The Journal Entry - January, 2014

January

2014,

Vol.

I

|

The

Nonprofit

Issue

Moving Waters at The Loveland Living Planet Aquarium Shalaun T. Howell, CPA www.uacpa.org the journal entry | January 2014

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Mission,Vision,Values

ExecutiveBoard

Mission

president.............................................. Kent L. Thomas president-elect...................................... Paul O. Skeen vice president........................................ Jonyce Bullock secretary................................................... Mark Palmer treasurer................................................. Kyle J. Pexton member-at-large................................. Hollie S. Andrus immediate past president..................... Roger Beynon AICPA Council..........................................Dan Griffiths ceo......................................................... Susan A. Speirs editorial staff........................................ Amy Spencer

The UACPA Leadership supports and challenges members through advocacy, professional education, leadership development, networking, and community service, to help them succeed in a competitive and changing world.

Vision At the UACPA, our vision is to be a world-class professional association essential to our members.

We unite a vibrant community of CPAs to enhance the success of our members and champion the values of the profession; Integrity, Competency, and Objectivity.

Values Advocacy The UACPA represents the profession at the legislature and other regulatory bodies and promotes the value of the CPA to employers, the business community, and the public at large.

Leadership & Service The UACPA provides leadership and service within the profession, within the UACPA and within the community.

The Journal Entry is published quarterly, by the UACPA 1240 E. 2100 South, Suite 500 Salt Lake City, UT 84106 tel: 801-466-8022 toll-free in Utah: 1-800-676-2776 e-mail: mail@uacpa.org or log on to www.uacpa.org Send address changes to UACPA 1240 E. 2100 South, Suite 500 Salt Lake City, UT 84106 email: membership@uacpa.org or log on to www.uacpa.org to update your address and member profile online

Professional Development The UACPA supports and encourages continuing education and leadership development.

Cover - Brent Andersen, CEO and Gary Christensen, CFO at the new Loveland Living Planet Aquarium Cover photo - Kristan Jacobsen, kristanjacobsen.com

Professional Community The UACPA reinforces peer accountability to encourage members to maintain integrity and high ethical standards. We ​​ provide member to member networking opportunities and networking opportunities with other professions. We value belonging to a distinguished organization and believe that we serve as the primary resource and point of contact for Utah CPAs.

UACPA Statement of Policy CPAs have common problems and interests. This magazine has been created to share information relating to the practice of accounting.

The opinions, views and articles expressed in this magazine are not necessarily those of the Utah Association of Certified Public Accountants. This magazine should not be deemed an endorsement by the UACPA or its committees or editorial staff of any views, opinions or

Diverse Population Outreach

positions contained herein. Because of the complexity of tax laws and

The UACPA believes in reaching out to under-represented populations, those returning to the profession or choosing it as a second career, and other professions.

accounting transactions and the changing status of the law, as well as variations in practices and procedures among accountants, information in the magazine should not be used, acted or relied upon, as a substitute for independent accounting or legal research and advice.

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the journal entry | January 2014

in this issue | January 2014

feature story

The Loveland Living Planet Aquarium Makes a Splash

127

New Members............................................................................................4 Movers & Shakers......................................................................................5 President's Message ..................................................................................6 Message from the CEO............................................................................. 7 Cover Story: The Loveland Living Planet Aquarium............................8 By the Numbers: Nonprofits in Utah.................................................... 14 How CPAs Can Help Nonprofits Achieve Their Mission................... 15 Accounting for Change at Repertory Dance Theatre......................... 18 Funds for Fur at Best Friends Animal Sanctuary ............................... 21 Celebrating 100 Years of Boy Scouts in Utah.......................................24 Speed Mentoring and The Community Foundation..........................28 A Commitment to Caring at SDCH.....................................................30 Potential Tax Consequences with Non-Profits ...................................32

How Nonprofits Benefit from CPAs

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Nonprofits and Potential Tax Issues

32

Practice Management: The Inverted Pyramid.....................................35 Conflict of Interest and CPAs................................................................37 Meet a Member: Stacy Weight...............................................................39 AICPA Meetings of Council Report.....................................................40 Event Photos, Winter Conference.........................................................42 UACPA Member Activities....................................................................43

Meet a Member: Stacy Weight

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Education..................................................................................................44 the journal entry | January 2014

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New Members/ Movers & Shakers

NewMembers Congratulations to the following individuals/CPAs who were approved for membership or affiliate status in the UACPA as of November 21, 2013.

