EisnerAmper Blog

May 13, 2013

By: Brian Collins, CPA 

The belief that a not-for-profit’s budget must balance is one that should be left at the door of the next budgeting meeting.  Rather than fixating on the idea of a balanced budget, focus on the more important position of identifying the desired financial outcome of the not-for-profit organization.

A surplus budget should be adopted if it is the goal of the organization to increase reserves or to improve net assets, which can lead to a stronger financial position.  A surplus budget must be realistic and obtainable; otherwise, what’s the point of creating a budget at all?  It is also vital that once the reserves are obtained through a surplus, the organization adopts a policy on how the reserves are to be managed.

A break-even budget is adopted by a not-for-profit organization as the funding from grants and government contracts they receive are often budgeted to break-even.  Although the grants and contracts are break-even by design, that does not require that the organization’s budget to be break-even.  A break-even budget can show a lack of planning by the organization.  A break-even budget doesn’t allow an organization to accumulate reserves or properly invest in its future.

A deficit budget may be budgeted if an organization has large reserves.  Although not a common issue for many not-for-profit’s, an organization with large amounts of unutilized reserves can lead donors to believe that the organization is not in need of their contributions.  A more common reason for budgeting for a deficit is the preparation to invest in a facility upgrade or new equipment that would benefit the organization in the long run.

While the concept of a balanced budget is based on sound principles, the idea can be unnecessarily limiting for some not-for-profits.  It is important to have an understanding of your not-for-profit’s financial objectives when preparing the organization’s budget and to be able answer why your not-for-profit’s budget is a surplus, break-even, or deficit budget.
 

 

March 28, 2013

By Mark Schoenberg, CPA 

On February 1, 2013, the Office of Management and Budget (“OMB”) issued proposed guidance which, if enacted, would supersede and combine eight different OMB circulars into one single document. Entitled Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards, the adoption of these changes would lessen the burden for not-for-profit entities subject to compliance audits under OMB Circular A-133, as follows:

1. Under the current guidance, an entity expending $500,000 or greater in a single year is required to have a single audit. This threshold increases to $750,000 under the proposed guidance.

2. Auditors are currently required to test 50% and 25% of federal expenditures for high-risk and low-risk auditees, respectively. The proposed guidance updates the criteria for low-risk auditee status and decreases those thresholds to 40% and 20%.

3. The minimum threshold for a federally-funded program to be considered type A would increase from $300,000 to $500,000. In addition, the criteria for type A/type B risk determination have been lessened.

4. The number of compliance requirements auditors will have to consider would decrease from the current 14 to six, as follows:

a. Activities Allowed or Unallowed and Allowable Costs/Cost Principles
b. Cash Management
c. Eligibility
d. Reporting
e. Subrecipient Monitoring
f. Special Tests and Provisions

Comments on these proposed changes are due to the OMB by May 2, 2013. There is no specified date when these changes would go into effect; however, not-for-profit entities should be familiar with these changes and consider their potential implications when accepting federal funding.

Source:
AICPA 

 

March 22, 2013

Stephen Doneson

Re-codification, international standards, increasingly complex organizations structures: FASB has certainly been busy of late. Changes like those mentioned above have kept the standard setters on their toes. Stephen Doneson, a professional in our Jenkintown office, recently wrote an article for the EisnerAmper newsletter Trends & Developments regarding FASB’s project to define one big topic of contention: the nonpublic entity.

You can find out about the project; check out a summary of observations highlighted from FASB’s Not-for-Profit Advisory Committee meeting from September 6 and 7, 2012; and see links to more information here.

March 5, 2013

Under the Patient Protection and Affordable Care Act (PPACA), commonly known as “Obamacare,” your not-for-profit may qualify for a tax credit to cover a portion of employee health insurance costs.  Sometimes lost in the myriad details of the PPACA is the fact that ObamaCare includes tax credits not only for small businesses, but for not-for-profits as well.

Under the PPACA, your not-for-profit may qualify for a tax credit to cover a portion of employee health insurance costs simply by meeting the following criteria:

•  Number of employees – You employ 25 or fewer full-time equivalent (FTE) employees.
• Average wages – Average annual wages for those employees is no more than $50,000 per FTE.
• Insurance premiums – You pay at least 50% of each employee’s insurance premium.

Qualifying not-for-profits can receive a tax credit of up to 25% of premium expenses for 2010-2013, and up to 35% of premium expenses beginning in 2014.

The credit begins to phase out at 10 employees and wages of $25,000.

To apply for the credit, you’ll need to fill out IRS Form 8941 and include the amount on line 44f of Form 990-T. Note that Form 990-T has traditionally been used by tax-exempt organizations to report and pay the tax on unrelated business income. However, it was recently revised to enable eligible tax-exempt organizations to claim the small business health care credit.

For more information about the Affordable Care Act, visit http://healthcare.gov or http://smallbusinessmajority.org.
 

 

February 27, 2013

By Lauren Taylor 

Many not-for-profit organizations consider planning and starting a capital campaign. Some goals of a capital campaign are to create an endowment, fund capital improvements such as construction or renovations, and/or purchase land or equipment. Some of the benefits of a capital campaign are increasing public awareness of the not-for-profit organization; therefore, possibly creating new donors and volunteers. A capital campaign requires an abundance of time and planning in order for the campaign to become a success. Here are some tips to help your not-for-profit organization start a successful capital campaign.

