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Not-for-Profit Trends and Tips Blog

Essential Financial Benchmarks for a Not-for-Profit

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April 22, 2105

Collins_BrianBy Brian Collins, CPA

Increasingly, not-for-profits are playing a bigger role in our society by delivering vital services, and in our economy by providing needed jobs.  With this increasing role, not-for-profits are facing intensifying scrutiny from the government (e.g., IRS and funding sources) and donors, along with increased competition.  Due to these pressures, management of a not-for-profit needs to be aware of organizational performance in order to make informed financial decisions and identify trends.  A way to know the performance and health of your not-for-profit is to perform analysis with financial benchmarks.

To help you measure your not-for-profit’s performance, consider these financial benchmarks suggested by The Center for Nonprofit Management:

  • Quick Ratio – This ratio indicates your organization’s ability to meet short-term obligations.  As a general rule, a quick ratio of 1 or more is good. Formula:
    Quick Ratio = Current assets – Inventories / Current Liabilities
  • Debt Ratio – This ratio indicates the proportion of debt relative to your assets.  A debt ratio of more than 1 can suggest liquidity problems.  Formula:
    Debt Ratio = Total Debt / Total Assets
  • Defensive Interval Ratio – This is a measure of the number of days your organization can operate without having to tap into long-term (fixed) assets.  Most experts recommend maintaining enough cash to cover three to six months of operating expenses.  Formula:
    Defense Interval Ratio = (Cash / Operational Expenses) / 365

In addition, consider monitoring performance in these three key areas: 

  1. Program Efficiency – Quantify how much your organization is spending on its primary mission vs. administrative costs using this formula: Program Service Expenses / Total Expenses. Ideally, this ratio would be at least 0.8 (80%), which reflects an appropriate level of expenses for infrastructure/administrative and fundraising.
  2. Operating Reliance – Determine whether or not your organization could cover all of its expenses from program revenues alone with this formula: Unrestricted Program Revenue / Total Expenses. A good outcome for this measure is 1 and, in some cases, more than 1.
  3. Fundraising Efficiency – Take a look at how many dollars you are able to collect for every $1 of fundraising expense by using this formula: Unrestricted Contributions / Unrestricted Fundraising Expenses. The higher the ratio, the more efficient the fundraising efforts.

So what’s the condition of your not-for-profit?

FASB’s Anticipated Exposure Draft on Changing the Not-For-Profit Financial Statement Model

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By Brian Collins, CPA

On March 31, 2015, partners Candice Meth and Julie Floch presented a not-for-profit webinar titled “Understanding the Principles of the FASB’s Anticipated Exposure Draft on Changing the Not-For-Profit Financial Statement Model.”  The objective of the FASB’s exposure draft is to re-examine existing standards for financial statement presentation by not-for-profit entities, focusing on improving net asset classification requirements and information provided in financial statements and notes about liquidity, financial performance, and cash flows.  Below is a summary of the changes that are expected to be in the anticipated exposure draft.

The proposed changes to net assets classification would replace the current three classes of net assets with two classes of net assets: those with and without donor-imposed restrictions.  The proposed changes would also require disclosures for both with and without donor restrictions as to the nature and amount of board designations and donor restrictions.  For example, operating activities would include purchases, sales, and contributions restricted for property, plant, and equipment; investing activities would include cash received from interest and dividends; and financing activities would include interest paid on long-term debt.

Current GAAP Proposed GAAP

Three categories of net assets:  

Two categories of net assets:  

  • Unrestricted 
 
  • Without donor restrictions 
 
  • Temporarily restricted 
 
  • With donor restrictions 
 
  • Permanently restricted 
 
 

The proposed changes to the cash flow would require the presentation of the cash flow under the direct method, whereas currently the cash flow can be prepared and presented either under the direct or indirect method.  In addition, there could be re-categorizing of components of the cash flow statement to better align operating information with the statement of activities.

Current GAAP Proposed GAAP
  • Direct or indirect method acceptable 
 
  • Requires direct method for operating cash flows 
 
 
  •  Re-categorizes certain items on the cash flow statement 
 

The FASB’s exposure draft is expected by mid-April with a comment period ending on July 31, 2015; issuance of the final standard is still to be determined.

For more information on the FASB’s exposure draft, please view the PowerPoint slides from the webinar.  To stay current on this topic, follow EisnerAmper’s Not-for-Profit Trends and Tips blog and also sign up for FASB’s electronic Action Alert .

 

AICPA Launches Not-for-Profit Section and NFP Certificate Program

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April 2, 2015

Lewis KristenBy Kristen Lewis

Nonprofits looking for information and resources should be aware of the AICPA’s soon-to-be launched Not-for-Profit Section. The Not-for-Profit Section is a centralized resource developed to support not-for-profits and the accounting professionals who serve them. The Section produces and delivers information on timely issues and breaking news, tools and resources that facilitate timely compliance with standards and regulations, promotes the excellence of members as leaders in the NFP sector, and serves as a hub for peer-to-peer learning and information sharing. 

The resource has specifically been created for executives, managers, and board members of nonprofit organizations as well as CPAs. In fact, all AICPA members, including CPA Exam Candidates, Associate and Non-CPA Associates are eligible to join the Section and access its comprehensive resources. Those who are not yet AICPA members but have management or governance responsibilities with a nonprofit can now join the AICPA as a non-CPA associate and then join the Section. The Section’s content platform also provides live and on-demand CPE courses on topics such as nonprofit accounting, auditing, board governance, and tax compliance.

