Volunteer time (or donated services) is only recorded as revenue and expense in the financial statements if the services create or add value to a non-financial asset (such as construction services provided to a building) or if the services meet all of the following three criteria:
- The services require specialized skills
- The services are provided by individuals who possess the specialized skills required
- The services would typically need to be purchased if not donated
The specialized skills include skills provided by individuals such as accountants, bankers, electricians, doctors and nurses, or teachers. An indication that skills are specialized is that the individual is required to possess a license or certification to provide the services, and the services require technical tools or equipment used with a higher level of proficiency than the general public. If an individual with specialized skills provides volunteer services that do not require those skills, the volunteer services should not be recorded in the financial statements. An example of this would be an attorney providing volunteer services coordinating a special event. Because the services are not legal in nature, they would not qualify to be recorded even though the lawyer possessed specialized skills.
Regardless of whether it qualifies to be recorded in the financial statements or not, volunteer time carries a high level of value to nonprofit organizations. The NonProfitTimes reports that total volunteer time provided to U.S. nonprofits in 2015 is expected to be valued at $188 billion. This amount is based on a calculation of 7.9 billion hours of volunteer service provided by 62.8 million Americans with an estimated average hourly wage of $23.56.
The full article is available here.
By Paul Biggs
Posted on April 12 2016 by admin
Whether you’re affiliated with a party or vote as an independent, you’ve probably considered “unfriending” or “unfollowing” some of your more politically opinionated friends on social media due to the relentless long-winded paragraphs and meme posts about Trump’s hair or Sander’s age. I’ve come to the conclusion that I can either get off social media and avoid late night comedy or just try to ignore it.
The controversial issues of 2016, however, are difficult to ignore. Legislation concerning healthcare, potential budget cuts and immigration will heavily effect many charitable organizations. So what do you do if your entity would benefit most from a particular candidate winning the election? NOTHING.
Under the Internal Revenue Code, 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating or intervening in any campaign on behalf of or in opposition to any candidate for public office. Activities such as contributing to a campaign or issuing a public statement (verbal or written) on behalf of (or appearing to be on behalf of) the organization in favor of or opposition to a candidate and/or campaign would be a violation of this prohibition.
If you would like to keep your tax exempt status intact and avoid potential excise taxes, pay close attention to the activities of your entity. Monitor your expenses, especially for lobbying, to ensure it is in line with acceptable activities. Edit and control all statements made on behalf of the organization paying special attention to social media.
If there is any question as to if an activity would be a violation, contact your attorney for advice prior to commencement. Candidate/campaign support is one area of not-for-profit regulation that’s “black and white:” You just can’t do it.
By Samantha E. Mahlen, CPAPosted on April 5 2016 by admin
It’s that time of year again, and this might be the first time your accountant is not referring to tax season. We are talking about Arizona Gives Day, the annual one-day online giving campaign to Arizona not-for-profits hosted by the Alliance of Arizona Nonprofits and Arizona Grantmakers. Since 2013, this program has raised over $4,556,359. Last year alone raised over $2,000,000. So get your tax refunds ready for today, April 5, 2016 and make this the best year yet. Click here for more information.
By Rebecca A. GorntoPosted on March 17 2016 by admin
What is advertising?
As defined, advertising is the promotion of an industry, entity, brand name, product or service through the use of media. Its purpose is to create a positive image for the company and to encourage individuals to use the company’s products or services. Advertising, however, is not fundraising.
When do I report the advertising expense?
Advertising should be expensed as incurred or at the time the advertising first takes place. Some direct-response advertising costs can be capitalized.
What is direct-response advertising?
Direct-response advertising occurs when a customer is urged to respond directly to the advertiser through the use of a “device,” i.e. business reply card, coupon to cut and mail, etc. These costs can be capitalized if the organization can prove through historical data that customers responded to a specific advertisement and there is a future probable economic benefit. Keep in mind: if the organization advertises free products or services, then there is no economic benefit.
There are two types of direct-response advertising costs that can be capitalized: 1) direct, incremental costs incurred in transactions with third parties, i.e. artwork and 2) portion of associated employee payroll-related costs.
How do I amortize capitalized advertising costs?
The organization should amortize on a cost-pool-by-cost-pool basis over the period it expects to generate sales from a specific advertisement.
How do I account for tangible assets used in advertising?
Tangible assets, such as billboards, should be capitalized and depreciated. Printed materials, such as brochures, should be accounted for as prepaid supplies until they are distributed or are no longer expected to be used.
What are the disclosure requirements?
The financial statements should include the total advertising costs charged to expense for each statement of activities presented, the total capitalized advertising costs included in each statement of financial position presented, and the accounting policy regarding when costs are recognized.
By Kristian HaralsonPosted on March 8 2016 by admin
The Association of Certified Fraud Examiners recently released their annual “Report to the Nations on Occupational Fraud and Abuse”. The report provides statistical information on fraud in the workplace during 2014. Here are a few of their findings:
- Participants estimated that the typical organization loses 5% of revenues each year to fraud.
- The median loss caused by the frauds in the study was $145,000.
- The median duration — the amount of time from when the fraud commenced until it was detected — for the fraud cases reported to ACFE was 18 months.
- Asset misappropriations (theft) were the most common, occurring in 85% of the cases in the study, as well as the least costly, causing a median loss of $130,000.In contrast, only 9% of cases involved financial statement fraud, but those cases had the greatest financial impact, with a median loss of $1 million. Corruption schemes fell in the middle in terms of both frequency (37% of cases) and median loss ($200,000).
- Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Organizations with hotlines were much more likely to catch fraud by a tip.
- The smallest organizations tend to suffer disproportionately large losses due to occupational fraud.
