Tag Archive for Non-Profit Financial Statements

Implementation of ASU 2016-14 Not-for-Profit Entities (Topic 958), Presentation of Financial Statements of Not-for-Profit Entities

iStock_000010827673_Small-300x199Now that the nonprofit reporting standard has been issued in its final form, it’s time to think about implementation.

Transition Guidance

The update is effective for annual financial statements for fiscal years beginning after December 15, 2017, which means calendar year 2018 and after. Earlier adoption is permitted. The provisions should be applied on a retrospective basis to all prior years presented. However, when presenting comparative financial statements for periods prior to adoption, the following may be omitted from the prior period financial statements presented:

  • Analysis of expenses by both natural and functional classification, unless previously required under the old standard for voluntary health and welfare organizations.
  • Disclosures about liquidity and availability of resources

In the period that the update is applied, the nonprofit should disclose the nature of any reclassifications or restatements and their effects, if any, on changes in the net asset classes for each period presented.

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FASB Exposure Draft on Not-for-Profit Financial Reporting Issued

Last month, the FASB issued a much anticipated exposure draft relating to the proposed accounting standards update relating to not-for-profit and health care entity financial reporting.  BlumShapiro Partner Reed Risteen summarized the exposure draft in a recent article to help explain the proposed changes, and provided some practical examples of how financial statements may look under the new proposed guidelines. Read the full article here.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

990 Policy Compliance Series – Compensation Policies

Compensation is one of the hottest topics facing non-profit organizations in recent years. The IRS has developed questions for non-profits to answer in order to shine a light on the compensation practices for the top earners of the entity. Again, these are not legally mandated policies, however, there are very specific requirements relating to the entity’s process in order to favorably answer the questions surrounding compensation practices.

The process for determining compensation for the individuals listed in Part VI, questions #15a and 15b must include following three elements:

1. Review and approval by a governing body or compensation committee. The members of the governing body or committee must be free of conflicts of interest surrounding the compensation arrangement under review. A conflict of interest by a member of the committee is deemed to be present if:

a. The member or his or her family member is participating in or economically benefitting from the compensation arrangement.
b. The member is in an employment arrangement subject to the direction or control of any person participating or economically benefitting from the compensation arrangement.
c. The member receives compensation or other payments subject to approval by any person participating or benefitting from the compensation arrangement.
d. The member has a material financial interest affected by the compensation arrangement.
e. The member approves a transaction benefitting the person participating in the compensation arrangement, who then, in turn, has approved or will approve a transaction providing economic benefit to the member.

2. Use of comparability data regarding the compensation arrangement being determined. The data being used must be for similarly qualified persons in functionally comparable positions at similarly situated organizations. Typically, non-profits will review the compensation for officers and key employees, which is disclosed in the 990s of other similar organizations. Form 990s of other organizations can be downloaded from websites such as Guidestar, or in Massachusetts, the Attorney General’s website for public charities.

3. Finally, all of the processes above should be documented in a timely manner with proper records kept as to what data were used, who participated in the process (and if they were free of conflicts of interest), when the discussion occurred, what deliberations transpired and what decisions were made.

If you follow the above process and you answer yes to either #15a or #15b, you must include a description in Schedule O. In that description you are required to identify the positions that were covered in the process to determine compensation above, and the year the process was last performed. If the organization did not compensate its officers, directors, top management official or other key employees, or if any of the above elements were not met, the answer should be “no”. A disclosure of why the answer is no is not required, but is allowed and could be helpful to explain the reason for answering “no”.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston Accountant

Jeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

990 Policy Compliance Series – Ensuring Transparent Governance and Operational Policies

As a tax-exempt organization, you are subject to a greater level of scrutiny from various sources than many other types of entities. Within the annual Form 990 filing, the IRS inquires about certain compliance, governance and management practices, which allows the government, donors and the general public to gain detailed knowledge about your organization. In Part VI of the 990, there are several policy and governance questions asked of filing entities, and, as laid out in the detailed instructions, there are some very specific requirements with which you must comply in order to answer affirmatively. Many of these policies are not legally mandated, and the non-profit faces no fines or penalties for not adopting the policies. However, all 990 filers are required to answer these questions, and certainly it is in the non-profit’s best interest to consider and adopt policies that help to ensure transparent and sound operational processes.

In the coming weeks, we will publish a series of posts on how to stay in compliance with certain 990 governance and operational policies as well as some further information to help you answer the questions appropriately.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Reminders on 403(b) and 401(k) Remittances

As we start the new year, one reminder for non-profit organizations is to make sure you are remitting your employees’ contributions  and loan repayments to your organization’s
403(b) or 401(k) plan on a timely basis. The Department of Labor (DOL) requires that employee contributions and loan repayments to pension plans be deposited as soon as they can be segregated but, in no case, later than the 15th business day of the month immediately following the month in which the contribution or loan repayment is either withheld or received by the employer. The DOL created a safe harbor rule under which participant contributions to small plans (those with fewer than 100 participants) will be deemed to be made in compliance with the law if those amounts are deposited within seven business days of withholding or receipt.

