Tags: Nonprofit

Top Considerations for the Nonprofit Sector, Part Two

Many nonprofits are dealing with the uncertainty of the ongoing pandemic as well as increased demand for their services. It’s a delicate balancing act, but with proper systems and support, nonprofits are up for the challenge.

The first blog of this two-part series covered how the sector has benefited from COVID-19 relief funds, along with best practices for complying with new accounting standards, safeguarding against cyberattacks in a hybrid or fully remote working environment, automating manual processes for greater efficiency, and implementing a successful diversity, equity and inclusion (DEI) strategy.

In this second part of the series, we highlight five additional considerations for nonprofits around succession planning, funding volatility, remote management and leadership, planning for disruption and change management.

1. Succession Planning

Each employee plays an integral role in your nonprofit’s operations. An effective succession plan reflects this and will prepare your nonprofit for the departure of your chief executive officer as thoroughly as it would for the departure of your office manager.

A comprehensive succession plan is designed to ensure business continuity in the face of expected and unexpected departures alike. It focuses on retaining employees by offering opportunities for advancement to promising staff members and includes training initiatives to minimize the learning curve for new hires. It is important for nonprofit leadership to be transparent about the details of the succession plan and review the plan annually or semi-annually to confirm it addresses the latest needs and developments.

This should be discussed with the board as well and appropriately communicated to other intended stakeholders. During the pandemic, many organizations practiced and thrived with this approach and didn’t think of it as a “sensitive topic.” Succession planning should be part of scenario planning and risk management planning.

2. Funding Volatility

From cancelled events to shifts in donor behavior to stock market fluctuations, it’s easy to see why funding volatility has become a challenge for many nonprofits. It’s important to gain a clear understanding of your current funding mix, explore opportunities to enhance what’s working well and consider discontinuing what isn’t. This assessment will enable the organization to identify new programs that may offer more funding diversification to offset volatility.

As you consider new opportunities, you should review cash, accounts receivable and accounts payable daily. It’s also important to maintain adequate operating reserves, create a cash forecasting model, compose and adopt a risk tolerance statement that defines financial stability targets, and calculate key financial metrics for continuous monitoring.

3. Remote Management and Leadership

The pandemic has introduced hybrid and fully remote work models to many organizations, expanding nonprofits’ pool of job candidates and offering existing employees greater flexibility. That said, remote work can come with challenges of its own. Lack of in-person and spontaneous interactions can exacerbate existing information siloes, as well as feelings of loneliness in already isolated employees. Managers may find it difficult to oversee operations in a remote environment, and employees may find the blur between professional and home life draining.

Fortunately, there are several steps nonprofits can take to make remote work more comfortable and productive for all parties. Most importantly, lead with empathy. An empathetic leadership style inspires employee loyalty, especially in this time of imposed social isolation and uncertainty. Additionally, consider scheduling regular one-on-one videoconferences where employees can share any personal concerns and professional progress, reiterating praise in organization-wide videoconferences, and taking every opportunity to encourage employee collaboration. By fostering a sense of community, you can help boost employee morale and reignite passion for your nonprofit’s mission. While you can lead with a personal touch, note that it’s also important to establish clear boundaries between personal and professional life. For example, try to refrain from sending employees emails outside of business hours. After all, there’s a fine line between working from home and living at work.

4. Planning for Disruption

Disruption is to be expected, but it doesn’t have to throw your operation into a tailspin. You can plan for disruption by utilizing the following best practices:

  • Engage in clear and honest communication with all stakeholders
  • Make informed decisions quickly and stand by them
  • Reward collaboration over competition by remaining open to employee feedback
  • Leverage technology to disseminate timely and accurate information to all levels of the organization
  • Start scenario planning and determine how you might react to a variety of contingencies
  • Take stock of what worked and what didn’t in your response to previous crises
  • Establish a culture that blends structure with agility
  • Establish clear documentation on succession planning
  • Establish playbook that clearly documents who is responsible for what when a cyberattack happens

These steps will help your nonprofit adjust to dynamic conditions without losing sight of or the ability to achieve your mission.

