acct338 topic four nfp

8/21/2019 ACCT338 Topic Four NFP

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Not-for-Profit Organizations

Chapter 12

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Learning Objectives Identify the authoritative standards-

setting bodies for Not-For-Profits.

Division of Resources into:

Unrestricted

Temporariy restricted

Permanenty

Reporting of !ash Fo"s by NFPs

#pecia probems of determining the

cost of fund-raising activities.

$%pain financia reporting and

accounting for NFPs:

!ontributions& contributions of

services& pass through contributions

Pedges

!oection Items

'ains and osses on Investments

Fi%ed (ssets

(ssessing the financia conditions of

NFPs).

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Who is in charge?

GASB: sets standards for all state and localgovernments.

FASB: sets standards for non governmental non-prots

except federal government.

Similar types of organizations may fall it!in t!e

"#risdiction of di$erent %oard.

A state #niversity or city !ospital o#ld %e #nder t!e

a#t!ority of GASB.

A private #niversity or !ospital o#ld %e #nder t!e

"#risdiction of FASB.

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Who is in charge?

A'()A !as to sets of a#dit g#ides Health care organizations covers !ospitals* clinics*

n#rsing !omes..etc

Not-for-prot organizations covers all ot!er +)incl#ding colleges and #niversities.

,!ese g#ides !ic! are #pdated periodically*

incorporate t!e latest FASB prono#ncements andprovide g#idance to iss#es not addressed %y

FASB.


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Who is in charge?

xternal reporting is entirely on t!e f#ll

accr#al %asis.

+ot-for-prots #se expenses.

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What should be theformandcontentoffinancial statements?

+ot-for-prots acco#nt for t!eir reso#rces in f#nds. 0ost not-for-prots maintain an #nrestricted

operating general f#nd* and one or more restricted

f#nds. FASB is not concerned it! t!e specic f#nds

maintained %y not-for-prots.

'nstead FASB is interested in !o entities reportt!eir overall nancial position and res#lts of

operations.

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What should be the form and content offinancial statements?

FASB Statement No. 117, FinancialStatements of Not-for-Prot Organizations,

esta%lis!ed standards for t!e form and content of

nancial statements. FASB Stmt. 4 115 6e7#ires t!at non-prots iss#e

& statements:

Balance s!eet Statement of Activities

Statement of (as! 8os

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FASB Stmt. 4 115 also re7#ires t!at net assets intot!ree categories %ased on t!e existence or a%sence

of donor-imposed restrictions:

Unrestricted net assets

Temporarily restricted net assets: reso#rces t!at m#st

%e #sed for specic purpose* in specic periods* or !en

specic events !ave occ#rred.

Permanently restricted net assets: endoment it! a

principal t!at m#st remain permanently intact* it! only

t!e income availa%le for expendit#re.

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Temporarily restricted net assets can tae

several forms:

Restricted as to purpose: 6eso#rces t!at m#st %e

#sed for specic program or for t!e ac7#isition ofplant assets o#ld %e temporarily restricted as to

purpose.

Restricted as to time lie term endowment and pledges

Restricted when specic events occur lie ann#ity

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Definitions

Term endowment is a gift from !ic! only

t!e income is availa%le for expendit#re for

a specied period of time.


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Definitions

Pledges >?@CDE HI? DJK LM N

ill not %ereceived #ntil f#t#re periods* t!ey are

#navaila%le for expendit#re #ntil t!en.

Annuit is a gift t!at provides t!e donor it!

income #ntil !is deat!. Opon deat!* t!e

%alance of t!e gift reverts to t!e donee for

eit!er restricted or #nrestricted p#rposes.

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Note: assets classied as unrestricted are notnecessaril free of all restrictions, onl those

imposed ! donors"

Restriction imposed ! the governing !oard, or

outside parties other than donors, such as

!ondholders or regulator authorities, do not

a#ect whether net assets should !e classied as

restricted or unrestricted"

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Reporting assets and $ia!ilities Statement +o. 115 does not detail !o net

assets m#st %e presented. 't merely re7#ires t!at

t!e statement of nancial position presents sixtotals:

,otal assets* total lia%ilities* total net assets

,otal #nrestricted net assets* total temporarily

restricted net assets* total permanently restricted net

assets.