Ryan Anderson

Fellows

Ariane Gibson Utah State Auditor’s Office

Student Affiliates

Jill Aoki Ernst & Young LLP

David Glenn Hawkins Cloward & Simister, LC

Montana State University – 1

Adam Bagley Ernst & Young LLP

Colby Greene

Jeff Barney Stayner, Bates & Jensen, PC Bryan Bostrom Squire Cameron Calder Wisan, Smith, Racker & Prescott, LLP Cody Cardon Wood, Richards & Associates

Brandon Hayes Lewiston State Bank Daniel Johnson Deloitte & Touche LLP Darren Labrie Rancho Cordova, CA Kimberlee Larsen PricewaterhouseCoopers LLP Jaydene Love

Brent Carlson Progrexion Holdings, Inc

Michelle McBride Cambric Corporation

Jason Chatterley

Diane Perusse e-Accounting Department

Reuben Cook Squire Jamie Cypers Mumford Gordon, P.C.

Richard Sowles Wisan, Smith, Racker & Prescott, LLP

Yanping Ding

Ross Wilson Wilson Consulting

Scott Easthope

Alan Woodall

Jared Funk

Kimberly WoodheadErnst & Young LLP

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Kaplan University – 1

Southern Utah University – 1 University of Phoenix – 1 University of Utah – 16 Utah State University – 2 Utah Valley University – 4 Weber State University – 3 Western Governors University – 1 Westminster – 2

Movers & Shakers

Movers&Shakers Charley Shumway, CPA has joined Piercy Bowler Taylor & Kern's Salt Lake City office as a Principal in the firm's tax department.

Shumway has more than 18 years of experience specializing in tax return preparation and consulting services for multi-tiered Charley Shumway partnerships and family-owned businesses. Shumway received a Master's and Bachelor's degrees in accounting from Southern Utah University.

Reed W. Chase, CPA has been named as an Audit Partner at Tanner LLC. Chase, who earned his Bachelor's and Master's degrees through Weber State University, brings more than 12 years of experience serving public and privately held companies. Chase currently serves as a board member and Reed W. Chase President Elect of the Mountain West Capital Network and is on the Advisory Board of the Weber State University School of Accountancy.

Mark Nichols

Mark Nichols, CPA has been appointed as an Assurance Partner at PricewaterhouseCoopers LLP. Nichols brings more than 19 years of auditing experience. He received his Bachelor's and Master's degrees in accounting from Brigham Young University. He is active in the community and serves as Chairman on the board for Special

Olympics Utah.

Squire & Company celebrated their 40th anniversary in October. To say thank you to their community for the support, the team at Squire participated in a highway cleanup on a section of University Parkway. Tim Larsen, managing partner says, "It's a testament to our truly excellent staff, our clients and the community who have caught the Squire vision of professionalism, service and higher perspective."

CBIZ MHM, LLC Names Clair A. Rood Senior Managing Director Clair A. Rood has been appointed as Senior Managing Director of the Utah office of CBIZ MHM, LLC, the financial services division of CBIZ, Inc. Rood has been with CBIZ for 14 years and has served as Tax Clair A. Rood Practice Leader for the office, contributing significantly to the growth of the tax practice. As Senior Managing Director, Rood will be responsible for the day-to-day operations of the office, including personnel and financial oversight. He will leverage his experience growing the tax practice to leading overall growth initiatives for the office. He will continue to maintain some client service responsibilities in addition to this new leadership role.

With almost 30 years of accounting experience, Clair has provided tax and advisory services to both privately and publicly held companies as well as individuals. He also has extensive experience assisting start-up companies with tax compliance and planning issues, as well as advising small and medium-sized businesses on complex tax issues such as entity selection, business succession planning, tax credits, compensation and ownership.

Rood is a member of the AICPA, the UACPA, and has served on the UACPA Tax Symposium Committee and UACPA Winter Conference Committee. He is a board member of the Mountain West Capital Network, Treasurer of the Utah Chapter of Associated Builders and Contractors, and a member of the Association of Corporate Growth. Rood is a founding officer of the Agora Automotive Alliance and an associate member of the New Car Dealers of Utah. the journal entry | January 2014

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President's Message

President's Message

CPAs are uniquely prepared to help with nonprofits

Kent Thomas, CPA

W

ith this issue focused on notfor-profit entities, I decided to share my thoughts on how a not-forprofit business should think about its accounting, financial reporting and decision-making. The truth of the matter is that not-for-profit businesses have much in common with for-profit businesses. Here are some examples: • The vast majority of for profit and not-for-profit businesses are “small businesses.”

• Both commonly complain that unpredictable revenue streams and cash flow management are two of their most pressing financial issues.

we serve as the outside advisor or the internal accountant for a not-for-profit business, we have the ability and the responsibility to provide the kind of information that will actually impact key management decisions. The fact that there appears to be a significant gap between what management needs and what they are receiving also indicates a large opportunity for those who are prepared to step in and fill the need.

Historically accountants were trained to — and believed themselves successful if they did — produce timely and accurate financial statements. While this is still an important part of the account’s responsibility, it is not sufficient. Today’s accountants add real value only when they produce information and analyses that positively impact management decisions.

