Module 1 Accountability in the Nonprofit Sector

1. Module 1 Accountability in the Nonprofit Sector Convery 2013

2. Learning Objectives • Distinguish between accountability, financial management, accounting, finance • Distinguish between the nonprofit, governmental and business sectors • Identify the primary sources of revenue for nonprofit organizations (NPOs) • Identify the stakeholders of nonprofit organizations Convery 2013

3. Working Definitions Accountability is: • responsibility for performance and/or resources Financial Management is: • A subset of management that focuses on generating financial information that can be used to improve decision making Convery 2013

4. Working Definitions, cont’d. Accounting is: • the production of information about economic transactions for decision makers • design of information system for recording, classifying, and reporting information that includes adequate internal controls Finance focuses on: • alternative sources and uses of financial resources, including purchase and sale of long-term assets and short and long-term financing (sometimes in the financial markets) Convery 2013

5. Functional Areas of Accounting • Financial Accounting • Managerial Accounting • Auditing or Attest Function • Information Systems • Taxation • Specialized Industries: • Health Care • Higher Education • Human Services Convery 2013

6. Primary Sources of Revenue in an NPO • Public support • Contributions and certain grants (nonexchange transactions) • Special events (a mix of exchange and nonexchange transactions) • Charges for services • including membership dues, sales, contracts and certain grants (exchange transactions) • Other income • Including investment income and sale of assets (exchange transactions) Convery 2013

7. Stakeholders of an NPO • Public at large (subsidizing the tax-exempt status of the organization) • Oversight bodies (e.g., federal and state governments) • Board of directors • Consumers of the goods/services • Donors • Grantors (e.g., governmental and private foundations) • Employees • Others ……… Convery 2013

8. Oversight Bodies State governments have oversight over NPOs because • States grant them legal existence through nonprofit corporation laws or charitable trust laws The federal government has oversight over NPOs because • The federal government grants them tax-exempt status Convery 2013

9. How States Regulate NPOs • Registration • Annual compliance reporting • Licenses (e.g., to solicit contributions or operate a facility) • Limit on political activity • Tax compliance (e.g., sales and use tax) • Notice of plans to dissolve See Nonprofit Incorporation Act 162 of 1982 450.2101-450-3192 (see www.michiganlegislature.org/law and search for “nonprofit” Convery 2013

10. Regulatory Role of the State • The Charitable Trust Section of the Consumer Protection Division of the Department of Attorney General 517.373.1152. http://www.ag.state.mi.us • Licenses almost 3,000 charities that solicit donations (given a Michigan charitable solicitation MISC number) • Require annual reports • Licenses professional fund-raisers and “public safety groups” (which are not charities; they are often social groups or unions whose membership consists of current or former firefighters and law enforcement personnel.) • Approves any dissolutions of charitable purpose organizations incorporated in Michigan. Convery 2013

11. How the Federal Government Regulates NPOs • Annual compliance on IRS Form 990 • Excise taxes on private foundations • Unrelated business income tax • Intermediate sanctions • Limits on political activity • Rules governing reorganizationand dissolution Convery 2013