Top Issues for Nonprofits in 2022

By | Accounting, Audit, COVID-19, Nonprofit | No Comments

These issues are top of mind for most accounting professionals, but especially for those leading the accounting function at nonprofits. This year appears to bring with it the continuing challenges resulting from the global pandemic as well as updates from FASB accountants need to know.

COVID-19 Issues Impacting Nonprofits

The economic impact of the government’s actions during the global pandemic are still not entirely understood. In March 2020, the government passed the $2 trillion CARES Act, and a year later in March 2021, the $1.9 trillion American Rescue Plan Act. If you’ll recall from previous articles, the CARES Act provided funds for the Paycheck Protection Program which used the Small Business Administration’s lending program to provide forgivable loans of up to $10 million per borrower. Qualifying businesses could spend this money on mortgage payments, payroll, or other business debts to continue operations.

Additionally, the CARES Act benefitted nonprofits directly by raising the limits on charitable deductions for both those who itemize deductions and those who do not. The government also raised the cap on charitable contributions for corporations. These actions were intended to increase cash gifts to nonprofits, strained by sudden increased demand for their services during the pandemic.

The response to the COVID-19 pandemic remains fluid as the situation continues to change. Many nonprofit accountants, however, still have questions about how to account for CARES Act funds, Payroll Protect Action loans, and more.

We’ve put together a list of resources to help you navigate any remaining questions from the pandemic response as they impact your nonprofit accounting.

Remote Auditing

Many nonprofits may still choose remote audits. To facilitate remote audits, incorporate the following best practices into your organization.

  • Utilize all available technology to share files with your auditors. This may include secure portals for sharing documents or videoconference. If your accounting and finance system allows for guest logins, you may be able to set up a secure login for your auditors.
  • Schedule additional video conferences to confirm supporting documentation. You may also wish to schedule video conferences in advance so that check-in dates are on everyone’s calendars.
  • Provide multiple contact methods to keep communication lines open. A secure instant messenger platform may be set up for the audit.
  • Build additional time into the auditing schedule to anticipate and accommodate potential delays in communication. Remote workers may be logging into their email at various times, which can lead to longer response times.
  • Be vigilant about cybersecurity, especially when sharing financial data.

Other Nonprofit Accounting Concerns

Nonprofits may also have concerns about other aspects of COVID-related accounting.

Cash management issues are at the top of many nonprofit accountants’ minds. Continue to build up operating reserves. Seek cost containment strategies that make sense for your organization.

If internal controls were relaxed during the pandemic, reinstate them when workers return to the office, even if only a handful are back. It’s important to ensure security and good internal controls even during challenging times.

This is also a good time to develop policies around remote work if your organization doesn’t already have them. Many organizations are finding that remote work policies are helping them attract more and better qualified candidates for open positions. A telecommuting alternative is an attractive benefit for many job applicants.

Lastly, be sure to keep your board and other advisors updated on your organization’s financial challenges, opportunities, and threats. Good communication is always essential.

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.

Post-COVID Nonprofit Operations

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Systems and services nationwide are still struggling with the aftermath of the pandemic. This goes for nonprofits as well. Although many have risen to the challenges of continuing to serve their communities amid shrinking donations, new health mandates, and rising demand for their services, the pandemic has exposed many fragile areas in society. Nonprofits were able to help these areas, but now, they may no longer be able to do so.

New models, methods, and approaches are needed for the post-pandemic nonprofit world as exemplified by these two examples. The creative approach that nonprofits bring to the many problems uncovered by the pandemic will help them succeed in the future.

Systems Built for a Different Era

Many of the assumptions and systems upon which nonprofits were founded were based on norms and attitudes from a different time and place.

For example, the current model of community food banks which collect food at central distribution points and distribute it to queues of people needed to change during the pandemic. Such a model evolved during previous eras in which people lived closely together in cities. Now, it is just as likely that hunger exists behind suburban front doors or in rural enclaves. It’s difficult for some to travel to a food bank, and when people are asked to curtail their time out of the home to prevent the spread of infection, it is inappropriate to ask them to line up with strangers just to get food to feed their families.

Meanwhile, the wealthy who can afford meal delivery simply pick up the phone and dial for a pizza, Chinese or Thai takeout, or whatever they fancy. Families can order groceries online and have them delivered to their doorstep to avoid long lines at the supermarket.

Donations of food may be down as more people feel the pinch of joblessness or restricted income. According to one report, prior to the pandemic, 1 in 6 Americans needed supplemental food sources to stave off hunger. Now, that number is closer to 1 in 5.