• Both frequently do not have access to the kind of financial information that they need to make important decisions because either management does not Here are a few ideas for CPA’s to add know what information they need real value to not-for-profit manageor they lack the financial experment teams: tise required to get this level of information.

1. Budgeting and planning guidance, including: • During the great recession (2008 - 2010) more than 250,000 small a. Short to long-term cash flow businesses in the U.S. closed their forecasts that help managedoors – in Utah this included 38% ment anticipate and prepare for of all not-for-profit business! This “lumpy revenue” streams. is a shocking statistic that could have been reduced had the busib. Creating an operating cash nesses had better information and reserve (rainy day fund) with advice to manage their decisions. a minimum of three months operating expenses set aside.

I hope it is obvious how this information applies to us as CPAs. Whether 2. Compliance with reporting 6

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requirements. Not-for-profit businesses can have their “nontaxable exemption” cancelled if they do not file timely and accurate state and federal tax/information returns. If this occurs, the lack of timely filing will most likely lead to the failure of the entire enterprise.

3. Teach management what they don’t know. You can follow the example of my friend Fraser Nelson, who, through the Community Foundation of Utah where she serves as CEO, periodically organizes a summit that provides an opportunity for not-for-profit businesses to receive free mentoring from successful business people in the community (Read the story on page 28). This is a part of her efforts to strengthen this important segment of the economy. (My personal thanks to Fraser for willingly sharing statistics about Utah’s not-for-profit ecosystem and her experiences for this article.)

Clearly there are more opportunities for us to help our not-for-profit employers or clients — I’ll leave the rest to the reader’s imagination! The most critical point is that an important and significant segment of our economy is being underserved and as CPA’s, we are uniquely prepared to help resolve the endless challenges not-for-profits face.

Kent L Thomas, CPA UACPA President

CEO’s message

CEO's Message Nonprofits are changing and we encourage you to get involved

T

he last couple of years have brought many changes to the nonprofit sector of our economy in Utah. We’ve seen many nonprofits merge and combine efforts to accomplish their missions and we’ve seen a startling 38% close their doors. We are truly in a time where our profession is needed more than ever to steer entities to strategic and fiscal savvy.

Over the last several months, we’ve had the opportunity to digest and implement tactics and strategies that the UACPA's Leadership Council suggested during our meeting last August. We’ve taken the opportunity to review the mission statement of the UACPA and align our programs, education and community outreach to serve the statement which in turn serves our members.

to give it a try!

While CPE is a major component of membership in the UACPA, we’re beginning to see tides shift to an arena where there are significant intangible components of membership.

Increasingly, we’re finding ourselves on the advocacy side of the profession and the citizenry of the state We’ve been more involved with the legislative process in recent years with regards to topics like “Should we apply sales tax to professional services?” or “what are the fiscal implications if we lower the state income tax rate?”

It has become common for a legislator or a city or local leader to call our office to discuss or ask where they can find Many members ask: Why be a member of the UACPA? a CPA to help them understand the “what-ifs” of poten“What are the benefits of being a member?" and "What tial policy change or legislation. UACPA members can be value do I get from membership?" are questions I’ve heard counted on to converse with our community leaders, legislaoften. In the past, the easy answer would be that we are the tive leaders and policy makers. Because of our member's premier provider of CPE. However, in recent years, many expertise, we’ve been able to work with our legislature and vendors have entered the CPE market providing different table possible regulations before they hit the ground or make products at lower costs and even free. Our association carries adjustments to current regulations so they are not so arduCPE programs that you can complete from your home in ous to implement. Our profession is becoming a more visible your pajamas or self-study programs in a classroom setting force, not only up on the hill but in the community, and where you can network and glean ideas from fellow CPAs. we will continue to become an important stakeholder to be We organize several conferences during the year — your listened to within our state. membership could save you approximately $700 in registration fees for conferences alone. Beginning in 2014, we will My challenge to you is that you find something within the provide our members in rural areas a self-study classroom profession that you’re passionate about and lend a helping experience via Webcast. Members will be able to participate hand. The UACPA staff can guide you to getting involved. online and interact with other members of the class, asking Give us a call at 801.466.8022 or email me at ss@uacpa.org. questions and participating in discussions. I encourage you the journal entry | January 2014

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President's Message

Brent Anderson (right), CEO of The Loveland Living Planet Aquarium, shows CFO Gary Christensen the details of the new facilities.

Photos by Kristan Jacobsen.

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Navigating Nonprofit Growth at the Loveland Living Planet Aquarium How working together helps make dreams become reality By shalaun T. Howell, CPA

Feature story

W

hen Brent Andersen was 5-years-old, growing up in Salt Lake City, Utah, his grandmother gave him a Time Life book about the sea. The hours he spent reading turned into years of fascination with the underwater world.

