NONPROFIT NEWSLETTER June/July 2013 NONPROFIT HOT TOPICS ____________________________________________________________ Doing Well by Doing Good ____________________________________________________________
AICPA Overhauls Its Audit and Accounting Guide for Not-for-Profit Entities for the First Time in 17 Years
From Our Partners
UNDERSTANDING WHY THE RUMORS SPREAD
Contents June/July 2013
FROM THE NONPROFIT PARTNERS 2 UN D E RS TA N D I NG W H Y RUMORS SP R E A D This is the first in a series of three articles designed to provide leaders of nonprofit organizations, executive directors and board members, some useful information and provide stimulating thought on potentially important management issues, on which little is ever written.
WHAT MATTERS TO YOUR ORGANIZATION 5 D OI NG W E L L B Y D OI NG G OOD I recently hosted an event entitled Doing Well by Doing Good, on behalf of ACG Orange County. With more than 50 prominent professionals, corporate personnel and nonprofit management individuals in the audience, we were able to cover a wide array of topics as well as dispel many common misconceptions.
7 A IC PA OV E R H AUL S I T S AUD I T A N D AC C OU N T I NG GUID E F OR N O T- F OR- P ROF I T E N T I T IE S F OR T HE F IRS T T IME I N 17 Y E A RS The Auditing Standards Board (ASB), and the Not-for-Profit (NFP) Guide Task Force, released a new comprehensive revision of the Audit and Accounting Guide Not-For-Profit Entities in April 2013.
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F R O M O U R PA R T N E R S
UNDERSTANDING WHY RUMORS SPREAD BY LEWIS SHARPSTONE | PARTNER LSharpstone@SingerLewak.com
This is the first in a series of three articles designed to provide leaders of nonprofit organizations, executive directors and board members, some useful information and provide stimulating thought on potentially important management issues, on which little is ever written. As a nonprofit manager and leader, dealing with rumors is, unfortunately, part of the job. You may hear of a rumor concerning an important colleague or yourself, or a rumor about your organization, or about an organization with which you collaborate or compete. Knowing which rumors to ignore and which to address is difficult. If the decision is made to address a rumor, exploring it first, then addressing it can be equally difficult. This article is designed to provide some information on the underlying anatomy and psychology of a rumor. Such understanding can hopefully help as you navigate the issue.
Knowing which rumors to ignore and which to address is difficult
before. As a manager or leader, to understand whether a rumor is true you have to first make time to reflect on it yourself, and challenge the “facts”. To address it with others, you have to ensure others have the proper reflection time. This may only need a few minutes, but it is a question of making some reflection time versus none at all.
1. DO W E BE L IE V E F IRS T, O R DO W E U N DE RS TA N D F IRS T SO T H AT BE L IE F C O ME S L AT E R? This question has been debated for at least 400 years, ever since French philosopher Rene Descartes argued that understanding and believing are two separate processes. Numerous scientific tests have been designed over the years to explore the process of believing. It has been pretty much proven at this point that without time for proper reflection, people did indeed tend to simply believe what they read or heard. People generally just have to understand what they heard or read, to believe it. This means that in today’s busy, multi-tasking, distracted world where people have less and less time for reflection, rumors can take root more easily than ever
2. IF SU B SEQU E N T FAC T S C O N T R A DIC T OU R IN I T I A L BE L IE F A BOU T SO ME T HING , DO W E T E N D T O DISMIS S T HE FAC T S O R RE E VA L UAT E OU R BE L IE F ? This is another question that has been studied scientifically, and it has been shown that we do indeed tend to hold our initial beliefs for some time in the face of evidence to the contrary. The reason is simple: when faced with two paths, an easier one and a more difficult one, we humans are hard wired to select the easier path. When faced with contradictory information, it takes effort to sort through the facts to determine if your initial belief was correct. It is easier to dismiss the information, which is why we take this path at first.
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This means that as a manager or leader, know that it’s going to take some time and effort to process the information concerning the rumor. Just like most things in life, the greater the effort, the greater the reward at the end of the path. Also, we humans tend to automatically process new information through the filter of what we think we already know. Earlier information tends to color later information. It takes a “hey, wait a minute” moment in order for the later information to color the earlier information. It’s important to be mindful of human propensities when dealing with rumor. 3. HOW M UC H A RO L E DO O U R E X IS T I N G BI A SE S P L AY I N O U R BE L IE F O F A RU MO R? 3 | SingerLewak
Studies continually prove what we already instinctively know - that our existing biases play a big role in whether or not we give weight and belief to a rumor. To illustrate this point, Psychology Today quotes a 2007 University of Maryland Study that reported that only 3% of Pakistanis believed Al Qaeda was responsible for 9/11. This is much lower than the percentage of Japanese, for example, that believe Al Qaeda was responsible for 9/11, 74% in a recent poll. Unfortunately, it appears to be a fact of life that all humans have biases of some kind. Understanding our own will help us sort through rumors objectively. Understanding those of others will help craft the appropriate response to a rumor.
