How to account for a surplus in your nonprofit records

Female hand counting money on computer keyboard calculator.

 Does your homeschool organization end the year with a surplus? Congratulations! Now, how do you record that surplus in your bookkeeping.
Currently we are carrying money over into this year from last year. This money doesn’t have a name, we have it on a line that says, “Balance Carried Forward from 2015-2016” in our income column. Should this be called “Starting Balance,” or should this be named something else?
In our next two budget years, we will have a surplus. We are unsure what to call this surplus money. We do have a reserve fund already set up in  our budget; would this be the place to put the surplus money and then carry that reserve fund over to the income/expense section year to year?
Thank you so much for all your help!!
Heidi R in PA

Heidi,

You’ve hit on something very basic in accounting: how to account for accumulated money (aka a surplus).

The surplus is not income for the year so it should not be added to your other sources of income. The surplus is really an asset. It is cash sitting in your checking account.

Accountants created a special financial statement called a Balance Sheet to list the assets and liabilities. For nonprofits, it’s called a Statement of Financial Position, which I like better as a name.

stmtfinlposition

I recommend you create a mini balance sheet/Statement of Financial Position to the side of your income and expenses statement. Put the bank balance as of a certain date. List any liabilities (debts you owe) too. Make a note of the cash in the bank that is set aside as your reserve fund.

Your reserve fund is not an expense. It is an asset (cash in the bank). It should be mentioned in a note on the Statement of Financial Position as a reminder to your board that although the money is in the bank, it’s not supposed to be spent.  It’s held in reserve for emergencies.

Cover Money Mgmt HS Org

I give examples of financial statements including the Statement of Financial Position in Chapter 4 of Money Management in a Homeschool Organization

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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What financial reports do we need to generate monthly?

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Hi Carol,
We have purchased QuickBooks and our treasurer is working hard to learn  the software. What financial reports do we need to generate monthly?  We need these reports to be a simple process.The Balance Sheet and Profit and Loss statements in QuickBooks looks overwhelming.

Hilary S.

Hilary,

QuickBooks  can be as simple or as complicated as it needs to be. The reports your treasurer generates is based on what the board wants to see.

When I was treasurer, I gave my board a Profit and Loss statement.  They really liked to see the budget in one column and actual income and expenses in another column.  Then they could see how we were doing compared to our budget. This report can be generated in QuickBooks as a Budget Report.

I also created a mini balance sheet.  I took the amount in the checking account and then listed payments to be made.  This gave the board an idea of how much cash we had on hand and where it was planned to go.

If the stCover Money Mgmt HS Orgatements in QuickBooks are too overwhelming, then perhaps you’re not using QuickBooks correctly.  I frequently see QuickBooks users make their Chart of Accounts too long.  Then the Profit and Loss becomes 2-3 pages long.  I recommend that a Profit and Loss be kept to one page or less.

My book Money Management in a Homeschool Organization could be a big help to your treasurer. It has tips, samples and lots of examples.

 

If your treasurer would like my help in setting up QuickBooks, I’d be happy to help.  She can e-mail me with what needs to be done and I’ll give you an estimated cost.

I hope that helps.  I wish you the best of success!

Carol Topp, CPA


Want more tips on managing money in your homeschool organization? Sign up for my email list and I’ll send you my list of “best practices.”

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Embezzlement: Could It Happen in Your Homeschool Group?

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From the Ohio Society of CPAs comes this warning:

Small nonprofits ripe for embezzlement

They’re often diligent, caring workers, and yet tempted by seemingly easy cash.

Working on the inside, thieves can hit school groups, athletic leagues and churches, especially when they’re surrounded by trusting colleagues and loose security.

And according to one expert, because of the disgrace and embarrassment that the crime brings an organization, their transgressions often are not reported.

The median loss to fraud for religious, charitable and social-service organizations was $106,000 last year, according to an annual survey by the Association of Certified Fraud Examiners. “We estimate that organizations lose about 7% of their net worth to fraud each year,” said Scott Patterson, the association’s spokesman.

