Insights
Best Practices of Highly Effective Nonprofit Organizations
G OV E R N A N C E
Before and After the Board Meeting: Time Well Spent
Winter 2022 Vol. 1 // Issue 4
CONTENTS
6 / HBK Nonprofit Solutions Contacts
By Kathleen Clayton, CPA PRINCIPAL | CO-CHAIR, HBK NONPROFIT SOLUTIONS GROUP
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ou will know when you’ve sat through either a good, productive board
meeting or a bad, unproductive meeting. The last thing organizations want to do is waste the precious hours that board members donate. Good organization plus sensitivity to the people and issues involved can ensure productive meetings. Here are ten suggestions for before, during, and after board meetings:
The Before
certain items a priority. Discuss your most important agenda items early in the meeting when members are most engaged. Make sure time-sensitive, critical items requiring board action have ample agenda time. 2. Documents and information. Supply the board with the information it needs to make informed decisions, particularly if you are asking them to vote or take action at this meeting. Include relevant reports and financial statements. Encourage board members to review the agenda and meeting documents before the meeting.
1. Agenda prep. The board president or chair and Gone are the days of the three-inch board binder. executive director (ED) typically plan the agenda Most boards have begun using together. Many boards now board management software Provide your board with good use consent agendas to that saves time and provides streamline meetings and allow financial information in a format for better governance—and the focus to be on substantive that doesn’t overwhelm them. improves collaboration both issues. A consent agenda before and during the meeting. The finance committee can groups the routine, procedural, Some board training may be request additional information informational, and selfrequired for those members explanatory non-controversial if they need it. who are less tech-savvy. items typically found in an 3. Financial facts. Provide your board with good agenda. These items are then presented to the board in a single motion for an up or down vote after financial information in a format that doesn’t overwhelm them. Consider using a dashboard-type allowing anyone to request that a specific item be presentation rather than columns and rows of data. moved to the full agenda for individual attention. Other items, particularly those requiring strategic thought, decision-making, or action, are handled on the full agenda. In preparing the full agenda, don’t try to cover every issue your nonprofit is facing in every meeting. Make
Think seriously about the amount of detailed financial data you distribute to the full board. First, will they understand it? Second, will it be meaningful in terms of a decision they are making? Many boards use dashboards and leave the more
TAX
4 / Gaming as Fundraising: Know the Rules
A SSURANCE
7 / GAAP Requires Nonprofits to Report In-Kind Donations on Financial Statements
OUTSIDE THE LINES
CLIENT SPOTLIGHT
10 / Endowments: A Powerful Solution for Both Donors and Charitable Organizations 12 / Wellfit Girls: Leadership, Fitness and Empowerment for Girls
ABOUT HBK NONPROFIT SOLUTIONS HBK Nonprofit Solutions is a dedicated team of subject matter experts within HBK CPAs & Consultants, an Accounting Today Top 100 CPA firm. With more than 800 clients in the nonprofit sector, and more than 35 years providing financial compliance and consulting to nonprofits, we offer the hands-on experience and technical skills to help nonprofit organizations fulfill their missions.
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detailed reporting to their finance committee. Be wary of what is distributed and discussed, particularly if you allow the public to join your meeting.
Be aware of issues that might prompt a strong difference of opinion, and never begin or end a meeting with one.
4. Sensitivity to controversial issues. Be aware of issues that might prompt a strong difference of opinion, and never begin or end a meeting with one. Good boards can weather heated discussions, and the best results often follow a better understanding of both sides of an issue. But you need to foster unity at the start and the end of your gatherings. Consider if certain items require a “closed session” where invited guests and the public are asked to leave the meeting.
7. Ongoing programs and activities. Board members want to know about programs and activities, so allocate time to showcase a different program at each meeting. Let the staff make presentations and be proud of their accomplishments! 8. “Dumb” questions are permitted. Board members need to feel safe asking relevant questions to get the information they need for intelligent decision-making. Some questions about how the organization works and its history may be necessary.
Boards typically don’t understand Robert’s Rules of Order until there is a contentious meeting. Every board should have a parliamentarian, official, or “unofficial” to bring contentious meetings back on track.
9. No shrinking violets. Make sure that each board member talks at least once during the meeting. Example: “Audrey, at the last meeting, you mentioned you were going to talk to your friend at Mega Compute Corporation about program sponsorship. How did that go? Do you have any other suggestions for potential sponsors?”
5. Two-way communication. Don’t let communications from the ED, staff, or board committees be dictatorial. For example, if the ED presents a monthly report, solicit board opinion and allot time for member response. If a response isn’t needed, simply put a copy of the report in the preliminary board materials.
