An alternative to a full audit

A homeschool leader in North Carolina recently wrote to me looking for help with doing an audit:

We offer boys and girls soccer, basketball, baseball, softball, volleyball, and cheerleading. In January we received our 501c3 status as a non-profit group. It is time for our annual audit, but I am not sure which way to go now and who to get to do the audit.

This group had bylaws that required their financial statements to be audited by qualified individuals.

For small nonprofits (revenues less than $25,000 per year), audits are rarely needed and are frequently too expensive and time consuming. Most nonprofit audits cost at least $3,000. Instead of an audit, I recommended changes to their bylaws and some practices and policies to help them be fiscally responsible, but not over burdened.

Some of my suggestions were:

  • Separation of duties
  • Monthly bank reconciliation
  • Regular financial reporting to the board
  • Create and monitor a budget

These practices do not replace the role of an full audit, but they help provide accountability.

Finally, I recommended they consider performing an internal audit occasionally. An internal audit can be preformed by volunteers from your organization. Here are a few websites that offer more information.

The following website explains internal audits for small churches and nonprofits:

http://www.freechurchaccounting.com/churchaudit.html

It also contains a checklist for conducting an internal audit

http://www.freechurchaccounting.com/support-files/internalauditchecklistguidelines.pdf

MoneyMgmtCoverDoes your group have good financial policies and practices? You can start with my article, Best Financial Practices for Homeschool Groups. It is available when you sign up for my newsletter here.

Also my ebook Money Management for Homeschool Organizations has advice and tips for properly handling the finances in your homeschool group. Ebook price $10
Read more here.

Here’s to keeping your homeschool group strong!

Carol Topp, CPA

HomeschoolCPA ebooks mentioned by HSLDA

I am pleased to announce that Homeschool Legal Defense Association (HSLDA) has mentioned several of my ebooks and articles on their Group Services webpage.

HSLDAGroupServices

While homeschool groups are not HSLDA members, HSLDA does offer their group services staff, with more than twenty years experience in local and/or state support group leadership, to assist groups by providing examples of how other leaders have handled similar circumstances.

http://www.hslda.org/GroupServices/Leaders.aspx/Legal

On the Leader Support tab you’ll see Legal and Finaincial Resources and my ebooks are articles are metioned there including:

Money Management for Homeschool Organizations by Carol Topp, CPA. (e-book)

How Do We Become a Recognized Nonprofit?” by Carol Topp, CPA

Do We Need to Incorporate?” by Carol Topp, CPA

Q&A for Homeschool Leaders (e-book) by Carol Topp, CPA—The most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.


Thanks HSLDA in helping to assist homeschool leaders!

Carol Topp, CPA

Are fund raisers harming your chances for tax exempt status?

Many homeschool organizations depend on fund raisers to help run their homeschool co-ops and support groups. These fund raisers could actually harm a group’s chances of obtaining tax exempt status.

True Story:

Julie is treasurer of a homeschool co-op in OK that desires to file for 501c3 tax exempt status with the IRS. I examined her financial statements and saw that the group depended heavily on profit from fund raisers including candy, food and flower sales. These fund raisers required Julie to collect over $12,00o a year in sales. The co-op made a profit of nearly $4,000 every year from their fund raisers.

“It’s a blessing to the co-op, because many of our families cannot afford even the small co-op fees we charge. And friends and neighbors beg us to keep selling our products, especially the locally made food.”

The profit from the fundraisers was actually more than the amount collected in co-op dues.

Unfortunately, with most of the co-op’s income coming from fundraisers and not co-op fees, the IRS may not grant Julie’s co-op 501c3 tax exempt status.

The IRS requires a significant portion of your income come from public support (i.e., the dues from your co-op families) and not from an “unrelated businesses” (i.e. selling products in a fund raiser). The IRS defines “significant” as having more than 1/3 of your income come from public support.

Fortunately for Julie’s group, the IRS has several exceptions. One of them worked for Julie’s group. Her fund raising efforts were all done by volunteers and so the IRS considers that fund raiser as part of the group’s support and they meet the 1/3 test mentioned above.

The IRS rules and exceptions get a bit complicated and both the homeschool leader, Julie, and I did our research. We will be very careful and thorough when explaining the fund raising programs to the IRS when Julie’s co-op files for tax exempt status with the IRS.

