Accounting Standards Update – Donated Financial Assets

Last week, the FASB issued Accounting Standards Update (ASU) No. 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (a consensus of the FASB Emerging Issues Task Force).

The purpose of the Update is to eliminate diversity in the presentation of cash receipts from the sale of donated securities which are nearly immediately converted to cash as either an investing or a noninvesting activity in the statement of cash flows. ASU No. 2012-05 requires nonprofit organizations to classify the cash receipts from the sale of the securities as cash inflows from operating activities if there are no limitations on the sale or use of the securities. This treatment is consistent with cash donations. However, if there is a donor restriction on the securities, designating them for a long-term or capital project, then the funds should be classified as a financing activity.

This Update amends FASB ASC 230-10-45-12, and FASB ASC 230-10-45-21 Statement of Cash Flows—Other Presentation Matters, formerly SFAS No. 95, and is effective for fiscal years that start after June 15, 2013. However, organizations with fiscal years that begin before October 22, 2012 are permitted to apply the changes to their financial statements if they have not yet been made available for issuance.

ASU No. 2012-05 will be applied with prospective application, so nonprofits will not have to revise financial statements from previous reporting periods.

Addressing Challenges

I just returned from a conference for nonprofit financial executives. There were a number of issues discussed during the sessions, but the overall theme was not unexpected – how nonprofits can continue doing their good and necessary work with less. Revenues from governments and donors are unreliable. Many factors remain uncertain. Who will win the election? What will happen to the economy? Where is job growth going to come from? How do we create sustainability in the face of so much uncertainty?

There are as many answers to the questions as there are nonprofits. Many have already done strategic planning and cut costs where they are able, while still providing services. Now some are looking at programs to determine whether and how they can be self-sustaining. Others are looking at new opportunities, drawing on skill sets developed with the operation of current programs and expanding those skills to create new revenue-generating activities. There is a lot of conversation around collaboration – sharing ideas, resources, and opportunities. Many creative ideas and solutions are being suggested and implemented.

In spite of the challenges that nonprofits still face, the sector is addressing them head on, reimagining business models, and ultimately becoming stronger and more vital.

Succession Planning

Nonprofit organizations have all sorts of challenges to address as they move through their life cycle. Some are more urgent than others, and those usually get the lion’s share of the attention of the board and management. But organizations do themselves a disservice if they neglect to address succession planning.

Often the presence of a strong founder can inhibit the organization’s willingness or ability to effectively plan for succession. Dealing with this situation requires open discussion and planning in order to transition to a mature organization without damage to the nonprofit and its stakeholders.

Organizations looking to the future will examine their boards and management to see where gaps in talent lie, both currently and in the future. Is there a pool of available talent to fill in the gaps? What is the organization doing to attract that talent, both in the board room and in the office? What strategies might the organization employ in the future and what human capital will be necessary to achieve them?

Fortunately, there is a strong desire among many young people to “do good” and this is often reflected in the choices they make regarding careers and community engagement. Strong nonprofits with a view to the future are creating and communicating strong visions that engage and attract people to help them weather the inevitable turnover of staff and board and lead them into the next phase of their life cycle.

Board Members and Fundraising

Nonprofit board members have a number of different roles and responsibilities, and these can vary significantly. 

Some boards have significant fund raising expectations of all their members, some boards have different expectations for individual board members, and some have limited fundraising expectations. Regardless of where a board and its members fall on the continuum, it is important that expectations are clear and that board members have the tools they need.

Many board members find it difficult to ask for money, but there are other ways they can provide valuable assistance in the fundraising process.

  • Board members can introduce the organization to prospects and give management the information necessary to forge a relationship.
  • They can use their business expertise to assist the organization in developing an earned income business plan.
  • Saying “Thank you“ to donors is critical.  And using board members to contact donors on a timely basis to express appreciation sends a strong message and often results in additional gifts.
  • House parties can be a fun way to introduce the organization to potential donors. A brief introduction to the organization and an offer to provide additional information creates interest.
  • Board members may have contacts that are willing to donate goods or services to the organization.

There are many other ways a board member can assist with fundraising without having to ask for money. By being strategic and identifying roles, every board member can participate in the process.

Industry Indicators Affecting Nonprofits

There are some broad industry indicators that may identify trends in the nonprofit giving.


During the second quarter of 2012, the profits of US corporations rose 6.1 percent compared to the same period in 2011. This is an indicator of corporate sponsorships, memberships, and donations.


In July 2012, personal income in the US rose 3.6 percent compared to July 2011. Changes in personal income drive individual consumer ability to contribute to nonprofit organizations.


However, the total revenue for grantmaking, civic, professional, religious and similar organizations dropped by 9 percent during the second quarter of 2012 compared to the second quarter of 2011.


It appears there is still a lag in the recovery of the nonprofit sector. What steps are you taking in your organization to identify new sources of funding?

Election Time and Political Lobbying – What’s Allowed and What Isn’t?

It is election season and many nonprofits are contemplating their options in supporting issues or candidates. What can you do, and what can’t you do?

Organizations exempt under 501(c) (3) are prohibited from engaging in political activities, but this doesn’t mean your organization cannot participate in the process. What’s allowed and what isn’t?

Basically, activities done in a non-partisan manner do not constitute prohibited political activity. Organizations can also advocate for or against ballot initiatives, but this must be an insubstantial activity.

A 501(c) (3) is not allowed to do the following:

  • Make political contributions
  • Endorse a candidate
  • Speak in favor or against a candidate for political office
  • Use the organization’s property (phones, faxes, supplies, etc.) in support of or against a campaign
  • Lease space to campaigns
  • Provide volunteers to work on a campaign
  • Use the organization’s mailing list or lists of members for a campaign
  • Write letters to the editor or other public communications in support of or against a candidate during an election period

However, a 501(c) (3) can do the following to inform voters of the issues:

  • Voter education (candidate forums, candidate questionnaires, voting record reports)
  • Get-out-the-vote activities
  • Voter registration

These activities must be done without any stated or implied endorsement of a particular candidate or party.

This is a broad overview of the allowed and unallowed activities. If you are uncertain regarding a particular activity, ask for professional advice.

Nonprofit Boards and Corporate Governance

Working with nonprofit organizations gives me many opportunities to interact with Boards of Directors. Each Board has its own distinct personality. However, each Board also has some basic fiduciary responsibilities surrounding corporate governance, regardless of the organization’s sector, mission, size, or stage in its life cycle.

Those basic responsibilities of each Board member include:

  • Regular attendance and participation at Board meetings.
  • Familiarity with major Organization initiatives and the Organization’s mission and governing instruments, such as articles of incorporation and bylaws.
  • Familiarity with significant commitments made in relation to support and program service fee revenue-producing activities.
  • Financial knowledge and ability sufficient to approve budgets; review financial statements and operation reports on a timely basis so that informed decisions can be made; and authorize contractual, banking, and financial commitments. The Board as a group should have skills in all the legal, accounting, finance, and personnel areas for which a Board is responsible, even though any one member may not be skilled in every area.

A successful Board’s effectiveness could be enhanced by considering and evaluating the performance of the Board as a whole and each individual member in these areas.