The Not-for-Profit practice at Schneider Downs takes great pride in helping our clients answer the questions that matter most to their organizations. We’ve learned that often there are other organizations with very similar queries.
We’d love to hear from you if you have a question for our not-for-profit team and don’t see it listed. Send us a question at [email protected].
The Board of Directors is responsible for governance and oversight and ensuring that the organization operates responsibly and complies with laws and regulations. Key duties include reviewing and approving financial statements, monitoring internal controls, and engaging with auditors through an audit or finance committee. Auditing standards require communication with the Board at the start and end of the audit, typically through planning and closing meetings and an executive session without management present. For tax purposes, Form 990 asks whether the Board received a copy and requires disclosure of the review process. While not legally mandated, Board review of Form 990 is considered best practice for transparency and accountability.
A strong nonprofit board should include individuals with independence, financial literacy and governance experience. Key qualities include financial expertise—such as a CPA or equivalent experience—legal or regulatory knowledge, and independence from the organization to ensure objective oversight. Members should understand fiduciary responsibilities and commit time to reviewing financial statements, Form 990 and audit findings. Diversity of perspectives from various industries and community leaders enhances strategic thinking and oversight. Best practice is to establish a separate audit or finance committee with members who have strong financial acumen to work closely with auditors and review tax filings.
Organizations should address uncertainty through clear and transparent disclosures in their financial statements. Common methods include footnotes explaining the nature of risks and management’s mitigation plans, going-concern disclosures if substantial doubt exists, and subsequent event notes for significant post-year-end developments. Disclosures should also highlight estimates and assumptions affected by uncertainty, such as investment valuations or pledge collectability. Liquidity and risk information should outline available resources and strategies for managing financial challenges. Best practice is to be specific and factual, as clear disclosures help stakeholders understand risks and maintain confidence.
The answer depends on your fiscal year and the timing of any programs you run where you received amounts from the ‘customer’ before fiscal year-end, but the overall performance obligation has not been satisfied yet as the program runs to completion after the fiscal year ends. This situation can be common at many institutions that offer summer or other programs that don’t align with the institution’s fiscal year-end date.
The simplest way to think about the accounting for tuition and fees, net, is connecting it to the provisions of ASC 606: Revenues From Contracts With Customers. Under Topic 606’s five-step model for revenue recognition, you are required to determine the ‘transaction price’ for step three of the five-step revenue recognition model. The transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. In analyzing this step, you should be evaluating the consideration you expect to receive from that customer (student), which would be net of any aid that is provided to them and funded by other means such as funded scholarships, prizes, etc. as well as tuition discounts or other unfunded awards.
These services are typically the self-supporting operations of an institution that charges a fee to its students, faculty or staff for the service it provides. While each institution will be unique in what constitutes its specific auxiliary services, these most commonly include catering or food services, housing operations, the bookstore, parking operations, vending services, laundry services, etc. These are typically separately stated on the statement of activities to provide more transparency into how self-sufficient these operations are.
Currently, any organization that expends more than $750,000 of federal financial assistance is subject to a single audit. In April 2024, this threshold was increased to $1,000,000 for fiscal years beginning on or after October 1, 2024. Organizations with fiscal years ending June 30, 2024 and 2025 are still subject to a single audit if they have more than $750,000 of federal financial assistance but will see relief in the single audits for fiscal years ending June 30, 2026, and beyond if they expend less than $1,000,000. Calendar year organizations will see relief for years ending December 31, 2025. For more information on recent changes, visit our article at Single Audits and the 2024 Uniform Grant Guidance.
If you exceed the thresholds above and you have an audit completed, you are required to file your audit with the Federal Audit Clearinghouse (“FAC”) within 9 months of your fiscal year-end. You will need to complete the Data Collection Form (DCF) which includes information about your organization as well as information about the results of your audit. As part of this filing, the full text of your financial statements will be publicly available on the FAC site.
In addition, Institutions of Higher Education need to complete an annual filing via the U.S. Department of Education’s Ez-Audit system.
To prepare for a Single Audit, organizations must compile key documents that demonstrate compliance and financial accuracy, starting with the Schedule of Expenditures of Federal Awards (SEFA), which lists all federal awards and related details. They should also maintain grant agreements and award letters, and review compliance supplements to confirm that expenditures meet funding requirements. Internal control documentation, grant reporting and supporting records such as invoices and payroll are critical for verifying accuracy and reducing noncompliance. Additionally, organizations should provide procurement and subrecipient monitoring records if applicable.
Nonprofits subject to Single Audit requirements under Uniform Guidance need strong internal control policies to safeguard assets and ensure compliance. These controls include segregation of duties, authorization and approval processes, and two-signature requirements for large disbursements to reduce fraud risk. Organizations should also implement cash handling security, monthly bank reconciliations, and vendor and payroll controls to prevent errors and misuse. Additional measures such as expense reimbursement documentation, background checks, and written accounting and ethics policies reinforce accountability and ethical standards. Finally, periodic internal control reviews help identify weaknesses and ensure continuous improvement, supporting compliance and donor confidence.
