10 Steps to Help Accountants Navigate Today's Nonprofit World

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The exempt organizations industry has found itself in a difficult, unreceptive business environment. While we were all hoping for an economic rebound leading to an era in which programs would be able to smoothly glide through their administrative duties, devoting most of their focus on furthering their missions, that bright horizon has receded due to many factors, from increased regulatory oversight to ongoing economic challenges. What's an accountant in this area to do?

From the perspective of maintaining a friendly and opportunistic relationship with funders, we find that our funders are now in the business of "evaluating budgets rather than evaluating services" by virtue of a diminished reservoir of resources and a diminished sense of confidence in our industry. At times, an organizational liaison to funders can feel like an alienated constituent conflicting with funders who have, in essence, pulled the plug and disconnected from their mission and goals for growth.

The government and organizational funders have reinforced the adoption of a “forever frugal” philosophy and it seems to be affecting the very essence of the nonprofit industry.

Internally, on frequent occasions, there’s an ongoing struggle that exists between the finance and program departments, with program directors feeling compelled to maintain rich program content and finance departments tasked with straddling the current budget and anticipated cuts. These struggles create substantial obstacles in the path of running a smooth operation.

Following are the top 10 initiatives to consider when striving to maintain a strong level of compliance with current and upcoming guidelines:

  1. Cash vs accrual financial statements – The Nonprofit Revitalization Act and the Executive Law both require annual financial statements in accordance with GAAP
  2. Required communications with the Board – Expanded requirements stemming from the Nonprofit Revitalization Act
  3. Audit Committee duties including minimum periodic meetings and independent audit timelines
  4. Financial processes – Documenting and communicating in accordance with the law
  5. Expanded fiduciary duties – Board members should be aware of their updated responsibilities such as those relating to organizational filings
  6. Independence – Implementing the independence rules requires a wide understanding of the nuances between IRS, New York State Law and funding agency guidelines
  7. Potential additional costs from the Nonprofit Revitalization Act – Additional costs should be discussed and worked into the organization’s budget; such as for D&O policy premiums and reviews of by-laws
  8. Ripple effects from other government contracts - Many City and State contracts are building in new requirements to better combat malfeasance
  9. Focusing on the impact of the services of the organization while maintaining compliance with the law
  10. Embracing rapid changes to accounting standards – Revenue recognition, going concern, discontinued operations, financial statement layout

These items are at the cutting edge of the nonprofit industry’s focus as we embark into an era of enhanced trust and confidence by governments and funders.

Moving Forward

Juggling regulatory changes while maintaining quality services can be a challenging endeavor, especially in an environment of “doing more with less.” Standard setters, regulators and users of reports have taken great leaps to improve the level of transparency and reliability of the elements comprising audits and filings. These changes may have initially appeared detrimental, yet upon incorporating them into our practices, it is clear that, despite the growing pains, these new standards have been beneficial for the industry as a whole.

Not-for-profit organizations strive to operate with speed without sacrificing quality, to be efficient and effective. Organizations have embraced these changes and, perhaps to a degree, rebounded from the attack on their integrity. Sector leaders should carefully consider the nuances of the laws, contractual agreements and other relative guidelines to craft a well-planned strategy that will ensure the long term viability of their individual programs.

About the author:

Ethan Kahn, a partner in the WeiserMazars LLP Not-for-Profit Practice, has more than 17 years of experience delivering audit, accounting and consulting services to not-for-profit organizations of all types. He is an expert in helping clients overcome strategic planning challenges, providing clear and sound advice to finance, senior management and boards of directors.

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