4. A RE RU MO RS T Y PIC A L LY SIMPL E , O R N UA NC E D? We all know that rumors are typically simple. They typically involve a simple concept, and are relatively short to relay. The truth, or proving that a rumor could not possibly be true, or proving that the grain of truth within the rumor is not anything to worry about, often requires a longer, more nuanced discussion. I first came to understand this phenomenon in an unlikely setting: taking multiple choice exams when I was in college. It was the 80’s and I read a scientific study which proved that when taking a multiple choice exam, if you didn’t know the answer to a question, if you eliminated the obviously incorrect choices to narrow the choice down to two possible choices, then if you picked the longest answer, you
were twice as likely to guess the correct answer. The reason cited for this result was a study that showed that it takes more words to accurately state the truth than to throw out a mistruth. Multiple choice answers have probably been designed to account for this phenomenon these days, but the phenomenon still appears to apply. Understanding this phenomenon will help us counteract our bias towards the simple message of a rumor. And it may help as we craft the factual message to counteract the rumor. 5. SUC C E S SF U L RU MO RS A P P E A R T O P L AY O N E X IS T I NG A N X IE T IE S A N D E MO T IO NS. There is a wonderful quote by Helen Horton, a psychology
professor at the University of Northern Iowa, which explains the evolutionary rationale as to why humans are much inclined to weigh and pass on negative information compared to positive information. She explains “it was more important to know how to avoid a tiger than to know where a field of nice flowers was.” Snopes.com is a web site dedicated to debunking urban legends and celebrity rumors. Regarding celebrity rumors the site explains the reason they are so prevalent is that we humans have a propensity to believe bad things about people we envy. We might even enjoy repeating it to others. Makes sense doesn’t it?
through and deal with rumor. Please watch out for the second article in this series, on the role of venting in the workplace, in the next edition of the SingerLewak Nonprofit Newsletter.
LEWIS SHARPSTONE CAN BE REACHED AT LSHARPSTONE@SINGERLEWAK.COM OR 310.477.3924
We hope that this information will help you somewhat if (when!) you ever have to sort
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W H AT MAT T E R S TO YO U R O R G A N I Z ATI O N
DOING WELL BY DOING GOOD BY ROB SCHLENER | PARTNER
RSchlener@SingerLewak.com | 949.261.8600
I recently hosted an event entitled Doing Well by Doing Good, on behalf of ACG Orange County. With more than 50 prominent professionals, corporate personnel and nonprofit management individuals in the audience, we were able to cover a wide array of topics as well as dispel many common misconceptions. In the end, the collaborative format left everyone in attendance with a much better sense of the opportunities, needs and desires all nonprofit stakeholders share. Here are some highlights from the event: Shared Values – a key concept in educating and aligning donors, nonprofits and communities, in order to increase the Return on Investment (ROI) for each “What’s in it for me?” A fair question for Corporate America to ask, when a nonprofit is soliciting financial support for their mission. The simple answer is shared values. When the corporate (or individual) donor shares the same values as those of the nonprofit and the segment of the local community being positively impacted, the relationship becomes a win – win – win. One becomes an extension of the 5 | SingerLewak
other, and the relationship flourishes. This is why we see sponsors repeating their support year over year – shared values binds the Organizations together, and the ROI validates the spent time, money and efforts. As a nonprofit, make sure you seek donors who you believe share your Organization’s values. This will ensure that you are being efficient with your fundraising efforts and enable you to secure multi – year giving arrangements. As a corporate donor, do your homework and make sure you understand who you are donating to and for what specific purpose. Winds of Change are all Around Us – the shift in corporate giving As we thaw from the protracted economic downturn, corporate giving is rebounding as well, and
on the rise……. But nothing is carte blanche! Corporate donors are once again opening up their checkbooks, but not to the extent they once were. And these donors are more discerning that ever before – they want proof. Donors are looking to maximize their ROI by supporting specific programs or needs [with Organizations that have shared values, remember]. For example, it was once commonplace for corporate donors to take their allocated charitable funds and split them into smaller gifts to more needing Organizations. Today, the number of gifts are fewer, but for larger amounts. And keep in mind that donations are not always in the form of a check or goods. Many nonprofits are in need of bright, talented people who are willing to share their expertise, not just their checkbook.
