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Addressing the Financial Stress of COVID-19

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As the COVID-19 pandemic continues, nonprofits worldwide are facing an uncertain future. Many, funded by restricted grants, find themselves in the predicament of having programs funded but core infrastructure lacking the funds to continue. Others face high demand and strained resources. Some organizations, which may be paid for services rendered in person, are scrambling to think of new ways to serve their constituents while maintaining social distancing.

It’s exhausting, it’s exhilarating, and it’s forcing us all to draw from our well of creativity and ingenuity to get through these times.

Navigating the Current Crisis

Nonprofits may feel like they’re on a raft paddling down a swift river. The rapids shoot them towards rocks, and they feel they must avoid the rocks at all costs.

COVID-19 is like the rocks in the river. Hitting the rocks is inevitable, but how well your organization works together will affect the outcome. With the right planning and organization, and everyone working together, your nonprofit can minimize the financial impacts of the COVID-19 crisis, move past it, and thrive.

Financial Discipline, Financial Framework

Financial discipline is a critical practice even when times are good, but especially vital when times are challenging. Fiscal discipline begins by building a robust financial framework.

Such a framework consists of:

  1. Correction of any deficits, for example, secure unrestricted funds to compensate for restricted funds that leave core administrative functions underfunded while programs are well funded. You need capital for overhead and infrastructure just as much, if not more than you do to keep programs running.
  2. An annual operating surplus that can be carried over to smooth “lean times.”
  3. Development of healthy operating reserves with 6 to 12 months of expenses covered by the reserve.
  4. A diversified revenue mix, so the organization isn’t dependent upon a single revenue stream.

What if you’re far from this ideal? Then it’s time to look at several scenarios and decide on your strategy moving forward.

Gather the data that you have on hand about revenues and expenses. Revenues may include restricted and non-restricted funds, fee for service activities, membership fees, and donations. Expenses should include both overhead and operating expenses as well as salaries, infrastructure, and program-related expenses.

Next, ask everyone to join the conversation about the financial situation. This isn’t time for a subcommittee or a task force. Since everyone in your organization will be impacted by the road you decide to take, get everyone’s input into the decision.

Evaluate the available data based on bad, worse, and different:

  • Bad – what if the crisis continues?
  • Worse – what if things get worse?
  • Different – what if things change?

Ask yourself:

  1. What is the big change we drive in this world or our community? This gets to the operating principles of the organization. Why do you do what you do?
  2. Next, look at the programs you have. What do you do the best? Which is the only program you do, one that nobody else does or does well?
  3. Are there any programs that you cannot provide now because of social distancing?

Some scenarios you might wish to consider include cutting back on all programs, cutting down to a handful of mission-driven programs, or focusing on a single area until things return to normal. The only way to consider each scenario effectively is to utilize all of the data resources available to you, put the facts side by side, and evaluate them against your organization’s mission and unique position in the world.

Resilience and Adaptability

In the book Good to Great, author Jim Collins uses animal metaphors to emphasize how successful companies weather turbulent times. One animal he points to is the hedgehog.

The hedgehog is not the most beautiful, exciting, or exotic animal in the zoo, but it is one that is undoubtedly the most resilient. Hedgehogs fill a unique ecological niche yet can adapt to many different environments. They’re one of the oldest mammal species known to biologists. Their longevity as a species may be attributed to their adaptability.

If your nonprofit is to remain viable for the long term, it must be adaptable during these challenging times. Like the hedgehog, you’ve got to find your unique niche and make the most of it. The only way for nonprofits to find their unique niche is to consider potential scenarios and weigh the impact of their choices against the mission. Which choices will help you achieve your mission with the least possible impact on margin?

It’s neither easy nor pleasant, but frank conversations about programs, funding, and long-term viability are necessary right now. We’re all wishing and hoping that this epidemic will pass quickly and that our healthcare industry finds a vaccine or a cure. Until then, we must deal with the reality of the situation, examine the data at hand, and plan for the future of our organizations as best as we can.

