EisnerAmper Blog

Not-for-Profit Trends and Tips Blog

New York State AG Announces Lawsuit against Not-for-Profit Board - Part 1 of 2

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May 14, 2015

Collins_BrianBy Brian Collins, CPA

On April 9, 2015, New York State Attorney General Eric T. Schneiderman announced a lawsuit against the board of directors of two Brooklyn-based not-for-profits. The lawsuit alleges gross negligence and failed management of the not-for-profits. The organizations were intended to provide housing and support services for pregnant women, young mothers and their children. As set forth in the lawsuit, an investigation by the Attorney General’s Charities Bureau found that several board members listed property of the organizations for sale without necessary approval. Supreme Court Justice Genine D. Edwards granted the Attorney General’s Office a temporary restraining order earlier this week that freezes the organizations' assets.

The complaint also details evidence of several other alleged improprieties by the organizations’ board and its officers, including:

  • Unauthorized transfer of $80,000 from a charitable bank account directly into the personal account of the financial manager;
  • taking out two high-fee loans totaling $600,000;
  • forging the signature of the secretary of the board to authorize a high-fee loan, without the board member’s permission;
  • failing to pay the wages of their employees; and
  • neglecting corporate filings, including tax returns.

For the full Attorney General press release on the lawsuit, click here.

Look for part 2 of this blog titled “Governance Duties of a Not-for-Profit’s Board of Directors” for advice to all board members on how to avoid negative allegations against your not-for-profit similar to ones announced by Attorney General Schneiderman.

A Not-for-profit Angle on the Property Tax Assessment Process in New York

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May 11, 2015

Lewis_KristenBy Kristen Lewis

Not-for-profit organizations enter the real estate realm when they own property. While they may be exempt, care must be taken with their records pertaining to property tax assessments. Michael Benison, a member of EisnerAmper’s Real Estate Services Group, recently interviewed New York City Tax Commission President Glenn Newman about property tax assessments. The topic of property tax assessments has been a popular one in the wake of the high volume of applications that the New York City Tax Commission office has been receiving in the recent real estate boom. The interview touches on not-for-profit exemptions and the need to monitor how much rent a not-for-profit organization receives.  Benison and Newman discussed how the application should be filled out in a completely accurate way in order to start the process of reviewing a tax assessment on a good foundation. Details like this are not just critical to the assessment; they can be vital to an organization maintaining its exempt status.  For more information, check out the original blog post here.

What Is Crowdfunding?

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April 30, 2015

Collins_BrianBy Brian Collins, CPA

Crowdfunding is a relatively new phenomenon that is becoming more popular with individuals and not-for-profit organizations looking to raise funds.  Crowdfunding is the practice of soliciting small contributions from a large number of people, especially from the online community, to fund a particular project or cause.  Crowdfunding is raising millions of dollars a year for individuals and organizations; for example, recently funds were raised for an elderly New York City resident who lost her home to a fire and, in another effort, donations to an inner city arts center raised funds for scholarships.

There are many websites dedicated to crowdfunding that are allowing young entrepreneurs, individual fundraisers, and not-for-profit organizations to raise money for projects, events, or charitable causes.  Some websites, such as FirstGiving, are geared to not-for-profit organizations.  However, there are a number of other crowdfunding websites, like Kickstarter and Indiegogo, that may not be not-for-profit specialized but could still be utilized to reach funders.  Be sure to evaluate a handful of crowdfunding websites in order to find the one that best fits your fundraising goals and targets appropriate contributors.

Individuals like to contribute funds via crowdfunding because it allows them to support a specific project or cause and they know that their support is going directly to that project or cause.  So, it is important for not-for-profit organizations to remember that crowdfunding works best for funding individual projects; however, it is not especially well suited for general fundraising or annual giving campaigns.  Your not-for-profit organization should explore crowdfunding to determine if it is a viable fundraising tool for your next project or event.

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 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.

On the site you can watch a brief video about the sector, featuring commentary from EisnerAmper Partner Julie Floch

For more information on both of these programs, 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.

EisnerAmper is an independent member of PKF North America.
PKF North America is an independent member of PKF International.