2018 Not-for-Profit Considerations Jay Meglich 1 Economic & - - PDF document

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2018 Not-for-Profit Symposium

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slides.

2018 Not-for-Profit Considerations

Jay Meglich

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Economic & Industry Developments

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• Economic indicators
• Not-for-Profit impact in the U.S.A.
• Challenges facing NFP organizations
• Legislative and Regulatory considerations

Economic Indicators - GDP

• Gross Domestic Product increased at an annual

rate of 2.3% for 2017 vs. 1.6% for 2016

• For 2018, GDP increased 2.2% for Q1 and 4.1% for

Q2

• Only 1 quarter of negative growth in last 8 years

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Economic Indicators – Unemployment Rate

• Unemployment rate decreased from 4.7% in 2016

to 4.1% in 2017

• July 2018 rate was 3.9% or approximately 6.3

million people

• May 2018 rate of 3.8% was an 18 year low

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Economic Indicators – Interest Rates

• 2017 federal funds rate increased 3 times in 2017

from .75% in January to 1.5% in December

• The rate has been increased 2 times so far in 2018

and currently sits at 2.0%

• Indications are that the gradual raising of rates will

continue assuming continued income and jobs growth

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Economic Indicators - Inflation

• Inflation rate at 2.1% for 2017 remained consistent

with 2016’s rate

• Rate for July of 2018 was 2.9% which is the highest

since December 2011 primarily driven by oil prices, housing and transportation

• Forecast rates remain around 3% through 2020

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Economic Indicators – Stock Market

• Market total returns remain strong but volatility has

increased

• Returns on invested assets have been a source of

unrestricted income but comes with risk

• Dave Brinkman to provide more information this

afternoon

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Not-for-Profit Impact in the U.S.A

• Currently 1.5 million NFP’s registered with the IRS
• Contributions rose to $390 billion in 2016
• Total revenue exceeded $2 trillion and assets

topped $5 trillion

• Approximately 25% of U.S. adults volunteered

providing more than 3 billion hours

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Challenges Facing NFPs

• Succession – Aging workforce impact on leadership

ranks is a key risk for organizations and boards

• Cybersecurity – Protection of organizational and

donor data is critical

• Continued increase in demand for programs and

services

• Engaging with current and future generations of

donors and volunteers

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Challenges Facing NFPs

• Top 3 operational challenges for U.S. NFP’s*

1. Staffing resources (76%) 2. Effectively managing change (74%) 3. Keeping up with growing demand for programs/services (73%)

* - Nonprofit Trends Report – salesforce.org

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Challenges Facing NFPs

• Top 3 priorities/initiatives*

1. Increase program and service visibility to constituents (48%) 2. Expand services within existing programs (35%) 3. Scale and expand program and service reach (35%)

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Challenges Facing NFPs

• Top 3 technology solutions necessary*

1. Impact management (69%) 2. Converting prospects to donors (64%) 3. Online/digital fundraising (63%)

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Challenges Facing NFPs

• Top 4 reasons technology adoption lags*

1. Budgetary constraints (89%) 2. Difficulty customizing technology to fit needs (68%) 3. Implementation difficulties (67%) 4. Lack of resources to train employees (66%)

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Legislative and Regulatory Considerations

• Impact of the 2017 Tax Cuts and Jobs Act (TCJA)
• Several significant new accounting standards

impacting NFP’s in 2018 and near future

• Minimum Wage implications
• General Data Protection Regulation (GDPR)

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2018 Tax Update – Tax Reform, Trends and Recent Developments

Presented by: Eugene J. Logan, CPA August 30, 2018 elogan@schneiderdowns.com

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2017 Tax Reform

• Short Title - The Tax Cuts and Jobs Act of 2017

– Became Public Law No: 115-97 on December 22, 2017 – Amends the Internal Revenue Code of 1986 – Law passed via the budget reconciliation process permitting passage by a simple majority vote – The Byrd Rule

• Due to the Byrd Rule the law may only reduce revenue by less than $1.5

trillion over the next 10 years (practical effect is many provisions of new Act sunset prior to 10 year window)

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Provisions Impacting Exempt Organizations

• Unrelated Business Income
• Excise Taxes
• Charitable Contributions
• Employee Benefits
• Pennsylvania Changes

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Unrelated Business Taxable Income

• Unrelated trade of business taxable income must be separately

computed

– Deductions of one trade or business cannot offset income of another unrelated trade

• r business for the same taxable

year (“silo-ing”)

• The term “trade or business”

is not defined

– Application of the new provision to alternative investments of pass-through entities such as partnerships is unclear

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Unrelated Business Taxable Income

• Application of new provision on alternative investments

– Is each partnership a separate silo? – Each activity within a partnership – Can we group?

