Accounting for Nonprofits – Beck & Company

Accounting for Nonprofits: Are Donor Advised Funds Right for Your Nonprofit?

When it comes to accounting for nonprofits, keeping up to date with all the changes, advances, and newcomers to the field of finance and accounting can be challenging. We spotted this information about donor advised funds and wondered how many of our nonprofit colleagues were aware of this opportunity for charitable giving. Today we’ll take a look at donor advised funds and what they might mean to your nonprofit organization.

According to GuideStar, donor advised funds managed $85 billion in assets by 2016. Here’s how donor advised funds work, the pros and cons, and next steps if you would like to investigate them further.

What Is a Donor Advised Fund?

A donor advised fund is a mutual fund created for the purpose of donating assets to a 501c3 organization. Donors with considerable assets may give to a donor advised fund instead of establishing a foundation or philanthropic charity to ensure their money is allocated to specific nonprofits. Donor advised funds are often maintained and managed by well-known fund companies such as Schwab, T. Rowe Price, and other financial companies. For example, T. Rowe Price created their Program for Charitable Giving in 2000 to enable individuals to give through the vehicle of an established fund.

How Does a Donor Advised Fund Work?

Donor-advised funds are managed by sponsoring organizations. The organizations must be 501(c)(3) tax-exempt organizations. Sponsoring organizations generally fall into three categories: community foundations, single-issue organizations, or national organizations, such as the previously mentioned T. Rowe Price Program for Charitable Giving. Companies like Price often create national organizations, Vanguard, and Schwab to give their customer base an effective way to manage giving programs.

Donor advised funds work as follows:

Individual or corporate donors contribute to a donor advised fund. They may take an immediate tax deduction.
Assets now belong exclusively to the DAF.
Often (but not always) the original donor is now listed as an ‘advisor’ to the DAF.
The donating “advisor” can now recommend how the DAF assets are used and invested.
The fund proceeds grow tax-free.
The DAF advisor (the original donor) may request that donations be given to charitable organizations.
The DAF fund management team conducts due diligence and, if the organization the DAF advisor wishes to give money to is a legitimate and eligible to receive tax-free donations, grants are issued to the charities.

Thus, donors may use a DAF to pass money tax-free to a nonprofit entity. The DAF acts as an intermediary between donors and charitable organizations. This is similar, but not identical, to how private foundations act. In the case of the DAF, many individuals may contribute to the DAF, instead of one person establishing a private foundation to pass grants along to their favorite charity.

Accounting for Nonprofits: Pros and Cons of DAFs

There are numerous pros and some cons to utilizing DAFs for charitable contributions.

Pros:

Donors can take an immediate tax deduction regardless of when the money is actually given to the charitable organization. By placing money into the DAF, donors receive immediate tax benefits.
Large financial firms managing DAFs are experienced at handling non-cash assets such as donations of stock, reducing headaches for accounting for nonprofits on how to categorize and value such donations.
Ease of donating non-cash assets enables people to give more generously than they might otherwise.
An experienced financial manager also handles daily money management decisions for the fund.

Cons:

Nonprofits may wait a considerable amount of time before receiving the aforementioned donation. There is no payout deadline.
It can be difficult for investors to ascertain management or transaction fees.
Some donors treat these funds as places to stash cash; they have no intention of giving more.

For nonprofits interested in participating as recipients in donor advised funds, it’s important to take a few steps to establish your credibility and appeal as a recipient of their largesse. In general, you can solicit gifts directly from DAFs. Be sure to set up a profile on GuideStar or another charity watchdog site and be thorough and transparent with your nonprofit financials. Familiarize yourself with IRS rules regarding DAFs, and enact training to ensure everyone in your organization knows about DAFSs and can process gifts efficiently.

DAFs aren’t for everyone, but they do provide nonprofit organizations with another powerful way to solicit funds and help donors view their organization as a potential recipient of gifts.

Beck & Company

Beck & Company is an independent certified accounting firm specializing in nonprofit organizations. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

Avoiding Issues of Fraud (or Perceived Fraud)

Among the many issues covered in discussions of nonprofit financial management, the issue of fraud, or avoiding the appearance of fraud, can be distressing. No one likes to think of their nonprofit falling into the ‘fraudulent’ category.

