Fundraising

Question 1

Accrual accounting

Answer 1

Accounting method that recognizes transactions when they occur, rather than when cash is received or paid. For example, when an individual donor sends a written pledge that they will make a contribution, we recognize the revenue, even if the cash may be paid in the future or even over several installments. (Contrast with Cash-basis accounting.)

Question 2

Amortization

Answer 2

The process of allocating the original cost or fair value of a long-lived intangible asset over its estimated useful life. (See Depreciation.) Conceptually, depreciation and amortization are the same thing. In practice, depreciation is most often used with tangible assets, and amortization with intangible assets and liabilities. Our depreciation policy sets $5,000 as the level where we would amortize/depreciate an asset.

Question 3

Annuity gift (gift annuity)

Answer 3

A contribution given on the condition that the recipient organization make periodic stipulated payments to the donor or other designated individual. After termination of the stipulated payments, the organization keeps the remaining principal of the gift. We do not currently have this kind of gift.

Question 4

Asset

Answer 4

Something of value owned or controlled by a person or organization.

Question 5

Audit

Answer 5

The procedures performed by an independent certified public accountant (CPA) to be able to give an opinion that an organization’s financial statements are fairly stated in all material (significant) respects. Our auditor is Mark Love and Associates.

Question 6

Audit committee

Answer 6

A committee of the board whose primary function is to accept and review reports provided by external auditors and to select the firm that will provide the next year’s audit. For us, the Finance Committee performs this function.

Question 7

Bonding

Answer 7

A type of insurance recommended to have in place covering all volunteers and employees who have access to the organization’s cash or other valuable assets. If a covered individual misuses of funds, the organization will recover its loss from the bonding company (up to the amount of the bond). Our bond is through Traveler’s Insurance.

Question 8

Cash-basis accounting

Answer 8

Accounting method that recognizes transactions only when cash is received or disbursed. (Contrast with Accrual accounting.) We may use Cash-based analysis to assess the cash raised by an event or a fundraiser.

Question 9

Cash Flow

Answer 9

The process in which cash is received and disbursed by an organization. Most nonprofits have a cyclical cash flow with a larger influx of cash based on year-end contributions or prior to the annual meeting, and significantly lower receipts at other times of the year. As a result, good managers of financially weaker nonprofits will be quite familiar with the cash flow pattern of their organization and plan expenditures accordingly.

Question 10

Campaign

Answer 10

A Sales Force/Matchforce term that denotes planned efforts, events, or mail solicitations. Campaigns include set goals and track received contributions related to that named effort, comprised generally of smaller gifts. For us, campaigns include the annual appeal, corporate matching gifts, and events like the golf tournament or Rodman Ride.

Question 11

Conditional promise to give

Answer 11

A promise to give that depends on the occurrence of a specified future and uncertain event to bind the promisor. (See Donor-imposed condition.)

Question 12

Conflict-of-interest policy

Answer 12

A written document intended to ensure that decisions made about an organization’s operations and the use of its assets are made solely with the best interest of the organization in mind, and that no private or personal benefit to any affiliated individual will result. All board members and key employees should be cognizant of the conflict-of-interest policy, and annually disclose whether they have any “interests that could give rise to conflicts” (IRS 990, Part VI, Section B, 12b).

Question 13

Contact

Answer 13

A Sales Force/MatchForce term to track a person (constituent) who is in some way engaged with our organization, whether as a donor, potential donor, volunteer, employee, influencer or business colleague. Contacts who live at the same address form a Household, and are related to each other. Contacts may be affiliated with an Organization, which is a business, college, nonprofit, or other organization type.

Question 14

Consolidated financial statements

Answer 14

Financial statements that include added-together financial information for two or more related entities.

Question 15

Contribution

Answer 15

An unconditional transfer of cash (donation) or other assets to a qualified tax-exempt organization (or a settlement or cancellation of its liabilities) in a voluntary nonreciprocal transfer by another person or entity. (Contrast with Exchange transaction.) Contributions include gifts of money, property, the use of property, and in-kind services of volunteers; unconditional promises to make gifts in the future; and bequests. Contributions are recorded in Sales Force/Match Force as Opportunities, and the General Ledger (Quickbooks).

