Tag

financial

Sep 06

Understanding in-kind donations

By Sponsor Insight

by Michael A. Staton, CPA, managing director, Alerding CPA Group

In-kind donations have been part of the nonprofit world for a long time. Galas have silent auctions that require a significant number of items to be contributed for their donors to bid on and generate contributions for the organization to fund its nonprofit mission.

Items are needed to perform the services nonprofits offer to benefactors and perform day-to-day tasks. Examples of such donations can include a box truck to deliver food, clothing, or kitchen equipment used in food preparation to serve to the homeless. The list goes on and on of the many types of items that nonprofits receive on a daily basis from generous donors.

Any non-cash item that a nonprofit receives from a donor is considered an “in-kind” donation and carries its own specific measurement and reporting requirements. In-kind contributions are categorized into two main classifications under U.S. GAAP. They are classified as either in-kind “goods” or in-kind “services.” In-kind goods or services should be valued and recorded in your general ledger based on fair market value.

Fair market value is the price you would have paid for the goods or services if you would have had to go out and purchase the items. Remember, the general rule for donated services is still that you only record the cost of the service if you would have “purchased the service if they had not been donated.” Most volunteer hours are still not considered in-kind donations of services; only those that are specialized.

In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 on Topic 958. The new ASU addresses Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The new ASU was not aimed at changing how we recognize the In-kind contributions, but rather on providing transparency on the disclosure of the donations to the readers of the organization’s financial statements.

The new guidelines require the nonprofit to report the in-kind donations on a separate line in the Statement of Activities so the reader can clearly identify the number of in-kind contributions recognized by the organization. Cash and non-cash donations can no longer be grouped under the “contributions” line item.

There are also several changes that will need to be made to the note disclosures if your organization provides formal statements to its contributors and benefactors. All in-kind contributions will be disclosed by the type of asset contributed. Examples would include legal services, advertising, equipment, materials, food, clothing, etc. The disclosures would also include specific information on whether the asset was “monetized or utilized” by the organization.

The policy used to determine whether to monetize or utilize an asset. If the asset was utilized the organization would describe the programs that benefited from the donation. If monetized, then the organization must disclose their policy on how donations are monetized and any restrictions on the use of the funds. All these changes are part of the overall transparency initiative of FASB and are geared toward providing donors better information.

For more guidance, contact an Alerding CPA Group account representative to discuss this and any other issues you might have.

Jun 13

How to comply to new leasing standards for nonprofits

By Sponsor Insight

by Michael A. Staton, CPA, managing director, Alerding CPA Group

As far back as 2016, the Financial Accounting Standards Board (FASB) began discussions on the implementation of new leasing standards. The new leasing recognition guidelines, which outlined requirements for recording almost all leases on entities’ financial statements, met significant pushback from accounting professionals and businesses alike.

Well, the delays are now over. We must all comply with the new FASB standard ASU 842 in 2022. The new standard, which applies to both non-profit and for-profit organizations, became effective for all fiscal years beginning after Dec. 15, 2021. This means that, if you have leases, you must record under the new guidelines effective Jan. 1, 2022. Financial statements for calendar years ending on Dec. 31, 2022 and fiscal years ending in 2023 must be presented with the new standard.

Under the old standards, nonprofits did not record operating leases on their statements of financial position. They simply recorded “lease expense” on statement of activities while making monthly payments. The new requirements were put in place to provide more clarity about organization’s leasing arrangements and cash flow requirements. Donors will now have more information on the future financial commitments that the organization has undertaken.

Leases will be classified as either a financing lease, an operating lease, or a short-term lease.

A financing lease is the same as what we previously called a “capital lease” under the old standards. The classification criteria are basically the same, as it requires the lease term to cover substantially all of the life of the asset being leased, title to pass at the end of the lease or a below market buy-out.

Consistent with current requirements, the lease will be required to be presented on the statement of financial position as “lease assets” and “lease liabilities,” and depreciation and interest will be reflected on the statement of activities.

Operating leases recognition will be significantly changed under the new standards. Instead of simply recording the expenditure on the statement of activities when a lease payment is made, the value of the asset will be recorded just like that of the financing leases. The statement of financial position will reflect the entities “right to use” the asset and the lease liability for remainder of the term. There is no requirement to restate prior years financials for the recognition of operating leases. FASB allows for the assets to be recorded prospectively.

Short term leases of less than 12 months in duration do not need to be recorded on the financial statements. However, if the lease is expected to be renewed annually then the lease should be recorded as an operating lease or financing lease.

There are additional concerns for your non-profit beyond just recording the lease itself. The new leases that you are recording will change the face of your statement of financial position. You will now have more assets, but you will also have more debt. This could cause your ratios to change and potentially make you out of compliance with your bank or financial institution. Your debt-to-net-assets ratio could not be out of compliance, and you could also have issues with your debt service coverage ratio. Please review these ratios with your lender in advance of issuing your year-end financial statements.

For more guidance, contact an Alerding CPA Group account representative to discuss these and any other issues you might have.

