FASB Issues Long-Awaited Nonprofit Financial Reporting Standard

By: Tim McCutcheonTim McCutcheon

The Financial Accounting Standards Board (FASB) has issued its long-awaited and much debated Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements for Not-for-Profit Entities. The ASU is the first in a two-phase project, and will change the way all not-for-profits (NFPs) classify net assets, prepare financial statements, and disclose certain liquidity and other information. The ASU is effective for fiscal years beginning after December 15, 2017 (i.e., for years ending December 31, 2018 and beyond). Early application is permitted by FASB. The amendments should be applied on a retrospective basis in the year that the ASU is first applied, with some optional exceptions. Obtain the ASU from FASB by clicking here.

FASB believes the new standard will improve NFP financial reporting by:

  • Reducing the complexity in net asset classification by eliminating the concept of permanently restricted net assets; this better aligns with the provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA)
  • Improving the transparency and utility of information regarding liquidity and availability of cash to meet general expenditures
  • Increasing information as to what is and is not included in an entity’s financial performance measure
  • Eliminating inconsistencies in the type of information provided in reporting of expenses by function and nature across NFPs
  • Eliminating the requirement to prepare the indirect method reconciliation if an NFP chooses to use the direct method of presenting operating cash flows

For more information, read the full article here.

Does your NonProfit Generate Unclaimed Property?

By: Mike Herold Mike Herold

Most nonprofits, whether they know it or not, have the potential to generate unclaimed property and the associated obligations that come with it.

Unclaimed property is a dormant or unclaimed financial item that your business owes to another business or individual. A lot of times these include uncashed checks (including payroll), inactive savings accounts, life insurance proceeds, customer overpayments and even unused gift certificates. In short, these items must be given to the owner or turned over to the state. Unclaimed property can have some expensive consequences if not handled correctly, so it’s important to understand how property can qualify as unclaimed, and what steps your business may need to take to deal with it. Learn more about unclaimed property by reading the full article here.

 

Common Financial Reporting Errors

 

By: Jodi KimmerleJodi Kimmerle

A unique concept of not-for-profit (NFP) accounting that differentiates the NFP’s financial statements from that of a for-profit company is that of contributions and their classification as one of three net asset categories (unrestricted, temporarily restricted and permanently restricted). Errors in the recognition of contributions and in the classification between the net asset classes are common financial reporting errors.

To learn more about common financial reporting errors read the full article posted here.

New McKinsey Report Explains Why Investors Should Expect Lower Returns for the Next 20 Years

By: Tim McCutcheonTimMccutcheon

In a just released report, the McKinsey Global Institute is warning investors they may need to lower their expectations anywhere from approximately 150 to 400 basis points on equities, and 300 to 500 basis points on fixed income investments—and in some cases even lower than that—as the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing.

Given the waves of turbulence that have swept through financial markets in recent years, including the 2000 dot-com meltdown and the 2008 financial crisis, it may sound odd to describe the past three decades as a golden age for investors. But the reality is that total returns on equities and bonds in the United States and Western Europe from 1985 to 2014 were significantly higher than the long-term average.

An extraordinary confluence of favorable economic and business fundamentals created those returns. Inflation and interest rates declined sharply from peaks in the late 1970s and 1980s, and strong global economic growth was fueled by positive demographics, productivity gains, and rapid growth in China. Corporate-profit growth was even stronger, reflecting revenue gains in new markets, declining corporate taxes, and advances in automation and global supply chains that helped rein in costs.

The golden era has now ended.

The big decline in interest rates and inflation is reaching its limits, global GDP growth will be lower as populations in the developed world and China age, and the outlook for corporate profits is cloudier. While digitization and disruptive technologies could boost margins for some companies, the big North American and Western European firms that took the largest share of the global profit pool in the past 30 years face new competitive pressures from emerging-market companies, technology giants, and digital platform-enabled smaller rivals. These forces may curtail margins going forward, and could have profound effects on all investors, both individual and institutional. It is therefore critical for investors of all types to start managing their own expectations and the expectations of the people who will be affected by their investment decisions.