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Reporting assets and $ia!ilities Assets* lia%ilities* and net assets are com%ined

from all its f#nds and represent t!em in one

col#mn. +et assets are t!en %roen don into

t!e t!ree re7#ired categories of

restrictiveness. Pnext slideQ


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6eporting Assets

and

Ria%ilities

1/


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Reporting assets and $ia!ilities FASB statement +o. 115 also directs t!at data

a%o#t t!e li7#idity of t!e organizations assets

and lia%ilities %e reported eit!er on t!e face of

t!e nancial statements or in accompanying

notes.

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Reporting revenues and e%penses 6even#es and expenses %e reported in statements

of activities.

Statement of activities foc#s on t!e organization asa !ole* rat!er t!an on individ#al f#nd %alance.

't s!o#ld report t!e c!anges in eac! of t!e t!ree

categories of net assets. Statement of activities s!o#ld separately incl#de

gains and losses on investments and ot!er assets.

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Reporting revenues and e%penses 6even#es s!o#ld %e reported as increases in

one of t!e & categories of net assets. Toever*

all expenses s!o#ld %e reported as decreases in#nrestricted net assets. ,a%le 12-2

+on-prots mae 2 entries !en spending

restricted reso#rces: in restricted f#nd A+U in#nrestricted f#nd.

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Reporting revenues and e%penses &%ample: in ear ', ( org receives )*','''

grant to promote +truth in !udgeting

among organizations" in ear , ( spent the

funds for the stipulated purpose"

temporaril restricted fund.ear ' /r" cash *','''

0r" Revenue from contri!ution *','''

1;


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Reporting revenues and e%penses &%ample:

temporaril restricted fund

.ear /r" Resources released from restriction*','''

0r" 0ash *','''

unrestricted fund

.ear /r" program e%pense *','''

0r" Resources released fromrestriction *','''

2=

(ontra6even#e


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Reporting revenues and e%penses

FASB permits +) to report all expenses in a single

col#mn.

,!e %oard permits +) of reporting restrictedcontri%#tions as #nrestricted if t!e restriction !as

%een met in t!e same period as t!e contri%#tion is

made. FASB mandates t!at expenses s!o#ld %e reported

%y f#nction. ,a%le 12-&.

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22

Vol#ntary !ealt! and elfare organizations VTW


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Reporting cash 1ows: ,a%les 12- X 12-/.

FASB statement +o. ;/* Statement of (as! Flos*

directs %#sinesses to classify cas! 8os into t!ree

categories:

(as! Flos from


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Reporting cash 1ows:

Onrestricted gifts are incl#ded it! operating

activities.

6estricted contri%#tions given for long-term p#rposesare incl#ded it! nancing activities along it! t!e

related income.

+oncas! gifts or in-ind contri%#tions are disclosed asnoncas! investing and nancing activities in a

separate section.

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What are the Main Types of Contributions,and How Should Pledges be Accounted for?

2/

(ontri%#tions are t!e main means of s#pport in+F)Ys.

(ontri%#tion incl#de all nonreciprocal receiptsof assets or services.

+onreciprocal receipt is one !ic! t!e recipient givesnot!ing in exc!ange.


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23

Onder GAA): FASB Statement +o. 113

P Accounting for 0ontri!utions Received and

0ontri!utions madeQ (ontri%#tion incl#de gifts

of cas!* mareta%le sec#rities* property and

e7#ipment* s#pplies* intangi%le assets and t!eservices of professionals and silled orers.


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25

(ontri%#tions also incl#de unconditional promises

P)ledgesQ.

)ledges are regarded as contri%#tions* alt!o#g! t!ey

excl#de conditional promises to give t!ese items in t!e

f#t#re.

A conditional promise depends in a specied f#t#re and

#ncertain event to %ind t!e donor.

&%ample: a #niversity al#mn#s may pledge f#nds to

constr#ct a ne la%oratory if t!e #niversity is s#ccessf#l in

inning a government researc! grant.


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Distinguishing Contribution from anExchange Transaction

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A contri%#tion is a transfer of assets in !ic! t!e

donor does not expect to receive e7#al val#e in ret#rn.

An exc!ange transaction is a m#t#al transfer in !ic!eac! party receives and gives #p reso#rces of e7#al

val#e.

