The Unique Alternative to the Big Four®
Bridging the GAAP Between the Development and
Accounting Departments
Joanne Charles, Shawnee State University
Angie Lewis, CPA, Crowe Horwath LLP
Pete Ugo, CPA, Crowe Horwath LLP
The Unique Alternative to the Big Four®
Speaker Introductions
 Joanne Charles
Shawnee State University
 Angie Lewis
Crowe Horwath
 Pete Ugo
Crowe Horwath
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Objectives
 What is the Issue?
 Why is it a Problem?
 Suggestions for “Bridging the ‘GAAP’”
 Examples of Gift Instruments with a Potential “GAAP”
between Development and Accounting
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What is the Issue?
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Board of Directors Meeting
 Foundation / Development Department’s Portion of
the Meeting
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Board of Directors Meeting
 Accounting Department’s Portion of the Meeting
Accounting - GAAP
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Development/
Foundation
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Do You Think Like The Accounting or Development
Department?
 Assessment test (yes or no) - “Yes” answers are strong indicators of
“accounting”
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What is the Issue?
 Development “Counting” vs. Accounting “Recognition”
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Multi-year pledges
Promises
Grants
Intent vs. promise/pledge
In-kind contributions
Discounted goods and services
Bequests
Remainder trusts
Lead trusts
Estate trusts
Perpetual trusts
Life insurance
Publicly traded stock
Private stock
Conditions
Naming rights
Goods/services received by donor
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Examples of Different “Languages”
 What Development/Foundation
May Hear from Donors:
 What Accounting WANTS to Hear:
 “The University is in my Will!”
 Irrevocable
 “My intention is to set up a scholarship
endowment in my family’s name.”
 Promise to Give
 “As soon as the College opens the new
School of Fine Arts, I will donate $1
million.”
 “I will donate $500 for a table at the
upcoming dinner gala.”
 Unconditional
 Nonrecipirocal
 CASH
 “My company will provide a 20%
discount on construction management
services in relation to your upcoming
capital project.”
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GAAP Contribution Definition
 ASC 958-605-20 (formerly known as FASB Statement #116)
 An unconditional transfer of cash or other assets to an entity or a settlement or
cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting
other than as an owner.
 Those characteristics distinguish contributions from exchange transactions, which
are reciprocal transfers in which each party receives and sacrifices approximately equal
value; from investments by owners and distributions to owners, which are nonreciprocal
transfers between an entity and its owners; and from other nonreciprocal transfers,
such as impositions of taxes or legal judgments, fines, and thefts, which are not
voluntary transfers.
 In a contribution transaction, the value, if any, returned to the resource provider
is incidental to potential public benefits. In an exchange transaction, the potential
public benefits are secondary to the potential proprietary benefits to the resource
provider. The term contribution revenue is used to apply to transactions that are part of
the entity's ongoing major or central activities (revenues), or are peripheral or incidental
to the entity (gains).
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GAAP Contribution Definition
 ASC 958-605-25 (formerly known as FASB Statement #116)
 An unconditional promise to give shall be recognized when it is received. However,
to be recognized there must be sufficient evidence in the form of verifiable
documentation that a promise was made and received.
 A communication that does not indicate clearly whether it is a promise is considered an
unconditional promise to give if it indicates an unconditional intention to give that is
legally enforceable. Legal enforceability refers to the availability of legal remedies, not
the intent to use them.
 Solicitations for donations that clearly include wording such as “information to be used
for budget purposes only,” or that clearly and explicitly allow resource providers to
rescind their indications that they will give, are intentions to give rather than promises to
give and shall not be reported as contributions.
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Why is it a Problem?
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Why is the Development/Accounting “GAAP” a Problem?
 Management and staff confusion
 Board of Directors confusion
 Have we met our goal?
 Audited financial statements may be inconsistent with internal reports
 Audit adjustments and management letter comments
 May lead to distrust of internal reports
 When to give naming rights in a capital campaign?
 When to awards scholarships or fund program activities?
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Why is the Development/Accounting “GAAP” a Problem?
 When to start construction?
 Accounting not involved enough in key decisions
 Campaign goals and planning
 Gift counting decisions
 Complex donor agreements – gift annuity rates, payment terms, etc.
 Public acknowledgement of gifts before any cash received – what if donor does
not pay?
 Budget grows to match development amounts…but accounting can’t make it
“balance.”