5. Change Management

Change is hard. In fact, according to Harvard Business Review, 78% of change management projects are unsuccessful. A variety of factors contribute to this bleak statistic, but many change management initiatives fail to align with corporate culture due to improperly defined objectives and poor project management. It can be especially challenging to explore operational changes without employee buy-in, as a nonprofit’s staff are the heart of the organization. But be tactful—too much change at once can cause staff to lose momentum and confidence in the organization.

Impactful change requires clear communication as well as an obvious link between transformation and reward. Employees embrace change when they understand why it’s happening, even if they disagree with it. You should also be sure to communicate how their roles will be impacted, so there aren’t any surprises down the line. Create systems for measuring progress, hire employees who offer fresh perspectives and celebrate small wins to get everyone on board with your evolution. By linking transformation to realistic goals and rewards for your organization and its people, staff can feel more connected to the end results and be proud of the work involved.

There are many factors that nonprofits must consider as they look ahead. We’ve identified 10 through this two-part blog series.

Though these considerations may be daunting, a common thread runs through all best practices: Know where your nonprofit stands and strive to adapt to a changing environment through contingency planning, effective leadership and agile forecasting models.

Written by Divya Gadre. Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com

If you have questions about nonprofit organizations, please reach out to Sarah DeVoe for more information.

Tags: Nonprofit

Accounting for Shuttered Venue Operators Grants

Background

On Dec. 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the Act) became law as a part of the Consolidated Appropriations Act, 2021 (CAA). The American Rescue Plan Act also provides $16 billion in grants to shuttered venues, to be administered directly by the Small Business Administration’s (SBA) Office of Disaster Assistance.

The SBA has issued guidance that is available on its site as of July 22, 2021. Recipients of this funding should refer to the site often as additional information is expected to be released as the program is developed. Included in the SBA information is a very extensive list of Frequently Asked Questions related to the Shuttered Venue Operators Grant (SVOG) (last updated July 22, 2021 as of the date of this article). Please refer to the SBA Frequently Asked Questions (FAQs) and other information for more detailed answers to questions about the program.

Under the terms of the SVOG recipients are not required to repay the funding as long as funds are used for eligible uses as defined in the guidance by the dates specified by the program.

Nonprofit Accounting for an SVOG

The AICPA recently issued nonauthoritative guidance that recipients should consider in determining the accounting treatment for an SVOG. This Technical Question and Answer (TQA) applies to both nonprofit entities and private business entities.

The TQA notes that nonprofit entities should account for the SVOG as a government grant in accordance with the “contributions received” subsections of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition. Under this guidance, an entity must first determine if a contribution is conditional or unconditional. If a recipient is required to meet conditions imposed by the government to be entitled to receive or keep the funds, then the contribution is conditional. The recognition of contribution revenue is then deferred until the conditions are substantially met or explicitly waived. As a reminder, an entity cannot factor in the likelihood that the condition will be met in determining whether a grant is conditional or unconditional.

Under the SVOG, since entitlement to the payments from the SBA is conditioned upon having incurred eligible expenses there is deemed to be a barrier to entitlement. Also, under the SVOG noncompliance with the terms and conditions is grounds for the SBA to recoup the funds so there is deemed to be a right of return. Based on these two facts, the SVOG would be considered a conditional contribution under FASB ASC 958-605. Therefore, contribution revenue would be recognized only to the extent that eligible expenses have been incurred at that date.

Each nonprofit that receives an SVOG will need to evaluate its individual facts and circumstances in determining the extent to which conditions have been substantially met at a given reporting date. Payment amounts received that exceed recognizable contribution revenue would be reported as a refundable advance in the liability section of the statement of financial position. This is based on the fact that entitlement to the funds is conditioned on eligible expenses that are expected to be incurred in subsequent accounting periods.

To the extent a nonprofit determines that conditions have been met and have recognized contribution revenue it will also need to consider whether there are restrictions imposed by the government on the use of these funds. Since under the SVOG, payments can only be used for eligible expenses as defined by the SBA, these funds would also be considered to be donor restricted. Due to the relationship of the conditions and the restrictions, meaning both are hinged on eligible expenses being incurred as defined by the SBA, these would likely be satisfied simultaneously. However, each nonprofit entity has to make this assessment for its specific facts and circumstances.

