Statements

Statement of Activities

A statement of activities is simply a report that summarizes what plans the organization has undertaken, what plans the organization has continued with, and how both serve to meet the primary goals of the NPO as outlined in the mission statement. This statement is the same as that which is prepared for the annual report and for inclusion with IRS Form 990.

Statement of Cash Flows

The statement of cash flow can be a simple list of assets on hand throughout the fiscal period. The most common type of cash-flow report separates expenditures in operations, investments (including investments in fund-raising or products), and financing (including any dealings with banking institutions).

The statement of cash flow can be given as a balance sheet of cash in and out or it can be a more indirect statement, showing the monies added and subtracted by tracking changing balance. For almost all nonprofit organizations, healthy organizations list “operations” as a very large portion of the cash-flow report.

Accounting for an Incorporated Nonprofit

Nonprofit organizations need to ensure that they have an accountant or bookkeeper who is in charge of the financial aspects of the organization’s operations. This work varies from tallying incoming donations to compiling the more complicated annual financial reports. The Chief Financial Officer (CFO), treasurer or even a third party might be required to perform this task.

Annual Reports

A nonprofit organization’s annual report is designed to keep interested parties informed as to the progress the organization is making on their stated mission. It should be widely distributed to board members, constituents, members, and the IRS (as part of annual Form 990 filings).

The form of the annual report generally follows the same template that is used by publicly traded companies.[i] It often begins with a summary of the contents of the report, and then is followed by a letter from the president or founder. A separate message from the CFO might precede the financials section. The financial segment of the report should include charts, balance sheets, and general statements. Before the current financial records are given, a brief history of the NPO’s finances should also be outlined. These historical figures may include a discussion of receipts and expenditures as well as charts and spreadsheets with data. Financial statements are an important part of most annual reports, and including opinion letters from accountants regarding the fiscal health of the organization is also considered de rigueur.

The next major section of the annual report is a summary of the fund-raising and marketing activities of the NPO, along with an outline for future activities and goals. A review of the activities of the NPO over the course of the year may be presented in report form and may or may not include the price of membership in historical and projected terms as a function of demand for the NPO’s stated charitable function. A typical report closes with a list of directors and officers, followed by a list of any feeder organizations, brands and addresses.

Nonprofits are required to make their records available to the public upon request. If a copy is available online, it is usually heavily edited, because very few organizations include financial statement information in the online version.

---

[i] Tips for reporting earnings from Zpub, online. http://www.zpub.com/sf/arl/arl-tips.html

Determining the Emerging Needs of a Nonprofit’s Constituency

A nonprofit organization’s constituency can change over time, especially as the focus of the group shifts and is refined through trial and error. Every few years, an NPO should take some time to determine how it can better serve the members of its community.

Some organizations meet with focus groups of students or researchers and ask them how they feel about the services offered by the nonprofit. Public question-and-answer sessions, questionnaires, and studies of local Demographics are all effective methods that an NPO can use to help it better serve its community. By understanding the community, it can better serve those it is intended to help.

Estimating Financial Success

There are a number of accepted methods for analyzing the financial success of a particular nonprofit. Generally, some major questions to consider when deciding how well or how poorly a nonprofit is doing include:

• What is the NPO’s yearly income?
• What is the NPO’s yearly spending?
• How do these two numbers compare?
• Where is most of the NPO’s money spent?
• Where does most of the NPO’s funding come from? One person? Many sources?
• How equipped is the NPO to fund programs?
• How will this change in the future?
• How accurate are past budgets?
• How much emergency funding is available to the NPO?
• How much money is owed in loans or credit by the NPO?

Long-range funding, especially, is a gauge of a nonprofit’s marketing and fund-raising ability. Surpluses in the budget mean that an organizer’s treasurer in charge of allocating funds is doing a good job. A review of the finances of a not-for-profit gives the organization a clear idea of how the business is doing, whether it is flourishing or weakening, and how to help the organization become or remain successful.

Dedication to the Nonprofit Mission

During the course of operations, all nonprofits diverge from their original stated purpose. All nonprofits require direction from the board to ensure that they are devoted to their original or refined mission statements.

Ensuring that the NPO Remains On-mission

There are ways to evaluate whether the nonprofit remains committed to its primary purpose. Relative funding levels will give one picture of commitment, but so will a calculation of overall time spent on given tasks. For board members, talking with people who work in the nonprofit, as well as talking with constituents of the nonprofit will generate a picture of another side of the nonprofit’s situation. Overall business health is determined by its individual members, and talking to as many participants in the business plan as possible will ensure a clear idea of how the NPO is running.

Board meetings should address this topic at least once a year, though doing so more often can keep board members aware of the actual corporate situation. Many organizations even seek out second-party audits to see how their organizations stack up.

Gathering Information for Declaration

Gathering Accounting Information for Declaration

A nonprofit must gather a considerable amount of information to include with IRS Form 990, including annual financial statements. The annual financial statement of an NPO must contain clearly delineated categories of revenues and expenditures, with two-column accounting for all incoming and outgoing money for the NPO.

Any expenses that were allocated to various projects and operations should have their own section and statement, including a brief explanation and background of the project or operation. A report that outlines the expenditures on a specific program area as a percentage of the whole should be included in this section.

Lastly, a list that groups together the various sources of income for the nonprofit, as well as specifically where this income comes from is necessary. This section is called a “support schedule,” and should include all relevant financial information.

Gathering Personal Information for Declaration

Form 990 may also require personal statements of income from each of the board members of a nonprofit organization. These personal statements include the personal addresses, phone numbers, and other contact information of each board member.

Maintaining Nonprofit Status with the IRS

Once tax-exempt status is approved by the Internal Revenue Service, a nonprofit must continue annual reporting along with the yearly filing of Form 990.

Filing Form 990

For nonprofit organizations with an operational budget of less than 25,000 dollars per year, Form 990 does not have to be filed. Though an NPO’s operations may function for a long time without ever reaching this level of income, as soon as the 25,000 dollar mark is reached, the NPO must begin filing.

Private foundations are required to use the 990PF form, but the 990EZ form is available to any public charity that has a revenue (from all sources) between 25,000 and 100,000 dollars. Larger public charities that take in over 100,000 dollars must use a 990 form.

Along with financial statement information, detailed information on expenditures and income is also required. Any changes that were made to the nonprofit organization within the preceding year should be reported at this time. Unlike personal income tax returns, Form 990 is due annually on May 15^th.

Many organizations use a professional accountant to assist them with filing Form 990. It can be done, but requires good records, patience and attention to detail. For the organization that needs extra time to file, Form 8868 may be used to request a 90-day extension (IRS-557, 2005).