Download the full report here:

http://www.mckinsey.com/~/media/McKinsey/Industries/Private%20Equity%20and%20Principal%20Investors/Our%20Insights/Why%20investors%20may%20need%20to%20lower%20their%20sights/MGI-Diminishing-returns-Full-report-May-2016.ashx

Internal Control Examinations for Nonprofits

By: Doug Cashdoug cash

An internal control examination evaluates the existing internal controls over your nonprofit’s assets. Its purpose is to identify any areas of risk or vulnerability, as well as assure you of where your controls are strong. The assessment includes the following:

  • Interviews of key accounting personnel to identify important cash internal control deficiencies
  • Recommendations for corrections of any key internal control deficiencies identified during the assessment
  • Analysis of selected documents and/or data for anomalies or unusual transactions for a one- to two-month time period
  • A timely and easy-to-understand report providing internal control recommendations and any findings identified

Fraud is on the rise. The Association of Certified Fraud Examiners (ACFE) estimates the average organization loses up to five percent of its revenue to employee theft. The 2016 “ACFE Report to the Nation” indicates that nonprofits suffered a median loss from fraud of $100,000. A nonprofit can limit its exposure to fraud by eliminating as many of the existing opportunities as possible. By conducting an examination of internal control, a nonprofit takes the first step to reduce these opportunities and provide a climate of prevention and detection that promotes an honest working environment.

Any nonprofit organization can be a victim of fraud. The vast majority of organizations, no matter the size, will benefit from having an internal control examination performed. According to the ACFE, “The presence of anti-fraud controls was correlated with lower losses and quicker fraud detection.”

Identifying potential internal fraud risks is not just a matter of good stewardship. It will help your organization improve efficiency and reduce risks—financial, operational, and reputational. Eide Bailly’s Certified Fraud Examiners have the investigative techniques and technical skills needed to detect, investigate and prevent fraud. We work closely with you in a friendly, supportive manner to understand your needs and provide a thorough report to help you make confident decisions to safeguard your organization. Our Forensics staff includes Certified Fraud Examiners, Certified Public Accountants, Accredited Business Valuators, Certified Forensic Interviewers, former law enforcement professionals, and computer forensic specialists. When you work with Eide Bailly, you’ll be connected to the professionals you need to keep your nonprofit on track for success.

Proposed Overtime Reform Could Affect 2016 Budgets

Nonprofits (and businesses of all types) have until September 4, 2015, to provide comments on proposed changes to overtime rules. The Labor Department has proposed raising the standard minimum level for salaried workers, as well as the standard salary minimum for highly compensated employees. No surprise here:  this could have huge implications for your overhead costs. The Council of Nonprofits has put together a good summary of the proposal, as well as developed a series of questions to help you conduct your own mission-based analysis of what these proposed changes would mean to your operations and staffing decisions. Now is the time to analyze what the changes could mean for your organization and constituents, and voice any concerns before a final decision is made!

 

The Overhead Myth and a Call to Action for Nonprofits

By now you’ve probably seen the letter to donors – written and issued by the BBB Wise Giving Alliance, GuideStar, and Charity Navigator – imploring them to consider results rather than overhead expenses when funding nonprofits. It’s powerful and important.

The trio just released a second letter – this time to the nonprofit organizations themselves – in which they ask three things of NPOs to help squash the Overhead Myth. Here’s the gist of how they suggest doing so:

  • Share data about your performance in order to demonstrate why donors should trust you.
  • Manage towards results and understand your true costs.
  • Educate funders on what it costs to achieve results.

The letter notes that, “As a field, we can move beyond the Overhead Myth to an Overhead Solution, but we need your help.” You can read the entire letter, find a list of great resources, and download a toolkit to help you navigate this process on the Overhead Myth website.