Jim Ulvog

Three areas where accountants could help with analyzing charities

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

Professor Brian Mittendorf has outlined his ideas on how the accounting community could pitch in on industry-wide efforts to assess the effectiveness of charities.

1/25 – Counting on Charity – Three Pressing Issues in the Nonprofit Sector that Need Accounting Input – He  introduced three areas of nonprofit accounting where accountants could help:

  • Accounting for impact investments
  • Follow the money trail through multiple organizations
  • The development of alternative metrics of performance

Expanded discussions:

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Jim Ulvog

CNN reports two charities accused by FTC agree to close their doors.

Federal Trade Commission Building in Washington, DC. - Picture courtesy of DollarPhotoClub.com
Federal Trade Commission Building in Washington, DC. – Picture courtesy of DollarPhotoClub.com

CNN investigators David Fitzpatrick and Drew Griffin report: Cancer charity targeted by feds agrees to put itself out of business. Article says preliminary documents filed in Federal District Court in Phoenix indicate Cancer Fund of America and the related fundraising arm, Cancer Support Services, agreed to turn control over to receivers for liquidation.

In May 2015, the FTC and 50 state attorneys general sued these two charities and two others run by relatives of the president of CFA, alleging fundraising fraud. Two immediately agreed to liquidate. The two discussed in the CNN report initially fought allegations but have now agreed to close their doors.

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Jim Ulvog

Update on overhaul of not-for-profit financial statement presentation

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

A major rewrite of how NPOs present their financial statements is under consideration by FASB. An exposure draft was released in April 2015.

December FASB meeting

FASB has broken the project into two parts. One will move forward on a timely basis and the other will be postponed for reconsideration.

Here is a high-level summary of key components discussed at their December 11, 2015 meeting,

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Jim Ulvog

Want some free CPE course material? Not for credit, but for learning? Included is some material I wrote.

Cover of course courtesy of CCH.
Cover of course courtesy of Wolters Kluwer/CCH.

CCH (Wolters Kluwer) makes the material for some of its courses available for no charge.

If you want CPE credit there is a fee for grading the exam and awarding credit. However, if your goal is learning the materials are available gratis.

As I write this post, the following materials available:

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Jim Ulvog

Ulvog CPA passes Peer Review inspection

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

I am pleased to report my firm passed peer review in 2015.

Peer review is a process CPAs go through to inspect their audit and review work. Experienced CPAs from another firm look at your quality control procedures and read through the workpapers for a selection of audit, review, and compilation engagements.

In the current system there are three grades from a peer review inspection:

  • Pass
  • Pass with deficiency
  • Fail

I am pleased to report I received a pass report, the highest level currently available. I have gone through peer reviews in 2015, 2012, 2009, 2006, and 2003. Each time I received the highest grade possible.

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Jim Ulvog

Today’s “overhead ratio” sparring match: Nonprofit Quarterly versus Nonprofit Quarterly.

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

For today’s lineup we have Claire Knowlton arguing charities should be funded for the full cost of their operations (including building cash reserves, additional reserves for new opportunities, and repaying debt) in order to remain healthy versus Ruth McCambridge and Alexis Buchanan body slamming Wounded Warrior Project because one line item on the 990 is more than what a couple of media reporters decided it should have been.

Let’s check out the NPQ versus NPQ match:

In this corner…

1/25 – Claire Knowlton at Nonprofit Quarterly – Why Funding Overhead Is Not the Real Issue: The Case to Cover Full Costs – In order to be able to continue delivering services to clients, charities need to be healthy enough that they can pay all their bills and have the ability to respond to opportunities.

Author suggests grants to charities should cover all of their costs, not just the immediate program under discussion in a proposal. Author introduces a new term, full cost, which is:

Day-to-day operating expenses + working capital + reserves + fixed asset additions + debt principal repayment = full costs

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Jim Ulvog

Increased discussion of Wounded Warrior Project financial statements

 

Let's do a few calculations. Image courtesy of DollarPhotoClub.com
Let’s do a few calculations before finishing this post. Image courtesy of DollarPhotoClub.com

Looks like the coverage of the Wounded Warrior Project financial statements has blossomed in the last few days. I will discuss that coverage and then discuss WWP’s public comments. Will throw in a reasonableness test of the conference expenses for no extra charge.

Rewriting the initial coverage

One of the things I have learned through blogging is that when a big story breaks there will be a few major articles covering the issue immediately. Over the next several hours many media outlets will repeat the initial coverage verbatim. I think this is done by buying republish rights from the major wire services or major newspapers.

The more fascinating thing I have learned is that over the next several hours there will be dozens of papers and wire outlets who rewrite the initial coverage. It will be done under the byline of their writer and with their copyright.

Having observed this multiple times and having read dozens of articles of follow-up, I have learned the rewrite jobs rarely bring in new information. They merely rephrase and reorganize the initial coverage, with a reference or two back to the initial article. If that was the only thing you read, you would have the impression the paper did their own original research.

I did a search on the net for coverage of WWP and noticed several dozen articles out on the same day which were nothing more than a rewrite of the initial Washington Post and CBS stories. Maybe it has always been that way and I’m only now catching on. I do find it amusing.

