Non-profit accounting

Joint Cost Allocation is drawing attention

Chronicle of Philanthropy has a major article out on joint cost allocation, written by Suzanne Perry – Watchdog Cracks Down on Misleading Statements on Fundraising Costs (behind paywall).

The issue is that under certain circumstances, the accounting rules allow allocating fundraising costs into the program category on the functional allocation of expenses. The million dollar question is whether the particular fundraising cost meets very specific conditions.

Here is the crux of the issue in four sentences:

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Jim Ulvog

Article on joint cost allocation in Chronicle of Philanthropy

My post today will have lots of accounting shorthand.  This week’s print edition of the Chronicle of Philanthropy has a major article by Suzanne Perry on allocation of joint costs – Watchdog Cracks Down on Misleading Statements on Fundraising Costs.

Article is not yet visible on their website.

I have two observations.

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Jim Ulvog

“Tragedy of Fraud” e-book now available at Amazon

“Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned” describes the tragic consequences from fraud.

There are ripple effects that spread out to harm innocent bystanders.  The perpetrator draws a wide range of well-deserved wages that will be paid in full.

The book looks at two fraud incidents to learn what happens after a fraud is discovered. One took place in a local megachurch and the other in the mayor’s office of a small city.

The book closes with a discussion of the fraud triangle. That’s the idea that three components need to be present for a fraud to take place – opportunity, motivation, and rationalization. There are steps an organization can take to reduce those factors.

You can find the book at Amazon here. 

This book is a compilation of blogs posts that have been previously published at Nonprofit Update and Attestation Update. The posts have been edited slightly and reorganized for easier reading.

Major sections of the book: (more…)

Jim Ulvog

Do you own your data that is stored in the cloud? If your cloud provider gets in a jam with the government, can you get your data back?

Those are two extremely serious questions that everyone who is storing data in the cloud should start asking.

What would happen to your business or ministry or hobby if the feds seized the server of your cloud provider and you had to fight in court to get your data back?

How would you cope with this situation:

Megaupload is a cloud provider who stands accused of essentially being a storehouse of pirated videos. Their servers were seized by the federal government. That means the data of every user was also seized.

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Jim Ulvog

3 more Q&As on a church paying for services – do you see a pattern of answers saying payments are normally taxable and typically to an employee?

If you do a bit of research on paying people being compensation or whether to treat them as employee or independent contractor, you will see an obvious trend in the discussions.  

If someone is providing services to your church and you pay them, there is usually going to be some taxable income.  It is fairly unusual for those services to be in the category of independent contractor.  

Corey Pfaffe has three more Q&A discussions posted at MinistryCPA blog.  All deal with whether amounts paid to a person for services are taxable and whether such payments should be reported on a W-2 as an employee or on a 1099 as an independent contractor: (more…)

Jim Ulvog

What should you capitalize along with the contract price of the equipment you just bought?

“All expenditures incurred in acquiring the equipment and preparing it for use,”

is the very short answer from Danny Oertle in his post at Nonprofit GPS, Not-for-Profit Organizations Acquiring New Fixed Assets – What Should You Capitalize?

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Jim Ulvog

How do you account for the free months in a long-term lease?

Mission: Accountable explains how in their post Got Free Rent?

The post walks through a good example and gives the journal entries that would be recorded during the first, free months and then the entry over the remaining term.

The same concepts would apply if the free months occurred at some other point during the lease.

It’s a clear, helpful example. Check it out.

Jim Ulvog

Time to un-mis-educate donors about what efficiency looks like

The phrase un-mis-educate is coined by “J” in a post, Rethinking Efficiency, at AidSpeak.

J suggests one of the reasons NPOs (NGOs for my international readers) are under so much pressure on overhead ratios is that NPOs have spent a generation mis-educating donors that organization X is better than Y because 90% or 98% of donations to X go to program services.

I agree.

J says that NPOs need to undo the mis-education, thus the need to un-mis-educate donors.  I think that is a great turn of phrase.

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Jim Ulvog

What is a bargain purchase? Part 2

Previous post described how the accounting literature defines a bargain purchase.

This post will give an example.

Let’s say a friend of your organization is a real estate investor who has a small building available and would like to provide it to the organization. The building is not in the nice, high-rent downtown area but is still in a very average area of one of the outlying suburbs. The benefactor can’t afford to make this space available for free, because there are property taxes and other costs involved. So the benefactor offers the space to the organization at a price of $10,000 per year.

The property would nicely meet the needs of the organization, so you snap up the offer and move in. What are the accounting entries?

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Jim Ulvog

What is a bargain purchase? Part 1

I think it’s about time to talk about bargain purchases and review what the accounting literature has to say.

“That’ll be exciting,” I hear you say.

I know, I know.  This is cool stuff.

Bottom line

The core issue is fair value: what is the fair value of the goods or services received? The second point is the contribution component is the difference between fair value and the amount paid for the goods or services.

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Jim Ulvog

The new Audit Guide’s here! The new Audit Guide’s here!

Well, maybe the release of the draft Not-for-Profit Entities Audit and Accounting Guide isn’t quite as exciting as those ancient commercials announcing the release of the new phone book by showing people running around celebrating that it arrived. (The line was also in the movie The Jerk, starring Steve Martin.) For auditors of NPOs, the arrival of the long-expected audit guide is far better than what the old commercials would have you think about a new phone book.

The draft guide can be found here. The AICPA’s page for the draft is at Overhaul of the Not For Profit Entities Audit and Accounting Guide.

The AICPA’s announcement can be downloaded here. Some highlights, as described in their announcement: (more…)

Jim Ulvog

Working draft of the NPO audit and accounting guide expected in August

The 7-26-12 edition of CPA Letter Daily says a working draft is expected soon:

The AICPA’s Financial Reporting Executive Committee is expected to issue a working draft of the accounting content of a proposed Audit and Accounting Guide, Not-for-Profit Entities, on Aug. 15

If you work in the financial area of the NPO world, this would be something to watch for. The revised guide has been in development for a number of years.

Jim Ulvog

Publicly available price list that validates prices listed in International Drug Price Indicator Guide

This post will have some inside-baseball info for those who are following the issue of how to value donated medicines that has been underway in the NPO and audit communities.

I came across a publicly available price list from a vendor, action medeor, that provides prices for a large range of medicines.

Since there is a behind-the-scenes debate whether the International Drug Price Indicator Guide (IDPIG) has any valid or relevant data in it, I decided to compare the public price list to the amounts listed in the IDPIG.

What did I find?

Prices in the IDPIG are very close to the price list.

I looked at four medicines: 200 mg albendazole and 100 mg mebendazole along with 250 mg and 500 mg ciprofloxacin. These are meds visible in the current conversations on valuing donated medicine.

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Jim Ulvog