Yet GuideStar recently announced that they have rescinded their Seal of Approval for five charities that violated their policies for transparency.

The FTC investigated complaints against charities purporting to use donations to help veterans. Among these charities investigated, 100 received notice of legal action. GuideStar took it a step further and examined the 100 under legal notice and found that five had earned their Seal of Approval. They published a list of the charities for which the Seal has been rescinded along with the reasons for the change.

Among the many reasons stated are nonprofit financial management issues related to fraud or incidents that give the appearance of fraud even if the charity isn’t doing anything wrong per se. According to GuideStar’s report, charities were cited and censured for the following reasons:

State regulators found that the charity had misrepresented its financials.
The organization had dissolved but had not notified GuideStar.
State regulators ordered the organization to cease activities.

Charities obtain a Seal of Transparency after adding information to the GuideStar site. Charities are required to disclose with honesty and integrity their financial information and other information that adds to their public profile. The concept is simple: honest, complete information informs the public and helps the public make an intelligent decision about where and how to donate their money.

What the GuideStar and FTC Findings Tell Us About Nonprofit Fraud

Nonprofit financial management includes the prevention of fraud. The information obtained from the FTC review and the subsequent GuideStar article tells us a lot about issues pertaining to nonprofit fraud.

First, most of the fraud discovered wasn’t necessarily someone stealing money from the nonprofit, although that could be happening too. Instead, it was all around disclosure and failure to either disclose where and how the funds were being used or the activities of the organization.

Another problem was taking in money for an activity but then spending it elsewhere. Nonprofits who receive restricted funds, for example, that are earmarked for a specific project or program by the donor cannot spend them on anything other than what they were apportioned for in the first place. You can’t receive money for a scholarship for athletes and spend it to build a tennis court on campus, for example.

Nonprofits Have a Duty to the Public

Nonprofits have a duty and responsibility to the public, to their donors and constituents to be open, honest and transparent about their financials. It is then up to the public whether or not they choose to continue donations.

Some of the nonprofits receiving scrutiny from the FTC may be doing nothing wrong, but the perception of wrongdoing lingers. Why? It’s all in the financials. If the financials are poorly presented, if money isn’t categorized properly and if there is insufficient details included in the financial statements and annual report it can seem as if the nonprofit is trying to hide something.

This is where hiring a nonprofit accounting audit service can help. Professional nonprofit accounting audit services understand the changes to the FASB rules, for example, and can help you streamline net asset categories as well as assign the proper “nature” to expense items. The right amount of detail, the proper categorization and similar nonprofit financial management tasks undertaken during an audit can help clarify and communicate information in ways that help rather than hurt your nonprofit’s status.

If you’re ready to examine your nonprofit’s financials or you need nonprofit accounting audit services, contact Beck & Company today. We’re an independent certified accounting firm offering accounting and tax services for nonprofits, nonprofit financial management, auditing services and more. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting services that address all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

Year End Accounting Tips and Advice

Year-end arrives faster than the Christmas decorations in the local big box store, and as part of your nonprofit financial management duties, you should start thinking about auditing services and year-end close now.

Some nonprofits end their fiscal years on June 30^th, particularly nonprofits in the education sector; those in healthcare and other industries may be on a typical corporate calendar with the year-end December 31. For those whose bell will toll the close of the books as the ball drops in Times Square, now is the time for you to start thinking about nonprofit accounting audit services and all the things you need to tidy up the financials for year-end close.

Are You Ready for FASB Compliance?

Remember that new FASB guidelines affect asset categories, liquidity reporting, and expense reporting. Have you chosen where to move items that are in the third category of net asset classifications that’s going away? Now is a great time to start those discussions.

Liquidity is an area often confused by folks in the nonprofit world. Nonprofit financial management includes cash management; liquidity refers to having enough cash on hand to satisfy outstanding debts and obligations that may arise within a short period of time. Many nonprofits have a positive net balance but lack liquidity because their assets are tied up in restricted funds or grants. Be sure you have enough cash on hand to pay those bills that arise at year end.

