Effective Financial Reporting

FASB Set to Release Nonprofit Accounting Changes Summer 2016

The Financial Accounting Standards Board (FASB) is set to release the first wave of nonprofit accounting changes during the summer of 2016, according to an article in Accounting Today.

The article indicates that FASB has completed its assessment of the feedback received on Phase 1 of its intended changes. The organization appears ready to release the first set of accounting standards changes that will guide nonprofit organizations in the near future.

The changes are expected to significantly affect the way nonprofits report net revenue, as well as other less significant changes impacting how nonprofits report and account for their finances. This is the first major overhaul of the nonprofit accounting guidelines in over 20 years. The overhaul came because FASB recognized the changing face of the nonprofit sector, with newer types of nonprofits requiring a different view on accounting standards.

Nonprofits Prefer to Stay Flexible, In-Sync with For-Profit Accounting

One thing that surprised the people at FASB was the outpouring of feedback they received from the nonprofit sector. Typically, the standards board receives only a smattering of feedback when it requests public input. The nonprofit sector sent in 250+ letters detailing feedback on the proposed changes.

The biggest request was that FASB retain the flexibility it has previously allowed in nonprofit reporting. Another request that came over loud and clear was the desire for nonprofits, in similar industries as for-profits, to continue using accounting methods and standards in line with the industry itself, rather than based on tax status.

The goal of keeping both for-profit and nonprofit accounting models in sync is to keep their reporting methods clear and easily understandable by most people. Because many people are at least familiar with basic accounting concepts used by for-profits, by keeping the nonprofit model similar, donors and the general public can better understand the finances of nonprofits. Transparency is maintained as it pertains to financial records because the information can be understood more easily.

The Rollout Schedule: What to Expect

As Phase 1 begins rollout this year, it will impact reports generated starting December 2017. Financial statements for the fiscal year ending December 2017 should follow the new guidelines, with early adoption permitted.

The Big Change: Two Net Asset Reporting Categories Instead of Three

The biggest changed planned for Phase 1 includes condensing the three net asset reporting categories into two. The current categories include unrestricted, temporarily restricted and permanently restricted. The two new categories will be donor restrictions and without donor restrictions. The “without donor restrictions” category replacing the former unrestricted category.

Other areas impacted by the changes include some minor tweaks in the reporting of investment returns, as well as liquidity and availability.

Help Navigating the Changes

An upcoming webinar will be discussing how the FASB and IASB have released a new revenue recognition standard – which will dramatically impact the financial processes of software companies. Although the effective date is several quarters away, you need to begin taking action now. Click here to register for the New FASB Rev Rec Standards, Actions You Should Take Now Webinar on Thursday, June 16th at 11 AM PT/2 PM ET.

It can be difficult to discern which changes may truly impact your nonprofit organization and which may be considered and evaluated for your particular needs. The professional CPAs and consultants at Beck & Company can assist you through these changes, helping you update your accounting standards to reflect your nonprofit’s financial models and goals. We invite you to contact us to learn more. Call us at 703-834-0776.

Nonprofit Financial Transparency Actions that Reduce the Risk of Fraud

All of us want to trust those we work with and that they share our beliefs about ethical practices. Unfortunately, this is not the case all the time. Fraud is a real risk for nonprofit organizations. Fraud can have a serious impact on your organization’s reputation, future receipt of donations, stakeholder trust, and more. It is essential that you safeguard your organization from fraudulent activity. One more important area impacted by fraud are the financial facets of your organization. This can truly be costly. We will take a closer look at financial safeguards and actions you can take to reduce the risk of fraud at your nonprofit in the area of finances. For other actions you can take to safeguard your nonprofit in the area of the board of directors from possible fraud, visit here. Those tips will help you be aware of four conditions that promote fraud and tips for avoiding it as a board.

Beck and Company’s Certified Public Accountants and Business Advisors can help with important aspects of safeguarding finances and financial transactions within your nonprofit and take the importance of this very seriously. Fraudulent activity can be costly, damaging, and ultimately destructive to organizations and their important work. That’s why we offer nonprofit financial audits to help you help your organization be very knowledgeable about the financial practices that are occurring within your nonprofit. This knowledge can be used to help you be more actively involved in upholding and maintaining effective financial reporting to prevent fraud. We can conduct internal financial audits and provide you with the facts you need to stay current on financial dealings and not allow fraud to creep into areas that are not being monitored but should be. Learn more about our auditing services here.