If you’d like some help with nonprofit planning, contact Welter Consulting. Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Financial Reporting Reminders for Nonprofits During the COVID-19 Pandemic

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Companies worldwide continue to feel the ripple effects of the novel coronavirus (COVID-19) outbreak. For-profits such as retailers closed their doors due to statewide “stay at home” orders that keep shoppers from the malls and stores. Nonprofits such as food banks feel increased demands on their services while others face unprecedented challenges to keep their doors open. Everywhere, everything we once knew as certainty is changing, and changing rapidly, with no end date in sight.

In addition to the legal and insurance impacts of the COVID-19 pandemic are the economic, financial, and accounting ramifications of the stay-at-home order. Several FASB guidelines can be applied to the current situation and used to inform investors, donors, and the public about the impacts upon a nonprofit’s financial reporting statements.

FASB Accounting Standards Codification (FASB ASC) 855: Subsequent Events

FASB Accounting Standards Codification (FASB ASC) 855, Subsequent Events, defines the topic as “events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued.” There are two types of Subsequent Events: recognized and nonrecognized. COVID-19 likely falls into the nonrecognized category, which is defined as “events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (that is, nonrecognized subsequent events). If the balance sheet was prepared before March 1, 2020, when COVID-19 first came to attention in the United States, it is likely a nonrecognized event.

FASB ASC 855 provides more details.

Organizations should reassess now when and if they will be able to meet the objectives outlined in their 2019 reports or the previous quarter’s reports. Many nonprofits face unprecedented changes, shifts, and disruptions; plans that sounded reasonable a few weeks ago might be unreasonable now.

How you disclose such changes are up to you, but some are including disclosures in their updated reports. Nonprofits must watch their portfolios, including equity stakes in bonds and other investments, and determine if they should disclose how the pandemic is affecting them.

Accounting Estimates May Be Off

Just as plans that looked reasonable a few weeks ago might be unattainable now, so too accounting estimates may be very far off.  Nonprofit accounts must make prudent judgments now about the accounting estimates. AU-C 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, can be of help when making decisions about estimates.

Loss Contingencies

If information becomes available after the date of financial reporting (but before they are issued) about losses due to COVID-19 that an asset is impaired or is likely to be impaired, you may need to disclose it. If the event occurred before the balance sheet date, an accrual should not be made. Disclosure, however, might be required. See FASB ASC 450-20-50-9 for disclosure details. Most disclosures should include the nature of the contingency and an estimate of the possible losses.

What About Leases?

Many landlords are changing the terms of leases to help their tenants during the COVID-19 crisis. If you’re fortunate to have such a landlord, you may need to determine if the modifications change the lease classification.  In other words, according to FASB ASC 840, Leases, specifically 840-10-35-4, if the substitution of the modified provision changes the lease and pushes it into a new category.

Where the new lease standard (FASB ASC 842, Leases) has been adopted, when a lease modification occurs, the lessee has to determine whether the lease modification will be accounted for as a separate contract or as a change to the existing agreement. There’s no one best way; each organization must choose its path based on its current financial information.

Auditor’s Reports: Emphasis of Matter (EOM)

Some auditors may choose to include an Emphasis of Matter (EOM) statement in their reports if they deem the impact of COVID-19 significant enough to warrant bringing it to the reader’s attention. Each auditor must use prudent professional judgment to determine whether adding an EOM statement is necessary.

COVID-19 is exacting an enormous toll on the world. The loss of life is irreplaceable—the shock to the economy, unforeseen. Nonprofits, like all companies facing this unique situation, must use their best judgment during the preparation and reporting of financial statements to remain compliant with GAAP standards.

If you need any assistance during these times, Welter Consulting is here for you. We can be reached by phone (206-605-3113) or online.




Five Traits of Successful Fundraisers

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Having a successful fundraiser on your team is a great feeling. These are the rock stars of the nonprofit world, but unlike the big-haired bands of old, they aren’t smashing guitars or getting their faces splashed on the front page of gossip magazines. Instead, they’re quietly, calmly, and creatively generating the funds you need to keep the doors open and the work moving towards fulfilling your organization’s mission.

What’s their secret? How do they work their magic? Here, we distill the five secrets of successful fundraisers.

