Tag Archives: audit

Nonprofit Radio for February 21, 2020: Hiring Your Audit Firm & Equitable Compensation

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My Guests:

Yigit Uctum: Hiring Your Audit Firm
When it’s time to change your auditors, what do you look for? And how best to work together? I talk through the relationship with Yigit Uctum, a partner at Wegner CPAs.

 

 

Gene Takagi: Equitable Compensation
Gene TakagiIs your compensation schedule fair? What does that mean and why should you care? Gene Takagi returns for a full discussion. He’s our legal contributor and principal of NEO, the Nonprofit & Exempt Organizations Law Group.

 

 

 

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[00:00:14.24] spk_1:
Hello and welcome to tony-martignetti non profit radio. Big non profit ideas for the other 95% on your aptly named host. We have a listener of the week. It’s Debra Elizabeth Finn in Boston, Massachusetts. She shared non profit

[00:00:28.99] spk_2:
radio with her group, Mission based Massachusetts. I’m always grateful to those of you who share the show. If you do, let me know. I will shout you out as

[00:00:38.00] spk_1:
well. Many thanks, Deborah. Thank you so much. Congratulations

[00:00:45.00] spk_2:
on being our listener of the week. I’m glad you’re with me. I’d be hit with Roman. Is, um if you poison to me with the idea that you missed today’s

[00:00:49.97] spk_1:
show hiring your audit firm when it’s time to change your auditors, What do you look for? And how do

[00:00:55.96] spk_2:
you best work together? I talked through the relationship with you. Eat each tomb, a partner at wegner-C.P.As

[00:01:09.51] spk_1:
and equitable compensation. Is your compensation schedule fair? What does that mean? And why should you care? Jean Takagi returns for a full discussion.

[00:01:11.77] spk_2:
He’s our legal contributor and principle of neo the non profit and Exempt Organizations Law

[00:01:47.61] spk_1:
group. And he’s in the studio. Authorities take two planned giving relationship stories were sponsored by wegner-C.P.As guiding you beyond the numbers wegner-C.P.As dot com But Cougar Mountain Software, Denali Fund is there complete accounting solution made for nonprofits tony-dot-M.A.-slash-Pursuant. Martin for a free 60 day trial. And by turned to communications, PR and content for nonprofits. Your story is their mission. Turn hyphen to DOT CEO. I’m very pleased to welcome back to the show and to the studio you coach Doom. He’s a partner at wegner-C.P.As

[00:02:06.41] spk_2:
with over 13 years of experience. He works exclusively with tax exempt organizations. He oversees Wagner’s Form 9 90 nationwide preparation practice and leads their New York City operations. The firm is that wegner-C.P.As dot

[00:02:07.94] spk_1:
com. You know that And at wegner-C.P.As. Welcome back.

[00:02:12.68] spk_3:
Thank you for having your back.

[00:02:13.94] spk_1:
That’s a pleasure. Stand a little closer to the

[00:02:15.72] spk_2:
mike so we can hear you. Yes. There. Thank you.

[00:02:18.34] spk_1:
Um, getting from Madison, Wisconsin.

[00:02:21.16] spk_2:
Thank you. How cold is it? There now is pretty called people.

[00:02:26.03] spk_3:
When I left, it was like like 10 degrees. I don’t know. I don’t pay attention after I leave. Okay.

[00:02:32.36] spk_2:
When it gets below 20 does it matter? And it

[00:02:35.14] spk_3:
doesn’t matter. What

[00:02:35.93] spk_1:
Can you tell that between 10 and zero.

[00:02:38.90] spk_3:
I can You can’t. The marginal difference it is called. It’s

[00:02:42.71] spk_2:
just all called anything

[00:02:45.12] spk_3:
below one of the state f

[00:02:47.84] spk_1:
in cold. Okay, um, so we’re talking about the audit relationship. So first of

[00:02:50.63] spk_2:
all, what? What goes into What are we asking an order for him to do before we get into how to hire them. What is it we’re expecting from an audit?

[00:03:20.94] spk_3:
So, basically from an audit by the professional standards, you expect someone independent to go over your and simple terms like, I’m gonna get technical, go over your accounting records and internal controls, overcome over financial reporting and basic issue. Their opinion based on their all its procedures bedroom, not your financial statements are fairly stated in accordance with generally accepted accounting principles.

[00:03:30.63] spk_1:
Yeah, I know. And

[00:03:31.50] spk_3:
I

[00:03:31.62] spk_2:
don’t have my college accounting class.

[00:03:58.16] spk_3:
Yeah, absolutely. And based on the audit, he also expect some recommendations like they don’t have to give one, but ah, that the relationship is auditors have the expertise working with similar organizations and know the best practices. And if they identify any weaknesses in your systems, they’re also required to report that. But in addition, they also make recommendations as evaluated service.

[00:04:01.79] spk_2:
So it’s much more than just a numerical analysis. Absolutely. You’re talking about going into processes, trains, accountability, etcetera,

[00:04:10.88] spk_3:
right? Absolutely. Yeah. We going to accounting systems, looking at the system’s looking, get who’s involved in certain procedures and what controls are in place and everything. So

[00:04:24.65] spk_2:
meaning board members, senior employees going into those depends

[00:04:27.80] spk_3:
on who were working it, like really small organizations that may be one person organization. Then he would want board the moment as part of the internal controls. If the non profit is large enough, they can have the internal control environment between the organization but typically organizations. Most nonprofits. They’re off a certain small size, and you you want some board government’s involvement in Internal Control says Okay,

[00:05:01.30] spk_2:
and then and then these recommendations. You’re saying that’s based on having done hundreds of audits of similar type organizations. You could make some recommendations, give advice about I could be doing some things better. Absolutely there. I guess they’re okay, but you could be doing things will smarter,

[00:05:14.40] spk_3:
like doing it more efficiently or doing it a little differently and again like that can be some best practice recommendations as well as some recommendations to address certain weaknesses in the internal control system. So that can be two different things.

[00:05:30.04] spk_2:
Okay, so it’s so It’s like including business practices is we’re

[00:06:16.49] spk_3:
losing business practices as well, so we’re not required to his auditors to look at certain things. But people expects us to look at things, even if it’s not part of thought. It se RV makeover some insurance invoices gonna required to make sure that they have enough coverage for certain things. But that’s something that, based on looking at it, such as like external fraud coverage, like looking at the today’s environment. Barry People’s a concert, getting hacked and everything. You may have an insurance policy for cyber security. Let’s say it may cover up to $10,000 with a $5000 deductible. Well, that’s not really very much money, exactly. So if someone, then the may look at that and maybe recommend that you know you may want topped us a little bit by paying just a little in premium. Say another 100,000 premium, you increase that coverage from 110,000 or something like that.