Question 16

Custodian fund

Answer 16

Funds received and held by an organization as a fiscal agent for others.

Question 17

Dashboard report

Answer 17

A report that communicates critical information in a concise, visual, more compelling way than traditional narratives or financial statements. This type of reporting allows leaders and managers to focus on key trends and relationships that are fundamental to the success of the organization.

Question 18

Deferred gift

Answer 18

A gift whose benefit recipient is delayed until a later time. (See Split-interest gift.)

Question 19

Deferred revenue

Answer 19

Revenue received in one accounting period that, because it has not yet been earned (by the provision of goods or services to the payor), is recognized in a later accounting period when the goods or services are furnished. Example: A donor sponsors the Rodman Ride in June for the event in September. As of June 30, we record the revenue as deferred until the event ‘releases’ the time restriction.

Question 20

Depreciation

Answer 20

The process of allocating the original cost of a long-lived tangible asset over its estimated useful life. (See Amortization.) Conceptually, depreciation and amortization are the same thing. In practice, depreciation is most often used with tangible assets, and amortization with intangible assets and liabilities.

Question 21

Designated fund(s)

Answer 21

For us, it is specifically ‘Board Designated.’ Refers to unrestricted resources that the board has voted to set aside for a period of time or for a specific use. While the board may use the term Endowment fund, because the restriction was set internally, the funds can be made available by the board for any use at any time, and so we call it a ‘quasi-endowment fund’. Hence, board designated funds are correctly classed with unrestricted net assets.

Question 22

Directors’ and Officers’ Insurance

Answer 22

A policy that protects the board and officers if they are acting responsibly by covering a variety of potential vulnerabilities, including libel and slander, acts beyond granted authority, wrongful termination and/or discrimination, inefficient administration, or waste of assets, and the like. Our D&O insurance is with USLI Mt. Vernon.

Question 23

Donor Advised Fund (DAF)

Answer 23

Much like a trust, an individual may fund a DAF, at which point they receive the tax benefit. (Fidelity has set up a charity to administer DAFs, which makes it the largest charity in the US.) At any point thereafter, the individual may ‘direct’ the DAF to make a contribution to a charity like BBBS (the donor cannot claim a tax deduction from us, but we do acknowledge the gift to both the DAF entity and thank the donor).

Question 24

Donor-imposed condition

Answer 24

A donor stipulation that specifies a future and uncertain event whose failure to occur releases the promisor from the obligation to transfer assets (or gives the promisor a right of return of any assets it has already transferred).

Question 25

Donor-imposed restriction (related to temporary restriction)

Answer 25

A donor stipulation that specifies a use for a contributed asset that is more specific than broad. A restriction on an organization’s use of the asset contributed may be temporary or permanent. For example, a gift to support the donor database migration is restricted by purpose; a gift to support the Worcester Community programs is sufficiently broad to be unrestricted, although we do track the intent for donor stewardship.

Question 26

Donor-restricted endowment fund

Answer 26

An endowment fund created by a donor stipulation that requires investment of the gift in perpetuity or for a specified term. (See Endowment fund.) We do not have a Donor-restricted endowment fund at this time.

Question 27

Endowment fund

Answer 27

An established fund of cash, securities, or other assets to provide income for a nonprofit organization. The use of the assets of the fund may be permanently restricted, temporarily restricted, or unrestricted. Restricted endowment funds are established by donor-restricted gifts and bequests to provide a permanent endowment (a permanent source of income) or a term endowment (income for a specified period). We prefer to use the term ‘quasi-endowment fund’ to highlight that the funds intended for long-term use as designated by the board, are not in fact donor-restricted.

Question 28

Exchange transaction

Answer 28

A revenue transaction related to the provision by an organization of goods or services to customers in exchange for payment of approximately commensurate value. (Contrast with Contribution.) An example would be when we provide mentoring services for Girls Inc, and they pay us a per match fee.

Question 29

Expenses

Answer 29

What an organization spends in the conduct of its activities (for example, salary, office supplies, rent).