Financial Facets that need to be Safeguarded and Tips to Prevent Fraud

Checking and Banking accounts
Keep blank checks locked in a secure location and restrict access to them
On a monthly basis, have staff outside of the disbursement initiation, approval, and check-signing functions that are at the senior level obtain unopened bank statements and review cancelled checks and statements
Implement an independent review (here at Beck and Company CPAs, we can do this for you) of monthly bank reconciliations and related journal entries
Record all new accounts and closed accounts in finance committee minutes
Learn what fraud prevention services may be offered through your banking institution
Revenue and receipting
Use dual control where more than one person is receiving and counting receipts in addition to check and cash contributions
Require all grant notifications to be reported to the finance department
Reconcile earned revenue (such as student enrollment numbers or tickets sold) with statistics outside of the finance department
Disbursements
Compare vendor addresses and employee addresses periodically to ensure there is no crossover
Detect kickback schemes by performing independent price checks of payroll taxes withheld against amounts actually paid
Require two live signatures for every check and wire transfer that is of significant value (determine that amount as a group)
Reporting
Set reasonable spending limits on company credit cards and purchasing cards
Require finance department reviews of periodic reporting on all grants to ensure effective financial reporting is in place
Require reporting on monthly balance sheets and income statements
Expense reporting
Formulate and strictly enforce credit card expenditure documentation
Have a nonprofit financial audit committee member review CFO and CEO expense reports for true financial transparency in the organization from top to bottom

Financial transparency is so important to reducing the risk of fraud. Beck and Company CPAs are here to assist you with any area within the financial realm that you may need expert help in for everything from establishing more effective financial reporting systems to conducting nonprofit financial audits that can reveal anything that needs a closer look in order to be safeguarded from fraud. Please contact us for information and help in these areas.

Preventing Nonprofit Fraudulent Activity within the Board of Directors

Implementing systems and actions meant to help your nonprofit organization prevent and eliminate fraud are essential to its ongoing financial and organizational health. Last week, we took a look at six important facts you should know about fraud that will help you take actions against it and implement effective financial reporting in the process. Click here to learn more. Beck and Company’s Certified Public Accountants and Business Advisors have also shared some tips and steps for preventing fraud in the past that are an important starting point in fraud prevention. Today, we will look at some additional actions you can take to further reduce fraud risks to your organization through actions needed within the board of directors. View the other prevention tips as a starting point, and then keep reading for additional tips and help.

Beck and Company CPAs offer auditing services to carry out nonprofit financial audits at your organization that can provide you with an extensive examination of financial information. These audits will give you a closer look at possible areas of fraud within your organization so that you can be intentional in dealing with them. We would be more than happy to help your organization in this way so you can help your organization maintain its wellbeing and prevent abuse.

Four Conditions that Promote Fraud:

Before we look at additional tips for preventing fraud, it is important to note the four factors or conditions that, when present in your organization, lead to fraud occurring. Be sure you are aware of the existence of these conditions so you can stop them both within the organization and the board of directors. They are:

Incentive (personal, professional, and financial gains)
Opportunity (ineffective financial reporting or lack of reports that allow for easy access and actions with little or no knowledge being able to be tracked by others)
Rationalization (justification of need or ability to commit abusive or fraudulent act)
Capability (in a position of trust and access to funds that make it easy to commit fraud)

Tips for Preventing Fraud within the Board of Directors at Nonprofits

Board members are not exempt from having the potential to commit fraud. In fact, they often have more access to information and funds in addition to being the most trusted within an organization. They can use this power and the above four conditions that are often most true of the board in order to take advantage of the nonprofit organization. Here are some tips to help ensure the board, too, is upholding financial transparency and acting with integrity even with more power and access available to them.