[00:06:29.20] spk_2:
Okay, Okay. So I mean there’s so there’s lots of different areas you can just

[00:06:32.48] spk_3:
a little bit.

[00:06:33.64] spk_1:
Okay. Um, so we have a couple

[00:06:39.89] spk_2:
of minutes before our before our first break? Uhm, why don’t we get into the, uh

[00:06:42.11] spk_1:
oh. I do want to ask

[00:06:43.00] spk_2:
you how long is an audit process that’s based on the size of the farm? Really?

[00:07:00.19] spk_3:
Yeah. Absolutely. Yeah. On the duration depends on how responsive each part iss basically so and so it can very quickly

[00:07:02.05] spk_1:
doesn’t have to be done on site or

[00:07:48.06] spk_3:
it does not have this day and age like out of organizations keep records electronically and it can be them through video conferencing, teleconferences and looking everything online and just document sharing. Yeah, and and absolutely and out off times, man. Dorrit is done on site daughter. They’re sitting in a conference room. Email the client email E Glendale back. So it’s like, you know so. But it’s face to face is good summits depends on preference. A cz Well, so are some people prefer it that pay and there’s advantages and dissidents just off face to face, like onside auditing versus virtual Auditing one is flexibility, but the danger is the order can direct longer if it’s totally virtual. And if both parties will not commit to the timeline. So,

[00:07:53.24] spk_2:
yeah, the timeline and document sharing like responsiveness,

[00:07:57.83] spk_3:
but it does not have to be done on site.

[00:08:08.83] spk_2:
Okay. Okay. Cool. Um, all right. So we got another minute or so before before break. And so I So let’s start to get into what we’d be looking for in a firm, and then we’ll go more detail after our parents just want to be looking for

[00:08:16.64] spk_1:
I think

[00:08:48.37] spk_3:
the number one thing, that’s the most important thing. The expertise and experience. You want a firm that is capable off doing the audit. They have experience working with organizations that ah, have your the same needs. You may be operating under a separate federal grant. Let’s stay and on everything is different. Like just because an organization is a non profit, it doesn’t mean they’re doing the same things. They don’t have the same requirements. I think number one thing is to have the expertise toe do the audit. Okay,

[00:09:03.48] spk_2:
so that’s interesting. Like if your revenue stream is different than a similarly sized organization than the order is going to be very different. You’re saying if it’s your old federally funded versus revenue for service is

[00:09:05.10] spk_3:
or purely foundation

[00:09:10.11] spk_2:
foundation. Okay, so the different character of revenue not just don’t base it on they do audits of organizations that have 20 employees. And that’s about what we have, so that

[00:09:20.17] spk_3:
I know it’s all different. Okay,

[00:09:22.83] spk_1:
okay. All right. So let’s take this first break, which you’re a part of because it’s wegner-C.P.As, which I’m grateful for. So wegner-C.P.As, of course. Thank you. I’m saying all time

[00:09:43.53] spk_2:
forgot. Take their CPS way. No, we’re getting a dick. We’re getting detail about what the audit is, but basically, it’s kind of like a dentist. You get an idea of what? An order what wegner-C.P.As firm does for you. I’m typically saying, start your due diligence at wegner-C.P.As dot com and then pick up the phone because that’s how I like to communicate. But it is going to

[00:09:49.38] spk_1:
talk to you because you know, a partner in the firm, cause serious. So what’s that? If I’m picking up the phone

[00:10:08.10] spk_2:
and calling you and saying I looked at your was on the website, you might help us. We need some help with our, uh 9 90 Wait. I feel like we can’t. It’s beyond our capability doing in house anymore. What would that What would that look like? That call look like

[00:10:34.01] spk_3:
that Cole would look like. Basically, I would be asking some questions. Will identify your needs better on Do we have, like, Haman states? Are you registered then? And kind of try to understand what you have kind of try to understand your organization. And I would liketo look at your previous 9 90 kind of to someone else’s and such. And basically that you know what we can do for you. And if it works out, you will start working together. So

[00:10:41.70] spk_1:
Okay, Thank you. Start your

[00:10:42.09] spk_2:
due diligence at wegner-C.P.As dot com and then pick up the phone.

[00:10:45.04] spk_1:
Talk to you. It’s friendly, guy. I mean, he wouldn’t be on the show. I wouldn’t have it back

[00:10:51.13] spk_2:
if it wasn’t that way. So wegner-C.P.As dot com. Okay, let’s go back. Thio.

[00:10:56.35] spk_1:
So now this is a This is gonna

[00:11:01.03] spk_2:
be our audit. Hiring already firm is an

[00:11:01.34] spk_1:
r f p. Typical in this

[00:11:11.66] spk_3:
kind of peace. Typical. Like I would say 80% 90% off the time we receive an R F P and on. Then the process starts after that.

[00:11:15.16] spk_2:
Okay, how do we, as an organ, decide who to send the R. P too?

[00:11:55.88] spk_3:
Basically, um, ask for references, referrals from from somebody that you trust. So usually ah, it can be the board that may be deciding that. And they may be serving in other other organizations, which they may be familiar with. Their audit firms. Like that might be one thing. The other thing is a lot off firms are now using our source accounting firm that dough there today. Today, accounting. And they may. They work with a lot of water firms as well, and they may give you some recommendations based on your size and such. And or you can go Google firms. Yeah, Lam profits in the year, for example, and see who come up and then send our fees that day. So it’s got multiple ways off.

[00:12:13.56] spk_1:
It doesn’t have to

[00:12:16.45] spk_2:
be local, though. I mean, the point was you could do this. Could be done virtually. It

[00:12:19.26] spk_3:
doesn’t have to be a local. No,

[00:12:20.79] spk_1:
but use your networks

[00:12:21.94] spk_2:
absolutely aboard other CEOs, you know, rather CFO’s. You know, if that’s your situation, you know, use your networks. Okay. Um

[00:12:31.08] spk_1:
are there other sample R f p C

[00:12:41.24] spk_2:
o r. I mean, is this stuff on the web like, all crappy are thes. I mean, how do you develop this R p? Basically,

[00:12:52.84] spk_3:
you can start with a template and there’s a lot off them on stone line. You can point some, but I highly encourage people organizations toe really like first determine why you are looking for a change. Like, what is that you did not like with your current relationship and make sure that how you want that relationship change, make sure that you put those criterion the ft so that you’re looking like you kind of identify your needs and what you’re looking for. What’s important to you.

