IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
AUDIT PANEL
NOVEMBER 4, 2015
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
AGENDA ITEMS
1. ROLE OF FINANCE COMMITTEE MEMBERS
2. FINANCE COMMITTEE PART IN INTERNAL CONTROLS
3. IMPORTANCE OF MANAGEMENT LETTER AND INTERNAL CONTROLS
4. FUND REVIEW SPREADSHEET – VERIFY GRANTS AND ADMIN FEES
5. 1023 EZ GRANTEES
6. 990 DONOR REPORTING OVER $250
7. OUTSIDE CONSULTANT FOR ACCOUNTING WORK VS. CFO
8. OVERVIEW OF FUNCTIONAL COSTS PROCESS
9. OVERVIEW OF PROPOSED FASB CHANGES
10.Q & A
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
ROLE OF FINANCE COMMITTEE MEMBERS
BIG PURPOSE:
The accounting, financial, and investment
“experts” of the board
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
ROLE OF FINANCE COMMITTEE MEMBERS
BIG PURPOSE: Drives selection committee
1.
Skills
2.
Experience
3.
Objectivity
4.
Active role
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
ROLE OF FINANCE COMMITTEE MEMBERS
Key Responsibilities:
1.
Ensure good accounting records
2.
Review, evaluate and assess financial reporting
3.
Oversee investment strategy and performance
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
ROLE OF FINANCE COMMITTEE MEMBERS
Additional Responsibilities:
1.
Financial and Investment Policies
2.
Assess/approve contractual relationships
3.
Risk assessment process/oversight
4.
Oversight of operating budget
5.
Analysis of areas having financial impact
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FINANCE COMMITTEE PART IN INTERNAL
CONTROLS
When is this appropriate to consider?
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FINANCE COMMITTEE PART IN INTERNAL
CONTROLS
When to involve the Finance Committee:
1. Significant payments/payouts (approval)
2. Employee credit card/expense reporting
3. Independent financial report access
4. Journal entries reported
5. Bank reconciliations and check registers
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
MANAGEMENT LETTER
Required audit communications
• Our responsibility as it relates to internal control
• Qualitative aspects of accounting practices
 New accounting policies
 Use of estimates
• Difficulties encountered
• Audit adjustments or potential adjustments
• Disagreements with management
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
MANAGEMENT LETTER
Required audit communications (continued)
•
•
•
•
Management representations
Consultations with other accountants
Other audit findings or issues
Other information in the financial statements
Internal control matters
• Significant deficiencies
• Material weaknesses
• Control deficiencies and other recommendations
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
INTERNAL CONTROLS
General controls
• Documentation of policies and procedures
Segregation of duties
• Ensuring important functions are independent
from one another
• Limitation based on size
• Compensating controls
Board involvement
• Timely review of appropriate financial reporting
• Education on operational and financial matters
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
SPECIFIC CONTROLS TO CONSIDER
1.
2.
3.
4.
5.
6.
7.
Dual signatures
Pre- or post-approval of checks
Bank statement review and timely reconciliations
Use of budgets
Special event issues
Financial reporting controls
Policies – conflict of interest, whistleblower, document retention,
disaster recovery, credit cards, etc.
8. Regular board meetings with written minutes
9. Fidelity bonding insurance
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FUND ANALYSIS TOOL
Analyze activity on a fund level to ensure:
• Contributions and grants credited to correct fund
• Proper amount of administrative fees charged
• Fund receiving proper investment return
Summary of activity by fund
• Progression from opening fund balance to ending
• Contributions, grants, investment return,
administrative fees, other
FIMS: Columnar Financial Statement
Pearl: Must specifically request
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FUND ANALYSIS TOOL
Fund
Beg Bal
Contr.
Inv Ret
Grants
Admin
Fee
Other
End Bal
% of Inv
Ret
% of
Grants
Admin
Fee %
A
100,000
2,500
7,000
5,000
1,000
-0-
103,500
6.9%
4.9%
1.0%
B
50,000
-0-
3,500
2,500
500
-0-
50,500
7.0%
5.0%
1.0%
C
125,000
80,000
14,000
6,500
1,200
500
205,800
5.4%
3.9%
0.7%
D
-0-
75,000
3,800
-0-
450
-0-
79,300
9.6%
0.0%
1.1%
E
25,000
-0-
1,800
1,250
375
-0-
25,175
7.2%
5.0%
1.5%
F
80,000
15,000
2,500
25,000
1,350
-0-
71,150
3.3%
33%
1.8%
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
IRS FORM 1023-EZ
• Introduced July 1, 2014 to help small charities
 Three pages instead of the standard 26 pages
 Must be filed online
 Shorter approval process timeline
• Gross receipts < $50,000 for first three years
• Total assets valued < $250,000
• Cannot be an LLC or private foundation
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
IRS FORM 1023-EZ
• Specific purpose exclusions apply
• Application fee did not change - $400
• Online application is printable with filing signature
 Pay.gov receipt for application fee
• Determination letter & Exempt Org. Select Check Tool
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
IRS FORM 1023-EZ
SHOULD WE GRANT TO AN ORGANIZATION WHO
RECEIVED THEIR 501 (C)(3) USING THE 1023-EZ?