An exchange transaction is defined as a reciprocal transfer whereby each party receives and sacrifices something of approximately equal value. Government grants most often benefit the general public and are therefore considered contributions. Contributions should be accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 958.
For more information visit our article on accounting for Exchange versus Contribution transactions and the associated impact of the Current Expected Credit Loss (CECL) standard.
ASC 842 defines a lease as: a contract, or part of a contract, that conveys the right of control and the use of identified property, plant, and equipment (an identified asset) for a period of time in exchange for consideration. Because no consideration is exchanged for the use of the space, donated space does not meet the definition of a lease under ASC 842. Donated space should continue to be accounted for under Accounting Standards Update (“ASU”) 2020-07.
Joint costs for fundraising and program activities are allowed if the criteria in ASC 958-720 are met.
To qualify, an activity must meet three criteria related to its purpose, audience and content: the activity must have a program or management purpose beyond just fundraising, the audience must be selected for its potential to respond to the program call to action, and the content must support the program or management function. If an activity meets these criteria, the joint costs can be reasonably allocated between the functions; otherwise, all costs must be reported as fundraising. Disclosure is required of whether joint costs are allocated, and if so, what method is used for allocation.
Nonprofits are required to disclose both qualitative and quantitative information about liquidity and the availability of financial assets to demonstrate their ability to meet short-term obligations. Quantitative disclosures typically include a list of financial assets available for general expenditure within one year, a table showing year-end assets adjusted for restrictions, and the impact of donor- or board-imposed limitations. Qualitative disclosures provide a narrative on how the organization manages liquidity, monitors daily cash needs, and uses resources such as lines of credit. These disclosures also explain any restrictions on funds and how they are addressed. If liquidity concerns create significant uncertainty, they should be evaluated alongside other factors for going concern considerations.
Yes. Newly formed non-profit organizations that don’t have their IRS Exemption Determination Letter yet are still required to file an appropriate Form 990 series return.
Generally, investment income such as interest, dividends, royalties and capital gains are excluded from taxable income under Section 512 (b) of the Internal Revenue Code. However, there are certain scenarios when investment income is considered Unrelated Business Income (“UBI”) and is subject to the corporate income tax. For example, income from debt-financed property and income from controlled entities may be considered UBI.
In addition, certain private foundations are required to pay tax on their net investment income annually as reported on their Form 990-PF, Return of Private Foundation, filed with the Internal Revenue Service.
In addition, certain private foundations are required to pay tax on their net investment income annually as reported on their Form 990-PF, Return of Private Foundation, filed with the Internal Revenue Service.
A donor-advised fund (DAF) is a fund or account that is separately identified by reference to contributions of a donor or donors, that is owned and controlled by a sponsoring organization; and with respect to which a donor (or any person appointed or designated by the donor, i.e. a “donor advisor”) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor. When a taxpayer contributes cash, securities, or other assets to a donor-advised fund, they are generally eligible to take an immediate tax deduction.
A donor acknowledgment letter is a formal letter sent by a charitable organization to a donor to acknowledge and thank them for their contribution. This letter expresses the organization’s appreciation for the donor’s generosity, helping to build a positive relationship and encouraging future donations. In addition, the letter provides support for the donor’s tax documentation. For donations of $250 or more, the IRS requires a written acknowledgment for the donor to claim a tax deduction. This acknowledgment must include the name of the organization, the amount of any cash contribution, a description (but not the value) of any non-cash contributions, and a statement regarding whether any goods or services were provided in exchange for the donation.
For more information visit our article Reminders on Completing Donor Acknowledgement Letters.
Donations made to the following types or organizations are tax-deductible:
Donations to individuals, political organizations or foreign entities without treaty provisions are generally not deductible.
Unrelated business income is revenue from a trade or business that is regularly carried on and not substantially related to the organization’s exempt purpose. Common examples of unrelated business income (UBI) activities are:
Yes, but the donor’s tax deduction may be limited.
If a donor receives goods or services in return for their contribution (called a “quid pro quo” donation), the organization must provide a written disclosure stating the fair market value of what was received. The donor can only deduct the amount that exceeds the value of the benefit received.
No, federal tax-exempt status does not guarantee exemption from state or local taxes.
Each state has its own application process and requirements for income, sales and property tax exemptions. Organizations should check with their state’s tax authority to ensure compliance and secure additional exemptions. For example, in West Virginia, Ohio and Pennsylvania, nonprofit organizations do not need to apply for income tax exemption and can rely on federal determination. Maryland, on the other hand, does require a filing with the state to obtain income tax exemption. The process for exemption from other taxes (sales, property, etc.) involves separate applications.
Our Not-for-Profit industry group is committed to providing exceptional service and expertise to a community of clients who serve our regions tirelessly each day. We provide valuable insight to not-for-profit organizations of all sizes and their boards through our assurance, tax, advisory and technology consulting services and not-for-profit fund accounting software.
To learn more, visit our Not-for-Profit Industry Group page.
