Non Profits and Quality of Life - Responsibility

Presentation on Non Profits - Responsibility

C-One Center for Non Profit Effectiveness (United Way , Miami)
Seminar Feb 26th, 2004
and Florida Department of Revenue
(Introduction by: Rene Velez)

RENE VELEZ Accounting, Tax & Consulting

Non Profits and Quality of Life

For many years Non Profit organizations have contributed to the quality of human life both here in the United States and throughout the world. Their causes range from the arts, healthcare, homelessness and world hunger to offering comfort and support to AIDS victims, single mothers, the elderly and caring for our young through education and early childhood development, just to name a few causes. It would truly be difficult to think of a major metropolitan city like Miami not having the services available through non profits. It’s something to think about as it affects all of our lives.

Comparison of For Profit vs. Non Profits
Financial and Management Responsibility

However, running a non profit is a sizeable undertaking. You have to be business oriented, work within budgets, hire personnel, establish a marketing strategy deal with human resource issues, keep track of your accounting, develop a business plan and secure funding and deliver your product, just to name a few of the major functional areas. In fact there is a great deal of comparison between running a small non profit and starting a small business. In reality the pressure could well be greater for those who decide to undertake this role because often they have a great deal of passion invested in their cause. Managing a non profit requires a great deal of management resourcefulness. Above and beyond that, you should be aware that if you mismanage a non profit it may not be as simple as going out of business. Even though you are tax exempt you could owe taxes, you may have filing penalties and you could be in violation of the special tax exemption you have been given. Your organization could be penalized and those officers and directors could also face fines and penalties personally. In some cases grants may be recalled for lack of proper accounting or for incorrect use of funds. Just as for profits have a responsibility to shareholders and to the investing public at large, non profits have a financial and management responsibility to their donors and to the public. Think your plan through carefully not only because you are liable but also because when a non profit fails, it affects how the public will give and support the next non profit start-up. (EXAMPLES OF PENALTIES)

Non Profit Image, Marketing, Awareness, Professionalism, Balance

In raising donor funds as well as in attracting volunteers and professionals it is important to develop the right image, understand the value of developing marketing tools. A very important function of your organization is to create awareness for your cause. People have to understand what you do. The service you offer. Why it’s important. You have to develop a level of professionalism to gain people’s trust. To get them to donate time and money and to support your cause along with you. You have to set standards for answering the phone, providing the right donor receipts, thanking donors and recognizing them in your literature. Of course you have to create a balance when trying to address image, marketing, awareness and professionalism. You have to strike a critical balance between doing a great job but not looking like you spent all your donations on a fancy business card and brochures.

Your money is better spent creating a statistical sheet of your accomplishments. How many patients did you serve? How many man hours of volunteers did you have? How many meals did you serve? What is your average cost of service per beneficiary?
What percentage of the target market did you reach? Yes. You have to be a statistician also!


Start out on the right foot

The biggest piece of advice I can offer to anyone starting a non profit is, do your homework and prepare for a major commitment. Then “write down” (at minimum) a simple business plan in draft. You have to address these simple questions just to start:

(1) Who or what will you serve?
(2) What service or product will you provide? Is there anyone else doing this?
(3) How much will it cost to provide that product or service per month for 1 year? (budget)
(4) What am I good at and what will I need help to do?
(5) What/who do I need to start out?

Be very realistic! Don’t lie to yourself! If anything can go wrong it will! There are many resources out on the internet you can look into. You have to be willing to do a lot of homework. Also there is C-One (United Way , Miami) which has an extensive library and also UM (University of Miami) Center for Non Profit Management. Seek out guidance from other non profit founders and managers. Don’t overlook for profit owners and managers that can guide you in your business plan.


Non Profits are a Regulated Industry

I have not heard this phrase often since becoming involved in non profits however, I am starting to use it more and more. “Non Profits are a Regulated Business”. My hopes is to keep non profits from committing errors that can get them into serious trouble. In addition there seems to be a trend that has been going on for some time now both by taxing authorities and homeland security to take a closer look at Tax Exempt organizations. My suspicion is this scrutiny will continue over time.