,!e di$erence %eteen t!e to is not alays o%vio#s.

't re7#ires t!e exercise of "#dgment.


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2;

xample: 'f a private corporation ere to give a

researc! fo#ndation +) f#nds to st#dy t!e ca#se

of a disease it! expectation t!at t!e res#lts

o#ld %e p#%lis!ed #n a scientic "o#rnal* t!etransaction o#ld %e considered a contri%#tion.

'F it gave t!e f#nds it! contract#al agreement

t!at it o#ld !ave t!e rig!ts to res#ltant patent*t!en t!e transaction o#ld %e an exc!ange

transaction.


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&=

As mentioned earlier* t!e classication of

reso#rces into t!e t!ree categories of

restrictiveness is %ased on donor stip#lation.

Tence*


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&1

xc!ange transaction

are alays classied as #nrestricted*

t!e reso#rces received are not s#%"ect to donor

restrictions.

,!ey s!o#ld %e acco#nted for as commercial

transactions and !ence on a f#ll accr#al %asis.

'f a +) agreed to perform researc! for t!e excl#sive

%enet of a dr#g company and receive payment in

advance* it o#ld recognize reven#e on a percentage of

completion met!od completed contract met!od.


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Accounting for Pledges

&2

Gifts of cas! and ot!er assets are recognizesas reven#e #pon receipt.

Gifts of assets* ot!er t!an cas! are meas#red at

t!eir Fair 0aret Val#e.

!EN S!"U#D NP $EC"GN%&E P#EDGES

'promises to ma(e donations o) cas* or

ot*er assets in t*e )uture+,


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&&

!EN S!"U#D NP $EC"GN%&E P#EDGES,


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&


FAS. Statement No/ 001 decided t!at #nrestricted pledges

s!o#ld %e reported as reven#e in t!e period received[

organizations need not ait #ntil pledges are f#llled.

,!ey s!o#ld meas#re t!e pledges at t!e present val#e of

estimated f#t#re cas! 8os #sing a disco#nt rate appropriate

it! riss involved.

,!at is* t!ey s!o#ld tae into acco#nt %ot! anticipated %ad de%ts andt!e time val#e of money.

'f t!ey #sed an alloance for #ncollecti%le* t!ey s!o#ld #se a ris free

disco#nt rate. 'f not* t!en t!ey s!o#ld #se a !ig!er disco#nt rate.


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&/


FAS. Statement No/ 001

,o avoid recognizing contri%#tion as reven#e %efore t!ey

are availa%le for expendit#re* +) s!o#ld consider pledges

of cas! to %e received in t!e f#t#re periods as s#%"ect to

restriction.

!en cas! is received and availa%le for expendit#re* +)

s!o#ld release t!e reso#rces from t!e temporarily

restricted category and transfer t!em to t!e #nrestricted

category.


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&3

E2AMP#E3

'n +ovem%er* a p#%lic %roadcasting station cond#cts

its ann#al pledge drive and receives telep!one

pledges of \5==*===. By year end* Uec &1* 't collects\==*=== of t!e pledges. Based on previo#s

experience* it estimates t!at \3=*=== of t!e %alance

ill %e #ncollecti%le. 'n Addition* it receives a pledgefrom local fo#ndation to contri%#te \1==*=== at t!e

end of eac! of t!e next t!ree years.


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&5

E2AMP#E3

1. ,o record t!e collection of cas! to %e paid in t!e

c#rrent year in an #nrestricted f#nd

Dr. Pledges Receia!le "##,###

$r. Reen%e from contri!%tion "##,###


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&9

E2AMP#E3

2. ,o record t!e collection of cas! in an #nrestricted

f#nd

Dr. $as& "##,###

$r. Pledges Receia!le "##,###

These pledges fall under the e%ception that when

time restrictions are satised within the same ear,

the revenue ma !e reported as unrestricted"


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&;

E2AMP#E3

&. ,o record t!e pledges expected to %e collected in

f#t#re periods in a temporarily restricted f#nd

Dr. Pledges Receia!le '##,###

$r. Allo(ance for %ncollecti!les )#,###

$r. Reen%e from contri!%tions *"#,###


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=

E2AMP#E3

. As t!e pledges are collected in s#%se7#ent year* t!e

reso#rces o#ld %e released from the temporaril

restrictedcategory and added to t!e

unrestricted

categor . ,!#s if \5/*=== ere collected:

Dr. Reso%rces released from restriction 7+,###

$r. Pledges Receia!le 7+,###

Dr. $as& 7+,###

$r. Reso%rces released from restriction 7+,###


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1

E2AMP#E3

/. ,o record a pledge of t!ree ann#al payments of

1==*===* t!e present val#e of !ic!* disco#nted at

&]* is \292*931 temporarily restricted f#nd.Ur. )ledges 6eceiva%le 292*931

(r. 6even#e From contri%#tion 292*931


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2

E2AMP#E3

). ac& ear, as t&e 1##,### is receied, t&e

station (o%ld recognize interest reen%e

Ur. 6eso#rces released from restriction ;1*/1(r. )ledges 6eceiva%le ;1*/1

Ur. (as! 1==*===

(r. (ontri%#tion 'nterest reven#e 9*93

(r. 6eso#rces released from restriction ;1*/1

temporarily restricted

)und

Unrestricted )und


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&

E2AMP#E3

)ledges 6eceiva%le

\292*931;1*/1;*23=;5*=95

^ero

'nterest reven#e Z1_\9*93'nterest 6even#e Z2_

\/*5='nterest 6even#e Z&_\2*;1&

Wh h ld titd tib ti


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When shoulduse-restricted contributions be recognized?

Ose-restricted contri%#tions p#rpose restricted

can %e #sed only for donor-specied p#rposes.

FASB Statement No.11) 6estricted contri%#tions*

incl#ding pledges* are recognized as reven#es in t!eperiod received* irrespective of !en t!e reso#rces

ill %e expended.

Wh h ld titd tib ti


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/

xample: in 2==9* t!e


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3

S#ppose t!at t!e society %#dgeted an additional \1/=*=== or

more on its on reso#rces to nance prod#ction. W!en it spent

t!e rst \1/=*===* as it spending its on reso#rces or t!e

donated reso#rces`

Per FASB Statement No. 11)* as long as t!e organizationinc#rs an expense for a p#rpose for !ic! t!e restricted

reso#rces are availa%le* it s!o#ld consider t!e restriction as

!aving released. ,!e only exception is t!at if t!e organization

receives reso#rces from to external donors* %ot! of !ic!

restrict reso#rces for t!e same p#rpose* t!en it can not release

t!e to restrictions it! expendit#re of t!e same reso#rce.

Sh ld tibti f i b


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Shouldcontributions of services berecognized?

5

+) %enet from t!e services of vol#nteers.

An attorney provides free legal co#nsel to a !ospital.

(!#rc! mem%ers paint t!e c!#rc! facilities and constr#ct a

c!ildrenYs play center.

,!e organization received economic %enet from t!e

contri%#ted services. (orrespondingly* it inc#rs a cost in

t!at it Pcons#mesQ t!e services provided. (an it %e relia%ly

meas#red` S!o#ld t!ey %e recognized`

Sh ldcontribtionsofsericesb


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Shouldcontributions of services berecognized?

9

FASB Statement No. 11) prescri%es t!at service contri%#tions

s!o#ld %e recognized only if t!ey are of a professional nat#re and

of t!e type t!at t!e entity o#ld ordinarily !ave !ad to pay for !ad

t!ey not %een donated.

't esta%lis!es to conditions* either of which m#st %e met* forrecognition:

,!e services create or en!ance nonnancial assets.

,!e services re7#ire specialized sills* are provided %y individ#als

possessing t!ose sills* and o#ld typically need to %e p#rc!ased if notprovided %y donation. Services re7#iring specialized sills* according to t!e

FASB* are t!ose provided %y acco#ntants* arc!itects* carpenters* doctors*

electricians* layers* n#rses* pl#m%ers* teac!ers* and ot!er professionals.

Whencontributionsofservicesbe


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Whencontributions of services berecognized?

;

,!e ne 0exico clinic* a not for prot !ealt! care provider*

recr#its a local contractor to repave its paring lot. Tad t!e

contractor %illed t!e clinic at standard rates* t!e cost o#ld

!ave %een \12*===.

,!e services received %y ne 0exico clinic satisfy %ot! of FASB

conditions.