 Donor relationship issues – what if your XYZ Building is open, and XYZ donor
hasn’t paid a dime?!
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Suggestions for “Bridging the GAAP”
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Suggestion #1 – Understand the Fundraising Goal and What
Will Actually Be Available to Spend
 Comprehensive Campaign (in millions):
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Major Gifts – silent phase
Alumni appeal
Faculty/employee appeal
Outside foundations
Government grants
Miscellaneous
$ 245
95
15
25
15
5
$400
 Conclusion – We have a $400 million campaign!
 So if we meet our goal….we will have $400 million to spend!! Right???
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Suggestion #1 Example
 “Bridging the GAAP” on Campaign’s Financials
We Exceeded Our Goal!!
Accounting – “Or did we?”
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Suggestion #1 Example
 Sources and Uses
Financials
Current Cash
% of $465M Actual
$ 242
Uses
Fundraising costs
Administrative costs
32
8
7%
2%
40
Left over to
spend now
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$ 202
43%
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Suggestion #1 Example
 Lessons Learned From Campaign
 The accountants should be involved in planning for any fundraising campaign
 Reconcile the future rather than report the past - cash flow projections
 Share accounting information and concerns with development
 Make sure your “sources” have identified “uses” (so that others don’t think excessive
spending is OK)
 Ensure that everyone knows what the balance sheet impact will be
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The Unique Alternative to the Big Four®
Suggestion #2 - Divide and Conquer Your Size
 How big is your institution acting?
Net tuition revenue
$25,000,000
Investment returns
Philanthropy
$50,000,000
$10,000,000
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The Unique Alternative to the Big Four®
Suggestion #2 - Divide and Conquer Your Size
 Breakdown of Philanthropic $$ - Gross to Net
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Philanthropic revenue
Fundraising costs
Direct mail costs
Net philanthropy
$
$
25,000,000
(5,000,000)
(2,000,000)
18,000,000
 Use of $18 Million Net Philanthropic $$
 New faculty endowment
 Administration/Support
 Information systems upgrade
 Current scholarships / programs
Application of net philanthropic $ to Operational Support *
$
$
5,000,000
3,500,000
2,500,000
5,000,000
2,000,000
*Need to clearly communicate the operational support to all parties early… easy to
overspend when others are thinking at the gross level of $25M.
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Suggestion #3 – Divide and Conquer Your Development
How much money is development really raising – and when (if ever) can
it be used?
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Suggestion #4 – Keep the Board Informed
(And remind everyone that it only “counts” once!)
Temporarily
Restricted
Commitments and pledges - Time Restricted
What are our prior commitments and pledges?
What will be the new commitments?
What prior commitments will be paid?
What will be our balance at year end (time restricted)
Restricted cash (Deferred gifts) – Purpose Restricted
What is our prior total of deferred gifts (cash)
What Cash will we receive
What Deferred gifts will we use
$ 35,000,000
15,000,000
$
(10,000,000)
40,000,000
$
28,000,000
10,000,000
(24,000,000)
$ 14,000,000
Unrestricted
Uses of Development dollars
Total Deferred gifts we will use
Unrestricted cash we receive
“Maturity” of planned gifts?
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$ 24,000,000
2,000,000
5,000,000
$ 31,000,000
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Suggestion #5 – Benchmark Against Other Institutions
 Realizing the Power of Numbers
 NACUBO studies
 Other __ACUBO groups
Total Revenue
300,000,000
 US News & World Report
 iPeds
 Form 990 – Guidestar
250,000,000
200,000,000
 Ask your peers
150,000,000
 What to look at?
 Contribution revenue
100,000,000
50,000,000
 Endowment size
 Fundraising expense %
-
 Pledges receivable balance & fluctuations
 Net assets by classification (UR, TR, PR)
 Reserves (Unrestricted net assets less Board designated)
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The Unique Alternative to the Big Four®
Suggestion #6 – Reconcile Often
Periodic reconciliation of development records vs. accounting records
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Validates completeness and existence of recorded contributions
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Tests the effectiveness of internal controls / segregation of duties
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Allows team to address issues in advance – don’t wait for the audit!
AGREE
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The Unique Alternative to the Big Four®
Suggestion #7 – Develop and Document a Gift Counting Policy
 Establish parameters for determining if fundraising goal has been met
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How are revocable gifts “counted”?
