organization's finances, which is something MANP recommends for any organization with annual revenues of more than $500,000.
Anne Cloutier, a senior manager in the audit department of Portland-based Baker Newman Noyes, says she starts the process by having preliminary conversations with her nonprofit clients to outline which records and data they need to collect on a monthly basis throughout the year. She also tells them how to compile that information once audit time comes, to reduce the time she has to spend ˆ with the meter running ˆ reviewing that documentation. Although she declines to discuss the hourly rate her firm bills her clients, she says even a well-prepared nonprofit can see its audit cost about $6,000. But well-organized paperwork means Cloutier may only have to spend a week on the audit, compared to disorganized processes that can drag on for weeks. "If they're very well prepared, it's a much smaller time commitment on our part and on theirs," says Cloutier. "If they're not ready, we waste time waiting for paperwork, or find things that aren't up to par and have to go back to them with more questions."
It's the same advice Peter Montano gives to his nonprofit clients, such as the Portland Symphony Orchestra, which has an annual operating budget of $3 million. Melodye DeBeradinis, the PSO's director of finance, says she performs monthly reconciliations of the symphony's finances during the year and regularly collects data that must be included in the annual audit. If she has any questions about a piece of financial data she comes across, she'll pick up the phone and call Montano for quick advice, so the paperwork is as accurate as possible when it's time to perform an audit. "The ideal situation is that when Peter walks in at year-end, he has no adjustments to make," says DeBeradinis, who did not disclose how much her organization spends on accounting services.
Communication with an accountant also is paramount when a nonprofit experiences a significant change in its revenues or expenditures, such as launching a program or landing a large grant. Such events often can change an organization's reporting requirements, or create a new set of data that must be collected for an audit or tax filing. And Montano says a five- or 10-minute phone call up front ˆ for which there's often no charge ˆ allows him to lay out the procedures the organization must put in place. "Those few proactive telephone calls along the way saves a nonprofit a lot of time at the end if they've missed something," says Montano.
Help from the board
For other accounting issues, the cheapest solution often is found among the nonprofit's roster of volunteers. Many nonprofits include a certified public accountant on their boards who can assist in everything from day-to-day financial questions to significant operational issues.
The Bicycle Coalition of Maine has seen the benefit of having an expert on its board. In the decade since Jeffrey Miller took over as executive director of the 14-year-old organization, he says he's watched its finances grow from "$2,500 in the bank" to an annual budget of nearly $400,000. But the organization's size ˆ along with the mix of state and federal money it receives to run dozens of biking events, training course and bicycling awareness campaigns statewide ˆ requires it now to consider a full-scale audit of its finances. And in preparation, it must switch its internal accounting method over from a cash basis to an accrual basis, which changes the timing for recording income and expenses.
Enter Moe Bisson, a member of the BCM board and a retired CPA, who also served as treasurer for Angus King's gubernatorial campaigns. Bisson has been poring over the BCM's finances, making sure transactions are recorded in the right places and that the organization is adhering to financial statutes. "I couldn't afford to pay someone for what he's doing for us," says Miller.
Having a CPA on the board is the best way for a nonprofit to get such free help, because accountants say that firms don't have a pro-bono system in place that would cover, say, an audit or tax filing. Instead, Montano and Cloutier say their firms encourage accountants to volunteer their time as members of nonprofit boards.
Accounting firms also see education as a way to help nonprofits that don't have a big budget for professional assistance. Cloutier, for example, says Baker Newman Noyes offers publications that help keep nonprofits up to date on regulations and requirements.
Macdonald Page accountants participate in training efforts and conferences, Montano says, such as an event held by MANP on risk management and financial issues for nonprofits.
In the end, though, there always will be bills to pay when a nonprofit needs to file its 990 or have an audit performed. Cloutier says Baker Newman Noyes charges clients on a sliding scale depending on the size of the organization, but that "the fee is generally the fee."
Montano says his firm can offer smaller nonprofits a 25%-30% discount off standard rates, but nonprofits looking for a bigger break have to accept reality. "I hear from a lot of nonprofits who ask if we could do something for free," Montano says. "Well, we have 200-plus nonprofit clients. If I did everyone for free, I'd be out of business."
In addition to the basic Internal Revenue Service reporting requirement known as Form 990, nonprofit organizations often must submit to additional federal audits to detail how they've spent grant money. Maine also has reporting requirements for state grants. And such documentation comes on top of nonprofits adhering to generally accepted accounting principles for all financial matters. While such oversight might not be a problem for the biggest nonprofits ˆ such as heath care operations or social service agencies with annual budgets in the millions of dollars and well-staffed business offices to keep track of paperwork ˆ the same isn't always true for Montano's smaller clients. "If you're a large entity, you've got the resources to do it all. If you're a small entity, you don't, and keeping up with the requirements becomes a lot more difficult," says Montano.
Just as Maine is primarily a small-business state, the nonprofit sector also features a large percentage of small entities. Of the 2,164 nonprofits in Maine required to file IRS Form 990 ˆ which includes organizations with $25,000 or more in gross annual receipts ˆ 40% had expenditures of less than $100,000, according to the Maine Association of Nonprofits. Tack the annual tax preparation bill onto other services, such as an annual auditing of financial statements that must be performed by an outside accountant, and these organizations face bills of several thousand dollars to tens of thousands of dollars a year, accountants and nonprofit managers say.
