Starting on December 15, 2017, nonprofits financial statements will look a bit different.  The changes may not be that noticeable to the untrained eye, but some people may note a difference and be concerned. The change is due to  a new update from FASB, Financial Accounting Standards Board, trying to make financial reporting easier  to understand.  Even though current reporting rules have been in place for over 20 years, many people have complained that the financial statements of nonprofits are confusing with not enough information to assess their liquidity, their ability to pay their bills. This update has focused in resolving these concerns.

"Not-for-profit organizations that will be affected include charities, foundations, colleges and universities, health care providers, religious organizations, trade associations, and cultural institutions, among others" (FASB.org).  Since the update will take place towards the end of 2017, organizations have enough time to make changes to be able to comply with the new rules.  A few highlights those changes are:

Only two classes of net assets

As you may know, net assets hold information about nonprofits, accumulating increases and decreases in revenues and expenses throughout the years. A nonprofit account always belongs to a net asset, traditionally classified as unrestricted, temporarily and permanently restricted. No more. After this update, we will have only two classifications of net assets:

1-Net Assets Without Donor Restrictions, comparable to the "old" unrestricted net asset
2-Net Assets With Donor Restrictions, combining the "old" temporarily restricted and permanently restricted net assets.

So, instead of reporting on three net assets, as has been the case now, with statements showing three columns or lines, there will be only two areas.  It doesn't mean necessarily that the accounting of temporarily and permanent restricted net assets need to change internally, but these are now combined in the "official" financial statements.  Most likely, the reporting on the accounting software will need to be changed to accommodate the update requirements.

Underwater value of endowments 

Organizations may receive endowment funds that are held for long term or perpetuity.  When the fair market value of such funds is lower than the original value of the gift,  they are said to be "underwater."   Unfortunately, that has been the case with the volatility of the stock market and other losses.  Currently, such losses were reported on the unrestricted net assets area. However, after this update, accumulated losses are reported within the endowment fund -- net assets with donor restrictions.

Detailed information about endowments is also required as disclosures on the official financial statements, such as the current fair market value of the endowment, any amount required to be maintained, and the amount of any deficiencies of the underwater endowment fund.  

Liquidity

Liquidity is about the ability of a nonprofit to pay its bills, a valid concern to many donors and grantors.  As many donors  restrict the amounts they give, it can be hard to determine if an organization has the money necessary to pay its current bills.  Financial flexibility is a must for any nonprofit to be viable long term, so this update requires disclosures about how an organization will be able to meet its  financial obligations for the next 12 months.  Specific resources available should be disclosed, such as prior year's reserves and any emergency money restricted by the board.

Anyway It's good  for boards to see the analysis of cash and resources available to cover upcoming bills, since many boards only see revenues and expense reports, not really paying attention to the cash balance and management. Sometimes cash is available, but there are so many bills yet to be paid, that the board may be misled into assuming that all is well when it's not.

The overall idea here is to make financial statements more useful to others, such as donors, helping them understand the fiscal health of a nonprofit better.  Since it will be effective towards the end of 2017, organizations have  the time to get ready for this change in reporting.  Accountants will be certainly busy next months making sure accounts are properly set up to reflect the new reporting and disclosure requirements.


Read about board issues here
Read also No more Audit Freak out
Check out  the book 'Nonprofit Finance: A Practical Guide" -- Nominated for the McAdam Book Award
Also check out the book "15 Quick Tips on Becoming a Great Consultant" -- free on Kindle Unlimited
Website: www.webshanker.com

 
 
Does your board need a little pep to get going?  Directors may be out of focus and not that energetic about the organization as they were a couple of years ago. People are finding more and more ways to avoid coming to meetings or to focus on programs. The problem is that if the board is down in energy, it's likely to trickle down to others within the organization.  So, what can one do to keep the board of directors engaged and enthusiastic?  

Pay attention to the changing mood in meetings and start talking to people individually. Issues that may be hard to bring to a group can be taken care of privately.  Try to see what is happening to the people.  Are they overwhelmed?  Are only a couple of people working hard, while others are basically coasting? The few who do most of the work are likely to feel the work is not evenly spread and may feel resentful and under appreciated.  This starts slowly with a few directors taking on many tasks over time and the board assuming that all is well and "normal." until these people start to "flake out" or to refuse to do any other work and distance themselves slowly. Some people may just be too eager to take on more and not notice themselves that the work at the board has become full time and that wasn't really the plan. Don't take the "worker bees" for granted and offer to take away some of the work and give to someone else, even if not asked.

Another way to correct this problem is to be sure that everyone in the board has a role and if it's too much for one person, have the role shared by two or three people. Some  organizations use two co-presidents, for instance. The point is to share the workload and responsibilities fairly.

A second problem facing a disengaged board is that only certain people are heard and others are shut down most of the time. So, make sure that everyone is heard because those shut down will go away and that may not be for the best interests of the organization. If bullying is part of this scenario, don't let it go unchecked.  Those who are bullied will be out fast, to the detriment of the organization. It does happen.

A third issue is that directors may just lose interest in the board and the organization. To prevent this problem, make sure your directors are getting something out of the organization's activities. Some people may be in for social interactions and networking, while others are passionate about the mission statement and yet others are there to add to their resumes. If a board member doesn't get much back in terms of an exchange for the voluntary work, he/she will lose interest after a while. So, it's important to figure out why people are part of the board to begin with and keep the interest up. Maybe a member is looking for a job and putting him/her in charge of an area that directly relates to what he/she is looking for would be fabulous. Take your time to know what people really want out of their board duties.  

Too keep up the interest, you could rotate board responsibilities around. Someone working for three years at a certain program may be tired of it and may need a change, even though the person may be comfortable in that role.  But too much comfort can lead to boredom, and a change may be in order before the person's interest wanes.  Maybe that person can work on a different program or area within the organization. Maybe he or she want to learn a new skill or meet different people. Offer suggestions to the person and see how he or she reacts. 

Overall, the idea here is to recognize individual board members needs, and to take an individualized approach to board disengagement Oftentimes, people are just feeling under appreciated and not getting much out of the board as they expected. Since the board's lack of energy and commitment trickle down throughout the organization, this is a serious issue that must be addressed as soon as possible. 


Read about risks working with volunteers here 
Read also No more Audit Freak out
Check out  the book 'Nonprofit Finance: A Practical Guide" -- Nominated for the McAdam Book Award
Also check out the book "15 Quick Tips on Becoming a Great Consultant" -- free on Kindle Unlimited
Website: www.webshanker.com