Annual Not-for-Profit Update

The leaders of our national not-for-profit (NFP) practice led a brief session touching on the most important topics in the industry.

Anchored by national practice leaders Alex Zhang, Nancy Johnson, Jody Lurk, Marlene Beach and Brian Kearns weighed in on topics that they have a great deal of experience with.

Recap of UHY Not-for-Profit Survey results

Our 2022 not-for-profit survey received more than 115 responses from organizations ranging in size from as small as $250k to over $10 million in annual revenue with a sweet spot of $1-5 million.

Based on those responses, the top concerns for the industry were:

• Challenges with growth and scaling
• Limited funding available to the overall sector
• Donors reluctant to pay for full cost of evaluation, overhead, etc.

Brian Kearns shared some of the ways organizations are adapting to the challenges, emphasizing new programs, technology implementation and collaboration within the industry.

The full results and detailed report from the 2022 UHY Not-for-Profit Survey is available here.

American Rescue Plan Act and Uniform Guidance

Marlene Beach used her government expertise in addition to her NFP experience to share the ways not-for-profit organizations could benefit from the American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Funds.

State and local governments received significant allocations in response to COVID-19 and are now trying to figure out how to spend the money. These municipalities are seeking out organizations to assist with financial support and program funding.

Not-for-profits that are 501(c)3 or 501(c)19 tax-exempt organizations may qualify for financial assistance as either a beneficiary or a sub-recipient, but there is an important distinction.

• Beneficiary is defined as an organization that receives funds to carry out their mission, not a specific program, but the overall mission of the organization. Beneficiaries are subject to the reporting requirements of the grantor. Not subject to Single Audit.
  • Support payroll costs
  • Lost pay and benefits for returning employees
  • Support of operations
  • Maintenance on existing equipment and facilities
  • Technical assistance, counseling, other services to support business planning
• Subrecipient is defined as an organization that receives funds from a municipality to execute a program for that government entity. Subrecipients are bound by all Uniform Guidance rules.
  • Carry out eligible uses on behalf of grantor
  • Expenses must be allowable under ARPA AND Uniform Guidance

Governments have received a massive allocation and are seeking the best ways to use them, if your organization suffered negative economic impacts through the pandemic, reach out to them and inquire whether they might support your cause.

All funding received must be marked for a specific purpose by 2024 and must be spent by 2026. Each government will have different reporting requirements and we recommend extensive due diligence to ensure you are able to maximize your financial assistance.

Lease Accounting

Jody Lurk took the floor to discuss the new lease accounting standards as we move even further beyond the effective date.

Beginning with an overview of the new lease accounting standards, she touched on what the new standards were intended for, and the scope, and shared information on the implementation process.

The implementation process can be broken down into six steps for simplicity.

Step 1: Determining transition approach

Step 2: Consider practical expedients and accounting policy elections

Step 3: Identify lease term, determine discount rates and lease payments

Step 4: Classify the lease (if necessary

Step 5: Initial and subsequent measurement and recognition

Step 6: Disclosure

The biggest takeaway is that implementing the new lease accounting standard is a monumental task, and within each step of the process, there are options available that would need to be considered on an individual basis based on how they would impact your business. Our dedicated not-for-profit accounting specialists have assisted clients with the new lease standard implementation and have requisite expertise to assist you with implementation and answer any of your questions.

Contributed Nonfinancial Assets (Gifts-In-Kind)

Taking effect on June 15, 2021 the new Contributed Nonfinancial Assets standard was intended to improve transparency among NFPs for reporting gifts-in-kind), and will change the financial statement presentation and disclosure. Nancy Johnson shared more information on the new standards for accounting for gifts-in-kind.

Gifts-in-kind are nonfinancial asset donations made to eligible not-for-profits for goods or services that would be purchased in the normal course of business, they can be broken down into either gifts-in-kind of tangible property (utilities, office furniture, supplies, etc.) or intangible gifts-in-kind (copyrights, patents, royalties, specialized volunteer services, etc.).

With the new standard, there are new requirements for reporting purposes including:

• More prominent presentation of contributed nonfinancial assets
• Enhanced disclosures of the valuation of those contributions and their uses
• Presentation as separate line items; can’t be grouped with cash contributions or other financial assets
• Disaggregation into categories based on the type of gift received with additional disclosure requirements

Governmental Assistance

Alex Zhang brought good news stating that not-for-profit entities are not subject to ASU No. 2021-10, Government Assistance (Topic 832).

Sharing a bit more background on the accounting standard update, he discussed the difference between accounting for government assistance using the Contribution Model (ASC 958-605) and Grant Model (IAS 20).

Alternative Investment: Red Flag Alert

Wrapping up the session, Patrick Rohrkaste addressed an emerging topic related to not-for-profits with larger investment portfolios may have considered alternative investments to capitalize on higher returns compared to traditional investments.

If considering or involved in alternative investments, you should be aware of the tax compliance and reporting requirements that those investments carry.

These alternative investments include:

• Private equity funds
• Offshore partnerships
• Real Estate Investment Trusts (REITs)
• S corporations

While these investments present the opportunity for a larger return, they may also trigger unrelated business income that would need to be reported on Form 990T with specific rules and reporting requirements. Ignoring or violating the reporting requirements could carry significant tax penalties for your organization.