CNAP Non-Profit Accounting Overview

CNAP Overview

• CNAP consists of 7 sessions covering topics such as introductions, Not-for-Profit GAAP, financial statements, budgeting, cost allocations, internal controls, audits, and IRS disclosure requirements.

Not-for-Profit Organizations (NFPs)

• Receive contributions/compensation from resource providers who do not expect a commensurate or proportionate monetary return.
• Operate for purposes other than to make a profit (although making a profit is OK!).
• Have an absence of ownership interest.
• Have a responsibility to account for specific funds they have received from donors.

Tax-Exempt Entities

• Are still responsible for certain taxes, including Social Security taxes on wages, Medicare taxes on wages, state unemployment taxes, and optional proxy tax on lobbying activities.
• May also be responsible for Unrelated Business Income Tax (UBIT), state sales tax, real estate tax, personal property tax, and other state taxes, depending on IRS classification, nature of activities, and state laws.

501(c)(3) Publicly Supported Organizations

• Types of qualifying entities or organizations include religious, scientific, educational, public safety testing, literary, national or international amateur sports, and organizations formed to prevent cruelty to children or animals.

501(c)(3) Publicly Supported Organizations Advantages

• Donors can deduct contributions.
• Postal rates are favorable.
• Organizations are exempt from the Federal Unemployment Tax Act (FUTA).
• Organizations may be exempt from state sales tax and other local taxes, if allowable under state law.
• Foundations often require 501(c)(3) status before issuing grants.
• Exemption from the FICA tax election is available to clergy.

501(c)(3) Publicly Supported Organizations Limitations

• Insubstantial amounts can be spent on lobbying to influence legislation (i.e., the “h election”).
• Participating in election campaigns is absolutely prohibited.
• Earnings cannot inure to disqualified individuals, i.e., board members, employees, officers.

Board of Directors

• Determine and review the organization’s mission and purpose.
• Adopt governance policies and procedures.
• Select the chief executive.
• Support the chief executive and assess performance.
• Ensure effective organizational planning.
• Ensure adequate resources.
• Ensure resources are managed effectively.
• Monitor and resolve conflicts of interest.
• Ensure that the organization’s federal, and if applicable, state tax filings are accurate and timely.
• Assess risk, both reputationally and financially.
• Are usually expected to donate to the organization.
• Determine, monitor, and strengthen the organization’s programs and services.
• Enhance the organization’s public standing.

Establishing Board Committees

• All NFPs should have the following committees: Finance, Audit, and Executive.
• Typically, other committees include Development, Nominating/Board Development/Governance, and Program/Quality Assurance.

The Finance/Audit Committee

• Ensures compliance with federal, state, and other reporting requirements.
• Recommends audit firm and participates in annual meeting to discuss results of audit, reviews resulting report, and discusses suggestions for improvement in internal controls.
• Assists Treasurer to ensure accurate and timely financial information is presented to and understood by the board.
• Responsible for informing the auditor of risks of fraud and knowledge of fraud.

Fiscal Staff Relationship to the Board

• Safeguards the organization’s assets.
• Complies with federal, state, and other reporting requirements.
• Interprets the organization’s financial affairs and health to the full board.

This quiz covers the basics of not-for-profit accounting, including GAAP, financial statements, cost allocations, and internal controls. It's designed for CNAP candidates preparing for the certification exam.