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EisnerAmper Blog

Not-for-Profit Trends and Tips Blog

Proposed Amendments to New York’s Not-for-Profit Corporation Law Awaiting Governor’s Signature

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By Stephen Gorombey

July 15, 2016 

In June 2016, the New York State Assembly and Senate passed bill A.10365-B/S.7913-B, amending the current Not-for-Profit Corporation Law (the “NPCL”) and the Estates, Powers and Trusts Law (the “EPTL”) to clarify and refine some of the changes to both laws effected as part of the 2013 New York Non-Profit Revitalization Act (the “NPRA”).  Modifications to this bill address related party transactions, key employees, audit committee and independent directors, formation of a committee, employees as board chairs, and conflict-of-interest and whistleblower policies.  Below is a summary of the major changes as quoted from the bill: 

Related Party Transaction  

  • Exclusions to the definition of “related party transactions” would include, (i) transactions or related party interest that has little or no value, (ii) transactions in the ordinary course of business which are similarly available to others, not normally reviewed by the Board and (iii) act as a charitable benefit to a member of the charitable class which benefit is available to those in the same class on the same terms. 

Key Employee

  • Replacing the term “key employee” with “key person” whereas this person, (i) exercises powers, or influences over the Organization similar to those of directors and officers, and (ii) manages alone or with others a substantial part of the Organization.   

Audit Committee/Independent Directors   

  • Establishing thresholds for financially interested individuals, prohibiting them from qualifying as independent directors if the amount received or paid by the corporation in any of the last three fiscal years exceeded the (i) lesser of $10,000 or 2% of the entity’s gross revenues if less than $500,000, (ii) $25,000 or 2% of revenue greater than $500,000 but less than $10,000,000 and (iii) $100,000 or 2% if gross revenues are over $10,000,000.
  • Modifications to the term “payment” when dealing with independent director would exclude payments to the entity for services rendered if the services are available to the public on the same term and are not available from another source.
  • Modifications to the term “compensation” when dealing with independent director would exclude expense for reimbursement that were reasonably incurred as a director or reasonable compensation for service as a director. 
Formation of a Committee
  • Appointment of members of the committee shall be made by the majority of the board, in the case of a board of thirty or more, the appointment shall be made by at least three-quarters of the directors present at the time of a vote, if a quorum is present.
  • Ex officio directors will be placed on certain committees of the board. 

Employees as Board Chairs  

  • Employees can serve as board chairs if the current board approves by a two-thirds vote as well as having this basis of approval in writing. 

Conflict-of-Interest and Whistleblower Policies  

  • Directors who are employees are unable to participate in any board or committee votes relating to the whistleblower policy. 
  • Any subject of the whistleblower complaint must not be present at or participate in the board or committee deliberations on this vote. If approved by the Governor, all changes would be effective within 180 days from the date of approval.
References

 

http://legislation.nysenate.gov/pdf/bills/2015/A10365B

http://legislation.nysenate.gov/pdf/bills/2015/S7913B

 

Pennsylvania Volunteer Clearance Requirements

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June 23,  2016

By Brian Collins, CPA  

In July 2015, Pennsylvania Governor Tom Wolf signed into law new state rules clarifying background check requirements for employees and volunteers overseeing children.  For volunteers age 18 or older, criminal background checks and child abuse clearances are required if the individual volunteers with a child care service activity or service responsible for a child’s welfare or having a direct volunteer contact with children. 

Examples of a volunteer responsible for the welfare of a child or having direct contact with children can include but are not limited to: 

  • Parent/Guardian chaperones for schools
  • Girl Scouts/Boy Scouts
  • Agency volunteers that help with transportation or other services (volunteer school bus driver or assistant)
  • Big Brother/Big Sisters
  • Literacy programs
  • Little League coaches 

All prospective volunteers most obtain the following certifications: 

  • Report of criminal history from the Pennsylvania State Police; and 
  • Child Abuse History certification from the Department of Human Services (Child Abuse).  

If the volunteer has not been a resident of the Pennsylvania for the entirety of the previous 10 years, a fingerprint-based federal criminal history must be obtained from the FBI. 

As of August 25, 2015, organizations were required to have background checks and clearances for all first time or new volunteers to the organization.  Existing or ongoing volunteers are not required to have background checks and clearances until July 1, 2016.  The background checks and clearances need to be renewed every 5 years. Governor Wolf has waived the fees for criminal background checks and child abuse clearances for volunteers.  FBI federal criminal history certification will cost approximately $26. 

For questions related to the clearance requirements for volunteers or the Pennsylvania Child Abuse History Clearance, contact the Child Line Verification Unit at 717-783-6211 or 877-371-5422. 

Links

Keep KidsSafe.PA.gov

Pennsylvania Department of Human Services

 

FASB Update for Private Companies and Not-for-Profit Organizations Webcast

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June 15, 2016
By Brian Collins, CPA  
The Financial Accounting Standards Board is offering a webcast to provide an update on the FASB’s standards projects pertaining to private companies and not-for-profit organizations.  The webcast, In Focus: FASB Update for Private Companies and Not-for-Profit Organizations, will take place on Monday, June 20, 2016 from 1:00 to 2:40 p.m.  The webcast is being offered free of charge to those who preregister.  Participants will also be eligible for up to 2 hours of Continuing Professional Education (“CPE”) credits.
 
It’s expected that the FASB will discuss the Not-for-Profit Financial Reporting: Financial Statements Project.  The project objective is to reexamine existing standards for financial statements presentation by not-for-profits with a focus on:
  • Net asset classification requirements
  • Information provided in financial statements and notes about liquidity, financial performance and cash flows. 
 