Brent earned a degree in Marine Biology from University of California, Santa Barbara. Finding marine biologist jobs few and far between, however, Andersen took a job as a biochemist. With the ocean view just a few hundred yards from his window, Brent could not forget his childhood passion for the sea. He began to envision the benefits of bringing an exciting underwater adventure to his landlocked home town of Salt Lake City. In 1998 Brent decided that his dream was important enough to leave everything behind and start anew. He moved back to Salt Lake City and formed the nonprofit organization, The Living Planet.

The Living Planet began humbly as an “Aquavan,” which toured educational exhibits to Utah schools. In 2004 the organization tested the waters with a “Preview Exhibit” in a 10,000 square foot space at The Gateway Mall. Annual attendance grew to more than 150,000 per year. Two years later the exhibit outgrew its space at The Gateway and relocated to a 43,000 square foot space in Sandy. Now the Chief Executive Officer, Brent Andersen was anxious to build on the exhibit’s momentum and bring his vision of a world-class aquarium to life, but he lacked the necessary support. In 2007, Andersen decided to invest in a strong management team that could help him develop the trust and support he needed from the community. He began by hiring Certified Public Accountant Gary Christensen.

Christensen, a Wisconsin native, joined the aquarium as Chief Financial Officer with more than 15 years of public accounting experience. Having served both nonprofit and for-profit clients, Christensen's skill set was well suited to an enterprise-based nonprofit like The Living Planet. Over the next several years, Christensen helped strengthen the organization by developing systems, smart growth, and forprofit thinking within the organization.

Systems With support from the CEO, Christensen developed financial policies and procedures to safeguard the organization’s assets, ensure accurate financial reporting, and improve decision making. Central to these procedures was a cycle of evaluation, planning, implementation, and review that now the journal entry | January 2014

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pervades all functions of the organization. A formal budgeting process was implemented using three-year rolling projections. Weekly meetings were established with management and line directors. Financial performance evaluations were incorporated into board meetings. With these systems in place, the organization made well-informed decisions and anticipated and responded to challenges with greater focus and direction.

When the marketing team noticed stagnation in membership numbers, for example, it ran a deeply discounted promotion through a popular online service. Sure enough, membership numbers increased dramatically; but, was the promotion truly successful? A cross-functional review of the promotion showed that the discounted memberships were not profitable and the participating customers renewed their memberships less frequently than expected.

Management could see that promotions like this trained customers to wait for deep discounts and diminished the perceived value of the product. In response, the organization decided to bring its promotions in-house, focusing on long-term incentives and product bundling. These valuebased promotions have yielded higher profits and increased membership renewal rates.

Smart Growth Christensen encouraged the CEO to shift his plans from a rapid major expansion to what he termed “smart growth.”

On the heels of three aquarium failures in the United States, the organization’s first bid for a major aquarium in downtown Salt Lake City had been unsuccessful. Management and the board were frustrated. The “smart growth” plan grew the organization by developing widespread public support through a consistent conservative track record.

They started small by planning a new exhibit called "Journey to South America," featuring giant anacondas, piranhas, poison arrow frogs, and Amazon giants. The organization solicited donations and secured commitments for increased credit from financial institutions. The "Journey" exhibit showed donors, creditors, customers, and the community that The Living Planet could be trusted to use funds to successfully build world-class educational exhibits.

Over the next several years, the organization followed the same pattern, adding Penguin Encounters, Animal Superheroes, and the North American River Otter exhibits.

Christensen incorporated conservative attendance and rev10

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CFO Gary Christensen has promoted "smart growth" to help the aquarium become a success in Utah.

enue estimates into all short- and long-term growth plans.

The volunteer base grew from a handful to more than 1,000.

The organization hired a dedicated development director and volunteer coordinator. Management encouraged staff and volunteers to take responsibility for the growth of the organization. By 2012, the aquarium in Sandy had become one of the highest attended cultural facilities in Salt Lake County with almost 500,000 annual visitors.

For-Profit Thinking One of Andersen’s mentors told him early on that “nonprofit is your tax designation, not your business strategy.”

Succeeding on the world-class scale that Brent envisioned would require the nonprofit organization to think like a forprofit company. Mindful of Andersen’s enterprise philosophy, Christensen worked with management to control costs, develop program service revenues, increase efficiency, and invest in the organization’s support functions.

Cost Control

The team scrutinized expenses at all levels. They challenged existing assumptions, rejected unnecessary spending, and found lower-cost alternatives. Their solutions ranged from successfully appealing a glaring

Feature Story The shark tube is one of the new features at The Loveland Living Planet Aquarium.

property tax bill to developing a strong in-kind donor base, receiving significant donations of construction services to build new exhibits.