10. Follow-up. Follow up on the meeting with a summary of the key matters discussed, the conclusions, and action items. Include individual assignments and the next scheduled meeting date. A short debrief with the ED or Executive Committee may be a good idea.
6. Ongoing education. Use some of the meeting time to educate board members. For example, a staff member could present “how to read a financial statement” one month, and the ED could present a summary of the board’s legal responsibilities another time. Be sure to allow some time for questions and answers.
The After Minutes of board meetings are more than a parliamentary formality; they’re a legal record of your nonprofit’s activity. It’s important that board members ensure the minutes adequately detail matters of importance.
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If your nonprofit is audited by the IRS or another authority, such as a state attorney general, board meeting minutes are likely to be one of the first things reviewed. Therefore, always prepare them in a manner that would withstand official scrutiny. Why do minutes matter? If your nonprofit is audited by the IRS or another authority, such as a state attorney general, board meeting minutes are likely to be one of the first things reviewed. Therefore, always prepare them in a manner that would withstand official scrutiny. For example, if the IRS reviews your organization’s executive compensation policies, it will review board minutes to understand the process the board used to set compensation. If no reference is made to any discussion of compensation issues, the IRS would have to assume that decisions were made arbitrarily. The minutes represent the actions of the board, and it’s often said that if something isn’t mentioned in the minutes, it never happened.
What should you include? The board secretary is usually responsible for recording minutes during meetings and preparing them for the board’s review. The board then approves or amends the minutes. A final copy should be distributed to every member and retained in the board member manual and your organization’s official records.
At a minimum, your board minutes should include:
Areas of interest include:
• Meeting date, and start and end times
•A cknowledgment of significant gifts or contributions
• A roll call of board members
•A pproval of funding contracts
• Voting results, i.e., actions taken, and the names of abstainers and dissenters
•A pproval of annual budgets or proposed budget changes during the year
• A general narrative of proceedings, including mentions of presentations, reports or documents introduced, and a summary of major discussions or debates
•A uthorization of banking institutions •B oard approval or acceptance for investment, conflict-of-interest and other policies
• Future action steps
•A pproval for purchases of equipment or other major items
• Signatures of the secretary and board chair
•B oard designations for the use of certain funds
Also, make notations such as whether a quorum exists and guests who were present.
•R ecognition of restrictions on monies received
How much is too much?
• S alary adjustment approvals
Considering the pressure nonprofits face to be as transparent as possible in their operations, your organization may want to highlight certain types of information that are of interest to regulatory groups and stakeholders.
•R eview and approval of the executive director’s salary It is absolutely not necessary to capture every single word uttered at the meeting; documenting the key discussions and decisions should be the priority.
HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE
Kathleen Clayton, CPA, PSA, MBA
Principal | Co-National Director, Nonprofit Solutions
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athleen has over 35 years of experience providing auditing, accounting, tax and consulting services to privately held businesses and not-for-profit organizations. She specializes in preparing tax-exempt status applications, consulting on charitable regulations, and providing outsourced management and accounting services. She routinely consults with organizations that receive federal and state funding. Kathleen has worked with a wide variety of nonprofit organizations, including membership organizations, public charities, private foundations, and special improvement districts. She frequently addresses conferences and meetings, and business and governmental organizations on nonprofit-related issues. Her community service includes positions on several boards, including currently as vice-chair of the Union County Education Services Foundation and previously the Two Hundred Club of Union County and the United Way of Union County. For more information, contact Kathleen at 732-453-6528 or kclayton@hbkcpa.com.
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activities if at all possible, as they can easily be considered interstate gambling activity, which is a violation of both federal and state gaming laws.
501(c)(3) Organizations and Gaming
TA X
Gaming as Fundraising: Know the Rules By Ashlynn Reeder, CPA
Teal Strammer, CPA
HBK SENIOR MANAGER & TAX SPECIALIST ASSISTANT DIRECTOR | NONPROFIT SOLUTIONS
HBK MANAGER & TAX SPECIALIST
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any nonprofit organizations engage in some type of gaming activity on a regular basis, whether it’s
through annual fundraising events or social events for their members. The main purpose behind these types of activities is to raise funds that are then used to further the organization’s exempt purpose (see Insights volume 1, issue 3 “Understanding a Charitable Organization’s Exempt Purpose” for discussion of “exempt purpose”). It’s important to note that gaming activities in and of themselves do not further the exempt purpose of most organizations, and therefore could be treated as taxable unrelated business income.