“Get in line” isn’t an appropriate or helpful response to needy people during a pandemic. A creative response is called for to help fill the gap between the hungry and the resources available to them.

Exposing the Digital Divide

It’s not just nonprofit systems built for a different time that struggle during the pandemic. Expectations must shift around services, too.

Prior to the pandemic, many school children used the internet only in the classroom or at the library where free computers and Wi-Fi provided them with the same access as their wealthier classmates.

Now, however, with many schools switching to an all-online model and libraries closed to the public, children who lack broadband access aren’t getting the education they need. Nonprofits are being asked by their communities how they can bridge the ever-widening gap in these children’s education while some communities fail to address the root problem of the digital divide.

Solutions for Creative Nonprofits

It’s not all doom and gloom. Although the pressure on nonprofits to fill these ever-widening gaps is great, many are coming up with creative ways to serve their constituents.

Such creative solutions include:

  1. Partnerships with for-profit companies to bring resources to the communities. Food delivery services, for example, can be asked to take free food to the needy if they’re already heading into specific neighborhoods.
  2. Collaboration with community-based organizations that already have deep roots in the most underserved communities can help bridge many gaps. These organizations may know of resources, people, and places that can be tapped to help their specific communities that nonprofits outside of the community do not understand. Working collaboratively, both organizations can achieve more together than they can alone.
  3. Developing new methods, models, and delivery services. This may be the time for out-of-the-box thinking, testing models from the for-profit world, or seeking the advice of other organizations nationwide as to what worked and didn’t for them as they responded to local needs during the pandemic.

Nonprofits face a big challenge post-pandemic. But they are uniquely poised to meet these challenges through creative thinking, flexible approaches, and good stewardship of existing resources.

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.

Top Accounting Issues for Nonprofits

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As we move into the last quarter of 2020, it’s time to take another look at several accounting issues facing nonprofit organizations this year. Many issues pertaining to the coronavirus relief package signed into law in March 2020, and similar pandemic-related responses may change how nonprofits account for activities and expenses this year.

Financial Relief for Nonprofits

In March 2020, President Trump signed into law the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748). The act provided relief to businesses and nonprofits through the United States impacted by the coronavirus pandemic.

The CARES Act provided many resources including the Paycheck Protection Program. AICPA has provided a resource center that offers many tools to help organizations understand the CARES Act resources and how they may be utilized.

Other good resources to help you with your accounting needs related to the CARES Act include IRS and FASB guidelines.

Delayed Effective Dates for Several New Accounting Standards

The AICPA Auditing Board has delayed the adoption of several new standards due to the disruption created by the coronavirus pandemic. The standards listed below have been delayed one year to allow time for audit firms to focus on implementing the new model and to make effective changes.

Standards delayed one year include:

  • SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, as amended by SASs No. 137, 138, and 140.
  • SAS No. 135, Omnibus Statement on Auditing Standards — 2019.
  • SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended by SASs No. 138 and 140.
  • SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.
  • SAS No. 138, Amendments to the Description of the Concept of Materiality.
  • SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134.
  • SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137.

SAS No 141 has been delayed until December 15, 2021.

FASB Votes to Extend Deadline for Revenue Recognition

Another change: FASB voted to extend by one year the effective date of its revenue recognition standard to all nonpublic entities. This pertains only to those entities which have not yet issued their financial statements.

Other Considerations Unique to This Year

There are several other conditions unique to 2020 that accounting and financial professionals must take into consideration.

Remote auditing may be necessary, so it is important to prepare now for a virtual audit. This includes adding or enhancing existing financial and accounting systems to allow for external auditing professionals to access accounts and documents.

Internal controls may be impacted due to staffing restrictions. You may need to adjust internal controls to l staff present in a physical office location.

Fraud risks are heightened. The FBI warns that there is an increase in scamming activity this year due to the coronavirus pandemic. For example, fraudulent unemployment claims are on the rise, and phone and email phishing scams have also increased. Vigilance and additional awareness training for your staff may help prevent cyberattacks and crimes.

Board and Finance Committee meetings may need to be held using virtual technology. Use an encrypted file-sharing service or protect sensitive documents with passwords (do not send passwords via email but relay them over the telephone to the intended recipient.)

Because the financial situation for your nonprofit may be uneven this year, continue to adjust budgets and revenue projects as necessary to adapt to the continually evolving situation.

The global pandemic has created many changes worldwide, including changes to the world of finance and accounting. Stay on top of the most recent FASB, IRS, and AICPA recommendations, deadline extensions, and updates through the Welter Consulting blog.

