Blog

• Managing funding disruptions
• Financial reporting considerations
• Supporting workforce needs
• Maximizing financial relief measures

Nonprofit organizations and higher education institutions have been hard at work trying to help the world navigate the novel coronavirus (COVID-19) pandemic. While trying to maintain focus on their missions, these organizations and institutions face massive uncertainty in the face of COVID-19, including financial turmoil, layoffs, remote work, quarantines, shelter-in-place orders and other measures.

While the programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act are primarily intended to assist businesses, there are many programs that nonprofits and higher education institutions can benefit from. As nonprofits and institutions grapple with both the increasing need for services and prolonged economic instability, the CARES Act provides some reprieve.

It is important for nonprofits and higher education institutions to note that federal agencies are working to develop guidance around how specific provisions of the CARES Act will work in practice. The Small Business Administration (SBA), for example, has up to 15 days following the enactment of the CARES Act to issue regulations. Issuance of regulations and guidance may delay loan approval and disbursement or modify/waive certain loan requirements.

Nonprofit Eligibility for Small Business Disaster Loans

The CARES Act authorized two SBA disaster loan programs—The Paycheck Protection Program (PPP) and the Emergency Economic Injury Disaster Loans (EIDL) program. The PPP program is limited in scope to 501(c)(3) and 501(c)(19) non-profit organizations, while all non-profit organizations are eligible for the emergency EIDL program. Since the COVID-19 EIDL program was approved by the national emergency declaration back on March 13, many nonprofits and higher education institutions have likely already applied for one of these loans. While organizations may be worried this will jeopardize their eligibility under the PPP, both loans are permitted. Organizations may receive an EIDL and loans under other programs, such as the PPP, if the basis for the loans and/or costs being paid with each loan are different. For example, you can’t use both the EIDL and PPP for payroll. In other words, no double dipping or duplicating the benefit.

Paycheck Protection Program

This $349 billion forgivable loan program, included in the CARES Act, significantly expands which organizations are eligible for Small Business Administration (SBA) loans. For organizations facing financial strain as a result of COVID-19, these loans can help offset a variety of costs.

Who can qualify?
Registered 501(c)(3) charities, 501(c)(19) veterans organizations, and tribal business concerns that either: employ no more than 500 employees (including full-time and part-time workers), or have more than one physical location (with 500 or fewer employees per location) and are assigned a North American Industry Classification System (NAICS) code beginning with 72 may participate in the Paycheck Protection Program. Note that other nonprofit organizations are not eligible for the program.

How much are the loans and what can they be used for?
The maximum amount for these loans is 2.5 times the average total monthly payroll costs for the prior 12-month period, or up to $10 million, with deferred loan payment of up to one year. The loans may be used for the following:

• Payroll costs
• Employee compensation (excludes compensation in excess of $100,000 on an annual basis)
• Continuation of healthcare benefits
• Interest payments on mortgages entered into before February 15, 2020 (but not prepayment or payment of principal)
• Rent for a lease entered into before February 15, 2020
• Utilities, including electricity, gas, water, transportation, telephone, or internet
• Interest on any debt incurred before February 15, 2020

Loans would be backed by a 100 percent federal guarantee through December 31, 2020, at which time the guarantee percentage would revert to the standard Section 7(a) loan guarantee.

How do you apply?
The application is available through the Treasury Department website. You will need to complete the PPP loan application and include your payroll information. Once complete, organizations need to submit to an approved lender by June 30, 2020. Although the program is open until the end of June, we encourage you to apply as quickly as you can, as it takes time for lenders to process the loan, and there is an overall funding cap.

When can you apply?

• Starting April 3, 2020, nonprofits, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
• Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

What is required to be eligible?
Borrowers will need to include a Good-Faith Certification that:

• The loan is needed to support ongoing operations during the COVID-19 emergency.
• Funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
• You have not and will not receive another loan under this program.
• All the information you provided is true and accurate.

Is there loan forgiveness?
Yes, if you meet certain conditions. The SBA will grant forgiveness up to the total amount borrowers spent of up to eight weeks of payroll costs and mortgage interest, rent, and utility payments between February 15 and June 30, 2020 if the borrower retains its employees and salary levels. Loan forgiveness is prorated for organizations who do not maintain payroll. The CARES Act provides an exception to the reduction if the eligible entity re-hires employees and/or eliminates the reduction in salaries by June 30, 2020. Forgiven amounts do not need to be reported as taxable income. The Treasury Department is anticipating that not more than 25 percent of the forgiven amount may be for non-payroll costs.

