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Can the treasurer be the bookkeeper?

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A new nonprofit was struggling to put together its first board of directors. The organizers had contracted with someone to be the bookkeeper and they wondered if it would be acceptable to have that person also serve on the board as the treasurer. The answer: maybe, but it might not be the best idea.

One issue is conflict of interest. Directors of nonprofits are not to benefit financially from their role on the board. So, even if the bookkeeper were a director but not the treasurer, if her firm is paid to do the bookkeeping, that could easily be seen as a conflict of interest. That might be mitigated if the firm did the bookkeeping pro bono. Another possible mitigation is to get bids from several bookkeepers and, if the bookkeeper’s firm is willing to do the work for significantly less, then that also might mitigate the conflict. In the latter situation, the board would want to clearly document the research that was done, and the bookkeeper would recuse herself from participating in the decision to contract with her firm.

A second issue to consider is that a fundamental part of the treasurer’s responsibilities is to provide financial oversight. So, if the treasurer is the bookkeeper, he/she is overseeing him/herself. In that case, it would be prudent to put a structure in place to ensure oversight. For example, the board might formally appoint another person to be the Chief Finance Officer and provide a written description of the CFO’s duties, which would include oversight.

The board also needs to keep in mind that if the organization is paying the director/bookkeeper, then that person becomes an “interested person.” In California, no more than 49% of the board of directors may be interested persons.

Finally, whatever arrangements are made, the board would be wise to put in place some basic internal controls. Here are two useful resources on that topic.

Documentation for Your Donors

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It’s the new year and our donors will start to gather the necessary materials to prepare their income tax returns. It’s also a good time to be certain we have provided them with the appropriate documentation of their gifts. Here are two of the most important things to keep in mind.

Gifts of $250 or more

We need to provide donors with “contemporaneous written acknowledgement” of each gift of $250 or more, or separate gifts made on the same day that total $250 or more. Here, contemporaneous means that the donor has the documentation in hand by the time they file their annual return.

Your thank you letter to the donor can serve this purpose as long as it includes:

  • The date the gift was received (not pledged, but actually received)
  • Whether or not the donor received any goods or services in exchange for the donation and, if so, an estimate of their value.

For gifts you have already acknowledged with that information, you’ve met that requirement. But for those end-of-year, last minute gifts you receive, be sure to provide the necessary documentation promptly in January.

Quid pro quo contributions

When a donor does receive goods or services in exchange for a contribution to your organization, it is called a quid pro quo contribution. You must provide a written disclosure statement to donors if the contribution is greater than $75. Here’s an example. If for a donation of $100 the donor receives tickets to an event that would have cost $40, the deductible amount would be $60. However, because the total contribution exceeds $75, written disclosure is required. This can be done either when soliciting the gift or as part of your thank you once the gift is received. The written statement must:

  • Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity, and
  • Provide the donor with a good faith estimate of the value of the goods or services that the donor received.

For more specific information, visit the IRS at Substantiating Charitable Contributions.

Temporarily Suspending Operations

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Can a nonprofit hibernate?

One of our smaller nonprofit members recently asked me that question. The organization had formed to raise funds to build and operate a community pool but, as they put it, “hit a wall.” They aren’t ready to give up on their goal, but they need time to regroup and strategize.

The simple answer is perhaps, but there are many things to think about when addressing this issue. In legal terms, a hibernation for a nonprofit is called a “suspension of operations.”

According to Donald W. Kramer, an attorney with more than 45 years of experience dealing with nonprofits, “an organization can suspend its operations for a short period without losing its 501(c)(3) status.” The specific answer for any particular organization comes down to legal and factual issues, and each situation can be unique.

File your reports!

That said, there are some very important things to keep in mind. First and foremost, you still need to file your required reports with the state and federal government. For the IRS, that means your annual 990, whether it be the full 990, 990-EZ, or 990-N. If you should fail to do that three years running, your tax-exempt status will be automatically revoked, and you don’t want that! In California, that also means filing your annual 199 or 199N as well as your Statement of Information with the Secretary of State and annual registration with the Attorney General’s office.

Meet

Your board of directors needs to meet at least once a year. Since your board has said it does not want to dissolve, it should be meeting anyway to plan for the future and how you will resume active operation. Take minutes of these meetings and keep them on file.

Follow your bylaws

Be sure to re-read your bylaws. Going “into hibernation” does not mean you can forget about them. You still need to follow your bylaws. Do they say you will meet monthly? Do they say you elect officers every June? If your bylaws state you will do certain things at certain times, you still need to do those things—or, properly amend your bylaws to allow for your period of temporary inactivity.

Mind your money

Do you have money in the bank? Think carefully about how to manage it while your main activities are suspended. Do you have any ongoing expenses that you will face despite being in hibernation? Are some of the funds restricted and can only be used for the stated purpose for which they were given to you? Be prudent. Make a “hibernation budget.” Keep sufficient funds readily available for any ongoing expenses. Consider putting the rest in a short-term certificate of deposit. Also, be aware that should you end up deciding not to continue but to dissolve, that process involves expenses. It would not be a bad idea to set money aside for that, just in case.

Plan for the “Spring”

We are not talking Rip Van Winkle here. Rip snoozed for 20 years. Your model should be akin to grizzly bears. It’s an annual thing. According to the folks at Yellowstone National Park, “Male grizzlies come out of hibernation in mid to late March. Females with cubs emerge later, in April to early May.” Not only that, while they’re hibernating, bears do wake up and move around inside the den!

So, your organization is not just checking out completely or indefinitely. Get up and walk around the den. Set a goal for when you will resume active work. Figure out your path to full operations and start following it. If that seems like too much to do, then you may really want to consider dissolving rather than “hibernating.”

References

Gifts of Stock

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A donor is interested in making a gift of stock to our nonprofit, but we don’t have a brokerage account. How can we accept the gift?

You may be tempted to wonder why not just have the donor sell the stock and then give the proceeds to the nonprofit. That is certainly an option, but often it is to the donor’s benefit to give the stock itself. For example, if the stock is worth more than when it was purchased, the donor avoids having to pay capital gains tax on the difference—and you get a bigger gift.

If your organization already has a brokerage account, the stock can be transferred directly. If not, you can look into opening one. That’s a particularly good idea if you expect to receive such donations frequently. A stumbling block, however, is that such accounts often have a significant minimum deposit.

If you don’t have a brokerage account and are not in a position to open one, organizations like the Community Foundation of San Luis Obispo County can help you. A charity itself, the Community Foundation can accept the gift, sell the stock, and pass the proceeds to your nonprofit.

This is also a good time to review your gift acceptance policy and make sure it is clear as to whether or not you accept gifts of stock and, assuming you do, what you will do with the gift. Often, it is best to sell the stock the same day it is received. Here are two good resources for more information on this topic:

Beginner’s Tips for Nonprofit Budgeting

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Creating the first budget for your new nonprofit? Or are you a new board treasurer and inherited a budget or budget process that really needs “upgrading?”

Monte S. Meyers, writing in Blue Avocado, provides some excellent, practical tips for involving the right people in the process, creating your budget, and monitoring it once it’s been adopted. Here are just a few examples:

  • Establish a clear budget development process. Who plays what part, and by when?
  • Develop a written set of “budget assumptions”—the information and thinking used to develop the numbers.
  • Use a budget spreadsheet or budgeting app that identifies each of the areas that make up your budget.
  • Be conservative in your revenue estimates.
  • When you can, enter realistic monthly numbers, rather than just dividing a total by 12.

Read Monte’s full article in Blue Avocado.

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