Significant Changes to 1099 filing

Currently you are required to file form 1099 for every unincorporated vendor who provides you with services who you pay $600 or more during the year. In 2012 you will be required to file a 1099 for every vendor who you pay over $600 to regardless of the whether they are incorporated or unincorporated and whether it is for services or for products. Basically everyone you pay money to will either get a W-2 (for employees) or a 1099 (everyone else). As you are already imagining, this is a major paperwork process. By 1/1/2012, you will need to have a system in place that can track these payments so that you can send a completed 1099 to your vendors in the beginning of 2013 for the 2012 year. What do you need to do?
· Make sure you have the EIN for everyone you pay. All vendors should complete a form W-9. Start collecting this information now if you don’t have it already. This will strengthen your internal controls too.
· Make sure your financial software system can track and accumulate payments to vendors and generate the 1099’s at year end. Most systems already have this feature but if it is a feature that needs to be added, you’ll need to get in touch with the company now because adding a new feature to a software package could be time consuming.
· Look at where you use petty cash. If you use $59 in petty cash each month for park & rec supplies from the same supplier, you are going to need to give that supplier a 1099 at year end and they won’t be in your computer system. Consider using other purchasing methods.
· Talk to your auditor if you are considering using debit or credit cards instead of cash. Make sure you have strong internal controls in these areas. Tentatively the IRS is considering exempting purchases made by debit and credit cards from the reporting requirements. While it might seem like an easy solution, these payment methods have been abused and you need to make sure you have strong internal controls in these areas.
· Expenses that you reimburse employees for are also subject to reporting. If you have five employees who stay at a hotel in Harrisburg for 5 different training sessions throughout the year and you reimburse them for the hotel stay, you are responsible to report the payments made to that hotel on a Form 1099, even though you didn’t make the payment to the hotel directly, you paid employees.

Possibly this part of the healthcare legislation could be overturned or modified, but this is too large an undertaking to wait to see if this happens. It is better to proceed based on the current legislation and be prepared.

Beware of the Common Copier

Copiers don't just copy anymore—they scan, fax, and send email. And they could also end up inadvertently leading you to violate privacy rules. Nearly every copier built since 2002 has a hard drive. Everything that is copied, scanned, or emailed by the machine is stored on the hard drive. And unless you have the hard drive erased at the end of the copier lease term, private information from the hard drive could be accessible to the copier company or another organization that leases or buys the copier after you use it. The information can be accessed using software that is available for free on the Internet.

Organizations that provide social services frequently copy or scan papers that include social security numbers, wage information, or medical records. You can unintentionally violate Federal and State privacy rules if this information is accessed. The identities of your clients could be stolen.

You need to make sure that your policies for protecting that information extends to your copier too. Most copier manufacturers offer security or encryption packages for their products. Sharp and Xerox both have products that automatically erase an image from the hard drive as soon as it is printed. The cost of the product is $500—a very low cost to prevent potentially significant damages. You can also arrange to have the hard drive completely erased before the machine is removed at the end of the lease period.

Weighing the Benefits of Social Media

Today this article about how successful social media has been for some accounting firms appeared in my inbox. A few hours later I read these lines in my son’s blog.

I woke up Friday morning to a text from a friend about Cliff Lee joining the Yankees. I then checked Twitter and read numerous updates from Buster Olney about Lee to New York. I continued to turn to all sources and grabbed the remote. I turned on the television….

The first source my son checked for information was Twitter!

As a result of these two items, a few things have been running through my mind:
1. I have got to figure out how to use Twitter on a regular basis
2. If social media is helping accountants gain more business surely it can help nonprofits
3. Our future clients (for our accounting firm) and future (and some current) donors for nonprofits are using Twitter as a resource
4. While I like blogging, Facebook, and LinkedIn, I don’t find Twitter as convenient but I feel like it is something I need to be involved in.
5. Are nonprofits (and accounting firms) really missing out if they aren’t involved in social media?

I was then reminded of a forwarded article from my associate Liz Vibber about social media from the very practical and informative frogloop blog. It is a very balanced, objective look at the current value of social media and where your best efforts are spent with this communication method. One of the best points the article makes is that you build community and then use that existing community to spread your word in the online world. This is a great starting point for nonprofits that aren’t quite sure what to do about social media.