Question 30

Fair value

Answer 30

The amount at which an asset could be bought or sold in a current transaction between willing parties — that is, other than in a forced or liquidation sale; usually equivalent to market value. Fair market value applies to in-kind gifts to us; it also applies to gala tickets, where the FMV of food and entertainment is subtracted from the ticket price that may be claimed as a tax-exempt gift by the donor.

Question 31

FASB (Financial Accounting Standards Board)

Answer 31

The private sector body primarily responsible for setting generally accepted accounting principles (GAAP) for all nonprofit and for-profit entities other than governments.

Question 32

Fiduciary

Answer 32

A person entrusted with management of, and responsibility for, assets belonging to others. Generally, under state laws, governing boards of nonprofit organizations are considered to be acting as fiduciaries.

Question 33

Finance committee

Answer 33

Oversees the proper performance of all the organization’s financial operations by regularly reviewing all financial activity. The finance committee reviews and discusses the budget with management before presentation to the full board. The in-depth budget review by the committee relieves the board from spending an undue amount of time analyzing details. Our committee also reviews other financial activities such as the audit and investment performance.

Question 34

Financial statements

Answer 34

Reports indicating the economic condition and financial performance of an organization. These may include a statement of financial position, also called a balance sheet, which shows the assets and liabilities of the organization at a given point in time; a statement of activities, also called a statement of revenue and expenses, which shows revenue and expenses for a specified period of time; a statement of changes in net assets, previously called a statement of change in fund balance, this statement is frequently combined with the statement of activities, and reflects the beginning net assets, plus the current period’s excess or deficit; and a statement of cash flows, which focuses on where cash came from and how it was used over a period of time. If the financial statements have been audited, they will include an opinion by the auditor as well as footnotes providing significant additional information about the organization.

Question 35

Fixed assets

Answer 35

Land, buildings, vehicles, equipment, and similar assets with an extended useful life.

Question 36

Form 990

Answer 36

The Internal Revenue Service (IRS) form used to report annually to the IRS (and to many states) on the financial and other activities of a tax-exempt organization.

Question 37

Functional expenses

Answer 37

A method of grouping expenses according to the purpose for which costs are incurred. The primary functional classifications are program expenses, fundraising expenses, management, and general expenses. (Contrast with Natural expenses.) We call this ‘classes’ and they are Admin, Marketing, Fund Development, College Program, Corp Program, High School/Mazie, and Community.

Question 38

Fund

Answer 38

An accounting entity established to track the resources of a specified subpart of an organization, such as a project, donor-restricted gift, board-designated pool of assets, activities in a certain geographic area, fixed assets, or other defined unit. We track some funds as ‘projects’ in Quickbooks, which allows us to create a P&L for the project, for instance, the Donor Database conversion was funded by the Sudbury Foundation and expenses include software licenses and staff time. We also have an investment fund called the Bob Cousy Fund. This is meant as our long-term quasi-endowment.

Question 39

Fund balance

Answer 39

The excess of assets over liabilities of a particular fund of an organization. (See Net assets.)

Question 40

GAAP (Generally Accepted Accounting Principles)

Answer 40

The rules for recording and reporting transactions in financial statements. In the United States, these are promulgated primarily by the Financial Accounting Standards Board and secondarily by the American Institute of Certified Public Accountants (AICPA).

Question 41

GAAS (Generally Accepted Auditing Standards)

Answer 41

The procedures undertaken by an independent certified public accountant in order to issue an opinion on the fairness of the presentation of financial statements. In the United States, these standards are promulgated by the AICPA.

Question 42

GAU (General Accounting Unit)

Answer 42

the tag on opportunities in Sales Force/MatchForce that supports reporting on account and class, particularly useful for reconciling with QuickBooks.

Question 43

General Ledger

Answer 43

A general ledger (GL) is a set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports. Each account is a unique record summarizing a specific type of asset, liability, equity, revenue or expense. Our GL is Quickbooks.

Question 44

Gift-in-kind

Answer 44

A contribution other than cash or marketable securities. Includes property, supplies, equipment, use of property (free rent), and qualified donated services of volunteers. We only recognize in-kind gifts if we would have paid for the service or product. For instance, our furniture is largely donated in-kind. If a donor gives us a piece of artwork for the office, we would not recognize it as in-kind revenue.