Program Service Revenue Development

Growth in the number of nonprofits in the U.S. coupled with continued stagnation in the economy has significantly increased competition for donor dollars. The Living Planet made a goal to self-fund its aquarium operations through admissions, memberships, and other program services. The organization expanded its experience-based program services, including animal feedings and encounters, to help reach this goal. Selffunding the aquarium’s operations for several years allowed the organization to build up reserves to invest in a new facility when the opportunity came.

Efficiency

As the organization’s growth began to strain its existing processes, Christensen worked with management to improve operational efficiencies. They determined that the organization would be best served by focusing on its core mission — to inspire people to explore, discover, and learn about Earth’s diverse ecosystems.

They invested the organization’s resources in improving operations. After extensive research, the organization implemented a new ticketing software, the same used

by Disney and some of the country’s largest aquariums.

The new software’s ease-of-use improved daily aquar-

ium operations and provided better information for decision making. The organization also refocused on its mission by deciding to outsource non-core functions, including the gift shop and café. Christensen researched potential vendors and negotiated contracts. He also ensured that the organization would retain integrated access to customer information by requiring vendors to use the same software.

Support Functions

The organization sustained its growth by dedicating substantial resources to support functions, despite the pressure nonprofits receive to suppress these costs. The organization consistently invested a predetermined percentage of its aquarium admissions into marketing, using a variety of customary channels, Internet, and social media. Sometimes this meant experimenting and taking risks. Recently, Gary was instrumental in evaluating, selecting, and implementing a knowledge management system. This system integrates with the new ticketing software and allows the organization to perform intensive data mining on visitor patterns. For example, the system revealed that member gift shop spending significantly declined after the second visit.

Emailing a targeted promotion just before the expected third visit could increase revenues. The system can also overlay weather forecasts to estimate visitor volumes and adjust facility staffing to optimize operations. the journal entry | January 2014

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CFO Gary Christensen works with the nonprofit's external auditor Shalaun Howell — both are members of the UACPA nonprofit committee.

Relationships Perhaps one of the most valuable assets Christensen has provided to The Living Planet is the relationships he has forged because he is a Certified Public Accountant.

Industry Chief Financial Officer Group

Christensen participates in a network of U.S. Aquarium CFOs, interacting with CFOs from some of the country’s best aquariums. The group shares information, such as monthly attendance figures and what is or is not working for their aquarium. This relationship has helped the organization to identify and implement the industry’s best practices as it has grown.

A popular attraction in aquariums across the country is a 4D Theater, which combines a 3D film with physical effects such as vibrations, air jets, rain, and smells.

When The Living Planet decided to incorporate a 4D Theater into its growth plan, Christensen was able to

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draw from the experience of other aquariums to help assess vendor, system, and content options.

When management needed help in establishing the aquarium’s pricing plan, the CFO’s network was able to refer Christensen to an experienced market research company. This market research company surveyed thousands of people, fed the information into a supercomputer at Caltech, and performed detailed quantitative analysis to identify optimal pricing.

Utah Association of CPAs

Christensen is a member of the UACPA and serves on their Nonprofit Committee. When he began at The Living Planet, Christensen found himself without all of the resources that he was used to having at his fingertips in a public accounting firm. He was grateful to be able to use the UACPA’s resource library to brush up on nonprofit accounting. He also lauds the UACPA for being his primary source of Continuing Professional Education. As a member of the UACPA’s Nonprofit

Feature Story Committee, Christensen can call on 15 of the state’s most experienced nonprofit CPAs to help him tackle nonprofit tax or accounting issues.

External Auditors

With a background in public accounting, Christensen believes that, in many ways, external auditors are part of an organization’s financial team. In selecting The Living Planet’s external auditor, Christensen looked for extensive experience with nonprofit clients and, more specifically, with the major grants that the organization receives. Investing up front in the selection process has meant that Christensen hasn’t had to worry about the auditor’s learning curve. When difficult issues such as UBTI, promises to give, or deferred revenue have come up, an e-mail to his independent public accounting firm yields Christensen a second opinion accompanied by excerpts of authoritative guidance and years of experience working with similar organizations.

Board CPA

Certified Public Accountants both gain and share invaluable experience by participating on nonprofit boards. Over the years, Christensen has served on several nonprofit boards in Utah and his home state of Wisconsin. This experience helps him understand the board’s operational concerns, informational needs, and financial oversight role.

The Living Planet has benefited from having Certified Public Accountant Kent Bowman serve on its board.

Bowman’s presence lends the board the additional credibility and trust associated with the CPA certification. Bowman is instrumental in helping Christensen educate the board on important financial matters; and, with years of public accounting experience at two Big Four firms and Tanner LLC, he serves as Christensen’s sounding board for difficult accounting issues.

