Newsletter by Hawkins Ash CPAs
In this edition
November 2020

Capital Campaigns: Where to Start and What to Avoid

Upholding Internal Controls in a Remote Work Environment

Families First of Minnesota: Profile and Executive Director Q&A
Capital Campaigns: Where to Start and What to Avoid

Most not-for-profit entities have at least considered running a capital campaign at one point, but many do not know where to start. By definition a capital campaign is an intense fundraising event that could span several years for a specific purpose. 
In order to have a successful capital campaign, management, the accounting department and the board of directors of the entity should sit down and discuss why they need a capital campaign, how much is needed for the project and decide if they are ready to start. 

The first step in starting a campaign is creating a strategic plan on how the campaign will be conducted. Many questions need to be answered before the campaign can be started. The planning phase is where to find the answers. Here are some steps to get started on a capital campaign:

1. Develop a team to spearhead the campaign. An ideal committee should consist of members of the Executive, Finance and Development teams as well as the board of directors and additional members as needed. Try and choose team members who have strong connections in the community. This team could also include a fundraising consultant. Consistent and clear communication is key so team members understand what is going on during all aspects of the campaign.

2. Determine the goal of the capital campaign. Define how much is needed to complete the project and how long should the campaign be held. A comprehensive budget will include anticipated revenues as well as costs for the entire project. By creating a budget, it will be easier to create progress reports that show potential and existing donors the status of the campaign.

3. Conduct a feasibility study to see if the community will support the campaign. Thirty to forty individuals in the community should be interviewed, including an employee of the entity, a present and past board member of the entity, community leaders and known major donors.

4. Make a list of prospective donors. Start this list with approximately 15-20 leaders depending on the size of the community. Contact these leaders by writing a letter or an email letting them know that the entity is thinking of holding a capital campaign and would like their advice before moving forward. Create a short list of 6-8 questions to ask concerning holding the capital campaign. Let the prospective donors know the approximate time it will take for this conversation. This is not the time to ask for a donation, but simply a meeting to get feedback.

5. Create a case statement for the campaign to give to donors. It should state why the project is needed, how the project can be completed, and what the impact of the donor’s contribution will have on the project and the community.

No matter how thorough the planning is, there are still pitfalls that should be avoided to ensure a successful capital campaign.

1. Not completing a feasibility study. This is one of the largest errors an entity can make. Without the study, the campaign committee will be working in the dark which could lead to misinformation or no information at all. The more information, the greater opportunity to have a successful campaign.

2. Having an unattainable goal. This, too, is an error that could lead to an unsuccessful campaign. This is one of the areas where a feasibility study will help determine an achievable goal. 

3. Not detailing how the funds will be held within the entity. Ensure the campaign materials that are presented to donors are specific in how the funds will be used. If part of the campaign is creating an endowment, be sure to indicate if those funds will be considered board designated or held in perpetuity. 

4. Going into the public phase (when donations are solicited from the general public) too soon. This could lead to less funds raised than if the public phase had been delayed. During the quiet phase (when donations are solicited from major donors and corporations) of the campaign, at least 50% - 75% of the goal should be reached. 

5. Forgetting to say thank you for a donation or pledge throughout the campaign. A thank you letter should be sent out within 24-48 hours after the gift has been received. Throughout the campaign, thank you letters, emails and/or phone calls should be given to ongoing donors as well as one time donors. By keeping in contact with donors, they will be more likely contribute to future campaigns.

6. Not involving the accounting department from the onset of the campaign. Recording the campaign is an important part of the process. The accounting and development departments should reconcile their books monthly to catch errors timely and discuss factors to consider in developing an allowance for uncollectible pledges. Procedures for writing off pledges should also be created and documented to ensure the integrity of the campaign. Too often, this aspect is overlooked and leads to large write offs at the end of the campaign rather than as they occur. Improperly recording the campaign pledges, receivable, revenues, and expenses could result in misstated financial statements. Overstating revenues or understating expenses could lead to donors believing the goal has been met and the entity does not need their donation.

Not-for-profits are not all made from the same mold and will have different circumstances that need to be addressed to have a successful campaign. The steps mentioned above are just a few of the more common ways to ensure a successful campaign and prevent errors to avoid an unsuccessful one. Strategic discussions and planning every aspect of a capital campaign will lead to a successful campaign. 

Please contact your Hawkins Ash CPAs representative if you have questions related to capital campaigns. 