Expanded Economic Injury Disaster Loan and Loan Advance

The CARES Act provides $10 billion for the Economic Injury Disaster Loan (EIDL) Program under Section 7(b) of the Small Business Act. The CARES Act made several changes to the EIDL program, which is available to nonprofits and businesses of all sizes in a declared disaster area. Currently, all 50 states, the District of Columbia, Puerto Rico, Guam and the Northern Mariana Islands have all been declared disaster areas for purposes of the EIDL Program. These loans are processed directly through the SBA.

How much are the loans and what can they be used for?
EIDL funds are available for a maximum amount of $2 million, carry an interest rate of 3.75 percent, and have a maximum term of 30 years. Loans over $200,000 must be guaranteed by any owner having a 20 percent or greater interest in the applicant. However, the CARES Act removed the requirement for personal guarantees on loans under $200,000.

Who can qualify?
The CARES Act expands eligibility for EIDL to include tribal businesses, cooperatives, and employee stock ownership plans (ESOPs) with fewer than 500 employees, or any individual operating as a sole proprietor or independent contractor between January 31, 2020 and December 31, 2020. Private nonprofits are also eligible for EIDLs. Until December 31, 2020, the SBA can approve EIDLs based solely on an applicant’s credit score or an alternative appropriate method for determining an applicant’s ability to repay.

How do you apply?
To apply for a COVID-19 Economic Injury Disaster Loan, click here.

When can you apply?
You can apply for these loans now. To speed up the process, an applicant may request an expedited disbursement that is to be paid within three days of the request. The advance may not exceed $10,000 and must be used for authorized costs but is otherwise not repayable if the EIDL is not approved.

What is required to be eligible?
Thanks to the CARES Act, a borrower no longer is required to be turned down for credit elsewhere, which often delayed the EIDL process. Additionally, the CARES Act waived the requirement that businesses be in operation for one year prior to the disaster. Removal of these requirements will expedite the loan process to get SBA disaster dollars into the hands of nonprofits and higher education institutions more quickly.

Is there loan forgiveness?
No.

Department of Treasury Assistance for Nonprofits and Higher Education

Exchange Stabilization Fund (Mid-Size Loan Program)
The CARES Act provides $454 billion as loans, loan guarantees, and investments for eligible businesses, states, and municipalities. Within the $454 billion, it was Congress’ intent that the Secretary of the Treasury make loans and investments available—to the extent practicable— to mid-size businesses and nonprofits.

Who is eligible?
It is important to note that unlike the PPP, these funds are available to all nonprofit organizations and not limited to 501(c)(3)s. These loans should be at a rate not higher than two percent annualized with no payments for the first six months.

What is required to apply?
If your nonprofit organization would like to benefit from this loan, you must provide a Good-Faith Certification that:

• Economic uncertainty requires those terms;
• Funds received will be used to retain 90 percent of the workforce at full compensation and benefit levels before Sept. 30, 2020;
• An intent to restore not less than 90 percent of the workforce prior to Feb. 1, 2020 while restoring all compensation and benefit levels to workers no later than four months after their termination date; and
• Certify that your organization will not outsource or offshore jobs for the term of the loan or two years after completing repayment of the loan; and
• Certify that they will not abrogate collective bargaining rights during this time and will remain neutral in a union organizing effort for the term of the loan.

We expect these loans to be highly competitive, so we would encourage nonprofits to begin preparing now by collecting the necessary documents and completing applications as soon as possible.

Employment Provisions

Organization may be faced with difficult decisions in response to this unprecedented pandemic, including weighing whether to continue to pay workers or make the difficult decision to furlough your employees so they are able to file for unemployment benefits. The employment provisions in the CARES Act are to support employees who lose their jobs due to COVID-19.

