Are you covered?
Get a grip on your nonprofit’s insurance needs Joint expenses
Allocating program and fundraising costs Your game plan for effective social media use News for Nonprofits
NONPROFIT AGENDAS FEBRUARY/MARCH 2018
Sechler CPA, P.C. Carolyn Sechler
carolyn@azcpa.com 921 East Orange Drive, Phoenix, AZ 85014 Tel: 602.230.2700/Fax: 602.230.2705 www.azcpa.com
Are you covered? Get a grip on your nonprofit’s insurance needs
W
ith the mission-related challenges you juggle every day, taking inventory of your nonprofit’s insurance coverage can fall under the radar. But there’s no worse time to discover you have inadequate coverage than after an insurable, but uninsured, event. Regular reviews of your risks and coverage can reduce the odds of an unexpected incident causing your organization financial devastation.
A changing insurance market As recently as 25 years ago, nonprofits had a hard time finding suitable insurance — let alone affordable coverage. Insurers accustomed to dealing with forprofit businesses couldn’t grasp the specialized risks that nonprofits face. For example, nonprofits typically rely heavily on volunteers. And insurance policies available to cover employee-related risks, such as theft or injury, usually didn’t cover these unpaid workers. Now, though, the insurance industry views the nonprofit sector as its own unique animal. More
companies offer policies tailored to nonprofit risks, which has led to lower and more stable pricing.
Coverage to consider Different organizations will have different insurance needs. But the following nonexclusive list of some of the most important types of coverage is a good place to start your insurance review. Directors and officers liability. You can be forgiven if you’re somewhat confused about just which types of risks are covered by directors and officers (D&O) insurance. That’s because most D&O policies cover more these days than what were traditionally considered D&O risks in the past. Previously, nonprofits bought D&O insurance to reduce the potential costs of mistakes made by board members and officers while carrying out their duties (for example, the costs of defending or settling a claim of mismanagement of your organization’s funds or breach of fiduciary duty). Today, coverage also often includes employment practices liability insurance (EPLI) for the costs associated with defending against wrongful termination, discrimination, sexual harassment, retaliation and similar employment-related claims. General liability. Most organizations, nonprofit or not, should have general liability insurance. It covers risks like slip-and-fall lawsuits and other third-party claims that arise when someone other than an employee is hurt or has property damaged at your location or event. You’ll need a separate workers’ compensation policy to cover employees for injuries on the job. In some states the coverage must be purchased from a state fund. Additionally,
2
Cars — or no cars — you still might need auto insurance Obviously, if your organization owns any vehicles, a commercial auto policy is a must. But you also might need auto insurance even if it doesn’t own any vehicles. Nonowned auto insurance kicks in when an employee or volunteer — using his or her own vehicle — is involved in an accident while working for the organization. Hired auto insurance provides protection when an employee drives a rented, hired or borrowed vehicle. Both types of insurance cover bodily injury and property damage. It’s usually added to the organization’s auto policy. But it can be added to your general liability policy if you don’t have an auto policy.
depending on the services your nonprofit provides, you may want to look at social services professional liability insurance for nonprofits, to cover incidents happening while carrying out your mission. Commercial property. Commercial property refers to possessions directly tied to your operations, such as your building if owned, computers and other equipment, inventory and supplies. This coverage generally applies to both theft of, and damage to, commercial property. Note, though, that policies might not cover losses caused by natural disaster. If you’re in an area particularly susceptible to flooding, wildfires, hurricanes or earthquakes, you might require additional coverage. You’ll also want to make sure that your policy covers the “replacement cost” of property, rather than only its market value at the time of the loss. Cyber liability. Standard property coverage also may exclude so-called cyber risks. Data breaches and cyber attacks aren’t limited to big for-profit businesses — nonprofits can be targeted, too. They frequently have a wealth of personal and financial data on donors and might have confidential client information. Cyber liability insurance can mitigate the risks associated with
data loss, whether due to a malicious attack or a misplaced laptop. Sexual misconduct. It can seem unthinkable, but sexual misconduct is a risk for nonprofits, especially those that work with children, the disabled or other vulnerable clients. This insurance will provide defense assistance and pay any damages in lawsuits alleging abuse or molestation. Such claims are typically excluded under general liability policies. Product liability. If your nonprofit sells products to the public (for instance, brooms assembled by the visually impaired or food items), product liability coverage might be in order. It covers lawsuits by customers alleging they were injured by a defective product. Umbrella. An umbrella policy can provide additional coverage above and beyond the stated limits on several different kinds of coverage, all through a single policy and annual premium.