[00:13:13.84] spk_2:
OK, so, like, of turnover bothered you or fee or timetable?

[00:13:20.44] spk_3:
Absolutely. I think timetable is one of the many reasons by organizations Look for a new firm because the day prior firm are the firm that they use are not meeting their timelines.

[00:13:44.48] spk_2:
Okay? Meaning what? Like the organization should How does how does the timeline get get determined that that the firm may not be, er yeah, complying with

[00:14:26.74] spk_3:
to say, um and you’re an organization and you want to present your audit in June, tow the board of directors. Okay, The audit firm somehow cannot meet that deadline or a lot of times thes here. Some complaints from prospects, they say, Okay, our audit is done. Mother 9 90 doesn’t get done for another six months. So that maybe like a I was look at the tax and the audit as one engagement. Okay, it’s part of one relationship and that maybe time spared the audit is done on time, but then maybe the audit firm are the accounting firm has a separate department that does the tax work your 9 90 maybe that gets late. Guess it. Still, it is also, I think, is the point is like, I know what you want and have kind of like try to think about how you want that relationship to look like and put all those as your criteria in therapy. And as questions about have the firm would address those.

[00:14:50.09] spk_2:
What’s another reason besides the number one timing failures? What’s another reason you see people wanting toe change firms,

[00:15:25.64] spk_3:
increasing fees, and the other reason is if you’re a startup organization or some changes are happening, they say your small organizations. But you have growth plans, and the firm we are working with doesn’t have the expertise that you need as you grow so certain times like the small. When you’re small, you start with one firm. As you get bigger, your niece change and your current form is not able to meet them. And the other part might be responsiveness like you may not. You may be contacting your audit firm, and they don’t get back to you for weeks or, like the relationship kind off way,

[00:15:57.14] spk_2:
will feel that crappy customer service. Right? You are a vendor, you’re providing service. I don’t expect an email back in five minutes, but I think within 24 hours somebody should get back. Even if it’s this is a really busy day, you know? Can we talk later in the week or something? Give me something you’re inviting service something for

[00:16:07.53] spk_3:
the other reason is errors like sometimes errors are made and they don’t get found out until later. And once that’s why not. You know they may wanna change firms because then your expertise is being questioned.

[00:16:16.15] spk_2:
Yeah, How do? How do audit errors get found? I mean, it’s the audit. That’s just be finding errors. How do you find errors in your audit?

[00:16:32.34] spk_3:
Basically, maybe the audits firm missed procedure or Mr An Error that was present in the financial statements, Baby, they didn’t do enough. That’s thing. Maybe something may happen. I mean, that can’t be errors. How

[00:16:35.34] spk_2:
do you just how does the organization discovered the error

[00:16:38.18] spk_1:
It’s got me

[00:16:48.38] spk_3:
discovers in to waste. One is internally. Someone looks at it in a different from a different perspective, or something else comes up, they need to go back. And something doesn’t make sense. For example, today and then you go back and look at previous documents and find out that all this should have been treated differently, for example, and the audit firm did not catch it. Okay,

[00:17:05.89] spk_1:
okay. I’m guessing it’s probably

[00:17:07.13] spk_2:
not a board that often, you know, in in its review of the audit, I don’t see your average board member finding the mistakes in the audit.

[00:17:15.28] spk_4:
Typically not. They

[00:17:17.80] spk_1:
may

[00:17:37.69] spk_3:
find errors in maybe some narrative descriptions and such, but sometimes they do like some some board members are financial is everyday, be sits on the boards. They look at all the financials and they may be finding errors. But those errors are found before the artist gets issued, but still an error. So that kind of like whenever there’s an area that auditor didn’t catch, kindof like damages the credibility.

[00:17:46.96] spk_2:
Right? You’ve submitted it to the board as final. Okay.

[00:17:51.11] spk_1:
All right. So yeah, I mean, some

[00:17:52.95] spk_2:
organizations even have an order committee. Those are bigger non profit maps. Probably the universities, hospitals or whatever. Just a bigger. So they have no other committees, or presumably, yes. Then there’s expertise in that committee to scrutinize

[00:18:11.52] spk_3:
supposedly, hopefully rebuttable presumption in the year. For example, if you are required to have an audit your also required in order to comedy.

[00:18:18.78] spk_1:
Is that right? New York, you have to have an order

[00:18:20.31] spk_3:
committee will have toe.

[00:18:21.25] spk_2:
Okay. And what’s the threshold for an audit in New York? Current

[00:18:28.73] spk_3:
$750,000 in total revenue, assuming you have more than $25,000 in donations from New York.

[00:18:34.88] spk_2:
Okay, 25,000 in donations from New York and and 750,000 in total revenue

[00:18:40.80] spk_3:
or more yet

[00:18:42.15] spk_2:
born What? Right then That’s the trigger for in order to New York State. Yes, And I’m sure it varies widely across the States.

[00:18:48.65] spk_3:
It does. It does not. Every not every state has an audit committee requirement. For example, California has it, but their trash Holt is two million depends. And it’s also all its committed Rules are different in every state. Ho can be on the committee what they have to do. Everything is different. So

[00:19:06.82] spk_2:
you’ll be gratified to know that that Gene Takagi is in background nodding when you said the $2 million.

[00:19:15.74] spk_3:
That’s good to hear. I was right. You’ve indicated? Yeah,

[00:19:19.33] spk_2:
because I certainly don’t have the expertise. Not this question. Um

[00:19:21.34] spk_1:
okay, s so anything else you want to say

[00:19:23.71] spk_2:
about the therapy process before we get to evaluating the proposals that come in?

[00:19:30.86] spk_1:
Um, I think

[00:19:32.96] spk_3:
I think that’s pretty much it again. Like that said yes, you’re a portrait. It toe make

[00:19:37.24] spk_1:
it

[00:19:37.38] spk_3:
like a visual ist like, what do you wish tohave in your audit relationship and kind of go with that?