Unemployment Reimbursements
All 501(c)(3) organizations have the option of paying unemployment insurance tax or self-insuring. The CARES Act reimburses 501(c)(3) organizations for half of their costs of unemployment benefits provided to laid-off employees. For charities that are tax-exempt from unemployment laws, the organizations are not eligible to receive unemployment benefits. However, organizations can receive this benefit if they voluntarily choose to self-insure.

Unemployment Benefits
COVID-19 is having a significant impact on unemployment throughout the nation, and the nonprofit sector is not exempt. The CARES Act allows employers to claim a new credit against applicable employment taxes in an amount equal to 50 percent of the qualified wages paid after March 12, 2020, and before Jan. 1, 2021, with respect to certain employees, up to a maximum of $10,000 of wages per employee.

The Act includes a specific section related to nonprofit organizations, which allows organizations to be reimbursed for half of the costs incurred through the end of 2020 to pay unemployment benefits. For this credit, any employer that is a tax-exempt organization described in IRC Section 501(c), is deemed to be an eligible employer with respect to all its operations. However, if your organization receives a loan under the PPP (discussed above), then your organization will not be eligible for this credit.

The Act also provides an additional $600 per week payment to those receiving unemployment benefits under their respective state laws and Pandemic Unemployment Assistance participants for up to four months. In addition, the Act provides federal funding for thirteen weeks of additional unemployment benefits through the end of 2020.

Tax Provisions

Employee Retention Credit for Employers
The CARES Act provides a refundable payroll tax credit for 50 percent of wages paid to your employees during the COVID-19 crisis if your organization is eligible. Your nonprofit, 501(c) organization is eligible for a partially refundable employee retention credit if:

• operations were fully or partially suspended, due to a COVID-19-related shut-down order, or
• gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

For organizations with more than 100 full-time employees, wages will be considered “qualified” when they are paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For organizations with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Universal Charitable Deductions
The CARES Act also included a temporary universal charitable deduction. This deduction will allow all taxpayers, even those who do not currently itemize their deductions, to claim a charitable deduction for cash donations up to $300 through December 31, 2020. Recent limitations on charitable donations by individuals were also suspended, for example the 60 percent adjusted gross income limitation. For corporations, the limitation of 10 percent of taxable income was increased to 25 percent.

Delay of Certain Payroll Tax Payments
The CARES Act allows for employers, including tax-exempt organizations, to delay the payment of employer payroll taxes for the 2020 tax year. Fifty percent of employer payroll taxes are due by December 31, 2021. The remaining fifty percent of the employer’s portion of the 2020 payroll tax is due December 31, 2022. However, if your organization receives loan forgiveness of an SBA loan, your organization will not be eligible for a delay.

Minimum Funding Rules for Certain Charities
The CARES Act modifies the minimum funding rules for pension plans sponsored by charitable organizations whose primary purpose is to provide medical care and assistance to mothers and children, to allow for more flexibility in the amount of required payments.

This article was used with permission. Original content can be found on BDO USA’s website.

Now present on every continent except Antarctica, COVID-19 has infected more than 125,000 people, and is responsible for more than 4,600 deaths. With the number of cases in the U.S. continuing to climb, individuals and companies alike are taking steps to prepare for a pandemic. From a shortage of masks and hand sanitizer, to CDC-imposed travel restrictions and the cancellation of conferences and other large events across the globe, this public health emergency is rapidly evolving and all sectors are having to navigate its impact and uncertainty around what the future holds.

The nonprofit industry is no exception—in fact, they face more challenges than most.

The raison d’tre of nonprofit organizations is to help make the world a better place by helping the most vulnerable sectors of the population. These constituencies are also likely to be the hardest hit by the virus.
This situation indicates the importance of a healthy nonprofit sector. Many current nonprofit beneficiaries may need greater services and the number of individuals needing services will likely increase. The sector has always risen to the challenge and we don’t predict that changing.

As with previous crises, the nonprofit sector is poised to help pull the country through this latest challenge. Congress just allocated $8.6B in funding designated for coronavirus prevention, preparation and response efforts, and many nonprofits could stand to receive a portion of those funds.

At the same time, nonprofits also need to mitigate risk for their organization at large, whether that’s protecting employees or preparing for the potential financial fallout from the virus. This situation exposes the importance of resiliency in the nonprofit sector, and some organizations will be better positioned than others to manage this crisis.