Endowment vs. capital or other temporarily restricted purposes
Impact of planned gifts
 Other items that could be included:
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Certain types of gifts count toward specific fundraising categories
Limit on number of years over which pledges may be paid
 Example
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Suggestion #8 – Develop and Document a Gift Acceptance
Policy
 One of the most important reasons – it allows an organization to say “no thanks” to
donor
 Provides consistency
 Removes case-by-case decision process and accompanying emotion/pressure
 Does your organization want to accept donor’s “gently used car” or “wonderful second
home”
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Suggestion #9 – Consistent and Thorough Documentation
 Clear (and consistent) wording on all Pledge Cards and Donor Agreements
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Payment timing
Restrictions (if any)
Irrevocable? (regarding planned gifts)
Promise rather than “intent”
Donor’s signature
 Obtain review/input from both Accounting and Development
 Establish a process for reviewing deviations requested by donors
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The Unique Alternative to the Big Four®
Suggestion #10 – Communicate Often
 Frequent and scheduled interaction between Development and Accounting
 Keep the Board and other members of management informed
 Talk to your auditor throughout the year as complex gift transactions arise
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Examples of Gift Instruments with a Potential
“GAAP” between Development and Accounting
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Example #1 – Bequest for Capital Campaign
 Mr. and Mrs. Generous are wealthy philanthropists who have made annual
contributions to XYZ University for many years.
 XYZ is in the early stages of a $50 million capital campaign for a new classroom
building.
 Mr. and Mrs. Generous met with XYZ’s VP of Development, and stated that they
are updating their will to include a $35 million bequest to XYZ!
 VP of Development and President of XYZ want to name the new building in
donor’s honor .
 Reactions and concerns from Accounting Department??
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Example #1 – Bequest (Accounting Concerns)
 Bequest = not recordable as a pledge under GAAP
 Revocable
 Mrs. & Mrs. Generous are only 50 years old!
 Would you feel differently if they were 90 years old?
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How to fund the classroom building’s construction?
Loans…and interest expense
What if we rename the building, but never receive a dime?
Main concern
 Development says XYZ has met 70% of the capital campaign goal
 Accounting says that XYZ has received no cash and has $0 GAAP contribution revenue
$0 in cash vs. $50 million message?
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Example #1 – Bequest (What is next?)
 Consider an irrevocable trust
 Written documentation – maybe a “promise to give that is funded through
estate?”
 Include building naming plans in written documentation, including impact if future
payment not received
 Consult with Board of Directors
 Donor considerations
 History of previous pledge payments
 Stability of business/income
 Relationships
 Gift counting policy is an important part of campaign!
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Example #2 – Undocumented Pledges
 Mr. Donor met with President of ABC College, and informed President of Mr.
Donor’s recent inheritance windfall.
 Mr. Donor (who has never donated to the College before) wants to direct several
million dollars of his new found wealth to the College.
 Mr. Donor requests that gift be noted as “anonymous,” and indicates that his
attorney will contact the College soon to work out a written agreement.
 Development’s position: record as a pledge in fundraising system, and publicity
of large gift
 Why would this wealthy individual not pay his pledge?
 Accounting’s position: $0 of GAAP contribution revenue
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No history with this donor
No written pledge agreement
Accused of “raining on the parade,” as usual!
Check presentation meetings cancelled
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Example #3 – Matching/Challenge Grant
 Outstanding University is running a fundraising campaign to increase its
scholarship endowments
 University applied for a contribution from the Big Money Foundation (which is the
private foundation of an alumni family)
 Big Money Foundation approved the request in the form of a matching grant
 To receive the $5 million gift from Big Money Foundation, the University must
raise $5 million for this campaign from other sources (with restrictions on amount
from any one individual donor, or from Board members and management)
 Development’s position: record in fundraising system and set scholarship criteria
 Accounting’s position: record as the required $5 million is raised
 Recognition = dollar for dollar
 What if one of the matching pledges is later deemed to be uncollectible?
 No scholarships awarded until funds are received and have earned an investment
return
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Example #3 – Matching/Challenge Grant
 Conditional promise to give
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A promise to give that depends on the occurrence of a specified future and uncertain event to bind
the promisor.
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ASC 958-605-25: Determining Whether a Promise Is Conditional or Unconditional
25-14: Determining whether a promise is conditional or unconditional can be difficult if it contains
donor stipulations that do not clearly state whether the right to receive payment or delivery of the
promised assets depends on meeting those stipulations. It may be difficult to determine whether
those stipulations are conditions or restrictions. In cases of ambiguous donor stipulations, a
promise containing stipulations that are not clearly unconditional shall be presumed to be a
conditional promise.