You’re not alone Navigating the different types of coverage available for nonprofits can prove confusing, to say the least. Your CPA and insurance broker can help you assess your coverage needs and shop for the best offers. n
3
Joint expenses
Allocating program and fundraising costs
A
s a nonprofit organization, you must spend the bulk of your resources on fulfilling your mission to keep your taxexempt status. And in recent years watchdog groups, the media and others have tightened the screws to make sure organizations are spending more money on core programs and less on administration and fundraising. Thus, nonprofits have an incentive to report that they’re doing just that.
whose mission focuses on raising English language literacy levels might send out a mailing to recruit volunteer tutors and ask for donations. In this scenario, the not-for-profit would probably prefer to assign most of the cost to program expense, on the basis that the fundraising part of the mailing is relatively minor. But charity watchdogs might allege this overstates the program component, skewing the nonprofit’s fundraising ratio.
But there’s something nonprofits must keep in mind: Accounting rules require that the full cost of any activity with a fundraising component be shown as a fundraising expense, unless certain criteria are met.
What’s required? The costs of a joint activity can be allocated between fundraising and other functions, rather than charged entirely to fundraising, but only if three criteria are met. The first is purpose, which is satisfied if the activity is meant to accomplish a program or management purpose. A program purpose requires a specific call to action for the recipient to help further the nonprofit’s mission — other than making a donation. In the mailing example, it would be encouraging recipients to become volunteers in a literacy program.
How does that work? Nonprofits may combine program (or management) and fundraising activities to achieve efficiencies. For example, a nonprofit
4
The second criterion that must be met is audience. If the audience for the joint activity includes primarily prior donors or is selected based on ability or likelihood to contribute, it’s assumed that this criterion isn’t met. But you can rebut that assumption if, for example, the audience was selected because of its need or potential to respond to the call to action — in our example, people identified as prospective English tutors.
Content is the third criterion necessary for allocating costs between fundraising and another activity. This criterion is satisfied if the activity actually supports program or management functions. If that’s not obvious, a description of the activity must explain the benefits of the action it calls for. Note that the “purpose” criterion focuses on intention, while the “content” criterion considers execution.
What about accounting rules? Accounting rules allow you to allocate costs using a consistent and systematic methodology, which results in a reasonable allocation. The most common method is based on physical units, with costs proportionally allocated to the number of units of output. In the case of a mailing, the units could be lines or square inches of print. If you engage in a year-long mailing campaign with bimonthly mailings, each mailing (and each component of that mailing, such as an envelope or insert) must be analyzed on its own.
Other approaches include the relative direct cost and stand-alone joint cost allocation methods. The former uses the direct costs that relate to each component of activity to allocate indirect costs. The latter determines proportions based on how much each component would cost if conducted independently.
Is disclosure necessary? Disclosure is a required part of the allocation process. You must explain the methods you use for joint cost allocation in your financial statements, including whether joint activities comply with the three criteria, as well as including a disclosure on your Form 990. If you have any questions about allocating joint costs, your CPA can help.
Do it right With so much attention these days paid to fundraising ratios, many nonprofits feel pressure to minimize their fundraising expenses. This makes allocating joint costs appealing — just make sure that you allocate the costs properly. n
Your game plan for effective social media use
M
ost nonprofits have some degree of a social media presence, but it isn’t always effective. Organizations can flounder in their attempts to be successful on this playing field, but problems are often surmountable and cost little or nothing to solve.
Assess the situation Does your management and board have a strategy? Despite the prevalence of social media, some doubts remain within the nonprofit sector about its power and necessity. But you need look
no further than the best-known charitable use of social media, the ALS Ice Bucket Challenge, to see social media isn’t a passing fad. It’s now a significant part of your organization’s face in the community. The first step in your nonprofit’s strategy should be an assessment of where you currently are: What are your strengths and weaknesses in your social media activities? The most common hurdle may be the perennial one, the lack of resources. Your employees might already be
5
how-tos, white papers, alerts, calls to action, relevant news, videos and photos. Then develop a tentative schedule for what goes out when. You may have to stray from the schedule from time to time when developments break. But simply having a road map gives your efforts a critical structure.
stretched thin. And you might lack the funds to hire a full-time social media manager.
Come up with a plan Once you know your starting point, the next step is to develop a formal social media plan. A plan that aligns with your nonprofit’s overall strategic plan can increase the likelihood of buy-in throughout the organization. The plan should start by defining your social media goals. For example, do you hope to drum up more donations? Raise awareness? Recruit volunteers? These aims should drive your content. To thrive on social media, nonprofits must be both: u Proactive by sharing information about the
organization and its cause — and searching out relevant hashtags where you can contribute to the discussion, and
u Reactive by interacting with users who reach
out with questions, comments and tags.