• Changes to structure

– Does a C-Corporation make sense? – Low rate and opportunity to net

• Effective for taxable years beginning after December 31, 2017

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Unrelated Business Taxable Income

• The value of certain fringe benefits provided to employees on a

tax-free basis will be treated as unrelated business taxable income (UBTI)

– Qualified transportation fringe benefits – Parking – On-premises health facilities

• Provision attempts to provide

parity between tax-exempt

• rganizations and taxable corporations
• Effective for amounts paid or incurred beginning January 1, 2018

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Net Operating Loss

• New rules:

– Net operating losses incurred by a trade or business may be used to offset income from the same unrelated trade

• r business in another year

– Special transition rule – net operating losses arising in a taxable year before January 1, 2018 that are carried forward are not subject to the limitation

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UBIT – Notice 2018-67

• First Guidance Related to EO Provisions
• No Bright-Line Test for Trade or Business

– Rely upon reasonable, good-faith interpretations of the IRC – Indicates use of NAICS 6-digit codes will be considered reasonable

• Investment in Partnership with UBIT

– Can aggregate UBTI from single partnership if –

• Deminimis test (less than 2% ownership)
• Control test (less than 20% ownership and no control)

– Transition rule for partnership acquired before August 21, 2018.

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UBIT – Notice 2018-67 (Cont.)

• Taxable Fringe Benefits not a UBIT Activity

– If only one other UBIT activity §512(a)(6) would not apply. Does this mean you can offset?

• Discussion on NOL and UBTI

– Confirms Pre-2018 NOLs can be used to offset any income. – Discusses ordering rules on pre-2018 NOL’s and post 2018 NOL’s.

• Requests for guidance throughout, not finalized, but

can be relied upon.

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Corporate Provisions

• Several corporate provisions will affect exempt
• rganizations
• rganized as

Nonprofit Corporations

– Net Operating Loss

• Limited to 80% of

taxable income

• Infinite carryforward,

but no carryback

• Effective for losses on

tax years beginning January 1, 2018

– Flat corporate tax rate of 21%

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Corporate Provisions

– Elimination of corporate Alternative Minimum Tax (AMT) – Refund of minimum tax credits – Changes to Bonus Depreciation and Section 179 Deduction Rules – Like-kind exchanges available only for real estate

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Excise Tax on Investment Income

• New 1.4% excise tax on investment income of private

colleges and universities that meet the following criteria:

– 500 tuition-paying students – Assets of at least $500,000 per student (daily average of full-time students or equivalent) – Institution has more than 50% of their tuition paying students in the U.S.

• Assets of all related organizations are treated as assets of

the institution

• Assets utilized to directly carry on educational purposes are

excluded

• Effective for tax years beginning after January 1, 2018

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Excise Tax on Executive Compensation

• New 21% excise tax on compensation in excess of $1

million paid to the five highest paid employees for the tax year

– Applies to “covered employees” – Compensation treated as paid when rights to remuneration are no longer subject to substantial risk of forfeiture – Exempts parachute payment compensation paid to noncovered employees

• Special Rules apply to remuneration paid to licensed

medical professionals and qualified medical professionals.

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Charitable Contributions

• AGI Limitation on cash charitable contributions

increased to 60%

• 80% deduction for charitable contributions made

for university athletic seating rights repealed

• Exception to the contemporaneous written

acknowledgement requirement for contributions of $250 or more repealed (exception permitted reliance upon an organization’s Form 990 as an acknowledgement)

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Charitable Contributions

• Suspension of the Pease Limitation

– Up to an 80% phase-out of itemized deductions for high income taxpayers

• Changes to the Gift and Estate Tax Lifetime Exclusion

($11.2M for 2018)

• Uncertain whether charitable giving will decrease due

to the changes to individual taxes (i.e., increase in standard deduction)

– Year-End check writing – Indiana University study

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Employee Benefits

• The exclusion from gross income for qualified moving

expense reimbursements and the moving expense deduction have been suspended for tax years beginning after January 1, 2018 and before January 1, 2026

• Employees are no longer able to exclude from gross

income the value of employee achievement awards (regardless if the gift is given as cash, cash equivalents, gift cards, vacations, meals, lodging, event tickets, stocks, bonds or other securities)

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Employee Benefits

• Pickup of qualified transportation or qualified

parking as income

• Credit for Family Medical Leave payments

– Applies to exempt organizations? – Offset to UBIT and Parking Fringe Tax

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Other Provisions

• Elementary and secondary school expenses (up to

$10,000 per year) qualify toward qualified tuition

• programs. The provision applies to contributions

made after Dec. 31, 2017

• Discharge of student debt is not taxable if the

discharge is due to the student’s death or

• disability. The provision applies for tax years 2018

through 2025.