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A conditional promise to give is considered unconditional if the possibility that the condition will
not be met is remote. (See paragraph 958-605-55-16 for examples.)
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ASC 958-605-55:Implementation Guidance – Distinguishing Between Donor-Imposed
Conditions and Donor-Imposed Restrictions
55-16: If the possibility that the condition will not be met is remote, a conditional promise to give is
considered unconditional. For example, a stipulation that an annual report must be provided by
the donee to receive subsequent annual payments on a multiyear promise is not a condition if the
possibility of not meeting that administrative requirement is remote.
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Example #4 – Conditional Pledge
 Ms. Nice is a long-time supporter of ABC University.
 Ms. Nice sold her business for several million dollars a few years ago, and has
been the University’s largest annual donor since then.
 She wants to support the expansion of University’s enrollment by contributing
$20 million toward the cost of a new dormitory.
 $20 million will be contributed once the land for this new facility is purchased…as
long as the University doesn’t pay “an arm and a leg” for the land.
 Concerns:
 Not recordable under GAAP until condition is met.
 How do you value “an arm and a leg?”
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Example #4 – Conditional Pledge (What is next?)
 Communicate with the donor about purchase price expectations
 Consider including a range of acceptable land purchase prices in the written pledge
agreement
 Consult with Board of Directors
 Keep in contact with donor
 Documentation
 Other common examples of conditions:
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Matching/Challenge grant
Installment payments contingent upon submission of satisfactory progress reports
Pledge based on future event (i.e., college admission, graduation, new program started, etc.)
Gift will be made after construction has started
* Be careful to not confuse conditional pledges with exchange transactions
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Example #5 – Perpetual Trust
 XYZ College has been notified that it is a 50% beneficiary of a perpetual trust.
 Fair value of perpetual trust when XYZ was notified = $80 million (permanently
restricted)
 Accounting and Development likely agree on the amount of contribution revenue
(and beneficial interest asset) recorded = $40 million
 Accounting and Development disagreement likely relates to the fact that XYZ
has $0 cash in hand today!
 Issues:
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Acknowledgement and publicity
Don’t spend it all yet
Annual distributions from trust’s earnings = revenue when received
Changes in fair value of beneficial interest are recorded periodically
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Example #6 – In-Kind Contributions
 ASC 958-605-25-16: Contributions of services shall be recognized if the services received
meet any of the following criteria:
a) They create or enhance nonfinancial assets.
b) They require specialized skills, are provided by individuals possessing those
skills, and would typically need to be purchased if not provided by donation.
Services requiring specialized skills are provided by accountants, architects,
carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other
professionals and craftsmen.
 Contributed services and promises to give services that do not meet these criteria shall not
be recognized.
 Examples of conflicting Development/Accounting in-kinds:
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Unskilled volunteer services
Board of Directors and Committee members’ volunteer time
Pledge of future services (construction management, utilities, etc.) – record when received
Free/discounted rent (may be recorded when pledged in some cases – written, term, etc.)
*Items like those listed above are sometimes allowable for grant matching purposes, even if not recordable under
GAAP.
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Other Examples of Accounting/Development Disagreements
 Pledged PTO from employees
 Retained variance power
 Forfeited PTO from management
 Multi-year pledge from supporting foundation
that exists solely to support the institution
 CRATs, CRUTs, CLATs, CLUTs
 Life estate trusts
 Timing limitations on when donated
stock may be sold
 Private company stock
 Donated coupons
 Donated collections
 Multi-year pledge with “intent” to extend into
additional years
 Distributions from donor advised funds
 Questionable dates on contributions:
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Tax considerations
Development has already hit goal, so “saving
toward next year’s goal”
 None of these items are inherently “bad”
 Need to determine when and how they are counted
 Cash flow impact
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QUESTIONS?
Joanne Charles
Shawnee State University
jcharles@shawnee.edu
Audit | Tax | Advisory | Risk | Performance
Angie Lewis, CPA
Crowe Horwath LLP
angie.lewis@crowehorwath.com
Pete Ugo, CPA
Crowe Horwath LLP
pete.ugo@crowehorwath.com
© 2012 Crowe Horwath LLP
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