Questions Other Nonprofits Are Asking

If you are operating a nonprofit organization, chances are good that you have questions…lots of questions.  And, it probably wouldn’t surprise you to know that your contemporaries in other nonprofits have lots of questions, too.

Here at The Foundation Group, we get questions everyday.  Many come from current or prospective clients who call or write.  Others are posted as comments to our blog articles.  As I was going through some of the most recent comments and questions on the blog this morning, it occurred to me that if someone is asking, others may be wondering about something similar.  So, in today’s post, I’m going to show you some of the questions being asked by readers and the answers we provided.  This is just a random sample of what has come in over the last couple of weeks, but the topics range widely.  The ones below were chosen because they represent themes we see repeated quite often.

Q.  I am the director at a bible conference and retreat center. For many years we have been classified as a church by the IRS. Because of this we have not filed a 990. We are a 501c3. Do you think I have anything to worry about? If we do begin filing are we required to have an external audit?

A.  If you are classified as a church, a 990 should not be filed. My question is whether or not you should be classified as a church if your current operations are as you say. If your org is no longer operating as a church, it needs to be reclassified.  And no, an external audit is never required in conjunction with a 990 filing, though it may be a good idea at times.

Q.  I run an athletic contest within a festival run by a 501c3 organization. For participants to compete in this contest, they pay a registration fee. The web page for this festival states that for the registration fee, the contestant will receive a t-shirt and lunch. The festival lost money this year as it rained enough to keep people away but not enough to trigger weather insurance. Now there is a scramble to pay bills. Some say the registration fees are earmarked funds that have to first be used to pay the expenses of the contest within the festival. If so, is using the registration fee to pay other bills misappropriation of funds? Others say the registration fee is general revenue and can be used to pay any bill without restriction. Since the registration fee is not a donation to the 501c3, is there earmarking of the funds? Is registration a Fee for service?

A.  Tough question. I’m making the assumption that registration fees were non-refundable. Those fees are considered program revenue, not donations. Therefore, I would come down on the side of it being general revenue available to be used for whatever purpose. Program revenue is almost never restricted funds unless very obvious strings are attached by the organization. As long as you do not owe the registrants anything back, my opinion is to use the money however it needs to be used. Whatever you do, consider the public image ramifications.

Q.  Our school’s Parent Student Teacher Association is a 501c3. We have a Friends of the Library standing committee of this PSTA that fundraises for library enrichment: resources, author visits, etc. for students. Please answer this question: If we collect donations in the 2010-2011 school year, can we spend those donations during this same school year? This seems to me to be obvious – of course you can! But our PSTA treasurer is saying that new IRS rules state that we have to forward fund – that is, funds raised this year have to wait until next year to be spent. Please advise.

A.  I would have to know what they are misquoting to give you appropriate context, but what you are relaying makes no sense. If you raise money this morning, you can spend it this afternoon unless you have somehow tied your own hands by your method of solicitation. Many small charities operate day to day. If all organizations were required to “fund forward”, you would effectively have to shut down about 80% of them all.

Q.  A board voted to restrict specific funds of a local sports booster club to future large improvements. The intention was to be able to save for several years for very large projects that no single board (which turns over frequently as their kids leave the sports program) could raise the cash for on its own. This board created a special committee to convene for the disbursement of their specific restricted funds. This board also created by-laws to govern the creation and disbursement of such restricted funds. A couple years later, a new board changed these by-laws, and co-mingled the restricted fund previously established with the general fund and spent it a.) without convening the special committee, and b.) not on one of the large improvements for which the fund was intended (i.e. they used it in normal operations). I believe they have the power to change by-laws on a go-forward basis, but can they really re-designate an established restricted fund’s purpose?

A.  They have no legal basis from which to re-purpose restricted funds if these funds were truly restricted based on the original solicitation appeal. However, if the set-aside was made from general fund monies in the first place, that money could be re-purposed by a future board. Restricted funds are not permanently restricted in the legal sense unless they result from targeted solicitations.

These four questions are just a sample of what we receive.  Many we simply do not have time to respond to.  Sometimes it is just comforting to know that you are not alone in having questions.  And, as you can see, there are answers to go with them.