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Preventing Fraud

It’s been over six months since I last blogged about fraud risk in small businesses and nonprofits. Tax season and the new tax law must have distracted me. But fraud has not stopped lurking, robbing organizations of their hard-earned funds.

In case you forgot, fraud is an illegal act involving deceit, concealment, or a violation of trust. Fraud doesn’t involve physical threats of violence or force. Fraud is committed to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage.

Fraud is not unique to any one type of organization. The opportunity to commit fraud exists everywhere, including public and private businesses and nonprofits. Small businesses and nonprofits are even more susceptible to fraud because of typically lower levels of staffing and technology. Plus, the environment at nonprofits and small businesses espouses trust that could be exploited by people who are unscrupulous or experiencing extreme financial pressures.

First — recognize that fraud can happen. Second — implement an action plan to help prevent fraud from happening. How? Minimize the chances that fraud will happen at your organization with these three tips:

  • Separate Tasks – The most powerful weapon against fraud is separating tasks or duties that should not be performed by the same person, like separating expense approval and payment from the person who reconciles the bank account. Separating duties prevents one person from having too much control over financial activities so that she or he could take funds without detection.
  • Investigate Anomalies – Identify anomalies, or exceptions, from expected conditions or results. Is your cash flow within a normal expected range? Are your sales returns higher than usual? Investigate performance and results that fall outside the expected range and take action. Looking into unusual activity could draw attention to and end fraudulent activities. Even if no fraud has occurred, you can take corrective action as needed.
  • Independent Monitoring – Periodic independent monitoring by a knowledgeable party is another way to safeguard financial assets. Methods include supervisor reviews, periodic audits and effective governance. Exception reports or anomalies should ideally be investigated by someone who is independent of the original activity. Nonprofits with limited staff can involve the Board Treasurer in the monitoring process.

Important steps for preventing fraud are to recognize that fraud can happen and to implement an action plan to mitigate the risk of loss. Powerful weapons like separating tasks, investigating anomalies and independent monitoring all reduce the risk of losing money, property, services or reputation. Trust is great; implementing fraud prevention tips is priceless.

Financial Basics for YEA! Entrepreneurs

Last week, I was thrilled to discuss business finances with the 2019 Class of the Arlington Chamber of Commerce Young Entrepreneur Academy, also known as YEA! In the YEA! Program, entrepreneurs grades 8-12, develop their ideas into robust business plans and launch their business. YEA! Entrepreneurs also pitch their business plans to an investor panel and compete for funding.

YEA! Entrepreneurs, like all business owners, need to know about planning and managing their finances. We only had an hour, so we covered three basic areas that support every entrepreneur’s success, regardless of age:

Separate Business Accounts and Financial Records

Open a separate business account soon as possible to avoid commingling personal and business funds. Apply for a business credit card to support cash flow needs and to avoid putting business expenses on your personal credit card. Establish separate financial records from records used to maintain your personal income and expenses. Separating personal and business finances gives you an isolated view of your business so you can better track your progress. Separate records also help to establish that you are operating business, not a hobby.

Track and Monitor Financial Activity

Keep a record of all business income and expenses up-to-date. Updated records allow you a clear view of your financial situation at any point in time. Expenses should be tracked by category, such as rent and advertising, so you know where your funds are going. No particular system or format is required for your financial records. The IRS just requires that financial records are accurate, complete, and provide enough detail to identify the underlying source documents. Produce and review monthly financial reports.

Adjust as Needed

A budget is a plan for your income and expenses, to prioritize your activities and provide a baseline to monitor your progress toward achieving your goals. Assess the significant variances between your monthly financial reports and your budget. Focus on the income and expense variances that relate to the most critical areas for achieving your business goals. Didn’t meet your budget? Don’t see it as a failure; see it as an opportunity to assess your plan, adjust your activities and try again.

My time discussing business finances with the 2019 Class of the Arlington Chamber of Commerce YEA! was fun. The YEA! Entrepreneurs asked sophisticated questions and shared experiences in their own business that I learned from. I’m so glad that the future business world is in these YEA! Entrepreneurs’ capable hands!

Organizing your Tax Documents

Piece of paper that says "TAX" with hand holding pen
Photo by rawpixel on Unsplash

One of the most challenging aspects of working with my tax clients is organizing their tax documents. Disorganized or incomplete tax records can mean paying a higher tax bill because IRS rules state that all deductions must be supported by documentation. Lacking documentation is a problem, but organizing all those documents can present a problem, too.

If the pain of tax filing season and gathering all those documents is still fresh in your mind, why not prepare now and avoid the pain of gathering all your tax documents? Luckily, I co-presented a workshop last month called Tips and Tools to Efficiently Manage Financial Information and Get Back to Your Clients. My co-presenter, Alexandra Suchman of AIS Collaborations, and I shared a lot of useful information to save time and create efficiencies.

Alexandra has developed a free downloadable guide to inspire business owners and nonprofits to take action and get organized. The guide provides a step-by-step roadmap to create a customized organizing system for electronic files and folders. I’ve looked at it, and this guide addresses common problem that wastes the time of individuals, teams, and whole businesses — searching for important documents. All of those five or ten minutes of searching really add up.