While this situation is evolving daily, here are some of the key goals nonprofits should prioritize when considering their response to COVID-19.

Maintaining the Mission
Even during times of significant uncertainty, nonprofit organizations should be sure to keep their mission as the North Star guiding their response. The novel coronavirus is no exception. Many organizations may face interruptions to programming as a result of reduced travel and social distancing.

But that doesn’t mean that furthering your mission should take a backseat. Organizations should take a step back and put together a crisis management team, including executive leaders, investment advisors, communications and program staff to assess how to maintain as much normalcy as possible while limiting exposure risks to both their own employees and the constituencies they serve.

Technology can be a powerful tool to help organizations continue to deliver on their mission while limiting in-person gatherings and travel. We’ve already seen this, for example, with higher education institutions that are moving classes online. Organizations should consider bringing planned meetings and events online, or even postponing or cancelling them completely, along with office closures.

Remote work arrangements can also help organizations continue to operate as normally as possible. There is good reason to think that many nonprofits are leveraging the types of cloud-based platforms that support remote work. According to last year’s Nonprofit Standards Benchmarking Survey, 47% of organizations surveyed offer telecommuting options, and an additional 9% said they plan to in the next 1-2 years. However, the 44% of organizations that had no plans to offer telecommuting may want to consider updating their approach in light of the current situation. The reality is that some organizations may be hindered by their access to technology, or may have processes or functions that must be done in person. Those organizations should consider limiting on-site staff to only those that absolutely must be in the office.

Ultimately, regardless of the tactics a nonprofit employs, the goal should be to continue to deliver on your mission as much as possible under the current circumstances. Some nonprofits that serve vulnerable populations, for example the homeless or the elderly, may not have many options. Those that can, however, should leverage whatever tools they have available.

Safeguarding Finances
While disruption to programming and mission is important, nonprofits should also consider the potential financial fallout of the coronavirus. Many organizations in the social services space rely on physical attendance to continue to receive funding. Museums and zoos may be facing decreased ticket sales. Organizations with planned fundraising events or conferences could need to eat some of those costs if the events are not rescheduled, and “high touch” fundraising efforts may decline. Donations could also be impacted if the financial markets don’t rebound quickly. All of these forces could put nonprofits’ finances at risk.

If an organization faces financial threats that put its very existence in jeopardy, those who benefit from its mission and programming are in jeopardy as well. It’s important that organizations do whatever they can to ensure they stay financially healthy during this time of uncertainty. How organizations optimize and leverage existing revenue and reserves will be important measures of sustainability.

A key element of this is to maintain adequate liquidity, which has long been a challenge for organizations. Our benchmarking survey found that 63% of organizations have 6 months or less of operating reserves, meaning they could be at risk if this situation continues in the near term. Nonprofits should consider shoring up their reserves as much as possible in order to weather any funding delays that could be on the horizon. To do so, they should consider drawing on available lines of credit, and get in contact with lenders to ensure their credit lines are open should liquidity become an issue. Organizations should also reach out to investment advisors to discuss the liquidity available in their portfolios and how to adjust both long and short-term investment strategies if needed.

It’s also important that nonprofits communicate openly and honestly with funders, whether donors or grantmakers, about the financial challenges they may face in light of the COVID-19. Some news coverage has mentioned grant officers considering helping to cover the costs of cancelled nonprofit events. Having open conversations about your financial health can help ensure organizations are protected as much as possible.

Evolving the Approach
The spread of COVID-19 and the resulting ripple effects around the globe are happening at a rapid pace. What looks like an overreaction one day may be an appropriate response merely days later. Employees and volunteers are likely to continue to have questions about how an organization is minimizing their risk while seeking to maintain business as usual. This means that while nonprofits should look to established contingency plans, they may not be relevant for long.

Organizations should seek to evolve their response appropriately as this situation shifts over time. Pay close attention to what governments and health agencies recommend, and try to follow their recommendations as much as possible. For organizations with international boots on the ground, seek to follow the measures being implemented in each of those countries.

Your organization’s leadership team should also be having regular, transparent conversations on what policies and procedures you’re putting in place. Consult with peer organizations collectively to discuss your plans to managing risk. Don’t be afraid to change your approach if the situation warrants it. It’s also important to maintain open lines of communication with employees to ensure you are hearing their concerns and factoring them into major decisions.