Lastly, expense reporting is changing with the nature of the expense, like a line item, appended to your expenses. Take a look at typical expense categories and develop your own line items as needed.

This isn’t an exercise simply to satisfy FASB. The way that you depict your finances through the end of year report can tell a powerful story that encourages donations and support for your mission. With the right message, you’ll have an easier time courting donors and securing funds.

Plan for End of Year Nonprofit Financial Management

Take time now to plan for your end of year close and reporting needs.

Relay key dates such as the last date to submit year-end invoices to accounting to everyone in your organization.
Request that reimbursement receipts and reports are turned in with plenty of time for processing. Set a date now and circulate it among your staff to ensure everyone is aware of it.
Catch up on data entry tasks to ensure payables and receivables are up to date.
Review where your organization will present year-end financial results. Will it be at the typical board meeting or published on a site such as Charity Navigator or GuideStar? Consider their deadlines and requirements as well.
Leave adequate time in the schedule for printing and mailing. Publishing an annual report requires several weeks for writing the reports, graphic design, and printing if you send it to a commercial printer. Mailing at 3^rd class nonprofit rates also takes two to three weeks depending upon mail volume. With increased mail volumes around the holidays, leave plenty of time for mailing out reports.

If you are feeling overwhelmed by end of year nonprofit financial management requirements, consider nonprofit accounting auditing services. Some nonprofits are required by federal, state, or local jurisdictions to provide fully audited financial statements. Others reach a specific financial threshold that triggers an audit requirement. Regardless, all nonprofits benefit from a thoroughly audited financial statement.

Professional nonprofit accounting audit services can help your organization tell its story through financial statements in ways that are easily understandable to the public and donors. A strong, clear, and compelling story goes a long way in supporting the achievement of your mission and vision.

Beck & Company

Beck & Company is an independent certified accounting firm offering accounting and tax services for nonprofits, nonprofit financial management, auditing services and more. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting services that address all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

A Look at the Changing FASB Nonprofit Accounting Principles

Whether or not your organization needs nonprofit accounting audit services depends on several factors. Funding sources may require audits to continue providing capital. Other requirements may come from local, state, and federal offices guiding your nonprofit’s activities. The National Council of Nonprofit’s Audit Guide offers helpful guidelines to nonprofits considering audit services.

Nonprofit audits aren’t just an item on your to-do list. They can provide an important service to an organization and help it tell it mission and story through financial analysis to the public and funding organizations. Properly prepared nonprofit audits satisfy both regulators and the public by offering insight into how a nonprofit obtains its funds and allocates them throughout the year.

It’s important to take a look at nonprofit accounting audit services now in light of the coming FASB changes to nonprofit accounting principles. These changes impact restricted and unrestricted net assets, liquidity disclosures, and functional expenses. Understanding the changes and using them to tell your nonprofit story can benefit your organization in many ways.

Restricted and Unrestricted Net Assets

Terminology around net asset categories has been changed. There are now two categories rather than three. The two categories are net assets “without donor restriction” and net assets “with donor restriction.”

One of the reasons why you might wish to hire Beck for nonprofit accounting audit services is this change in net asset categories and ensuring clarity around how monies are accounted for in your organization. Nonprofit accounting can be complicated, especially with restricted and unrestricted net assets. As you know, a donor can place any type of restriction they wish around their donation, making it challenging to categorize them.

For example, you might operate three programs with specific goals. Donors can give to one, two or all three programs with the stipulation that funds are used only to achieve the goals of each program. Another donor may give money that can be used for the operating budget but under the condition that the goals of program one are met. Do you see how this can get complicated very quickly?

Ensuring clarity around determining whether net assets are restricted or unrestricted is vital for telling the financial ‘story’ in your audit. Those interested in supporting your nonprofit want to know how, where and why they should give their hard-earned cash. By understanding where there are needs and how those needs are met through viewing the net asset categories, potential donors can get a better idea of how funds are being used and accounted for at your nonprofit.

