FASB Board Meeting Tentative Decisions on Financial Statements of Not-for-Profit Entities



On May 28, FASB continued its discussions on changes to the financial statements of not-for-profit organizations, focusing on the presentation and disclosure of information useful in assessing liquidity. The Board decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose the following information:

  1. Quantitative information about:
    1. The total amount of financial assets
    2. Amounts that are not available to meet cash needs within the time horizon because of restrictions (limits) imposed by contract (or law), donors, or actions of its governing board
    3. The total amount of financial liabilities that are due within that time horizon.
  2. Qualitative information about how the entity manages its liquidity. For example, an entity might disclose:
    1. Its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit
    2. Its policy for establishing liquidity reserves
    3. Its basis for determining the time horizon used for managing liquidity.

The decisions are tentative and may be changed at future Board Meetings.

How can you meet your goal of 100% board participation in fundraising?

ThermometerIn most successful nonprofits, giving begins with the board. Your organization may have a board policy that stipulates 100% contribution participation. The policy alone is all you need to encourage or remind most board members to contribute, but how do you handle those who don’t? Here are some ideas that other nonprofits have successfully implemented:

Provide board members options to fulfill their commitment
Agree upfront whether board members’ time and talents qualify toward the 100% contribution goal. Allow board members (and anyone else you can find!) to sign up for a monthly giving and/or estate planning programs. Does participation in the nonprofit’s annual event qualify? Sometimes removing ambiguity as to what qualifies and what does not is all you need to meet your 100% participation goal.

Include it in their annual board member agreement
Many organizations require board members to sign a board member agreement, either annually, or upon joining the board. These agreements can clarify roles and responsibilities of board members. Often, they include a 100% participation requirement, and what types of contributions qualify, avoiding unnecessary confusion or surprises down the road. It is frustrating to join a board, only to learn later of requirements that were not mentioned during the recruitment process.

Implement a plan to personally ask each board member to contribute. Board members are very closely involved in the organization and deserve to be asked on a more personal level than the general solicitation materials sent out by the organization.

Provide context
Celebrate all contributions. This avoids someone feeling ashamed that they were “only” able to contribution $50 when another member can afford contribute $5,000. Emphasize that the amount should be meaningful to them, and that amount is different for every individual.

An annual “give” meeting
Incorporate it as part of a specified meeting every year and ideally, the same meeting annually. During the fourth quarter of the year is common timing as many donors are already in the process of their annual giving considerations. Some organizations “pass the hat,” or distribute contribution agreements while others are less public about it. The methods you use should match the culture of your board.

Report on participation regularly
Some board members might not recall if they have made their annual gift this year. Reporting on overall board participation can provide a subtle reminder to make their contribution. Care should be taken not to turn this into a public shaming of any individuals.

Do nothing
Many organizations set 100% participation as a stretch goal, but do not feel it is necessary or appropriate to follow-up to meet that goal. Again, the culture of your organization and board plays a large role.

Ultimately, consideration of the culture of your organization and your board will direct how you approach encouraging board members to meet your 100% participation goal. Remember that most board members provide valuable resources, time and expertise to your organization. Regardless of the approach you choose, be sure to communicate expectations upfront so there are no surprises.

– Dave Studebaker

Using a Dashboard to Communicate With Your Board

2010 Ford Fusion HybridKeeping the board informed of the performance of a nonprofit organization is necessary to assist the board members in exercising their responsibilities in governing the organization. This may be easier said than done, given the amount of data and information that is available. Often an effective tool is the use of a document that highlights the goals of the organization and its progress in meeting those goals – a dashboard.

Creating a dashboard begins with an assessment of the operational, programmatic, and financial goals of the nonprofit. These goals are those that will enable the organization to grow and/or maintain its ability to meet its mission. Once these goals are set, the next step is an assessment of the metrics to be used to measure progress in attaining those goals.

An effective dashboard to present to the board will include a listing of the overall goals of the organization, current objectives to achieve those goals, and the units of measurement. Next, a summary of the progress in meeting those objectives, using the metrics, will give the users of the dashboard an understanding of the financial and operational health of the organization.

