Presenting a live 110-minute teleconference with interactive Q&A Statements of Functional Expenses for Non-Profits Best Practices for Categorizing and Reporting Expenses Under Accounting Standards TUESDAY, DECEMBER 18, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael Sack Elmaleh, Independent CPA and CVA, Bridgehampton, N.Y . Elizabeth Keating, PhD, CPA, Accounting Lecturer, Boston 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 at 1-800-926-7926 ext. 10 .
Tips for Optimal Quality Sound Quality Call in on the telephone by dialing 1-866-869-6667, and enter your PIN when prompted . If you have any difficulties during the call, press *0 for assistance. You may also send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Continuing Education Credits FOR LIVE EVENT ONLY Attendees must stay on the line throughout the program, including the Q & A session, in order to qualify for a full continuing education credits. Strafford is required to monitor attendance. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Program Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the + sign next to “Conference Materials” in the middle of the left - • hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides and the Official Record of Attendance for today's program. • Double-click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. •
Statements of Functional Expenses for Non-Profits Seminar Dec. 18, 2012 Elizabeth Keating, PhD, CPA Michael Sack Elmaleh, CPA, CVA liz-keating@comcast.net mselmaleh@gmail.com
Today’s Program Trends Of Note With SFEs Slide 8 – Slide 16 [Elizabeth Keating] Standards Governing Preparation Of An SFE Slide 17 – Slide 25 [Michael Sack Elmaleh] Fundamental Problems of Functional Allocation Slide 26 – Slide 30 [Michael Sack Elmaleh]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Elizabeth Keating, PhD, CPA TRENDS OF NOTE WITH SFEs
Statement Of Functional Expenses • Relied upon to assess management quality and financial management • Detailed breakdown of expenses • Expenses as defined by the IRS (not GAAP) • Three functional expense categories Program service Management and general Fundraising • 23 natural categories (and other) 9
Spotlight On Functional Expense Mix Watchdog agencies, such as • Red Cross Guidestar and Charity Functional expense mix Navigator, focus users attention on a mix of Program 92.2% Administration 4.0% functional expenses. Fundraising 3.7% Research has shown: • Donors do rely on this information to make decisions. Firms benefit from Source: Charity Navigator higher program service ratios. 10
Extent Of Misreporting Urban Institute’s Nonprofit Overhead Cost Study While this study is from the early 2000s, research suggests these poor reporting practices persist. • 37% percent of non-profits with at least $50,000 in contributions report zero fundraising costs. • 25% of non-profits reporting $1 to $5 million in contributions report zero fundraising costs. • 13% of non-profits report zero management and general expenses. • 7% percent charged all accounting fees to program. 20% split them across more than one category, even though Form 990 • instructions give accounting fees as an example of what is meant by management. 11
Errors Or Intentional Manipulation? High-profile cases of excessive compensation, inappropriate • related-party transactions, telemarketers that keep 100% of funds raised • Pervasive view majority of misreporting is intentional; however, Recent research suggests problems observed in small • organizations may largely be errors due to a lack of education and skills. ― Keating et al., “Misreporting Fundraising: How Do Nonprofit Organizations Account for Telemarketing Campaigns?” 12
Incorrect Accounting Practices: Mis-Assigning Costs Using Direct Identification Examples: Record all or most accounting, legal, depreciation, insurance • lobbying in program expenses. • Classify certain development costs as educational (hence, a program cost) Result: • Program expenses overstated Fundraising and/or administrative expenses understated • 13
Incorrect Accounting Practices: Misallocating Joint Costs Examples: Allocate executive director salary and benefits based on • “perceived” time expenditure • Selection allocation method after first determining which one favors program over fundraising and administrative costs Result: • Program expenses overstated Fundraising and/or administrative expenses understated • 14
Incorrect Accounting Practices: Mis-Categorizing Cost To Another Natural Type Examples: Record professional fundraising services as advertising and • promotion or management fees Result: Selected “high profile” rows are understated. • • Others are overstated. 15
Incorrect Accounting Practices: Misclassifying Expense As A Contra-Revenue Examples: Record fundraising expenses as deduction to a special event • Result: Fundraising or administrative expenses understated • • Total expenses understated Revenues understated • 16
Michael Sack Elmaleh, CPA, CVA STANDARDS GOVERNING PREPARATION OF AN SFE
The SFE: In Search Of An Efficiency Measure The income statement of a for-profit enterprise provides a basic, albeit sometimes crude and approximate, measure of efficiency. If the statement shows a profit, a certain degree of efficiency can be inferred. This is not the case for most non-profits, for which the goal is not to earn a profit but rather to provide charitable goods or services. The SFE was developed to provide an approximate measure of efficiency for non-profits, by dividing expenses into three major categories: • Program • Administrative • Fund Raising 18
GAAP – SFAS No. 117 I. FASB as GAAP standard-setter II. Enforecability of GAAP standards: The attest function III. Required financial statements A. Statement of financial position B. Statement of activities C. Statement of cash flow IV. Voluntary health and welfare entities are required to report expenses by function as well as by natural classification. This requirement gives rise to the SFE. V. Natural vs. functional expense 19
Basic GAAP Definitions Program dervices: Activities that result in goods and services • distributed to beneficiaries, customers or members that fulfill the organizations mission Management and general: Activities included oversight, • management, recordkeeping, budgeting, financing and related administration • Fundraising: Activities include publicizing and conducting fundraising campaigns 20
IRS Form 990 Form 990: Open to the public • • SFE incorporated into the form Basic categories consistent with FAS 117, with clarifications • • Published magazine with advertising is a program expense. Costs to secure grants are deemed program expenses. • • Management expenses include board of director costs, legal and accounting, liability insurance, office management, auditing and human resources. • Fundraising expenses: Employees working in programs and fundraising must reasonably allocate compensation-related expenses. Instructions provide detailed natural classification account • descriptions. 21
Recommend
More recommend