5 Traits that Successful Fundraisers Have (and You Can Learn!)

You may think that successful fundraisers are born. But anyone can learn or embrace the characteristics that great fundraisers embody. Read through this list and see which ones you can add to your skill set.

  1. Curiosity – Great fundraisers remain curious about the world around them. This curiosity opens them to new possibilities, connections, and potential, which in turn leads to the creativity that’s needed to launch effective campaigns.
  2. Understanding of human behavior – One of the main traits of successful fundraisers is that they understand how the average person thinks and acts. This in-depth knowledge can be intuitive or acquired through reading, study, and experience. It leads them to develop campaigns that get responses because they understand the motivators and drivers of human behavior and can connect it to the cause supported by your organization.
  3. Insights into the target donor – Many people new to fundraising create campaigns based on their likes and dislikes. That can lead to mistaken messaging and poor response rates. Good fundraisers understand that they are different from the donors they approach. Most donors are in their 60’s and follow specific personality characteristics unique to a given nonprofit. Those who donate to animal charities may differ from those who support healthcare nonprofits, for example. Understanding the “end customer” is marketing-speak for knowing why your donors give and how to approach them so that they are likely to say “yes.”
  4. Data-driven mindset – While great fundraisers are also creative, they embrace a data-driven mindset and aren’t afraid to roll up their sleeves and crunch the donor campaign data. The resulting facts are then used to fuel the next round of marketing. Data is used to support decisions and improve response rates.
  5. Networking – Great fundraisers are also good net-workers. They network with people both within the nonprofit world and those from the profit-driven business world. Thanks to this relentless networking, they have a large circle of colleagues and friends who can share advice and best practices. They absorb information from throughout their network and aren’t afraid to share their learning and understanding, too, to help a friend succeed.

But the Most Important Characteristic?

The most important characteristic of successful fundraisers isn’t one that can be taught or bought. It’s the love of the cause and a passion for fundraising.

These are the people who genuinely believe in the mission of the organization and who aren’t afraid to go the extra mile to support it. They have a genuine love of the fundraising world and embrace best practices in direct response marketing, direct mail marketing, advertising, and digital marketing to help them achieve their goals. They find joy in developing relationships with donors and sharing the mission to drive margin.

Successful fundraisers are worth every penny of their salary. They not only raise money, but they also lift spirits. Because of their dedication, others in the organization find themselves recruited into the fundraiser’s orbit. Fundraisers are the rock stars, but they are also the rock of any organization, creating the foundation from which margin flows and organizations can meet their objectives.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Legal and Insurance Challenges for Nonprofits During the COVID-19 Crisis

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During these unprecedented times, with most of the nation avoiding gatherings and crowds and staying home to prevent spreading the novel coronavirus (COVID-19), nonprofits face increasing challenges. Among these challenges are the legal and insurance ramifications of shutting down offices, providing resources for those directly affected by the virus, and ensuring that your volunteers and employees are covered as much as possible when resources are strained.

Nonprofit Leaders Must Rise to the Challenge

Nonprofit leaders must rise to these challenges and lead by example. Remain hopeful, positive, and cautiously optimistic without promising anything. No one can predict, for example, when the restrictions on gatherings will be removed; for now, we must live one day at a time, dealing with what is before us.

Accounting and Financial Issues to Consider Accruals &/or Notes in F/S

Right now, with so many families facing the loss of income created by businesses shuttering and events canceled, donations are likely to slow to a trickle. Consider what your organization may need to accrue or disclose concerning losses/additional expenses or expectations about future revenue streams.

