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Financial Information Board Members Should Know: Langan on Nonprofit Spark

Nonprofit Sparks RadioNonprofit board members do not need to be finance experts, but should be aware of what they can do to maintain a financially viable organization. On the latest episode of Nonprofit Spark on WebTalkRadio, John Langan, managing partner of the nonprofit group at CliftonLarsonAllen, discussed what he wished every board member knew about nonprofit finances.

Langan shared insight on Form 990, cloud computing, outsourcing, reserves, and retirement plans:

  • Carefully review IRS Form 990. Nearly every nonprofit needs to file this tax form with the IRS. This form is a public document, and anyone can request to see it. Therefore, the form should be carefully reviewed before submission, especially with respect to compensation and governance practices.
  • Cloud computing provides flexibility. Most nonprofits and their volunteer leaders   need to access their information while away from the office. Cloud computing lets organizations and their stakeholders access their data over the web in a secure way, so they are never beholden to retrieving current data from only one location. 
  • Keep appropriate levels of reserves. Unlike for-profit companies, nonprofits cannot easily decrease services when the economy is tough. This can be challenging since revenue streams (such as donations and sponsorships) may have decreased. Therefore, it is vital that nonprofits adopt a policy to accumulate an appropriate cushion of revenue in reserve to withstand economic downturns.
  • Tap affordable expertise with outsourced accounting. It is often more cost efficient to outsource accounting than to hire one on staff. In addition, an outsourced accountant may be more experienced and knowledgeable about accounting and tax issues specific to nonprofits.
  • Educate staff about their retirement plan. The Department of Labor has issued rules that require employers who are sponsoring retirement plans to educate participants about the details of their plans, including understanding and disclosing underlying costs. It is important to comply with these rules, because some employee participants have filed lawsuits claiming their employer, as a plan sponsor, did not fulfill their fiduciary responsibilities to manage plan costs on behalf of participants.

Langan also provided other cost-efficient financial best practices. For instance, he suggested that small nonprofits can improve financial controls, and avoid or detect fraudulent activity, by segregating job duties.

Published: 1/9/2012

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