Alexandra generously gave me permission to share the link to the landing page where anyone who is interested can download a copy. She also shared, “I created a short video where I talk about why this is such an important process improvement.” How wonderful to get a free, handy guide for how to create a folder and file management system that works for you, plus a video to walk you through the process!

Having a system for organizing your tax documents lets you stay in control over the mountains of information that come your way, eliminating confusion, wasted time, and stress. Alexandra’s guide to organizing electronic files and folders is the perfect starting point for overcoming the challenge of organizing tax documents. Organized and complete tax records really can mean paying a lower tax bill.

Free Nonprofit Resources

picture of someone in white sweather holding out crumbled euro dollars
Photo by Christian Dubovan on Unsplash

A few weeks ago, I spread the word about my free Lunch and Learn at the Foundation Center. It was a one-hour session covering topics to promote effective financial stewardship and oversight. I provided tips on how to make it work, no matter how small the organization. The session went well and the participants had some great examples and questions that deepened the experience for everyone.

Believe it or not, we touched on these five topics in a little over an hour:

  1. Fiduciary Roles and Responsibilities – The duty to act in the best interest of the organization and avoid conflicts of interest
  2. Financial Policies and Procedures – The framework for managing donated funds and defining Board and management roles and responsibilities.
  3. Budgeting – The game plan for using diversified funding sources to deliver programs and services and to operate and sustain the organization.
  4. Financial Reporting and Monitoring – Oversight necessary to fulfill fiduciary responsibility, including monthly reports that should be reviewed and acted on.
  5. Annual Financial Statement Audit and IRS Form 990 Information Return – Reporting requirements to comply with regulations and report how funds are used.

My Lunch and Learn was just one of many free and low-cost nonprofit resources offered by the Foundation Center. They conduct lots of great training at their office in Washington, DC and at partnership sites, including Arlington Public Library. On the day that I looked, their calendar included a great writing workshop and introductory classes on individual and corporate fundraising.

The Foundation Center even has a Nonprofit Research Library with on-site Research Librarians to help you find what you need. Library materials are even available online, accessible from wherever your nonprofit is located. And it’s all free!

Check out the Foundation Center training calendar at https://grantspace.org/ and see what free nonprofit resources are there to help your organization. And who knows? I might be on that calendar again, offering another financial workshop to help nonprofits meet their financial management goals.

Do You Need to Pay 2019 Estimated Taxes?

As you were rushing to file your 2018 taxes on time – and wrestling with the new tax rules – you may have forgotten an important detail. First quarterly estimated tax payments for 2019 were due the same day as your 2018 tax return. It’s a Double Whammy for sure, but quarterly estimated tax payments are how IRS and state tax agencies makes sure we all pay our taxes as our income comes in.

Estimated tax payments are due April 15, June 15, September 15, and January 15, unless, the 15th falls on a weekend or a holiday. Technology makes the process a little less painful, with various online payment options. Of course, the IRS and state tax agencies still take checks.

Three things to know about 2019 estimated taxes:

Who Needs to Pay Estimated Taxes?

If all your income comes from wages, the taxes that your employer withholds and remits for you probably covers your income tax liability. More on tax withholdings later. If you are self-employed, or receive investment or rental income you might need to make estimated income tax payments. The IRS website explains what to include and how to estimate your tax at this link

How Much Do You Need to Pay?

Estimated tax payments are based on your estimated income and resulting tax liability. You must pay estimated tax for 2019 if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits. Withholdings or estimated payments must equal or exceed the smaller of 90% of your 2019 tax liability, or 100% of your 2018 tax liability. Calculate your tax liability and avoid interest on the unpaid tax balance at this link: https://www.irs.gov/pub/irs-pdf/f1040es.pdf.

What if You Don’t Pay Enough?

Interest is calculated on the unpaid balance due. That interest is accrued daily from the time the tax liability was created, aka when your income was earned or received, and when it is paid. Daily interest accruals can really add to your tax bill, so staying on top of any necessary tax payments is essential to managing expenses. Clearly, the IRS is serious about getting paid on time. Figure your 2019 federal income tax bill by using the IRS Withholding Calculator at https://www.irs.gov/individuals/irs-withholding-calculator.

If you paid a lot when you filed your 2018 income tax return or have income with no tax withholdings, you might need to pay 2019 estimated taxes. Check out the answers above and the IRS website links to see if you owe and how much. Don’t feel comfortable doing this yourself? The IRS can also help you find a qualified tax professional to help you out, at this link https://www.irs.gov/tax-professionals/choosing-a-tax-professional.

Reduce Next Year’s Tax Season Stress


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Rejoice! The 2018 tax filing season is finally over – and with it all the changes from under the Tax Cuts and Jobs Act of 2017. For some taxpayers, it was their first view of how the new tax law impacted them. And it wasn’t always pretty.

Well, how did it go for you? Stressful? Expensive?