If a nonprofit entity deems that the condition and restriction are satisfied simultaneously, the entity would record the contribution revenue in net assets with donor restrictions with a reclassification to net assets without restrictions to reflect the satisfaction of the donor restriction in its statement of activities. If the nonprofit entity has elected and disclosed one of the simultaneous release accounting policy options as outlined in FASB ASC 958-605-45, it could report contribution revenue directly in net assets without donor restrictions. 

If a for-profit business entity receives an SVOG it should refer to the TQA for the guidance options that are outlined specifically for business entities for more information.

Single Audit Impact

Per the Sam.gov website, Assistance Listing 59.075, an SVOG is subject to a single audit under the Uniform Guidance if the nonprofit entity receiving the funds has total federal expenditures in the fiscal year under audit in excess of the $750,000 threshold.

The Sam.gov website also notes “that if the awardee is a for-profit entity, subparts A through E of the Uniform Guidance are not required and will not be applied. SBA will, however, comply with any audit requirements in subpart F that apply to the for-profit community.” The AICPA Governmental Audit Quality Center currently has an inquiry into the Office of Management and Budget (OMB) and the SBA about the meaning of this statement as it relates to for-profit entities. Stay tuned for more information on this topic on both the OMB and SBA websites.

Written by Tammy Ricciardella, CPA. Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com

If you have questions about nonprofit organizations, please contact Sarah DeVoe for more information.

Tags: Nonprofit

Breaking Down Barriers—and Silos: Addressing Leadership Challenges in a Remote Environment

Are you tired of the “new normal,” logging into yet another virtual meeting and hoping your internet will hold out for your key presentation? Or do you love being remote so much that you’ve thrown out all your business pants and shoes, replacing them with loungewear and comfy socks? Either way, it’s time to admit that even after the COVID-19 shutdowns end, remote work settings are likely here for the long haul.

Given this change, it is key for management to adapt its training and interactions with teams while striving to keep the organization’s culture.

Based on the tone at recruiting events throughout 2020 and 2021 thus far, it is clear that the next group entering the workforce expects location flexibility and demands a vibrant corporate culture. Meanwhile, the need for productivity and efficiencies have not changed, as nonprofits are continuously expected to do more with less. Effectively managing a remote team is a matter of being intentional and adaptative.

Be intentional

In a remote environment, there isn’t an opportunity to run into someone in the breakroom or other communal areas and spark a conversation. In the past, inter-department communication often depended on those chance encounters. A fund development officer might start telling the chief financial officer (CFO) about a great art piece that was part of the most recent bequest. This offhanded comment would allow the CFO to discuss how this should be accounted for and if any tax forms would be required. Without this chance meeting, would the CFO ever know about the gift? Maybe not. To avoid these potential gaps and others in a remote environment, communication needs to be intentional. Create a virtual “meeting space” where, on a recurring basis, team leaders meet to discuss what is happening. Create an agenda to discuss wins, challenges and other developments that allows each department to catch everyone up on what is happening. This meeting should be frequent enough so that it’s not too long and relevant information is shared in a timely manner. Consider making these video meetings so you can still maintain face-to-face interaction.

Leaders also need to be intentional about reaching out to their team members. Pulse of HR, a website partnership between Josh Bersin Academy, CultureX and Waggl, maintained several surveys during the pandemic asking employees and human resource professionals questions about policies and procedures during the last year. One of the questions was “What is one thing your organization has done in response to COVID-19 that has positively impacted employee engagement?” The top three answers all included increases in communication. So, how can management communicate more in a virtual environment? Be cautious about sending more and more emails. Inboxes are full, and group-wide emails are often ignored. Try building a strong intra-network page as the landing page for your team members when they start the day. This is a great way to pass out key information to all staff. Some offices may want to start a monthly newsletter to keep the team informed of exciting personal or professional happenings. This is also a great place to keep up personal interactions between colleagues with games and other virtual hangouts.

Leaders must be responsible for driving intentional communication, but should also think about how to involve the whole team in helping write and circulate the information. This could be a great project for an intern who was hired remotely to help teach them about the corporate values and culture.