WHAT DOCUMENTATION SHOULD BE REQUIRED
FROM THE GRANTEE?
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
DONEE SUBSTANTIATION- SECTION 170(F)(8)
Proposed Regulations
• Implement the exception to the “contemporaneous written
acknowledgement” requirement
• Would apply to charitable contributions of $250 or more
 Donee organization would file information returns
 Returns due by February 28 (voluntary to start)
Privacy and Identity Theft Concerns
• Would require collection of donor Social Security numbers
• Legal requirements to retain and protect from identity theft
• Public comments through December 16th
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FUNCTIONAL COST PROCESS - FORM 990
•
•
•
•
•
•
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Avoid using static percentages
Operating expenses = 8% of distributions
Programs should be 60% - 80% of total
Operating and fundraising =< 25% of revenue
37% of nonprofits report zero fundraising expense
13% of nonprofits report zero operating expense
Cost Sustainability Tool coming…
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
CFO VS OUTSIDE CONSULTANT
The pros of hiring a consultant
•
•
•
Full-time position and salary not required
No significant training
Broad base of experiences to pull from
The cons of hiring a consultant
•
•
•
Not available for other tasks/duties
May not have their undivided attention
Availability outside scheduled hours
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
FASB NFP FINANCIAL STATEMENT EXPOSURE DRAFT
•
•
•
•
•
Issued April 22, 2015
Comment period ended August 20, 2015
Public Roundtables held in Sept/Oct
Board deliberations
Effective date for adoption not yet determined
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
STATEMENT OF FINANCIAL POSITION
Currently 3 classes of net assets
 Unrestricted
 Temporarily Restricted
 Permanently Restricted
Proposed 2 classes of net assets
 Without Donor Restrictions
 With Donor Restrictions
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
STATEMENT OF ACTIVITIES
• Present the change in each of the 2 classes of net assets
• Additional subtotals for “without donor restrictions”
column
 Operating excess, before transfers
 Operating excess, after transfers
• Subtotals are to reflect inflows and outflows directed to
carrying out a NFP’s purpose for existence and available
for current-period operating activities
• Non-operating follows – includes items such as interest
expense, investment return, actuarial changes, etc.
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
TRANSFERS
• Governing board designations, appropriations, and similar
actions that place (or remove) self-imposed limits on the
use of resources that make them unavailable (or
available) for current-period operating activities
 Ex: Grant from a board-designated endowment fund
 Ex: Designation of assets for use in a future period – operating
reserve
• Gifts for acquisition or construction
 Revenue increasing net assets with donor restrictions
 Release of donor restriction within operations and report a
transfer out of current operations
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
STATEMENT OF CASH FLOWS
• Currently – many use indirect method
• Proposed – use direct method
• Certain cash flows will also be classified differently than
current guidance
 Ex: Purchases and sales of long-lived assets will be classified as
operating activity rather than as investing
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
OPERATING EXPENSES
• Currently – required to be shown only on functional basis
(except for certain types of NFPs)
• Proposed – shall be presented by both natural expense
classification and functional expense classification in one
location
 Can be either on the face of the statement of activities, as a
separate statements or the notes to the financial statements
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
ENHANCED DISCLOSURES
• Transfers – purpose, amounts, types
• Composition of net assets with donor restrictions
• Management of liquidity; financial assets available to
meet net-term demands for cash
• Underwater endowment funds – stays in “with donor
restriction” classification
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
COMMENTS RECEIVED
•
•
•
•
•
•
•
•
Desire to maintain as much consistency as possible between NFP
and For-Profit reporting
Concern regarding cost to implement changes
Net Assets - support for combining two classes
Assessing Liquidity – too subjective, too vague, business entities
not required to provide
Measures of Operations – need clarification of what should or
should not be included
Transfers – makes Statement of Activities too complex
Functional Expenses – mostly support to report on both function
and nature
Statement of Cash Flows – mixed feedback; will continue to be
underutilized regardless of method
IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY
AUDITOR PANEL
Shannon Borden, CPA, Director
Blue & Co., LLC
sborden@blueandco.com
Patrick W. Burkey, CPA
Estep Burkey Simmons, LLC
pwburkey@ebscpa.com
Rich Haddad, President and CEO
K21 Health Foundation
rhaddad@k21foundation.org