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NONPROFIT NEWSLETTER April 2012

NONPROFIT HOT TOPICS ____________________________________________________________ Reform Ideas Under Discussion for OMB Circular A-133 Audits ____________________________________________________________

Nonprofit Giving Begins to Rebound

From Our Partners

NONPROFIT BOARDS AND

“THE VEGAS RULE”


Contents April 2012

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FROM OUR PARTNERS 2 N O N P ROF I T BOA R D S A N D “ T HE V EG A S RUL E ” Have you ever been at a Board meeting where someone says something like “.. and it goes without saying that whatever we discuss here stays here in this room”?

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NONPROFIT HOT TOPICS 3 R E F OR M ID E A S UN D E R D IS C US S IO N F OR OMB C IRC UL A R A -13 3 AUD I T S The U.S. Office of Management and Budget (OMB) has issued for comment an Advance Notice of Proposed Guidance titled, Reform of Federal Policies Relating to Grants and Cooperative Agreements; cost principles and administrative requirements (including Single Audit Act) (Advance Notice).

5 N O N P ROF I T G I V I NG BEG I N S T O R E BOU N D Among indicators that the economy as a whole has stabilized or begun a slow recovery, there are encouraging signs that this recovery has now begun to extend to the Nonprofit sector.

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F R O M O U R PA R T N E R S

NONPROFIT BOARDS AND “THE VEGAS RULE” BY LEWIS SHARPSTONE | PARTNER lsharpstone@singerlewak.com

Have you ever been at a Board meeting where someone says something like “.. and it goes without saying that whatever we discuss here stays here in this room”? I have, many times. This is often comically referred to as “The Vegas Rule”. And of course there are many times during a meeting when this is not only appropriate, it would probably be financially and legally harmful to the Nonprofit if the rule were not followed.

Why not, after each Board meeting, develop these topics into a short list of talking points? Then why not charge the entire leadership of the organization, staff and directors, with the task of fanning back out into the community with it? But the problem I feel is that this rule all too frequently gets

applied to everything said in a Board meeting, much to the detriment of the organization. How so? Well, many times Board meeting discussions revolve around the organizations programs and strategies. The mission is hopefully defined. How does the organization execute on its mission? Where does it get its resources, financial and human? What short term challenges does it face and how does it plan to overcome them. How about in the long term?

Why not, after each Board meeting, develop these topics into a short list of talking points? Then why not charge the entire leadership of the organization, staff and directors, with the task of fanning back out into the community with it. Everyone will have a consistent and exciting message about the organization and be encouraged to share it. Wouldn’t this be fantastic? Welcome and please enjoy this April 2012 edition of the SingerLewak Nonprofit Newsletter.

These are great discussions. But each Board member is usually left to figure out for themselves what they can and can’t share with others. So many err on the side of caution, or defer to the Vegas rule, and don’t share anything.

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NONPROFIT HOT TOPICS

REFORM IDEAS UNDER DISCUSSION FOR OMB CIRCULAR A-133 AUDITS BY JEFF HOLT | PARTNER jholt@singerlewak.com

The U.S. Office of Management and Budget (OMB) has issued for comment an Advance Notice of Proposed Guidance titled, Reform of Federal Policies Relating to Grants and Cooperative Agreements; cost principles and administrative requirements (including Single Audit Act) (Advance Notice). Of particular interest to many of our Nonprofit clients who expend Federal aid (and who are subject to OMB Circular A-133 audits), is that the OMB is considering altering the A-133 audit structure, in many cases making is EASIER, CHEAPER, and LESS BURDENSOME to comply with these requirements. The following describes some of the key ideas for single audits that are covered in the Advance Notice: • Single Audit Threshold for Audit Increased. Entities that expend less than $1,000,000 in federal awards would not be required to undergo a single audit. This would represent an increase from the current threshold for single audits of $500,000, which was estab3 | SingerLewak

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The proposal is silent regarding the level of testing of internal control over compliance that would be expected. According to the GAQC’s analysis of the 2010 FAC database, they indicate that approximately 16,000 auditees would fall into this category. lished in 2003. The AICPA’s Governmental Audit Quality Center (GAQC) performed a quick analysis of the 2010 Federal Audit Clearinghouse (FAC) database and believes that just over 10,000 auditees would no longer be required to have a single audit. • A New Category of Single Audit. For those entities expending between $1 million and $3 million in federal awards, a single audit would be required, but major program audit procedures would be focused on testing only two compliance requirements—that is, allowable and unallowable costs and one additional requirement that would be selected by the federal agency responsible for the program.