Liquidity Disclosures

Liquidity is a term frequently misunderstood by those outside of the accounting and finance professions. Liquidity refers to cash on hand. Your organization may show a positive bottom line and positive net assets but lack liquidity because its assets are tied up in restricted categories, tangible assets, or other obligations.

Nonprofits often show when they accrue revenues but this doesn’t necessarily mean that the money is in the bank. Grants, for example, may be logged into your accounting system when notification is received that you have been given the grant. The actual check for the amount of the grant may not arrive for weeks or months and may push the grant funds into the next fiscal year. This is an example of how discrepancies arise between cash flow and assets.

This is why tracking actual liquidity is so important. The new FASB standards request that nonprofits list both quantitative and qualitative measures of liquidity. This encompasses both the financial resources available for the next year and methods by which the nonprofit manages and monitors liquidity. To satisfy the new FASB standards, you’ll need to disclose the resources on hand that can be used to cover all expenses and obligations in the next year.

Presentation of Expenses

The changes to the presentation of expenses aren’t extensive. Nonprofits must now break out their expenses into three functional areas. This isn’t news to those nonprofits who have always been subject to audits, but others may find the change a bit of a surprise. Nonprofit accounting audit services can help you figure this part of expense presentation out or you can follow the guidelines developed by FASB regarding expense presentation. Think of the nature of expenses as if they were line items and you’ve got the gist of it.

Nonprofit Accounting Audit Services from Beck & Company

These are the basics of the FASB changes and how they may impact many nonprofits. For specific information on how your nonprofit may be affected, consider a call to Beck & Company. Beck & Company offers nonprofit accounting audit services. We are Washington DC nonprofit advisors serving the eastern seaboard with advice and guidance for nonprofits. Contact us or call 703-834-0776 x8001.

Tax Cuts and Jobs Act: What It Means for Your Nonprofit

Accounting for nonprofits will be impacted by the new Tax Cuts and Jobs Act signed into law by President Donald Trump on December 22, 2017. The act went into effect January 1, 2018. Although the new law impacts corporations, individuals, and nonprofits, the impact on nonprofit organizations is minimal. If you handle accounting for nonprofits, you’ll want to pay particular attention to the new provisions in the Tax Cuts and Jobs Act to ensure compliance with the law as well as utilizing every possible advantage.

A Summary of Major Changes.

A detailed analysis of the full law isn’t possible within this article. However, if you’d like more information, you can:

Read the full document on the gov website.
Review highlights of major changes from the National Association of Tax Professionals.
Read an analysis of the act from the Brookings Institute.

Let’s take a look at the major changes impacting all, and especially nonprofits, from the Tax Cuts and Jobs Act.

Changings affecting individuals expire in 2025.
New tax tables and rates are in effect from 2018 through 2025.
The system for taxing capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018).
During 2018 the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other
The standard deduction increased through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the
The act repealed all personal exemptionsthrough 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal

Changes to Charitable Contributions of Note for Accounting for Nonprofits

The biggest change for those handling accounting for nonprofits is the changes to income-based percentage limits for charitable contributions. The income-based limit is now 60%.

The act also repealed provisions that provide an exception to the written acknowledgment requirement for certain contributions that are reported on the done organization’s return — a prior-law provision that had never been put in effect because regulations were never issued. That’s good news for those doing accounting for nonprofits.

The news that income-based percentage limits for contributions of cash might inspire donors to give more. This might be an excellent time to increase donor outreach, marketing efforts, and donor relations programs.

Mention the new income-based percentage limits in your outreach communications. Although the tax savings may not be the big reason why people give your nonprofit, all points, including your organization’s mission, vision, tax exempt status and effectiveness in its given area contribute to the overall impression it makes on donors. It can either encourage them to give more or turn to another charity.

Another thing to keep in mind is that changes to the laws also change the disposable income available to consumers. In other words, potential donors have a little more cash to spend or give as they see fit. Although some certainly want to spend or save it, others will give, and give generously. You may want to tie in your marketing programs to the changes and remind people to give now, before the end of the fiscal year, so they can claim charitable deductions on this year’s taxes.