“There are so many people doing the good work that nobody steps back to say, ‘Should we begin looking at ourselves. We’ve grown. We better put some checks and balances in,'” said Gary Zeune, a fraud expert whose speakers bureau, “The Pros and Cons,” travels the country. “The only people who can steal you blind are those you trust and who don’t have controls.”

Smaller organizations, such as school parent-teacher organizations, are often vulnerable because neighbors and friends are reluctant to offend by suggesting that dishonesty is possible.

“This is typically mothers stealing from their own kids,” Shaw said. “The kids are the shills out there selling cookie dough or doing the walk-a-thon, and the mothers are stealing it.

“If the board is too embarrassed to have checks or balances, they need to have a new board,” she added. “But if you’re an honest person, you shouldn’t be insulted by having a second set of eyes.”

I’m sad to hear about embezzlement taking place in a homeschool groups, but I know from homeschool leaders that it can and does happen!

How can you prevent embezzlement?

1. Sign up for my newsletter (upper right corner of the website) and receive my report “Best Financial Practices for Homeschool Groups.” If you already belong to my mailing list and still want the report contact me and I’ll send you a copy.

Cover Money Mgmt HS Org2. Buy Money Management in a Homeschool Organization and read Chapter 9: Fraud: It Couldn’t Happen to Us. I outline some guidelines for groups to avoid embezzlement such as:

  • Have a separate checking account in the organization’s name
  • Appoint a treasurer
  • Have bank statements mailed to the board chair, not the treasurer
  • Have the board chair, not the treasurer to sign checks
  • Require regular financial reports
  • Prepare a budget

Keeping you safe,

Carol Topp, CPA

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Aplos Accounting for Nonprofits: Better Than Quickbooks?

 

I just read a review of Aplos Accounting by Vickey from FreeChurchAccounting.com.

She writes,

One of the great things about Aplos software is that it is made specifically for nonprofits and churches. Aplos was designed by a CPA/Executive Pastor so each section of the software was made with a non-accountant in mind so it’s simple to manage you organization’s accounting even if you don’t have any accounting experience!

Aplos software is set up like a check register so entering transactions is just like entering payments and deposits in your checkbook. You can also import your transactions through the bank integration module.

Read Vickey’s full review of Apolos.

The software is cloud-based, not desktop-based so it’s easy for a new treasurer to take over. It’s also possible for several people to access the financial records including an accountant (like me) who may help your organization prepare the annual IRS Information Return, Form 990.

Apolos charges $25/month and Vickey offers a 25% discount for the first 6 months.

They also offer a Quickbooks buyback program.

Check out Apolos Accounting with a 15 day trial.

 

Carol Topp, CPA

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Homeschool leaders summer reading: Money Management in a Homeschool Organization

This summer I’m encouraging homeschool leaders to take time to become a better leader by reading through my books. This week I’m featuring my book,

When I originally published this book in 2008, it was a short 40 page ebook and had a horrible cover.  I was still learning and self-publishing was brand new!
MoneyMgmtCover
An update was badly needed and I tackled that project in 2014. The book ballooned to 131 pages and I subtitled it “A Guide for Treasurers.” I feel like I poured my CPA brain into this book.
Cover Money Mgmt HS Org
 Topics covered in this book include:
Chapter 1: Your Treasurer is a Gem!
Chapter 2: Checking Accounts Done Right
Chapter 3: Super Simple Bookkeeping Basics
Chapter 4: Show Us Your Books! Regular Reporting on Financial Status
Chapter 5: Establish a Budget: You’ll Thank Me Later
Chapter 6: Get What’s Coming to You: Collecting Fees
Chapter 7: Do I Have to Report This? Reimbursement Policies and Avoiding Taxes
Chapter 8: Using Software to Stay Sane
Chapter 9: Fraud: It Couldn’t Happen to Us
Chapter 10: Need More Money? Easy Fundraisers for Homeschool Organizations
Chapter 11: Risky Business: Insurance for Homeschool Groups
Chapter 12: Paying Workers: Hiring Employees and Independent Contractors
Chapter 13: Homeschool For Profit: Running a Homeschool Group as a Business

Here’s a special for the summer. Buy Money Management in a Homeschool Organization for 25% off. Get the paperback version for $7.50 (usual price $9.95). The ebook price is only $3.99.