Question 45

Grant

Answer 45

Properly used to refer to an award by a foundation, company, nonprofit organization, or government agency to an organization or individual. The word does not have a precise meaning in accounting and is often used interchangeably with contribution; however, not all grants are contributions — some are exchange transactions. We tend to use the term grant for ‘reimbursement grants’ like for the United Way or ‘JJ’ government grants. In these cases, we do not recognize revenue until an invoice for incurred expenses is sent (regardless of when the reimbursement arrives.)

Question 46

Hard-credit

Answer 46

A fundraising term to denote who receives the donation ‘credit’ for a gift, vs. soft-credit, which indicates that the individual (contact) was responsible or helpful for that gift. For example, a donor may give through a Donor Advised Fund. Technically the gift is from the DAF, say Fidelity, who receives the hard credit. The donor in this case receives a soft credit.

Question 47

Household Account

Answer 47

A Sales Force term to denote individuals (contacts) who live at the same address. Donations ‘live’ at the account level and are hard-credited to the primary contact, and soft credited to all other contacts in the household.

Question 48

In-kind donation

Answer 48

See “Gift-in-kind”.

Question 49

Internal controls

Answer 49

Those processes and procedures that protect the assets of an organization and promote its efficient operation thus helping to ensure its long-term stability and continuation of programs. Good controls act as both a deterrent to, and detective of, improper behavior by staff and volunteers. The key to good internal controls is segregation of duties. The general rule is that no one person should be in a position to completely control all aspects of a transaction from its initiation through approval, handling of assets, and recording. With our external accountant, we have controls in place for payments to vendors, employee expense reimbursement, and credit card charges, including my emailed approval of payments. We have a designated person in the office who opens all mail except marked ‘personal’ – and will retrieve any checks, copying the check and back up. A separate person completes the deposit sheet for both donations and other income. Then the checks are deposited, and the gifts recorded in the donor database.

Question 50

Investment committee

Answer 50

Drafts and oversees the organization’s investment policies, including liaison with outside investment advisors. Because this committee monitors investment performance, it needs members who are familiar with investing. In most cases, the committee does not become involved in the details of individual investment purchase and sale decisions but hires outside advisors to do so. The committee should monitor the activities of the outside advisor to ensure that the organization’s investment policies are being adhered to. Ryan Kittridge at ClearPath Financial is our advisor.

Question 51

Investment policy

Answer 51

A board-approved document that delineates a specific philosophy of investment management and establishes parameters for investment risk and return. Some policies, especially those for organizations with smaller reserves, indicate which specific investments are allowed. For example, a very conservative investment policy might allow only FDIC insured bank accounts with balances under the $100,000 limit and short-term U.S. Treasuries. The policy should assist and protect designated investment managers by setting up practical guidelines and clear performance objectives. It should also establish a process for regularly reviewing investment objectives and strategies and reviewing the manager’s performance.

Question 52

Joint costs of multipurpose activities

Answer 52

Costs incurred in an activity that includes at least two different types of functional expenses (most often, program and fundraising components). Organizations mailing requests for contributions that also educate potential donors must take exceeding care in appropriately splitting the costs of such mailings between the two functions.

Question 53

Liability

Answer 53

An enforceable present obligation to transfer assets or provide services to another person or organization. For example, the amount owed to a vendor for products received is a liability.

Question 54

Management and general expense

Answer 54

Expense other than program, fundraising, or membership development. Includes expenses for oversight, business management, general record keeping, budgeting, financing, and related administrative activities. We tend to use the term ‘administrative’ for these activities.

Question 55

Management letter

Answer 55

Sometimes called an internal control letter. A communication from the organization’s auditor that the board should always receive following an external audit, it provides the auditor’s observations on any control deficiencies, significant deficiencies, or material weaknesses discovered in the internal control structure of the organization during the audit. Significant deficiencies represent serious matters, and material weaknesses are very serious matters. Both require the board’s immediate attention, followed promptly by corrective action.