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Not Included in the Final Act

• Private foundation excise tax reduction on investment

income

• Private foundation excise tax on failure to distribute

income

• Exception from excess business holdings tax for

independently operated philanthropic business holdings

• 501(c)(3) organizations permitted to make

statements related to political activities (“The Johnson Amendment”)

• Additional reporting requirements for donor advised

funds

• Licensing of an organization’s name or logo

considered UBTI

• Elimination of research exemption from UBTI unless

results freely available to the public

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Not Included in the Final Act

• The following provisions related to

education were not repealed:

– Deduction of interest on student loans – Deduction for qualified tuition and related expenses – Exclusion for qualified tuition reduction programs – Employer-provided education assistance

• Employer-provided housing exclusion
• American Opportunity Tax Credit

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Going Forward

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Going Forward

• Diligently track and document expenses incurred

with unrelated business taxable income (UBTI)

• Consider the impact of the tax reform changes on

the deferred tax provision

• Review and revise budgets to account for tax

changes made to employee benefits

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Going Forward

• Diligently track and document expenses incurred

with unrelated business taxable income (UBTI)

• Consider the impact of the tax reform changes on

the deferred tax provision

• Review and revise budgets to account for tax

changes made to employee benefits

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Other EO Trends

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State Solicitation Registration

• Approximately 41 states enacted charitable solicitation statues

– 25 states require disclosure statements on solicitation materials – 24 states have audit requirements and require a copy of the FS to be submitted with registration – Many states require registration prior to solicitation – “Donate Now” button on organization’s website is considered soliciting

• Laws and regulations vary from state to state

– Definition of Solicitation varies between states – Registration typically based on Annual Revenue or Gross Contributions – Various thresholds for audit vs. review vs. compilation

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State Solicitation Registration - Continued

• Typical Required Documents for Initial State Registrations:

– Articles of incorporation – Bylaws – IRS Determination Letter – IRS 1023 – List of Officers, Directors, Trustees, and Key Executives – Lists of Affiliated Nonprofits – IRS Form 990 – State-Specific Supplemental Forms – Audited FS – Contracts with Professional Fundraisers, Solicitors, and Consultants – Contracts that Describe Activities Defined as “Commercial Co-Ventures” in State Law

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State Payroll Registrations

• Hiring of out-of-state employees trigger registrations
• States vary on laws and registration

– May need to register to do business or register as a foreign

• rganization

– If state has personal income tax, register for withholding account – Non-profits typically have different thresholds for unemployment reporting requirements. May need to register for an account – Depending on the state, employer could be responsible for withholding county/local taxes

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Executive Compensation (Rebuttable Presumption – Intermediate Sanctions)

• Three requirements for establishing the rebuttable

presumption are:

1. The compensation arrangement must be appr approved in ed in adv advance by an authorized body of the applicable tax-exempt

• rganization, which is composed of indi

individuals s who do no who do not t ha have a a conflict conflict of

• f int

interest rest concerning the transaction, 2. Prior to making its determination, the authorized body

• btained and relied upon appr

relied upon appropr

• priat

ate data as e data as to co comparability arability, and 3. The authorized body adeq adequat uately and timely docume ly and timely documented the the basis basis f for r its de its determ rminat ation concurrently with making that determination.

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Executive Compensation - Continued

• Form 990 Question

– Core Form, Part VI, Section B Policies, Question 15a & b – Disclosure in Schedule O for 15b must align with intermediate sanction rules

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Recent Developments

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South Dakota v. Wayfair

• What is nexus? (economic vs. physical presence)

– South Dakota’s law said nexus established in South Dakota when:

• $100,000 in annual sales into South Dakota OR 200 separate

transactions annually into the state

• No property or employees within the state required

– Ruling: Physical presence is no longer required for substantial nexus for sales tax collection

• Impact: Many states expected to pass legislation

similar to South Dakota

• Significant to nonprofits who conduct online sales of

tangible personal property

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Subsequent Guidance on Tax Reform’s Endowment Tax Calculation

• IRS Notice 2018-55

– Proposed regulations will be similar to IRC 4940(c) – Net Investment Income = gross investment income and capital gain net income that exceeds allowable deductions – Basis equals FMV as of 12-31-17 to calculate gain – Current year losses can offset current year gains, but may not be carried forward or backward

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Mandatory E-Filing of Form 990

• Advisory Committee on Tax Exempt and

Government entities (ACT) recommended mandatory electronic filing of Form 990

– First recommended in 2015 – Approx. 57% of all 990’s are e-filed, leaving roughly 200,000 paper filers – 77% of returns prepared by paid preparers are e-filed, but only 14% of returns prepared by the exempt org get e-filed – Paper filings create difficult for the IRS in digitizing data

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Final Regulations and Recordkeeping and Substantiating Charitable Contributions

• Recordkeeping required for all cash contributions,

regardless of amount (this is in addition to substantiation rules for contributions $250 or more.