One of the major challenges of this situation is that no one knows for sure when concerns will abate. Regardless of what is to come, it’s critical that nonprofit organizations seek to balance furthering their mission with protecting their organizations.

For more information as this situation progress, visit our COVID-19 Resource Hub.

This article was used with permission from BDO Alliance USA.

This article acknowledges how difficult it can be to run and operate a nonprofit organization. However, with the help of these technology trans, that workload can be simplified or even automated. For example, these trends include the use of artificial intelligence, machine learning, and donor data security. No matter which industry your nonprofit is targeting, these trends can be beneficial In your everyday operations.

To view this article, click HERE to access the original content.

This article discusses how running and operating a nonprofit business can be challenging in of itself, but with best practices put in place, can also be rewarding and insightful. Maintaining volunteers is essential to any nonprofit, and these six tips can go a long way in helping your organization grow. Some of them are managing volunteer expectations and standardizing their training.

To view this article, click HERE to access the original content.

This article discusses the latest trends in the nonprofit industry as well as the unknown characteristics that it possesses. From finding a different/more direct way of asking for a donation to the concept of monthly giving, these are trends that your nonprofit can take advantage of in 2020.

To view this article, click HERE to access the original content.

By Susan Friend, CPA

The Governmental Accounting Standards Board (GASB) issued Statement No. 91, Conduit Debt Obligations, in May 2019 to attempt to eliminate diversity in practice related to the accounting for conduit debt issues.

This Statement aims to improve the existing guidance for conduit debt that exists in GASB Interpretation No. 2, Disclosure of Conduit Debt Obligations, which allowed for variation in practice among governments that issued conduit debt, affecting the comparability of financial statement information. The variation was the result of the option for government issuers to either recognize a conduit debt obligation as a liability in their financial statements or disclose the obligation only. Statement No. 91 clarifies the definition of conduit debt and establishes that a conduit debt obligation is not a liability of the issuer. The Statement also establishes standards for accounting and reporting for additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations. Additionally, the Statement enhances required disclosures in the financial statements. The requirements of this Statement are effective for reporting periods beginning after December 15, 2020, with earlier application encouraged.

Pursuant to the Statement, for accounting and financial reporting purposes, a conduit debt obligation is a debt instrument issued in the name of a state or local government (the issuer) that is for the benefit of a third-party who is primarily liable for the repayment of the debt instrument (the third-party obligor). A conduit debt obligation has all the following characteristics:

• There are at least three parties involved, (1) an issuer, (2) a third-party obligor and (3) a debt holder or debt trustee.
• The issuer and the third-party obligor are not within the same financial reporting entity.
• The debt obligation is not a parity bond of the issuer (a bond with equal rights to the collateral as other bonds issued under a common bond indenture), nor is it cross-collateralized with other debt of the issuer.
• The third-party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance.
• The third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation.

All conduit debt obligations involve the issuer making a limited commitment. In a limited commitment, no responsibility for debt service payments beyond the resources, if any, provided by the third-party obligor are assumed by the issuer. Some issuers extend additional or voluntary commitments of its own resources. When an issuer makes an additional commitment, the issuer agrees to support debt service payments only in the event the third-party obligor is, or will be, unable to do so. When an issuer provides a voluntary commitment, the issuer on a voluntary basis decides to make a debt service payment or request an appropriation for a debt service payment in the event the third-party obligor is, or will be, unable to do so.

Although government issuers will no longer report conduit debt obligations as liabilities, they may need to recognize a liability related to additional commitments they make or voluntarily provide associated with that conduit debt. The Statement requires a government issuer to recognize a liability associated with an additional commitment or voluntary commitment if qualitative factors indicate it is more likely than not it will support one or more debt service payments for a conduit debt obligation.

If the recognition criteria are met, the issuer should recognize a liability and an expense in the financial statements prepared using the economic resources measurement focus. The amount recognized for the liability and expense should be measured as the discounted present value of the best estimate of the future outflows expected to be incurred. If there is no best estimate available, but a range of estimated future outflows can be established, the discounted present value of the minimum amount in that range should be recognized. Under the current financial resources measurement focus, an issuer should recognize a fund liability and expenditure to the extent that the liability is normally expected to be liquidated with expendable available resources.

