Nonprofit finance, accounting, and tax news. Other tidbits of interest to the charity community.
The California Chamber of Commerce has a list of the most common mistakes employers make that result in lawsuits. You can find the full list at The Top 10 Things Employers Do to Get Sued.
Here are three that you may not have heard about before. Since I’m not an attorney, I will summarize some of the points made by CalChamber.
Verne Hargrave, CPA, of the accounting firm PSK, is continuing his great series on traps that business administrators can fall into. He is offering tips on avoiding the traps.
Previously mentioned this in my post here.
New discussions include:
Came across two more articles reminding us to be careful in how we use overhead ratios to assess nonprofits. The functional allocation is a useful tool but needs to used and interpreted carefully.
Meaningless Fractions is a guest post at AidSpeak from Fredrick.
His concern is that the way overhead ratios are emphasized creates confusion between inputs and outputs. Overhead is one of many inputs. Delivering aid requires a wide range of inputs. In addition to infrastructure, an organization needs skilled people in the right locations at the right time, corporate knowledge of how to deliver effective aid, and dozens of other inputs.
When you look at the recommended retention times in a document retention policy you will see time frames like three years or seven years. For employment records you’ll see recommendations of seven years after termination.
I’m not an attorney, so I’ll discuss this from the perspective of an accountant.
You may look at those timelines and think that is quite burdensome. Well, yes, it probably is. So is sorting out what stuff gets put in which category.
However, those sorts of timelines are now the best practice for document retention. (more…)
It is becoming increasingly important for nonprofit organizations to have a policy describing how long to keep different kinds of documents. A key part of any policy is to describe how and when to place a hold on document destruction.
Here are a few samples you could use to develop a document retention and destruction policy for your organization. Because of the wide-ranging legal issues, variations by state, and circumstantial application, I’m not comfortable producing a sample policy.
I have found a few that you could use as a starting point. Here are some samples for your consideration.
An Op-Ed in the Los Angles Times by Jack Shakely, president emeritus of the California Community Foundation, discusses the impact of donated medicines on the functional allocation: The worst way to judge a charity.
A friend of his was grouching about another NPO buying meds for $0.10 a pill and booking them as GIK revenue at $7.00. Mr. Shakely looked at the organization’s web site and found they claim 90% of the contributions go to program, with 5% to G&A. That leaves 5% for fundraising.
He then wonders why we are putting so much emphasis on the functional allocation as the main measure of an NPO.
A nice clarification from the EITF…
One of the fuzzy places in the accounting literature for nonprofits is how to handle donated securities that are liquidated when they are received.
Here is the approach that most organizations take – Since they are not in the business of the investing in the stock market they transfer donated securities to their broker and liquidate them in an orderly manner.
How should those be presented on the cash flow statement? There’s divergence in practice, but I think the most common way is to reflect the liquidation has an investing inflow.
Exposure draft from the FASB will make the presentation consistent.
The urgency of things that must be addressed now can take focus away from bigger issues that have long-term payoff. Verne Hargrave, CPA, of PSK has started a good series on traps that business administrators can fall into because of tyranny of the urgent.
Looks to be a very helpful series. Would be worth your time to visit his blog regularly. Maybe even set it up on your RSS feed. I’ll highlight it occasionally.
Ten Things to Avoid in Church Administration starts the discussion. Mr. Hargrave points out a few problems that can arise if tyranny-of-the-urgent takes over your life: (more…)
A: No way.
This is the conclusion of Saundra Schimmelpfennig in her e-book, Lies, White Lies, and Accounting Practices; Why nonprofit overhead doesn’t mean what you think it means
Many people believe that the ratio of supporting services to total expenses is the ideal way to measure the efficiency of a nonprofit organization.
Even at a conceptual level, that is a flawed idea.
At a practical level, Ms. Schimmelpfennig explains it is so easy to play games with the functional allocation that the overhead ratios should be viewed skeptically.
It’s not just two big-time reporters and this teeny-tiny blog looking at the mebendazole issue anymore.
It is now obvious that the IRS has been paying attention for quite some time. On Monday their involvement hit the papers.
Two articles appeared:
William P. Barrett, from Forbes magazine, posted IRS Audit: Big Charity Filed Misleading Tax Return
Caroline Preston, of The Chronicle of Philanthropy posted IRS Levies Fine on Food for the Hungry Over Drug Valuations.
If you have any interest in the issue of valuing GIK meds, you will want to read both articles.
Previously I’ve discussed the impact of new accounting rules on valuing of deworming medicine. Have been looking at Feed the Children financial statements to quantify the impact.
I am not picking on Feed the Children.
I’m using their 2010 financial statements because they have the best disclosures in their financial statements that I’ve seen for the impact, plus there is public information on what per-pill valuation amounts they have been using. It is to their credit that they have this amount of background available in their financial statements.
It is my guess, just a guess, that the same underlying valuation issues and impact on supporting services ratio that I have described previously here and here, would also be present in the financial information for other organizations that have large volumes of deworming medicine. If I can find good info, I’ll do some calculations on other sets of financials.
I have a few more observations and then one more set of calculations.
Previous post quoted disclosures made by Feed the Children in their 2010 audited financial statements. Essence of that note is that deworming medicine valued in the 2009 financial statements at $544M would have been valued at $21M if the 2009 financial statements had used the pricing information that was in use for 2010.
This post will look at the 2008, 2009, and 2010 financial statements through the lens of the two different valuation rates.
Here are the spreadsheets that support my comments in this post. Remember your Algebra teacher telling you to show your work? Well, here’s my work. I’ve posted this here to keep the other post a bit less messy.
Previous post here discussed the impact of changes in valuation of GIK caused by new accounting. I already discussed World Vision’s financials. Next I will look at Feed the Children’s financials.
The beginning point of my discussion was a Forbes article, by William P. Barrett: Donated Pills Make Some Charities Look Too Good on Paper. This series of posts started here. I hope my observations from a CPA’s perspective will contribute to this growing discussion.
After looking at World Vision’s financials, I looked at the financial statements of several other NPOs trying to figure out the impact of FAS 157 and especially the change in valuation of deworming medicine.
Mr. Barrett has accumulated some good numbers. I looked at publicly available audited financial statements and 990s available from GuideStar. I could not get a clear understanding by combining information from his published report with public data to let me get a clear understanding. Just not quite enough data there to work with.
Then I looked at the Feed the Children website. Kudos to them for making their 2010 financial statements available online, which you can find here.
Wow. Found some superb information in the footnotes. Check out this comment in note 2 on page 11, which I will quote at length:
What in the world is Swedow?
In writing about GIK and deworming meds, I’ve learned some fancy words, like Albendazole, Mebendazole and Swedow. I’ve also started reading discussions in places I usually don’t go.
For example, Good Intentions are not enough is a great blog written by Saundra Schimmelpfennig. She has lots of posts about the complexities of doing foreign aid well.
While visiting that site, I read a guest post by Juanita Rilling: Compassion on Sale.
She has a sobering discussion of the unintended waste of sending drinking water as part of humanitarian relief. (more…)