Gaming Activities Examples of gaming activities include, but are not limited to, raffles, bingo, casino, and card games, scratch-offs, slot machines, and other games of chance. Although the IRS does not define all gaming activities, it does generally distinguish between games of chance and games of skill: • Raffles are games of chance where the participant is required to give something
of value in order to participate: cash or a required purchase of goods or services. Raffles are also referred to as lotteries. • Contests are games of skill, where chance doesn’t determine a winner. Generally, contests aren’t considered gaming activities, even if those who participate are required to pay to play. • Sweepstakes are games of chance where a participant isn’t required to give anything of value in order to participate (i.e., no purchase necessary) and are generally not considered gaming activities. In all cases, wagers and similar payments aren’t considered to be charitable contributions, regardless of whether the participant wins or not. The entire purchase price of the raffle ticket or wager placed is deemed to be payment for goods and services. Not all states define gaming the same. Before engaging in any activity you believe could be considered gaming, be sure to check how the state where you’re holding the activity defines gaming and whether special licenses or permits are required to conduct gaming activities. As well, avoid online gaming
To qualify as a 501(c)(3) organization, the nonprofit has to operate exclusively for religious, charitable, scientific, literary, or educational purposes. Gaming activities are commonly thought of as charitable if run by a nonprofit organization. The proceeds from those activities may be used to cover expenses related to its charitable programs, but gaming activities themselves do not further any charitable purpose, and therefore must be an insubstantial part of a 501(c)(3) organization’s operations. There are no specific quantitative factors explicitly stated by the IRS to determine whether an activity is substantial or not, but all aspects of the activity will be taken into consideration when evaluating it: amounts raised, expenses paid, time spent, resources devoted. Section 501(c)(3) public charities must also be cognizant of their public support test and how their gaming and unrelated business activities might negatively impact their public support percentage. Funds raised from unrelated business income like gaming are not considered part of the “public” portion of the support test. If a public charity receives too much of their financial support from these non-public sources, they risk failing their public support test and could be classified as a private foundation. Private foundations also cannot have substantial financial support from activities classified as unrelated trade or business. Gaming activities could also be subject to unrelated business income tax, and the organization would need to report the unrelated business income from gaming activities on Form 990-T. Sections 501(c)(3) organizations also must not be organized or operated for the benefit of private interests or inure profits for the benefit of any private shareholder or individual. Any profits received from gaming activities must support the organization.
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Other Organizations and Gaming Social clubs and fraternal organizations classified as 501(c)(7), 501(c)(8), or 501(c)(10), as well as 501(c)(19) veterans’ organizations are exempt as providers of social and recreational activities for members and their guests. Those organizations are permitted to engage in gaming activities that involve only their members without risking their tax-exempt status. If such an organization opens its activities to the public, then its tax-exempt status would be at risk, and the income generated from those public gaming activities could also be subject to the unrelated business income tax. Social welfare organizations classified as 501(c) (4), and 501(c)(5) and 501(c)(6) labor and agriculture organizations and business leagues are treated similarly to 501(c)(3) organizations in that gaming activity cannot be a substantial
portion of the organization’s activities, or it will jeopardize its tax-exempt status.
Unrelated Business Income Tax As a general rule, gaming is considered unrelated to an organization’s exempt purpose and, therefore, should be subject to unrelated business income tax. There are exceptions and exclusions for certain types of gaming activities conducted by certain types of tax-exempt organizations, as outlined above.
Before engaging in any activity you believe could be considered gaming, be sure to check how the state where you’re holding the activity defines gaming and whether special licenses or permits are required to conduct gaming activities.
Three conditions must be met before an activity is classified as an unrelated trade or business activity: 1. T he activity must be considered a trade or business. 2. The activity must be regularly carried on. 3. The activity must not be substantially related to the organization’s exempt purpose.
HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE
Ashlynn Reeder, CPA, MST
HBK Senior Manager & Tax Specialist Assistant Director | HBK Nonprofit Solutions
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shlynn is a Senior Manager in the HBK office in Naples, Fla. She serves as Assistant Director in the HBK Nonprofit Solutions Group, as a Tax Specialist in the firm’s Tax-Exempt Organizations Tax Specialists Group, and is a resource for the firm at large as it relates to nonprofit engagements. During her career she has worked closely with small to mid-sized local businesses and their owners, high-net-worth individuals, trusts, and estates. Through her work with nonprofit organizations, she found a way to combine her passion and her profession. She has specialized her knowledge in nonprofit tax reporting, operations, and consulting, and through her role as Assistant Director of the Nonprofit Solutions Group she has helped initiate firm-wide policy, training, and guidance related to serving nonprofit organizations. For more information, contact Ashlynn at 239-263-2111 or areeder@hbkcpa.com.