Employee Benefit Plan Audits ConnecticutWhile the requirements for large plans mention the 15th business day of the month immediately following the month in which the contribution is withheld or received, the rule is as soon as the amounts can be segregated. Most organizations are able to segregate these amounts much earlier than the 15th business day of the following month. This typically happens when payroll is made, so amounts should be remitted the same day as payroll occurs or within one or two days after that payroll date.

If your organization is currently not remitting your contributions as timely as required, you might want to look at your process and work with your third-party administrator to change the process in order to meet these requirements in 2015.

Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

Using Form 990 for Organizational Improvements

While many non-profit organizations may be exempt from income taxes, they are not exempt from the federal government’s recordkeeping requirements. Among those requirements are tracking revenues and expenses and reporting those items to the Internal Revenue Service (IRS) by way of Form 990. The requirement applies to organizations as small as the local Little League affiliate or as large as a major hospital.

While organizations file Form 990 because it is a requirement to maintain their exempt status, many may not realize that there are many other ways the Form 990 can be used to benefit your non-profit organization.

The Form 990 not only serves public purposes, it can serve organizational purposes as well, allowing board members, donors and others access to information about an organization’s financial management, operations and governance. It is a tool—a research document—for understanding your organization, its strengths and its weaknesses.

Read the full article to learn more >>

How Interested Parties Learn About Your Non-Profit Organization and How to React

Interested Party Communication - Nonprofit CPAIndividuals looking to learn more about your non-profit organization have a wealth of information at their fingertips thanks to the many resources available to them on the Internet.  In today’s competitive environment, it is important for leadership to view these resources as opportunities to generate interest from those who seek out information and invest the time necessary to produce comprehensive materials that will help them tell their story.  It is also important for your organization’s leadership to understand where and how information is made available.  With that knowledge, a comprehensive approach to addressing each one of these resources can be developed to ensure the message conveyed through them is positive and thorough.

Nonprofit Resources

Below are a few resources that can be accessed by the general public and provide details of your organization’s standing and compliance with filing requirements:

  • The IRS website and GuideStar. These sites provide visitors with an opportunity to review the exempt status of your organization and determine whether or not it is in good standing.
  • GuideStar and Charity Navigator. These allow for access to your organization’s federal informational returns.
  • Secretary of State, Attorney General or other agencies that monitors charities at the state level. Many websites for these state agencies include a searchable database of registered non-profit organization filings, formation documents, by-laws, etc.  For example, the Massachusetts Attorney General’s charities database includes copies of federal and state filings as well as the audited or reviewed financial statements (for larger organizations).

Because your exempt status and federal and state filings can be reviewed by the general public, it is important that you remain up-to-date and in compliance with all applicable laws and regulations.  Further, these filings should be viewed by the leadership within your organization as a marketing tool where accomplishments can be celebrated and where you can clearly demonstrate that the mission has been put into action.  Take the time to review these documents thoroughly with the board before they are filed and ensure everyone understands how easily accessible they are to potential donors, grant makers and others who want to learn more about the organization.

In addition to the above resources, those desiring to gain further knowledge about your organization will likely review the following:

  • The organization’s website. Your website should provide a great level of detail on the organizations mission, programs, fundraising initiatives, board of directors, etc.  In addition, it should also include testimonials and stories about those who have been positively impacted by the work of the organization.
  • Facebook, LinkedIn and Twitter accounts.  Social media has become an important way for organizations to communicate what’s happening in real time.  While organizations should be cautious with their use of social media, responsible use can produce extremely positive results as a great message will be spread very quickly.
  • Search engine results.  Often, the best way to learn about an organization is simply to “Google” it.  Search engines are a great tool for interested parties to see how your organization is connected to others, what people are saying about the organization and review the services you provide or causes you support.

With knowledge of the fact that people are using these resources to learn more about your organization, it is important to keep them up-to-date and to continuously prepare new content.  Having old and outdated information about your organization available to interested parties could result in them concluding that your mission and activities are also old and outdated.  Set roles and responsibilities within your organization for maintaining the website and social media accounts and know what your competition is doing so you can stay on the cutting edge.

Chris Ernest, CPA oversees audit and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.  Chris provides services to a wide range of  non-profit organizations, including independent schools, country clubs, museums and trade associations. In addition, he specializes in audits of employee benefit plans.

A New Look to Your Non-Profit’s Financial Statements

There are currently some changes in the works for the non-profit financial reporting model. The proposed changes, currently being developed by the Not-For-Profit Advisory Committee of the Financial Accounting Standards Board, aims at improving net asset classification requirements as well as disclosure information provided to the reader.

Recently, Marcus Harwood, Partner at BlumShapiro, provided some relevant information about these proposed changes and the current status of the initiative. Read Marcus’ article here.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.