Institute a board member code of conduct and ethics policy
Create and use a conflict of interest policy and require all board members and senior staff alike to sign this disclosure statement on an annual basis
Require staff and board member background checks including for those in existing roles (especially finance staff and those in the most sensitive positions)
Establish a formal audit committee with a charter laying out specific duties and tasks. Beck and Company CPAs would be pleased to help you in this process and as the auditors.
Enforce a formulated gift acceptance policy for all gifts
Monitor performance throughout the year of internal control policies and procedures by requiring finance staff to report results of reviews of internal control processes and use effective financial reporting
Engage an independent accounting firm (such as Beck and Company CPAs) to evaluate controls as an agreed-upon procedure that occurs regularly

These board fraud prevention tips are only one area that needs fraud prevention. Stay tuned next week for tips that span across the financial domain of the organization. Beck and Company CPAs can help with nonprofit financial audits that will give you the financial transparency you need as an organization to prevent abuse within the board and nonprofit. Please contact us for assistance.

Implementing Effective Financial Reporting: Know the Facts about Fraud

Fraud is, in essence, criminal deception or wrongful action intentionally intended to result in personal and most often financial gain. Unfortunately, even nonprofit organizations are susceptible to fraudulent activity, and this can even occur within the organization internally through staff actions of finances that manipulate the truth of the financial reality or use it for personal instead of organizational use. Last week, we took a look at ways to prevent fraud, the many types of financial fraud that exist, and how financial transparency can help. To learn more about all of these important facets to understand in terms of fraud, visit here.

Beck and Company’s Certified Public Accountants and Business Advisors know how important it is for your organization to truly thrive and accomplish its mission. Fraudulent activity can be both damaging and ultimately destructive to organizations and their important work. That’s why we offer nonprofit financial audits to help you help your organization be very knowledgeable about the financial practices that are occurring within your nonprofit and so you can be educated and actively involved in upholding and maintaining effective financial reporting to prevent fraud. We can conduct internal financial audits and provide you with the facts you need to keep up on financial dealings and not allow fraud to creep into areas that are not being monitored but should be. Learn more about our auditing services here.

Facts about Fraud that Your Nonprofit Organization Needs to Keep in Mind:

Let’s take a closer look at some important facts about fraud that you need to know.

It likely already exists. Like it or not, there is a very high probability that fraud or financial abuse already exists somewhere within your organization. Accepting this but being active in not letting it spread farther is essential.
The cost of fraud goes far beyond dollars lost. The true and real cost of reported instances of organizational fraud or abuse cannot be measured in terms of just dollars lost. They must also be measured in terms of lost public and internal trust in the organization.
Changes to personnel and circumstances increase fraud risk. No organization is completely stagnant. As situations change and staff turnover or expansion takes place, new people and systems are involved all the time. These changes can increase the risk of internal fraud and abuse.
Internal controls alone are not enough to prevent fraud. Certainly internal controls play a key role in deterring fraud and abuse, but they only represent one facet of the many, including effective financial reporting and financial transparency, that are needed for fraud prevention and detection.
Everyone involved in the nonprofit must also be involved in fraud prevention. All constituents, staff, and board members have a role to play in preventing and detecting fraud and abuse. Everyone within an organization has a responsibility and duty to be active in noticing, reporting, and responding to fraud. No one should think they are exempt from this role.
Fraud’s intensity increases with the level of the organization. Typically, fraud from the top of the organization is much more major and far more costly. Even still, minor fraud can still occur and impact an organization at the lower levels of an organization even if they are less severe.

Keep these facts about fraud in mind, and share them with those in your organization. Use them as a starting point through which you create your action steps in preventing fraud. Beck and Company CPAs are here to help you by carrying out nonprofit financial audits and taking other steps needed to help your nonprofit increase financial transparency and decrease fraud. Please contact us for assistance.

Fraud Types and Financial Transparency’s Reduction of Them

Is your nonprofit at risk? Do you know if fraudulent activity is taking place within your organization? None of us want to become a statistic, but with the rampant and varied means by which fraud occurs, it can be easier than you realize to be susceptible to fraud. In today’s society, fraud is like a mask that covers up the truth and takes on many different forms and identities which makes it harder to identify and eliminate. No matter what, fraud is a destruction of trust, and it is so important to be aware of what is truly going on within your organization in order to prevent it. Because nonprofits are considered trustworthy by nature of the public good they intend to do, the damage in violating trust is even more severe for not-for-profit organizations.