Ur. 6epair and maintenance expense \12*===(r. 6even#e from contri%#tion services \12*===

$ead %n PracticePage 455


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Should receipt ofcollection items be recognized asrevenues?J?bCDE N JJDE N JCDE hIjkE J@CDE

/=

FASB Statement No. 11) enco#rages not-for-prots to

recognize contri%#tions of collecta%les as reven#es and to

capitalize t!eir entire collections.

Toever* it states t!at entities need not recognize contri%#tions

of collecti%les as long as t!e items satisfy all of t!e folloingconditions:

,!ey are !eld for p#%lic ex!i%ition* ed#cation* or researc! in f#rt!erance

of p#%lic service rat!er t!an nancial gain.

,!ey are protected and preserved.

,!ey are s#%"ect to an organizational policy* re7#iring t!at proceeds from

sales of collection items %e #sed to ac7#ire ot!er items for collection.

Shouldreceiptofcollectionitemsbe


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Should receipt ofcollection items berecognized as revenues?

/1

FASB Statement No. 11)

'f not-for-prots elect not to capitalize t!eir collections* t!en

t!ey m#st disclose in notes to t!e statements* t!e details of

items %ot! p#rc!ased* and de accessed.

'f t!ey capitalize t!eir collections* t!ey s!all recognize

contri%#tions of collection items as reven#es* if not* t!ey

s!o#ld not recognize t!em as reven#es.

Whenshouldconditionalpromisesbe


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When shouldconditional promises berecognized?

/2

Uonors may promise to contri%#te to a not-for-prot on

condition t!at a specied event tae place or t!at t!e

entity tae specied action.

(onditional promises to give m#st %e disting#is!ed from

restricted contri%#tions.

A restricted gift is one !ic! m#st %e #sed for specic

p#rpose

A conditional promise is one in !ic! t!e donor ill

provide t!e reso#rces


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/&

A conditional promise is an economic %enet to

a not-for-prot entity as long as t!ere is positive

pro%a%ility t!at t!e conditions can %e met.

'f t!ere is reasona%ly #ncertainty t!at conditionsill %e met* t!e entity may %e premat#re in

recognizing reven#e #ntil it !as earned t!e rig!t

to t!e contri%#tion %y satisfying t!e conditions.



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/

FAS Statement No/001 stip#lates t!at

conditional promises to give s!all %e

recognized !en t!e conditions on !ic!

t!ey depend are s#%stantially met.



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//

xample: ,!e city symp!ony is cond#cting a campaign to

provide nancing for a ne a#ditori#m. 'n 2==9* a private

fo#ndation agrees to mac! /=] of all ot!er contri%#tions*

#p to \1 m. 'n 2==;* t!e symp!ony received /==*=== in

ot!er donations.

'n 2==9 +o entry

2n 3''4, the smphon satised the conditions to receive

)3*',''' of the foundation5s donations:

Ur. )ledge 6eceiva%le \2/=*===

(r. (ontri%#tion 6even#e \2/=*===

Whenshould“passthrough”contributions


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When should pass through contributions be accounted for?

/3

FASB Statement No.1') !en an organization accepts

contri%#tions from a donor and agrees to transfer t!e

assets to or #se t!em on %e!alf of a specic %eneciary*

t!en it s!o#ld not recognize t!e donation as reven#e. 't

s!o#ld o$set t!e asset received it! a lia%ility. ,!ere are

to exceptions:

1. 'f t!e donor !as explicitly granted t!e organization

variance poer.

2. 'f t!e recipient organization and t!e %eneciary

organizations are Pnancially interrelatedQ.



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/5

FASB Statement No.1')

1. 'f t!e donor !as explicitly granted t!e organization

variance poer.

. Variance poer is t!e #nilateral rig!t to redirectt!e #se of t!e assets received to anot!er

%eneciary.

. ,!e recipient organization is not merely an agent%#t !as s#%stantive decision maing a#t!ority over

!o t!e donation may %e #sed.



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/9

FASB Statement No.1')

2. 'f t!e recipient organization and t!e %eneciary

organizations are Pnancially interrelatedQ.

.

Financially interrelated !en


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When shouldgains and losses oninvestments be recognized?

/;

FASB Statement No.1*" Accounting for 0ertain

2nvestments Held ! Not-for-Prot 6rganizations

6eport investments e7#ity* de%t at fair val#e.

