• David Hollander
• CPA, Principal
• dhollander@mbafcpa.com
• (954) 760-9000

Management and board members of non-profit institutions should be aware that their organizations have come under added scrutiny from the Internal Revenue Service. Therefore, they should be taking more steps to avoid IRS audits and to reduce the possible consequences of those examinations.

In its latest annual report on Tax-Exempt Organizations, the IRS said it increased its number of audits, or traditional examinations, of those organizations from 7,580 in fiscal year 2007 to 11,449 in fiscal year 2010.

Meanwhile, since 2009, tax-exempt organizations have been required to file an expanded Form 990 annual return to the IRS. The new Form 990 requires a more detailed reporting on revenues and expenses.

These changes have made it increasingly important for non-profits to be diligent in preparing Form 990s and in complying with IRS rules, including those on Unrelated Business Income Tax (UBIT).

A section 501(c)(3) tax-exempt organization may engage in income-producing activities unrelated to its tax-exempt purposes as long as the unrelated activities are not a substantial part of the organization's activities overall. However, the net income from such activities will be subject to the Unrelated Business Activity Tax if the following three conditions are met:

• The activity constitutes a trade or business
• The trade or business is regularly carried on
• The trade or business is not substantially related to the exercise or performance of the organization's exempt purpose.

The IRS Web site has a section on Audits of Exempt Organizations, in which it explains its processes for identifying organizations and then conducting audits and has details on some of the possible penalties.

If you would like additional information on requirements for filing Form 990 or information on the IRS audit process of non-profit institutions, do not hesitate to contact us at 1-800-239-1474.

• David Hollander
• CPA, Principal
• dhollander@mbafcpa.com
• (954) 760-900

Several independent charity watchdogs are increasing their capacities to strengthen funders' abilities to assess non-profit institutions' financial and program outcomes.

Charity Navigator and GuideStar are two examples of more commonly known watchdogs, also referred to as evaluators, that are actively selling services to funders to improve their abilities to make more informed funding decisions, based on real data and public records. As part of the new services, each has a Web site section on which donors, volunteers, recipients and others can write reviews of non-profits.

Understanding how your non-profit appears to the public is no longer something that is just basically helpful to your operations. It is now critical if you are concerned about future funding from foundations and government.

Ratios for expenses and performance can often be unfairly interpreted. Thus, it is very important that you understand your numbers and control the message of what they mean.

MBAF's team of accountants and consultants understands that the watchdog measurements often are one-size fits all and can lead to unfair ratings.

We are ready to support non-profits in pro-actively creating their messages and, where necessary, guiding the management of their finances in a way that will ultimately reflect their operations in the most favorable light.

If you would like additional information on how non-profit institutions can evaluate their ratings and safeguard their public images, do not hesitate to contact us at (305) 373-5500 or at (954) 760-9000.

• David Hollander
• CPA, Principal
• dhollander@mbafcpa.com
• (954) 760-900

• Trevor Foo
• CISA / CISM / MCDBA, Senior Manager
• tfoo@mbafcpa.com
• (305) 373-5500

More donors are using the Internet to make contributions and for other communications with non-profit organizations, and this has increased the importance for non-profits to continually update, improve and monitor their donor information security program.

As part of their security program, non-profits must provide employees with security awareness training at least annually. The training should instruct employees on how to safeguard Social Security numbers and account numbers and other information about individual and corporate donors' credit cards, debit cards and bank accounts so that it cannot be stolen or otherwise compromised.

Many donors are asking non-profits about on-line security because they are concerned about having card numbers and other information stolen and of becoming victims of identity theft. The Federal Trade Commission (FTC) estimates that approximately nine million Americans have their identities stolen each year.

A non-profit that is setting up an on-line payments system must meet requirements of the Payment Card Industry Data Security Standard.

That standard, known as PCI Compliance, is coordinated by Visa and MasterCard and is endorsed by all credit card companies. They require compliance by all entities that store, process or come into contact with cardholder data.

To prevent identity theft and comply with the PCI-DSS standards, non-profits should at a minimum have the following procedures for receiving, processing and storing information for all recurring and one-time donations:

• Discourage donors from sending instructions for donations with identity-sensitive information via e-mails and other unsecure Internet communications that have public access. This may be an opportunity to educate your donor base.
• All on-line donations should be made using a secure Internet portal that encrypts all traffic.
• All credit card, debit card, bank account and other identification numbers should be encrypted when captured and stored.
• If the site used to capture on-line pledges and donations is owned and operated by the non-profit, then it needs to perform quarterly vulnerability assessments of this site as a minimum requirement under PCI-DSS.
• If the site used to capture online pledges and donations is owned and operated by vendor, then the non-profit should ensure that the vendor is PCI compliant.

If you would like additional information about establishing and maintaining a non-profit donor security program, do not hesitate to contact us at (305) 373-5500 or (954) 760-9000.