8 Essential Steps to Protect your Nonprofit From Financial Harm

Staff members in a meeting discussing the steps to protect nonprofit organization

Nonprofits have been on an upward trend as they continue to grow and expand into new areas with innovative ideas and new ways of thinking. Nonprofit organizations work hard every day doing whatever they can to make their communities better places through charitable donations and volunteerism. 

Financial harm to a nonprofit organization can be devastating and difficult to recover from. Whether it is due to theft of funds, fraud, or mismanagement of funds, the costs incurred by this type of event are not easily recovered. 

With so many threats out there it’s important that you take some time now to prepare your nonprofit for any potential problems in the future. Read more about how you can protect your nonprofit today! 

How To Protect Your Nonprofit Organization

a board member discussing risks if you don't protect your nonprofit

Risk Assessment

In order to protect your organization, you need to know where the weaknesses are. Thorough risk assessment is the first step in protecting a nonprofit. An internal risk assessment can be done internally by staff members. The assessment should check the following areas to see where there are vulnerabilities:

  • Technology: Does software protect donor and member’s identities and financial information? Are financial reports stored securely?
  • Theft: Are there processes in place to prevent employee theft? Is the organization protected from fraud?
  • Compliance and reputation: Is the organization current in government compliance? Are the employees and representatives that are carrying out the mission in the public eye?

Planning For Emergencies

There is no way to avoid emergencies, but there are ways to be prepared for them. Assigning a designated group of employees to lead emergency planning is an efficient way to make sure your organization will be covered in the event of a natural disaster or another emergency. The group can put together drills, evacuation plans, emergency kits, and contingency plans. 

File Annual Federal & State Forms

Keeping a tax-exempt status is a priority for most nonprofits. In order to stay compliant with governing agencies, board members, and current and potential investors, annual forms must be properly filed.

Form 990, which contains information regarding the mission of the nonprofit, the programs and services provided, and its finances, is one of the most important annual documents a nonprofit organization must file. 

Pay Employment Taxes

While nonprofits are usually exempt from paying income taxes, they must stay on top of payroll taxes. Payroll taxes are held back from your employee wages and must be paid to the proper tax authority. The following taxes must be withheld and accounted for in a nonprofit:

  • Federal income tax
  • FICA tax (Social Security taxes and Medicare taxes)
  • State and local taxes
getting ready for tax season to protect your nonprofit

Report Payments To Consultants

From time to time, nonprofits may receive services from people who are not employed by them. Payments to people that are not your employees still need to be reported to the IRS in the form of a 1099-NEC. You will need to send 1099 to the IRS and the consultant for any services that you paid more than $600 for during the year. Some LLCs and corporations are exempt from needing to be reported on a 1099 form, but if there is doubt it is better to file the form. 

Transparency

Protecting your nonprofit includes being transparent with donors, employees, members, and government agencies. Transparency can be achieved by keeping accurate and current documents. It is easy to fall behind on compiling financial statements but staying current will protect your nonprofit from scrutiny and fraud. 

Protect Your Online Reputation

We live in an online world. The internet is often the first and only source of information for much of the public. It is important that the mission statement and public interaction available online about your nonprofit match the intended mission statement. Making sure that a staff member monitors all reviews and online comments about your organization will help protect the reputation of your nonprofit. 

Know Your Insurance Needs

Insurance is a must for a nonprofit organization. There are different types of insurance available, and deciding which ones are necessary for your nonprofit depends on the individual traits of your organization. Some types of insurance you may want to consider are:

  • A general business umbrella policy
  • Crime insurance
  • Automobile and property insurance
  • Directors and Officer’s (D&O) liability

Conclusion

Many nonprofit organizations are not aware of the financial risks they face on a daily basis. From paying employment taxes to filing annual federal and state forms, there are many steps you can take to protect your organization from harm. One way is by scheduling a call with our team at JFW Accounting Services so that we can assess your needs and develop an action plan tailored just for you! 

We’re happy to tailor this advice to any size non-profit or charity because no one should have their work disrupted due to a lack of knowledge about how best to manage finances–especially when it comes time for tax season. It could be as simple as making sure everyone who works in your office knows what forms need filling out each year, but without taking these steps early enough.

Schedule a call with us and will walk you through all of this information about how you can protect your organization. Book your appointment here.

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