The President hasn’t said if more changes are expected, so if you handle accounting for nonprofits, it’s fairly safe to assume that the tax laws now in effect will remain stable, at least through the end of the current administration’s term in office. Most of the changes found in the Tax Cuts and Jobs At will remain in effect until 2025, giving you plenty of time to adjust to them. You can move ahead with certainty on your plans to maximize the new law’s impacts for potential donors.

Beck & Company

At Beck & Company, we have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. Whether you want to increase donor confidence and support through transparent accounting practices or find a partner for your annual audit, we can help. Contact us today or call 703-834-0776.

Home Owners Associations Nonprofit Financial Management, Part 2

Welcome to Part II of our series on nonprofit financial management tips. Today we’ll take a look at accounting and tax service for nonprofits with a view towards the overall needs for both at a Home Owners Association.

In Part I, we defined an HOA and discussed the definition of duty of care and duty of loyalty. Next, we talked about the nonprofit financial management needs of an HOA, including financial responsibilities and insurance needs.

In Part II, we’ll look into the accounting and tax service needs for HOAs.

Accounting Requirements

The Board of a Home Owners Association is required to keep accurate accounts of the financials of the organization. This includes income from membership fees or assessments, expenditures, accounts receivable and accounts payable. The board must report these financial facts to its members. It is required by law to follow all corporate law within the state in which it is incorporated, and to follow the tax requirements for nonprofit associations if it is incorporated as a nonprofit entity.

Tax Deductions and Requirements

In a cooperative setting, tenants are actually shareholders in the cooperative housing corporation. As such, they do not actually own their residences. Rather, they own shares of stock in the cooperative cooperation, which entitles them the exclusive use of a particular residence in the cooperative.

Because they don’t own their residences, rules regarding tax deductions are a little different than if they owned their home or the actual residence. The cooperative’s tenant-shareholders receive certain tax benefits allowed to homeowners, including the ability to deduct their proportionate share of the real estate taxes and interest allowable as a deduction by the cooperative if the cooperative qualifies as a cooperative housing corporation under IRC Section 216 .

The housing group or cooperative housing cooperation must qualify annually for IRC Section 216; it is not a permanent designation. To qualify, the cooperative must meet the following criteria each year:

The cooperative must be taxable as a corporation.
There must be only one class of stock outstanding.
Tenant-shareholders must have the right to occupy their units for dwelling purposes.
At least 80% of the cooperative’s gross income must be received from tenant-shareholders; 80% or more of the total square footage of the corporation’s property is used or available for use by the tenant-shareholders for residential purposes or purposes ancillary to such residential use; or 90% or more of the expenditures of the corporation during the taxable year are for the acquisition, construction, management, maintenance, or care of the corporation’s property for the benefit of the tenant-shareholders. (Only one of the three requirements must be met.)
No tenant-shareholder is entitled to receive a non-liquidating distribution that is not out of earnings and profits.

Capitalization Policy

We recommend that a Cooperative develops a capitalization policy. Such a policy sets forth expenditures for improvements, such as replacing roofs, windows, carpeting, doors, etc. for the building. It may also budget for alterations to an existing building. This may include enlarging the parking area, adding new bathrooms to the lobby or other improvements.

A capitalization policy for a Cooperative or HOA is similar to any capitalization policy a nonprofit would create. It’s budgeting for the future and for improvements to your organization.

By taking a smart look at the accounting and tax service for nonprofit needs of your cooperative and HOA, you’ll be in a better position to manage it responsibly. That translates into positive benefits for everyone who enjoys living within the HOA.

Beck and Company: Nonprofit Financial Management Expert

At Beck & Company, we have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. From accounting and tax service for nonprofits to consulting on issues impacting nonprofits today, Beck & Company can help. Contact us today or call 703-834-0776.

Will Blockchain Technology Eventually Affect Accounting for Nonprofits?

In the field of accounting for nonprofits, you may never have dreamed that you’d need to consider blockchain. Blockchain, the technology undergirding the entire cryptocurrency realm and beyond, is a rising star in the world of technology innovations. You may not think that as an accountant, especially one who does accounting for nonprofits, that you must consider blockchain. But, its impact goes well beyond Bitcoin, Ripple, and all the other cryptocurrencies out there.