If you live in a state with high income taxes or real estate taxes, your usual tax refund may not have come your way this year. On the other hand, the new tax law may have lowered your tax bill. But no matter where you live, seeing the new tax rules in action for 2018 gave you a better idea of what to expect for 2019.

Not knowing what to expect is stressful! Follow these tips to reduce stress next tax season:

Get Organized and Stay Up-to-Date

Use your 2018 tax return to identify the information you’ll need to accumulate during 2019 to prepare for next year. If a life event in 2019, such as buying a home, starting a business, or changing your marital status, you need to check out how it impacts your taxes. Keep up with your tax deductions and other paperwork you’ll need, and the task will be easier to do next year. Plus, if you need pay stubs and account statements to apply for a loan, it’s all ready for you.

Do a “Paycheck Checkup”

Did you owe a lot for 2018, or did you get a refund of the interest-free loan you gave Uncle Sam? An IRS Paycheck Checkup can help to make sure you don’t get an expensive surprise when you file your 2019 income taxes next year. Here’s their online tool to see if you need to change your withholdings https://www.irs.gov/paycheck-checkup Taxpayers with investment, self-employment or other non-wage income need to make quarterly estimated tax payments. Here’s a link to more details https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.

Right after you file last year’s taxes is the perfect time to see how to make next tax filing season less stressful. Whether you prepare your own taxes or use a tax professional, following these tips can reduce your stress and reduce the time that you spend filing your 2019 income tax returns.

Not Ready to File on April 15?

For the first time in a couple of years, the tax filing deadline is actually on April 15th. No more reprieves for weekends and holidays. Regardless of the date, the tax deadline seems far in the future until, all of a sudden, it’s here! If you’re in a panic because you haven’t started gathering your W-2s or you’re waiting for that final K-1, you could probably use some more time to file.

Not ready? Not a problem! You can get an automatic six-month tax filing extension. No need to provide a reason but it does take a little time and action to get it done right to avoid a late filing penalty.

Two important tips about getting a tax filing extension:

1. You Have to Apply

Individual taxpayers use IRS Form 4868 to request an automatic extension to file their federal income tax return. An extension can be filed on the IRS website, e-filed using approved tax software, or in paper form by midnight on the due date. If you are getting a refund or pay the amount due, your extension is automatically approved. But you still have to wait until your return is filed to get any tax refund. Extending your state taxes is usually automatic when you extend your federal return, unless you owe more in taxes.

2. You Must Pay What You Owe

Start by estimating your income tax liability based on the information you have. Use the IRS Form 4868 instructions or www.irs.gov to figure it out. Compare your estimated tax liability with your tax withholding or quarterly estimated payments and enter the numbers on the extension request form. If you owe more tax than you’ve paid in, the balance due must be paid with your extension request. Failure to pay will result in an underpayment penalty and interest on the unpaid amount, accrued daily until it’s paid. That really adds up.

Rushing at the last minute is stressful and causes mistakes. Better to give yourself more time. Need more details about estimating your 2018 tax liability and getting a tax filing extension? Go to the IRS website at https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return.

Still confused and need more help? Consult a qualified tax professional to help you out. The IRS has resources for that, too – https://www.irs.gov/tax-professionals/choosing-a-tax-professional

What If You Owe the IRS for 2018?


Photo by Sharon McCutcheon on Unsplash

You’ve probably heard in the news. Some taxpayers who usually get a refund are paying more taxes when they file for 2018. That nasty surprise is due to the IRS lowering tax withholding amounts and other changes from the 2017 Tax Cuts and Jobs Act.

So what do you do if you owe the IRS? Here are your options:

Electronic Debit With Your Return

The quickest and easiest method for paying taxes due when you file is to set up an electronic debit/withdrawal from your checking or savings account. The IRS (and some states) will even let you file now and post-date the payment up until the due date. You can set up the debit through your tax software, or ask your paid tax preparer to set it up for you.

Mail Payment Voucher with a Check

Snail mail is still available to pay your taxes, at least for now. When you electronically file your taxes (which is highly recommended to tamp down on identity theft and human error), indicate that you are paying by check using a payment voucher, or IRS 1040-V. Use your tax software (or ask your paid preparer) to prepare the coupon with the mailing address and your Social Security Number pre-printed on it. Mail the coupon and a check with your Social Security Number, “1040” and the tax year in the memo line.

Direct Pay at the IRS Website

The IRS is great at using technology to make it easy to pay your taxes. Go to https://www.irs.gov/payments/direct-pay and follow the instructions for the payment option that works best for your situation. Best of all, it’s free.

Installment Plan

Not enough money to pay of your taxes now? The IRS offers an installment payment plan. A short-term plan for up to 120 days has no set-up fee. Longer term plans are available for a fee. It just takes a few minutes to apply at this link https://www.irs.gov/payments/online-payment-agreement-application. You’ll get an immediate notification of whether your application is approved.

Owing more when you file your 2018 taxes is bad news. Some good news that will help soften the blow – the number of options that the IRS (and some states) offers for you to pay up. Whether you can pay it all now or need some more time, there’s an option that will meet your situation.