Reducing Fraud’s Risk:

We all know and understand that abusing trust can be costly for nonprofits. Ultimately, it could be more than just costly for fraudulent activities to take place at an organization. It can actually completely destroy and terminate organizations that are not careful and vigilant in protecting their organization and doing all of the necessary steps to prevent fraud. Fraud can be prevented by using internal controls and internal audits in order to be detecting it quickly. It can also be stopped by educating the organization’s staff on the forms of fraud and actions that would constitute it in addition to its impact and how to report it if it is being noticed. Finally, fraud can be prevented through the board of director’s vigilance, policies, and financial supervision. To learn more about these three ways to prevent fraud, visit here.

Beck and Company’s Certified Public Accountants and Business Advisors offer auditing services that can provide you with an extensive examination of financial statements to give you a closer look at possible areas of fraud within your organization through a nonprofit financial audit so that you can be intentional in establishing and maintaining trust in those areas instead of harming it. These nonprofit financial audits are truly essential to maintaining the organization’s health, but they are not the sole means through which fraudulent activity can be discovered. Ongoing effective financial reporting and the use of these reports to continuously be sharing this information with constituents and board members to ensure financial transparency is essential.

The Types of Fraud and How Financial Transparency can Help:

Let’s take a closer look at the forms and faces fraud can take and how to unmask these fraudulent activities and prevent them with financial transparency and effective financial reporting. Nonprofit organizational fraud can take the form of:

Payroll or billing schemes
Check tampering
Unrecorded or understated funds
Mischaracterized or fictitious expenses
Undisclosed conflict of interest transactions
And many other forms as well

Clearly, many of the types of fraud stem directly to finances and financial practices within a nonprofit organization. Both intentional errors in use of funds and intentional errors in recording funds lead to fraud and trouble for nonprofits. Falsifying funds and financial records is so costly and damaging to organizations that it is important to be consistent, vigilant, responsible, and in tune to financial actions and transactions on an ongoing basis in order to uphold financial transparency. Effective financial reporting is key, and active involvement in financial dealings is essential to knowing what is going on within the financial side of the organization to prevent dishonest activities from having a chance to even occur let alone expand.

Beck and Company CPAs are passionate about helping nonprofits get their financial reporting in order so they reduce the risk of fraud. Learn more about all of the nonprofit services we offer in addition to the auditing services mentioned earlier. Contact us to let us know how we can help your organization with the financial services, internal audits, and other services to keep your finances in check and your organization “unmasked” to prevent fraud.

Effective Financial Reporting and other Keys to Preventing Fraud

It seems to be a common occurrence to hear about fraudulent activities occurring throughout the business world in the news. Unfortunately, even nonprofit organizations fall victim to fraudulent activity and commit fraud in a variety of ways. Within nonprofits, much of this activity stems from dishonest or improper financial reporting. It can take the form of payroll or billing schemes, undocumented funds, fabricated or invented expenses, and more. When it comes down to it, fraud is a violation of trust. It is essential to be vigilant in preventing fraud within your organization to maintain the trust the public has in nonprofits and to keep the trust throughout the organization. Your organization’s financial transparency can help prevent fraud.

Here are three tips for preventing fraud in your organization:

1. Use internal controls and financial audits to detect fraud. It is easy for nonprofits to rely on external audits to provide recommendations and evaluate internal controls while also identifying fraud risk. Beck & Company’s Certified Public Accountants and Business Advisors offer auditing services that can provide you with an extensive examination of financial statements to give you a closer look at possible areas of fraud. These nonprofit financial audits are truly essential to maintaining the organization’s health, but they are not the sole means through which fraudulent activity can be discovered. There is no substitute for strong internal controls to both reduce the opportunity for fraud and to detect fraud more quickly if it occurs.

2. Educate your staff about fraud through training. Staff members should be trained and educated on what actions constitute fraud, how fraud can harm the organization and its mission, and how to report questionable activity. This training has minimal cost and is highly effective.

