Nonprofit Accounting – Page 3

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 Accounting Best Practices: Automating your Processes

We have come to our final blog in this series on nonprofit accounting best practices. Thus far, we have reviewed some key areas that we hope you’ll put into your plans as you prepare for future growth. This week’s focus is nothing short of critical to the flow and infrastructure health of your organization, automating your processes.

As nonprofits, we focus on expanding programs and services, reducing costs, increasing return on mission, and strengthening donor loyalty – all of which is good stewardship. That’s really what automation of processes is all about: doing more and creating greater impact with less.

We started this series talking about outcome measures. It’s pretty clear from funder prioritization and requirements that monitoring, measuring, and sharing key metrics are critical. But this requires efficiency and automation of processes. If you want to ensure high program efficiency metrics, you have to create the productivity savings, via automation, to reduce the proportional costs of overhead to program investment.

Here’s a specific example – let’s say you want to improve internal controls and reduce the inefficiencies of your manual purchasing system. By utilizing automated workflows in a best in class fund accounting solution, you will save time, paper, and frustration. Automated purchasing workflows will give you notification (on any device) that you have a pending electronic purchasing requisition or PO for approval. As you approve vendor payments, you can drill right into the original document to see the invoice. Payments are point and click. Reporting and visibility are instant.

Another example might be your audit. Is it taking too long and costing too much? In an automated environment, you can create a dashboard for your auditors that give them view only access to key reports and documents – right from their office. They can drill right into the source documents and you save travel, delays, and costs.

When you begin identifying your goals, priorities, and strategies, select some best practices to implement in your organization. It’s extremely helpful to define, track and measure results so that you can identify your savings and efficiency gains. Get familiar with the technology tools available to help you increase stewardship while decreasing costs.

Questions or comments regarding automating your processes? Please reach out to us. You can also follow us on Twitter (@BeckCPAs).

At Beck & Company we specialize in not-for-profit accounting and auditing. We understand the unique challenge of balancing the needs of your various stakeholders – contributors, members and your board, too. We have experience serving not-for-profit organizations such as unions, homeowner’s associations, religious organizations, charities, and social service organizations. If you have any questions regarding the filing of your form 990 we are here to help. Contact us today for more information.

Nonprofit Accounting Best Practices: Scaling for Growth and Impact

For several years now, we have seen the demands for nonprofit services increase rapidly, oftentimes exceeding capacity. Nonprofit organizations are focused on meeting the needs of their constituency while increasing impact. Some of the challenges get raised when organizations are planning to effectively scale for growth and impact. With the ever changing and growing needs, how are nonprofits adapting?

We’re seeing more mergers between nonprofits as well as new partnerships and collaborations. Some of these partnerships are with social enterprise organizations, some with other nonprofits, and others with community entities. With increased competition for funding and donors, nonprofits are learning to partner, narrow the focus of their mission, and adopt critical tools to ensure mission success and growth.

While growing to broaden the scope of your mission is a very good thing, it also brings new challenges. You have multiple funding streams, demand for deeper visibility, more grantor requirements, and increased compliance and reporting requirements. You may add new locations, programs or initiatives. It’s vital to plan for your growth and your expansion beyond the startup mode. Most nonprofit organizations start out utilizing small business tools to manage the organization. Once growth and expansion starts to kicks in, nonprofit orgs begin to experience the pains and limitations of ‘startup’ tools and resources.

In our last two posts, we shared information with you related to outcome measures and funding diversity. These two areas are critical as you plan and prepare for growth. Once you start tracking and measuring outcomes and increasing the diversity of your funding – you will quickly see the need for a best in class financial management solution – that will allow you to leverage modern technology to strengthen your visibility, transparency, automation, efficiency – and of course – your stewardship.

As your organization starts to thrive and grow, don’t think it will just happen on its own. Plan and build your strategy to accommodate the growth in a sustainable way. Nonprofits need the leverage and benefits that modern, best in class fund accounting affords. Whether through automation and visibility, or transparency and reporting – make sure that you equip your nonprofit with the tools that will allow it to thrive, grow, and maximize impact.

