Guest post: Overview of Changes to NFP Accounting Rules

August 24, 2016, 9:12 am
Image courtesy of DollarPhotoClub before they merged into Adobe Stock.

Image courtesy of DollarPhotoClub before they merged into Adobe Stock.

Gary L. Krausz, CPA, CFF, is an audit and accounting services partner in the Los Angeles accounting firm, Gursey | Schneider LLP. Mr. Krausz works with many not-for-profit agencies and private foundations in Southern California. The firm’s website is Mr. Krausz offers the following guest post as an overview to help the not-for-profit community understand the major changes about to take place in accounting and financial reporting for not-for-profit organizations.

By Gary L. Krausz, CPA, CFF

This past Thursday, August 18, 2016, the Financial Accounting Standards Board (FASB) approved the long-awaited first step in changes to the financial reporting model for not-for-profit organizations by releasing Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. These changes, when effective, will result significant reporting improvements for most not-for-profit organizations including our clients with such diverse operations such as (1) schools, (2) community agencies, (3) private foundations, (4) associations, and (5) religious organizations. The proposed changes will be effective for years beginning after 12/15/2017 (which means calendar years ending on 12/31/2018 and fiscal years ending during the calendar year 2019). Early adoption is permitted.

To highlight just a few of the improvements in Phase I of FASB’s plan:

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FASB releases major change to nonprofit accounting rules: ASU 16-14

August 19, 2016, 8:23 am
Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

On 8/18, FASB published a massive overhaul to the accounting rules for not-for-profit organizations. The release is ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which you can find here.

Effective date

ASU 16-14 will be effective for fiscal years beginning after December 15, 2017.

Let’s translate that… it will first be effective for calendar year December 31, 2018 financial statements. For NPOs with fiscal year ends, it will be effective for 6/30/19 or 9/30/19.

Since 6/30/16 audits are underway, for a rough ballpark figure three years from now for required implementation.

Early application is permitted.

Really fast intro

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Wounded Warrior Project releases financial statements and 990 for year ending September 30, 2015.

August 16, 2016, 8:36 am
Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

WWP has released their fiscal year 2015 990 information tax return and audited financial statements.

Keep in mind these are for the year ended September 30, 2015, which is well before the media firestorm erupted in January 2016. Thus, there will be no impact visible in these reports from any turmoil in calendar year 2016, other than a brief comment in subsequent events note.

You can find the front page of the financial section of their website here.

The archived financial reports from 2015 back through 2006 are here.

The 990 for 9/30/15 is here.

The audited financial statement for 9/30/15 is here.

A few initial observations:

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After reading about the mess World Vision is in, ask yourself what you are doing to prevent a similar disaster from disrupting your programs.

August 10, 2016, 7:00 am
Question this manager is pondering: Do we have good enough controls to prevent this from happening in our field programs? Image courtesy of Adobe Stock.

Question this manager is pondering: Are our controls good enough to prevent something like this from happening in our field programs?
Image courtesy of Adobe Stock.

A few articles to follow up on the accusations a World Vision manager allegedly routed aid money to a terrorist organization.

  • Looks like the situation with the Gaza branch of World Vision could turn into an accounting argument.
  • Response from World Vision.
  • Other aid workers charged.
  • Finally, more questions for managers and finance teams to ponder.

A number of public comments on twitter are claiming the total budget for the Gaza branch is only $2.2M a year.

Some people making this comment usually continue the discussion by calling into question the entire set of accusations from the Israeli government because the current claim is the manager diverted approximately $7 million a year.

This position implies that accusations of diverting $7M a year when the budget is only $2.2M means the accusations are untrue.

8/8 – AP, The Big Story – World Vision: Israeli charges based on “huge gap” in numbers – Article points out the intelligence agency accuses the program manager of diverting food, agricultural equipment, and medical supplies in addition to currency. That means there was in-kind material as well as heavy equipment.