What Is Blockchain?

In 2008, a white paper appeared on an obscure forum for technology enthusiasts. The paper, entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System”, outlined a new system of value exchange. This pure peer-to-peer electronic cash system was built upon a foundation of mathematical computations called blockchain.

Before this paper was published, people worldwide had dreamed up an electronic transfer system for cash, but the problem of double counting and tracking securely each transaction had not been solved. The pseudonymous author of the paper, Satoshi Nakamoto, discovered a solution to the double counting problem through what has since become known as blockchain.

The blockchain is a distributed database of records. This database is also called a public ledger. It contains all the transactions or digital events that have been executed and shared among participating parties.

When a transaction is made in the public ledger, it must be verified by consensus of a majority of the participants in the system. Once a transaction is confirmed, it’s never erased. Every single transaction on the blockchain from the moment it began to this present second is recorded and saved. You can look back along the blockchain to verify a transaction or see it changing now.

The blockchain can be accessed from any location via the internet. Transactions which take place between users are verified and added to the global blockchain ledger by “miners” who, by contributing their computing power, earn small transaction fees.

While we use the singular term “blockchain”, there are literally thousands of blockchains worldwide, or distributed ledgers, each running on their own mathematical code. That’s what sets them apart from one another. When you want to make a transaction, a signal goes out along the blockchain, which then is received by all the computers, or nodes, on the chain. When the majority or consensus verifies the authenticity of the transaction, the transaction is complete.

An Example of a Blockchain Transaction

Let’s use bitcoin as an example since that’s the most famous (and first) cryptocurrency ever on the blockchain, and the first transaction on the blockchain was the transference of bitcoin. In this example, you want to send 1 bitcoin from your account, called a wallet, on an exchange, or place where fiat currency such as dollars can be exchanged for bitcoins.

You want to send this bitcoin to your friend Susan. You log into your exchange account and type in Susan’s public bitcoin wallet address. Each account has a public address, which looks like a long string of letters and numbers, and a private key, which is held by the account owner. The private key is NEVER shared—sharing it gives anyone access to your wallet. It’s like leaving your wallet, purse, or bank account open.

You enter the amount of bitcoin you want to send to Susan and her public wallet address and hit “send.” A signal goes out through the exchange to all the nodes on the bitcoin blockchain. Miners on the blockchain confirm that yes, you have the bitcoin in your account and that yes, Susan’s wallet account is authentic. Once this is confirmed, a process which can take a few hours or even days, depending on blockchain traffic, the bitcoin arrives in Susan’s wallet. Now Susan, using her private key set up on the site hosting her wallet, can access her money and spend it or exchange it for another currency such as dollars, euros, or other cryptocurrencies.

The Impact on Accounting for Nonprofits

Although this may sound esoteric, blockchain technology itself goes well beyond cryptocurrencies. The government of Sweden moved all its land titles onto a unique blockchain, forming a permanent and publicly accessible record of every land title transaction. Think about that for a minute and how it impacts the real estate market. Anyone can now do a title search. It is no longer relegated to title search companies to hunt down records—they are all available via the internet for anyone to view.

For accountants, the potential is still being explored. Imagine using blockchain to record all your nonprofit’s transactions. The blockchain would form a permanent, public ledger. It would eliminate fraud since consensus must be reached to change data on the nodes, so one person can’t tamper with the books.

The Ethereum blockchain offers something called smart contracts which eliminate the middleman in any contract. Consider the benefits of transactions without having a third party involved. Real estate and automobile transactions could take place on the blockchain via smart contract without needing to run them through the court system or another recording body—it’s all on the blockchain.

For accountants, this is an exciting time, and although the blockchain can be difficult to wrap your head around when you’re immersed in traditional finance, it holds enormous potential. It’s still in its infancy, but bears watching.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

Tax Changes Impacting Accounting for Nonprofits

The House and the Senate passed the tax reform bill late in 2017, and it will change accounting for nonprofits. This tax reform bill impacts many areas of taxation, including several that will impact nonprofit organizations. President Trump is expected to sign the bill into law, which will enact some sweeping changes that benefit corporate America as well as educational nonprofits, and more.