Sep 20

Participant Wellness in the Era of COVID-19 and the Effect on Nonprofits

By Sponsor Insight

by Kevin Kidwell, vice president, tax-exempt sales, OneAmerica

One unavoidable fact is how the pandemic divided people into two groups. The first group are financially stable and held onto their jobs during the pandemic. They have avoided spending money and were able to increase their savings effort. In fact, the U.S. personal savings rate hit a record high of 33% in April 2020, according to the U.S. Bureau of Economic Analysis.1

The second group didn’t fare as well. According to an Employee Benefit Research Institute survey, roughly one in 10 participants have taken a loan, hardship distribution or early withdrawal from their workplace retirement plan during 2020.2 Unfortunately, many more individuals didn’t have the benefit of this safety net, with a quarter of adults without a retirement plan according to a Federal Reserve report.3

This has had a great impact on our communities and the nonprofits that have served them. Need has increased, while the ability to provide services has changed or dramatically reduced.

While this sounds like bad news, we are optimistic because historical perspective of the 2008 recession shows the cyclical nature of our economy and how nonprofits recover.4

Short-Term Consequences

The economic effects of the pandemic forced nonprofits to cut more than 50,000 jobs in December 2020, according to a report from Johns Hopkins University, and it could take 18 months for nonprofits’ employment numbers to return to pre-pandemic levels, per ABC News.5

However, several of our clients have made great strides to ensure their nonprofit employees will continue to keep their jobs at least until the end of the year.

This economic impact of the COVID-19 outbreak will make it harder for some employees to achieve their short-term financial goals putting their long-term financial goals at risk.

Among those employees who say their financial situation has gotten worse during the pandemic, 44% believe it will take them three years or more to get back to where they were a year ago — including about one in 10 who don’t think their finances will ever recover.6

This year, 32% of nonprofit employees expect their employers to reduce program offerings and have hiring freezes, 23% expect pay cuts, 20%, layoffs and 17%, furloughs according to Eagle Hill Consulting, who polled over 500 nonprofit employees across the United States.7

Holistic Financial Wellness

Although we’re confident in the economic healing of nonprofits, many organizations will continue to experience impacts of the pandemic for some time.

There are steps nonprofits can take to support their own employees through continuing change, both now and as they stabilize in the future. Financial wellness will be increasingly important, and as the need for financial recovery will be great for some time, employers need to recognize their role in helping their employees achieve this.

For any organization, this starts by offering and reinforcing employees the basics:

  • Retirement plans
  • Competitive health insurance
  • Paid time off
  • Flexible spending or health savings accounts
  • Financial wellness education

These programs are important for overall employee productivity, health care costs and talent retention. In the 2021 Employee Financial Wellness Survey, PwC reported that of those whose financial stress increased as a result of the pandemic, 45% felt their financial situation had been a distraction at work. Taking this one step further, nearly three-quarters of employees experiencing financial stress also experience physical symptoms, which affects a businesses’ bottom line. People with financial stress tend to avoid getting health care, which could lead to worse health outcomes and higher health care costs later.8

Invest in Financial Education

In addition, by providing access to financial wellness education employers can also help their employees focus on specific goals, such as setting up an emergency fund, paying back retirement loans, reducing debt, and creating a realistic budget. This goes a long way in helping employees start to become more stable and regain confidence in their ability to get back on and stay on track.

By boosting employee financial confidence and offering support, you can have a positive impact on health care costs, retention, and productivity — ultimately making your organization stronger and healthier, too.

In Kevin Kidwell’s role as vice president of national tax-exempt sales, he works to provide ideas, knowledge, information – both technical and practical – in an effort to facilitate improved plan and participant outcomes. Kidwell has held various positions within the Retirement Services division since 1988. Beginning in 2000, his exclusive focus has been on health care and tax-exempt organizations.

  1. Pew Research Survey: Economic Fallout from Covid-19 Continues to hit Lower Income Americans the Hardest
  2. Federal Reserve System Report: Report on the Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020
  3. Pew Research Survey: A Year Into the Pandemic, Long-Term Financial Impact Weighs Heavily on Many Americans
  4. Nonprofit Quarterly: Deconstructing the (Not-So-Great) Nonprofit Recession
  5. ABC News: Study: Nonprofits lost 50,000 jobs last month from virus
  6. Pew Research Survey: A Year Into the Pandemic, Long-Term Financial Impact Weighs Heavily on Many Americans
  7. The Business Journals: Despite increases in charitable donations, half of nonprofit employees expect cuts in 2021
  8. PwC’s 10th annual Employee Financial Wellness Survey, PwC US, 2021

About OneAmerica®
A national provider of insurance and financial services for more than 140 years, the companies of OneAmerica help customers build and protect their financial futures. OneAmerica offers a variety of products and services to serve the financial needs of their policyholders and customers. These products include retirement plan products and recordkeeping services, individual life insurance, annuities, asset-based long-term care solutions and employee benefit plan products.

Products are issued and underwritten by the companies of OneAmerica and distributed through a nationwide network of employees, agents, brokers and other sources that are committed to providing value to our customers. To learn more about our products, services and the companies of OneAmerica, visit
OneAmerica.com/companies.