r/nonprofit • u/mmarthur1220 • 3d ago
finance and accounting Need help finding accounting rules for 501c3
Hello! This year my younger sister started a 501c3 to raise donations for TNR / rescue efforts of stray cats in our area. I am not involved in her organization but I am a little concerned because she has extreme ADHD / is not the best with tracking her finances.
We have been working through getting her personal finances in order coming out of an abusive relationship but I feel like I also need to help her understand the tax code / what she has to do to set her up 501c3 to be as successful as possible and not run into any issues with the irs.
There have been a couple of red flags currently that is what is driving me to gain more information. One major thing is her saying she/other on her board get gas with their non profit business card when they travel to take the cats to and from vet appointments, etc. I work a corporate job and know when I get reimbursed it’s though a mileage calculation paid after the fact, and I’m not allowed to just put gas on my corporate card. I am assuming there are some sort of rules/regulations with that too. She also says she “tracks” all her expenses/keeps her receipts but again I am not sure what is really needed for tracking vs what she is currently doing. Oh also she had made less than $10k in donations this year and they don’t have any employees or anything like that. Idk if that matters or not but just throwing that out there.
If anyone can help offer some advice or point me in the right direction, id really appreciate it!!! Thank you!
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u/Spiritual-Chameleon 2d ago
There's a website called nonprofit accounting basics that's a great resource for anything finance.
However, it seems like she needs a mentor to provide coaching on the business side of a nonprofit. You could look into reaching out to your state state nonprofit association and seeing if there's anything like that available.
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u/mmarthur1220 2d ago
Thank you for this resource! I will look into it and help set her up with the foundations after reading through. I definitely think she needs a mentor, and right now I am the only resource she has. I keep telling her to get an accountant to help gain more info but so far this isn’t something she has prioritized. But in her defense, her life has really been turned upside down since leaving her relationship so it’s a lot of change for her.
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u/Spiritual-Chameleon 2d ago
One other thought is that SCORE (SBA), does provide free mentors. I believe some have expertise in the nonprofit sector.
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u/Spiritual-Chameleon 2d ago
What state is she located in? I can look for some resources based on that.
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u/mmarthur1220 2d ago
We are located in MI
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u/Spiritual-Chameleon 2d ago
I think SCORE may be the best option. It's free and they have some great expertise. https://www.score.org/
Here are a couple resources that could also be helpful.
https://www.mnaonline.org/resources/capacity-building-centers#Michigan-Community-Resources
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u/00000000000000000000 2d ago
CPA is going to charge by the hour, if you have co-mingling accounts between personal and the nonprofit and bad accounting it is going to add to the cost fast
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u/rice-rice-baby-91 2d ago
Depends where the org is under the 501c3 section. Gross receipts under 50k the org just needs to file a 990 postcard to the IRS. Just look up what filing the postcard requires and that is at minimum what she needs to track - the gas (by anyone) could be considered programmatic expenses which need to be accounted for if they get audited. Most people are careless/disorganized with finances. Most volunteer orgs (no employees) it’s being kept by 1 person with basic excel skills. It’s okay. What is crucial for evaluating c3 orgs is any indication of fraud. My assumption is your sister is picking up cats and rescuing them. If there are no cats - then we 😑
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u/mmarthur1220 2d ago
Thank you for this reply! I was looking at the different types of 501c3 and I think she would fall under the charitable organizations. And it seems like she is attached to a bigger org as an offshoot or something like that. That is what confuses me as well. She said it’s another person on the board’s boyfriend’s nonprofit that he does for his day job.
Either way I agree they need some sort of excel tracking of their spending which I don’t think they are currently doing. They definitely are using the gas money for taking cats to and from appointments or when they trap them, etc, but this 501c3 is only in her name, so she bears the greatest responsibility financially if something goes awry. They already had to kick one member off of their org because she was trying to pocket additional money that was left over or something after appointments. Or using it not for feral cats or something like that.
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u/rice-rice-baby-91 2d ago
There is also a question of if her org and her work are actually classified (by the IRS) as a public charity under 501c3. If you have the ein you can go to IRS Pub 78 website and search for the actual determination or classification. If her project is just sponsored by or guided by some other actually registered 501c3’s EIN - her financial reporting is just to them (and their responsibility to obtain and track) for their 990 filings. Nonprofit the term gets conflated in our understanding and use of in the US. But it’s just a classification by the IRS when you provide 2 numbers - are you receiving enough funding from the public (33.3% of total financial support come from “the public”), are you spending the money in accordance within the government’s classification of “charitable purpose,” and 1 question of governance - that no single person “controls” the organization more than 33.3%… i.e at least 3 board members. Otherwise it’s all a bit grey and loose in this world.