Bringing the Dream to Life CEO Brent Andersen’s dream to create a world-class aquarium in the desert came true in January 2014 with the opening of The Loveland Living Planet Aquarium in Draper, Utah. With more than 136,000 square feet, the new facility triples the aquarium’s space. It houses over 15,000 animals, including penguins, river otters, and new additions

such as sharks, octopuses, sea turtles, and jellies. Visitors are surrounded by realistic rockwork and stunning murals that bring the animals’ diverse habitats to life. To learn about piranhas and anacondas, visitors enter a two-story rainforest with free-flying tropical birds; to learn about Utah’s native species, visitors enter a red-rock slot canyon. The new facility also includes in-tank clear acrylic tunnels, Utah’s first 4D Theater, banquet facilities overlooking a 375,000 gallon shark tank, dedicated student education rooms, a gift shop, and a café. The organization estimates that more than $2.6 million in tax revenues will have been generated for the state from construction through the first year of operations.

Although the new facility was primarily funded by city financing, grants, and donations, a significant amount of funding came from reserves generated by the organization’s operations. Its construction is being celebrated as one of the most affordable aquarium builds of its class; and, the organization has already been approached by aquariums around the country soliciting advice on how to affordably build using The Living Planet’s model.

Looking back over the past seven years, Christensen is amazed by the unexpected path he’s travelled — he’s moved from the Great Lakes of Wisconsin to the Great Salt Lake of Utah, worked longer hours in industry than he ever did in public accounting, and helped build an aquarium in the desert. Christensen finds working for The Living Planet intensely rewarding. It has been a satisfying journey to help grow the aquarium from one man’s dream to an educational oasis for the community. Most of all, as he vies for parking with hundreds of parents and children and walks past thank you notes from school classes posted on the halls leading to his office, Christensen knows that he is part of something that is touching others’ lives. ■

Shalaun T. Howell, CPA is an audit manager specializing in nonprofit organizations at Shaw & Co., P.C. Shalaun holds a Bachelors of Science and Master of Professional Accountancy from the University of Utah and currently serves as the chair of the UACPA Nonprofit Committee. She can be reached at shalaun@shaw-cpa.com

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by the

Numbers

These numbers reflect nonprofits in Utah as provided by the Utah Nonprofit Association, utahnonprofits.org and IRS 990 Data, August 2013

Nonprofits in Utah

67

percentage of nonprofits serving along the Wasatch Front

40.9

5

percentage of Utah Gross State Product Revenue constituted by nonprofits

percentage of Utah residents who volunteer, ranking them 1st among the 50 states and Washington, DC

3,200+

Number of 501(c)3 nonprofits actively serving Utah's communities

8 Number, in millions of dollars, 171.9 Utah foundations gave in 2010 Number of Utahns employed 63,600 by nonprofits in 2010

billions of dollars Utah's nonprofits are responsible for in annual revenue

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How CPAs Can Help Nonprofits Achieve Their Mission

By Chris Bray and J. Steven Ott, Ph.D

A

501(c)3 nonprofit organization is similar to other businesses in many aspects. They need strong leadership, marketing, human resources, effective programs, outcome measurements, funds to achieve their mission, and competent accounting and financial services. There are also some major differences: First, they are not in business to increase shareholder worth, but to achieve a mission. Second, if they cease to operate, their assets are distributed to other nonprofits, and third they are governed by a volunteer board of directors that is held accountable by the IRS and the community to determine if the nonprofit is working toward achieving its mission.

Every nonprofit board would be well served to have an accountant as an advisor or as a member to ensure funds are being used efficiently, effectively, transparently, and that proper financial procedures are in place.

Nonprofits are Important Quality of Life Anchors and Service Providers: Nonprofit organizations build strong and healthy communi-

ties. Nonprofits help people to live — and do something about — causes and issues people are passionate about or to share uplifting experiences with people beyond their families and workplace. There are very few things in our community that you or I can do alone. Nonprofit organizations provide places where like-minded people gather to protect bald eagles, assist the elderly or disabled, bring smiles to the faces of children with deadly diseases, experience rare art, feed the hungry, or help children succeed in school. Without nonprofit organizations, our communities would be incomplete.

Economic Catalysts: It is easy to overlook the importance of nonprofits. They are so much at the core of our lives that we often overlook them and seldom stop to think, “This is a nonprofit organization.” For example: • More than 3,200 501(c)(3) charitable nonprofits are actively serving Utah’s communities; • They are involved in a wide range of endeavors, for example in the arts and culture, children’s education, the journal entry | January 2014

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How CPAs Can Help Nonprofits Achieve Their Mission higher education, the environment and animals, healthcare, a wide range of human services, advocacy, international connections and relations, and religion; • 67% are located along the Wasatch Front and 33% serve the rest of the state • They contribute more than 5% of Utah Gross State Product Revenue and 5.5% of the total workforce – more than Utah’s construction, transportation, publishing and utilities industries combined!