In addition, the AICPA has launched a Not-for-Profit Certificate Program in response to nonprofit sector growth and member demand. The Certificate program is unique in the marketplace, providing 40 hours of foundational-level online training that qualifies for CPE and is available on-demand.  Designed for CPAs, financial professionals and not-for-profit board members and staff who are new to the not-for-profit industry or would like to improve their foundational knowledge of NFPs, the training is available in individual courses, content tracks or as a full certificate progam.

For more information on both of these programs, which should be launched around May 2015, please visit aicpa.org.

EisnerAmper Partners to Speak at Not-for-Profit Fundraising Educational Event in New York

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February 26, 2015

Lewis_KristenBy Kristen Lewis

Partners Julie Floch and Candice Meth will be presenting a program for The Education and Research Foundation of the Better Business Bureau of Metropolitan New York on March 18th. “Fundraising: the Inside Story” will be held from 9:00 – 11:30 a.m. at the Scandinavia House in Manhattan.  The speakers will discuss how financial statements and reports are an important part of your organization’s fundraising picture as they tell a story about your mission, accomplishments and stability. Attendees will find out about how to track and report fundraising expenses appropriately, how to make cost allocations, what cost issues can arise related to special events and campaigns, how to best address compliance issues, and what steps can be taken to avoid UBIT complications, among other topics. Participants will also have the chance to discuss a host of other concerns during an interactive Q&A session. The program is designed for not-for-profit executives, CFOs, COOs, development officers, program officers, board members, philanthropy leaders and not-for-profit advisors. For more information on the event, and to register, please visit The Education and Research Foundation of the Better Business Bureau of Metropolitan New York Website.

FBI Issues a Public Service Announcement Regarding Business E-mail Compromise

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February 16, 2015
Collins_BrianBy Brian Collins, CPA


On January 22, 2015, the FBI’s Internet Crime Complaint Center issued a public service announcement regarding an email scam dubbed the Business Email Compromise (“BEC”). The announcement stated, in part, “BEC is a sophisticated scam targeting businesses working with foreign suppliers and/or businesses that regularly perform wire transfer payments.”  The FBI has received BEC complaint data from victims in every U.S. state and 45 countries, ranging from small to large businesses.  From October 1, 2013 to December 1, 2014, there have been:

  • Total U.S. victims: 1198
  • Total U.S. dollar loss: $179,755,367
  • Total non-U.S. victims: 928
  • Total non-U.S. dollar loss: $35,217,136
  • Combined victims: 2126
  • Combined dollar loss: $214,972,503

In addition, “The FBI assesses with high confidence the number of victims and the total dollar loss will continue to increase.”

One version of the scam occurs when “a business, which often has a long standing relationship with a supplier, is asked to wire funds for invoice payment to an alternate, fraudulent account. The request may be made via telephone, facsimile or e-mail. If an e-mail is received, the subject will spoof the e-mail request so it appears very similar to a legitimate account and would take very close scrutiny to determine it was fraudulent. Likewise, if a facsimile or telephone call is received, it will closely mimic a legitimate request.”

Click here for the complete FBI’s public service announcement.  The announcement provides characteristics of BEC complaints and suggestions for protecting your organization.

PA Auditor General Issues Special Report Regarding Potential Lost Revenue from Tax Exempt Properties

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January 21, 2015 

Collins_BrianBy Brian Collins, CPA


In December, Pennsylvania’s Auditor General Eugene DePasquale released a special report on property tax exemptions that might be costing local municipalities, counties and school districts billions of dollars a year.  The Pennsylvania Department of the Auditor General wrote the report in an effort to provide taxpayers with data on the potential tax revenue from the properties that are currently exempt from property taxes.

The special report found that more than $1.5 billion in property tax revenue is potentially lost in the 10-county sample examined for the report.  The report reflects potential property tax liability in the county, municipality and school district where each property is located.

The special report also provides a background regarding the ongoing tug-of-war between the Pennsylvania General Assembly and the Pennsylvania Supreme Court to define a “purely public charity.”  When an organization is defined as a purely public charity they are exempt from property taxes at all levels, including at the county, municipal, and school district levels.  Currently, as defined by the Pennsylvania Supreme Court, organization must meet all five factors of the “HUP Test” (see Note 1) in order to be considered a purely public charity.  However, the Pennsylvania General Assembly at this time is attempting to pass a constitutional amendment to give the Pennsylvania legislature the sole authority to define a purely public charity.

The Auditor General report concludes that, although the debate over how purely public charity is defined is ongoing, taxpayers, local government, school districts, and charitable institutions themselves should all have a say in the debate on how a purely public charity is defined.

Click here for the PA Auditor General’s “Review of Potential Lost Revenue Due to Property Tax Exemptions” report.

Note 1 - The five factors of the HUP Test are the following:

  1. advances a charitable purpose
  2. donates or renders gratuitously a substantial portion of its services
  3.  benefits a substantial and indefinite class of persons who are legitimate subjects of charity
  4. relieves the government of some of its burden
  5. operates entirely free from private profit motive.

New Legislation Amending PA Form BCO-10 Due Date

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November 25, 2014

By Brian Collins, CPA


Collins_BrianOn October 14, 2014, Governor Corbett signed House Bill No. 359 into law, changing the due dates for certain fundraising registrations required under Pennsylvania law.  The new legislation will go into effect on December 13, 2014 and effects not-for-profit organizations that are required to submit the Charitable Organization Registration Statement – Form BCO-10.  The legislation makes the due dates for filing annual registration statements, such as Form BCO-10, with the Pennsylvania Bureau of Corporations and Charitable Organizations consistent with the due dates for filing Form 990 Returns with the IRS. 

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