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.

Reimagine, Reinvigorate: Nonprofit COVID-19 Challenges and Response

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We are now several months into the ongoing coronavirus pandemic, with no end in sight, despite the optimistic statements of politicians and health authorities promising a vaccine on the horizon. No one knows whether vaccines and treatments in the development pipeline will work or mitigate the virus’ reach. In the meantime, local communities need philanthropic support like never before.

Unfortunately, the old model that treats nonprofits as “gap fillers” between the public sector and the private marketplace is outdated. In some underserved communities, nonprofits aren’t gap fillers but lifelines. Nothing has made this as crystal clear as the response to the pandemic where the distance between the haves and the have-nots is growing.

Nonprofits stand on the brink of a new era. As we look forward to a post-pandemic world, we must still deal with the realities of existing within the pandemic. To continue supporting the work we love and the communities we cherish, we must think beyond the “nonprofit box.”

The Current Situation: Post-Crisis, Pre-Resolution

One of the biggest challenges nonprofits face is sustaining the response. At the start of the crisis, the immediate reaction saw nonprofits scrambling to provide food, shelter, and care for communities nationwide. Nonprofits such as food banks experienced lines stretching for blocks as people queued for food to feed their families. Others helped their communities complete government forms for the Paycheck Protection Program and other relief acts.

But once the initial crisis is over, there are two areas of concern:

  1. Continuation: how will nonprofits continue if they have depleted their resources already? Many nonprofits have emptied their budgets to support their communities. Others have seen volunteers fade away as they heeded stay-at-home orders and haven’t yet returned to help. How will nonprofits continue their efforts if they do not have the resources they need?
  2. Support for the volunteers and front-line response workers: what mental health and social support resources are available to workers and volunteers suffering from caregiver fatigue? The emotional and psychological toll cannot be underestimated. Our front line volunteers and workers have seen and heard heart-rending stories over the past several months. Do we have resources to help them stay mentally and emotionally healthy?

Continuation: Thinking Outside the Nonprofit Box

The key to sustained response and continued work in the community is to think outside the “nonprofit box.” The “nonprofit box” is like a mental box people in nonprofits build to contain all the resources they believe are available to them. For instance, a nonprofit animal shelter may think of other animal shelters when their kennels overflow and adoptions are prohibited due to stay at home orders. There are still animals to feed and care for until the public can return to adopt a pet, or volunteers can return to help care for them.

But what about setting up an animal fostering program? Many people are stuck at home and lonely. They may be eager to foster a dog or cat. And, fostering often leads to adoptions since people grow to love the pets they’re fostering. Fostering takes some of the shelter’s burdens and helps people in the local community feel less lonely when social distancing means staying home more.

Instead of partnering with local shelters to get the word out, perhaps the animal shelter can partner with local senior citizen resource centers, community centers, and faith-based organizations to spread the word about the fostering program. This is “out of the nonprofit box” thinking—considering alternative solutions to a problem.

Another area where an alternative solution may indeed be outside the nonprofit world is among food banks. Food banks usually don’t deliver. However, companies like Grub Hub are already set up to deliver food to homes. Why not contact local for-profit delivery companies and see if they are willing to deliver food or meals to families in need? If they’re already in Neighborhood A delivering a paid order, it’s not a big stretch to ask them to drop off a bag of groceries down the same neighborhood block.

To sustain the response to the increased need in our communities, we must consider partnering with others. Some organizations have deep, trusted roots in underserved communities we need to reach. Perhaps nonprofits can partner with such organizations to deliver much-needed services to the people instead of requiring the people to come to them.

Caring for the Caregivers

Unfortunately, the mental health system in the United States was already inadequate before the pandemic. Resources were already fragile for the people who could afford mental health services. Now, with the stresses added by the pandemic, it is stretched almost to the breaking point. Again, nonprofits must come up with their solutions to care for their employees and volunteers.

One solution is simple: listening. Sometimes, people just need to vent—schedule time to speak with your team by phone. Let them share their stories. Often by sharing, the stress of the situation is reduced.

A New Nonprofit Paradigm

As the coronavirus response continues, nonprofits have the opportunity to reimagine their future. If we no longer fill the gap between the public and private sectors, what role do we wish to serve? What role can we fill? How will our services apply in the future?

There’s no one answer that’s right for all nonprofits but now is the time to consider these questions. We have an opportunity like never before to help people and to reinvent the entire nonprofit industry. It’s time to reimagine, reinvent, and reinvigorate the nonprofit world.

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.