The first quarter of a new year is a good time to review any challenges or opportunities that your organization may face. Looking early in the year allows you enough time to put any critical processes in place or to change processes that weren’t functioning as warranted.

Below we have noted some of the most critical financial and business challenges affecting nonprofits, and action plans to consider in guiding your organization through the current year and beyond.

Going Concern

A new standard (SAS No. 132) was effective for calendar 2017, which requires management’s review and conclusion regarding an organization’s ability to continue as a going concern. This includes written support if their financial plan includes third parties or their national organization.

Functional Expense Classifications

There will be further scrutiny by the outside accounting firm to ensure proper classification of expenses within the statement of functional expenses. This includes discussion with key employees of their job responsibilities, reviewing organizational changes made during the year to determine what impact this may have on functional expense allocation, and review of time studies that support functional expense allocation within the financial records of the organization. Organizations should have a written memorandum outlining how they determine their functional expense allocation.

Funds Held at Non-Financial Institutions

Review agreements for proper valuation and income allocations of funds held by organizations such as community foundations, national affiliated organizations, etc. This will include how investments are valued, how income is allocated within pooled funds, issues around contributions and redemptions for these types of organizations.

Revenue Recognition

The new Revenue Recognition Standards are in effect for 2019 and will need to be considered and properly documented this year. Concentration will be around exchange transactions versus contributions, as contributions are excluded from this standard.

ASU 2016-14 – Presentation of Nonprofit Financial Standards

This standard is effective for calendar year 2018. The key changes include:

  1. Reducing net classes from three down to two.
  2. Disclosure and transparency around assessing the liquidity of the organization.
  3. Requirement for proper disclosure of functional expense.

Charitable Contributions

Under the new tax law, the standard deduction was significantly increased, which means that certain individuals may reduce charitable giving as there will not be a tax benefit. Organizations should be aware of a strategy called bunching where an individual can make two years of contributions in one year which will yield a tax benefit to them.  Organizations should be able to show it can manage the cash over a two-year period.

Cybersecurity, Blockchain, etc.

Technology is changing exponentially. An organization’s ability to monitor and properly evaluate expenditures and implementation of this technology will be important to their survival.

Mission-Based Organizations

As a mission-based organization, you have both a social and financial mission. Consider both in your strategic planning on the short and long-term basis.

Minimum Wage

Personnel costs are a significant part of most organizations budget. As minimum wage continues to increase, this needs to be considered when completing all grant and contract obligations going forward.

We are here to assist you when needed to address these challenges and opportunities going forward.

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