The dashboard can be tailored in many ways to meet the needs of the organization and board. Some have red, yellow and green “status lights” to quickly identify areas where adjustments in operations may be necessary. Some include narratives to more fully describe important highlights. And some include graphic information to demonstrate trends and other information.

Presenting information the board needs to govern the organization in a way that is easy to understand and act upon will enhance the overall effectiveness of the organization in meeting its mission.

Take a Look at Your Bylaws

bylawsIn their formative stage, nonprofit organizations usually create bylaws to govern their organizations. Some nonprofits create short documents that have only a few bylaws and others include a significant amount of detail. But then the bylaws are often put away in a drawer and forgotten.

As time goes by, situations change and your organization may no longer be in compliance with your bylaws. Pull them out and review them periodically to see whether they are still appropriate for your organization. If so, be sure you are following them. If they no longer fit the organization, amend them to reflect your current operations and needs.

Some states have statutes that dictate the content of bylaws. Review current statutes and compare your bylaws for any missing content.

Even if you determine no changes need to be made to your bylaws, the time spent in reviewing them as a committee or board will likely be well spent. The discussions about the way your organization is governed and operated are healthy and serve as a helpful reminder to your board of their responsibilities.

A Plea to Board Members

questionRecently I participated in the presentation of our audit to the executive committee of a client – something we do with regularity. The presentation was fairly typical – an overview of the financial statements, explanation of the required communications, and suggestions for improvements in operations and internal controls. There wasn’t really anything in the meeting that was out of the ordinary. Unfortunately, the response of the committee members was not all that uncommon either. It was dead silence. In spite of multiple requests for comments or questions, not a single member had a question or comment.

How can this be? Those charged with governance of an organization have a responsibility to gain an understanding of the financial operations of the organization and to familiarize themselves to the best of their ability. Not every member is a financial expert, and they don’t have to be. But each member should do their best to understand what is going on.

So please, if you are on a board, audit or finance committee, or participating in other ways in the governance of an organization, ASK QUESTIONS! If you don’t know something, ask. If something isn’t clear, ask. If references are made to situations or activities that you are unaware of, ask. An inquisitive mind and willingness to ask questions is one of the greatest attributes you can bring to your organization.

Addressing Fraud Risks

hand-in-cookie-jarWhile performing audits of nonprofits, we work with management of organizations to identify risks that may cause the financial statements to be materially misstated due to fraud. Sometimes these conversations start with the executive director or other member of the management team claiming they have no risks of fraud, because their employees are all committed to the mission of the organization and would never steal from them. Maybe their bookkeeper has been there for years, and they have complete trust in him/her.

Unfortunately, that is an environment that can be conducive to fraud. When management is unable to look at the situation dispassionately, without putting personalities and personal feelings into it, a fraud can occur. All too often an embezzlement of thousands or hundreds of thousands of dollars is uncovered and it is the trusted bookkeeper or long-time employee who hatched the scheme.

Strong organizations identify the risks of fraud and put controls in place to mitigate those risks. Board members and management evaluate the controls to be certain they are being followed. They ask questions and investigate things that don’t look right. They understand the controls protect their employees as well as the organization. Many nonprofits use outside consultants to perform an internal control examination to address process weaknesses – before the shock of a fraud is uncovered.

Looking Behind the Numbers

Recently I had a great conversation with a board of directors about the story their financial statements are telling. In my mind, the fact that we were having the discussion and that the board was so engaged is indicative of the good work the board is doing for their organization.

Our review of the metrics that are often calculated for nonprofit organizations landed on the percentage of expenditures that are functionally allocated to program, management and general, and fundraising. While this organization’s allocation seemed reasonable and appropriate, there were a number of questions and comments as to whether the allocation to program should be higher. The thought is that this shows the organization in a better light.

Is that true? I suppose that someone uninformed about an organization and its programs and operations could conclude that a nonprofit with a higher percentage of expenditures allocated to program is “doing a better job” with their resources. But to truly understand how a nonprofit is operating, you need to look behind those numbers. Are they in the middle of a fundraising campaign in order to bring new programs on board, and therefore allocating more resources to fundraising? Are they gearing up for significant growth and wisely putting resources into the infrastructure necessary to create and sustain that growth?

Ultimately, board members need to know what the key metrics are for their organization, what story those metrics are telling, and what the reality is behind the numbers.