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  1. How do we prepare financial information for our nonprofit?
  2. How do I report fundraising costs accurately?
  3. How do I protect my organization from fraud and mismanagement?
  4. What records do I need to keep? And for how long?
  5. What is Sarbanes-Oxley?
  6. Does the Open Records Law apply to nonprofit organizations?
  7. What documents of my nonprofit organization can be inspected by the public or the organization's members?
  8. How will Oregon House Bill (HB) 2060 affect my nonprofit?

1. How do we prepare financial information for our nonprofit?

Preparing financial information can be quite complex for someone without at least some financial management experience. The Oregon Nonprofit Corporation Handbook can be an excellent resource for those wanting to learn more about the process of creating financial statements for their nonprofits. If you need a list of Nonprofit Financial Professionals to help you with the process, please email the NAO Helpline at helpline@nonprofitoregon.org. With the exception of very small nonprofits, organizations must follow Generally Accepted Accounting Principles (GAAP). GAAP is the standard used by CPAs to determine if financial statements “fairly present” the financial condition of the organization. GAAP requires nonprofit organizations to prepare the following three financial statements:

  • Balance Sheet, or Statement of Financial Position
  • Statement of Activities, also known as an Income Statement or Profit/Loss Statement
  • Statement of Cash Flows, or Statement of Cash position

Voluntary Health and Welfare organizations are also required to present a Statement of Functional Expenses, which presents the line-item expenses for a specific time period in columns for Management, Fundraising, and the different Program expenses. Some sample reports are below:

2. How do I report fundraising costs accurately?

Most nonprofit donors would prefer their contributions be used entirely for mission-focused program activities, but realistically, all nonprofits must spend some contributed income to raise the funds needed to carry out valuable programs. Needless to say, there is confusion about how to report fundraising costs accurately. To answer some of the lingering questions, The American Institute of CPAs (AICPA) has issued Statement of Position (SOP) 98-2 to offer guidance to accounting professionals regarding fundraising costs. However, the confusion continues and is heightened by Form 990 instructions, which have not quite caught up with GAAP. The IRS is much more liberal in its approach to allocating the joint costs of fundraising and program activities (e.g. newsletters). As a result of the differences between GAAP and the IRS—and the pressure organizations feel to minimize fundraising costs—the reporting of fundraising costs on the Form 990 is alarmingly inconsistent, and comparing the percentage of dollars raised used for fundraising among organizations is almost always misleading. How should your nonprofit define fundraising costs? Here are a few suggestions:

  • Set up a fundraising cost center in your chart of accounts and track fundraising expenses throughout the year.
  • Identify all the ways your nonprofit seeks contributions—direct, special events, major donor campaigns, foundation proposals, etc.
  • Identify all the costs associated with these efforts, including the cost of staff time to organize events, send out mailings, coordinate volunteer solicitors, etc.
  • Check to see if any of the activities fit an "exception" from being considered fundraising costs. SOP 98-2 provides an exception for the cost of exchange transactions, such as the cost of hotel food service at a fundraising event. Since the purchasers of tickets to the event are not allowed to include the fair market value of the dinner as a charitable gift, you do not need to consider the actual cost of purchasing their dinner as a fundraising cost.
  • Remember that fundraising costs refer to soliciting contributions. In many cases, grant proposals are prepared in response to a request to submit a proposal. You may be responding rather than soliciting.
  • Check out SOP 98-2 to learn how to discern whether an activity should be considered as a fundraising purpose rather than programmatic or administrative. The key elements of the distinction are: purpose, content, and audience. If you've decided whom will receive a letter or other invitation based on their ability to contribute or past history of giving, you are engaged in fundraising even if the letter or event contains a tremendous amount of program information.

3. How do I protect my organization from fraud and mismanagement?

The media thrive in reporting nonprofit fraud and mismanagement (“Channel 4 investigates!”), and people who read or listen to the news often have a visceral reaction to allegations that their favorite nonprofit, church group, or youth organization has been victimized by an unscrupulous director or manager. To avoid a blow to your organization’s reputation (or worse, actual financial losses, resigning board members, and endless legal bills), start with these six tips:

  • Invest in strong fiscal systems and trained staff; conduct quality audits, reviews or independent checking of your practices and reports
  • Have your Board appoint knowledgeable board members to an audit committee. The committee should then choose your audit firm and fully review the audit findings with your auditor
  • Make knowledgeable fiscal oversight a nonnegotiable expectation of your top executive officer. Make sure management has time and resources to check out discrepancies and red flags
  • Make board oversight of financial policies real, with clear consequences for noncompliance
  • Recognize that a fundraising opportunity that sounds too good to be true probably is
  • Provide high-level board review of major vendor relationships, especially when executive staff has close relationships with vendor staff or investors.