• Donor must maintain bank record or written

acknowledgement from charity providing name of org, date, and amount of contribution

• Blank pledge cards do not meeting substantiation

requirements (e.g. Goodwill slips)

• New regs provide detail of recordkeeping and

substantiation required for noncash contributions

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Other Developments

• Exempt Organizations, other than those exempt

under IRC 501(c)(3), no longer need to complete Schedule B of Form 990

• 2018 draft versions of Form 990 and 4720

released – Form includes new questions on executive comp and NII

• Renewed attempts to curtail the Johnson

Amendment

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Executive Compensation

Jennifer Doering

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Sc Schneider Do hneider Downs Compensation Ser wns Compensation Services ices

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Schneider Schneider Downs ns Advisor visory Ser Services ices pr provides ides the the follo

• llowing

wing comp compensation ensation services: ices:

– Compensation studies

• Executive compensation
• Staff compensation

– Peer group assessment – Board of directors training and consultation

Agenda

• The importance of compensation considerations
• How to use the rebuttable presumption process

and compensation studies to meet an

• rganization’s compensation goals
• Who should address compensation decisions

within an organization

• Best Practices Wrap Up

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Elements of Elements of Compensation Compensation

Remember t member to consider consider to total c compensation:

• Wages
• Fringe Benefits
• Short Term Incentives
• Long Term Incentives
• Severance Pay

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Compensation Compensation Consider Consideration ations

Does Does your ur

• rganization
• rganization

adeq adequat uately ly consider consider com compensation ensation issues issues and and their heir im impact? pact?

• Compliance
• External Competition
• Internal Compensation Philosophy
• Stakeholder and Public Scrutiny

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Compliance Compliance Consider Considerations ations

Key provis vision ions of IRC Section Section 4958 4958

• Intermediate Sanctions

– Applicable to 501(c)(3) and 501(c)(4) entities – Excise taxes on compensation paid in excess of “reasonable compensation” to disqualified persons – Provides the rebuttable presumption, a safe harbor that shifts burden of proof to the IRS

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Compliance Compliance Consider Considerations ations

• Tax Cuts and Jobs Act Sec. 4960

– Total compensation exceeds $1 million – Separation Payments and Benefits

• Present Value greater than or equal to three times the five-year

average pay

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Compliance Compliance Consider Considerations ations

The Rebuttable ebuttable Presum resumption tion Requirements: irements:

• Approved in advance by an authorized body
• Obtained and relied upon comparable data
• Adequate and timely documentation

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Rebuttable Presumption buttable Presumption

Use C e Comparable D e Data!

• In 2013, the IRS completed a multi-year project related to tax-exempt

colleges and universities.

• Of the tax-exempt colleges and universities examined, roughly 20% that

had intended to meet the rebuttable presumption did not meet the standard due to issues with their comparable data.

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Rebuttable Presumption buttable Presumption

Organizational Organizational fact ctors

• rs include:

nclude:

• Location
• Size
• Mission
• Industry
• Operating complexity

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Rebuttable Presumption buttable Presumption

Em Emplo ployee ee fact ctors

• rs include:

nclude:

• Qualifications
• Duties
• Background and experience
• The number of hours worked
• Amount of responsibility
• Earning history of employee

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Compensation Compensation S Studies udies St Steps eps in a Com Compens ensatio tion Study: Study:

• Obtain an understanding of the organizational structure

and the employee(s) role within the organization

• Identify the comparable peer group
• Benchmark the employee(s) compensation
• Prepare a report summarizing the methodology, analysis,

findings and conclusion

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Compensation Compensation S Studies udies

Sour Source ces of Com

• mparable

parable Data: ata:

• Forms 990 of comparable peer group
• Broad market compensation surveys
• Industry-specific surveys
• Subscription-based sources

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Compensation Compensation S Studies udies

Pitf Pitfal alls when when rely relying on mar arket data: ata:

• Form 990 “normalization adjustments”
• Is it clear what types of compensation are included in

survey data?

• Is your own organization’s data included in the survey

results?

• Are other organizations included sufficiently comparable?

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Compensation Compensation S Studies udies

Which Which pos

• sitions

itions should hould be included ncluded in a comp compensation ensation study? udy?

• Disqualified persons
• Positions that are not required, but are advisable:

– Other executives – Other key employees reported on Form 990 – Other employees responsible for a substantial portion of the

• rganization’s revenues or expenses

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Compensation Compensation S Studies udies When When should should a com

• mpens

nsation ation study tudy be be per perfor

• rme

med?

