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Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
The Foundation Center, a source of information about philanthropy, launched Foundation Stats (http://data.foundationcenter.org), an online tool that provides free and open access to data on nearly 82,000 independent, corporate, community and grantmaking operating foundations. Users can explore foundations’ basic financial data by organization type, location and fiscal year. The grants section, based on giving by the top 1,000 U.S. foundations, allows users to filter data by recipients’ geographic location and by subject area or population group served.
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The Blackbaud Index reported that online charitable giving to nonprofits jumped 8% for the first half of 2014 compared with the first half of 2013, while overall charitable giving increased 1.6% for the same period. In addition, for the three months ending June 2014, compared with the same period in 2013, online giving grew 8.7%, and overall charitable giving increased 1.5%. The Blackbaud Index analyzes fundraising data from more than 4,200 U.S. not-for-profits.
Charity Navigator has published a report on the performance of the 30 largest U.S. philanthropic marketplaces. The watchdog group considered the financial health, accountability and transparency of these charities. According to its report, regional factors — such as the cost of living, a market’s maturity and a city’s tendency to support one or two specialized causes — greatly influence the ability of charities to raise money, manage costs and adhere to good governance policies and procedures.
St. Louis’s not-for-profit sector ranked as the top performer overall. Portland charities had the greatest commitment to ethical best practices, and Miami charities were the most efficient fundraisers. Boston not-for-profits proportionately received the most donations.
The Financial Accounting Standards Board (FASB) has released Accounting Standards Update (ASU) No. 2014-05, Service Concession Arrangements, its initial guidance on the reporting of these in financial statements. A service concession arrangement is made between a public-sector entity grantor and an operating entity, such as a not-for-profit, under which the operating entity operates or maintains the grantor’s infrastructure, as can be the case with airports, roads, prisons or hospitals. FASB believes these arrangements may become more prevalent as governmental agencies seek alternative ways to provide public services more efficiently.
ASU 2014-05 also addresses the conditions under which the operating entity shouldn’t account for a service concession arrangement as a lease.
The Office of Management and Budget’s (OMB’s) so-called Omni Circular supersedes and streamlines requirements from eight existing circulars that apply to federal awards. Although the new audit threshold has received much of the attention, not-for-profits that receive federal awards should be aware of other significant changes that take effect for new contracts starting after Dec. 26, 2014.
The Omni Circular, or the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” includes significant reforms to the cost principles formerly found in Circulars A-21, A-87 and A-122. For example, a not-for-profit that’s never had a negotiated indirect cost rate may now use a de minimis rate of 10% of modified total direct costs. Not-for-profits that have an approved federally negotiated indirect cost rate can apply for a one-time extension up to four years without further negotiation.
The Omni Circular also clarifies when administrative salaries can be considered direct costs, adds reporting requirements for compensation, and includes some computer costs with materials and supplies. Changes may be necessary to comply with the specific requirements for time and effort tracking. Overall, the guidance should allow not-for-profits to recover more costs from the federal government, according to the OMB.
The final guidance clarifies expectations for awardees about the oversight and management of any “subawards” not-for-profits provide to other entities (known as “subrecipients”) to carry out part of the awardee’s grant. One example is when a not-for-profit passes some of its award funds to another not-for-profit to conduct research or run a program. The guidance requires the original awardee to evaluate each subrecipient’s risk of noncompliance with federal statutes and regulations and the terms and conditions of the subaward to determine monitoring procedures.
Monitoring must include review of any performance or financial reports the awardee requires from its subrecipients to meet its oversight requirements under the terms of the federal award. Monitoring also must include follow-up to ensure that these organizations take timely and appropriate action on all deficiencies detected through audits and on-site review. The original awardee, referred to in the Omni Circular as a “pass-through recipient,” must verify that a subrecipient receives the required audit. But, for smaller subrecipients where an A-133 audit isn’t required, additional monitoring may be needed.
Awardees must set and maintain effective internal control over the award. This means providing reasonable assurance that the award is being managed in compliance with the award’s terms and conditions and federal laws.
Internal controls should comply with the U.S. Comptroller General’s “Standards for Internal Control in the Federal Government” and the Committee of Sponsoring Organizations of the Treadway Commission’s “Internal Control — Integrated Framework.” The Circular also requires awardees to take reasonable measures to protect information that’s personally identifiable or designated as sensitive.
The Omni Circular stresses that the awardee’s performance should be measured in a way that will help an awarding agency and other nonfederal entities (for example, other not-for-profits) improve program outcomes, share lessons learned, and spread the adoption of promising practices.