Teal Strammer, CPA
HBK Manager & Tax Specialist
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eal is a Manager in the HBK office in Sarasota, Fla. She specializes in tax preparation and assurance services for nonprofits and leads the firm’s Tax-Exempt Organizations Tax Specialists Group. Additionally, she does tax preparation for individuals, businesses, trusts, and estates, and has experience with employee benefit plans and the construction and manufacturing industries. As a part of HBK’s REVEAL team, she oversees recruiting efforts for the Sarasota office. Teal began her accounting career with HBK in 2016. For more information, contact Teal at 941-957-4242 or tstrammer@hbkcpa.com.
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The proceeds from gaming activities may be used to cover expenses related to its charitable programs, but gaming activities themselves do not further any charitable purpose, and therefore must be an insubstantial part of a 501(c)(3) organization’s operations. Generally, gaming is considered a trade or business if it generates revenue and is not considered related to an organization’s exempt purpose. It will be considered regularly carried on if the activities are frequent and repeated, similar to how the organization operates its other activities. Additionally, this qualification might also be met if the gaming activities the organization is engaged in are conducted similar to commercial gaming activities. If the gaming activities aren’t conducted regularly and only happen infrequently, they would not meet the qualification to be considered as regularly carried on. For example, gaming that occurs weekly would be considered regularly carried on since the activity is often occurring with little time passing between each event. In contrast, gaming that occurs only at an annual fundraising event would not meet the qualification. Membership organizations such as 501(c)(7), 501(c)(8), 501(c) (10), and 501(c)(19) tax-exempt organizations would not satisfy the last prerequisite of having their gaming activity classified as an unrelated trade or business activity if their gaming activity is conducted solely for their members and is considered to be related to their exempt purpose. However, even if the gaming activity satisfies those three conditions for consideration as an unrelated trade or business activity, there are additional exceptions that could render an organization’s gaming activity exempt from unrelated business income tax. These exceptions include: 1. C ertain bingo games held by tax-exempt organizations in jurisdictions (normally defined as a state) that precludes bingo games held by for-profit organizations 2. Gaming activities with a substantial portion of volunteer labor performing the activity 3. Qualified public entertainment activities where a 501(c)(3), 501(c)(4), or a 501(c)(5) organization holds agricultural or education exhibitions (No other type of organization can qualify under this exception.) 4. Games of chance held in North Dakota If you believe you might have an activity subject to the gaming reporting and unrelated business tax, please reach out to a member of HBK Nonprofit Solutions or your HBK advisor for further assistance.
HBK Nonprofit Solutions Contacts Kathleen Clayton, CPA, PSA, MBA Co-National Director, Nonprofit Solutions Principal | Clark, N.J. T (732) 453-6528 E KClayton@hbkcpa.com Melissa Crowley, CPA Principal | Youngstown, Ohio T (330) 758-8613 E MCrowley@hbkcpa.com
Amy Dalen, JD Co-National Director, Nonprofit Solutions Principal | Naples, Fla. T (239) 263-2111 E ADalen@hbkcpa.com Jeremy Hartzell, JD, MBA Principal-In-Charge | Pittsburgh, Pa. T (724) 934-5300 E JHartzell@hbkcpa.com
Sean Kocan, CPA, CFE Principal | Pittsburgh, Pa. T (724) 934-5300 E SKocan@hbkcpa.com
Dominic Mastropietro, III, CPA, MBA Principal | Hermitage, Pa. T (724) 981-7550 E DMastropietro@hbkcpa.com
Ashlynn Reeder, CPA, MST Assistant Director, Nonprofit Solutions Senior Manager | Naples, Fla. T (239) 263-2111 E AReeder@hbkcpa.com Darby Beaverson, CPA Principal | Naples, Fla. T (239) 263-2111 E DBeaverson@hbkcpa.com
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ASSU R A N C E
GAAP Requires Nonprofits to Report In-Kind Donations on Financial Statements
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he GAAP requirement for the reporting of gifts in-kind has been in existence for a number of years. In June 2018, the Board issued Accounting Standards Update No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This Standard focused predominately on the revenue recognition of donations-inkind and with a heightened focus on donated services rather than all nonfinancial assets. The presentation and disclosure of contributed nonfinancial assets differed greatly among nonprofit entities. To help supplement its cash resources, many nonprofit entities rely heavily on donors for contributions, which can be classified as either financial or in-kind, i.e., nonfinancial assets. Financial contributions are commonly received in the form of grants, pledges, or donations and are received by the organization through a transfer of monetary funds from the donor. In-kind contributions are nonfinancial assets,
By Anthony Savasta, CPA HBK AUDIT MANAGER
including goods or services received at no cost or below market cost. Nonfinancial assets include tangible items such as food, clothing, medical or other supplies, furniture and intangible items such as services, voluntary labor, or facilities. Some of the most frequently overlooked gifts in kind include contributions of advertising time, technical services, use of facilities, costs
There is a common misconception among nonprofits that because inkind donations are provided at little or no cost, the organization doesn’t have to report them on its financial statements. associated with fundraising events, collection items, car donations, and borrowings at belowmarket interest rates. In-kind services are only recorded on the organization’s financial statements if they meet specified criteria as determined by Generally Accepted Accounting Principles (GAAP), which
requires services contributed in-kind must be performed by professionals and tradesmen with a specialized skill in the service. Inkind contributors are typically accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and tradesmen. When analyzing these types of services, the organization needs to focus on the notion of “specialized skills” GAAP also requires that contributed services create or enhance a nonfinancial asset belonging to the organization and that it would otherwise have to purchase the service. For example, an electrician donating his services during a construction project at a cost below market or for no cost. Under GAAP, the service would qualify as an in-kind contribution as the electrician has a specialized skill that the nonprofit would otherwise have to purchase. The organization would record the receipt of these services in the “statement of activities” with an offsetting expense or capital assets addition, as explained below.