Crucial point: You’ll want to keep the reader interested. Think about the types of material you can share: client or volunteer stories, advice and
6
You also need to think about frequency. Don’t spread yourself thin by joining too many platforms or you may end up posting too infrequently on all of them. Research which platforms are used by your target audience and direct your efforts to them. Trying to reach “the general public” is a recipe for failure. And remember to balance your posts so that it doesn’t seem like every post is a solicitation. Finally, your plan should specifically delegate responsibility for social media work. If you can’t afford another staffer and others have their hands full, consider hiring a social media intern, outsourcing to a professional firm or finding a qualified volunteer.
Measure the results You can formulate metrics for each of the goals identified in your plan to find out which platforms and methods are most effective. Discontinue material that performs poorly. The platforms you’re on will usually have the necessary data. You also can survey your online community for feedback, which encourages its continued involvement.
Time will tell Patience and planning are keys to winning the social media challenge. Success rarely comes overnight. Keep your eye on the long game, and don’t become discouraged if you don’t see results as quickly as you’d like. n
NEWS FOR NONPROFITS What it takes to score with employees The popular job search site Indeed.com has ranked the best nonprofits to work for based on employee reviews, providing some useful tips on what it is that nonprofit employees value in an employer. Habitat for Humanity claimed the top spot, performing well on measures of compensation and benefits, work-life balance, and job security and advancement. It earned the No. 1 ranking on management and culture. Habitat employees noted the multiple opportunities to learn, supportive managers and a work environment that’s fun but also productive and meaningful. AARP came in second and grabbed the top ranking for work-life balance. Employees cited pay, benefits and a feeling of genuine commitment to the community as positives. Indeed also found that nonprofits that provide employees opportunities to help children were highly rated. The top 10 included the Boys & Girls Clubs of America (No. 3), Boy Scouts of America (No. 4) and Communities in Schools (No. 5). The Girl Scouts of the USA just missed the list, at No. 11. n
Is your organization missing the mark with its emails? A new study on how consumers engage with brands and messages through email suggests that nonprofit marketers are falling behind. The 2017 Consumer Email Habits Report: What Do Your Customers Really Want? found that 81% of the 1,003 survey respondents said they want touches
of personalization in emails they receive from nonprofits. But only 42% said that they regularly receive relevant emails based on personal preferences. It’s also notable that 53% of respondents prefer to receive nonprofit communications via email, compared with 31% who prefer direct mail. And 58% of Millennials “always” or “most of the time” donated to a nonprofit based on an email, while only 18% of respondents age 55 or over did the same. The study was commissioned by email marketing software company Campaign Monitor and conducted by research firm Market Cube. n
Nonprofits look to more fundraising in their growth efforts Almost all nonprofit financial professionals responding to a recent survey believe organizational growth is at least somewhat important — and most are turning to fundraising for help. More than three-quarters of the 301 respondents indicated that their organizations are at least somewhat likely to expand their fundraising efforts over the next 12 to 18 months. Nonprofit Finance Study — Managing Growth, conducted by nonprofit and association software firm Abila, also found that 84% of respondents expect to seek new grant funding opportunities. In addition, their organizations are “somewhat likely” to pursue partnerships with other nonprofits (72%), provide new services that will generate revenue (69%) and build partnerships with corporate sponsors (67%). n
This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. ©2017 NPAfm18
7
The support you need. The service you’re looking for. Succeeding in the not-for-profit sector today requires more than a strong commitment to your mission. It takes shrewd fiscal management, careful regulatory compliance, skillful use of technology and the assistance of advisors who know the issues nonprofit organizations face and how to address them. This is where Sechler CPA comes in. Our team of experienced professionals cherishes the opportunity to support nonprofit organizations, meet their management challenges and fulfill their missions. We offer a variety of specialized accounting, tax and consulting services including:
k Audit intermediary services
k Tax form preparation (990, etc.)
k Budget and policy design
k Strategic and management consulting
k Financial statement preparation
k Speaking on financial literacy and other topics
k Outsourced accounting/bookkeeping
k Technology and virtual system design
RESPONSIVE QUALITY We are committed to providing responsive, personalized service to the highest quality. We take time to truly understand your Organization so that we can customize our recommendations to your specific situation. Our goal is to make your processes easier, streamline your operations and ensure your success in reaching your goals. We welcome the opportunity to discuss your mission and vision so that we may assist you with our expertise. Please call us at 602-230-2700 or e-mail carolyn@azcpa.com and let us know how we may support you. Be sure to visit our website at www.azcpa.com for additional tools and information, as well as our archive of this newsletter.
Sechler CPA, P.C. 921 East Orange Drive Phoenix, AZ 85014 www.azcpa.com