According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the United States. No wonder that a topic discussed this week during the 2014 National NonProfit Industry Conference was how nonprofit organizations can come together to share resources and increase effectiveness. Discussed were such diverse ideas as mergers, acquisitions and collaborative arrangements.
In a merger, two or more nonprofit entities come together and create a new entity. Because this is truly a combination of entities, with none of the entities considered the “survivor” of the transactions, the assets and liabilities from the separate entities are combined as of the merger date. No goodwill or intangibles are recognized as a result of this transaction. In addition, accounting policies of the entities need to be conformed into the new entity.
To contrast, an acquisition between entities leaves one of the original entities in control. If the acquiring entity determines that the operations of the acquiree are expected to be predominantly supported by contributions and return on investments, any excess of value in the transaction is recorded as a contribution. No change is made to accounting policies as all policies are conformed to those of the acquirer.
A third type of transaction is a collaborative arrangement, which is a contractual arrangement that involves a joint operating activity between two or more nonprofits who are all active participants in the activity and thus are exposed to significant risks and rewards dependent on the commercial success of the activity. In this situation, no new entity is formed, and each participating nonprofit reports costs incurred and revenue generated from transactions on a gross basis.
If you are contemplating a combining transaction with another nonprofit, please contact an Eide Bailly professional for more information.
Save the date for the 2015 NonProfit Conference! Just announced is the AICPA’s 2015 National NonProfit Industry Conference – to be held at the newly built Gaylord National Resort & Convention Center in National Harbor, Maryland during June 15-17, 2015. Early registration is open now, and by registering by July 31, 2014 you can lock in the 2014 conference price! Promised in 2015 is expanded content, more sessions, more exhibitors and additional CPE credits.
The Conference brings together the industry’s top experts and thought leaders to offer their perspectives on the most crucial issues facing nonprofits and those who serve them. Learn how to deal with new regulatory and existing issues affecting tax, compliance, accounting & auditing, and governance. Join your peers for Ask the Experts Panels, in-depth workshops, and targeted Yellow Book sessions.
During the 2015 Conference, you’ll get your comprehensive update for the year. It’s your chance to get your questions answered by the industry’s top experts, hear insightful perspectives from thought leaders and discover financial management strategies to best fit your organization’s needs. You’ll learn what the future may hold, how to create innovative new ways to position your organization, drive fundraising and stay true to your mission values.
Nonprofit organizations can be more susceptible to fraud than other organizations as a significant portion of their revenue stream may come from donations and fundraising for which there is no accounts receivable on the books.
A recent article in the June 2014 issue of the Journal of Accountancy titled “How Not-for-Profits Can Reduce Fraud Risk” highlights the following areas in which management can ensure proper controls are in place to prevent and detect possible fraud:
Protect Donations at Fundraisers
Payments received at a silent auction should be received in dual custody, with one person receiving the bidding documentation and the other person receiving the physical payments. A third person should prepare the deposit and another individual should reconcile the bid documentation, the payment received and the deposit to ensure all funds received were deposited.
If payment is to be made at a later date, the winning bidder should be informed of where the payment should be sent. Subsequent write-offs of receivable balances should be approved by someone other than the individual responsible for receivable activity.
Payments for attending the event which are received at the event should be placed in an envelope and all envelopes should be collected and opened in dual custody. Receipts should be sent to the donor and any complaints by donors should be received by an individual other than the one responsible for collecting and depositing the funds.
Secure Donated Merchandise
An organization should have policies and procedures for handling the receipt and disposition of donated merchandise. The policies should address how and by whom the merchandise will be used and how it will be disposed of at the end of its life. Periodic inventories should be performed and records should be maintained of such merchandise.
Strong Hiring Practices
Organizations should ensure they have good hiring practices. References should be checked and criminal background checks should be performed. In addition, when hiring a person in a fiscally responsible position, the individual’s credit should be checked. Oftentimes, nonprofit organizations have difficulty finding well-qualified personnel as they may offer lower pay than for-profit organizations. This creates the potential for “rationalization” that they deserve higher pay, which can lead to fraud. In addition, many nonprofits place a lot of trust in their personnel which creates the opportunity for fraud.
Segregation of Duties
No single person should have complete control over a single transaction. The same person should not be able to set up new vendors, enter invoices, print and mail checks, and reconcile bank accounts. By involving a second person in the process, an organization reduces the opportunity for fraud as now collusion may be necessary to commit the fraudulent act.
Bank reconciliations should be performed by someone other than the individual involved in recording of the day-to-day transactions.
Nonprofit organizations need to understand the risks affecting their organization and ensure they have appropriate controls in place to secure their resources.