• Initial hire/Contract renewal
• Employment arrangements that are significant outliers
• Organizational change
• Periodically as a preventative measure
• IRS reasonable compensation challenge

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BOD Consider BOD Considerations

Doc Documenta ntation shoul hould incl nclude: de:

• Terms of the transaction
• Date of approval
• Members of the authorized body present for

debate and vote on the transaction

• Comparability data obtained/relied upon
• Actions of any members with conflicts of interests
• Documentation of basis for determination

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BOD Consider BOD Considerations

Reasons asons com

• mpensation

pensation may be be on

• n the

the high igh end nd of

• f

the the range: ange:

• The employee has special knowledge or relationships
• The employee was undercompensated in past years
• Outside job offer at that level of compensation
• Multiple jobs/many hours

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Ext External Com rnal Competition etition

Com Compensat sation

• n is

is a tool

• ol:
• Attract
• Retain
• Motivate

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Int Internal Compensat al Compensation

• n Philosoph

Philosophy Is Is the the compensati ensation program gram consi consistent ent wi with th your ur

• rganization’
• rganization’s philosoph

philosophy?

• Desired pay positioning
• Internal equity
• Balance of pay and benefits

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Stak Stakeholder and Public Scrutin eholder and Public Scrutiny

Does es com compensation ensation stand stand up to scrutin crutiny from: m:

• Public
• Board Members
• Employees
• Donors
• Federal/State Funding
• Unions

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Best Pra Best Practices ces W Wrap Up ap Up

• Employ the rebuttable presumption safe harbor
• Conduct a compensation study
• Assess all components of compensation
• Address conflicts of interest
• Ensure documentation is adequate

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Accounting Update

Kim James Kim James Nick Lombar Nick Lombardo do Jenn Closser Jenn Closser

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Agenda

• NFP Financial Reporting Model
• New Revenue Recognition Guidance
• Revenue Recognition Examples

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NFP Financial Reporting Model – ASU 2016-14

• This Accounting Standards Update (ASU) will be applicable for:

– December 31 year-ends – 2018 – June 30 year-ends – 2019

• The amendments should be applied retrospectively to all periods

presented with the option to omit the following for comparative statements:

– Analysis of expenses by both natural classification and functional classification. – Disclosures about liquidity and availability of resources.

• Disclose the nature of any reclassifications or restatements and

their effect, if any, on changes in the net asset classes for each year presented.

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Overview of Significant Impacts

Net Asset Classification Liquidity and Availability of Resources Expense Presentation Investment Return Statement of Cash Flows

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Net Asset Classification

• Objectives:

– Better information for users to understand what portion of the net assets can be used in operations

• Key changes:

– Three classes moves to two classes – “With donor restrictions” and “Without donor restrictions” – Designations are now required to be more prominently disclosed – either on the face or in the accompanying notes – Underwater endowments will now be reported as a component of “with donor restrictions” category

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Net Asset Classification

79 Not‐for‐Profit Section

Unrestricted Temp. Restricted Perm. Restricted

Without Donor Restrictions* With Donor Restrictions*

Amount, purpose, and type of board designations**

Nature and amount of donor restrictions

Current GAAP Revised GAAP + Disclosures

* NFPs m may c choose to e to disaggr ggrega egate f further ** N New w disc sclosur losure r requ quirem irement ent

Existing Presentation – Statement of Financial Position

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New Presentation – Statement of Financial Position Minimum presentation required:

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New Presentation – Statement of Financial Position

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Alternative disaggregation allowed

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Existing Presentation– Statement of Activities

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New Presentation – Statement of Activities

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Reclassification Illustration – University of Chicago

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Underwater Endowments

• New Standard

– Requires any underwater amounts to be included in net assets with donor restrictions.

• Organizations will recognize an accounting change

– Requires disclosure of market value of underwater assets – Continued emphasis on disclosures on the ability to spend from underwater funds and any current appropriations from underwater funds

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Existing Presentation – Footnotes

Funds with Deficiencies – From time-to-time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor has required the Organization to retain as a fund of perpetual duration. Deficiencies of this nature reported in temporarily restricted net assets are approximately $200,000 at June 30, 201X. There were no such deficiencies as of June 30, 201Y. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of permanently restricted contributions, along with continued discretionary appropriations for certain programs that were deemed prudent by the Board.

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New Presentation – Footnotes

From time-to-time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the entity to retain as a fund

• f perpetual duration. Deficiencies of this nature exist in

several donor-restricted endowment funds, which together have an original gift value of $3,500,000, a current fair value

• f $3,300,000, and a deficiency of $200,000 as of June 30,
• 201X. These deficiencies resulted from unfavorable market

fluctuations that occurred shortly after the investment of new permanently restricted contributions for donor-restricted endowment funds and continued appropriation for certain programs that was deemed prudent by the Board of Trustees. There were no such deficiencies as of June 30, 201Y.

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New Presentation – Footnotes (Cont.) Spending fr Spending from

• m Under

Underwat ater F er Funds nds: Included within investment return, net is $125,000 of 201X net depreciation that occurred in recent donor- restricted endowment funds, causing the fair value of those funds to be less than the original gift amount. In addition, so as not to suspend certain programs, the entity’s Board deemed it prudent to continue to appropriate $75,000 to those programs.

