Jim Ulvog

Podcast on turmoil involving Wounded Warrior Project

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

If you’ve been following the media turmoil surrounding Wounded Warrior Project, you will want to check out a podcast from The Contributing Factor (that is Bill O’Reilly’s website):  Podcast: Ousted Wounded Warrior Project Executives Speak Out.

There are interviews with the two departed senior executives.

That page also has written responses from the board denying the specifics in the Doug White report.

The board asserts that giving dropped as soon as the media reports surfaced. Mr. Nardizzi asserts that he was watching the giving until the day he was released and noticed the giving was only 1.7% below the projected income.

Check out the podcast. I’ll try to have more comments later.

Jim Ulvog

A completely different perspective on the crisis surrounding Wounded Warrior Project.

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Here are a few articles which will give you a different way of looking at the recent publicity surrounding Wounded Warrior Project. I’ve been swamped by several major projects so haven’t had much time to write recently. Those projects are still not done so I won’t be able to spend as much time on this post as I would like, yet I want to get some comments online for those who have been following the story.

The biggest article is The First Casualty: A report addressing the allegations made against the Wounded Warrior Project in January 2016 by Doug White, published September 6, 2016.

There is a lot of information about the entire story which has received minuscule coverage. Here is my quick recap of his major points:

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Jim Ulvog

Layoffs underway at Wounded Warrior Project

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Layoffs of about 15% of the staff are in progress at WWP, according to an article at Chronicle of Philanthropy by Timothy Sandoval: Wounded Warrior Announces Layoffs and Program Cuts. That would be a reduction of something in the range of 90 people out of the roughly 600 on staff.

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Jim Ulvog

Restructuring underway at Wounded Warrior Project

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Some of the recent news regarding WWP. Much more to say, not enough time today.

Wounded Warrior Project released their financial statements for fiscal year ending September 30, 2015. One sentence summary is they have continued the accounting practices in place for 2014, which have drawn lots of criticism. At first glance, looks to me like functional allocation of expense methodology is unchanged from 2014. Much more discussion is needed on the issue.

Tim Sandoval describes the issue on 8/17 at Chronicle of Philanthropy (behind paywall):  Wounded Warrior Sticks With Accounting Rules That Drew Fire.

Layoffs and restructuring have begun:

8/30 – News 4 Jax – I-Team: Executives laid off, reassigned at Wounded Warrior Project – Article says several executive vice presidents have been let go or reassigned. More changes at the EVP level are expected.

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Jim Ulvog

Guest post: Overview of Changes to NFP Accounting Rules

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 http://www.gursey.com. 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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Jim Ulvog

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

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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Jim Ulvog

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

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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Jim Ulvog

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

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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Jim Ulvog

Initial reaction to alleged diversion of World Vision funds

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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Jim Ulvog

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

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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Jim Ulvog

Minor updates on Wounded Warrior Project – 8/5

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

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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Jim Ulvog

Perhaps reporting under GAAP is not reporting the numbers investors need

Image courtesy DollarPhotoClub
Image courtesy DollarPhotoClub

(Cross post from my other blog, Attestation Update. I usually post comments on accounting theory there. This issues carries over directly to the nonprofit community. Consider the ongoing discussion on the mis-focus on ‘overhead’ and the need for some sort of outcome measures for the charity world and you can see how this applies.)

Consider this idea: perhaps GAAP-based accounting numbers aren’t giving stock investors all the information they need.

What is wrong with this picture?

In April, Netflix announced their earnings fell short of analysts’ expectations. Usually that would drop the stock price. What happened?

Nexflix stock jumped 18%.

Huh?

What could cause that? The market supposedly has incorporated the consensus into the price. Missing the expectation should drop the price.

Consider this: At the same time, Netflix announced their new-subscribers were 4.9 million instead of the expectation of 4.0M.

That means they will have stronger earnings for the next several quarters than was expected the day before the announcement. Thus, the stock price rose.

Investors looked at the new subscriber tally as a better indicator of future earnings and thus future stock price than this quarter’s GAAP net income. New subscribers is more important than EPS.