Author: Claudia Weinberger, CPA
Direct: 608.793.3124
Upholding Internal Controls in a Remote Work Environment

Not-for-profit entities have a responsibility to donors and stakeholders to maintain strong internal controls to help prevent and detect fraud. With an increasing amount of staff working remotely because of the pandemic, controls that were previously put in place may no longer be operating as intended or as effectively as before. When you are in a physical office setting, it is easier to have physical security measures than when you have an employee working from home. Staff reductions or staff taking on new roles due to remote work may cause control gaps that could increase the risk of fraud or misstatement. Now is a good time to reevaluate the risks and the effectiveness of your control environment.

The following are some key points to consider: 

Tone at the Top
Ensuring that the tone at the top remains focused on effective internal controls is critical. A key responsibility of the board is to ensure the organization maintains an adequate approach to risk management. A unified approach, involving both the board and management, when implementing process change is needed to ensure effective controls remain in place and will be more positively received by staff. 

Communication is key to maintaining the tone at the top, and with a remote work environment that can become more difficult. Conversations that once happened naturally in the workplace via the breakroom or a quick passing in a hallway are no longer present. Even if not entirely work related, those short daily conversations between management and staff helped to set an expectation and mind set of tone at the top. With remote work becoming the new normal, those communications now need to be more deliberate. Consider sending out weekly emails or scheduling one-on-one video conferences and phone calls with your staff. Opening up deliberate lines of communication allows management to continue to lead by example and engage employees in a remote work environment. 

Assessing Risk 
Management should periodically be assessing the risk of fraud and misstatement as environments are always changing. Whether the changes are normal or unplanned and unprecedented, such as COVID-19, internal controls can be designed to remain effective with changes in environments.

If you have incorporated remote work into your environment, take a look at how your processes and controls are working. 

Key internal control areas that may have been affected by the introduction of remote work are:
  • Segregation of Duties: Duties are divided among different employees to reduce the risk of error or inappropriate actions. With a remote work environment, do you still have separation or has one person become responsible for multiple duties out of convenience? 
  • Authorization and Approval: Transactions should be authorized and approved by someone other than the individual responsible for daily financial reporting to help ensure the activity is consistent with organizational policies and objectives. If you formerly had a manual review process and wet signatures were applied, how does this need to change in a remote environment?
  • Reconciliation and Review: Reviews of specific functions or activities involving cross checking transactions or records are essential to ensure information is reported accurately. Can the review process be done in a remote working environment?
  • Physical Security: Now in a remote working environment, how are checks printed? Where is the check stock located? 
  • Accounting System Access Controls: Controlling electronic access to keep unauthorized users out is a must. Do you have proper IT and cyber security measures in place now that users may be accessing systems from networks outside of the organization?

Different organizations will have different risks or needs for controls changes depending on the operations. For organizations who were already operating in a digital environment, the change in risk assessment and internal control processes may not be as great as an organization who relies heavily on manual processes. 

Update Controls for the Risks Identified
Once you have evaluated your risk assessment and noted areas where controls need revision in order to remain effective, make a plan to address those areas. The objective should be to perform the same procedures with the same mitigation of risk of fraud and misstatement as if everyone were still working physically in the office. 

Using the same key control areas we addressed in our risk assessment, let’s look at some examples of what these controls may look like in a remote work environment. 

Segregation of Duties
Keeping duties for custody, record keeping, reconciliation, and authorization segregated for functions such as cash receipts, cash disbursements and payroll can be a struggle for non-profits as they often have limited staff in a physical work environment, not to mention in a remote environment. Oftentimes not-for-profits will even utilize volunteers to help keep duties segregated. So what do you do when your office may be closed and everyone is working from home? Adding a third party service provider to any of these functions can help to mitigate risk and add layers of segregation. 

Examples of third party service providers: For cash receipts you may consider using your banks lockbox services or using web based donor management software with an ACH payment processing function. For payroll you may consider using a third-party payroll provider such as ADP or Hawkins Ash CPAs. For accounts payable you can set up automatic payments if available or consider using a bill pay service. Consider checking with your bank for services they may offer. 

Authorization and Approval along with Reconciliation and Review
These two controls really go hand in hand. Oftentimes the authorization and approval process for transactions is given once the transaction is reconciled and reviewed and is completed by the same person(s) such as the Executive Director or a member of the Board such as the Chairman of the Finance Committee. For example, the Executive Director may approve payroll after reviewing the payroll prepared by accounting staff, or the Chairman of the Finance Committee may approve journal entries and bank reconciliations after review. 