If your group has concerns about their fund raising practices, these related blog posts might help:

The IRS’s Word on Fundraising Do’s and Don’ts

The IRS and Fund Raising

What does the IRS mean by not allowing “private benefit” in a fund raiser?

QALeadersCover3DAlso, my ebook, Question and Answers for Homeschool Leaders addresses fundraisers in detail.

Read more including a sample chapter here

Order a copy (in pdf format) for immediate dowload for $8.00 here.

…working to keep you on  the right side with the IRS!

_____________________________________

Finally, attend my free webinar on Fund Raising in a Homeschool Group on Tuesday, November 30 at 8:00 pm EST, 7:00 pm CT. You can listen in on-line and participate in the chat room or phone in and attend the webinar that way. For details on the login in information, phone number to call and workshop handout, click here.

Feel free to tell other homeschool leaders in your area about my webinar. The more, the merrier!

There is no charge for the webinar, except long distance phone charges if you call in .

Carol Topp, CPA

A budget can bring relief

My friends Kristen & Denise at Homeschool Group Leader have been running an interview they did with me as a blog series on leader burn out.

This last portion is on budgets titled Budgets Can Bring Relief
Here’s part of the interview:

A lot of leaders think, “What?! I hate dealing with the numbers. I am a people person.”

But what those numbers on a budget do is help you plan, sit down and look to the future. That can do a lot to reduce stress.

If you make a plan and know what might be coming, it will help you set priorities. What is important to us in our group? Is it important that we keep the cost extremely low? That is going to be a very different budget than saying our priority is top quality. It helps you focus, plan and set your group’s priorities.
So, believe it or not–having a budget might sound like it is a limiting thing, and some people don’t like budgets. But instead a budget can bring great freedom and relief from a lot of stress.
If you need help establishing a budget, start with my article  Budgeting basics
MoneyMgmtCover
Then consider ordering my ebook, Money Management for Homeschool Organizations.
Price $7.00. Available for immediate download.  Read more here.
Carol Topp, CPA

Homeschool Leader, Do You Need Help?

I know that being a homeschool leader is not an easy job.  You have taken on extra responsibilities in addition to homeschooling your own children. But help is on the way!

I am so pleased to announce several ebooks and audios for homeschool leaders are now available


A 39 page ebook covering money management for small, medium and large sized groups. Sample forms and examples of financial statements in clear English are provided. Also covered are topics such as using Quickbooks, collecting fees, creating a budget, insurance, and hiring paid teachers. All written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A 51 page ebook explaining the pros and cons of tax exempt 501c3 status. Is it needed? Is it worth it? Also covered are non profit incorporation, the application process, and how to maintain tax exempt status. Written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A  62 page ebook containing some of the most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.
Price $8.00 (immediate download as a pdf file)
Read more and order here

A 20 page ebook that covers paying workers as employees or independent contractors.  Includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws. Written specifically for homeschool organizations.
Price: $7.00 (immediate download as a pdf file)
Read more and order here

Are You Ready? Tax Exempt 501c3 Status for Homeschool Organizations

audio download
An hour-long audio that explains the advantages of 501c3 tax exempt status for your homeschool group. What’s involved, what will it cost and is it worth it? All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here

An hour-long audio that explains the importance of boards, budgets and bylaws in a homeschool organization. Get your group set up correctly and running smoothly. All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here


I hope you find these ebooks and audios helpful as you run your homeschool organizations.
Carol Topp, CPA

How Much to Keep in Cash Reserves?

Bag of coinsHello,

I am wondering whether you have any guidelines about a good amount of cash to keep in reserve, or what to use as a basis for determining the amount of cash. We have a substantial surplus, growing every year despite our efforts to price classes at a close to break-even rate.

Thank you!
Shaun S in Minnesota

Shaun,

What a wonderful position to be in-cash reserves growing each year! Many for-profit businesses are not doing that well!

It’s a little difficult to be specific without knowing how you operate, such as do you collect all fees at the start of the semester or do you operate month to month.  Can families drop out or join mid semester? Do you offer refunds of fees paid if a family drops out? etc…

Basically, the tighter you run your cash flow (i.e., only collecting a month at a time), the more you need in reserve.

I recommend that you look at your sources of income.  Imagine any one item being eliminated, such as a major fund raiser. How would you run your co-op without that source of income? Sometimes when a nonprofit loses a major source of funding, it needs to fall back on cash reserves for a while.