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HBK Tip
Identifying these types of donations should be an ongoing process. Attempting to gather this information at year end will only result in understating their value. Many organizations record these contributions on an ongoing basis as they are received.
There is a common misconception among nonprofits that because in-kind donations are provided at little or no cost, the organization doesn’t have to report them on its financial statements. Stakeholders and other readers of the financial statements might dispute that recording these items will merely grossup revenue and expenses with no effect on the operating results. But conversely, not recording these items can distort an NFP’s financial statements, understating the organization’s revenue and expenses, and does not allow for true comparison between similar organizations. As such, nonprofits are required to report these contributions. GAAP requires the organization to report the donated items or services meeting the criteria for in-kind donations as revenue in the operating section of the organization’s “statement of activities” on the date the contribution is made known to the organization, regardless of the date
on which the item or service is received. As explained in FASB ASC 958-605, the donated nonfinancial assets must be reported at fair market value, defined by ASC topic 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” As well, GAAP requires an offsetting expense in the proper natural expense category on the organization’s “statement of functional expenses,” also reported at the determined fair market value as described in ASC topic 820. Suppose the item or service is an asset that exceeds the organization’s capitalization policy, like the electrician cited above. In that case, the asset is recorded in the proper fixed asset category on the “statement of financial position,” and revenue is recognized for the asset’s fair market value. Determining the fair value to be recorded is often the most challenging part of the accounting exercise.
FASB Accounting Update Based on stakeholder feedback, the FASB issued this update to increase transparency through enhanced financial statement presentation and disclosure of nonfinancial assets. However, the revenue recognition and measurement requirements for these nonfinancial assets remain unchanged in ASC 958-605. FASB Accounting Standards Update (ASU) No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, are effective for nonprofits with annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption of the standard is permitted by nonprofits. Retrospective transition is required. So any periods reported upon must comply with the updated standard. The enhanced presentation and disclosure requirements are: • The contributed nonfinancial assets are stated separately from other contributions in the statement of activities. • A footnote disclosure must be made to disaggregate the contributed nonfinancial assets by type such as food, medical supplies, fixed assets, facility usage, services, to name a few. • The NFP’s policy (if any) on liquidating rather than using contributed nonfinancial assets for each type of nonfinancial asset identified.
HBK Tip
When an organization receives donated services under the new standard, it must disclose the services received during the financial statement period, including the revenue recorded on the statement of activities and the programs or activities the services were used for.
Many types of nonprofits use recognized “industry” sources for the valuation of in-kinds. As an example, many food contributions are valued using average US wholesale prices per pound determined by available annual industry surveys. Publicly available data is available for many types of in-kind donations.
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• Qualitative considerations to be disclosed include: - Whether the contributed nonfinancial assets were liquidated. - A description of any restrictions requested at the time of contribution by the donors. - A description of the technique the organization uses to arrive at the fair value measurement of the nonfinancial asset in accordance with paragraph 820-10-502(bbb)(1), at the time the asset is initially recorded. - The principal market used to arrive at the fair value measurement (The principal market is the market with the greatest volume of activity that the organization is legally able to access in order to value the asset.) Under the new standard, when an organization receives donated services it must disclose the services received during the financial statement period, including the revenue recorded on the statement of activities and the programs or activities the services were used for. The organization is required under the new standard to provide disclosure regarding services received in-kind regardless of whether they meet the revenue recognition criteria defined by GAAP; however, the organization is only required to record revenue on the statement of activities if it meets the GAAP
HBK Tip Your auditor will need to apply audit procedures to your gifts-in-kind. The auditor will assess the risks of under or overstatement, the internal controls around these gifts and their valuation, recognition and measurement.
criteria. The standard allows for the nature and extent of such services disclosed but not recorded to be described in the footnotes by nonmonetary information, which can include but is not limited to the number of hours received in services or outputs provided by board members or volunteers, such as contributions raised. Many organizations may have donated services that are recorded as contributions and others that are only disclosed in the footnotes.