  • Stay on top of employee vacation time as well as sick day accrual (or PTO balance if combined). You’ll need to track these hours/days carefully to know what employees can and cannot use. Sick days may need to be used in a short period if someone becomes ill with COVID-19. Prepare for lengthy absences in the event staff come down with the virus or must quarantine due to contact with someone who has the virus.  Make sure your financial statements to management, board, funders, monitors and auditors reflect the correct liability for this instead of waiting until the end of the fiscal year, as you may have to pay this out sooner rather than later.
  • The Family Medical Leave Act (FMLA) may provide relief for some employees as additional paid time off after they run out of vacation and sick time (PTO). According to Time Magazine, an expanded Family and Medical Leave Act passed allowing for government employees with less than 500 employees who have worked for these companies for at least 30 days an additional 10 weeks of emergency paid leave to care for children whose schools or daycare facilities were closed.
  • A new congressional law passed yesterday for additional paid leave for employers/employees affected by COVID-19 for companies with fewer than 500 employees. This law will grant employees up to 14 days of sick leave at a normal pay rate to either quarantine or to seek a COVID-19 diagnosis or preventive care for themselves. If an employee is caring for a family member that has to quarantine, seek diagnosis or preventative care for COVID-19 the employee will be granted up to 14 days of paid leave after taking 10 days of unpaid leave, at no less than two-thirds of their normal pay rate (up to $200 per day, and $10,000 in total).
    • Full-time employees will be entitled to 80 hours of paid sick time. Part-time employees will be entitled to the number of hours they normally work in a two-week period.
    • Health care workers, first responders, quarantined workers, or those who were caring for afflicted family members, will not be Employers with less than 50 employees or more than 500 employees are also excluded.
    • Companies will have to front the costs for paid sick leave wages provided to employees who must quarantine because they are sick with COVID-19 or are trying to obtain a diagnosis; companies will be reimbursed up to $511 per employee per day. For paid sick leave wages provided to employees caring for loved ones, employers will be reimbursed up to $200 per worker per day. Self-employed individuals are also eligible for the reimbursable tax credits for their lost wages effected by COVID-19.
    • Make sure to track this leave as a separate item so you can easily provide documentation to the government on hours/amounts paid to each employee to later claim reimbursement for both unpaid and paid leave related to COVID-19. Financial disclosures and accrual of these amounts should be considered before issuing financial statements to any of your stakeholders.

Consider Your Volunteers & Vendors

Do volunteers sign a waiver or an agreement noting that they aren’t due any compensation? Do they acknowledge they aren’t employees and therefore aren’t due for worker’s compensation or other insurance? Take steps to protect your organization against inappropriate claims. Most volunteers are treated differently than employees, but not always. It’s essential to know the distinction and what, if any, legal protections your organization has put into place to avoid excess workers comp claims.

If you use contractors to perform work at your organization, identify if you have a contract with that vendor and what is stated in the contract.  If you have guaranteed a certain # of hours or pay to a certain contractor during this time, you may be responsible for making payments to that vendor even if they are unable to perform the work (i.e.: customer facing).  Talk to this vendor ahead of time about any contracts that state a certain # of hours or dollars are guaranteed to them to determine if you can find a solution that works for both parties.

Should You Shut Down or Find Alternative Ways to Work?

If your local or state government urges everyone to remain at home, you may need to shut down or find alternative ways for employees to continue working. Some may still need to go into work, especially if your organization provides an essential service. For example, a community food pantry may be needed more than ever to keep its doors open. You’ll need to weigh all of the risks involved, talk to your insurance companies and legal counsel, and determine for yourself the risks of keeping your doors open.

Determine now who is essential (must come to the physical office location) and who may telecommute. As long as you do not show any implicit or explicit bias in the decision of who can work from home and who cannot, your organization should be fine with the legal ramifications.

Establish communication channels with everyone so that they understand your organization intends to keep them employed. Phone or message everyone; check in frequently. People are unnerved by the changes to their lives, and having a personal connection with their employer can go a long way to calming their nerves.

  • What if you need to reduce staff? Some organizations may be faced with this unpleasant but necessary choice. Hourly workers can receive FMLA paid or unpaid leave, or you can reduce their hours, so they continue to have some income. If you decide to reduce hours for your employees and they do the same tasks as another employee, then look into the possibility of using job share in your state (compensation for hours worked by your org and partial unemployment compensation for hours not worked which are shared with another employee from the state).
  • What if My Employees Work with the Public? OSHA requires that employers provide a safe workplace for their employees. That’s difficult to do now with a virus at large. If you do need employees to come to work, and they must work with the public, take extra measures to ensure their safety. Provide protective gear, disinfectant, and requirements for social distancing.