The OMB is considering altering the A-133 audit structure, in many cases making is easier, cheaper, and less burdensome to comply with these requirements • Changes for Larger Single Audits. For entities expending more than $3 million in federal awards, a full single audit would be required. However, the proposal indicates that federal agencies may identify subsets of compliance requirements that they believe most effectively address improper payments, waste, fraud, abuse, and program performance and require additional testing for those


requirements. At the same time, the proposal indicates that other compliance requirements could be made optional for testing or the auditor could be directed to perform less testing on those requirements. The proposal also states that federal agencies could move compliance requirements that would no longer be “universal” to a specific program’s special tests and provisions compliance requirement, if a requirement is deemed to be relevant to preventing waste, fraud, and abuse for that program. The GAQC quick analysis of the 2010 FAC database indicates that just over 17,000 audits would fall into this category. There are other reforms proposed as part of these suggestions including: • Improvements to Audit Follow-Up by Federal Agencies. OMB is considering ideas for making federal agencies more

accountable for audit follow-up and audit resolution. • Pass-Through Entities and Sub-recipients. More federal coordination regarding additional federal agency audits of recipient entities. • Changes to the Cost Principles. Potential changes to the cost principles (i.e., OMB Circular A-21, Cost Principles for Educational Institutions, OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, OMB Circular A-122, Cost Principles for Nonprofit Organizations, and the Cost Principles for Hospitals. • Reforms to the Administrative Requirements. In large part, the changes to the administrative requirements (i.e., the government-wide common rule implementing OMB Circular A-102, Grants and Cooperative Agreements with State and Local Governments,

OMB Circular A-110, Uniform Administrative Requirements for Certain Grants and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations, and OMB Circular A-89, Catalog of Federal Domestic Assistance) are suggestions for federal agency change. While the initial comment period expired on March 29, 2012, the OMB intends to publish a follow-up Federal Register notice extending the deadline for providing comments to April 30, 2012. To obtain a copy of the proposed changes, or if you have any questions as to how these proposed changes would apply to your situation, please contact us here at SingerLewak.

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NONPROFIT HOT TOPICS

NONPROFIT GIVING BEGINS TO REBOUND BY MIKE BARLOEWEN | SENIOR MANAGER mbarloewen@singerlewak.com

Among indicators that the economy as a whole has stabilized or begun a slow recovery, there are encouraging signs that this recovery has now begun to extend to the Nonprofit sector.

• There were no statistically significant differences in the share seeing growth when analyzed by region of the country. • Smaller organizations (operating budgets below $1m) reported increases in charitable receipts less often than larger organizations.

Charitable giving rose in 2011, according to a survey by the Nonprofit Research Collaborative (NRC). The survey, which can be viewed by clicking here, was released in early April, 2012. More than 1,600 organizations answered survey questions in early 2012 about charitable receipts from January through December

Charitable giving rose in 2011, according to a survey by the Nonprofit Research Collaborative (NRC). 2011. Respondent groups included large and small organizations (by budget size) and organizations from every subsector such as Arts, Culture and Humanities to Religion.

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Notable findings from the study include: • Charitable receipts rose in 2011 at more than half of the surveyed organizations. This is the first time since the 2007 survey that more than half the charitable organizations surveyed saw an increase in charitable receipts. The primary reasons cited for positive results include better marketing and public awareness of services, better online presence including social media and more focused appeals.

• Nearly 6 in 10 organizations met their fundraising goal in 2011. Factors associated with meeting fundraising goals include the number of paid staff focused on fundraising, the years of experience of the person most responsible for fundraising.

This is the first time since the 2007 survey that more than half the charitable organizations surveyed saw an increase in charitable receipts • Most respondents to this survey receive contributions from mul-


tiple fundraising approaches such as annual fund and special events. This is in addition to funds from campaigns and planned giving, with these being more common in the larger responding organizations. • Very few respondents received more than 25 percent of their funds from any one method of fundraising. • Board members at responding charities are usually engaged in fundraising in multiple ways including being expected to give and connecting their personal networks to the organization by providing names for letters or making introductions.

The primary reasons cited for positive results include better marketing and public awareness of services, better online presence including social media and more focused appeals

Looking ahead for 2012, more than 70 percent of organizations, in this latest study, anticipate increases in the charitable contributions they receive. The biggest challenges seen for 2012 fundraising include continued repercussions of the recession, along with unforeseen economic crisis that could impact donors’ capacity and interest in charitable giving. But for now, the news is good and the forecast - optimistic.

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OUR FIRM SingerLewak is a leading regional accounting services firm in California with offices in Los Angeles, Orange County, Woodland Hills, Monterey Park, San Diego, Silicon Valley and San Francisco. Serving California since 1959, SingerLewak has established a reputation for excellence as professionals with unparalleled expertise in the Accounting and Management Consulting industry. Providing the services of a large firm with a blended environment of practices, industry specializations and particular attention to hands-on service, SingerLewak continues to demonstrate leadership and industry growth year-over-year. Our client relationship approach and industry excellence is renowned.

L E W IS SH A R P S T O N E

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ROB S C HL E N E R

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Nonprofit Newsletter - April 2012