Non-Profit Organizations & Internal Controls

Entity Formations

Opening your own business is exciting and thrilling.  A methodical plan of action is needed to fulfill your dream or goal of being your own boss and running a successful business. If you are starting a new not-for-profit organization, we can help you prepare your organization's 501 (c)(3) application for tax-exempt status.

Human Resources Management/Internal Controls

Periodically, you need an external evaluation of your company's policies and operations to determine if the appropriate controls are in place to ensure proper handling of resources and to protect yourself.  We assess your internal control systems to determine the efficiency and effectiveness of your operating procedures and make recommendations that assist your company in strength and profitability by correcting inefficient operating procedures. 

Creating Your Company

The following list does not have to be done in the order in which it is listed.  Some are dependent upon whether others are implemented.  Please speak to a professional service provider at our office or your local and/or federal government office for expert advice regarding your unique situation.  The information below is intended as a resource tool.

1. Reserve a name with New York's Secretary of State, Division of Corporations. Go to www.dos.state.ny.us/corp/nfpcorp.html#aron.

2. Create your mission statement and governing by-laws.

3. Select individuals for the Board of Directors. Determine whether directors and liability insurance is needed.

4. Hold your first official meeting and elect the directors and officers to adopt the by-laws which officer(s) will have the authority to sign checks.

5. Form board committees from the board members such as executive, finance, fundraising, and volunteerism.

6. Develop a business plan which includes your mission statement and the description of the organization, location, staff with includes compensation levels and job descriptions, determine whether these individuals performing services are employees or independent contractors, develop an internal audit control manual, personnel policy manual, fundraising activities and 3 year financials with budget projections, rental or purchasing office space, equipment, etc. (See attached sample financial statements for demonstrative purposes only.)

7. Establish a bank account and establish check signing procedures.  Make sure you set up a list of accounts to record financial transactions.  This must be done after you receive your EIN number (see instructions for applying for an EIN #12 below).

8. Retain a bookkeeper or accountant to create and maintain accurate records and assist with filing the annual report.  Also create a general ledger and bookkeeping system (either manual or computerized) to account for cash receipts and cash disbursements, assets and liabilities.  In addition, establish a financial management, auditing and internal control systems.

9. Retain an accountant for filing the annual audit and mandatory government filings.  If you have gross revenues greater than $250K, you must undergo a financial audit by an independent CPA.  If you have gross revenues between $100K & $250K, you must file a CPA’s review report.  If you have gross revenues under $100K, you are not required to retain a CPA; but must submit a financial report with its CHAR 500 to the NYS AG’s office (See item #20).

10. Procure necessary insurance coverage: general liability, property, professional responsibility (if applicable), sexual abuse (if applicable) and non-owned auto liability (if applicable) and/or healthcare.

11.  For non-profits, incorporate or form a trust to protect its founders and principals from personal liability: www.dos.state.ny.us or www.dos.state.ny.us/corp/corpwww.html.  All other companies such as an LLC should refer to their operating agreement in their corporate kit to protect its members from liability.

12.  Apply to IRS for an employer identification number (E.I.N.): www.irs.gov/businesses/small/article/0,,id=98350,00.html

13.  For non-profit status, apply for IRS 501(c)(3) tax exempt status (IRS Form 1023) and receive IRS Determination Letter or advanced ruling letter:  www.irs.gov. All organizations that have gross receipts of $5,000 or more must receive an IRS Determination Letter.  Organizations with gross receipts greater than $25,000 (on a three year average) must file IRS Form 990 annually.  Those with gross annual revenues of less than $100,000 may file Form 990 EZ.  Beginning in 2007, those with receipts of less than $25,000 will be required to complete an online filing with the IRS. Organizations having $1,000 or more in income from activities unrelated to their tax exempt purpose (UBIT) must file Form 990 T. IRS forms and instructions are at www.irs.gov.

14.  File for state and local tax exemptions: from New York State corporate tax (Form CT-247 at www.tax.state.ny.us/pdf/2005/fillin/corp/ct247_805_fill_in.pdf); New York State and local sales tax (Form ST-119.2 at www.tax.state.ny.us/pdf/2008/fillin/st/st119_2_1108_fill_in.pdf); and the New York City General Corporation Tax.  A variety of other exemptions are also available, if applicable, including exemptions from state and local property tax and from certain New York City water and sewer charges. If the organization owns real estate, it should apply for property tax exemption by filing the Exemption From Real Estate Taxation for Property for Property Owned by Nonprofit Organizations form available at www.nyc.gov/html/dof.

15.  Establish a payroll system (manual or automated), including: (a) Withholding requirements (federal, state & city); (b) Requirements for payment of funds withheld (federal, state & city); (c) Reporting requirements for funds withheld (federal, state & city).  If you have payroll, you must remit Federal and FICA (employer and employee) withholding payments, and NYS/NYC withholdings.  The filing frequency is based on the size of your payroll.  A reputable payroll service provider can provide this service and will assume the liability for failure to pay withholdings.

16.  Establish a mandatory system for maintaining records for each employee which include (1) names and social security numbers, (2) W-4 and I-9 forms, and (3) for each payroll period the: (a) beginning and ending dates, (b) the days (weeks, etc.) each employee worked and the earnings for each day (week, etc.) and (c) all payments made to the employee, including bonuses and vacations. — I-9’s: Employees must complete and submit Form I-9, Employment Eligibility Verification, within 3 days of employment to their employers.  I-9s are not filed with the U.S. government.  Employers are required to retain I-9s for up to 3 years. Go to US Citizenship & Immigration: www.uscis.gov.

17.  Establish a system for preparing and filing Form W-2s for employees and 1099s on behalf of independent contractors.  — W-2s and 1099s:  Employers or their payroll service must provide W-2s for each employee, and 1099s for independent contractors paid $600 or more in a calendar year.  IRS Form 1096 correlates to 1099 information, and Form W-3, Transmittal of Wage and Tax Statements, covers W-2 data. IRS forms are at www.irs.gov.

18.  Establish a system to meet mandatory insurance requirements: Workers' Compensation, Unemployment insurance, Short-term Disability, etc.

New York State law requires employers to provide short term disability and workers' compensation coverage to employees.  Many organizations obtain coverage through the New York State Insurance Fund, although there are alternatives. The State Insurance Fund is at www.nysif.com.

Unemployment Insurance payments are based on gross payroll and are remitted quarterly to the NYS Unemployment Insurance Division.  Nonprofits are exempt from Federal Unemployment Tax. The NYS Unemployment Insurance division is at www.labor.state.ny.us/ui/ui_index.shtm.

19.  Obtain an Employer Registration Number (ERN) from New York State for reporting unemployment insurance, withholding and wage data.  Download Form NYS-100 from www.tax.state.ny.us.

20. For non-profits, register with the Charities Bureau of the Attorney General's Office (Form CHAR 410): www.oag.state.ny.us/bureaus/charities/pdfs/char410.pdf.  Thereafter, the organization must file Form CHAR 500 annually with the AG's office. Publication CHAR 023 provides a summary of registration and filing requirements. Forms and instructions for the Charities Bureau of the New York State Attorney General are at www.oag.state.ny.us/bureaus/charities/charitiesforms.html.

21.  If your nonprofit organization is receiving donations and providing an item in return for the donation, you must have a disclosure statement informing the donors that the amount they can claim on their taxes is the difference between their contributed dollar amount and the difference of the value of the item (goods or services) received in exchange. 

22. For nonprofits, create a system for providing receipts for the donations for compliance with the IRS substantiation requirements.  Download IRS Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements, at www.irs.gov/pub/irs-pdf/p1771.pdf.