Here are a few guidelines to help you determine the amount of cash reserves needed:
1. Have at least 10%, maybe 15% of your income in reserve for emergencies, damages or disasters.
2. Have at least one or two month’s rent in reserve in case you need to move locations.
3. If you pay employees, have at least three months of their pay  in reserve.
4. Consider creating a future plan of major purchases (like a computer or software) or programs you’d like to offer. Your surplus could be applied to your “wish list.”
5. Have at least enough in reserve to cover the deductibles on your liability and medical/accident insurance.

Here are a few ideas of what to do with your cash surplus:
1. Offer reduced fees to hurting families. In my homeschool co-op, we have a widow and another family with a disabled father, so they get free access to our co-op classes.
2. Offer reduced fees for significant volunteer efforts. We offer teacher discounts and discounts to our co-op director.
3. Make a contribution to the location you are renting if  it is a church or community organization.
4. Have an end of year party with a catered dinner.
5. Give appreciation gifts to all your volunteers.

I hope that helps!

Carol Topp, CPA

Group using personal Paypal account

money_exchange_100Hi Carol,

Our (homeschool group’s) yearbook is looking take in the money thru my personal paypal account, then deposit it into an separate bank account so that our Assoc. does cross over the $5000.00 mark. How is this done so that I don’t have to claim the money as extra income.

Currently the association is trying to do a paypal account not just for yearbook for membership dues, they are hesitant because they set up the a paypal account under non-profit, paypal is wanting proof of this and we don’t have it. I suggested that they explain to paypal that they we are a Unincorporated Non-Profit Assoc. and it should be fine.

Sandy in TX

Sandy,

The ideal way to operate is to set up a Paypal account for the association/homeschool group and not run anything through your personal Paypal account.

I understand from other homeschool leaders, that Paypal expects to see proof from the IRS of tax exempt status. They may also accept a nonprofit incorporation certificate from your state. They told one homeschool group they would accept “certified Articles of Incorporation.”

One homeschool registered with Paypal as “Category: Education, Subcategory: Elementary and secondary schools.” While not as accurate as “Charitable/Nonprofit”, it got the job done!

If your organization is not a nonprofit corporation or doesn’t want to be classified by Paypal as as a school, then tell your board that you are using your personal Paypal account and have them record it in the minutes of a board meeting. (“Sandy agreed to allow use of her personal Paypal account for the yearbook project”) Keep a very clear paper trail just in case you are ever audited by the IRS. Keep paper records of every transaction and especially the transfers in and out of the Paypal account. Make print outs from Paypal and file them away with wherever you keep your tax return information. (Do NOT send them to the IRS with your tax return.)

Anyone had problems setting up a Paypal account for their homeschool organization? Id like to hear your experience.

Carol Topp, CPA

Board, Bylaws and Budget

A homeschool leader is asking some excellent questions about writing bylaws, establishing a board and collecting money.

Dear Carol,
I am co-directing an established homeschool group and we are in the process of writing by-laws. My question is:
  • Is it okay to not allow members to have a vote pertaining to the decisions of the homeschool board?
  • Can the by-laws be set up to allow suggestions and recommendations from the members at the approval of the board?
  • Also, is it legal to initially appoint a board without a vote and then fill vacancies at the discretion of the established board?
Our concern is to protect the vision of the homeschool group.
Your website has been a tremendous help to us as well as your article in The Old Schoolhouse magazine. Thank-you for your time and ministry to homeschooler’s.
Misty M

 

Misty,
You have asked several good questions. Your group is fortunate to have you as a co-director.

Yes, it is OK to not allow members to vote; I have been on several nonprofit boards that do not have members vote.

Yes, you can set up your bylaws to allow final approval of ideas to be a board responsibility. You may establish a practice of considering suggestions and recommendations; you may not need to formalize the practice in the bylaws.

Yes, you can appoint a board without a member vote. This is done quite frequently on nonprofit boards, especially fine arts boards (i.e., art museums, symphonies, ballets, etc). Many boards find their own members from interested members, volunteers or patrons.

As a guideline, your board should remember their fiduciary duty (duty of care and duty of loyalty) to manage the funds with the purpose/mission of the organization in mind and not for private gain or benefit.
The board’s job is

  • to provide for fiscal accountability,
  • approve the budget, and
  • formulate policies”

(from “Major Duties of Board of Directors),

In other words, think first of what is best for the organization.

I hope that helps!

Carol Topp, CPA