Order Money Management in a Homeschool Organization paperback
Order Money Management in a Homeschool Organization ebook in Kindle or pdf

 

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How do I create a budget for my homeschool group?

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From Marilynn Boyko, of  IHaveMy501c3NowWhat.com (like that URL name?) comes this advice on creating a budget for your nonprofit organization:

Creating a Budget
Budgets should be in place before the beginning of the fiscal year each year, with the past year’s budget closed out.

Each year the board should be the one with the assistance of the Executive Director to create a budget with line-items of expenses and revenues.

Start with Expenses

  • A line item refers to expenses such as facility rental, telephone, program operations, event costs, etc.
  • Each line item has an estimated cost for each quarter which totals up at the end of the year.
    Then each quarter the line-item is examined by the treasurer and the board to compare planned versus actual.
  • Compare what was planned to be spent and what was actually spent. Sometimes what was spent exceeds the allocation and sometimes it doesn’t.
  • When the line item exceeds the amount, money has to be allocated from another line item in order to balance the budget. It is all about balancing the budget and being wise stewards.

Then Plan Your Estimated Revenues

  • Then compare the planned versus actual revenues. Mid-course corrections can be made and adjustments made for each line item.
  • This keeps the board abreast and responsible for the financial health and well-being of the organization, and assists in keeping things real, realistic, and manageable.

 

Cover Money Mgmt HS Org
Need more help with creating a budget for your homeschool organization?

Order a copy of Money Management in a Homeschool Organization. It has sample budgets and tips to make record keeping easy!

 

 

 

Carol Topp, CPA

 

How to use another nonprofit’s tax exempt status (legally!)

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Hi Carol,
I run a support group that encourages homeschoolers to engage in STEM competitions. We have had students win prize money in the past and we would like to have be able to open a checking account to receive that prize money. Some organizations will give directly to students, others require an educational organization with a W-9. We are considering a DBA  or an LLC, where any prize money would be granted to the group and then distributed via an application process to homeschoolers who start STEM groups.

I am willing to personally take on the prize money as income to me if someone wins and deduct then the tax amount. Since we do not collect any dues, we do not want to file for 501 tax exempt. There is no money to pay the fee. If no one wins anything, we have no income to report.

Would you suggest either the DBA or the LLC, or do you have another suggestion?

Thank you for any assistance.
Blessings to you!

Kathryn

Kathryn,

Thank you for contacting me. You are doing a wonderful thing for homeschoolers!

From what you described, I don’t think a DBA (Doing Business As name registration for a business) or an LLC (a for-profit business) would be the best arrangement. My concern would be that grantors of the prize money would not award funds to an LLC/for-profit business.

Additionally,  accepting payments in your name might not qualify as an “educational organization” to the grantors.

Instead, you probably need to establish an official nonprofit organization (I can help with that) or find another nonprofit organization to take your STEM program under their umbrella. They let you use their tax exempt status and it’s easier than setting up a new nonprofit organization. It’s called fiscal sponsorship and it’s legal, if done correctly.

Learn more about Fiscal sponsorship

Carol Topp, CPA

Homeschool groups ripe for embezzlement

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From the Columbus (OH) Dispatch comes this warning:

Small nonprofits ripe for embezzlement

They’re often diligent, caring workers, and yet tempted by seemingly easy cash.

Working on the inside, thieves can hit school groups, athletic leagues and churches, especially when they’re surrounded by trusting colleagues and loose security.

And according to one expert, because of the disgrace and embarrassment that the crime brings an organization, their transgressions often are not reported.