Awarding agencies (for instance, the Department of Health and Human Services) must require awardees (such as community clinics) to relate financial data to performance accomplishments of the award. These recipients also may need to provide cost information to demonstrate cost-effective practices. All awarding agencies are required to state clear performance goals, indicators and expected outcomes.
The Omni Circular also changes the threshold for requiring a single audit. Since 2004, a single audit was required when an organization spent $500,000 or more in federal funds. The Circular raises the threshold to $750,000 for fiscal years beginning on or after Jan. 1, 2015. The Council on Financial Assistance Reform noted that this increased threshold would still encompass 99.7% of the dollars currently covered under a single audit.
Federal funding is critical for the survival of many not-for-profits, making compliance with the rules critical, too. Your CPA can help you set up the necessary systems and controls to comfortably comply with these changes.
The Office of Management and Budget (OMB) has streamlined its guidance on grants management, including administrative requirements, cost principles and audit requirements for federal awards. Among other things, the new rules reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits currently performed under OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations (also known as single audits).
The federal threshold will jump to $750,000 from $500,000 — nonprofits will be required to undergo a single audit only if they spend $750,000 or more in federal awards in a fiscal year. Those that spend less are required only to make their records available for review or audit by the federal awarding agency, any pass-through agency and the U.S. Government Accountability Office. The new rules are entitled, "Uniform Administrative Requirements, Cost Principles, and Audit Requirements" and are effective for fiscal years beginning on or after Jan. 1, 2015.
Public companies have been required to have an audit committee for about a decade now (due to the Sarbanes-Oxley Act of 2002), and many nonprofits have started their own such committees during that time. The result? Some organizations have learned the hard way that good intentions aren’t enough to ensure an effective audit committee — both the nonprofit and committee members must fully understand the committee’s role and responsibilities.
An audit committee should operate as the arm of the board of directors that assures proper financial management. As such, it’s an integral part of good governance, making it relevant for nonprofits of all sizes. After all, poor governance and accountability can cost any organization support, financial and otherwise.
The committee’s job largely comes down to oversight, which is usually focused on financial reporting, external and internal audit functions, compliance with legal and regulatory requirements and the internal controls over these areas. An effective audit committee can lead to improved financial practices and reporting, reduced fraud and enhanced internal and external audits.
The audit committee should take a much broader view, overseeing the conduct and integrity of financial reporting, including establishing and implementing accounting policies and internal controls to promote good financial stewardship. The goal is to protect the nonprofit’s assets, strengthen the reliability and accuracy of financial reporting, and reduce the risk of fraud.
On a practical level, financial reporting oversight translates to, among other things:
Ultimately, the audit committee should ensure that all financial reports are accurate and transparently portray the organization’s performance.
The audit committee is responsible for hiring, compensating and overseeing external auditors and is therefore considered the auditors’ client. It should have regular communications with the auditors, including meetings to discuss a workplan before the audit and to review any findings before they’re presented to the board.
Besides the roles and responsibilities described above, the committee must maintain its independence. That means audit committee members can’t accept any consulting, advisory or other compensatory fee from the organization.
Independence from management also is critical. Committee members shouldn’t have been an officer or employee of the nonprofit in the prior three years, or the immediate family member of such a person.
The American Institute of Certified Public Accountants recommends that some audit committee members also be members of the board of directors. But some states limit the number of audit committee members who also are on the finance committee.
Audit committees may seem like just one more layer of bureaucracy, but they’re rapidly becoming a nonprofit “best practice.” At Stockman Kast Ryan and Company, we can help you establish a new committee or make sure that your existing committee is operating as it should be.
Overseeing a nonprofit’s endowment fund is one of the most important roles for the board of directors. A strong investment committee, made up of board members and staff, will not only ensure the continued health of the endowment and the organization but also attract other donors looking for good stewards for their contributions. Effective endowment management lies in the following building blocks.
Every endowment should have a comprehensive investment policy that drives the management of the fund. According to the Uniform Prudent Management of Institutional Funds Act (UPMIFA), investment decisions must be made in relation to the nonprofit’s overall resources and purposes. And the endowment investment policy should be different from 920-192 the policy for other investments of the organization.
“Prudent” investment decisions must consider the entire portfolio and be made as part of an investment strategy with risk and return objectives reasonably suited to the fund and the organization. UPMIFA also permits “only investment costs that are appropriate and reasonable.” (UPMIFA applies only to “true” endowments funded by donors, not “quasi” endowments created by boards.)