• 25% of Utah’s nonprofits are in the human services — the largest nonprofit category in Utah.

• Utah nonprofits generate $8 billion in annual revenue.

Note: None of this data includes religious organizations, which means the total impacts of nonprofits in Utah is enormous!

Nonprofits partner with government agencies and businesses. By leveraging the commitment of engaged volunteers and diversified funding streams, nonprofits often can leverage outcomes 10 times greater than our partners can working alone. Together we make our vision of strong and vibrant communities in Utah a reality.

Together, we are stronger, have more impact, and can make big things happen throughout Utah.

Nonprofits partner with government agencies and businesses. By leveraging the commitment of engaged volunteers and diversified funding streams, nonprofits often can leverage outcomes 10 times greater than our partners can working alone. Together we make our vision of strong and vibrant communities in Utah a reality. Together, we are stronger, have more impact, and can make big things happen throughout Utah.

Many of you are already involved with nonprofit organizations, so you know at least some of the reasons why business involvement with nonprofits is on the rise. Every 16

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business, business woman, and business man has reasons, and they vary. Here are some examples: • Develop Leadership. Service on nonprofit boards of trustees and committees is an important opportunity to develop leadership skills among rising executives. Board members can learn how to identify difficult organizational challenges, assess strategic options, present action options effectively, and build coalitions and consensus among diverse board members — skills that are difficult to develop in training programs.

• Engage in Team Building. When employees volunteer to work together on a community project, it can be an effective team building exercise. For example, on “Days of Service,” employees may work shoulder-to-shoulder painting homes, picking up trash along the Jordan River, building homes through the Habitat for Humanity, or build or rebuild a playground. This type of activity allows employees who may be in non-challenging jobs to emerge as leaders.

• Enhancing an Appreciation of Diversity. The road is paved with businesses that have failed at having a homogeneous group try to create a new market or to serve a heterogeneous group of customers well. By volunteering with a nonprofit that serves new immigrants, or children with disabilities or cancer, associates can come to appreciate the power of motivation when people are facing adversity.

• Fostering Loyalty to the Firm through Service to Community. When =employees see their company investing in and supporting their community and its citizens, most feel pride. This benefit is important enough that many companies provide paid time-off for employees to volunteer. They may also make a financial contribution to nonprofits where their employees volunteer.

• Building Visibility and Good Will in the Community. By reaching out into the community through nonprofits, firms, partners and associates build a reservoir of recognition and good will. Employees who volunteer are recognized at public events, in the media, and by colleagues.

• Promoting Economic Development. Business firms need an educated and healthy workforce, quality child care for employees, pleasant and reliable providers for

nonprofit aging parents, services for spouses and children with mental illness and substance abuse problems. Business firms also want vibrant performing arts and cultural opportunities for employees and customers.

When you see these benefits in action, you see how working with nonprofits strengthens a business — and also a community. The next logical question is how do you make something happen? There are many choices depending on what you want to accomplish and how deeply you want to get involved with nonprofit organizations.

Studies and experience show that businesses experience the greatest benefits from partnering with a nonprofit organization. Here are some ideas for your organization to take UNA’s Community Impact Challenge: • Your company is strategic in choosing to work with an organization whose cause has some tie to your mission. Align the selection of your partner organization(s), issues and the type of partnering with your company’s mission and markets. Do not spread your involvement thinly or without careful analysis and planning.

• Your associates and partners have a voice in choosing the nonprofits to work with and how.

• Have an identified person in your company who is the primary contact with nonprofit organizations interested in charitable contributions or volunteer services. She may be in the HRM department or a line executive.

• Spread the word. Invite vendors and customers to match your company’s efforts. Let your newsletter readers and social media followers know about your projects.

• Devote a section of your company’s website — or the employees’ section of the website — to community partnerships, charitable contributions and volunteer activities.

• Offer a Gift Matching Program. Match the charitable contributions of employees to qualified nonprofit organizations. A word of advice: Include the maximum amount you will match when announcing a gift matching program.

• Support the Utah nonprofit sector with charitable contributions to strategically selected nonprofit organizations – one-time or, better yet, on-going.