Questions or comments regarding scaling for impact and growth? Please reach out to us. You can also follow us on Twitter (@BeckCPAs). Check back next week for the final post in our series, where we will focus on automating your processes.

Nonprofit Accounting Best Practices: Fund Diversification

We are continuing on in our Nonprofit Accounting Best Practices series. As you prepare for the future, sustainable funding is a critical part of your plan. Some organizations get comfortable to the more traditional types of funding such as philanthropy which has proven to not be a sustainable method. Most growing nonprofit organizations need a true funding strategy that is wide in scope including sustainable forms of funding.

Whatever your current process is, you will probably be planning for expanded services. Most nonprofit organizations see an increase in the demand for services while facing increased competition for funding. In this environment, you need the support, credibility, and visibility with the community, funders, and constituents. Strong nonprofit accounting and financial management is key and includes performance and outcome reporting. You also need more to bring stability and sustainability – while allowing you to scale for growth. By diversifying your funding streams, you strengthen sustainability while expanding your influence and impact by partnering with new and diverse resources that you may not have considered previously. We are going to start with some basic information to help you get started and navigate the world of social finance. As with most things, balance is key to successfully diversifying your funding.

Social Finance is an approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals. It creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds. Social finance is fairly broad in its definition, but we will give you a thumbnail of a few of the most interesting ‘instruments’ included in the social finance realm.

Impact Investments are investments made into companies, organizations, and funds – with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments are made with an expected return of capital as well as a return on capital, and most importantly, a commitment to measure and report the social and environmental performance and progress of the underlying investments. Global Impact Investing Network says it well: “Impact investing has the potential to unlock significant sums of private investment capital to complement public resources and philanthropy in addressing pressing global challenges.”

Program Related Investments (PRI) are defined as investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations, or in commercial ventures for charitable purposes. For the recipient, the primary benefit of PRIs is access to capital at lower rates than may otherwise be available. For the funder, the principal benefit is that the repayment or return of equity can be recycled for another charitable purpose. PRIs are valued as a means of leveraging philanthropic dollars.

Social Enterprise’s standard definition is applying commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders. Nonprofits are starting to leverage this strategy as they seek to create earned income to increase their sustainability and funding strength. NESC has published a great report on Social Enterprise’s Expanding Position in the Nonprofit Landscape. Social Enterprise activities offer nonprofit organizations the opportunity to generate earned income which in turn will provide consistent cash flow to further the mission of the organization. Social Enterprise activities can enhance the brand/reputation of the organization. A direct benefit of Social Enterprise activities for nonprofit organizations, can be the enhancement of management.

The world of social finance and funding is expanding at a fast pace. New funding resources are being developed often to help nonprofits ensure mission success. In the beginning stages of your funding and growth planning, be sure to seek out the best fit in the multitude of new funding opportunities, and incorporate it into your fiscal plan and performance goals. We also encourage you to remember to track and report your funding diversity as your donors and constituents need to be aware of this information.

Do you have questions? Please reach out to us. You can also follow us on Twitter (@BeckCPAs). Check back next week for the next post in our series, where we will focus on scaling for growth and impact.

Nonprofit Accounting Best Practices: Outcome Measures

We are launching a multi-blog series, Nonprofit Accounting Best Practices, that hones in on trends and best practices for strengthening the condition and sustainability of your nonprofit organization. To help simplify and focus your planning, we plan to cover the best practices for everything from outcome measures to competition for funding. We are starting with what we think is one of the most pressing topics, outcome measures. Be sure to check back the following weeks as we cover funding flexibility, scalability, and automation.

Measuring and reporting outcomes is a huge topic in the nonprofit sector. Donors and constituents are more engaged than ever, and they have higher expectations, increased awareness, and greater visibility. Add to that the significant number of for-profit professionals moving into the nonprofit world, bringing their best practices with them. So we find ourselves in a dynamic environment where we are expected to change, measure, adapt, and change again.

