The CFO'S Perspective

Every so often, one of my non-profit clients will see a small windfall in unrestricted funds, such as a large gift or bequest, proceeds on the sale of an asset, or loan forgiveness. Wanting to protect funding for mission-driven programs into the future, some will start discussing the possibility of setting up an endowment. But this begs the question:

What exactly is an endowment, and are they always the best thing to do?"

Is your organization positioned to navigate the unique strategic and financial challenges inherent in nonprofit settings? As a nonprofit leader, do you need more financial expertise but don’t know if you can afford it?

One of the most complicated elements of managing a non-profit organization's finances is allocating administrative-related expenses. These are expenses that cannot be specifically assignable to the areas benefited – commonly referred to as Indirect Costs. The methodologies of allocating indirect costs are often complex and situational. Additionally, many funders of non-profits have their own rules, exceptions and limits, creating a spider web of regulations.

Nonprofit organizations are required to report functional expenses either in footnotes, the Statement of Activities (SOA), or a separate Statement of Functional Expenses (SOFE). The goal of this functional expense allocation is to illustrate the relationship between program expenses and supporting expenses to better understand how those supporting expenses further the organization’s mission. And while this sounds easy enough in concept, some expenses can be difficult to classify.

To complicate matters, functional expense classifications can change over time. Like a for-profit business, a non-profit organization’s operations can change year-over-year, requiring that functional expense allocations be regularly updated to keep up with current activities. Otherwise, expenses can be misrepresented or fall through the cracks, resulting in misrepresentation of the organization to key stakeholders like grantors, donors, and boards of governors. Management also relies on functional expense information accuracy for strategic planning, making it critical to the day-to-day operation of the organization.

There are 1.2 million public charities in the United States. Public charities are only one of 29 types of nonprofit organizations recognized by the tax code. Next in popularity to public charities are social welfare organizations (501(c)(4)--at last count, there were over 82,000.

In a world where everything seems to be politicized, it is no surprise that many not-for-profits are entering the political arena more and more. And while 501(c)(3) Public Charities can engage in advocacy efforts in generous ways, some organizations may be frustrated by the allowable activities, prompting them to form a 501(c)(4) – a specific type of not-for-profit organized to promote social welfare.

In a year of uncertainties and change, the prospect of a Single Audit for the first time may seem daunting. Many nonprofits are facing this for the first time with influx of federal funds and you should rest assured that your organization has not been singled out. Here at CFO Selections we want to empower you by helping you to understand what Single Audit is, what it covers and how to prepare.

GAAP compliance in financial statements is an essential underpinning for nonprofits and for-profit businesses alike. It is essential to be in GAAP compliance for audits, funding applications, etc. However, the standard GAAP financial statements may not be enough to ensure your statements will match your cash position at the end of the month. Additional perspectives are required to quickly assess the organization’s financial performance.

For many nonprofit organizations, revenue recognition is one of the most challenging accounting issues they encounter.  The guidelines governing the recognition and classification of revenue are now, however, undergoing significant change.