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Liquidity and Availability of Resources

• Objective:

– Provide all users with a better understanding of liquidity and financial flexibility

• Key Changes:

– Qua Qualit itative information (in the notes) about how the NFP manages its liquid resources – Quan antita titativ tive information (in the notes or in the statement of financial position):

• Availability to meet cash needs for general expenditures within one year of the

statement of financial position date

• Availability could be impacted by:

– Nature – External limits (laws, donors, contracts) – Internal limits (board designations)

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Liquidity and Availability of Resources (Cont.)

Pr Presentation A tation A, Stat ateme ement o t of Fi Fina nancia ncial P l Position: tion: Prese sentation A ntation A, Footno note D Disclo losure: sure: The Organization has approximately $10.08M of financial assets available within one year of the statement of financial position date to meet cash needs for general expenditures consisting of $1.2M in cash, contributions receivable of $3M, $5.8M in investments, and accounts and interest receivable of $80k. All of the investments are subject to donor restrictions making them unavailable for general expenditure. As described in Note X, the donor-restricted endowment has a spending rate of 5%. Approximately $5.8M of appropriations from the endowment will be available within the next 12 months. $15M of the $18M in contributions receivable are subject to implied time and other donor restrictions and are not expected to be collected within one year or are restricted for specific purposes.

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Liquidity and Availability of Resources (Cont.)

Presentation B entation B: Footno

• tnote D

Disclosure sclosure The following reflects the Organization’s financial assets as of the statement of financial position date, reduced by amounts not available for general use because of contractual or donor-imposed regulation within one year of the statement of financial position date. However, amounts already appropriated from the donor- restricted endowment for general expenditure within one year of the statement of financial position date have not been subtracted as unavailable.

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Liquidity and Availability of Resources (Cont.)

Additiona tional f footn

• tnote d

disclosu losure re for b both P th Presen entation tation A and B d B The Organization is substantially supported by restricted contributions. Because a donor’s restriction requires resources to be used in a particular manner or in a future period, the Organization must maintain sufficient resources to meet those responsibilities to its donors. Thus financial assets may not be available for general expenditure within one year. As part of the Organization’s liquidity management, it has a policy to structure its financial assets to be available as its general expenditures, liabilities and

• ther obligations become due. The Organization invests cash in excess of

daily requirements in short-term investments. In addition, the Organization has an $8 million line of credit, of which, it could draw an additional $200k in the event of an unanticipated liquidity need.

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Expense Presentation

• Objective:

– To permit users to understand the types of expenses, allocation of resources and costs of services provided

• Key Changes:

– Schedule of both functional and natural expenses in one location

• Functional Expense Classification – Allocation of costs according to the

purpose incurred (Program, Supporting: Management and General and Fundraising)

• Natural Expense Classification – Grouping of what costs are incurred

(Salaries and Wages, Supplies, Rent, Interest, Depreciation, etc.)

– Must include all types of expenses (except investment related) – Requires disclosures on methodology used to allocate expenses

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Expense Presentation (Cont.)

Prior P ior Presentation E esentation Exam xample: e: As a footnote or within the Statement of Activities:

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Expense Presentation (Cont.)

Separ Separate Stat Statement

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Expense Presentation (Cont.)

Exam Example Disclosur ple Disclosure: Expenses are summarized and categorized based on their functional classification as either program or supporting services. Specific expenses that are readily identifiable to a single program or activity are charged directly to that function. Certain categories of expenses are attributable to more than one program or supporting

• function. Therefore, these expenses require allocation on a

reasonable basis that is consistently applied. The expenses that are allocated include depreciation and amortization, interest and insurance, which are allocated on a square-footage basis, as well as salaries, wages and employee benefits, which are allocated on the basis of estimates of time and effort.

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Presentation of Investment Return

• Investment returns are now to be reported net of

all related external and direct internal expenses.

• Will improve comparability and minimizes the

cost/difficulty of identifying embedded fees.

• Will require a comparative reclassification.

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Statement of Cash Flows

• No significant changes at this time.
• The updated standard permits both the indirect

and direct methods of presenting the statement of cash flows.

• Organizations are no longer required to disclose a

reconciliation to the indirect method if the direct method is used.

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Placed-in-Service Approach

• Requires the placed-in-service approach for reporting the

expiration of restrictions unless there is an ongoing donor stipulation or restriction.

• No longer permitted to use the method of releasing items

from restriction over the estimated useful life of the asset(s).