Let’s start by defining outcome measures. These metrics are powerful, essential tools for demonstrating accountability and transparency for an organization. Outcome measures provide a real time assessment of what the organization defines as success or expected performance. This insight and visibility allows proactive management that can help ensure program performance and mission success.

Outcome metrics come in a variety of forms. They may be activity-based programs that involve the amount of meals served, number of immunizations given, or the level of targeted reading level improvement. Outcome metrics can also be capacity based and measure overall progress or performance across an organization. This could be mapped through fundraising, memberships, volunteers, and event participation. The metrics can also be based on a mission’s long term success or expected lifetime impact.

Why are outcome measures so important?

Nonprofit organizations are experiencing more competition for funding than ever before. Donors and grantors have higher expectations. Often, gifts and grants come with stipulations for performance because the givers want to ensure that their dollars are getting the greatest possible return on investment. Government funding, as well, has strengthened compliance reporting and performance expectations. Implementing strategic outcome measures not only helps you meet compliance requirements, but also strengthens your reputation while assuring current and prospective donors that your organization is efficient, proactive, a good steward, and of course – able to do what you say you can do.

Your constituents, donors, volunteers, employees and community need to see success to support and sustain the vision and mission of your organization. Charity evaluators have embraced outcome reporting and will be rating nonprofits based not only on financial reporting and analysis, but also on their tracking and reporting of outcomes. This dramatically raises the standard for all nonprofit organizations. Outcome metrics are an enormous part of improving overall visibility and performance.

The key is not to get too overwhelmed with the details and start with the basics based on your vision and mission. Utilize external resources to get started quickly and easily. Consistent progress is what wins the day. Balance your approach with both program outcomes and financial/operational performance. While measuring and reporting outcomes may require extra effort now, the interest and engagement that this expectation brings is a great thing in the long term for the nonprofit community – as it will bring significant benefits to organizations, donors, constituents, and communities.

A little unsure of where and how to get started? There are many resources available; some of our recommendations are:

We also encourage you to attend an upcoming webinar, “Outcome Measures: Metrics that Matter for Nonprofits” to learn what is driving forward-thinking nonprofits to place a strong emphasis on outcome measures in 2016—and why they are using the Intacct cloud-based financial management solution to make it happen.

Have additional questions or comments regarding outcome metrics for nonprofits? Please reach out to us. You can also follow us on Twitter (@BeckCPAs). Check back next week for the next post in our series, where we will focus on funding diversity.

How Nonprofits Can Diversify Their Funds

Today, nonprofit organizations are looking at the future of their funding strategy and realizing that they may need to look beyond traditional types of funding. No longer can they rely solely on philanthropy to fund their organizations. The time has come to develop a sustainable funding strategy that will prepare them to thrive financially in the future using diversified funding methods.

Most likely your nonprofit will seek to expand its services in order to meet the current and expected demand. In order to successfully expand and maintain required funding you will need to remain credible and visible to the community, constituents, and potential funders. One way to maintain financial relevance is to diversify your funding streams. By doing so you will not only strengthen your financial viability but you will also expand your influence through new partnerships you may not have considered in the past.

Social finance is an approach to managing money which delivers a social dividend and an economic return, creating opportunities for new investors who want to support your initiatives because they feel they benefit society in some way.

Another financial strategy is Impact Investments. Impact investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial, social or environmental impact alongside a financial return. It is a form of socially responsible investing that serves as a guide for various investment strategies. Impact investing has great potential to tap into sums of private investment capital in conjunction with meeting felt needs that are considered global challenges.

Program Related Investments. The IRS defines those in which:

The primary purpose is to accomplish one or more of the foundation’s exempt purposes,
Production of income or appreciation of property is not a significant purpose, and
Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose.

Social Enterprise. Social enterprises are businesses that aim to tackle social problems, improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. Nonprofit organizations will take advantage of this strategy to earn income which is then reinvested to further their mission. In addition to raising funds through social enterprises this is a great way to raise awareness and support for your organization or mission. Social enterprising may look like selling goods and or services for which profits are reinvested back into the organization.