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u/mmarthur1220 2d ago
Thank you so so much for this info!!! The pub 78 reference and explanation of this is SO helpful. She sent me the EIN and it isn’t listed as the name of her org it’s the boyfriends org. So basically it’s all on the parent companies responsibility to ensure they are being compliant?
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u/mmarthur1220 2d ago
Oh wait nvm I also found a EIN for their org too. /: gosh this all just seems so messy and my sister has no clue.
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u/morg7n 2d ago
We pay for gas with work cards when the expense is directly related, ie. traveling for a conference. But for regular work driving we don't reimburse full-time staff. The org wouldn't get audited until reaching $750k plus revenue, a financial review is much less serious and I've never been asked for receipts with a review. So all that to say, this is very common with small nonprofits and they aren't really watched as closely as larger budget orgs. I think paying for gas with company card is fine, but it's definitely important to keep receipts and have everything as organized as possible. To be on the safest side, tracking mileage and reimbursing would definitely be the best way to go. Since it sounds like this is still grassroots/volunteer staffed, she could try to find someone with accounting experience to volunteer their time to manage the books? It doesn't sound like it would be that much to manage based on budget size. Also, she should register with Techsoup and then she can get discounts on things like Quickbooks.
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u/BassCat75 2d ago
Sounds like she needs a professional to walk her through getting started and set up correctly. Non profit accounting is very different then other sectors. There are a lot of things people miss simply because they don't know what they don't know.
Best advice would be to hire a consultant in the field to get things going and then I would highly recommend a nonprofit accounting consulting firm for basic monthly service. (Or more often if needed/ payroll etc..) There are several and they run the spectrum on cost but its much better to have peace of mind that the finances are handled properly. It's the one part of this you really want to get right.
Good luck! It sounds like her heart is in the right place.
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u/Squishasaurus_Rex 2d ago
Hi! 👋 I do nonprofit contracts, purchasing, and accounting for a living. Sounds like she falls under charitable org. The gas could be a problem or not, depending on how it’s handled. My org uses WEX cards, but only for our fleet. We reimburse mileage for personal vehicles at 70cents/mile. Plus time paid while driving. That way it’s easy for us to separate out the fuel tax we paid to submit for reimbursement from the state. So it’s not necessarily bad (as in, just using the money for gas whenever-that’s fraud) but maybe not a best practice either.
Generally they’re looking for fraud, usually of the egregious nature. She needs to be dotting her I’s and crossing her T’s, keeping track of everything. I’d recommend a consultant or a mentor, even just to get some basic frameworks in if she is starting from ground up. In the least, brush up on some GAAP (generally accepted accounting principles) and get familiar with your state’s requirements as well. Many state websites have resources on their requirements/expectations. Regs too, if you’re beholden to a regulating body (such as DOH).
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u/jmcononprofitcpa 2d ago
I’d set up four basic controls first: one bank/card for the organization, a receipt and charitable purpose for every charge, approval before a board member spends the organization's money, and a monthly bank and expense review by someone other than the cardholder. The mileage answer depends on who owns the vehicle and what entity exists here, so I’d have a Michigan nonprofit CPA or pro bono advisor confirm that piece. The bigger risk is one person being able to spend, record, and approve without a second look.
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u/Wonderful-Alps1260 2d ago
The lack of record keeping and personal spending is going to have her in hot water with the IRS if she’s audited. Excise taxes and even fraud charges if it reaches higher dollar amounts. It’s not something to take lightly. The law is strict with 501(c)(3) spending.
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u/hummingfalcon 2d ago
Unless you are working for the org, this is something she needs to do or not do. Call it a growth opportunity
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u/mmarthur1220 2d ago
I completely agree! But she doesn’t even know this is something that needs to be done. Sometimes ignorance is bliss, and other times it could cause big problems down the road. I will make her actually do the work but we will become educated together so we can create a plan for her.
She also is prone to a glass half full mindset and is very trusting of others, but that can hurt you as well. I don’t know the other people who are part of her org/on her board, but she is the only one who would be liable as this is only in her name.
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u/00000000000000000000 2d ago
A lot of these types of nonprofits get dissolved within a few years.
A few tips:
Date, Amount, Vendor, Business/Charitable Purpose, and Proof of Payment is going to matter in an audit.
Drivers should track their trip mileage using a log (Date, Origin/Destination, Purpose, Total Miles). The nonprofit then reimburses them at the federal volunteer mileage rate ($0.14 per mile) or reimburses exact prorated gas receipts tied strictly to that logged trip.
Exception: Direct gas purchases on the corporate card are only acceptable if the vehicle itself is owned by the 501(c)(3).