Adding to the challenge is the fact that many nonprofit managers say keeping track of all the financial details and paperwork can make their heads hurt. "The issue I find myself struggling with is that a lot of folks in the nonprofit sectors are involved because of the mission and their passion as an advocate," says Jeffrey Miller, executive director of the Augusta-based Bicycle Coalition of Maine. "Paperwork and regulations are not their forte or first preference of activities."
Though there's only so much accounting firms can do to mitigate these challenges, many nonprofits and the professionals that work with them have found ways to make their accounting bills take a smaller bite out of the budget. The keys, they say, are better education about regulatory requirements, seeking a professional's help throughout the year and relying on a few well-chosen volunteers to carry some of the load.
The value of a quick phone call
Staying on top of paperwork ˆ and staying in touch with an accountant throughout the year ˆ is essential to minimizing the bill for big projects. Take an annual audit of the organization's finances, which is something MANP recommends for any organization with annual revenues of more than $500,000.
Anne Cloutier, a senior manager in the audit department of Portland-based Baker Newman Noyes, says she starts the process by having preliminary conversations with her nonprofit clients to outline which records and data they need to collect on a monthly basis throughout the year. She also tells them how to compile that information once audit time comes, to reduce the time she has to spend ˆ with the meter running ˆ reviewing that documentation. Although she declines to discuss the hourly rate her firm bills her clients, she says even a well-prepared nonprofit can see its audit cost about $6,000. But well-organized paperwork means Cloutier may only have to spend a week on the audit, compared to disorganized processes that can drag on for weeks. "If they're very well prepared, it's a much smaller time commitment on our part and on theirs," says Cloutier. "If they're not ready, we waste time waiting for paperwork, or find things that aren't up to par and have to go back to them with more questions."
It's the same advice Peter Montano gives to his nonprofit clients, such as the Portland Symphony Orchestra, which has an annual operating budget of $3 million. Melodye DeBeradinis, the PSO's director of finance, says she performs monthly reconciliations of the symphony's finances during the year and regularly collects data that must be included in the annual audit. If she has any questions about a piece of financial data she comes across, she'll pick up the phone and call Montano for quick advice, so the paperwork is as accurate as possible when it's time to perform an audit. "The ideal situation is that when Peter walks in at year-end, he has no adjustments to make," says DeBeradinis, who did not disclose how much her organization spends on accounting services.
Communication with an accountant also is paramount when a nonprofit experiences a significant change in its revenues or expenditures, such as launching a program or landing a large grant. Such events often can change an organization's reporting requirements, or create a new set of data that must be collected for an audit or tax filing. And Montano says a five- or 10-minute phone call up front ˆ for which there's often no charge ˆ allows him to lay out the procedures the organization must put in place. "Those few proactive telephone calls along the way saves a nonprofit a lot of time at the end if they've missed something," says Montano.
Help from the board
For other accounting issues, the cheapest solution often is found among the nonprofit's roster of volunteers. Many nonprofits include a certified public accountant on their boards who can assist in everything from day-to-day financial questions to significant operational issues.
The Bicycle Coalition of Maine has seen the benefit of having an expert on its board. In the decade since Jeffrey Miller took over as executive director of the 14-year-old organization, he says he's watched its finances grow from "$2,500 in the bank" to an annual budget of nearly $400,000. But the organization's size ˆ along with the mix of state and federal money it receives to run dozens of biking events, training course and bicycling awareness campaigns statewide ˆ requires it now to consider a full-scale audit of its finances. And in preparation, it must switch its internal accounting method over from a cash basis to an accrual basis, which changes the timing for recording income and expenses.
Enter Moe Bisson, a member of the BCM board and a retired CPA, who also served as treasurer for Angus King's gubernatorial campaigns. Bisson has been poring over the BCM's finances, making sure transactions are recorded in the right places and that the organization is adhering to financial statutes. "I couldn't afford to pay someone for what he's doing for us," says Miller.
Having a CPA on the board is the best way for a nonprofit to get such free help, because accountants say that firms don't have a pro-bono system in place that would cover, say, an audit or tax filing. Instead, Montano and Cloutier say their firms encourage accountants to volunteer their time as members of nonprofit boards.
Accounting firms also see education as a way to help nonprofits that don't have a big budget for professional assistance. Cloutier, for example, says Baker Newman Noyes offers publications that help keep nonprofits up to date on regulations and requirements.
Macdonald Page accountants participate in training efforts and conferences, Montano says, such as an event held by MANP on risk management and financial issues for nonprofits.
In the end, though, there always will be bills to pay when a nonprofit needs to file its 990 or have an audit performed. Cloutier says Baker Newman Noyes charges clients on a sliding scale depending on the size of the organization, but that "the fee is generally the fee."
Montano says his firm can offer smaller nonprofits a 25%-30% discount off standard rates, but nonprofits looking for a bigger break have to accept reality. "I hear from a lot of nonprofits who ask if we could do something for free," Montano says. "Well, we have 200-plus nonprofit clients. If I did everyone for free, I'd be out of business."
Most Recent
Most Recent
Comments