The world of fundraising for nonprofits is expanding and changing at a rapid pace. Consider these fundraising opportunities as you prepare and plan your financial strategy for the future.

As Beck and Company’s Certified Public Accountants and Business Advisors, we understand that you want to do all that you can to remain financially healthy in order to carry out the vision and mission of your nonprofit organization. To learn more about our accounting services to help you navigate through these processes, visit here.

Contact us here at Beck and Company CPAs so we can help you with your unique needs as small business owners navigating healthcare and the Affordable Care Act.

Nonprofit Changes Coming Following Updated FASB Accounting Standards

In an effort to increase transparency and continuity in the preparation of financial statements, the Financial Accounting Standards Board (FASB) has proposed significant changes for nonprofits. In the past 20 years, generally accepted accounting practices (GAAP) have not clearly specified a way of reporting performance. That is all going to change. Nonprofits can be optimistic that these changes will have great benefits for them. They will allow nonprofit organizations to become more comparable, generating easier-to-interpret financial statements that will aid in the evaluation of financial statements for the purposes of obtaining stakeholders and loans.

Changes to net asset classification

The proposed Accounting Standard Update (ASU) changes the nonprofit accounting requirement for what information must be presented in the statement of financial position. The current three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) will now be reduced to two classes of net assets (net assets with donor restrictions and net assets without donor restrictions). This change is intended to simplify financial reporting.

In addition, the FASB has revised how underwater donor restricted endowment funds are to be classified. They believe it is confusing to classify the spending from underwater endowments as unrestricted, and thus, the FASB has proposed that underwater amounts be classified in net assets with donor restrictions. The FASB is also now requiring disclosure of the combined amount of funds that are underwater and the original endowment amount, along with any rules or restrictions on spending from such funds.

Statement of activities

Along with the changes to net asset classification, a corresponding change to the statement of activities has been proposed. Now, all nonprofits are required to report income or losses from operating and non-operating activities separately. This is because certain non-operating activities, like investment earnings or losses, can affect the operating bottom line. The FASB believes this will help to clearly show both income and costs that are related to accomplishing the nonprofit’s mission.

Presentation of Cash Flow

Changes to the statement of cash flows have been proposed in order to provide more useful information to key stakeholders on the overall operating performance of the nonprofit. First, the board is proposing the use of the “direct method” of reporting cash flows from operating activities. The second change will realign the reporting of certain items to be consistent with how items in the statement of activities are being reported. Items such as operating, financing, and investing categories will be affected. The FASB believes these changes will result in easier-to-read financial statements which will prove to be more useful for the average user of financial statements.

Assessment of liquidity

The FASB has also proposed changes they hope will result in a clearer picture to stakeholders of an organization’s liquidity. Donor-imposed restrictions and confusion about how they affect the availability of assets have caused a lack of clarity regarding the assessment of liquidity. The proposal requires both qualitative and quantitative information regarding the liquidity of assets and cash demands as of the reporting date. Along with the changes to net assets, classification of this information should allow users to assess the liquidity risk of the nonprofit.

Impacts

As with any change, an investment of time for nonprofits and their accountants will be necessary to implement the required changes. The FASB’s proposal will allow stakeholders to better examine financial performance as well as the need for funding and overall stewardship of donor funds. In the end, the nonprofit should experience significant benefits from the extra work as better information is provided to decision makers

At Beck and Company Certified Public Accountants and Business Advisors, we would love to be of service to you as you consider implementing these required changes for your organization. We are a certified public accounting firm serving the Greater Washington D. C. metropolitan area with clients also along the Eastern Seaboard. Our firm has been built upon a tradition of service, technical expertise, and creative thinking. Our services are highly personalized, cost effective, accurate, and dependable. Our commitment to excellence is demonstrated in our team’s understanding of your business and personal financial objectives and then delivering innovative solutions to achieve them.

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.