Build up when things look down
BY kell Y a. Thorn Ton
Stories of struggling businesses and growing individual needs are omnipresent. The
housing and investment markets collapsed.
Unemployment ballooned to long-forgotten
levels. Bank credit seized up and became
increasingly difficult to obtain. These factors, among others, contributed to a 31. 4
percent increase in U.S. business bankrupt-cies through the third quarter of 2009 as
compared to the same period from the prior
year, according to the Administrative Office
of the U.S. Courts.
Nonprofit organizations are not immune.
They, too, have been hit hard, taking their unwanted turn in the financial headlines. Many
entities already work wonders with limited
resources, and now they’ve been pinched
even more. Severely impaired endowments
and investment portfolios — many entities
experienced asset value declines exceeding 30 percent — combined with decreased
funding from corporate and individual philanthropy and governments at a time of increased need are compounding the difficulties for nonprofit organizations.
Nonprofit organizations — in areas such
as health care delivery, education, arts and
culture, human needs, and social welfare
— represent a significant portion of the economic engine of this country, although they
measure success by metrics such as people
served, as opposed to bottom-line growth.
The negative forces affecting financial stability and the delivery of results may require a
shift from the old operating norms for some
nonprofits to survive and thrive.
These organizations were already com-
peting for a limited pool of available donors,
foundation or corporate contributions,
and government funding. The number of
501(c)( 3) organizations with income greater
than $25,000 has grown more than 32 per-
cent, to over 1. 5 million, in the past 10 years.
Now, when money is at its tightest, needs are
also increasing in many communities as fed-
eral, state and local governments have cut
their programs due to budget deficits.
Whatever your preferred source of information, discussions
about the financial crisis of the past two years are unavoidable.
Now may be the time for nonprofits to consider more mergers
MORE REGULATORY REQUIREMENTS
Many may not realize the volume of ever-ex-panding compliance requirements attached
to government grants and the continuation of
tax-exempt status. Nonprofits are experiencing greater scrutiny from state attorneys-gen-eral, government regulators, and requests for
more information from the Internal Revenue
Service in the redesigned Form 990.
Now may be the time when business relationships of different forms represent an
opportunity for many not-for-profits to enhance financial and operational stability
and broaden their reach and impact. Many
not-for-profits may want to view today’s
economic environment as a buyer’s market,
an opportunity to invest in future growth
and development where it was previously
PUBLIC SECTOR STANDARDS
BOARD PUBLISHES HANDBOOK
NEW YORK — The International Public
Sector Accounting Standards Board
has published its 2010 Handbook of
International Public Sector Accounting
Pronouncements. In two volumes, the
handbook contains all current IPSASB
pronouncements, including 31 accrual-based standards and the IPSASB’s cash-basis standard. Five of these standards
were approved by the IPSASB in 2009,
including requirements and guidance
for all aspects of accounting for financial
instruments, as well as intangible assets
The handbook can be downloaded
free in PDF format or ordered in print
Print copies of Parts I and II of the
handbook are available as a three-piece
boxed set with the Handbook of the
Code of Ethics for Professional Accountants. The boxed set is being offered free
of charge, but shipping and handling
Orders can be placed by calling (212)
Kelly A. Thornton, CPA, is health industries
assurance partner with Pricewaterhouse
Coopers LLC in Philadelphia. Reach her at
with permission from The Pennsylvania
After years of debate, a new accounting standard recently went into effect. FASB Statement of Financial Accounting Standards
No. 164, Not-for-Profit Entities: Mergers and
Acquisitions (FASB ASC 810-158), provides
specific guidance on how business combinations should be accounted for, with prescriptive guidance on what would qualify
as a true merger, versus an acquisition. The
statement is effective for reporting periods
beginning on or after Dec. 15, 2009. The accounting rules do not affect the economics
of the transaction; however, acquisition or
merger of another nonprofit may set off significant emotional responses as struggling
entities come to terms with the possibility
that being acquired, or losing control of their
operational structure, is a potential reality.
When it comes to mergers, nonprofit enti-
ties often eagerly wish to maximize mission
delivery and minimize costs, but few want
to give up control of the decisions related
to mission execution. Each has a fiduciary
responsibility to the population it serves, its
donors, and, as a tax-exempt organization,
the general public. Also, employees and
volunteers often have significant personal
interest in the entity they are affiliated with.
Boards are often quite loyal to the manage-
ment and employees that have served the
organization over time and contributed so
much in terms of past successes. These fac-
tors make some reluctant to seek or under-
take necessary changes, believing they have
the best interest of the organization and their
constituents at heart.
IIA PUBLISHES AUDITING
GUIDANCE ON PAY
ALTAMONTE SPRINGS, FLA. — The Institute
of Internal Auditors has published a new
practice guide to provide an overview
of key executive compensation risks that
should be understood before assessing
whether a company’s controls and governance over executive compensation and
benefits programs are effective.
The risks could include financial reporting hazards. Excessive, illegal or unethical
executive compensation and benefits
could be misclassified or otherwise
hidden within the financial statements.
Operating or financial data could be
manipulated to trigger incentive-com-pensation payments or artificially inflate
the value of stock options.
The guidance, whose application is
strongly recommended but not mandatory under the IIA’s International Professional Practices Framework, also provides
audit approaches and considerations. It
is available at www.theiia.org/guidance/