Non-profit accounting

More good stuff on overhead ratios and “worst charities” – 6-29-13

An actual conversation is going about how to use overhead ratios and what outcome measures might look like. Lots of writers out on the ‘net are involved.

Writers are actually engaging ideas from other writers. All of us working in the NPO community need this conversation to develop ideas on how to move away from the misuse of overhead ratios that has been going on for decades.  I think this conversation is a good thing.

In addition, the feature articles by the Tampa Bay Times, Center for Investigative Reporting, and CNN on “America’s worst charities” is developing legs.

There are so many articles I’d like to discuss in my own post but time doesn’t allow doing so.

Soooo, I’ll start to aggregate a few of the more interesting articles.

My comments usually will be limited to one or three sentences.

Focus will be on two areas:

  • Overhead ratio discussion
  • Developments flowing from the “America’s Worst Charities” articles

Here’s my first list:

Overhead ratio

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Jim Ulvog

Outcome measures – On the other hand…

Moving to outcome measures won’t make things perfect in terms of evaluating charities.

There are some downsides to consider, as mentioned by Nonprofit Quarterly – Want Charities to be Evaluated Based on Impact? Be Careful What You Wish For.

The article raises three concerns, all of which we need to think about very carefully. I will mention the three issues and comment on each.

First, (more…)

Jim Ulvog

Internal control, 5th century version

(cross-post from my other blog, Attestation Update.)

Here is an illustration of internal control, a specific mention of “checks and balance”, and the goal of internal control from the 5th century:

From the Fourth Ecumenical Council in 449 A.D.: “As we have learned, in some churches, the bishops administer the material goods of the church without a treasurer; it has seemed right and proper that every church with a bishop should also have a treasurer taken from the clergy who will administer the church’s goods with advice of his own bishop. In this way the administration of the church will not be without checks and balances, the goods of the church will not be dissipated, and the priesthood will be free from all suspicion.”

The quote was listed at LinkedIn by a former colleague, Jennifer Perez, CPA.

That’s too good of an explanation of internal control to let pass without quoting it and making some comments.

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Jim Ulvog

“If We Want Our Funding to Change the World…”

Great video explaining it takes more than the fun, visible program costs to change the world. If We Want Our Funding to Change the World…

[youtube=http://www.youtube.com/watch?v=z_w3v6TxJZQ]

I’ll mention just two sentences from the video by Donors Forum:

The true list of what it takes to run a nonprofit’s mission and not just their program is long. If you want success you must pay what it costs to succeed.

Check out their suggested reading list. There are links to lots of good stuff.

Jim Ulvog

Overhead ratios are the wrong way to look at charities

Dan Pallotta has a superb TED Talk explaining the fallacies of using overhead as a measure for charities: The way we think about charities is dead wrong.

[ted id=1688]

Just a few highlights to share along with my observations (comments in italics are my paraphrase of his points):

We have created different rules for the for-profit world and the charity world. There are five areas of discrimination: (more…)

Jim Ulvog

Overview of what churches should include in board minutes

For a quick summary of how to prepare minutes of church board meetings, check out Mastering Minutes for Church Business Meetings at Church Law & Tax. The article is written by Frank and Elaine Sommerville.

Churches often struggle with preparing minutes that are appropriate, helpful, and not dangerous.

Read the full article for a great primer.

Here is what minutes should do: (more…)

Jim Ulvog

Accounting ideas in World Help’s revised financial statements

There are some accounting concepts in the most recent financial statements released by World Help that warrant discussion. This post will walk through those items I noticed.

This will be a long post. You might want to get a fresh cup of coffee and settle in.

Efforts to reach out to World Help

I have been asking World Help for their comment for a week and a half. The only reply I have received was when the president’s assistant gave me the e-mail contact for the organization’s outside media consultant. I have sent e-mails to the president’s assistant and the contract media consultant several times and received no replies.