The endowment’s objectives should guide its investments and management. For this reason, it’s important not to simply adopt a generic objective but to articulate an objective that reflects the organization’s own circumstances. For many not-for-profits, the primary goal is to preserve and grow funds for the organization’s long-term stability while providing a predictable contribution to support current activities. As a living document, the investment policy can change over time as objectives or other factors change.
The investment policy will include an optimal asset allocation. The investment committee must analyze the risk and return of potential investments (including stocks, bonds and alternative investments such as hedge funds and private equity) to determine the best LOT-950 mix and to obtain the total desired return. To maintain flexibility for responding to changes in the investment environment, it’s best to establish ranges for each asset class instead of set percentages.
On a quarterly basis, the investment committee should review information on the performance of each asset class. Allocations can then be adjusted based on both performance and any change in circumstances.
The investment policy should include a spending policy for the endowment, setting a percentage that can be spent annually. The spending policy will impact the performance of the fund, as well as its ability to fulfill the donor’s intent.
UPMIFA sets standards for endowment fund spending. It provides that an organization can spend as much of a fund as it determines to be prudent for the “uses, benefits, purposes and duration” for which the fund is established. UPMIFA lists seven criteria to guide annual spending decisions:
Unlike its predecessor, the Uniform Management of Institutional Funds Act, UPMIFA allows nonprofits to adopt a “total return” strategy that bases the spending rate on the endowment’s total value (including appreciation) rather than on only income. To ensure reasonably consistent cash flows, many organizations using a total return spending policy apply “smoothing” mechanisms to minimize the effect of market volatility. An organization might, for example, use a three- or five-year rolling average calculation.
The investment policy should include benchmarks for evaluating the performance of investments and managers, too. Performance should be assessed over both full market cycles (seven to 10 years) and the shorter time periods that compose them.
An internal investment committee can meet quarterly to review performance, consider recommendations for changes to the investment strategy and rebalance asset allocation as necessary.
Endowment management can seem overwhelming, especially for volunteer board members with many other demands vying for their time. Your financial advisor can help with many of the critical decisions, including asset allocation, vetting of fund managers and financial reporting compliance. (See the sidebar “Don’t forget the disclosure requirements.”)
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With donors gearing up for tax-filing season, it’s not too late for not-for-profits to make sure that they’re following the IRS donation “substantiation rules” so that their benefactors have the proof they need to deduct financial gifts. Proper documentation is also crucial so that donors don’t have any future problems with the IRS. This article explains what the IRS requires to document various levels of gifts and offers a real-life example of the consequences of not closely adhering to the rules.
The Office of Management and Budget’s (OMB’s) so-called Omni Circular supersedes and streamlines requirements from eight existing circulars that apply to federal awards. This article explains that, although the new audit threshold has received much of the attention, not-for-profits that receive federal awards should be aware of other significant changes that take effect for new contracts starting after Dec. 26, 2014. They include significant reforms to the cost principles and procedures regarding the monitoring of award subrecipients, maintaining effective internal control over the award, and demonstrating successful performance.
In this issue, “Newsbits” looks at a a report that online charitable giving to not-for-profits jumped 8% for the first half of 2014; a Charity Navigator report on the performance of the 30 largest U.S. philanthropic marketplaces; and a new FASB standard involving service concession arrangements and that could affect NFP accounting.
Overseeing a nonprofit’s endowment fund is one of the most important roles for the board of directors. A strong investment committee, made up of board members and staff, will not only ensure the continued health of the endowment and the organization but also attract other donors looking for good stewards for their contributions. As this article explains, effective endowment management lies in sound policies regarding investment, allocation, spending, and performance monitoring. A sidebar addresses required financial statement disclosures.
When a nonprofit sets the salary for an executive director or other individual key to the organization, the board of directors wants to make sure it’s paying what’s necessary to attract or retain the most qualified, capable individual for the position. But that’s not the only consideration that should be on the radar screen. IRS regulations prohibit 501(c)(3) and 501(c)(4) organizations from engaging in an “excess benefit transaction” with a “disqualified person.” This article explains those terms and the steps that charitable organizations should take to be sure that compensation is “reasonable” by IRS standards.
In this issue, “Newsbits” discusses a recent study showing that online giving is on the increase. It also notes how several states are testing the waters of Pay for Performance (PFP) contracts with social services nonprofits, and looks at the Silicon Valley’s “accelerator” Y Combinator, which is now helping launch nonprofits involved in areas such as public health, microlending and education.