For starters, educate employees on the three common forms of fraud:

Asset misappropriation– an employee steals or misuses the organization’s resources. Examples include, but are not limited to, theft of cash or checks, false billing, vendor fraud, and inflated expense reports.
Corruption schemes– an employee, for their personal benefit, misuses their influence in a business transaction in a way that violates their duty to the employer such as through bribery and conflict of interest transactions.
Financial statement fraud– an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports. Recording fictitious revenue, understating expenses, and reporting artificially inflated asset values are all part of this. Effective financial reporting is essential to your organization’s reputation. Visit here to find out more about how to ensure proper reporting and internal controls are in place at your nonprofit.

3. Remember that the board plays a role as well. Don’t overlook the board. The board of directors is still responsible to help monitor and supervise finances and operation even if they are not present on a daily basis. They have an important say in financial control procedures and policies. They also have a responsibility to act if fraud is detected by investigating, creating action steps, and reporting the incident. Board members are responsible for acting with due care and putting the best interests of the organization first. In some cases, board members have been held liable when it was determined they were negligent in fulfilling their fiduciary duties of care, loyalty, and obedience.

Understanding More about the Threat of Fraud:

Both damaged trust and damaged finances can result from fraud and therefore cause a substantial issue for nonprofits. What is even more striking is that, generally speaking, most organizations that fall victim to fraud do not recover any of their losses. Where does this fraud come from in the first place? Employees of varying ages that receive varying salaries are all susceptible. However, fraud committed by managers or executives takes twice as long to detect as compared to non-management employees. It is important to be on the lookout for fraud at all levels and assume no one is exempt.

Beck and Company CPAs are passionate about helping nonprofits get their financial reporting in order so they reduce the risk of fraud. Please contact us by calling 703-834-0776 x8001 to learn more about all of the nonprofit services we offer.

Nonprofit Accounting: The Elements of an Effective Financial Report

As we discussed last week, nonprofit organizations are required to present financial information to their board on a regular basis (usually monthly). Clear and effective financial reporting to the board of directors is necessary for good financial management and accountability; however, many organizations do not understand the elements that make up an effective financial report. The information within your financial reports should be relevant, understandable, reliable, and useful. If your reports are not these things, it’s time to sit down and revisit your nonprofit’s financial reporting methods.

Take a closer look at the four characteristics of effective financial reports and see for yourself if your reports are making the cut:

The information contained in your financial reports must be relevant.
The finance committee and board of directors will determine what information is needed to monitor the organization’s financial progress. Your reports should include the financial position of your organization (assets and liabilities), key statistical data to help board members determine the financial outlook of the organization, and a summary of operations (revenue received and expenses incurred). At a minimum, your financial reports should contain the following:
- Salary and benefits expenses
- Food costs (if substantial)
- Revenue from grants, fees, etc.
- Month-end summary of significant assets, including accounts receivable, accounts payable, grants not yet paid out, and cash

It would also be useful to present a comparison of your actuals versus the budgeted results. These comparisons aid the board in determining whether or not financial policies are being followed and if action needs to be taken. This analysis is most useful when provided with detailed notes explaining any significant variances.

The board must understand the information being presented in the report.
Your financial reports need to be easily read by all of your board members, so make sure they are understandable. Remember, the members of your board have varying levels of financial experience so don’t inundate them with unnecessary information. Find out what they prefer and deliver it. Some boards want a detailed account while others prefer a one page summary. Determine your strategy for creating the reports your board wants and stick with it.
The financial information must be reliable and accurate.
Financial reports are only useful if they are reliable. Double check your data to ensure its accuracy and reconcile your bank statements to your accounting records on a monthly basis.
The information contained in your reports must be timely.
Delivering effective financial reports is all about the timing. Reporting the results of your operations and financial position in a timely manner is crucial if the board wishes to take corrective action.

Overall, creating effective financial reports for your board is not difficult. It just takes a lot of time and attention to detail. By properly maintaining your accounting records throughout the month, you can ensure that the information in your reports is reliable and accurate. Contact us today if you need help maintaining or cleaning up your accounting records. We offer a variety of accounting services designed to help you succeed in your financial reporting efforts.