Monday, December 05, 2016

NONPROFIT IDENTITY CRISIS?

I attended a conference on non-profit policy. It was a conference, like a dozen others I’ve attended over the years. At the breakfast talk I was half asleep, but the keynote was so electrifying that I woke right up. After the talk, as I stood in line to talk to the keynote speaker, I said hello to Flo Green the Executive Director of the organization sponsoring the conference. We started talking about how ironic it is that nonprofits have come under attack for being too much “like a business”. We've all been working so hard for the past twenty years to have the work done by non-profits taken seriously. The approach being to emphasize that we were no different than any other business: professional, hard working, corporate, etc. And now we find the entire non-profit sector under attack, because if you can’t tell the difference between us and a business then maybe we don’t qualify for the much sought after IRS tax-exemption. How ironic to achieve SO much success that we could lose it all.

So Flo says to me "you know charity means love”. And I paused, taking that in. How had an act of love turned into a business? How had we arrived at this moment? Was the attack valid? Did we, in fact, no longer warrant our tax-exempt status? The hot button issue (raised by Senator Grassley) right now is “what exactly is the difference between a nonprofit hospital and a private hospital” and if the public can’t tell the difference, and the IRS can’t tell the difference, maybe the emperor is not wearing any clothes after all.

The scary part is that if they win that one, which type of non-profit will be next? The question casts a chill over the whole non-profit sector (I don't dare say non-profit industry do I?). It turns out that now (having done every other aspect of business) we must turn to marketing and branding, because without a clearly discernable identity, we may not exist at all in the long run.

Back in the '80's, I worked for a young idealist administrator. He captivated me with stories of the origins of nonprofits, and how they had all sprung into existence in the '60's out of political action and social change movements, out of revolutionary spirit. He and I both used to pine for those days. We didn’t want to sit in an office filling out forms, we wanted to get out there and HELP people.

Because nonprofits had existed for my entire lifetime, I couldn't grasp that they had such a short history and had not even existed before that. I never thought to ask but wait…what did exist before that? And the answer was charity. Charity came from the rich giving to the poor, and a whole heck of a lot of that charity came through the Church. Twenty years later we have become "partners" with every government agency and/or private enterprise that we can manage and so have changed in character from our charitable roots. But if our "Look and Feel" is no longer the same, are we not still devoted to helping the poor (whether it be nutrition, early childhood education, feeding the hungry, training the unemployed, etc. )? See follow-up article: Solving the Nonprofit Crisis

Friday, August 19, 2016

FROM THE TRENCHES - THE IMPACT OF FASB 116 & 117 ON NONPROFIT ORGANIZATIONS

Disclaimer: this is a "from the trenches" opinion piece written by a nonprofit finance director who lived through the transition from pre to post FASB Statements 116 & 117. Please click the "summary" and "status" links to read the full text of the statements and consult your independent auditor for final interpretation.

Both Statements were effective December 15, 1994 for nonprofits with over $1 million in annual expenses and over $5 million in total assets.

Statement No. 116
Accounting for Contributions Received and Contributions Made (Issue Date 6/93) [Summary] [Status]

This Statement radically changed (and standardized) the way nonprofits reflect income. Generally, Statement 116 requires that contributions are recognized in the period received. Why was the change radical? Pre-116, nonprofits received multi-year funding and reflected only the portion for the current fiscal year. The remainder was held in a balance sheet account known as "deferred revenue". This prevented the appearance of a large bubble of "profit" in the first year. Statement 116 had one unfortunate effect, it made financial statements very hard for boards and the public to understand, creating artificial profits and losses which, without notation, could be misleading.   Did the advantage (standardization) outweighs the disadvantages (hard to interpret financials)?   We don't have to choose, Statement 116 is required to be in conformance with GAAP.

Statement No. 117Financial Statements of Not-for-Profit Organizations (Issue Date 6/93)
[Summary] [Status]

Not as controversial as 116, Statement 117 requires nonprofits to provide a statement of financial position, a statement of activities, and a statement of cash flows. The statement also requires that the amounts for each of three classes of net assets:  permanently restricted, temporarily restricted, and unrestricted be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.

When Statement 117 published all nonprofit accounting software had to be re-written to allow for a three column presentation. It also forced out some critical information. An organization that had previously showed high net assets, now might now call attention to a true loss in current unrestricted activity offset by permanently restricted funds. This statement made financials significantly more transparent and easy to understand by boards and the public.


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