The reporting of in-kinds between the financial statements and the Form 990 differs greatly, so expert guidance may be required.
As the effective date of FASB Accounting Standards Update (ASU) No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets draws near, it will be important for nonprofit organizations to closely monitor the receipt of nonfinancial assets and services received as well as their methods of valuing such contributions. HBK Nonprofit Solutions team members will be happy to assist you with these accounting challenges.
HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE
Anthony Savasta, CPA HBK Audit Manager
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nthony oversees audit engagements and manages client relationships out of the firm’s Clark, NJ office and serves as a member of the audit & attestation specialists for the firm at large. He combines his passion and profession through his work with nonprofit organizations in New York in New Jersey. He has worked with small to large public charities. Anthony and his family have participated as a team in the American Foundation for Suicide Prevention’s Out of Darkness Walk for four years, raising funds for the Foundation and spreading awareness. Since 2019 he has served as a Professional Ambassador for the Society for the Prevention of Suicide Prevention’s Young Leaders group. For more information contact Anthony at 732-453-6541 or by email at asavasta@hbkcpa.com.
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Outside the Lines In each issue of Insights, we feature an HBK service line leader who will provide practical information and thought-provoking tips and ideas about their financial discipline.
Endowments: A Powerful Solution for Both Donors and Charitable Organizations By Ryan Hawk, CFP®, CTFA HBKS WEALTH ADVISORS SENIOR FINANCIAL ADVISOR
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s the year draws to a close, many of our client conversations are about gifts—not so much about Christmas presents, but gifting to charities and other philanthropic organizations. The subject arises as we discuss year-end deadlines and planning. Considering the strong stock market performance of 2021, most of my clients are dealing with capital gains and how to plan around them, which is where gift-giving conversations begin. Donating is one of the few options to decrease your tax responsibilities. Giving money to a charity also corresponds nicely with the season and the spirit of doing good for
others. However, when I ask customers about their favorite organizations and programs to support, I discover that many of them have reservations. They are concerned about how some charities use their donations, particularly put off by the seven-figure salaries of some nonprofit organization executives. My interactions with my nonprofit foundation and charity clients, on the other hand, frequently revolve around annual receipts that fall short of income predictions and strategies to increase their donation receivables. This is where taxpayers looking for deductions and nonprofits looking for donations can come together for their mutual benefit. An
endowment can be the solution to both concerns.
The endowment double solution For the donor, an endowment can perpetuate their gift by producing gifts for many years. In addition, an endowment can provide assurance the donated funds are used for programs they specify. For example, a donor might endow a certain position within an organization, like a chaplain in an assisted living facility who helped the donor’s mother adjust to her new way of life. Or an endowment could be used to fund educational scholarships for the donor’s field of study that allowed him to earn money during his career
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that he can now use to help others. As an endowment is a way to ensure the funds gifted will be used only as the donor intends, it is also a powerful tool for charitable organizations looking to increase their donation receivables. The endowment is a permanently invested pool of money that provides a reliable source of income in perpetuity. The organization can count on the distributions annually to support its charitable work. The value of endowments was particularly evident in 2020 when making donations and supporting local charities was challenged by local lockdowns and the COVID19-related financial uncertainties, when the pandemic prevented charities from staging events and gathering people together to raise money. As the needs served by charitable organizations didn’t diminish with the pandemic—in fact, they increased—endowment income was for many organizations a lifesaver. The endowment can hedge inflation and increase future spending power by implementing sound investment and spending practices. An endowment can generate a pipeline of gifts. Many endowment gifts are intended to be used at a later date, usually after the donor’s death. We frequently use life insurance to make small gifts during a donor’s lifetime and a substantial gift after they pass away. As a result, the endowment provides long-term financial security to the organization
through delayed gifts. It can also position the organization for larger gifts in the future, as endowments frequently attract new contributors who want to support the endowment’s mission. Because of their long-term and future focus, endowments can attract committed visionaries, which can add to the endowment other assets, like real estate and cash. Their commitment to the project’s future often makes them annual donors. In summary, the endowment is a powerful, donor-centered fundraising tool for givers and charitable organizations: • As the gift is controlled by the donor and limits the use of the assets, the endowment solves concerns over the mishandling of donations. • By assuring donors that their gifts will be used as they designate, an endowment can attract new donors and donations by specifically targeting projects or programs as well as by giving them the opportunity to designate the use of the funds. • An endowment can provide perpetual income to help flatten gifting curves during economic downturns by reliably providing ongoing income.
