Module 1 Accountability in the Nonprofit Sector Convery 20131

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 20132

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 20133

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 20134

Financial Accounting Managerial Accounting Auditing or Attest Function Information Systems Taxation Specialized Industries: – Health Care – Higher Education – Human Services Convery 20135

1. Public support Contributions and certain grants (nonexchange transactions) Special events (a mix of exchange and nonexchange transactions) 2. Charges for services including membership dues, sales, contracts and certain grants (exchange transactions) 3. Other income Including investment income and sale of assets (exchange transactions) Convery 20136

 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 20137

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 20138

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 (see and search for “nonprofit” Convery 20139

 The Charitable Trust Section of the Consumer Protection Division of the Department of Attorney General ◦ 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

 Annual compliance on IRS Form 990  Excise taxes on private foundations  Unrelated business income tax  Intermediate sanctions  Limits on political activity  Rules governing reorganization and dissolution Convery