[00:19:44.16] spk_2:
Okay. All right. So now you get these, Uh, I guess you get what’s a reasonable. Number 44 proposals back or

[00:19:51.03] spk_1:
usually I

[00:20:13.75] spk_3:
see an average off three threes. The most common sometimes Thio. Sometimes more than that. I’ve seen up as much as 10. Yeah. Yeah. So they kind of issue for will not respond And something like that sometimes. Like something like when you center FB you asked, like, Are you going to respond or not? You know, So that’s the wrong questions that gets asked something. So

[00:20:20.75] spk_2:
and then if the firm doesn’t even respond to that

[00:20:23.01] spk_3:
than their low life Yeah, yeah.

[00:20:37.52] spk_2:
Don’t never refer them again. Exact. They don’t respond to your Are you going to respond to our f B question? Okay. All right. So you got you got your 3 to 4 proposals back. What are we doing now? I was looking for I would

[00:21:32.03] spk_3:
actually look for the, um, the overall response process like, are they? How did they respond to your initial when you sent direct appeals? Say, usually, now they come in e mails like, how are they responding to their art? A timely. And when you make appointments, are they late? Are they not late? Like in this stage, like a proposal stage if they’re not giving you the attention. Yeah, on. Very That’s a very bad sign off the overall relationship. I think the first impression, maybe last impression tow the time. So it’s really important to see how they handle things and always look for writing. What’s important relationship is not never make errors. But once you make an error, how do you recover from that? And I think it’s really important as well. And during the process, I think initially they take the time toe, ask us questions and today, or are you just sending like a blanket proposal without even

[00:21:47.09] spk_1:
That’s like asking a couple questions

[00:22:00.68] spk_2:
about what the perp, the R F P, says. That’s a good That’s a good sign. I mean, the firm is actually scrutinizing it. Paying close attention wants to be responsive to exactly what you’re asking. But they’re not sure exactly what you’re looking for, but also, but

[00:22:39.03] spk_3:
also basically see if they’re trying to identify your knees. I mean, you can put so much in writing in the Riviera. Peas are usually standards, and there’s so much else goes on at the firm. Are they trying to like understand? You’re really needs and how they can add value. Are they asking questions? So usually photography. You sent your most recent order to report and your 9 90 and ah, nde sometimes, like, put some description off what organization looks like now. But I think, um, the audit firm should be interested in the organization enough to ask some more questions on Try to learn more, as opposed to just

[00:22:48.29] spk_2:
just giving back the RP. But yeah, by the deadline,

[00:22:50.92] spk_3:
you have just told me in the other budgets for to me in the other speech church this much this is your fetus is the proposal versus taking the time to talk to them and asking questions and see

[00:23:04.96] spk_1:
OK, some engagement, like applying standard a common sense. You

[00:23:33.10] spk_2:
know, if you’re trying to hire a contractor for your home on dhe here, she’s not getting back to you, you know, at the at getting the business stage. That’s a bad sign, you know, or if they don’t seem to be listening to you about what it is you want to do. You know, you’re asking for their ideas and they don’t come back with ideas. They just come back with a fee you know the same. Same as same as hiring a vendor for your your audits facility. No, I haven’t sense, for God’s sake.

[00:24:09.96] spk_3:
The other thing I would look at as have they addressed all your points in the F B. Have they read the appear? Are you getting like a blanket proposal? I think that’s really important to you. And the hurting I would look at would be like, How is the presentation off the proposal like Is that looking sloppy? Are their errors like the spacing looks, beard or just aesthetics off the off? The proposal and errors in it like spelling errors, grammar errors like this? It’s free off errors. I think it’s important. Yeah, spokes. That looks like it’s somebody reviewing them before you send it to you.

[00:24:19.00] spk_1:
Um, what about a presentation? Is that is that typical

[00:24:21.84] spk_2:
toe have? Ah, maybe you narrow it down from 4 to 2 and you want them both to make a presentation to the board. Is that is that an unreasonable? That’s not

[00:25:16.25] spk_3:
unreasonable, And but that does not happen too often than the smaller organizations. Probably your listener base probably doesn’t happen. The presentations doesn’t happen that way. what does happen, though They, uh, there’s like a conference call the Save it with the treasure or the audit committee chair at the accountant or someone just follows up. Let’s say they I don’t. You get three and you eliminate Bond. Now you have the two, and you just have a called them or a meeting with them, but it doesn’t typically become like a formal presentation. But that does happen, though that’s not unusual to ask. Or definitely, I would encourage. That depends on how much time you want to spend, too.

[00:25:21.49] spk_2:
Okay, and then whether you want to get your board involved,

[00:25:24.17] spk_3:
I mean, it’s really hard to get people together. And Monroe

[00:25:28.00] spk_2:
suffered rumors to that effect about how difficult that can be. Um,

[00:25:33.64] spk_1:
you refer to something

[00:25:34.59] spk_2:
called AA Peer Review report on non ordered firms. What is that?

[00:26:23.45] spk_3:
Basically ah, every C p. A firm that does attestation engagements like audits reveals they need to go through a peer review every three years. Peer review is another C p. A firm basically comes in, doesn’t audit off your order to brag or like attestation practice, so it’s not only artistic look at reviews, they look at complications. They look at audits and just to see your following to professional standards and look at the quality off the work. And if you’re not doing good for Earth than you get findings just like you give findings. Oh, non profit organization in your artists. Yeah, the peer review C p a. Firm does the same thing for you. There’s, like levels or findings and such. But typically, I would look for I would definitely request that period the report. Even if there’s findings, you need to know what they are and have the firm responded to them.

[00:26:37.17] spk_2:
Okay, so it’s not something that’s public, but you can ask for it from the firm’s you’re considering.

[00:26:41.85] spk_3:
I I believe it’s public, too. You can go to the I. C. P s website and look for it. I’m pretty sure the American Institute of Certified Public Contents Yep. And find

[00:26:52.87] spk_2:
all the peer review reports for all

[00:26:54.24] spk_3:
the servi. They should be all day. Okay, Okay. But I would just ask for it in the part off the f B and they should put in the proposal.