New coverage

Here is some coverage that goes beyond a mere rewrite:

1/28 – The Hill – Wounded Warrior charity pushes back against allegations of waste – Two of the major accusations by The Washington Post and CBS against WWP are spending $26M on conferences in total and spending $3M on a training conference in Denver. The overriding issue is essentially the same conversation about the functional expense allocation that has been in play for years.

WWP provided additional information.

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Jim Ulvog

Overhead ratios getting more attention. Wounded Warrior Project is again focus of discussion.

Working on overhead. Yeah, that's a poor joke. Photo courtesy of DollarPhotoClub.com
Working on overhead.  Photo courtesy of DollarPhotoClub.com. Yeah, I know that is a poor joke.

A running debate in the donor and nonprofit community is whether the ‘overhead ratio’ is a good tool to measure the effectiveness of a charity. There seems to be more discussion of the issue lately. Wounded Warrior Project is the focal point for recent discussion. A few articles of interest along with some background:

1/27 – New York Times – Wounded Warrior Project Spends Lavishly on Itself, Insiders Say – Tell me your thoughts on the ongoing conversations in the nonprofit community about overhead ratios and I will tell you whether you will think this article is a balanced critique or a hit piece.

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Jim Ulvog

“4 Tips to Prevent Fraud at Faith-Based Organizations”…

Photo courtesy of DollarPhotoClub.com
Photo courtesy of DollarPhotoClub.com

… is the title of a great article by James B. Jordan to help churches and other faith-based charities protect their contributions from theft and protect volunteers from temptation.

Setting up internal controls is difficult in small organizations, even more so for local churches. The place churches routinely have the most difficulty is keeping control over contributions between the time gifts go into the collection plate until a deposit is ready for the bank.

Mr. Jordan’s tips:

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Jim Ulvog

What to do if your charity gets a subpoena or is drawn into an official investigation

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

If you receive a subpoena from some regulator or police agency asking for documents, it is imperative you process documents properly. Goofing up could cause serious problems, even if you aren’t the actual target of the investigation. If you are the target and you mess up, things could get really bad, really fast.

The law firm of Gammon & Grange provides some ideas on how to work through the serious issues without getting your organization in trouble:  When the Knock at Your Nonprofit Door is Not Some Pizza, but Subpoena.

There are many places in the audit rules where the guidance says something like consider consulting with legal counsel before taking the next step.

If you ever receive a subpoena, that would be an incredibly wonderful time to consult with legal counsel. Get your attorney on the phone. Immediately.

Jim Ulvog

A few of the ways charities can create a requirement for reporting on foreign activities

Image courtesy of DollarPhotoClub.com.
An ocean of paperwork. Image courtesy of DollarPhotoClub.com.

Doing ministry overseas can generate several requirements to file reports with the IRS that you had no idea even existed.

CliftonLarsonAllen provide some background on IRS Foreign Reporting Requirements for Nonprofit Organizations.

Here is their technically worded description of the most common situations:

  • Transfers of property to, or ownership interests in, foreign entities
  • Financial interest in, or signature authority over, foreign bank, securities, and financial accounts
  • Certain payments of U.S. source income to foreign persons

I will mention just a few of the situations they describe which could trigger a reporting requirement. Keep in mind there can be some serious penalties for missing these reports. Serious, as in $10,000 per filing year, assuming the IRS doesn’t allege the failure to file was willful. If they raise that allegation, penalties can get really ugly. Also keep in mind that if you missed one of these reports once, you probably missed it all the years for which the statute of limitations is open.

Control of overseas affiliate

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Jim Ulvog

3 resources that explain the wrong way we look at evaluating charities

This is where we go in order to evaluation a charity's effectiveness. We need something better.
This is where we go in order to evaluation a charity’s effectiveness. Merely do one calculation using the totals at bottom of the functional expense page and you are done. We need something better.

If you want some background describing the wrong perspective used by charities, donors, and self-appointed rating agencies in evaluating nonprofit effectiveness, Marc Gunther at Nonprofit Chronicles points you to three resources you could check out. I discussed this post yesterday. Consider: (more…)

Jim Ulvog

Articles on overhead ratios and why not to accept every GIK you are offered

Here are a few background articles on the overhead issue and why it is a good idea to have a gift acceptance policy.

12/13/15 at Nonprofit Chronicles – If not overhead, then what? Maybe this. – Perhaps it is understandable that donors focus on the percentages on the functional allocation of expenses in assessing charities. What else is available? Nothing.

Article points to a new charity called ImpactMatters which is developing a methodology to audit the impact of charities with an intentional parallel to a financial audit of financial statements.

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Jim Ulvog

Why I am so optimistic – 3

The future is so bright we need sunglasses. Image courtesy of DollarPhotoClub.com
The future is so bright we need sunglasses. Image courtesy of DollarPhotoClub.com

The number of people working in manufacturing has been declining for many years. Those job losses will continue at the same time as technology disrupts other industries causing the loss of more jobs.

This is not a new concept. Technological advances have devastated farm employment over the last 150 years.

Prof. Thomas Tunstall pondered Where the New Jobs Will Come From. Sub headline on his 11/4/15 article said:

In 2007 iPhone application developers didn’t exist. By 2011 Apple had $15 billion in mobile-app revenues.

Consider the percentage of the population employed in agriculture over time: (more…)

Jim Ulvog