In the past year we have all heard of the scandals in the business sector. Fraud, mismanagement, corruption. These scandals have created a new era in accounting, financial reporting and business administration. As such there is an emphasis on holding managements feet to the fire when they are entrusted by the public with money. It is already being felt in the non profit sector and it’s only a matter of time before we see more rules and legislation to make sure charitable organizations are measured with more accuracy than ever before.


Taxation:
Internal Revenue Service (http://www.irs.gov/)
Florida Department of Revenue ( http://www.state.fl.us/dor/)
Florida Department of Agriculture and Consumer Affairs ( http://www.800helpfla.com/ )

Finance and Accounting:
Financial Accounting Standards Board ( www.fasb.org/ )
American Institute of Certified Public Accountants (http://www.aicpa.org/index.htm )
Office of Management and Budget ( http://www.whitehouse.gov/omb/ )

The Tax Preparer and Regulation

Considering it is tax season I thought it appropiate to make mention of a virus that threatens our society. The "Unregulated Tax Preparer" or UTP. Every now and again but mainly during tax season I come accross a new client who has had their return prepared by Mr. or Ms. UTP. Yes you all know who they are. They hang out that yellow or red flag in notable establishments like check cashing stores, corner grocery stores or Bodega's and proclaim the words "Income Tax". Its hard to tell what they do but some how that sign has come to be understood as a place to get your return done.

They are in every city across america. Before I speak freely there are some who actually know what they are doing. Some are Enrolled Agents of the IRS and do a fare job for the simple individual income tax returns. Others are degreed accountants who have a good understanding of accounting and tax law. Some may actually be Certified Public Accountants. However, beware! Many are nothing short of Charleton's. I have coined the phrase UTP as "Used Toilet Paper" people. It would seem that the majority of these establishments prepare nothing but "Used Toilet Paper!" The give the profession a bad name and need to be outlawed.

Firstly, here is a bit of advice. Get a professional to do your return. Well known franchises like Jackson Hewitt or H&R Block are a good start. These people get good training however, many are seasonal employees who really do not have experience or who are not well versed in complicated matters. Worse yet many times you might be hard pressed to establish a relationship with these preparers. They sometimes come and go with the season. There is a lot to be said about establishing a relationship with your tax preparer, tax advisor and accountant. It's like feeling comfortable with your doctor or lawyer. You could find an "Ennrolled Agent". This is a designation given to individuals that have taken courses to learn about tax laws have passed and exam and passed a level of standard with the IRS. Again same issues as above but still better than just anyone. Wether you choose a franchise or and enrolled agent they should be professional enough to tell you what they can or can't do. You could go to a "Tax Attorney". These are obviously skilled professionals with lots of knowledge. They are lawyers who understand tax law. Being lawyers they can represent you before the IRS. In fact CPA's often use tax attorney's to create Trusts, Wills, Pension and 401K plans, for tax research and tax opinions, legal representation in criminal cases, to name a few services, because you need to be licensed to practice law, (for the most part) in order to prepare or perform many of these services. Tax Attorney's are licensed and know the law. However, many are not accountants. They don't know or only have a vague idea how to maintain a set of books. They do not understand systems and controls for businesses. Many are true lawyers and are tax guru's but they don't and will not prepare a tax return. Thay are are financial analysts and some are plain horrible at numbers. In fact a good tax attorney has a good relationship with a good CPA or accountant. One does the law the other does the numbers, audits, return preparation etc. The other alternative is to hire a "Certified Public Accountant" (CPA). CPA's take a uniform CPA exam. The exam is composed of various parts but generally cover, accounting, auditing, business law, taxation and economics. Once that exam is passed they request licensing under state law. Once they are certified the IRS recognizes them as competent in the laws of taxation and capable of representing taxpayers before the IRS. CPA's often prepare income taxes and do so very competently. Contrary to the belief of many taxation may have nothing to do with accounting. The operative word is "may". This is because tax law is made by well "law" and although much of tax law has its basis in some accounting or financial model those individuals who govern have a job to enact laws that frankly, may have no economic purposes other than to raise a buck for uncle sam. (entirely a different issue). CPA's are good with numbers, understand finance, many hold other designations such as Certified Financial Planner(CFP), Certified Insurance Underwriter (CLU), Certified Management Accountants (CMA) and so forth. They know tax law and the interrelationships that exist. Better yet is that they know business and thats very good because even if you do not own one, you probably work for one, and besides your household is a business. It has income, expenses assets and liabilities. In fact you may need to see a CPA if your not thinking about your household as a business.