Cancelling, Rescheduling or Moving Events Online Due to Coronavirus

When the government asked everyone to eliminate events or gatherings of 10 or more people to limit exposure to COVID-19, it put many organizations into a quandary. Many nonprofits host conferences and events that attract hundreds, if not thousands of people. Some host public events to share information and engage the community in their cause. All of this must come to a halt now for the greater good.

But your organization may be left holding contracts with multiple vendors: hotels, caterers, exhibit venues, and more. What are your rights and responsibilities?

  • If you must cancel events, make calls to the vendors providing event services. Many organizations have been surprised by their generosity. Some are offering a full refund, while others are issuing vouchers for services to cover future events. A few are waiving fees, penalties, and payments until the crisis is over. All these gestures can offset financial worries for nonprofits. If a vendor is unwilling to work with you, then read through that contract to understand what rights and responsibilities you have to that vendor. You may need to consult with an attorney to understand all the nuances of the contract.
  • If you have event insurance, understand what is covered under that policy. Event insurance used to be the go-to for nonprofits who worried about cancellations. For example, hosting a conference in the northeast during the winter offered cheaper airfare and hotel fees, but unexpected snowstorms might derail the event. Event insurance was used to cover losses in the event an act of nature forced the event to be canceled. Some insurers have stopped offering event insurance altogether due to obvious reasons. If you have it, and it covers events canceled due to COVID-19, you can take advantage of it to cover your losses. If not, do not rely upon coverage to plan events. Postpone them until the crisis is over.
  • Move events online! Most content from speakers, program participants and event sessions can lend themselves to virtual events. Consider the pros, cons, and costs of moving the event online. For many, there may be significant benefits to offering one speaker per week virtually instead of the ten scheduled for an in-person all-day event. You can leverage the weekly teleseminar and send emails to constituents and participants to remind them to attend, use the transcripts for future marketing and communications, and remain in contact with everyone using virtual technology.

Nonprofit Insurance and What It Might Cover

Now is a great time to call your insurance company and discuss what your policies cover and what they do not. The overview below offers a big picture look, but your specific policy may differ, so it’s always best to speak directly with your insurance agent regarding coverage.

The typical nonprofit organization holds several insurance policies. These may include:

Workers Compensation
Washington state plans to have coverage for unemployment. Keep an eye on state-specific news to see how this shapes up. Workers Compensation policies and Negligence claims right now are an unknown. If people are forced to work with the public, can they sue your organization if it didn’t take “correct” measures to prevent contact that leads to COVID-19? No one knows the answer to this right now.

Unemployment Insurance
Washington state has decided to allow temporary loss of employment for individuals due to COVID-19 to be covered under unemployment during the time they are not able to work at your organization.  Job Share is another option if you are cutting hours for your employees during this time as well; unemployment insurance will pick up the unemployment amounts related to the lost hours if sharing a job with a similar employee at the organization.

Property and Business Insurance
Among these three types of insurance, many are looking at their Property policy and thinking, “Ah, business interruption – that must cover us!” But it doesn’t. Business interruption insurance typically covers situations such as fire or flood that involve physical damage to the property itself. It doesn’t cover forced closures due to epidemics.

Umbrella Policies
An umbrella policy is often used as a gap or “umbrella” sheltering anything and everything in between various insurance policies. Again, it may or may not cover some elements of the current situation, so check with your carrier.

The bad news is that infectious diseases aren’t covered by any insurance (except health insurance for the individual). The size and scope of the COVID-19 epidemic are unprecedented in modern times. The last time the nation deal with massive upheavals due to a virus was the 1918 Spanish Flu pandemic, but that was during a time when even large companies had relatively little insurance compared with today’s businesses. Nonprofits are navigating uncharted waters.

Now is the time to talk to your insurance company about future policies too. We’re all learning from this event that even with the most thoughtful coverage, not every situation can be accounted for nor every event covered. COVID-19 forces us all to consider alternatives to business as usual.

Who would have thought a virus would spark such changes?

If you need any guidance or assistance during these times, Welter Consulting is here for you. We can be reached by phone (206-605-3113) or through our website.