If you wonder are wondering why GAAP EPS isn’t the driving force in that story, here is a brain stretcher for you:

“The End of Accounting”

Professors Baruch Lev and Feng Gu point to The End of Accounting and the Path Forward for Investors and Managers in their June 21 Wall Street Journal article.

You can find the book at Amazon here. It is a bit steep, $32 in hardback and $26 in Kindle format, which is really high for an e-book. I already have a copy on my e-reader. Started reading it yesterday.

The professors suggest that reported earnings under GAAP are losing relevance for investors as we move further and further away from an industrial economy. When know-how, processes, patents, using the internet, and other intangibles are the source of income, GAAP doesn’t report useful information for figuring out future earnings.

By the way, keep in mind that providing historical information to readers of the financial statements to allow them to make estimates of future earnings and cash flows of the company is, like, sorta’, kinda’, the purpose of GAAP financial statements.

The problem with GAAP

Some drawbacks in looking at GAAP numbers, according to the professors:

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Jim Ulvog

Why I have known for most of my life that we have serious unresolved racial issues in our society

Maybe we ought to do this with our hands and ears a little more often. Maybe even our hearts. Image courtesy of Adobe Stock.
Maybe we ought to acknowledge there is a gap between us. Maybe each of us should reach out with our ears. Image courtesy of Adobe Stock.

The first time I realized we had racial problems in the U.S. was way back when I was in elementary school.

If I can share my thoughts here without getting tons of hate poured on my head, I will have more to say. If you think this is somehow related to what we have seen in the news this month, you are absolutely correct. Mine is such a tiny, insignificant voice, yet I must speak.

What little I can offer you is one recollection from childhood, brief news reports while in college, and one news report while on active duty.

Take the stories however seriously you wish. Discount them or ignore them or explain them away if you want.  If it is your choice to do so, impute terrible ignorance to me that these feeble stories are what little I have to share. Assume about me whatever you will and paste on me any label you prefer.

So you can put this article into context, please know I am white, male, born into a middle-class family, currently living a middle-class life, and run my own small business. You will shortly be able to estimate my age.

You might want to get a fresh cup of coffee – this will be a long read.

 

Sir, can you call a cab for me?

We lived in a suburb of Wichita, Kansas when I was in elementary school. Don’t recall when this particular event happened, but think it was back in 2nd or 3rd or 4th grade, which would have been the early or mid-’60s. Yes, I know that means you can now calculate my age within a few years. Reason to estimate the timing is so you can put the incident into some sort of context. Think the 1960s.

My family was leaving a grocery store when a woman approached my dad. I remember her as being older (at least to the eyes of a youngster), rotund, black, and with inflection in her voice so thick that any three consecutive words she spoke would have immediately identified her race.

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Jim Ulvog

The overwhelming change you feel today is going to increase. Engage the change.

Image courtesy of DollarPhotoClub.com before they closed their doors.
Image courtesy of DollarPhotoClub.com before they closed their doors.

The massive volumes of change you see surrounding you everywhere you look isn’t going to stop. In fact the pace of change is going to increase.

Each of us have a choice. Either figure out how to cope with and embrace the change or ignore it.

The cost of ignoring massive change is that you and your organization will get left behind. That doesn’t just mean you will be a laggard as you continue doing next month what you did last year. Instead that means your organization will radically shrink and before you know it, will disappear.

The downsides are serious. There is an upside and it is exciting.

Four articles I’ve seen lately focus the mind. While these articles are written in either the accounting or church context, they also fully apply in the church and accounting context. They also apply to every individual and organization.

This article will be posted across all my blogs because it applies to all of them.

7/7 – Bill Sheridan at LinkedIn – Embrace change or resist it: Only one option is viable.

The odds are really high that tax preparation will be completely automated in the next two decades. Estimated odds are almost as high that both accounting and auditing will be fully automated.

Consider my business and my core tasks of auditing charities. There is a real possibility those types of audits could be heavily automated in 10 or 15 or 20 years. I am not old enough to bank on retiring before that massive change starts eating away the entire audit profession.

Automation will take over an increasing number of tasks. The world of tax, accounting, and audit will be affected. Mr. Sheridan explains the shelf life of education and experience we have is shrinking.

As the Maryland Association of CPAs routinely points out our learning needs to be greater than the rate of change; L>C is their formula.

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Jim Ulvog