+) s!o#ld +


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3=

FASB Statement No.1*" Accounting for 0ertain

2nvestments Held ! Not-for-Prot 6rganizations

'nterest* dividends* and gains and losses from

c!anges in t!e fair val#e of sec#rities s!o#ld %ereported on t!e statement of activities as increases

or decreases in #nrestricted net assets* O+RSS t!eir

#se is temporarily or permanently restricted %yexplicit donor stip#lation or %y la.

Whenshouldgainsandlosseson


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31

&%ample: in 7une 3''8, the 9elfare Association receives a

grant of )'',''', which it classies as temporaril

restricted" To earn a return until it needs the funds, the

Association invests the proceeds in Treasur Notes" As of

/ecem!er , 3''8, the ;air alue of the Notes is

)','''"

The following entr in an %nrestricted f%nd would !e

appropriate:

/r" 2nvestment ),'''

0r" 2nvestment earnings ? appreciation in value ,'''

Whenshouldgainsandlosseson


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32

&%ample:

The investments would now !e divided into two funds:

/nrestricted 0',###

emoraril restricted 1##,###

otal 01#',###2f the securities were sold for )','''

/r" 0ash ,'''

0r" 2nvestments ,'''

/r" 0ash '','''

0r" 2nvestment '','''

Unrestricted

)und

Temporarilyrestricted

)und

Whataresplitinterestagreementsand


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What aresplit interestagreements andhow should they be accounted for?

3&

Split interest agreements are t!ose in !ic! t!e donor

maes a gift to a not-for-prot organization %#t t!e

organization is not t!e sole %eneciary .

General 6#le: +ot-for-prot s!o#ld recognize reven#e

from a split interest agreement #pon receipt of t!e asset.


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3

$&arita!le remainder tr%st

Uonor esta%lis!es a tr#st f#nd* contri%#tes assets to t!e

f#nd and appoints a recipient not-for-prot organization

as t!e tr#stee.

,!e tr#st agreement provides t!at as long as t!e donor

or spo#se is alive* a set percentage of t!e tr#st assets

ill %e distri%#ted to t!em.

Any additional earnings ill remain in t!e tr#st. Opon t!e deat! of %ot! donor and spo#se* t!e tr#st

assets ill revert to t!e nor-for-prot organization

Whataresplitinterestagreementsand


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3/

$&arita!le remainder tr%st

+ot-for-prot organization s!o#ld record t!e assets

received at t!eir fair maret val#e.

't s!o#ld recognize a lia%ility to t!e ot!er

%eneciaries meas#res at present val#e of t!e

estimated f#t#re payments.

,!e di$erence %eteen t!e assets and t!e lia%ilities

o#ld %e recognized as contri%#tion reven#e.


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How should depreciation be reported?

33

FAS statement No/ 56* recognition of

depreciation ! not-for-prot organizations

mandates t!at not-for-prots s!all recognize t!e

cost of #sing #p t!e f#t#re economic %enets or

service potentials of t!eir long lived tangi%le

assets- depreciation.

Statement +o. 115 re7#ires t!at all expenses %e

reported as decreases in #nrestricted net assets.


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How should depreciation be reported?

35

xample: a not for prot ac7#ires a personal comp#ter for

\&*===. it pays for t!e comp#ter o#t of a f#nd restricted tot!e ac7#isition of e7#ipment. stimated #sef#l life is t!reeyears.

'n a restricted f#nd:

/r" Resources released from restriction ),'''

0r" 0ash ),'''

'n an #nrestricted f#nd:

/r" &@uipment ),'''

0r" Resources released form restriction ),'''

'n an #nrestricted f#nd:

/r" /epreciation e%pense ),'''

0r" Accumulated /epreciation ),'''

Whatissuesdoesanot-for-profitfacein


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What issues does a notforprofit face inestablishing its reporting entity?

39

,!e primary so#rce of g#idance is A'()AYs 1;;

6eporting of Related &ntities ! Not-for-Prot

6rganizations"

+ot-for-)rot s!o#ld incl#de a related organization

in its on reporting entity !en it exercise

signicant in2%ence over t!at organization.

Howshouldthecostsoffund-raising


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How should thecosts of fundraisingactivities be determined?