Proper accounting is a broader issue in the R&D community than has been discussed

The focus of conversation on accounting in the relief & development community has been variance power and the valuation of medicine, particularly 500 mg mebendazole.

I perceive there are issues involved in disclosures that haven’t yet been discussed.

In accounting shorthand, the matters I see that have not yet been addressed are disclosures of concentration of contributions, concentration of donors, and estimates with a reasonable possibility of change in the near-term.

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Jim Ulvog

Internal control, 1860s edition

Two posts at my other blog illustrate how Wells Fargo stagecoaches used internal controls in the 1860s.

You will see the concepts discussed by your auditor today have been around for over 150 years.

Posts have some fun photos from the Wells Fargo Museum in San Diego. Well, okay, they are fun if you are an accountant or banker or like history of the Old West.

Jim Ulvog

Accounting issues illustrated in 990 of a cancer charity – 1

“Little Money of Children’s Cancer Charity Goes to Main Programs” is a major article in Chronicle of Philanthropy by Caroline Preston discussing the accounting at Children’s Cancer Recovery Foundation.

Overview

I mentioned this article here. There is much in the article that can be discussed from an accounting perspective. I will touch on some of the ideas.

The Chronicle article is behind a paywall, so you need to use your online subscription to read it or grab the February 28, 2013 print edition.

This series of posts is going to be an inside-baseball discussion. More technical than usual with lots of accounting shorthand. Probably won’t be much fun unless you are already familiar with issues in the NPO world. Likely to be wordier than usual (as if I wasn’t wordy enough already!)

You can find the organization’s 990 for 2011 on their website here.

Why this discussion and why this organization?

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Jim Ulvog

Are people too nice in the nonprofit sector?

That’s the question in Caroline Preston’s article at The Chronicle of Philanthropy – Some Nonprofit Leaders Ask: Is Philanthropy Killing Itself with Kindness?

The answer in over 1,500 words: check out Ms. Preston’s article.

The answer in six words: Do you really need to ask?

The answer in one word: Yes

A one paragraph explanation from the article:

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Jim Ulvog

Charity Navigators reallocates joint costs on a selective basis

I visited with the staff of Charity Navigator and learned they are reallocating joint costs from program to fundraising on a selective basis, not across the board.

There website suggests they reallocate all joint costs that go into the program category. See their page How Do We Rate Charities’ Financial Health? which says:

Joint Cost Allocation Adjustment

Generally Accepted Accounting Principles (GAAP) allow for organizations that follow SOP 98-2 or ASC 958-720-45 to report their specific joint costs from combined educational campaigns and fundraising solicitations and the IRS requires organizations to disclose this on the Form 990. In most cases, charities utilizing this technique allocate a small percentage of their solicitation costs to program expenses from fundraising expenses. However, we believe that donors are not generally aware of this accounting technique and that they would not embrace it if they knew a charity was employing it, nor does Charity Navigator. Therefore, as an advisor and advocate for donors, with rare exception, when we see charities using this technique we factor out the joint costs allocated to program expenses and add them to fundraising.

Blog post from WV staff asks are joint costs valid?

Writing at the NFP Audit and Accounting blog, ejwcpa takes exception to Charity Navigator’s position – are join costs valid?

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Jim Ulvog

Discussion of joint cost allocation, variance power, GIK valuation, and portion of funds spent for outside fundraisers, all for one charity

Yes, that is a lot of ground to cover.

Long article out today in the on-line edition of Chronicle of Philanthropy by Caroline Preston covers all those issues in just one NPO – Little Money of Children’s Cancer Charity Goes to Main Programs.

The article is only available on-line and in the print edition soon to arrive in your mailbox.

When the article is out on-line I’ll have more to say.

In the meantime, just know the article discusses one cancer charity at length. Also includes the names of other NPOs that have been in the news lately.

If you have access to either the on-line or paper edition, the article starts on page 7. It runs for one full page and two half-pages.

Jim Ulvog