[00:27:05.99] spk_2:
Okay, We have just about a minute left. Okay, So how about getting started. What? You’re like a number one or two. Top advice for for getting this new relationship off the ground,

[00:27:49.51] spk_3:
I would say, Set the expectations specialty timelines and make sure everyone is on the same page. So I think the dissatisfactions happens when there’s an expectation gap this one person is thinking it’s gonna have on this bay and the other one just don’t assume, just confirm and just have a meeting with thought it firm and come up. It agreed upon timeline. I think it’s really important, and it will work sport they like. If the organization still not provide the information, the auditors cannot do the work. So what we do in every audit, the established time lines, we start with men, they need order to be done by. And then we sent them the list and they can tell us when they can be ready. And then we’ll find time between when they can hear them and they need it done. I kind of like established dead pay,

[00:28:04.93] spk_2:
working backwards from when they

[00:28:06.08] spk_3:
need exact Exactly. So it just always keep the end in mind. Okay,

[00:28:15.78] spk_2:
let’s wrap it up there. Thank you. Very much you do. Partner wegner-C.P.As. The firm is wegner-C.P.As dot

[00:28:17.12] spk_1:
com and at wegner-C.P.As Thanks for coming back to the show and studio. Pleasure.

[00:28:23.62] spk_2:
Having a big thank you You okay? Cracking like a 14 year old, uh,

[00:28:29.10] spk_1:
need to take a break. Wegner. No cook about software. So

[00:28:30.99] spk_2:
what’s all the kinds of Whitney wegner wegner on the head?

[00:28:33.47] spk_1:
Cook a Mountain software is this one quote. We’ve been very happy

[00:28:36.64] spk_2:
with Cougar Mountain. It’s rare to encounter a problem with the software, but they’re always there to help. Walk me through it and

[00:28:42.74] spk_1:
quote that Sally Hancock in Altuna, Pennsylvania. Cougar Mountain

[00:28:46.63] spk_2:
has a free 60 day trial, which you’ll find on the listener landing page at tony-dot-M.A.-slash-Pursuant.

[00:29:17.39] spk_1:
Martin. Let’s do our live love. Ah, and it goes out. Thio Tip of Florida Washington D. C oh, cool Washington Not too often to Washington. Tucson, Arizona, Brooklyn, New York, New York, New York, Ontario, Calif. Ontario, Canada. Um, Seattle, Washington. Awesome. Upper West Norcross, Georgia South east of it Going abroad Moscow, Russia Thank you for being with us. Live love out to Moscow, Seoul, South Korea On your jasio consomme. Nita Live love out there. Tehran, Iran Also, Tehran’s been with us a couple times getting turning it, Theo loyal,

[00:29:41.74] spk_2:
live listeners. So the live love goes out and the pleasantries go out to the podcast audience. That’s our over 13,000 listeners on your

[00:29:45.55] spk_1:
own device, your own timetable, whatever fits into your life. I’m

[00:29:45.79] spk_2:
glad that it does. Thank you very much. Pleasantries to our podcast listeners.

[00:29:53.49] spk_1:
Time for tony Steak, too. Planned giving relationship stories

[00:29:55.60] spk_2:
is the current video that you will find a tony-martignetti dot com because when I did

[00:30:14.64] spk_1:
plan giving relationships, I left. The story’s out. Relationships are with people, and I left the people out of the first video. I talked about how the relationship gets started, the value of long term relationships to your organization and to you personally. And then I left out all the examples, so that’s that’s not I mean, it’s good as far as it goes, but it’s like half the story. If you can talk about relationships, how about some examples? So

[00:30:56.15] spk_2:
in plan giving relationships to the stories I give you some stories of, um, Eleanor and, uh, Evelyn and Barbara and James the before I tell stories about and, uh, you know I’m sure there have been hundreds. Well, there’s definitely 100. But, you know, some people are more memorable, memorable than others. And those are the four that came to mind first. So some touching stories in that video, which you’ll find at tony-martignetti dot com

[00:31:07.05] spk_1:
Now what a pleasure to welcome to the studio. Jean Takagi. He’s here in the studio in New York City. He’s the managing attorney of Neo, the non profit and Exempt Organizations Law group in San Francisco. He edits

[00:31:15.33] spk_2:
the wildly popular non profit law blogged dot

[00:31:24.34] spk_1:
com. He’s the American Bar Association’s 2016 outstanding non profit lawyer. He’s at G Tack. He’s Jean Jean, the law machine. Welcome to the studio, Gene. Too cocky. This is awesome. Done. It absolutely is. It’s 10 years since your first appearance on the show,

[00:31:35.23] spk_2:
and you’ve been a contributor for, like, nine and

[00:31:41.43] spk_1:
1/2 years or something. And here you are in the studio. I love it. Absolutely love it. Thanks so much. I’m so glad it worked out.

[00:31:43.37] spk_4:
I’m so happy to be here. It’s actually my first time in any studios, so it’s Ah, it’s a pleasure,

[00:31:49.80] spk_1:
Your life to your life up to this moment has brought you here. It’s all culminated here. This is the pinnacle. It’s all downhill from here.

[00:31:56.06] spk_4:
Mom can be proud.

[00:31:58.08] spk_1:
Sorry. Going down from here. Now, Um, this is

[00:32:00.83] spk_2:
wonderful. Really Is very, very good to see you. Um,

[00:32:04.67] spk_1:
So, um, this is a This is a little tough, touchy topic. We, uh you and I had a touchy topic

[00:32:10.01] spk_2:
when we talked about diversity equity and inclusion. Um,

[00:32:19.21] spk_1:
this one is, Ah, equitable compensation. Uh, you know, you you frame it for us. You please do. I think we

[00:32:39.13] spk_4:
could look at it in so many different dimensions. Tony mean one is is Do we pay? Everybody is Lois. Salary is absolutely possible, so we can try to serve as many people as possible. And that’s one level one level is we have this huge pay gap between men and women. What are we doing about that? There’s also gaps based on race on and other protected class issues as well. And sometimes it’s not just the legal problem.

[00:32:49.42] spk_2:
It’s not just the protected classes,

[00:32:57.34] spk_4:
right? It legally protected. Yeah, it’s just why are we paying this person differently from this person and is that institutionalized. Is that just personal discretion? Who are the decision makers there? Is there so many levels to this? But I agree can be a very controversial area,

[00:33:30.36] spk_2:
controversial and insightful. These are hard questions, you know? What should the gap be between the highest paid person in the organization and the lowest paid person organization? What should that ratio look like? And how do we justify it? Um and yeah, I I just I think I mentioned it, but I want to make drive home the point that we’re not just talking about classes that are legally protected.

