Presenting a live 110 ‐ minute teleconference with interactive Q&A Non ‐ Profit Cost Allocation Plan Strategies Mastering the State's Tax Reform and Planning for Flow ‐ Through Income, Tax Credits and Other Issues TUESDAY, JULY 26, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Hydeh Ghaffari, Senior Partner, Ghaffari Zaragoza , Oakland, Calif. Hydeh Ghaffari Senior Partner Ghaffari Zaragoza Oakland Calif Colette Kamps, Senior Manager, Henry & Horne , Scottsdale, Ariz. Jean Gilbert, Outsourcing Senior Manager, Raffa, P .C. , Washington, D.C. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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N Non ‐ Profit Cost Allocation Plan P fit C t All ti Pl Strategies Seminar July 26, 2011 Hydeh Ghaffari, Ghaffari Zarogoza Colette Kamps, Henry & Horne hydeh@ gzaaccounting.com colettek@ hhcpa.com Jean Gilbert, Raffa, P .C. jgilbert@ raffa.com
Today’s Program Tying Together Three Frameworks Slide 7 – Slide 15 [Hydeh Ghaffari] Definitions Of Relevant Concepts Slide 16 – Slide 26 [Colet t e Kamps] GAAP/Tax Differences And Federal Awards Slide 27 – Slide 36 [Hydeh Ghaffari] Slide 37 – Slide 47 Determining An Allocation Methodology [Jean Gilbert ]
Hydeh Ghaffari, Ghaffari Zaragoza TYING TOGETHER THREE TYING TOGETHER THREE FRAMEWORKS
Allocating Costs: Information Availability Financial statements • Audited financial statements open to public inspection in • some states so e states Made available to funding sources by management • Increasingly posted on NFPs’ websites • Tax returns • Form 990 is open for public inspection Form 990 is open for public inspection • Posted at Guidestar • 8
Allocating Costs: Importance Measure of stewardship • Increasing public scrutiny Increasing public scrutiny • • Watchdog groups • Donors • Advisors • Faulty bookkeeping Faulty bookkeeping • • Intentional misrepresentation • 9
Allocating Costs: Uses Informed decision-making • Externally • ― Governmental funding sources Governmental funding sources ― Private funding sources ― Watchdog groups (rating) Internally • ― Cost of program activity or a project within the activity ― Full recovery of costs Full recovery of costs ― Whether to respond to an RFP ― Self-evaluation 10
Allocating Costs: Framework Cost assignment • Cost directly benefits the final cost objective Cost directly benefits the final cost objective. • • Cost allocation • Cost benefits two or more final cost objectives, to a • degree. ― Cost allocation basis Cost allocation basis ― Cost allocation methods 11
Allocating Costs: Framework (Cont.) GAAP • ASC 958-720-45 • AICPA A&A Guide, Chap. 13 • Required at entity level • ― Program activities ― Administration (management and general) ― Fundraising ― Membership Internal Revenue Service • Part IX: Statement of Functional Expenses • ― Program services ― Management and general ― Fundraising R Required for 501(c)(3) and 501(c)(4) organizations and certain trusts i d f 501( )(3) d 501( )(4) i ti d t i t t • 12
Allocating Costs: Cost Assignment Activities (GAAP) ( ) • Program activities (not a funding source) • ― Provider trainings ― Respite services Respite services ― Daycare services Administration (management and general) • ― Overall administration of the organization (governance, marketing, strategic decision-making, financing, etc.) ― Obtaining and responding to RFP related to exchange transactions Fundraising • ― Solicitation of contributions Membership development (Not donor development) • 13
Allocating Costs: Cost Allocation Cost benefiting one or more activities as defined in the previous slide • Facility-related costs • ― Operations (copier, rent, postage, etc.) ( ) ― Cost of people maintaining the facility Joint activities • ― Cost of an activity with a fundraising component ― Cost of an activity with a fundraising component Cost benefiting several projects within an activity • Provider training • Training the trainers h • Cost benefiting various population served within an activity • E.g., residents of Alameda County • People affected by HIV virus • 14
Allocating Costs: Definition Final cost objective Final cost objective • A project, or • A program activity, or • Certain population, or • An award, or • Another direct activity of an entity for which costs can be Another direct activity of an entity for which costs can be • • accumulated Direct cost • Cost that can be assigned directly to a final cost objective • Shared • Cost for which a cost allocation method and basis should Cost for which a cost allocation method and basis should • be used 15
Colette Kamps, Henry & Horne DEFINITIONS OF RELEVANT DEFINITIONS OF RELEVANT CONCEPTS
Allocating Costs: What situations require cost allocations? • Natural vs. functional • Accounting standards • Require nonprofits to report expenses by functional classification l f • Voluntary health and welfare organizations are required to present a Statement of Functional Expenses ― Voluntary health and welfare organization: Formed for V l t h lth d lf i ti F d f the purpose of performing voluntary services for various segments of society; organized for the benefit of the public. It concentrates efforts in attempt to solve health public. It concentrates efforts in attempt to solve health and welfare problems. 17
Allocating Costs: Definitions and descriptions Program expenses • Supporting services expenses • Management and general expenses • F Fundraising expenses d i i • 18
Allocating Costs: Definitions and descriptions (Cont.) • Program expenses: Expenses related to activities carried out to fulfill the mission; include both direct and indirect expenses • Reporting by functional classification includes reporting by b f l l f l d b major program and supporting expenses • Need to determine the organization’s major programs • R Requires judgment and knowledge of the organization i j d t d k l d f th i ti 19
Allocating Costs: Definitions and descriptions (Cont.) • Considerations in determining major programs • • Report as a separate program if revenues or expenses are Report as a separate program if revenues or expenses are > 10% • Separately report programs making up (in total) at least 75% 75% of total program expenses f t t l • Is discrete program financial info available? • Does management separately evaluate? g p y • Form 990 requires disclosure/description of three largest programs • M More than 10 may become overly detailed th 10 b l d t il d 20
Allocating Costs: Definitions and descriptions (Cont.) • Supporting services expenses • Management and general • Fundraising • M Membership development b hi d l 21
Allocating Costs: Definitions and descriptions (Cont.) • Management and general expenses • • Relate to the overall direction of the organization Relate to the overall direction of the organization • Although indispensible to the organization, they are not identifiable with a specific program and are not a fundraising activity. • Include oversight , business management, record keeping, budgeting, financing 22
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