The areas to be covered during the webcast include:
  1. Overview of FASB’s current agenda
  2. Private Company Council (“PCC”) efforts
  3. Not-for-profit update
  4. FASB simplification and Disclosure Framework projects
  5. Revenue Recognition implementation activities
  6. Update on the Financial Instruments and Leases ASUs and projects
  7. Audience question-and answer session. 
 
If you are unable to listen on the live webcast on June 20, an archive of the webcast will be available on the FASB website through September 17, 2016.
 
EisnerAmper will also be hosting a webinar on September 22, 2016 from noon to 1 pm on the latest coming out of the FASB on the Accounting Standards Update (ASU) No. 2015-230, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.  Registration for the webinar will be available in August—watch for more information in this blog.
 
Links to register for the FASB webcast:  

 

Accounting for Website Development Costs

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April 22, 2016

By Brian Collins, CPA  

Most not-for-profit organizations have a website to share their mission and accomplishments, solicit contributions, and promote their latest fundraising event. Websites are an important tool in getting a not-for-profit organization’s name out in a crowded not-for-profit world. Some not-for-profit organizations invest a large amount time and money into developing their website in order to captivate viewers and make it easy for them to take up their cause or make a monetary donation. The cost to develop a website varies based on size and complexity and can range anywhere from a few thousand dollars to over $100,000. For a small not-for-profit organization, the significant cost to develop their website can have a significant impact on their budget and can keep funds from directly supporting the mission.   

So how should a not-for-profit organization account for the cost to develop their website?  U.S. Generally Accepted Accounting Principles (“GAAP”) requires that website development costs be capitalized when there is a future benefit from those costs. Since a website provides a future benefit, an organization will capitalize certain costs associated with development of the website. It is then amortized over a period of time. FASB has provided guidance for the proper accounting of website development costs under GAAP Accounting Standard Codification (ASC) 350-50: Website Development Costs. The following is a summary of ASC 350-50.

Planning All costs in the planning of a website: developing the plan, determining functionality, identifying hardware and web applications, vendor selection and other planning activities

Expense
Website application and infrastructure development Acquire and develop software and acquire any necessary hardware to operate the website. Acquire or develop software tools, obtain and register domain name, develop or acquire and customize code, develop or acquire and customize database software, develop HTML web pages or related templates, install developed application on web server, create initial hypertext links, test website applications. Capitalize
Graphics development The layout of the website with background, fonts, frames, and buttons. The “look and feel” of the website. Development of the initial graphics which are considered components of software. Capitalize
Content development Information about the organization included on the website, for example, mission, description of services provided, articles, photos and list of board of directors, etc. This also includes data conversion costs and time incurred to input the content into a website. Expense
Operating Day-to-day operating costs: training employees on use, registering with internet search engines, administrator activities, updating graphics, backups, creating new links, adding additional functionalities or features, routine security reviews, usage analysis. Website hosting fees should be expensed in the period the service is provided. Expense

Deferred or Temporarily Restricted Revenue: How to Differentiate Between the Two

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April 12, 2015

By Brian Collins, CPA

The key to identifying the difference between deferred revenue and temporarily restricted revenue is to understand the distinction between restricted contributions and exchange transactions.

A contribution received by a not-for-profit organization is defined as a voluntary unconditional promise to give and should be recognized at time of receipt and classified as unrestricted, temporarily restricted, or permanently restricted depending upon the donor-imposed restrictions on the contribution. If a donor imposes time and purpose restrictions on a contribution, those contributions would be classified as temporarily restricted until the time and/or purpose restrictions are satisfied by the recipient not-for-profit organization. The unconditional promise to give aspect of a contribution distinguishes it from an exchange transaction, and therefore the contribution cannot be recognized as deferred revenue.

If a not-for-profit organization receives funds in advance for an exchange transaction, they should record the funds as deferred revenue until the exchange transaction takes place. The FASB glossary defines exchange transactions as reciprocal transfers between entities that result in an entity obtaining assets/services in exchange for either other assets/services or liabilities of approximately equal value.  An exchange transaction occurs when the recipient receives a substantial benefit from the goods or services provided; examples of such transactions include membership benefits, educational services, and medical services.  The timing of an exchange transaction is important when determining if the transaction should recognized as revenue or deferred revenue.

A not-for-profit organization should give careful, consistent consideration to determine whether funds received are a contribution or exchange transaction as it is an important step in differentiating between recording deferred revenue or temporarily restricted revenue.

 

FASB Issues New Guidance on Lease Accounting

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April 6, 2016

By Brian Collins, CPA  

FASB issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).  The new ASU will require lessees to recognize the following for all leases with terms of more than 12 months at the commencement date: 

  • A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
  • A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. 

Lessor accounting is largely unchanged. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. 

ASU 2016-02 will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar-year entity). Nonpublic business entities and not-for-profit organizations should apply the amendments for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar-year entity), and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. Details on transition and disclosure are included in the guidance.

The New World of the Computer Hacker

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April 6, 2015

By Morgan Piscitelli

Cybercrime has become a household term over the last year, due to the excess of high-profile, well-publicized cases of compromised computer systems at organizations like Sony, Target, Home Depot, and J.P. Morgan Chase. Cases like these make most people think that the risk of cybercrime only comes from far away, and typically involves a breach of massive amounts of sensitive corporate data, personal information, and credit card details. While these outside hackers are a significant component of high-tech crime, “insiders” – threats from within the organization (even a not-for-profit) – are often a bigger danger and are sometimes overlooked. 

Our own Steven Konecny wrote an article for the March 2016 issue of EisnerAmper’s Trends & Developments – click here to read about specific steps an organization can take to minimize exposure and mitigate risks.

 

EisnerAmper is an independent member of Allinial Global.
EisnerAmper is an independent member of EisnerAmper Global.