Question 56

Natural expenses

Answer 56

Classification of expenses by categories such as personnel costs, occupancy, travel, supplies, and professional fees. (Contrast with Functional expenses.) We strive to group natural expenses into larger categories for ease of reading, for instance, the utilities, maintenance, cleaning, and rent for Worcester and Framingham offices are detailed in QB, but we roll-up to Occupancy to quickly compare this kind of expense year-over-year.

Question 57

Net assets

Answer 57

The excess of assets over liabilities of a fund or an entire organization. Net assets may be categorized as unrestricted, temporarily restricted, or permanently restricted. (See Donor-imposed restriction.)

Question 58

Not-for-profit organization (or nonprofit, or NGO for Non-Governmental Organization)

Answer 58

An entity that possesses the following characteristics that distinguish it from a business enterprise: (a) contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return, (b) operating purposes other than to provide goods or services at a profit, and (c) absence of ownership interests like those of business enterprises. Not-for-profit organizations have those characteristics in varying degrees. Organizations that clearly fall outside this definition include all investor-owned enterprises and entities that provide dividends, lower costs, or other economic benefits to their owners, members, or participants, such as mutual insurance companies, credit unions, cooperatives, and employee benefit plans. (See Tax-exempt.)

Question 59

Nonreciprocal transfer

Answer 59

A transaction in which an entity incurs a liability or transfers an asset to another entity (or receives an asset or cancellation of a liability) without directly receiving (or giving) value in exchange. (See Contribution.)

Question 60

OMB Circular A-133

Answer 60

Publication of the U.S. Office of Management and Budget, which requires that organizations spending $500,000 or more of federal grants and contracts in a year have a special audit of those federal funds. (See the Circular for precise definitions.)

Question 61

Operational reserves

Answer 61

See Reserves.

Question 62

Opportunity

Answer 62

A Sales Force/Matchforce term that records donor solicitations from possible target to gift. “Named” Opportunities track the stage of the relationship with us, with risk-adjusted weighting of the potential gift amount. A closed-won opportunity is a gift where the revenue is recognized, or will be once conditions are met.

Question 63

Organization Account

Answer 63

A Sales Force/Matchforce term for a business, foundation, non-profit, educational institution or other organization. Donations from organizations are associated at the account level.

Question 64

Prepaid expense

Answer 64

An expense paid in one accounting period, where the benefit of the expense is not yet received by the organization paying it, and recognition is delayed until a future accounting period after the benefit of the expense is received. Example: A rent payment for January is made before the end of the preceding December and thus is correctly classified as a prepaid rent.

Question 65

Private inurement

Answer 65

Improper receipt of a financial benefit by a person who is an “insider” to a nonprofit organization. Insiders include members of the governing board and senior management, close members of their families, and other organizations with which they are connected. Illegal under Section 501(c) of the Internal Revenue Code, private inurement can lead to financial penalties against both the receiver of the benefit and the persons in the organization who authorized the benefit, along with possible loss of tax-exempt status.

Question 66

Program expense

Answer 66

An expense that directly or indirectly supports specific activities constituting an organization’s purpose(s) or mission(s) for which it exists. (See Supporting expense.)

Question 67

Promise to give

Answer 67

A written or oral agreement to contribute cash or other assets to an entity. A promise to give may be either conditional or unconditional. The word pledge is often used interchangeably. If the pledge is verbal, we record it in the donor database, but do not recognize it as revenue. Only written pledges are recognized.

Question 68

Quasi-endowment fund

Answer 68

Unrestricted endowment, for us, it is designated by the board.

Question 69

Reclassification

Answer 69

The movement of resources between classes of net assets. The most frequent reclassification is movement from temporarily restricted net assets to unrestricted net assets upon the fulfillment or expiration of a donor-imposed temporary restriction.

Question 70

Restricted support

Answer 70

Donor-restricted revenues from contributions that increase either temporarily restricted net assets or permanently restricted net assets. (See Unrestricted support.)