Donors are looking to maximize their ROI by supporting specific programs or needs It’s easy to see how a nonprofit would benefit from the pro bono services of professionals, but how
do corporate employers benefit from encouraging their personnel to volunteer their time? The obvious component to corporate ROI in this case is exposure for the company sponsoring the employee / volunteer. But the hidden value to personnel volunteerism is the element of management training. Participating in volunteer projects or sitting on nonprofit Boards, allows corporate personnel to use the experience to hone their skills in the areas of project management, delivering presentations, decision making, time management and crisis management, to name a few. What’s Good for Business and Good for Community? – Bottom Line
Without getting too philosophical, what is good for business IS good for community. And the link between the two is the many nonprofits that do yeoman’s work day in and day out. Connecting the dots between the donor, nonprofit and communities is done most easily through shared values. I challenge each and every one of you to seek out like minded individuals who share your values, and strive to get connected to them. You will make a difference!
Without getting too philosophical, what is good for business IS good for community
A special thanks to those who participated in the event last month, and inspired me to write this article: Ardelle St. George – St. George & Carnegie, Attorneys Dan McQuaid – One OC, President & CEO Mel Rogers – PBS So Cal , President & CEO Trish Van Mourick – Optivest Foundation, Executive Director Mark Van Mourick – Optivest, CEO ROB SCHLENER CAN BE REACHED AT RSCHLENER@SINGERLEWAK.COM OR 949.261.8600
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W H AT MAT T E R S TO YO U R O R G A N I Z ATI O N
AICPA OVERHAULS ITS AUDIT AND ACCOUNTING GUIDE FOR NOT-FOR-PROFIT ENTITIES FOR THE FIRST TIME IN 17 YEARS MBarloewen@SingerLewak.com | 818.251.1329
The Auditing Standards Board (ASB), and the Not-for-Profit (NFP) Guide Task Force, released a new comprehensive revision of the Audit and Accounting Guide Not-For-Profit Entities in April 2013. Updated as of the effective date of March 1, 2013, this is the first comprehensive revision of the guide since 1996. Relevant AICPA literature has been incorporated, and the authoritative auditing content of the guide has been fully conformed to changes resulting from the ASB Clarity Project. The AICPA Auditing Standards Board, Financial Reporting Executive Committee, and Not-For-Profit Guide Task Force have revised the guide, making significant enhancements to improve user understanding and minimize diversity in practice. The new content is a result of hundreds of questions submitted to the AICPA Help Line, incorporation of the authoritative guidance of the FASB codification, incorporation of non-authoritative guidance 7 | SingerLewak
Enhancements have been made to improve user understanding and to promote uniformity in practice, including the following: • General auditing guidance in chapter 2, have been conformed to the Clarity project including NFP –specific guidance (e.g. fraud risks specific to NFPs) Other guide chapters have NFP suggested audit procedures related to the chapter’s topic. from Financial Reporting Executive Committee (FinREC) conclusions, and incorporation of relevant non-authoritative AICPA literature such as NFP related technical questions and answers and the AICPA white paper on fair value measurement. Members of the AICPA staff and the Not-for-Profit Expert Panel participated in a discussion regarding the new Audit and Accounting Guide. The discussion has been archived as a podcast and is available at the AICPA Insights Blog.
Relevant AICPA literature has been incorporated, and the authoritative auditing content of the guide has been fully conformed to changes resulting from the ASB Clarity Project • An expanded section in chapter 3, “Basic Financial Statements and General Financial Reporting Matters,” about reporting relationships with
other entities. This chapter provides guidance and examples for reporting relationships with not-for-profit and for-profit corporations, limited liability partnerships, general partnerships, and financially interrelated entities. • New sections in chapter 5, “Contributions Received and Agency Transactions,” about reporting and measuring noncash gifts, including gifts-in-kind; contributions of fund-raising materials, informational materials, advertising, and media time or space; below-market interest rate loans; and bargain purchases. • A new chapter on programrelated investments and micro-
finance loans. • A greatly expanded section in chapter 10,“Debt and Other Liabilities,” about municipal bond debt, including IRS considerations, third-party credit enhancements, capitalization of interest, extinguishments and debt modifications, and the effects of terms (such as subjective acceleration clauses) on the classification of debt. • New guidance in chapter 11, “Net Assets,” for reporting on the expiration of donorimposed restrictions. • Greatly expanded discussion in chapter 15, “Tax Considerations,” about the legal and regulatory environment in which NFPs operate.
• In addition, for assets and liabilities that are unique to NFPs, suggestions for audit procedures an auditor might consider as a supplement to the risk assessment procedures. If you have any questions about the above revised sections or anything pertaining to the new AICPA guide please don’t hesitate to reach out to me at any time at MBarloewen@SingerLewak.com. MIKE BARLOEWEN CAN BE REACHED AT MBARLOEWEN@SINGERLEWAK.COM OR 818.251.1329
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