Some things remain the same, while others are changing. The biggest changes affecting nonprofits include the increase in the deduction limit for charitable contributions and the significant reduction in the corporate tax rate. Below, a summary of major points nonprofit financial managers needs to know. For a complete review of your nonprofit finances, contact Beck & Company. We are happy to assist you with compliance with the new tax laws and reviews and audits of your current financials.

Taxation Changes that Affect Accounting for Nonprofits

Many previous tax reform bills had little, if any, impact on accounting for nonprofits. This one, however, will offer many changes that you should be aware of as you move into the new year.

Here’s a summary of the major changes that will affect accounting for nonprofit organizations:

The deduction limit for charitable contributions increased to 60% from 50%. This may be a good time to add a few donor campaigns to your nonprofit marketing and add this fact to encourage increases in donations.
The corporate tax rate drops from 35% to 21%. This is a big change intended to free capital in the for-profit sector, but one that will also help your nonprofit.
Section 529 plans are now available for both elementary and secondary education support, which may impact educational nonprofits.
Unrelated business activities must report profit and loss as a stand-alone figure before accounting for the $1,000 deduction.
There’s a provision in the House bill under which unrelated business income tax that includes any expenses paid or incurred by a tax-exempt organization for the following, provided such amounts are not deductible under section 274: qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility.
There’s a new excise tax on education institutions. It generally applies to schools with 500 or more students with 50% of students located in the U.S. The new Act includes a 1.4% excise tax on the net investment income. That’s not yet defined, so you’ll need to check back to see how this ripples through the new year.
There’s a new 21% excise tax on compensation in excess of $1 million to the top five highest-paid employees at tax-exempt organizations. There are several exemptions, limitations, and qualifications to this, so you may wish to consult with the experts at Beck & Company for details.

There are, of course, more changes in the new Act, and some things are untouched. The Johnson Amendment, for example, which restricts 501(c)(3) organizations from directly or indirectly participating in political campaigns or activities remains unchanged.

You may read the Act in its entirety on the White House website.

Any change to the tax code is sure to impact your organization. Large or small, such changes can feel disruptive. Beck & Company is here to help you understand and comply with tax changes and other issues impacting accounting for nonprofit organizations.

Beck & Company

FASB Changes Impact how Grant Revenues are Categorized

The comments period may have ended, but changes are still coming to Accounting Standards Update (ASU), titled Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. FASB issued a call for comments, which ended November 1. The proposed changes would clarify revenue recognition for contributions received and made and help nonprofits account more clearly for certain types of funds.

What Is the Proposed Change and Framework?

The changes are intended to help nonprofits distinguish between contributions (nonreciprocal transactions) and exchange (reciprocal) transactions. The changes also hope to add clarity to conditional and unconditional contributions. The results of the proposed framework changes may, in fact, push more grants into the category of contributions.

Under the new framework, if grants are deemed to be exchange transactions, then the revenues should be recorded as per the guidelines under Revenue from Contracts with Customers (Topic 606) or other applicable topics.

Grants determined to be contributions should be recognized instead as revenues in accordance with Subtopic 958-605, Not-for-Profit Entities–Revenue Recognition.

Nonprofits Still Have a Say

Nonprofits still have a majority say in how grants are categorized. Their first step is to determine whether a particular grant is a revenue or exchange transaction. If the grantor receives services of comparable value, it is usually safe to say that a transaction is an exchange.

The good part of the proposed guidelines is that the FASB includes numerous examples to help nonprofits understand the proposed framework and determine for themselves how the revenues will be categorized. Nonprofit still have a great deal of latitude in how and why they categorize particular revenues. They must, however, adhere to their own internal logic and establish guidelines based on the overarching, generally accepted accounting standards.

When Will the Changes Take Effect?