Pre-Planning 

• Define the cause of the capital campaign including how it will impact the community and the people the organization serves.
  • Appoint an individual who can head and manage the capital campaign from beginning to the end.
  • Determine what amounts need to be raised, the timing of a capital campaign, how funds will be raised, and if the Board of Directors/Trustees will have variance power over capital campaign funds. (Variance power grants an organization’s governing board the power to modify any restriction or condition on the distribution of funds for any specified charitable purpose or purposes.)
  • Obtain the Board of Directors/Trustees support as the campaign will involve a significant amount of time and commitment.
  • Perform a feasibility study to determine the organization’s readiness, external factors that could potentially impact the campaign, who the campaign volunteers will be, how to appeal to donors, and who may be potential donors.
   

Planning 

• Develop a short-term capital campaign strategy committee. 
  • Consider recruiting major donors for opinions and ideas.
  • Create a campaign timeframe and budget. The budget should include the operating costs associated with the capital campaign such as professional fees for marketing or consulting and printing of brochures and other collateral material.
  • Build on top of the brand of the organization. The identity and mission of the not-for-profit organization and capital campaign should be cohesive.
   
• Determine a financial goal for the campaign.
  • Create the start and end dates of the campaign.
  • Establish a reasonable financial goal.
   
• Financial, Development and Marketing Departments must create fundraising plans to cover the following actions:
  • Develop capital campaign marketing materials.
  • Establish a gift acceptance policy.
  • Ensure Donor Acknowledgement Letters are written in accordance with IRS guidelines.
  • Review pledge card/letter wording.
   
• Meet with staff to inform them of the campaign and get their buy-in.

Other Tips 

• Maintain good financial donor records including any restrictions on gifts and form of payment.
• Acknowledge the Board and employee efforts before, during and at the end of the capital campaign.
• Consider offering naming opportunities.
   

February 12, 2013

EisnerAmper’s Not-for-Profit Services Group, in conjunction with Montgomery McCracken and Odell Studner, hosted an event in Philadelphia on January 30 for current and prospective not-for-profit board members.  Safeguarding Your Nonprofit Organization— What You Need to Know provided attendees with guidance on minimizing risk and preserving the assets of the nonprofit organizations they volunteer for.

Over 70 people came to hear panelists discuss topics such as “Recruiting & Being Recruited for a Top Quality Board” and “Insurance and Risk Management: What You May Be Missing.”  EisnerAmper partners Leon LaRosa and David Gruber spoke on the topic of “The Risks of Occupational Fraud and Abuse,” offering tips to help board members and not-for-profit executives prevent, recognize, and address fraudulent activity within their organizations.

After the interactive session, the participants had a chance to network with each other and the speakers at a reception.To view materials from the Fraud panel click here.   For more information on EisnerAmper events, click here. 
 

 

February 7, 2013

Jerry Ravi, CPA 

More and more not-for-profit directors are asking questions about enterprise risk management (ERM) and methods to monitor and control risks within their organizations.  Balancing risk and reward has never been more challenging than it is today.  Directors and executives are turning to creative methods to combine vision and execution to achieve their organizations’ strategic goals. Managing enterprise risks often determines success or failure, or at least the timing and degree thereof.  They typically view enterprise risks through the lens of operational and legal risks, as well as financial-related risks such as uncertain donor or endowment commitments, but the reward of achieving the mission drives their vision of a successful ERM process forward.

Directors are now more educated about risk management and are asking for more information about ERM programs within their organizations.  They are requesting that managers have a plan to manage, monitor and report risks on an ongoing basis. 

The key opportunities and value that an ERM process can bring to not-for-profit organizations include:

1. Embedding ERM into the overall culture;
2. Setting the tone and structure at the board and management levels (i.e., ERM Working Group and Risk Committee);
3. Identifying, evaluating, and responding to key risks (by area) including key action plans to further mitigate risks;
4. Ensuring accountability and ownership of key risks (i.e., roles and responsibilities, ERM governance policy); and
5. Establishing a continuous process or road map to reap the future value of ERM (managing risk = better performance).

An ERM program is typically comprised of four key steps:

• Step 1:  Establishing a context:  This requires educating all employees of the organization to be aware of the risks facing their departments as well as the entire organization.
• Step 2:  Risk Identification, Analysis and Prioritization:  As its name suggests, this is the step that provides the true value moments as risks from across the organization are collected, analyzed to determine if they are specific to an individual department or threaten the entire organization (the “E” in ERM).  The result is a list of the top 12-20 risks (a “Risk Register”) which should be monitored closely.
• Step 3:  Validate Risk Assessment and Risk Responses: Next, the likelihood and impact of each risk is assessed and appropriate mitigation steps are put in place.
• Step 4:  Risk Monitoring and Reporting:  Finally, processes to monitor risks, including changes in likelihood and impact, are developed. Over time, risks may move up or down the risk register or even fall off altogether.

Ideally, the end result of implementing an ERM program will give senior management a holistic view of the risks their organizations face as well as creating a risk-aware culture throughout the organization.