Understanding the Changes to Unrelated Business Income

By: Doris Kerr, Firm Administrator

On October 10, 2018, the Postal Regulation Commission (PRC) approved a proposal to increase the United States Postal Service rates for shipping and mailing service fees. The new prices, rising by up to 10 percent, will vary by product and take effect January 27, 2019.

Price changes include raising the cost of a first-class stamp by 10 percent from 50 cents to 55 cents each. Some items, such as postcards, will remain at 35 cents while the price letters weighing more than 1 ounce, will decrease.

This rate increase is an effort to keep the Postal Service competitive while providing the agency with additional revenue. As a reminder, the Postal Service does not receive tax dollars for operating expenses; instead, they rely heavily on the sale of postage, products, and services to fund its operations. In addition, mailing service prices are influenced by the Consumer Price Index, while shipping service prices are adjusted based on market conditions.

An analysis by the alliance of nonprofit mailers found the increase will also raise other classes of mail by about 2.5 percent. Overall, shipping services rates will increase 5.9 percent for priority mail and 3.9 percent for priority mail express.

Impact on Nonprofit Organizations

Organizations, but especially nonprofits that rely heavily on bulk marketing mailings will feel the impact of the 2019 rate increases. Nonprofit organizations should prepare and budget for the cost of their bulk outgoing mail to increase twice the rate of inflation. They also need to consider the cost of including a return envelope to facilitate donations as these will also incur a higher first-class letter rate.

If you need guidance on how to meet these challenges, please call the experts in our office.

Doris Kerr, Firm Administrator
302.478.8940
DKerr@btcpa.com

Understanding the Changes to Unrelated Business Income

By Jeffrey A. Kowalczyk, CPA, CFE, CGAP

Year-end giving is historically the most critical period for charitable foundations. Movements like Giving Tuesday help nonprofits gather donor funds through a lot of social fanfare, while the holiday spirit inspires others to give generously to their favorite causes. This surge in giving helps many nonprofits finish strong – but there’s a lot to uncover when it comes to a donor’s intent to give.

What started as a huge question mark, is ending the year on a positive note. Early in the year, changing tax laws caused many to speculate whether taxpayers would lose their incentive to give. However, in the wake of wildfires, hurricanes, and floods, the opposite appears to be true. According to survey data released by Classy, an online and mobile fundraising platform for nonprofits, 48 percent of those surveyed feels disaster relief is a cause needing support, the highest percentage of all causes included in the survey. The Classy survey revealed that “nearly half of consumers (49 percent) plan to donate more money to charity than they did in 2017.”  This data varies based on income level, but the message is clear, donors are motivated to give.

When it comes to charitable contributions, the survey also found that the donation experience plays a significant role in a donor’s level of trust in an organization, as well as their likelihood to give. As new generations emerge in the philanthropy landscape, nonprofits shouldn’t be surprised to hear that technology – the ability to give electronically – often tips the scales for millennials and Gen Z donors. In fact, more than half of consumers (53 percent) prefer to give online, regardless of their generation. Nonprofits should focus on improving their digital giving experience if they want to gain more trust in 2019.

Americans are certainly proving their mettle this year, but it’s important to note that while many have already committed to fundraising and relief efforts, there are still some who are sitting on the fence. According to Classy, personal or family connections to a cause, recommendations from social media influences, ease of donating, and negative media coverage heavily influence donor spending. The survey findings also indicate that disaster relief is a top cause for both Democrats (47 percent) and Republicans (42 percent).

The experts in our office are here to help you uncover ways of getting in front of new donors – give us a call today!

Jeffrey A. Kowalczyk, CPA, CFE, CGAP
Partner
302.478.8940
JKowalczyk@btcpa.com

Assessing Internal Controls

By Steven N. Kutsuflakis, CPA

Every organization needs internal controls to safeguard assets, assure accounting data is accurate and reliable, promote operational efficiency, and encourage compliance with prescribed policies and procedures. The start of a new year is the perfect time to take a fresh look at these controls to see how they measure up.

A good internal control system consists of four elements.

1. An authorization system that provides adequate accounting control over assets, liabilities, revenues, and expenses;
2. Sound, uniform operating procedures for all departments;
3. Segregation of duties, so no one person or department handles the complete accounting cycle for financial transactions; and
4. Personnel recruitment policies that ensure competent individuals are hired.