For items needing Board approval and review, even in times of lockdown or social distancing, make sure the Board and Finance Committee are still meeting regularly. Using Zoom or GoToMeeting are great ways for the Board to still operate and carry out fiduciary oversight. 

You may also consider completing review and approval processes through email or using digital signatures for approval. When using digital signatures, make sure the signature requires an individual to enter credentials prior to signing. DocuSign and Adobe are some options to consider. Many financial accounting systems have the ability to attach supporting documents for a specific transaction and will allow for an electronic review and approval process. Contact your system provider to see what your options are for an electronic paperless environment. This may even improve your efficiencies on a long-term permanent basis. 

Physical Security
You may think with everyone working from home, the office locked up, and the alarm set that physical security would not be an issue. Think again. Even with remote work, staff may need to access the physical office from time to time and a vacant or nearly vacant office lends a greater opportunity for fraud. 

Cash can easily be secured by using a bank lockbox or donor management program as addressed in Segregation of Duties. However, if you keep a petty cash drawer you may want to consider depositing the funds. If the office is closed to the public, has limited hours, or is empty because of remote work, there is no need to keep cash on hand, no matter how insignificant the amount. 

Check stock controls can also be enhanced by the methods addressed in Segregation of Duties by utilizing automatic payments. If you do have to print and use physical checks, consider having the accounting staff perform limited check runs from the office. If you previously performed check runs weekly, consider performing them bi-weekly. By no means permit staff to take check stock home to print checks remotely. You may also request your bank allow read only on-line access to a member of the board finance committee so he/she may assist in monitoring bank activity and help prevent any out of sequence checks or unusual transactions. 

File cabinets should be securely locked and any documents containing confidential or proprietary information should be filed away. Desks and work areas should also be clear of clutter and paper files. This will help prevent wondering eyes from accessing confidential information. 

File servers and server rooms need to be monitored and managed. Working remotely means working more digitally. Processes and controls for electronic file storage and back-ups have never been more crucial. Evaluate policies and controls for access and authorizations. Make sure users only have access to the software they need to perform their duties. Remote access to company servers and resources should be established via secure connections. Consider using a virtual private network (“VPN”) or providing staff with MiFi mobile connections. 

The physical security issues of laptops and other electronic peripherals that staff members take home also needs to be addressed. Make sure you communicate your processes, policies and controls to staff about using devices owned by the organization. Consider setting an automatic locking of devices after a period of inactivity to prevent access without re-entering credentials. Also consider issuing privacy screen protectors, installing web blockers and using two factor authentication for log-ins. 

Case Study: Your Donor Relations Coordinator is currently working remotely and uses a home office. She always uses a secure network through the MiFi provided by the organization and memorizes her log in credentials rather than writing them down. However, one night when working from home she walked away from her laptop to make dinner and her son opened the laptop to search for video games. Leaving her laptop unlocked, even in her own home, exposed the company to risk. Any browsing that leads to sites unrelated to business could potentially lead to a security threat for the entire network. 

Accounting System Controls
If your work environment has changed due to staff working remotely, have any duties been reassigned? As you addressed segregation of duties, have some steps in your processes been changed or eliminated? As your processes change, be sure to update accounting system controls as well. Access to specific areas such as accounts payable, cash receipts, bank reconciliations, journal entries and payroll should be limited only to the staff that perform those functions. Restricting access can decrease opportunities for fraud and misstatement and allows for segregation of duties within a remote environment similar to a physical environment. 

Additionally, most financial software packages leave an audit trail or access log. Audit and access logs or other similar reports can help determine who has completed what tasks and when. This can be an effective tool for monitoring unusual activity and should be reviewed by management periodically. 

As you decide on what changes will be necessary for your organization in order to maintain proper controls be sure to:
  • Clearly define and document the adjusted processes and controls
  • Identify any changes to roles and responsibilities needed to maintain controls 
  • Communicate the modified processes and any role changes to all relevant parties
  • Keep accurate documentation for evidence that controls are performing as they should, even though it may be different than the evidence you maintained in the past

The above are just a few suggestions and a few items to consider. As your organization evolves and adapts to the changing world around us, you will need to continue to evaluate your level of risk. You may even be able to find efficiencies and benefits from a remote work environment. So take this time to evaluate your processes and controls so that you can make an impact on your organization that will last far beyond the COVID-19 pandemic. As always we are here to help. Do not hesitate to contact us. 