• Organizations will be required to restate to release those

remaining net assets at adoption of ASU 2016-14

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New Revenue Recognition Guidance

Nick Lombar Nick Lombardo do Agenda

• ASU – 2014-09 Revenue from Contracts with

Customers (ASC 606)

• ASU – 2018-08 Clarifying the Scope and the

Accounting Guidance for Contributions Received and Contributions Made

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• Lease Contracts
• Insurance Contracts
• Financial instruments (investments, debt,

derivatives)

• Guarantees
• Nonmonetary exchanges
• Contributions/Grants
• Collaborative arrangements

Revenue Recognition (606) – Scope

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All Contra All Contracts cts with th Cust Customer

• mers,

s, Ex Exce cept pt Cont Contra racts No s Not with Cust th Customer

• mers

s are e are exclu cluded: ed:

ASC 606 – Revenue Recognition

• Effective date

– Institutions with public bonds – Reporting periods beginning after December 15, 2017 (fiscal year beginning July 1, 2018) – NOW! – Institutions without public bonds – Reporting periods beginning after December 15, 2018 (fiscal year beginning July 1, 2019)

• Adoption Methods

– Retrospectively to each period presented (restate the face) OR; – Retrospectively with cumulative effect (Modified retrospective) (disclose prior year impacts in footnotes)

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ASC 606 – Revenue Recognition – 5 step process

STEP ONE Identify Contracts STEP ONE Identify Contracts STEP THREE Determine transaction prices STEP THREE Determine transaction prices STEP TWO Identify performance

• bligations

STEP TWO Identify performance

• bligations

STEP FOUR Allocate transaction prices STEP FOUR Allocate transaction prices STEP FIVE Recognize revenue STEP FIVE Recognize revenue STEP ONE Identify Contracts STEP THREE Determine transaction prices STEP TWO Identify performance

• bligations

STEP FOUR Allocate transaction prices STEP FIVE Recognize revenue

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ASC 606 – Performance Obligations Satisfied Over Time

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ASC 606 – Disclosurerequirements

• New Footnote Requirements:

– General description of revenue streams – Disaggregation of Revenue – Contract Balances – Performance Obligations – Determining the Timing & Satisfaction of Performance Obligations – Determining the Transaction Price and Amounts Allocated to Performance Obligations – Assets Recognized from the Costs to Obtain or Fulfill a Contract with a Customer

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ASU 2018-08 Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made

Nick Lombar Nick Lombardo do

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ASU 2018–08

• Purpose – clarify and improve the scope and the

accounting guidance for contributions received and contributions made.

• Diversity in practice regarding

– Characterizing grants and contracts as exchange transactions

• r contributions

– Determining whether a contribution is conditional

• Differences can affect how revenue is recognized

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ASU 2018–08 Scope

• Who it applies to
• What it applies to
• Terminology

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ASU 2018–08 Two Key Issues

• Reciprocal (Exchange) vs. Nonreciprocal

(Contribution) Transactions

• Distinguishing Conditional from Unconditional

Contributions

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Main Provisions of ASU 2018-08

1. Resource provider is not synonymous with the general public 2. Execution of a resource provider’s mission or the positive sentiment from acting as a donor does not constitute commensurate value received by a resource provider for purposes of determining whether a transfer of assets is a contribution or an exchange 3. When resource provider itself is not receiving commensurate value for resources provided, an entity must determine whether a transfer of assets represents a payment from a third-party payer on behalf of an existing exchange transaction between the recipient and an identified customer – if so, see Topic 606

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Decision Tree

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Conditional Contributions

• Is there a barrier that must be overcome AND

either a right of return or right of release of a promisor’s obligation to transfer assets?

• When both a barrier AND either the right of return
• f transferred assets or right of release to transfer

assets exists, this is an indication that the recipient is not entitled to the to the transferred assets or a future transfer of assets until the barriers have been overcome.

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ASU 2018–08 Contributions

• Unconditional transfer of cash or other assets
• Nonreciprocal transfers
• Value to general public
• Resource provider receives value indirectly

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ASU 2018–08 Evaluation of Conditional vs. Unconditional Contributions

• Donor-imposed conditions must have:

– One or more barriers and – A right of return

• Indicators of a barrier

– Measurable barrier – Limited discretion – Stipulations

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ASU 2018–08 Effective Date Information

• Resource recipient

– Public business entity or NFP bond obligor

• Periods beginning after June 15, 2018 (6/30/19 & 12/31/19

year-ends)

– All other entities

• Periods beginning after December 15, 2018 (12/31/19 & 6/30/20

year-ends)

• Resource provider

– Public business entity or NFP bond obligor

• Periods beginning after December 15, 2018 (12/31/19 & 6/30/20

year-ends)

– All other entities

• Periods beginning after December 15, 2019 (12/31/20 & 6/30/21

year-ends)

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ASU 2018–08 Implementation Method

• Modified prospective basis
• No prior-period restatement
• No cumulative-effect adjustment
• Required disclosures

– Nature of and reason for the accounting change – Explanation of the reasons for significant changes in each financial statement line item

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Questions

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PANEL DISCUSSION: The Challenges of Enterprise Risk Management

Lauren Hagan Lauren Hagan, Columbus Metropolitan Library Mar Mary Jo Hudson Jo Hudson, Squire Patton Boggs Rita McNeil Danish Rita McNeil Danish, Ta Taft Ke Kevin R Russo, Kemba Financial Credit Union

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Using Effective Leadership to Build a Strong Culture

Roy Lydic- Schneider Downs and Company

Why is this more important than ever?