Here are some recommendations to help you maintain a good internal control system.

Cash Receipts

• Maintain a cash receipt log independent of the bookkeeper and reconcile it to the cash receipts.
• Restrictively endorse checks upon receipt.
• List all mail receipts when mail is opened.
• Prohibit the bookkeeper from cash handling, including petty cash and bank deposits.
• Issue duplicate, pre-numbered cash receipts for all cash and checks received that are more than the specific dollar limit established by the board.
• Reconcile copies of the pre-numbered cash receipts to the cash receipts journal and deposit slips.
• Use duplicate deposit slips.
• Retain copies of the deposit slips validated by the bank or proof of deposit reports for online deposits made through a check scanner.
• Have two individuals count and verify all cash received from sales made without using a cash register (e.g., a food booth).

Disbursements

• Make all disbursements—except petty cash—by check.
• Require all purchases on company credit cards to be accompanied by receipts.
• Support each check with an approved voucher.
• Use a “paid” stamp to cancel supporting documentation or invoice after payment.
• Review and approve signing authority for vouchers and checks annually.
• Prohibit the bookkeeper and executive director from signing checks.
• Have separate individuals approve vouchers and sign checks.
• Have the board establish a maximum dollar limit for each authorized signer.
• Require two signatures for checks above a board-stipulated dollar amount.
• Limit access to the supply of unused checks to authorized personnel.
• Require the board or finance committee authorize all withdrawals from, and transfers between, bank accounts.
• Appoint an individual authorized by the board to approve the executive director’s expense voucher.

Petty Cash

• Require receipts for all petty cash disbursements.
• Have each petty cash fund in the custody of one person.
• Prohibit the bookkeeper from maintaining petty cash.
• Require at least monthly submissions of petty cash vouchers for reimbursement.
• Have the board establish the number and dollar amount of petty cash funds.
• Prohibit employee IOUs in the petty cash fund.
• Prohibit cashing personal checks with petty cash funds.

Payroll

• Require the employee and their supervisor sign all time cards.
• Ensure the supervisor signing time cards has a personal knowledge of the hours the employee worked.
• Line out, correct, and have both employee and supervisor initial all time card errors.
• Prohibit the use of correction fluid on time cards.
• Assign an individual independent of preparing payroll vouchers to receive and distribute paychecks and monitor direct deposits.

General

• Require that bank reconciliations are performed by those whose duties do not include cash receipts and disbursements or account posting functions. Have bank statements mailed directly to that person.
• Have executive director or treasurer review reconciliations monthly.
• Reconcile bank statement balances, checkbook, and passbook balances and general ledger and cash balances monthly.
• Have all bank accounts established and closed by approval of the board.
• Require executive director to review and approve all general journal entries.
• Present the balance sheet and statement of operations to the board for monthly review and approval.
• Include all activities and sponsored programs in the general ledger.
• Train an employee to serve as a backup bookkeeper.
• Include all accounts in the general ledger—either actively or summarized—in financial reports presented to the board.
• Segregate accounting duties. Nonprofits should have at least two persons responsible for elements of accounting and bookkeeping functions. Alternatively, consider outsourcing this function with a virtual CFO.
• Adding background checks to your hiring routine, especially for any staff that will be managing payments and will have access to bank account information.
• Leverage software that crunches the data for you and compares payroll numbers and output with algorithms. This data can often be the first hint that a fraudulent scheme is underway.

According to a 2018 analysis of fraud schemes released by the Association of Certified Fraud Examiners, the not-for-profit sector may not be the most victimized type of organization; however, they suffer some of the greatest losses. Per the report, “not-for-profit organizations were the victim of only 9 percent of frauds and had the smallest medial loss; however, for many not-for-profit entities, financial resources are extremely limited, and a loss can be particularly devastating.”

Generally, developing strong controls and maintaining a tight watch over your accounts can help you both prevent and catch fraud. The professionals in our office can assess your fraud risk and provide you with a comprehensive and personalized plan to mitigate that risk. Contact one of our professionals today for more information.

For more information, contact:

Steven N. Kutsuflakis, CPA
Partner
302.478.8940
SKutsuflakis@btcpa.com