The internet is permanent–nothing there is private

The internet, social media, and electronic mail are wonderful.  Those tools let us do incredible things that were beyond imagination 15 years ago.

There is danger in the midst of these wonders.  Things you say can travel far.  When it becomes electronic, those things you say can live forever.  (more…)

ECFA changes requirement for audit or review

ECFA has raised the income thresholds for requiring their members to get an audit.  If your revenue is over $3 million, then you must submit financial statements audited by a CPA.  If your revenue is less than $3 million, you may submit financials that are reviewed by a CPA.

There is another option that is even more economical. If your revenue is less than $1 million, you may submit financial statements that are compiled by a CPA.

(Update:  ECFA revised the cutoff for a review in the fall of 2013. See discussion here.)

More information at the ECFA website here.

A review is much less costly than an audit.  Not only in the lower fee you will pay your CPA, but also in terms of the reduced time you spend providing information to your CPA.  A compilation is even less costly than a review.

There are major differences between audits, reviews, and compilations.  I have background here that goes into more detail.

If you are not a member of ECFA and had been thinking about joining, these new thresholds might make it easier to join.  Check them out!  Joining ECFA makes a strong statement to your donor base that you are taking the high road on financial accountability.

Before you shift from an audit to a review, it would be wise to check with your funders, lenders, and a few major donors.  You might want to make sure they are comfortable with seeing a review instead of an audit.  It would not be a good situation to save half your audit fee and lose a grant that is ten times the savings!  There is good news on that issue though — A few of my clients have checked with their constituency and found their funders and donors very accepting of that shift.

Why bother with internal controls? Living above reproach

In his first letter to Timothy, St. Paul outlines many criteria for selecting an elder, including that “the overseer must be above reproach” (1 Timothy 3:2). The overseer—a deacon, elder, or pastor—should not do things that would cause blame or scandal or provide others justification for making accusations.  In my conversations around the church and ministry world, I frequently hear the phrase “living above reproach” from leaders.  Many people use this concept as a guide for everyday behavior.  It provides a superb framework for evaluating decisions:  “Will this action give others grounds for making an accusation against me?”  (more…)

“Weeds in the Garden – the growing danger of fraud taking root in the Church”

Weeds in the Garden – the growing danger of fraud taking root in the Church

Verne Hargrave, CPA, CFE

ISBN 0-9705433-9-5

From the preface of the book:  “The purpose of this short book is to help break {the logjam caused by the long list of reasons that prevent local churches from} taking anti-fraud steps.  As you make your way through its pages, please keep three things in mind.  First, it was {the author’s} intent to keep the book short.  (more…)

Why bother with internal controls? Love your neighbor

One of the key concepts for internal control is called segregation of duties.  The basic concept is to split up financial tasks so that one person cannot do something improper and also hide it.  I will explain this in much more detail on this blog.

Internal controls are usually described from the perspective of the organization, but let’s look at it from the perspective of a staff person.   (more…)

Why bother with internal controls? Stewardship

From a very basic perspective, the reason any governing board puts controls in place is so the board can be sure that the programs and activities they wish to implement are actually implemented.  Put a different way, this means the board needs to make sure that resources entrusted to them are used as intended.  We have a framework for this concept:  It is called stewardship (more…)

“Nonprofit Starvation Cycle”

Stanford Social Innovation Review has a superb article on the cycle many NPOs have of starving themselves of critical infrastructure they need to be effective in their mission.

Superb summary: “The first step in the cycle is funders’ unrealistic expectations about how much it costs to run a nonprofit. At the second step, nonprofits feel pressure to conform to funders’ unrealistic expectations. At the third step, nonprofits respond to this pressure in two ways: They spend too little on overhead, and they underreport their expenditures on tax forms and in fundraising materials. (more…)

Alleged embezzlement at nearby church

A church in my area has been hit by an embezzlement scandal.  It particularly grieves me because I have a number of friends who worship there. 

Basic details are that the business administrator is accused of embezzling between $720,000 and $960,000.  He has been arrested and formally charged with several felonies.  He has denied all charges.  Reports in on-line media do not provide any details of how the alleged scheme was supposedly carried out.  We wait while the judicial system resolves the accusations.  In the meantime, if you are so moved, please pray for the leadership (who are quite distracted from their ministry, I would guess), the membership (who are probably hurt and angry), the accused, and his family (they are victims too). 

More details in this article at the Church and School Embezzlement blog.  Articles from the Daily Bulletin, the local paper for my community, are no longer available on-line.

Full disclosure:  It is important to explain that I know nothing about this tragedy beyond what I have read on-line.

Fraud and other moral disasters occur in the nonprofit world

You may think local churches are immune to scandals.  In your ministry, perhaps you feel that since you are staffed by sold-out followers of Christ who are passionately committed to your mission, you won’t have any of those kinds of problems.  

Allow me to share some of my experiences. (more…)

What’s this ‘codification’ stuff my auditor is talking about?

You may have heard auditors talking about the codification of accounting rules. Well, it isn’t about everything getting fishy. (Bad joke – sorry!) You probably have seen lots of odd comments in the notes to your financial statements.  Instead of mentioning FAS Statement #157 when discussing fair value accounting of your investments, your notes now refer to something like ASC 820.  What happened? (more…)