The value of endowments was particularly evident in 2020 when the pandemic prevented charities from staging events and gathering people together to raise money.
An endowment can solve many concerns for both givers and receiving organizations this time of year when gift-giving and helping others is top of mind.
HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE
Ryan Hawk, CFP®, CTFA
HBKS Wealth Advisors Senior Financial Advisor
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yan Hawk joined HBKS® in 2019 as a financial advisor in the Naples, Florida office. As a Certified Trust and Senior Financial Advisor, he works with high net worth families in the design, management and understanding of advanced estate plan designs. He began his financial services career in 2004 and prior to joining HBKS® held positions with a large Wall Street firm, a small family office, and Vanguard, the world’s second largest financial firm. In addition to his client work, Ryan has worked to improve financial knowledge in his community. From 2009 to 2014 he taught “The Financial and Estate Planning in Retirement Program” at Florida Atlantic University’s College of Business Executive Education. Ryan earned his Bachelor of Science Degree in Business Administration from University of Central Florida and is also a CERTIFIED FINANCIAL PLANNER™. For more information contact Ryan at 239-263-1960, or by email at rhawk@hbkswealth.com.
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C L I E N T S P OT L I G H T
Wellfit Girls: Leadership, Fitness and Empowerment for Girls A Q&A with Brooke Spencer, Executive Director, Wellfit Girls Program SWFL, Inc., and Ashlyn Reeder, HBK Nonprofit Solutions
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ounded in 2014 to inspire teen girls to climb high in all areas of life, Wellfit Girls Program SWFL, Inc. is
a unique and meaningful leadership, fitness, and empowerment nonprofit organization specifically designed to empower teen girls to believe they can do anything; to believe in themselves. The curriculum challenges teen girls to step out of their comfort zone and become confident and empowered leaders, teaching them interpersonal communication, conflict resolution, vision and goals, body positivity, and bold leadership. Some programs conclude with a life-changing expedition where the participants are challenged physically and mentally while hiking with heavy packs in a changing alpine environment. Wellfit Girls follows a curriculum that guides teens through a combination of physical, mental, and interpersonal challenges designed to prepare them for the final expedition and the rest of their life. The struggles they experience on the mountain correlate to life struggles they may currently have or may have in future years and learn they can accomplish anything they put their mind to. The goal is to inspire and empower each girl while nurturing and developing each girl’s individual leadership style. They are building strong women to be our future leaders.
Reeder. The organization is still relatively young, having been founded in 2014. What has been the biggest challenge to date? Spencer. I would say our biggest challenge is showing the community what we do and clearly defining who we are and the impact we have. Most people are accustomed to seeing quantitative data on the impact of an organization, whereas we have qualitative data on how our programs impact the girls we serve in the long term. We’re an organization that offers programs for all girls who want to learn leadership skills, gain confidence, and learn more about themselves. We believe all girls are “at-risk” to meet their full potential, and girls from all backgrounds have proven to benefit from the programs we offer. Our core philosophy has always been to serve one girl for an extended period so that we can make a sustainable, lifelong impact in that girl’s life. Wellfit Girls takes that core philosophy and expands it so we can operate on a larger scale. There are also so many different aspects to what we do that defining it in one sentence is difficult to do. We have a holistic approach to wellbeing and reflect that in our programs and really aim to fill in all the gaps in these girls’ education and life. Reeder. It is a more difficult mission to communicate, but as you said, the impact
of the organization is more qualitative than quantitative. What are some of the longlasting impacts of the organization on the girls who go through the programs? Spencer. When I’m asked this, I think about individual stories. One girl, for example, just went through yoga teacher training with myself and other facilitators and had been getting straight A’s in college. Before joining Wellfit Girls a few years ago, she never thought she’d even go to college as she had little to no support, was in the foster care system, and was a very shy and insecure
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teenager. She took the tools she acquired from our program and is now financially independent, succeeding in college and teaching yoga classes as a 20-year-old. Another example that comes to mind is quite the opposite; where this girl came who to us from a stable family, was more of a “cool” kid and wasn’t sure what her goals were in life. Now she’s graduated from cosmetology school, is considering going to a four-year college, is very sure about what does and doesn’t serve her, and goes after what she wants.