Be adaptive

In addition to intentional, well-planned communication, a remote leader needs to drive organizational adaptation. Remote work requires evaluating and updating potentially antiquated or “office-biased” policies and perceptions.

For example, how has the organization adapted to providing the tools and equipment needed for teams to work remotely? Do you have a checklist of what equipment team members need at home to complete their work tasks? Have you created a policy on how much the organization will provide and how much may be at the expense of the employee? Some organizations provided stipends during the year to assist with working-from-home requirements. Is this something that needs to be budgeted now for new hires? What onboarding or training procedures will need to be revamped to equip your team members for success?

Does the organization need to consider updating or revamping how to measure employee success? Oftentimes, organizations are focused on time inputs. An employee’s time is tracked and those who show up and stay at their desk are often labeled successful. What if the organization created more output metrics? Track project assignments and completions. Eliminate the need for tracking keystrokes or checking to see if the team is online during the old “office hours.” If you remain focused on intentional communication, it may be possible for remote teams to set their own working hours while still coordinating group projects.

Be flexible

Another concept prevalent for embracing a remote workforce is asynchronous communication, which allows teams to communicate through applications, such as Teams, Slack, email and others, without an expectation for an immediate response. The traditional in-person meeting can still take place through these chat room functions at the convenience of the team. Allowing a shift to more asynchronous communication empowers employees to work efficiently with fewer interruptions and on their own schedule. It can even foster more honest communication, as employees are given the time and space to formulate a response. In addition, employees sometimes feel they can be more direct through the written word in a chat room than face to face. Consider how many meetings could be shifted to this model to encourage productivity, honesty and breaking down silos.

It’s likely that the shift to remote work settings for most organizations will change the way employees work forever. By being intentional, adaptive and flexible, organizational leaders can help ensure that the current workforce is both productive and satisfied while continuing to recruit and retain top talent.

Written by Barbara Finke, CPA. Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com

If you have questions about nonprofit organizations, please reach out to Sarah DeVoe for more information.

Tags: Nonprofit

Top Considerations for the Nonprofit Sector, Part One

Since navigating the headwinds of the past year, nonprofit organizations have reimagined their operations to maintain relationships with donors, volunteers and the communities they serve while discovering new means to protect mission funding. Even so, the impacts of the pandemic and calls to further social justice work won’t subside overnight, leaving many organizations continuing to reassess their processes, approaches and impact.

In this first blog of a two-part series, we outline five of the top 10 considerations nonprofits are contending with and how organizations can approach them:

1. COVID-19 Relief Funds

Since the outbreak of the COVID-19 global pandemic, some nonprofit organizations have benefited from different types of federal financial aid. These include the Paycheck Protection Program (PPP), Economy Injury Disaster Relief (EIDL) and the Main Street Lending program advances and loans, the Higher Education Emergency Relief Fund (HEERF), the Employee Retention Credit (ERC), the Families First Coronavirus Response Act (FFCRA) paid sick and child care leave and related federal tax credits, shuttered venue relief, special relief for hospitals and health care providers, and the ability to defer certain federal payroll deposits interest-free. To ensure compliance, nonprofits should consider the following questions:

  • Is your organization covering the same cost by two sources of stimulus funding?
  • Are your costs and stimulus aid accounted for appropriately? Consider whether the funding is a loan or revenue, and investigate potential debt covenant implications. Be mindful of maintaining appropriate controls to process your funding and complying with the specific requirements related to your federal assistance, such as the Single Audit.

Organizations should involve auditors, bankers and key board members in discussions around managing and abiding by the various requirements of pandemic-related federal financial aid. Nonprofits should be cognizant of any federal program rules (which frequently change) and should be sure to document the organization’s compliance with those requirements.

2. New Accounting Standards

The Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02, Leases, is now effective for many nonprofit organizations. The impacts of adopting ASU 2016-02 include:

  • Lease arrangements have to be classified as either finance leases or operating leases.
  • The right-of-use asset model, which shifts from the risk-and-reward approach to a control-based approach.
  • Lessees will recognize an asset on the statement of financial position, representing their right to use the leased asset over the lease term and recognize a corresponding lease liability to make the lease payments.
  • The lease liability is based on the present value of future lease payments using a discount rate to determine the present value based on the rate implicit in the lease, if readily determinable, or the lessee’s incremental borrowing rate.