Anything short of these professionals and you are looking for trouble. Unfortunately, this industry is unregulated. There is nothing to keep these unskilled, UTP's from practicing. In the end they hurt all of us. Some operate under the guise that they know how you don't have to pay income tax. They'll go so far as to operate outside the law and snare you in the process. This is criminal activity and should not be taken lightly. Moreover, they raise the income tax burden on those of us who abide by the law. Many times these individuals are elusive but you as a taxpayer who signs that return may unknowingly be signing lies that can get you into a lot of hot water sometime down the road. The latest gimic are advances againts your refund. By itself not a bad thing as many people really need this money right away. But you are paying a very high rate for that money upfront. Many simply do it for you and unfortunetly the consumer is unaware of what it has cost them to receive that money fast.

I have heard and personally experienced tax tragedies by these UTP's that have had clients crying and shaking in my office when they have come to realize what poor service they have received. Some have faced criminal actions by the IRS and other taxing authorities. Some clients have had business credit denied, bonding capacity revoked, lines of credit taken away. Businesses and individuals have faced steep interest, penalties and back taxes in order to correct their standing with tax authorities. Not to mention the cost of expensive professional help to straighten out the mess. Most tax professionals will tell you no matter how much you think you might save in the shortrun tax cheats and those unfortuante individuals who have received poor advice and tax services pay triple if they are caught.

As a CPA I think we need to have better regulation of tax preparation. Too many tax dollars are lost. Too much of the tax burden is carried by those who are honest. The profession of Income Tax Prepration is severely hurt and tarnished by these Charleton's and in the end many honest and hardworking consumers are hurt in the process. Given the sheer number of UTP's it's my guess that lost tax revenue adds up to numbers that create a whole underground economy and collectively add up to the likes of Enron or Worldcom scandals.

It seems to me this is a no brainer.

Rene Velez Accounting Tax and Consulting

Joining the ranks of many entreprenuers within the United States a Miami accountant, Rene Velez, has launched his own firm, RENE VELEZ Accounting, Tax & Consulting, catering to small to medium sized businesses within the local tri-county economy (Miami, Broward and Palm Beach). These businesses typically have less than $5 million in sales anually, have experienced significant growth and require a high touch approach towards their accounting, tax and business needs.

" My best client is one that knows thay have a viable business venture but realize they can no longer afford to manage their business by themselves. If they don't undersatnd the value of forming a realtionship with someone that is going to understand their business, understand their issues and concerns and assist them in acheiving their goals then we simply become another accounting and tax service provider. We hare happy to provide this service alone however, most business owners want more. The want to restructure debt, create a strategic plan, work less, attract new business, bring their business to the next level. Entreprenuers today define success not only by being profitable but by being able to establish a life style. The real challange is that as you grow that business you tend to get sucked into the machinery. What we can do is come in and give you some relief, pull you out of the machinery and develop a plan so that you can run the business without it neccesarily running you.

Most profitable small business owners know that having a business can really take over your life. It's like your success becomes your worst enemy. When the business starts to control you its usually a good sign that you need to change gears and bring that business to the next level. It's unfortunate that many small business owners panic and get out of business or sell out only to find themselves with asset value but no income stream. I should say this is what happens if they are lucky. For us it's a real challenge because helping them with these issues is like doing an overhaul on a race car while its going around the track at 120 mph. Definetly not for the typical CPA who may be a Guru in Accounting & Tax but may not understand the business, has not examined his own clients level of tolerance for risk, knows nothing about the industry or what the competition is doing, is not an operations oriented professional and in the end can not devote that much time to one client. The fact of the matter is we would love to work more with CPA's because we are not out to steal the client. We are more than happy having them be the auditors, accounting and tax experts and keep them on as long as they can be part of the solution. Often depending on the complexity of the business we have to bring in other professionals. It's in the best interest of the client."