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Wellfit Girls follows a curriculum that guides teens through a combination of physical, mental, and interpersonal challenges that prepare them for the hiking expedition and ultimately the rest of their lives.
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There are so many other examples of girls who benefit in completely different ways; some graduate high school when they are at risk not to, some go to more challenging colleges than they originally considered, some enter male-dominated career fields, some become personal trainers and health advocates building upon what they learned during our programs, and many become active in the community and the nonprofit industry as volunteers or employees. I can share that most teen girls we serve ultimately build trust, confidence, resilience, optimism, and self-reflection as a result of the program. They have more positive and deeper relationships with peers and adults and believe they can do more than they ever thought they could. We aren’t a one-size-fits-all organization. Every girl will take something different away, which is what makes Wellfit Girls so special. Reeder. These are all great examples and such moving individual stories. Now that
the programs have been running for seven years, do Alumni play a role in how the organization operates? Spencer. Yes, we have Alumni who are now serving as facilitators to our programs and as peer mentors. We recently established an Alumni Advisory Council, which operates similar to other youth boards, where a group of Alumni has been established as a council and has regular meetings. A representative of the council sits in at every Board of Directors meeting and gives a participant perspective to the issues the board discusses. Already the Alumni Advisory Council has established a $1,000 scholarship fund, performed fundraising, is assisting with recruiting, and doing what they can to support the organization in the capacity they’re able to. Reeder. You recently went through and restructured your program operations, making the programs more accessible to a larger group of girls. Can you explain
I spent a lot of time creating a plan for the organization through evaluating our challenges and strengths that would allow us to continue to offer the five-month program while also offering shorter, less expensive, focused programs for girls to choose from.
that process? What did you find to be your biggest hurdle in achieving this change? Spencer. One of my strengths is strategic planning, and I think it’s really important for an executive director to think about the long-term sustainability of an organization and make decisions that inform that sustainability. We’ve always struggled to get people to see the sustainability of our pinnacle five-month program because we focus all of our energy on making a lifelong transformational impact on a small number of students. What we’ve realized is that we now have the capability for accessing more girls and have started working with them at a younger age, for shorter periods of time, which leads them into our larger five-month program option. I spent a lot of time creating a plan for the organization through evaluating our challenges and strengths that would allow us to continue to offer the five-month program while also offering shorter, less expensive, focused
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programs for girls to choose from. This also serves to fill in the gap of those girls who may not be able to commit to our full five-month program. I think it’s important for an organization to regularly evaluate how they’re operating and whether it’s still sustainable, and to also seek out and bring in those with fresh perspectives into the organization. Reeder. HBK is excited to see the next chapter of your organization. Wellfit Girls has been working with us since its inception. How has your experience with our firm impacted the organization and its goals? Spencer. Working with HBK, and you specifically, has been one of the more consistent things we’ve had as an organization. You’ve consistently been the professional support we need, from helping us through financial challenges to making sure that we’re staying compliant as a nonprofit organization. We know that if we need your help, you’ll be there for us and that what you take on is one less thing we have to worry about because we know you’ll get it done, and you’ll get it done right. It’s such a huge value for us to have that kind of support and guidance; we couldn’t do what we do without it.
I think it’s important for an organization to regularly evaluate how they’re operating and whether it’s still sustainable, and to also seek out and bring in people with fresh perspectives.
Registration is now open for Summit Sisters, Wellfit Girls’ signature leadership, fitness, and empowerment program for high school girls in Florida’s Collier and Lee counties. Visit www.WellfitGirls.org for more information. HBK NONPROFIT SOLUTIONS // AUTHOR PROFILE
Ashlynn Reeder, CPA, MST
HBK Senior Manager & Tax Specialist Assistant Director | HBK Nonprofit Solutions
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shlynn is a Senior Manager in the HBK office in Naples, Fla. She serves as Assistant Director in the HBK Nonprofit Solutions Group, as a Tax Specialist in the firm’s Tax-Exempt Organizations Tax Specialists Group, and is a resource for the firm at large as it relates to nonprofit engagements. During her career she has worked closely with small to mid-sized local businesses and their owners, high-net-worth individuals, trusts, and estates. Through her work with nonprofit organizations, she found a way to combine her passion and her profession. She has specialized her knowledge in nonprofit tax reporting, operations, and consulting, and through her role as Assistant Director of the Nonprofit Solutions Group she has helped initiate firm-wide policy, training, and guidance related to serving nonprofit organizations. For more information, contact Ashlynn at 239-263-2111 or areeder@hbkcpa.com.
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