As long as the conduit debt obligation is outstanding, an issuer that has made an additional commitment should evaluate, at least annually, whether the recognition criteria have been met. If an issuer has made a limited commitment, they should evaluate the likelihood that it will make a debt service payment due to a voluntary commitment when there is an event or circumstance that causes the issuer to consider supporting debt payments for that conduit debt obligation. If an event or circumstance occurs, the issuer should apply the recognition and measurement criteria for recording a liability and an expense. For limited commitments, the issuer should annually reevaluate whether that recognition criteria continues to be met for that specific obligation.

This Statement also addresses arrangements that are associated with conduit debt obligations. In these types of arrangements, proceeds of the conduit debt are used to construct or acquire capital assets that will be used by the third-party obligors in the course of their activities. Payments from the third-party obligor are used to cover debt service payments and the payment schedule of the arrangement coincides with the debt service repayment schedule. During these arrangements, the title to the capital assets remains with the issuer, and at the end of the arrangement, the title may or may not pass to the third-party obligor. The Statement clarifies that these arrangements should not be reported as leases and provides that issuers should not recognize a conduit debt obligation or a receivable for the payments related to the arrangement. Additionally, the Statement provides that in an arrangement where the issuer:

• Relinquishes the title at the end of the arrangement, the issuer should not recognize a capital asset.
• Retains the title and the third-party obligor has exclusive use of the entire capital asset during the arrangement, the issuer should recognize a capital asset at acquisition value and an inflow of resources when the arrangement ends.
• Retains title and the third-party obligor has exclusive use of portions of the capital asset, the issuer should recognize the entire capital asset at acquisition value and a deferred inflow of resources at the inception of the arrangement. The deferred inflow of resources should be reduced, and an inflow of resources should be recognized in a systematic and rational manner over the term of the arrangement.

The Statement has also enhanced conduit debt note disclosures by requiring the issuer to disclose a general description of their conduit debt obligations, commitments and the aggregate outstanding principal amount of all conduit debt obligations that share the same type of commitments at the end of the reporting period. If the issuer has recognized a liability, disclosures should also include information about the amount recognized, changes in the liability during the reporting period, cumulative payments made on the liability and any amounts expected to be recovered from those payments.

For more information, contact Susan Friend, National Assurance Director, at sfriend@bdo.com.

For more information from Blackman & Sloop, please contact Deetra B. Watson.

By Tammy Ricciardella, CPA

Many nonprofits receive contributions of both cash and non-cash gifts and are often hesitant to refuse any donations offered. However, there are certain non-cash gifts that can cause issues and at times even cost the nonprofit money.

To prevent these situations, nonprofits should have a gift acceptance policy to standardize this process and ensure that only gifts that benefit the organization will be accepted.

Nonprofits should address the following considerations in developing a formal gift acceptance policy:

What types of assets will the entity consider accepting?

Consider listing the types of gifts that will be accepted, such as cash, publicly traded securities, closely-held business interests, real property, etc.

What is the process for determining whether a gift will be accepted?

Consider and/or determine who on the organization’s staff will be responsible for reviewing proposed gifts and when it may be necessary to engage additional expertise such as outside legal counsel or appraisers. Determine if the entity should establish a gift acceptance committee if it has a large volume of gifts.

What information is needed prior to final acceptance of a gift?

Consider documenting what due diligence is required for each type of donated property prior to acceptance. Establish guidelines for when qualified appraisals, environmental analyses, etc. are required for specific property types.

What are the timelines for the liquidation of illiquid gifts?

Establish a definition of a holding period for an illiquid gift. Establish policies to assess if there will be costs incurred during the holding period, as well as policies to address the expectations of donors if the illiquid asset cannot be liquidated in the original projected holding period.

What gifts will the entity not accept?

Clearly identity any donated assets an entity is not willing to accept.

How will the organization handle donor tax questions?

Consider clearly documenting a policy that encourages donors to obtain tax guidance from their own professional advisers. Nonprofits should avoid giving tax advice to donors.

Will the entity encounter additional work or costs related to an unusual gift or unusual gift restriction?

