Hot Topics in Nonprofit Finance
Nonprofit Connect recently hosted Sharon Latimer, Amy Altholz and Katherine Girgis from RubinBrown LLP for a program on Hot Topics in Nonprofit Finance in 2015. All from the Not-for-Profit Services Group, they explored industry trends and shared insight into the financial landscape for the next year. The full presentation is available to Nonprofit Connect members on ResourceLink.
Nonprofit Connect’s Office Manager, Amanda Rehani, sat in and summarized the financial topics that your organization should be aware of in 2015. New rules for financial reporting, the economic update and financial trends affect all nonprofits, and super circular only affects nonprofits who receive federal grants.
FASB Nonprofit Financial Reporting Project
In 2015 we can expect the Financial Accounting Standards Board (FASB) to release new recommendations pertaining to nonprofit financial statements. These new standards for financial reporting will make nonprofit financials more readable and understandable, by combining multiple statements, streamlining policies and adding disclosures. As of the first quarter of 2015 a draft has not been released, but tentative FASB decisions could include:
- the reduction of the presentation of net asset classes
- the consolidation of nonprofit financials to either a one-statement or two-statement approach
- a different method of reporting gifts of long-lived assets
- the reporting of expenses by both nature and function in one location in the financial statements
- new disclosures regarding liquidity, underwater endowments and cost allocation
- the re-categorization of items to better align operations between the statements of activities and cash flow
New Super Circular for Federal Awards
The U.S. Office of Management and Budget (OMB) has released a new “Super Circular” with administrative requirements, cost principles and audit requirements for federal grant awards. Agencies receiving federal awards after December 26, 2014 are required to follow these new guidelines, which can be found in Title 2, Part 200, of the Code of Federal Regulations. Some of the changes in the “Super Circular” include:
- the threshold to require entities to undergo a Single Audit after receiving federal awards has been increased from $500,000 to $750,000
- entities will have the option to either utilize a flat rate of 10% for indirect costs associated with the federal award, or to extend an already-negotiated indirect cost rate for up to four years
- new certification language on annual reports and cash disbursement requests must now be signed by an official who can legally bind the organization
- the definition of five methods of procurement/bid requirements
- the replacement of the term “vendor” with “contractor” and guidance to differentiate between “contractor” and “sub-recipient”
- more explicit internal control requirements
National and Local Economic Update
- Economists anticipate 10% returns on equity securities, but caution that short-term volatility is expected to occur and advise investors to “stay the course.”
- Inflation only increased by 0.8% from 2013 to 2014. Modest increases of 1.8% - 2.1% are expected in future years.
- Consumer confidence is expected to rise and the economy continues to improve. As confidence rises, consumers spend more, including in discretionary giving to nonprofits.
- The unemployment rate at the end of 2014 was 5.6%, a decrease from 6.6% at the end of 2013. A slow decline in unemployment is expected to continue.
- The U.S. Gross Domestic Product increased 2.4% in 2014 and the U.S. is expected to lead the strengthening in global economic growth.
Operational and Financial Trends
According to the Nonprofit Finance Fund’s “2014 State of the Nonprofit Sector”:
- 58% of responding organizations cannot meet the increased demand for services. The most prevalent community needs included housing, jobs and schools.
- Organizations reported their top challenges as being long-term financial sustainability, diversified funding sources, cuts in government funding, and marketing and community engagement.
- Organizations plan to respond to these challenges by:
- Adding or expanding programs/services
- Collaborating with other organizations to reduce expenses and improve or increase programs/services
- Retaining existing personnel without making cuts but also not hiring
- Investing in personnel by providing professional development in lieu of salary increases
- Beginning leadership succession planning
- Conducting long-term strategic planning
- Building the organization’s reserve funds
According to the National Council for Nonprofit’s fundraising trends:
- General operating support, multi-year support, and support for capacity building are increasing.
- Government funding is decreasing, while at the same time governments are asking nonprofits to take on more responsibilities and programs.
- Donor retention rates are averaging less than 50%.
- Although corporate giving is increasing, the increase is seen in non-cash gifts.
Thank you again to RubinBrown LLP for sharing their financial expertise. RubinBrown LLP is one of the nation’s leading accounting and professional consulting firms, with a dedicated team of professionals serving not-for-profit organizations.
Thank you to series sponsor BKD, LLP.
Are you in nonprofit finance, accounting or operations? Learn to finally balance your organization’s mission with its financial realities! Join us for a full day of education on nonprofit finance, presented by the Nonprofit Finance Fund (NFF).
Linking Money to Mission: Uncovering the Financial Story
Thursday, April 16