Author: Leslie Smith, CPA, CMA
Direct: 715.387.1131 
Families First of Minnesota: Caring for Southwestern Minnesota Children
Profile and Executive Director Q&A
Families First of Minnesota is a multi-faceted nonprofit organization that facilitates access to quality childcare and early education for families with children from birth to age five. It also supports and provides education to childcare providers in Southwestern Minnesota. 

Families First provides Head Start early learning at four locations in two counties. This is a federally funded program for children of families below the poverty line. In 28 Minnesota counties, Families First distributes Early Learning Scholarships. Funded through the state, these scholarships provide up to $7,500 or $10,000 per year per child depending on priority status to attend a high quality Parent Aware rated program to better prepare for kindergarten.

“Each year, we see about 500 children on the waitlist for scholarships,” said Sara Stebbins, Families First Director. “As the need increases, we hope to see this program expanded at the state level.”

The nonprofit also has a crisis nursery that provides temporary, short-term care for children while families address a crisis situation. 

Through the Child Care Aware program, Families First helps families find child care. Within the Child Care Aware program umbrella, the Parent Aware program gives families the tools they need to identify and search for quality child care and early education. Along with criteria that includes hours and location, parents can search and select providers based a rating system.

For providers, Families First offers professional growth and educational opportunities which helps them improve their ratings within the Child Care Aware rating system and increase capacity to provide care to more children. With the help of a Child Care Consultant, Families First coaches providers to build a business out of childcare and become more business minded. In 2020, Families First added 19 licensed care providers, achieving care for about 190 more children. 

Helping with the capacity shortage, in 2019, Families First started its own childcare facility called Family Circle Learning Center.

“As we see the need for our services increase, I am amazed by our employees’ passion at overcoming barriers to care for children,” said Families First Executive Director Jon Losness.

Q&A with Jon Losness
Jon Losness joined Families First of Minnesota in January 2016 as executive director. He serves on the board for Cradle to Career, a community endeavor seeking to improve literacy and school readiness. He also serves on the executive committee of the BRIDGE Collaborative of Olmsted County and on the board for a non-profit consortium in Rochester. 

From 1999 to 2002 he served on the Families First board. He’s also served on the boards of the Rochester Area Chamber of Commerce, Rochester Area Economic Development Inc., the Salvation Army of Rochester and the Rochester Area Foundation. Losness came to Families First from the Kenosha (Wis.) News, where he served as editor for six years. He previously was executive director of the Foundation for Anesthesia Education and Research for 2.5 years and also worked 24 years for the Post-Bulletin newspaper in Rochester, including four years as its editor and publisher. 

What has been your biggest source of pride as executive director? 

Working with the employees of our agency and learning about the passion they all have for helping children and families. Most of the families we work with face a number of challenges. Helping them navigate complex systems and providing quality early education opportunities is rewarding work.

What are a couple of big accomplishments in your career as a nonprofit leader? 

Collaborating with other non-profits has been a rewarding part of my work. We’ve built relationships with the Boys & Girls Club of Rochester, the Jeremiah Program, Intercultural Mutual Assistance Association and other agencies that are beneficial for all of us and the individuals we serve. We’ve also navigated a flood that closed our main office for nearly three months in 2019 and the pandemic in 2020. It’s amazing how resilient our employees have been during these challenges.
What are the dominant challenges that you see nonprofit organizations facing and what do you think would be viable solutions?  

We have a serious problem recruiting new employees in the non-profit sector. We’re not unique in that challenge but it is difficult when the number of qualified applicants doesn’t match the number of job openings. We also face uncertain grant funding as local, state and federal governments seek to balance their budgets during and after this pandemic.

How do you see the organization changing in the next two years, and how do you see yourself creating that change? 

The Covid-19 pandemic is fundamentally changing the way we staff our office and the way we interact with our employees. We’ve known for quite some time that employees value flexibility. Since the onset of Covid, flexibility has been a necessity for many employees dealing with evolving school schedules, child care issues and health stresses associated with the virus. After closing our office in mid-March, we learned that many of our employees can work effectively from home. We expect that even after the pandemic passes, we’ll have employees working at least part of the schedule from home. That means coming up with new systems to ensure good communication, high productivity and happy employees.
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