- The presence of anti-fraud controls is associated with reduced fraud losses and shorter fraud duration.
- The higher the perpetrator’s level of authority, the greater fraud losses tend to be. Also, collusion helps employees evade independent checks and other anti-fraud controls, enabling them to steal larger amounts.
- It takes time and effort to recover the money stolen by perpetrators, and many organizations are never able to fully do so.
To read the full report, click here.
By David WoodsPosted on March 3 2016 by admin
We often receive questions from clients asking whether Arizona offers an exemption from sales tax (transaction privilege tax) for non-profit organizations. Unfortunately, Arizona does not offer a blanket exemption like many other states.
However, there is an exemption on sales tax for retail items sold by non-profit organizations. It also includes the sale of food and drink, if the organization is not regularly engaged in the restaurant business.
There are additional exemptions provided for specific organizations, including qualifying health care organizations, and exemption from paying sales taxes on items purchased. Click here to view those.
By Kristin Cullen, CPAPosted on February 17 2016 by admin
By Paul BiggsPosted on February 4 2016 by admin
Dual restricted contributions remind me of driving a vehicle with a standard transmission. If you release the clutch but forget to put the car in gear, you probably won’t go anywhere unless your vehicle is on an incline or decline. Even then, you will most likely, eventually roll to a stop. On the other hand, from a complete stop, it would be highly unlikely you would even get your vehicle into gear without first pressing in the clutch. Correctly using the clutch and shifting into gear to put your vehicle in motion is synonymous to releasing dual-restricted contributions.
Prematurely releasing restrictions will result in a misstatement of your net assets and potentially could result in the donor requesting the funds be returned. Properly understanding the donor’s intention and what restrictions must be met is vital to properly accounting for restricted contributions.
For example, if your donor notes their contribution must be utilized for salary expense for the following year, you can only release that restriction when you have incurred salary expense in the proper period. Releasing the restriction for salaries paid in the current year would be a violation of the donor’s intent.
Don’t sit in your driveway with your vehicle in neutral. Make sure all restrictions have been fulfilled when releasing funds to ensure your financial statements are accurate and your donor’s intentions are met.
By Samantha E. Mahlen, CPAPosted on January 6 2016 by admin
Approximately 13,340 nonprofits registered with the state Department of Consumer Protection may be impacted by FASB’s proposed changes to financial reporting. In April, they announced the proposal to change the following items:
- Income Statement
- Rule: Requires entities to report net income or loss from operating activities, separate from non-operating activities.
- Impact: Clearly shows income and costs directly related to accomplishing the mission of the organization.
- Reason for change: Non-operating activities can often times distort the bottom line, making it difficult for an interested party to distinguish the financial performance directly related to the nonprofit’s mission.
- Net Assets
- Rule: Requires the reporting of only two classes of net assets: net assets with donor restrictions and net assets without donor restrictions.
- Impact: It would eliminate having to report the three classes of net assets: unrestricted, temporarily restricted and permanently restricted.
- Reason for change: FASB hopes to reduce complexity and improve understandability.
- Cash Flows
- Rule: Requires the cash flow statement to be presented using the direct method.
- Impact: It will completely transform the way information is presented and will provide more useful information to stakeholders.
- Reason for change: To provide better information for decision-makers regarding an entity’s financial performance, service efforts, need for external financing, and stewardship of donor funds.
The FASB anticipates these changes will go into effect for 2017. Until then, they invite professionals to weigh in on the proposed changes by emailing email@example.com or by visiting the website at www.fasb.org.
By Kristian Haralson
ResourcesPosted on December 23 2015 by admin
Most of us have heard the quote “one person’s junk is another’s treasure”. What is more problematic for charitable organizations, I find, is that donors give non-cash items that were valuable to them, but are not valuable to the organization or in support of its mission. If you haven’t implemented a gift acceptance policy, you may find yourself with items that cause more expense or liability than value.
So how do you avoid accepting a 100 pound statue of two cats or a time share in Flint, MI from one of your most generous donors with a value to them of $5,000 but a fair market value that is very difficult to determine? Simple – implement a gift acceptance policy.
I would assume if you accepted the aforementioned gifts, your entity could spend more time and incur more expenses trying to sell the items than what you would receive when they’re finally sold. The cost and resources needed to dispose of or sell non-cash donations should be a prime consideration in whether or not to accept the donation.
Other factors to note include review of legal considerations and potential liabilities, restrictions on the gift, gift acceptance approval procedures, necessary IRS filings, and carrying costs.
Implementing a gift acceptance policy will not only provide a clear direction for your employees, but will also be a good reference for your donors if you provide it as a link on your website. Check out these templates for a sample gift acceptance policy and other recommended policies.
By Samantha E. Mahlen, CPA-- Older Entries »
Our Not-For-Profit niche is a strong team of experienced professionals who focus their work in the not-for-profit industry. Henry & Horne has been a stable local firm in Arizona for 55 years, and the Not-For-Profit niche has a long history of working with charitable organizations and other tax exempt organizations of all kinds. Our focus is exceptional client service and building relationships with our clients to promote communication throughout the year, not just at the time of the annual audit. We highly value and are very proud to be helping those who help others.
Before posting a comment on a blog post please be aware that we do not give free advice to non-clients by email, comment response, or phone. Thank you!
- Donated Services
- Let’s Get Political
- Arizona Gives Day
- Q&A: Advertising
- ACFE – Report to the Nations on Occupational Fraud and Abuse
- Do Nonprofit Organizations Have to Pay Sales Tax in Arizona?
- Pump the Brakes! Did We Really Meet the Restriction of that Donation?
- Potential Nonprofit Accounting Changes?
- Why Shouldn’t We Accept All Donations?