3;

(ontri%#tors ant ass#rance t!at t!eir donations

are %eing #sed mainly to s#pport s#%stantive

programs and activities rat!er t!an merely

additional f#nd raising or administrative e$orts.

)rivate fo#ndations and ma"or donors almost

alays demand detailed nancial data prior to

maing a commitment of reso#rces.

How should thecosts of fund-raising


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u gactivities be determined?

5=

Functional Expenses

SupportPrograms

Adoption Management 7

General Counseling Fund-raising



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gactivities be determined?

51

F#nd-raising activities are often carried o#t in con"#nction

it! programmatic or administrative activities.

,!erefore* t!e cost of f#nd-raising may not %e easily

disting#is!a%le from t!ose of ot!er activities.

,!e cancer society taes o#t nespaper advertisements alertingreaders to t!e signals of cancer. ,!e ads incl#de a lea for f#nds*

accompanies %y a co#pon asing for t!e donorYs name* and

address.

s!o#ld t!e costs of t!e activity %e apportioned %eteen

f#nd-raising and mission-related programs` 'f yes* on !at

%asis`



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52

,!e A'()A directs t!at not-for-prot organizations

classify as f#nd-raising all costs of activities t!at

incl#de f#nd-raising as ell as programmatic*

management* or general f#nctions #nless t!e

activities satisfy t!ree %road criteria:

P%rose, A%dience, $ontent

,!at is* if t!e activity satisfy all t!ree criteria* t!en

t!e costs can %e allocated %eteen f#nd-raising and

t!e ot!er f#nctions. 'f it does not* t!en all t!e costs

m#st %e classied as f#nd-raising.



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5&

P%rose3 ,!e p#rpose criteria is met if t!e p#rpose of

a "oint activity incl#des accomplis!ing program or

management and general f#nctions:

,!e activity calls for specic action %y t!e a#dience t!at ill

!elp accomplis! t!e entityYs mission. ,!e organization cond#cts a similar program separately and

on a similar or greater scale.


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5

A%dience3 t!is criteria ill %e met if t!e a#dience

of t!e materials is selected principally on its need

for t!e program in ays ot!er t!an %y nancial

s#pport.

(ampaigns targeted excl#sively at !ig! income

individ#als selected mainly %eca#se of t!eir a%ilityto give* o#ld seldom satisfy t!e criterion.



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5/

$ontent3 t!is criteria is met if t!e materials or

activities call for specic action t!at ill !elp

accomplis! t!e entityYs mission %eyond providing

nancial s#pport.

6ead examples page /1;



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53

0eans of allocation:

A'()A allos +) %road discretion in allocating "oint

costs %eteen f#nd raising and ot!er activities.

,!e met!od of allocating costs s!o#ld %e rational and

systematic

1. )!ysical #nits met!od

1. +#m%er of lines* s7#are inc!es

2. 6elative direct costs met!od

&. Stand-Alone (osts 0et!od

How can a not-for-profit’s fiscal condition be


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passessed?

55

NP that rel on e%change revenues +hospitals and

clu!s are compara!le to !usinesses"

Not-for-prots that rel on none%change revenues

+grants and contri!utions are diBcult to evaluate:

The ma have no guaranteed revenue source

Come are h!rids, reling on !oth e%change and

none%change revenues


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Traditional Financial Indicators

59

6atios t!at assess:

4i5%idit3 c#rrent ratio* 7#ic ratio

B%rden of de!t3 total de%t to total assets

Ade5%ac of aaila!le reso%rces3 Onrestricted net assets Pexcl#ding capital assetsQ

expenses

Relia!ilit of !%dgetar ro6ections: variance\*] act#al vs. %#dget.


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5;


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*. Program ratio3 compares expenses of mission-oriented

programs to t!e total of f#nd raising and administrative costs.

't s!o#ld %e at least 3/] of all expenses. ,o assess t!e sta%ility of t!e f#nding so#rces:

'. $ontri!%tions and grant ratio: reven#e from contri%#tionsand grants relative to total reven#es. Pmeas#re of risQ

Generally* contri%#tions and grants are less relia%le so#rce of

reven#e t!an #ser c!arges.

". Reen%e from serices ratio: reven#es form fees and

c!arges relative to total reven#es

acct338 topic four nfp

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