Question 71

Reserves

Answer 71

Not a precisely defined term, but often used to refer to the amount of resources currently available to an organization to use in any way it chooses (presumed to be limited to activities consistent with its mission.) Many in the nonprofit industry define reserves as being the equivalent of net assets (i.e., assets minus liabilities). This, however, fails to take into account the fact that reserves should be available to be spent in a time of need. Thus the figure should not include illiquid assets such as land and buildings, nor be reduced for such long-term debts as mortgages. In precise accounting terms, reserves might be more accurately defined as the unrestricted net asset balance less equity in property and equipment, plus the expendable temporarily restricted net asset balance, plus the deferred revenue that will become available within one year. Our goal is to have minimum reserves equal to between 4-6 months of operating expense.

Question 72

Revenue

Answer 72

Technically, income from providing goods or services to customers (clients, patrons, members, and so forth) and from other earning activities such as investments. Practically, is frequently used to include both earned income (from exchange transactions) and income from contributions.

Question 73

Sarbanes-Oxley (SOX)

Answer 73

A law passed by the U.S. Congress in 2002 in response to abuses in the for-profit business world. While generally applicable to public companies, SOX requires that nonprofit organizations have and ensure compliance with policies that prohibit retaliation against whistleblowers and prohibit alteration or destruction of documents that are relevant to a lawsuit or regulatory proceeding. In addition, SOX sets forth a number of good practices for all organizations, such as having an audit committee (with at least one financial expert) that is completely responsible for the relationship with the outside auditor.

Question 74

Signing Authority Policy

Answer 74

A policy that sets out which employees or board members can authorize spending above certain thresholds.

Question 75

Spending rate/ Spending Policy

Answer 75

The method of computing the amount of investment return to be considered as available for current operations use.

Question 76

Split-interest gift

Answer 76

General term used to describe various types of gifts under which the benefit of the resources involved is split between the donor (or other designated person) and a charity. Includes gift annuities, remainder trusts (annuity trusts and unitrusts), lead trusts, and pooled income funds.

Question 77

Stipulation

Answer 77

An expression by a donor, in connection with a contribution or a promise to make a contribution, constituting a condition, a restriction, or both.

Question 78

Supporting expense

Answer 78

Expenses other than program expenses. Supporting expenses include management and general, fundraising, and marketing.

Question 79

Tax exempt

Answer 79

Literally, statutorily exempt from tax. Often erroneously used interchangeably with not-for-profit; the two terms have completely different meanings, although in practice they overlap considerably. When we make taxable purchases, we can (and should) remit the state form ST-2 to the vendor to be exempt from paying the sales tax.

Question 80

Temporarily restricted net assets

Answer 80

Net assets (from contributions) that are restricted by donors for use (by time or purpose). Donor-imposed stipulations may either expire by passage of time or can be fulfilled and removed by fulfilling the purpose of the gift.

Question 81

Total return approach

Answer 81

A method of managing endowment assets in which a portion of capital gains is made available for current use under a formula approved by an organization’s governing board.

Question 82

Treasurer

Answer 82

The key volunteer financial role involving overseeing financial operations. Most nonprofits charge the treasurer with the legal responsibility for custody of the organization’s funds and securities; keeping full and accurate account of all receipts and disbursements, the books, and financial records of the organization; and providing periodic reports to the full board. In smaller organizations, the treasurer may well have hands-on responsibilities; in large organizations, the treasurer remains legally responsible for these functions, even though a staff member rather than the treasurer performs them.

Question 83

Unconditional promise to give

Answer 83

An unrestricted pledge, either verbal or written.

Question 84

Unrelated business income (UBI)

Answer 84

Income from a trade or business, conducted by a tax-exempt organization, that is not substantially related to the purposes for which the organization is exempt. Net income from such a business is taxable. (See Internal Revenue Code Sec. 512 and 513 for the precise definition.)

Question 85

Unrestricted net assets

Answer 85

Net assets of a nonprofit organization that not restricted by donor-imposed stipulations.

Question 86

Unrestricted support

Answer 86

Revenues from contributions that are not restricted by donors.

Question 87

Whistleblower

Answer 87

An employee, former employee, volunteer, or member of an organization who makes a good faith effort to disclose improper activities to those who have the power to take corrective action. The misconduct may be a violation of state or federal law, rule, or regulation; theft or misuse of organization funds; gross misconduct or inefficiency; or any condition that may significantly threaten the health or safety of employees or the public.