[00:33:32.58] spk_4:
Yeah, I think we go go beyond that. And I think what you said about the highest paid to the lowest paid gap is really interesting. I think for CEOs it’s close to 285 to 1.

[00:33:44.60] spk_1:
Is that average non profits

[00:33:48.15] spk_4:
for for profit companies, non profit? It’s probably better. I don’t know if there’s been a study done on that, Um, but California is considering, Ah bill. Now that says, if your gap is more than 300 to 1, highest paid the lowest paid, typically the CEO versus sort of the average line worker We’re gonna increase your tax anywhere from like 2 to 6% on that. So it’s interesting to see now that the lock take over and say, We don’t like these pay imbalances and this is what we’re going to do about it,

[00:34:23.72] spk_1:
Yeah. How did Attorney practicing in California, How do you feel

[00:34:24.23] spk_2:
about the level of regulation in California? Do

[00:34:30.80] spk_1:
you feel it? You feel it’s burdensome? Or do you? I’m sure it’s. I’m sure you feel it’s right headed, but do you feel it’s excessive sometimes, or or not?

[00:34:37.30] spk_2:
Just like it’s the role of state government Thio make things fair and equitable for everybody.

[00:34:44.29] spk_4:
It’s a tricky question. I

[00:34:45.56] spk_1:
think some of

[00:35:30.68] spk_4:
the intent is is right. So the intent of the A G on the attorney general, typically the charity regulator in California, is to protect donors protect charitable dollars to ensure that they’re not being misused. But the problem can be is when some decisions are made about how regulations should be shaped or what type of bills the E A. G should sponsor or find a sponsor for, um, are they taking a few isolated, high profile problems in creating a solution for that and then that is, in effect creating a huge burden for everybody else who’s never done anything wrong. And what are the pros and cons when you look at its sector wide? And I think they don’t have the expertise or the people power to be able to make those decisions on their own Now, to their credit, they’ve been good about reaching out. We’ve actually sort of consulted with the A G from time to time in working discussion groups about how laws might impact the broader sector. But oftentimes, big corporations are in there here more often than the small Guy

[00:36:07.66] spk_2:
G is reaching out to you right now. They have lobbyists and professionals. Alright, alright, just I’ve wondered about that because it’s an activist state and a lot of states follow the California leader. At least look to see what California’s doing in lots of different lots of different areas. Environment, non profits of its wide

[00:36:10.71] spk_4:
Yeah, well should should add, though, that the non profit activists have actually been very good about this as well. In part, it partly why, when you eat was talking about the audit threshold in New York being 750,000. I think in California’s two million, because the non profit said That’s too low. It’s gonna be too expensive to have audits at that level. So we actually we’re more lenient on that front on the audit.

[00:36:36.18] spk_1:
Okay? All right. So, yeah, it’s not always stringent.

[00:36:46.03] spk_2:
CE stringency greater stringency. But it’s, you know, sort of recognized as, ah, highly legislated ST Ah, highly regulated state.

[00:36:49.07] spk_4:
I think that’s fair to say, and it makes it all the more important for nonprofits to actually speak up. Make sure that their legislators on dear regulatory bodies know what they want. Really important.

[00:37:03.12] spk_1:
So we’re talking about the

[00:37:29.82] spk_2:
compensation way, said it briefly, But again, it merits a little more attention. We’re talking about going beyond what the laws call for me. We have the Americans with disability act. We have the Civil Rights Act of 1964. We have other law bodies of law that govern compensation. But we’re looking as this more at is ah, as a just an equitable ethical moral issue.

[00:37:30.52] spk_1:
Yeah, and even if

[00:37:31.31] spk_4:
it doesn’t violate the law because I’m a lawyer, I always have to say

[00:37:34.44] spk_1:
Well, the law plays

[00:37:35.38] spk_4:
a part because even if you win a lawsuit when there’s an employee claim, just a have a lawsuit against you is incredibly demoralizing. It looks bad to your stakeholders, internal and external. So even if you’re lawfully doing everything right, if you’re ethically having some challenges or your stakeholders stopped believing in, you don’t believe that you’re you’re living into your values. You’ve got much, much bigger problems and just legal ones.

[00:38:03.01] spk_1:
Yeah, you’re trying to do social change,

[00:38:04.55] spk_2:
work social good. But your own organization is unfairly compensated that the salaries are out of whack in your own organization. But you’re trying to improve conditions for the porters or

[00:38:17.14] spk_1:
even if not, if it saves the environment. You’re trying

[00:38:19.23] spk_2:
to do social change, work and improve the state of the world. But your own organization is not a model for that.

[00:38:40.26] spk_4:
That and you can imagine. This gets really controversial when we talk about minimum wage and say, Well, we’re a social service organization that serves low income communities. We’ve got to pay minimum wage for workers. But in a city like New York City or San Francisco, that means they can’t even afford to live in the city right Now I’ve got to commute from the suburbs. And is that really equitable to your staff? Is that what you want to display to everybody else supporting you?

[00:38:50.72] spk_1:
You have this poverty myth, right? There are a lot of

[00:39:16.52] spk_2:
assumptions underlying what we get, where what we’re talking about the inequity on and one of them and then they get deeper. But one of them is this poverty myth that we’re doing social change, work and improving the world. And so, you know, that should be gratifying enough to you. So you get a 40% lower salary than someone doing comparable work. I don’t know another organization or because we feel we feel way can’t afford to pay you more or you get you get a discount from the for profit sector because you’re doing social good work. And that should be gratifying to you. And that has value. So we pay you less.

[00:39:31.73] spk_4:
And it’s really sad to say that actually, some employers, some non profit employers, see that as a legitimate screen that we are going to pay lower than we even can in order to find the most altruistic people possible. I don’t like that kind of idea, but you’ve heard

[00:39:47.22] spk_1:
that articulated.

[00:39:55.47] spk_2:
Yes. Okay, So to find the most altruistic people we’re gonna we’re gonna pay the least. So we’re gonna

[00:40:03.71] spk_1:
get what you pay for, you know? And And what kind of what kind of commitment or you’re getting out of workers who know that there being paid a bottom feeder salary?

[00:40:06.41] spk_4:
Yeah, again, something I strongly disagree with. But that thinking is still still out there.

[00:40:20.07] spk_2:
Okay, I wouldn’t have thought that it would be articulated, but you’ve heard it. A CZ. A theory of recruitment.