The accounting argument appears towards the end of the article. A Foreign Ministry representative is guessing that the stated budget does not include in-in-kind donations.

A World Vision representative in Germany says the budget of $22.2M for the Gaza office over the last decade does include in-kind materials.

So, we may wind up with this being an accounting issue in addition to a loaded political issue on top of an alleged defalcation issue carrying over into alleged terrorism funding issue.

8/9 – Al Jazeera – Christian charity ‘top of Israel’s target list’ – It will help you filter news you hear about the manager of the Gaza office if you keep in mind the visible political agenda you will see in much reporting.

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Initial reaction to alleged diversion of World Vision funds

August 8, 2016, 7:00 am
Image courtesy of Adobe Stock.

How can you tell who is really behind the mask, and what is he doing inside your organization? Image courtesy of Adobe Stock.

Last week, the Israeli intelligence service accused a World Vision manager of diverting resources to Hamas. The allegation is he diverted about 60% of the annual funds flowing through the Gaza office, with the amount diverted allegedly around $7M a year.

Some initial reactions are surfacing from donors. Also, some context for magnitude of the alleged amount. Finally, some questions to ponder for leaders of charities and those of us who audit NPOs.

8/4 – World Vision – Statement on World Vision Staff Arrest – Full statement from World Vision. Doesn’t say a lot because they don’t yet know a lot. I’m sure there will be more comments as the situation develops.

8/5 – Reuters at Business Insider – Australia suspends World Vision funding over allegations its Gaza representative funneled millions to Hamas – The Australian government has provided about $4.4 million over the last three years to World Vision for use in helping people living in Gaza and West Bank. The aid has been suspended over the allegations.

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How do you keep one person from diverting funds and causing a front-page fiasco for your charity? World Vision illustration.

August 5, 2016, 5:35 pm
Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

How do you keep one person from creating a public relations fiasco or, even worse, damaging the reputation of your entire organization? How do you keep a manager from illegally diverting a huge amount of resources?

What controls and procedures do you have in place to prevent something like this in your organization?

Let’s start with a FBI agent who pled guilty to charges of passing sensitive and classified information to a Chinese government official and businesses in China.

8/1 – ABC News – FBI Employee Arrested for Allegedly Acting as Secret Chinese Agent – According to the story, we can drop the word ‘allegedly.’ This week he entered a guilty plea to one felony charge. The government claims he was gathering sensitive and classified material based on instructions from his handler.

He was born in China and was naturalized in 1985 at age 16.

So, the FBI with all its investigative powers and intentional counter-intelligence operations was not able to prevent this man from being an agent of the Chinese government.

So what chance does a nonprofit charity have of filtering out people who want to do bad stuff? That is something to consider as we grieve the following story.

This week the story broke that a manager of the Gaza office of World Vision allegedly diverted a lot of money to Hamas for use in terrorist activities. At this point the story consists of allegations, but allegations from the Israeli security service after a few weeks of interrogation are extremely serious.

8/4 – Hareetz – Top Official in Christian Aid Group Charged With Funneling Funds to Hamas – The security service, Shin Bet, arrested the director of the Gaza branch office on June 16. He was indicted Thursday.

Shin Bet accuses the manager of joining an armed wing of Hamas in 2004 and being sent to infiltrate a western aid organization a year later.

In 2005 he was hired by World Vision and in 2010 was promoted to director of the Gaza branch.

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Minor updates on Wounded Warrior Project – 8/5

August 5, 2016, 8:45 am
Image courtesy of

Image courtesy of

Not a lot of news about WWP lately, or at least that I’ve noticed. Expect lots more coverage in about two weeks.

Mark Hrywna (@mhrywna) posted a Twitter comment on July 28 that WWP will file their 990 on the deadline of August 15. I asked if he some indication when the 990 will be available on their website. He hasn’t heard, but noted they tend to post quickly after the return is filed. So perhaps this month we will see the 990. Hopefully see the audited financial statements about the same time.

In some older news:

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