Establish a policy to assess whether additional time or funds will be incurred prior to the acceptance of a donation. Consider whether these unusual items enhance programs of the entity. Consider whether the entity needs to establish a minimum gift amount or whether these types of gifts should be included in the list of items that will not be accepted.

What is the gift acknowledgment process?

Establish a clear policy for the issuance of gift acknowledgment letters. Ensure these are drafted and reviewed by appropriate tax personnel to ensure all IRS guidelines have been met from both the organization’s and donor’s perspectives.

Having a clearly defined gift acceptance policy can help protect an organization against risks and unexpected costs and provide guidelines for board members or management to determine when it is appropriate to decline a donation. The main focus of a gift acceptance policy is to ensure donated gifts assist the organization in achieving its mission and do not detract from this focus.

For more information, contact Tammy Ricciardella, Director, at tricciardella@bdo.com.

For more information from Blackman & Sloop, please contact Deetra B. Watson.

This article discusses the trends that have been observed in years past, while at the same time, may have a major role in 2020 and beyond. Whether it is flexibility in schedules for nonprofit employees or sustainability impact, these trends could give your fundraising approach the upper hand as we start yet another year.

To view this article, click HERE to access the original content.

By Amy Guerra, CPA

As calendar year end nonprofits have worked through the implementation of Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, and turned their attention to implementing ASU 2014-09, Revenue Recognition, it’s important they don’t turn their back on another ASU.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued in June 2016 and, at first pass, many nonprofits may glance over this standard, thinking there is no implication for them—but that’s certainly not true. When credit losses and current expected credit losses (CECL) are mentioned, most people think of financial institutions. While the new CECL model will impact financial institutions, nonprofits also fall within the scope of ASU 2016-13. Trade and financing receivables, including program-related investments, are two financial instruments common to nonprofits that will be impacted.

Incurred Loss Model

Under current generally accepted accounting principles (GAAP), most nonprofits follow the incurred loss methodology, which is based on historical losses. A loss is recorded only after a loss event has occurred or is probable. That is, an allowance is booked in anticipation of future losses based on historical events.

Expected Loss Model

ASU 2016-13 replaces the model based on historical events with the CECL model, which is an expected loss model. Nonprofits will estimate credit losses over the entire contractual term of an instrument. The expected loss model reflects management expectations based on past events, current conditions, and reasonable and supportable facts. At each reporting date, the allowance equals an estimate of all contractual cash flows not expected to be collected over the life of the financial asset. The changes in estimate are a result from, but not limited to, changes in:

• Credit risk of assets held by the nonprofit
• Conditions since previous reporting date
• Reasonable and supporting forecasts about the future

Credit loss estimates under the expected loss model will require significant judgment.

Estimating Credit Losses

The CECL model gives management flexibility in selecting the most appropriate approach for their organization and the nature of its financial assets. Some possible methods for estimating expected credit losses include:

• Probability of Default/Loss Given Default Method
• Vintage Analysis Method
• Discounted Cash Flow Method
• Loss Rate Method

The new guidance does not set a threshold for recognition of an impairment allowance. Nonprofits need to measure expected credit losses for all financial assets, including those with a low risk of loss. Under GAAP, trade receivables which are current or not yet due may not require a reserve allowance but could now have an allowance for expected losses under ASU 2016-13.

Effective Date and Follow Up

The current effective date for ASU 2016-13 is for fiscal years beginning after December 15, 2020. On Aug. 15, 2019 the FASB issued a proposed Accounting Standards Update (ASU) to extend the effective date of ASU 2016-13 (among other ASUs—see related article on this page). The FASB has proposed a two-bucket approach to stagger the effective date for ASU 2016-13. All nonprofits, including those that have issued, or are conduit bond obligors for, securities that are traded, listed or quoted on an exchange or an over-the-counter market are included in bucket two. ASU 2016-13 would be effective for all entities classified in bucket two for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption will continue to be permitted. The comment period on the proposed ASU will end on September 16, 2019.

Until the final effective date is announced, acknowledging ASU 2016-13 applies and becoming familiar with the impact is the most important thing a nonprofit can do relating to CECL.

For more information, contact Amy Guerra, Senior Manager, at aguerra@bdo.com.

For more information from Blackman & Sloop, please contact Deetra B. Watson.