• Mass exodus of baby boomers/lack of adequate

succession planning.

• Remote and flexible work environments
• Changing demographics
• 51% of American workers feel no real connection to

their jobs, many are “actively disengaged”.

• 40% of companies headquartered in Asia have a

strong coaching culture vs. 12% in North America

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Why is this more important than ever? “Everyone wants to make a dent in the Universe”.

• Steve Jobs

“The talent process which delivers the single greatest

• verall business impact is coaching.”
• Josh Bersin – High Impact Talent Management

What is Culture?

• Culture is the beliefs and behaviors that determine

how an organization’s employees and management interact and handle external and internal dynamics and transactions. It generally develops over time from the cumulative traits and styles of the people who the organization hires.

• An organization’s culture will be reflected in every

aspect of its operations.

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What are the primary drivers of Culture? The effectiveness or ineffectiveness of the

• rganization’s leadership
• Are they good at motivating and inspiring their

team?

• Do they have emotional intelligence?
• Do they recognize the difference between

managing and leading? What are the primary drivers of Culture?

• The responsiveness and quality of our team.
• Do we have the right people on the bus?

“Get the right people on the bus, the wrong people

• ff the bus, and the right people in the right seats.”
• Jim Collins, Good to Great

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Qualities of Effective Leaders

• Understand what we can control and manage in our
• wn behavior.
• Understand the difference between management and

leadership.

• They step up in times of crisis.
• They are emotionally intelligent – trustworthy,

persuasive, perceptive, and flexible.

Qualities of Effective Leaders

• They listen!!!!
• They know their team and strive to get the right people.
• Their team trusts them.
• They don’t tolerate mediocrity.
• They infuse the organization at all levels with a

commitment to the big picture vision.

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MANAGING vs LEADING

Leading

Managing Leading Plan, organize, coordinate Inspire, motivate, create Focus on systems and structure Focus on people and relationships Relies on control‐ directing Relies on two‐way trust‐coaching

Characteristics of an Ineffective Leader

• Ineffective interaction style
• Team doesn’t feel empowered or respected
• Micromanages
• Self-centric
• Inattentive/Poor Listener
• Impatient
• Lacks emotional control
• Negative thinker

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Characteristics of a Strong Leader

• Strong people skills
• Effective listener
• Positive thinker
• Personable/approachable
• Delegates effectively – allows input, demonstrates

trust.

• Team members feel that someone has their back.
• Believes in a Culture of Coaching

Characteristics of a Strong Leader

• They have self-awareness
• They are proficient at self-regulation

Emotional competence is the key to putting it all together in practice.

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A Culture of Coaching

Is: Is not: 100% personal accountability Micromanagement Feedback is specific, productive and expected Generalized feedback, not customized Distributed decision making Role‐based power Flexible Rigid Continuous conversation Conflict avoidant Based on trust Infected with suspicion

The Matter of Feedback “When people trust you and believe you care about them, they are much more likely to:

• Accept and act on praise and criticism;
• Tell you what they really think about what you are

doing well, and more importantly, not doing so well;

• Embrace their role on the team;
• “Focus on improving their performance.”
• Kim Scott-Radical Candor

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Why do managers avoid providing feedback?

• I don’t want to demotivate them because they are
• verworked already.
• I don’t have the time or energy to do it right.
• I don’t think they really want constructive feedback.
• They will get defensive and start blaming others.
• They won’t listen anyway.

Costs of Avoiding Feedback

• Negative effect on morale
• Things that “fester” grow worse.
• Issues can be contagious.
• Increased turnover.
• Potential loss of value employees want to give.

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Tips on Giving Feedback

• Ask the employee to prepare a self-evaluation in

advance.

• Prepare and know your audience (personality,

motivations, etc)

• Provide specific feedback.
• Compliment behaviors when the employee is

performing well (Emotional deposits)

• Make it a two-way conversation – what’s working, what

could be improved.

• Collaboratively plan steps to improve the behavior – be

specific.

• Ask for feedback yourself!

Tips on Receiving Feedback

• Arrive in the proper state of mind. Do your

homework!!

• Check your ego at the door.
• Don’t be shy about indicating solutions that would

make you more effective.

• Don’t take it (or make it) personal!

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Conclusion

Thank you for attending

Don’t forget to fill out your evaluation form!

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