[00:40:21.88] spk_4:
Yeah, you’ll hear it in research studies done where they do surveys of organizations, and they explain their compensation systems and you’ll see what some of the rational czar and it pops up.

[00:40:35.01] spk_2:
Okay. All right. We got a couple minutes before break.

[00:40:36.25] spk_1:
Let’s talk about some

[00:40:36.82] spk_2:
of these other cultural assumptions that are underlying cause

[00:40:39.40] spk_1:
this is

[00:41:11.45] spk_2:
where it gets, you know, kind of ah gets unfair. Um, the professional degrees, um, immediately convey or no are automatically convey a value to the organization. So somebody who’s an MBA or an attorney or a c p a. No. Irrespective of whether the professional designation enhances the value. Literally, really. But just way value that over way immediately imply a value to that, even if the job doesn’t require that kind of skill or that kind of professional education.

[00:41:19.15] spk_4:
Yeah, and not to knock professional education.

[00:41:22.54] spk_1:
I got one. You’ve got one? Yeah,

[00:41:24.66] spk_4:
it’s great. But, um, life experience can sometimes be much more valuable or experienced in the job sort of characteristics and duties itself could be more more valuable than professional response are some sorry professional experience in an unrelated field. But so many organizations use education is kind of a factor of where they’re going to set their pay, and they set educational standards that they want when it doesn’t seem applicable to what the job requires. And we see organizations in the four profit world actually leave that thinking, especially in the tech industry, right? They don’t care if you have a graduate degree from Stanford, if you’ve got a bunch of coding experience that’s directly relevant to what they’re creating at the moment. So I think more non profit have got to get away from that thinking that somehow an educational degree in whatever is necessarily going to be something that makes the person more valuable to them,

[00:42:54.49] spk_2:
then the network life experience. Correct. Okay. Okay, um, the, uh the belief that, um, productivity or output is more important than, um the relationship building and how you’re making people feel in the organization and and outside the organization to know, producing paper reports and Versace the ah, the feelings toward the organization that you’re you’re engendering through your work.

[00:43:06.08] spk_4:
Yeah, I think that’s also another danger. Where there’s in the thinking of professionalizing the sector, we’re all about metrics, right? We need to get metrics that we have to get back to our funders to show that we’re creating value. So all of a sudden the employees are incentivized to create better metrics on that may be at the expense of developing longer term relationships. I will actually move the mission forward Maur in the long run than it will in the short run. So we get caught up in the whole same problem that Fortune five hundred’s get caught up in satisfying shareholder spirit. Immediate short term returns, not thinking aboutthe long game. So I think that that is an issue

[00:43:40.56] spk_2:
being too short term thinking for the next board meeting what what our numbers look like for this quarter versus long term value.

[00:43:46.95] spk_4:
Right? Long term value. Also, employee retention being part of that long term value and the value that that having employees stay with you and doing their work, feeling that that sense of pride in what they’re doing, an accomplishment could be so much more valuable than serving an extra 5% meals. In Week three,

[00:44:24.77] spk_2:
we just replayed Adrian, sergeant on relationship fundraising for just last week for a valve on the Valentine’s Day show February 14th and he talked a lot. Now this is just devote to fundraising and where you and I are talking broader. But as it relates to fund raising too many organizations ignoring the lifetime value of a donor, how do you make your donors feel over the long term versus did you get? Did you get a 20% increase in their annual gift this year?

[00:44:36.39] spk_4:
Yeah, and so what do you mean organizational level? And what are you telling your employees? If you say no, you should try to get as much as he can. Now, don’t worry about the long term value of the donor relationships that don’t spend extra time with them. You can hit more people. That’s the wrong message.

[00:44:50.56] spk_2:
Get the car last break. Ever wonder why some nonprofits are always mentioned in the news? It’s because they work to build

[00:45:02.52] spk_1:
relationship. We’re talking about relationships again. I mean, it’s it’s pervasive relationships, Just like last week again, they worked to build relationships with journalists who mattered

[00:45:21.29] spk_2:
to them so that when you pick up when you make a call or you send an email, the journalist replies, That’s because of a relationship. A preexisting relationship. Turn two can help you do that. Their former journalists, including at the Chronicle of Philanthropy. They will help you build meaningful media relationships that can lead to great coverage there. Turn hyphen to dot CEO. We’ve got

[00:45:29.38] spk_1:
butt loads more

[00:45:29.86] spk_2:
time for equitable compensation with Jean Takagi in the

[00:45:36.93] spk_1:
studio. Um, where do you want

[00:45:37.58] spk_2:
to go from here? Uh,

[00:45:44.76] spk_1:
any any other cultural assumptions that annoy the hell out of you? Well,

[00:47:18.32] spk_4:
I I think generally speaking, we think we may be as employers giving people benefits when we say, Hey, we’re gonna give you a plus, you know, added match matching contribution to your +401 K plan, for example. But we may not take into account. A lot of our employees have their own financial issues and may not be able to contribute to +41 K plans, so they don’t get that benefit of all of the match, right? So again, equitable considerations would say, Well, maybe we should open up this benefit so that everybody can access to it has access to it. So maybe it gets put into a flexible spending accounts so they can take care of their elder parents, and not just to their 401 K. Or maybe we give them the cash so they couldn’t pay off a student loan. So things like benefits have a place in this. The other cultural assumptions. To make it, we have to figure out more. And I think maybe the biggest issue for the pay gap on the gender basis, maybe letting people figure out where and when they can work and don’t live on to the assumptions that you have to provide face time. It has to be in the office always because so many people who are the primary child givers who are in the workforce that’s where the pay gap gets hit really, really hard. And that’s where women, who once they once they have child Children and decide that they’re going to be the primary caregiver, which is most of the time relative to the man. You know, that’s That’s where they never recover

[00:47:28.33] spk_2:
their career. Yeah, it’s a downward trajectory for their career. For what, 18 years or something? Conceivably. Okay,

[00:47:28.90] spk_1:
another thes. They’re all

[00:47:30.66] spk_2:
good issues for a conversation in the

[00:47:32.72] spk_1:
office conversation with board. Another one is

[00:47:37.57] spk_2:
the the how percentage increases in in salary perpetuate the gap because you’re giving everybody a percentage of the high or low that they’ve

[00:47:48.78] spk_1:
already got. You’re not. You’re not. You’re not, uh, quill a breaking that a word equalizing, not equalizing. You’re just continuing

[00:47:56.74] spk_2:
the the disparity through percentage, you know, annual percentage increases.