4. What records do I need to keep? And for how long?

From the Oregon Nonprofit Corporation Handbook Your organization should have a records retention policy in place and keep documents according to the following guidelines: Permanently

  • Articles of Incorporation and Amendments, and Bylaws
  • IRS exemption documents
  • Resolutions of the Board
  • Minutes of Board, committee, and membership meetings
  • Other records of Board, committee, and membership actions
  • Financial statements and general ledgers
  • Real estate documents
  • Audited financial statements

At least ten years

  • All documentation showing proper handling of conflicts of interest
  • All documentation showing proper handling of suspicious circumstances
  • Insurance information
  • All documentation on any matter that may become a subject of a lawsuit or claim (including contracts, leases, etc.)
  • Cancelled checks
  • Client files (you should check with any applicable governmental agencies on these)

At least three years

  • Written communications required to be made by Oregon law
  • Written communication with members regarding membership matters

Other periods

  • For books and records not mentioned above, consider carefully the purpose of the book or record and how it might be useful to you in the future. Such future uses might include financial documentation, evidence in a lawsuit, archives about your organization, etc.

For more information on record retention, refer to IRS Publications 4221-NC, 4221-PC, and 4221-PF. Neither the IRS nor Oregon conclusively addresses the issue of electronic vs. hard-copy record retention. You should proceed as you feel most comfortable, understanding that the rules likely allow you to maintain your records electronically even though they do not state so explicitly. If you choose to scan and maintain your records electronically, you should be sure that you have a secure back-up for your server. Also, make sure you are consistent with which records you scan and for which you keep the hard copy—you should probably note this in your record retention policy. The Handbook cautions: “You are balancing possible future need against the expense and inefficiency of maintaining records you don’t need. It is generally wise to err on the side of keeping rather than throwing something away.”

5. What is Sarbanes-Oxley?

The Sarbanes-Oxley legislation passed in 2002 in response to the corporate accountability scandals in which corporate boards failed to protect the interest of investors, top management practiced unimaginable deceit in preparation of financial statements, and “independent” auditors appeared to be more interested in protecting lucrative consulting relationships with clients than in providing truly independent judgment about the degree to which readers should rely on management’s financial information. Sarbanes-Oxley addresses corporate governance, financial disclosure and the practice of public accounting in the for-profit world. With two limited exceptions, it does not apply to nonprofits. And while proposals have been introduced in other states to extend its provisions to nonprofits, Independent Sector and other well-respected nonprofit leadership groups have made it clear that little will be gained by wholesale adoption of provisions that do not speak directly to the big issues of the nonprofit sector. Here, you can read a great report, The Sarbanes-Oxley Act and Implications for Nonprofit Organizations, published collaboratively by BoardSource and Independent Sector.

6. Does the Open Records Law apply to nonprofit organizations?

The Open Records Law does not apply to most nonprofit organizations; however, if your nonprofit exercises sufficient governmental functions that it has become the “functional equivalent” of a public body, the Open Records Law may apply to your organization. If your nonprofit is not the functional equivalent of a public body, the organization's records may still be subject to Open Records Law if the organization contracts with a public body and the public body (a) has copies of the records, (b) the public body requires that pertinent records be available for public inspection, or (c) the public body actually owns the records. The DOJ outlines the criteria used to decide if the law applies to a nonprofit organization here. If you believe your organization may be subject to the Open Records Law, you should consult an attorney for a professional opinion. Every two years, the DOJ publishes a manual explaining the Open Meeting and Open Records laws. The full manual can be found here.

7. What documents of my nonprofit organization can be inspected by the public or the organization's members?

ORS 65.771 outlines certain documents that nonprofit organizations must maintain at all times (see Question 5 above). If your nonprofit is a membership organization, members may inspect these records at any time pursuant to ORS 65.774. According to the Oregon Nonprofit Corporation Handbook, the public can inspect the following documents if your nonprofit is tax exempt:

  • Your application for exemption (Form 1023);
  • The application for exemption's supporting documentation. This includes your Articles of Incorporation and bylaws at of the time of filing;
  • Your correspondence with the IRS about your application;
  • Documents or letters issued by the IRS relating to your approved application;
  • Your annual return (usually, Form 990).

However, the following information may be withheld from the public:

  • The names and addresses of contributors to tax-exempt organizations, other than private foundations;
  • The amount of that contributor’s contribution, if it could reasonably be expected to identify the contributor;
  • The names, addresses, and amounts of contributions from persons who are not U.S. citizens made to a foreign organization.

8. How will Oregon House Bill (HB) 2060 affect my nonprofit?

Find the full FAQ on Oregon House Bill 2060 here.