The median loss to fraud for religious, charitable and social-service organizations was $106,000 last year, according to an annual survey by the Association of Certified Fraud Examiners. “We estimate that organizations lose about 7% of their net worth to fraud each year,” said Scott Patterson, the association’s spokesman.

“There are so many people doing the good work that nobody steps back to say, ‘Should we begin looking at ourselves. We’ve grown. We better put some checks and balances in,'” said Gary Zeune, a fraud expert whose speakers bureau, “The Pros and Cons,” travels the country. “The only people who can steal you blind are those you trust and who don’t have controls.”

Smaller organizations, such as school parent-teacher organizations, are often vulnerable because neighbors and friends are reluctant to offend by suggesting that dishonesty is possible.

“This is typically mothers stealing from their own kids,” Shaw said. “The kids are the shills out there selling cookie dough or doing the walk-a-thon, and the mothers are stealing it.

“If the board is too embarrassed to have checks or balances, they need to have a new board,” she added. “But if you’re an honest person, you shouldn’t be insulted by having a second set of eyes.”

It’s so sad to hear about embezzlement taking place in homeschool groups, but I know from homeschool leaders that it can and does happen!

How can you prevent embezzlement?

Money Mgmt Homeschool

Read Money Management in a Homeschool Organization: A Guide for Treasurers. It  has a helpful list of policies and procedures for your group’s treasurer and your entire board.

Keeping you safe,

Carol Topp, CPA

Paying your homeschool graduation speaker

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We provide our homeschool groups members with a graduation ceremony.  The group assists in planning the event and contributes $500 toward their expenses.  Some of the expenses were “love offerings” given to volunteers who sang, played piano, and created slide shows.  This was a challenge when it came to gathering receipts since it was not contract labor or services provided.
How should we handle future “love offerings” or “gifts” and meet requirements of the government for keeping receipts of expenses?  Because our record keeping has been nonexistent in the past, I want to make sure I am setting things up correctly and doing things within the confines of the law.
Thank you,
Trisha in Texas
Tricia,
I was treasurer for my homeschool group’s graduation ceremony for a few years and we did the same thing: gave “gifts” or speaker honorariums. We also did not have a receipt to prove the expense. The check I wrote to the speaker or singer was our only record of the expense.If you pay someone more than $600 in a year for their services such as the speaker, the singer, etc. then you should give them a 1099MISC at the end of the year (and a copy goes to the IRS).

If you are reimbursing a parent for decorations, etc. then you should have receipts from him/her. It’s not a personal service, but a volunteer reimbursement and no 1099MISC is sent to the volunteer.

Carol Topp, CPA

 

Calendar of Board Topics for Homeschool Groups

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This blog post from Nonprofit Law Blog had a great idea: Create a calendar of topics your board should discuss every year.

I modified their ideas a bit for typical homeschool organizations and came up with this list of topics for your board to discuss each month:

  1. Welcome new board members and give them a history of your organization, its purpose, an understanding of their duties and a board binder. Read over the bylaws and review your mission and purpose statement.
  2. Discuss new programs and activities.
  3. Decide on discounts and appreciation gifts for volunteers.
  4. Go over best practices to avoid fraud. Read them here. Implement changes as needed.
  5. Discuss fundraising techniques.
  6. Authorize committees, recruit members and delegate duties to them.
  7. Review your conflict resolution policy. How do you solve conflicts. Read The Peacemaker.
  8. Review your risk areas, safety policies and insurance coverage.
  9. Evaluate any paid workers, independent contractor agreements, and employment practices.
  10. Recruit, nominate and elect new board members.
  11. Set a budget near the end of the year for the next year.
  12. One month after end of fiscal year file IRS form 990/990-EZ or 990-N and any state forms.

As you can see, I have links to articles and blog posts on most of these topics.

And my books,

  • Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out
  • The IRS and Your Homeschool Organization.
  • Money Management in a Homeschool Organization

have many issues for your board to discuss as well.

Carol Topp, CPA