[00:48:30.73] spk_4:
Yeah, and I think a payout. It is probably something that every organization should do and actually just ask themselves. How did we determine what the pay rates are for each of these positions? Ah, and is it equitable? Not just top to bottom, but across, you know. Are we paying one person for the same position so much more than another position, another person, even though the other person might actually be doing better work just because they had more of an educational background. So all of those things need to be looked at? Questioned, I think, tracked. So you’re if you’re gonna make these decisions in the future that are more equitable, you have to be able to explain what factors you’re looking at in order to change somebody’s compensation. And why that and how that’s applied is it applied evenly and doesn’t explain why there’s a disparity now in pay between two different people or three different people who occupy the same position.

[00:48:56.37] spk_2:
Um, you can create in your organization a pay equity team.

[00:49:04.22] spk_4:
Yeah, that’s yeah, I’m on the board of an organization called Compass Point in San Francisco.

[00:49:07.61] spk_2:
In a point to that article shortly

[00:49:54.01] spk_4:
Terrific and, yeah, having an removing the decision making from just one executive director, but who might set the caps just to make sure that there’s no overcompensation involved in that the budget is being complied with. But having an equity panel within the organization made up of peers, um, looking at self evaluations and trying to determine what the compensation rates should be within again. A permitted range. Think that’s a really great form of distributed leadership where you’re giving more power to your team, um, and letting them decide what the compensation rates can be now. There were definitely some cons to that issue as well. With more responsibility, there’s gonna be more criticism. But we found out that that it can work really, really well. And people sometimes are actually more conservative about what they want to give than the executive director. And then just having a conversation about that, um, can can be very helpful. But it’s ah, it’s a really interesting a strategy to employ for some nonprofits who have reached that level of, ah, evolution, if you will, in inequity considerations.

[00:50:24.40] spk_2:
Compass point, um, walks through. I think it’s the interim executive director wrote The Post’s Walks through there. I guess it was a three year process. Was it a three year process there of evaluating and adjusting pay throughout the organization, I think, was a two or three year process. It’s

[00:51:15.93] spk_4:
actually been ongoing since 2016 which is really when it started, and it’s still it’s still an ongoing and sometimes a painful process of making things more equitable as you raised the issues and surface them there. You know there’s some pains. You find out some inequities of the past and you try to correct them. And some people are happy about that. Some people aren’t on and you know, the intersectionality of different ah issues if you well, it’s not just gender. It’s not just ages, not just race. There’s so many issues to think about in determining whether compensation is unfair or fair. Andi can be interpreted in different ways, so it is a challenge. But having a team there to help decide this instead of one person makes

[00:52:26.44] spk_2:
a huge difference, also empowering as well. And you know it defeats this myth that we can’t talk about pay at work because everybody’s pay is now known to the to the, uh, to the Pay Equity committee, the team that you’ve just created. So we are talking about it. I want to point people to the this article. It’s it’s actually two different block posts at Compass Point dot or GE on their blogged. It’s called reimagining compensation. It’s time to stop building inequities in the past from the past port. Wanting to Andre is very open about the difficulties that they went through and some people got very large increases. And she alludes to even there, being some decreases over time in salary like stage decreases, Thio make things fair and equitable. It’s quite a process we talked about. Yeah, and I

[00:52:49.76] spk_4:
think you know that’s a team decision. People have to look at this from a state law perspective as well. And so you have to be careful. Not Thio, through mandatory action, decreased one person’s salary to raise another. You have to be careful about that. So we had the luxury of having some change capital because the foundation was really supportive of what we did. And so here’s a big shout out to foundations for for unrestricted support, it really can do great things for for creating equity within an organization.

[00:53:03.75] spk_1:
Um, let’s talk some

[00:53:04.64] spk_2:
about, uh, well, the board. The board has a role here, too.

[00:53:22.97] spk_4:
Yeah, I think I’m still even when we talk about distributed leadership, which I mentioned before, the board still sets the tone at the top. Um, and I think it’s really incumbent upon the board to actually set the values of the organization. So it makes sense that not only are organizations acting to further the mission, but they’ve got to do it in a way that furthers their values as well.

[00:53:38.25] spk_2:
A cz part of their oversight on

[00:53:43.34] spk_1:
and really they’re there. Yeah, their responsibility to

[00:53:44.69] spk_2:
the organization. I’m taking it out of the fiduciary capacity and just making it, Ah, moral obligation that they have to the organization.

[00:54:09.96] spk_4:
Yeah. It’s not just about looking at the financials and saying, Can we survive another year? It’s It’s about creating the relationships, as you said, to make this the sustainable organization that lives its values and furthers its mission for a number of years so it can really actually drive through what they’re trying to do.

[00:54:11.29] spk_2:
Okay, we have about another minute or so before we gotta wrap. So, what would you like to whatever not talked about that? You want to say what?

[00:54:20.07] spk_4:
Um well, they’re a couple things, so I’m gonna leave the parking tax issue aside, then.

[00:54:26.26] spk_1:
Oh, I forgot. The host is so lackluster. This show it’s unbelievable. I don’t know why people listen. The hostess so crummy. Um, yeah, the all right next time we’ll get that next time. This is just about him. Report. God the hostess

[00:55:26.85] spk_4:
So crummy. Um, so I guess along the lines here some tips, maybe of creating more of an equity based compensation system within an organization. And I think, first audit, audit the organization. Try to figure out why you’re paying a tw what level? I have a board level awareness of what’s going on. I’m create a pay equity panel numb within your staff levels. Um, and take a look at where the disparities happen. Most often are the book benefits that I told you about, like the 401 K, but also in bonuses on dhe. We find that our studies have found that that bonus is often goto white men at the much different level than persons of color, especially women who are persons of color.

[00:55:34.29] spk_2:
All right, Thank you, Jean. Thank you very much. Opening up this topics. He’s managing attorney of neo, the non profit exempt organizations Law group. You’ll find him at G Tack and today you’ll find him in the studio in New York City. So glad to have your gene. What a pleasure.

[00:55:44.66] spk_4:
Thanks so much tony and great

[00:55:50.82] spk_1:
to see you, Sam. Yes. Next week. Get to the next

[00:55:52.47] spk_2:
level with Sherry Kwame Taylor. If you missed any part of today’s show, I beseech you, find it on tony-martignetti dot com

[00:57:01.32] spk_1:
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