Today's small business owners have changed significantly. More and more many are college graduates. Many with advanced degrees. The are knowledgeable and educated. This is a trend that is expected to continue. Many educated professionals are tired of the turmoil in corporate america. To many corporate america has failed to create stability and add quality of life. Too often you get pigeon holed, you could be a good employee for many years then find out you are out of a job because of a merger or acquisition. Few middle and upper management positions have tenure or some kind of golden parachute. This constant insecurity has made many go out and find greener pastures on their own. The Miami tri-county area is a prime example of this. In particular the hispanic community has been very succesful at starting and operting many small businesses. Statistically, around 78% of Miami businesses have 10 or fewer employees. As Rene Velez mentioned, "the hispanic culture is one of the fastest growing segments of our society. Every major corporation is looking at this market segment for future growth. Part of that culture defines success as going into business for yourself. I think it will be very interesting to see what happens in the future. The real trouble is there is no one secrete formula to define that market. In Miami you have so many different hispanic cultures you wind up with segments within a segment."

Changes within the accounting profession itself seems to underscore a great deal of potential for accountants. For the past ten years business schools have been turning out fewer accountants than before. In addition you have many senior level accountants who as part of the baby boomers are considering retiring. This will create a shortage of seasoned accounting professionals within the industry. Many within public accounting are looking to private industry as they have come to realize that public accounting leaves very little room for family life. In an industry which has seen a large influx of female professionals with the last two decades, accounting firms need to gear-up for a whole new way of compensating and retaining their most valuable assets. Rene Velez mentioned " the accounting industry as a whole really has done a poor job historically on two fronts. Although, I recognize they have tried they have not succeeded in positioning in the publics mind the value that accountants bring to the greatest economy in the world. The U.S. economy. I am not talking about your senior level CEO, I am talking about the view the average household has about accountants. We are still called bean counters, the guy that does our taxes. The average american doesn't know the difference between a bookkeeper and a true accountant or CPA. Lawyers by far are more successful in positioning their value and likewise command higher rates. Another issue is that the typical career path for accountants is exhaustingly long. In many mid sized public accounting firms 12, 15 years is not uncommon before you become a partner. Even then you are expected to bring in business before you are considered for partnership. For lawyers 7 to 10 year tracks are more the norm. The starting salary for accountants is about $50K for a green accountant CPA, but for a lawyer about $85 to $90K. Let me ask you if you are not paying these professionals well don't you think logically you have more chances for another Enron, WorldCom, Tyco? Most lawyers who are also CPA's will tell you the CPA exam was much more challenging than the Bar exam."

The Sarbanes Oxley Act has proven to be monumental in creating change within the accounting profession. In many ways it is amplifing other changes in the industry. Sarbanes Oxley has not only doubles the cost for many public company audits, it has created significant demands upon the accounting and internal audit functions of these companies. Often times creating a huge need for outside consultants. Creating shortages of qualified personnel both in private and public accounting. Even more so since this is new ground and few have the expertise and knowledge to address the relevant issues. Rene Velez explained. " SOX is a real challange for all companies. Its not like you can create a template of rules, policies and procedures and then braod brush it accross a spectrum of public companies. Each industry is different. What works for Automotive industry may not even apply to a technology or biomedical industry. What's more is that within a given industry there is a multitude of differences. It's not even that you can get to a point and say okay we have complied with SOX. Each year you have to take a new look to make sure you can prove you have systems and controls for what is happening in the company. You have to constantly be asking yourself what has changed?, what did we miss?, where can this go wrong? What's more is my feeling is SOX will find its way across a variety of businesses not yet addressed. Such as Non-Profits and private companies that get paid with public money. It's just a matter of time if not another pending disaster we have not read in the headlines as of today".

The accounting profession seems to be going through some rather distinct changes. Professionals such as Rene Velez have made a niche for themselves that seems to have longevity given a host of statistical and demographic factors. Sarbanes Oxley, demand for consultants and qualified accountants play into the hands of these professionals for hire. Perhaps the tied is changing and accountants will soon be billing as much as lawyers and will gain their rightful degree of presitige as we move closer to a true global economy. One thing is for sure these are complex issues. Accountants do play a significant role in our economy. As a profession they bring order to chaos and thay attest to the viability of financial information. Information which is used to make decisions on the degree of risk of a given venture. They help us draw a picture of what is good or bad of the giant and small businesses that make up our economy. They execute our tax code by providing tax services from research to preparing a tax return. They help small business owners manage their ventures and create wealth they help multinational conglomerates protect assets and disclose information useful to society in everything from environmental issues to determining stock values and protecting the public from crooks.