If the proposed changes do take effect, they won’t impact nonprofit reports until 2019 or 2020. They may impact organizations with the calendar year ending in 2019 or the fiscal year ending in 2020. Accounting actions completed before these dates may follow the old guidelines, which gives organizations plenty of time to update their accounting methods. If significant changes are made between the previous books and the new books, under the changed guidelines, the reason for the change should be noted in the financials next to each line that is affected by the change.

Accounting for Nonprofits Is Always Changing

Although it may seem as if accounting for nonprofits should be straightforward, grants represent an area with the potential for considerable gray areas. Nonprofit financial managers should look at the intention of the grant, whether any reciprocal action or stipulation is required, or how the grant must be satisfied.

Straight grants with no conditions attached are the easiest to recognize in revenues. Others, that come with conditions need careful, thoughtful attention. Developing your own set of revenue recognition rules that are in line with the FASB recommendations may be helpful to keep your organization consistent in how it manages its grant funds.

Beck & Company

Nonprofit Accounting Services to Help You Manage Executive Transitions

Executive transition is never easy, and it offers both challenges and opportunities for nonprofits. You may need the help of a nonprofit accounting service to help you fill a gap left by an outgoing CFO, for example. Beck & Company would like to invite you to download the free whitepaper, A Nonprofit’s Guide to Working Smarter with Outsourced Accounting, to provide valuable information during times of transition.

Challenges and Opportunities During an Executive’s Transition

When a beloved leader decides to retire or leave an organization, it offers both challenges and opportunities.

Challenges abound, of course. It’s hard to fill the shoes of a great CEO or CFO, someone who genuinely cared about their team and believed in the nonprofit’s mission. It also leads to uncertainty. Staff may wonder if they’ll like the new leaders or if they can work with them as easily and happily as they could with the outbound executive.

Changes also offer opportunities, and it is on this we’d like to focus. Opportunities include the ability to chart new directions with a new leader. New executives bring fresh ideas to an organization and may have experience from other posts that can help you grow. They bring new perspective and vision as well as energy into a nonprofit.

Bridging the Leadership Gap: Nonprofit Accounting Services

If you believe it will take a while to fill an open position, as it often does when trying to fill top slots, Beck & Company offers nonprofit accounting services that can fill interim gaps. Our team of CPAs has extensive experience in the nonprofit world and can serve as interim CFOs or other leadership positions until you are ready to hire a full-time executive.

Tips for Finding Your Next Leader

After the initial shock wears off, when you learn that a current leader plans to leave, it’s time to get working. Here are tips and best practices to help you find your next great CEO, CFO, or other nonprofit leader.

Create a succession plan: Nonprofit boards can do themselves and their organizations a great favor by developing a succession plan to guide the organization through leadership changes. Identify the qualities you seek in a leader and utilize groups or other resources to help you find the right candidates.

Ease into the transition: If possible (for example, if someone plans to retire), ease into the transition by leaving plenty of time to find the new leader. It can take a year or more to find a leader for a large nonprofit organization. With more time available, you have the benefit of being quite choosy about who will lead the organization to success.

Consider organizational culture: Take the pulse of your organization. Know its culture so you can find someone who will either continue the tradition or effect the changes you seek. Without a good understanding of the corporate culture, you run the risk of putting a leader into position who will find roadblocks and create more turmoil than necessary in the first year of leadership.

Support onboarding: Put into place an onboarding process that includes plenty of time for new leaders to meet key staff, understand the organization’s mission and principles, and broker relationships with donors and members. Don’t expect big changes right away; give the new leader time to ease into the organization.

Hire interim help: Interim leadership, such as nonprofit accounting services or CPAs to fill CFO spots, can be a great help. They can maintain continuity and ensure that operations run smoothly until you hire a new leader.

Change is never easy, but if you can use the opportunities it brings to your advantage, you can grow through it. Nonprofit boards can do a great deal to ease the stress of a leadership transition to ensure their organizations continue to benefit others.

Beck & Company offers experienced CPAs for nonprofit accounting services, interim financial management and consulting, and nonprofit audit services. We invite you to download our free white paper A Nonprofit’s Guide to Working Smarter with Outsourced Accounting and explore our services to help your nonprofit organization grow and thrive.