I note “current value” of social media. If today’s 20 year olds check Twitter first for up to date information, perhaps 5 to 10 years from now nonprofits will see a more significant percentage of their donations come as a result of their social media communications. Both accountants and nonprofits need to figure out the best way to make social media part of their lives. But we both need to take the time to figure out where and how that is best done.

The Data (and the Donations) are in the Details

I recently spoke with a wonderful group for a wonderful organization, the Association of Fund Raising Professionals at their Lehigh Valley conference. The presentation was “Where Can Your Limited Funding Dollars Have the Most Impact: Communicating to Your Funders the Power of Their Investment in Your Organization”.

A lengthy title, but it reminds nonprofits that their funders are indeed investors. Prior to making an investment, investors will look at the investment and make sure that it delivers a good return on their money at a level of risk that is acceptable to them. What information do your investors need to determine that their money will make the most impact in your organization?

First you need to figure out where your funds have the most impact. If you have several programs you need to look at each program separately. What are the direct costs related to that program? How many people can you serve? What amount of staff time is required to deliver your services? Can you use your staff time or your facilities or your resources in a more efficient manner to serve more people?

Once you have the financial information and the data, you need to figure out the best way to communicate that to donors and grantors. Different audiences will need different types of communication. One grantor may be interested in investing in your organization because they can see that if they provide money for staff training, the staff will be able to serve 50 more people each week. Another donor may donate because you have explained that their donation of $500 will enable your organization to build a well that can bring water to 600 people every day. And another funder may appreciate your commitment to building a stable, healthy nonprofit that continually is a community resource and they are glad to add to your reserve fund because they can evidence of this stability in your financial statements.

Financial and data analysis will not only attract more donors, it will help you manage your nonprofit better. As the saying goes, “If you can measure it, you can manage it”

You Haven’t Lost Your Status Yet

If you are a small nonprofit under $25,000 and had not filed a 990 or the 990-N postcard with the IRS in the last three years by May 17, 2010 you were at risk for losing your status. However the IRS is willing to work with these small nonprofits, so go ahead and file, even if you did miss the deadline. Instructions to file and the IRS efforts to help the small nonprofits keep their status are on the IRS website in the charity section.


The impetus behind this provision is to clean up the IRS records. It is suspected that there are many nonprofits on the IRS listing that ceased doing business years ago. There is a good detailed article on this topic at Nonprofit Newswire (which is a great daily newswire service to subscribe to)



In the week prior to May 17 we looked up some area zip codes and contacted local nonprofits we knew, that were on the list in danger of losing their status. They were unaware of the IRS Form 990-N. The most common reason was that the Board Members had changed and it is likely that any IRS notifications went to a former Board Member. See this link to look up your area

Protecting your Organization from Fraud

Last week’s headlines were all too familiar. The Treasurers of two local youth basketball leagues had stolen about $159,000 from the leagues. The thefts occurred over several years. In both cases, the Treasurers simply wrote checks out of the league accounts to themselves. This story has been repeated too many times over the last several years—in youth sports organizations, Home and School Associations, churches, fire companies, nonprofits, and businesses. The theme is the same—a trusted long time employee or volunteer steals money from the organization by writing checks to their own accounts or for personal expenses.

How could this have been prevented? The rule of two. In any organization, regardless of size or whether it is staffed by volunteers or employees, at least two nonrelated people should be involved in every transaction. What does this look like?

1. If someone writes and signs checks, then someone else receives the bank statements and reviews the canceled checks. Any unusual payee names are questioned. This step alone could have prevented numerous thefts.

2. For special events when cash is collected, there are two volunteers collecting and counting the money. They sign off on the total amount prior to the deposit.

There are numerous other controls but these two alone could reduce the amount and frequency of thefts significantly.

More Health Care Premium updates from the IRS

Under the Affordable Care Act, health coverage provided for an employee’s children under the age of 27 is now tax free to the employee effective March 30, 2010. If you have a cafeteria plan or a Section 125 plan, employees can make pre-tax contributions to this plan to pay for this benefit. See more information on this topic at the IRS website.

And the 65% subsidy on COBRA health insurance premiums has been extended past March 31, 2010. This subsidy covers employees who are involuntarily separated from their jobs between September 1, 2008 to May 31, 2010 and lasts for a period of 15 months. Eligible workers pay 35% of their premium to their former employers and the employer applies for a credit of 65% on their payroll tax return. See more information on this topic at the IRS website.