To prepare, organizations should discuss the new lease standard with their accounting advisors and evaluate the impact the standard will have on all facets of the organization’s leasing activities. Organizations should also identify and classify all leases based on the criteria in the ASU, and prepare financial statements based on their guidance to determine whether the organization has any potential issues with meeting current debt covenants as a result of recording these leases. Lastly, organizations should review current lease disclosures and update them to meet the ASU’s criteria.

The FASB issued ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, to increase the transparency of the presentation and disclosure of these items. Important items to note are:

  • The ASU should be applied retrospectively to all periods presented and is effective for annual reporting periods after June 15, 2021 and interim periods within annual periods after June 15, 2022. Early adoption is permitted.
  • The ASU requires that contributed nonfinancial assets be presented as a separate line item in the statement of activities, apart from contributions of cash and other financial assets.
  • The ASU outlines specific disclosures related to contributed nonfinancial assets that organizations will have to add to their financial statements.

To prepare, organizations should discuss the new standards with their accounting advisors and evaluate the impact the standard will have on the presentation and disclosure of contributed nonfinancial assets.

3. Cybersecurity and Breaches

As many nonprofits have moved to adopt a fully remote or hybrid work environment, there are significantly more employees working from home, using personal devices, internet providers and cybersecurity practices that likely aren’t as robust as an organization’s systems. As a result, there has been an increase in cybercrime, and these occurrences are only expected to continue to rise as bad actors become more advanced. This is especially harmful to nonprofits because of the sensitive information they may have in their records pertaining to staff and the communities they serve. A breach could present significant reputational risk and damage future fundraising efforts and partnerships.

For this reason, it’s imperative that nonprofits prioritize risk management to implement procedures to safeguard against cyberattacks as well as prepare their organizations to respond to a cyber breach. Organizations should develop a robust plan and implement procedures to guide the steps the organization will undertake if a breach were to occur.

4. Sudden Increased Use of Technology

For some organizations, remote work has highlighted their reliance on manual workflows. Certain internal processes that worked before, such as cross-organization collaboration in communal workspaces and in-person reviews of invoices, are no longer the status quo.

As a result, organizations should reassess systems, controls and processes from a remote work point of view and develop a plan to share with management and board members/committees. The plan should reflect the organization’s goals for adopting technology across departments, a funding plan and actionable steps to facilitate implementation.

5. Diversity, Equity and Inclusion (DEI)

The events of the past year have drawn heightened attention to organizations’ social impact, and nonprofits should carefully consider their organizational approach to DEI. Begin with an exploration of these terms and define what they mean for your organization and its mission. Consider the following questions:

  • Is your organization prepared to be transparent about the steps it is taking to become more diverse and encourage inclusive practices? How does your organization communicate its values to the public and new or existing staff and volunteers?
  • Does your nonprofit create opportunities to listen to the voices directly from community, grassroots or young leaders in low-income, under-served and/or marginalized populations?
  • How can your nonprofit open its board recruitment and staff hiring pipeline to talented candidates from underrepresented groups?
  • How can your organization work with existing and future collaborative and community partners to ensure they share similar values and approaches to DEI? Are you having these conversations at the onset of new partnerships?
  • How will your nonprofit assess the progress you are making toward your goals? What will success look like?

No matter where organizations are in their DEI strategy, they should ensure that it’s ingrained seamlessly in all processes. Organizations can broaden their view by relying on experts, whether the board or external consultants, to brainstorm the most impactful approach.

As we emerge from the pandemic, the nonprofit landscape will continue to evolve. To support operational sustainability and social justice work, it’s imperative for organizations to monitor how these considerations impact their mission and processes, and to remain agile enough to adapt to change.

By Divya Gadre. This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” Blog (July 21, 2021). Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com

If you have questions about nonprofit organizations, contact Sarah DeVoe for more information.