More Information and a video can be found at https:// utahnonprofits.org/marketplace/community-impactchallenge We invite you to get involved with a nonprofit. Choose a nonprofit that you believe in and that provides services that you are passionate about. You can check out the Utah Nonprofit Association's Website to find a nonprofit you may be interested in at www.utahnonprofits.org The Utah Nonprofits Association will gladly help you get started. UNA is a professional association for nonprofits in Utah — much as UACPA is a professional association for Utah’s CPAs. UNA helps strengthen communities by strengthening their nonprofit organizations through training, technical assistance, advocacy, providing access to group insurance packages and reduced-cost access to professional services. ■

Chris Bray is the Executive Director of the Utah Nonprofits Association where she has been since 2012. She previously worked as the Program Director for Child Care Resource and Referral at the same agency for more than 10 years. She has a Masters Degree in Management and Leadership from Webster University. She can be reached at cbray@utahnonprofits.org

J. Steven Ott, Ph.D is a professor of Political Science/Public Administration and director of the University of Utah's Institute of Public and International Affairs. He was Dean of the College of Social and Behavioral Science from 2000 - 2009. He was an executive with a Denver, Colorado-based management consulting firm for 26 years where he worked with nonprofit organizations.

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Accounting for Change at Repertory Dance Theatre The Local Modern Dance company adapts to unplanned changes

By Joanna L. Johnston, CPA, MBA

W

hat is Modern Dance? As a board member for Repertory Dance Theatre for more than five years, I still have difficulty answering that question. My typical response is “Modern dance is an emotional, free-flowing dance style that needs to be experienced. Please join me at a performance. You won’t be disappointed.”

and choreographic theories. Today, modern dance encompasses a wide variety of influences including African-American dance, jazz, ballet, and traditional cultural dances from across the globe. It is now an international art form.

Repertory Dance Theatre (RDT) was founded in 1966 through a cooperative effort between the Salt Lake City dance community, the University of Utah, and a major grant from the Rockefeller Foundation. Virginia Tanner, a respected educator and director of the Children’s Dance Theatre, dreamt of having a professional company of dancers dedicated to the performance, creation and preservation of American modern dance. As a founding member of the company, Linda C. Smith has strived to fulfill that dream, first as a dancer, and now as RDT’s Executive/Artistic Director. As a result, RDT, in residence at the Rose Wagner Performing Arts Center in Salt Lake City, has become both a museum and contemporary gallery of modern dance.

Modern Dance was born in the early 20th century. Early modern dancers broke away from classical ballet and other forms of “academic” dance. They focused on “self-expression” and created movement to communicate the energy, the society and sometimes the politics of the 20th century.

Costumes became less restrictive; dancers frequently performed in bare feet and were not afraid to show the effort in creating movement. In the 1930s, pioneers such as Martha Graham focused on muscular contraction and release, resulting in movements that were sharp, jagged and “fraught with inner meaning, with excitement and surge.” Other choreographers such as Doris Humphrey, José Limón, Merce The “storefront” for many performing arts groups includCunningham and Twyla Tharpe are known world-wide for developing their own individual movement languages, styles, ing RDT is public performances. However, there is so much more to the company than meets the eye. RDT’S Commu18

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nonprofit nity outreach programs include adult dance classes ranging from Flamenco and Jazz to African and Ballet. Summer workshops offer high school and college students opportunities to dance and create with nationally renowned choreographers. Ring Around the Rose is a monthly series of interactive performances targeted toward families to encourage understanding and appreciation for the arts. Through Arts in Education programs sponsored by the Utah State Office of Education, each year RDT dancers visit 25,000 students in elementary schools across the state demonstrating the interaction between art, history, ecology and cultural diversity through dance. Students learn new concepts in problem-solving through movement and are presented with new avenues of awareness that can improve self-confidence and provide opportunities for each student to create and explore. RDT’s extensive collections of dance works enable the dancers to tour the country throughout the year, providing national recognition for the company. Through its performances and outreach, RDT is telling America’s story in dance.

Like most arts organizations, RDT must compete with other performing arts companies and entertainment outlets for audiences, sponsors and donors. Throughout the last decade of economic downturns, RDT has needed to look for new ways to recruit and retain valuable corporate and foundation sponsorships. In addition, RDT has had to evaluate its financial position and cut expenses without cutting quality.

Several years ago the company reached out to the accounting community through the UACPA in an effort to recruit CPAs for its board of trustees. Three CPAs responded, and two are still serving on the board in executive positions.

Having CPAs on the board has proved to be an invaluable asset. Their awareness of current tax laws and GAAP standards have helped the organization obtain refundable small business health care credits, provide assistance with reporting issues, budget and plan for cash flow fluctuations, work with auditors throughout the audit process and act as liaisons with local and state agencies concerning public funding for the arts. The administrative staff for RDT is only five full time employees, and none are accounting professionals, so it is imperative to have CPAs on the board to advise and support the staff on financial and reporting matters.

Recently, RDT has had to confront an unanticipated succession issue. RDT’s bookkeeper for the last 13 years was diagnosed with a terminal illness in June 2013. Although the position was only part-time, she was responsible for

Throughout the last decade of economic downturn, RDT has needed to look for new ways to recruit and retain valuable corporate and foundation sponsorships. In addition, RDT has had to evaluate its financial position and cut expenses without cutting quality. recording all the financial transactions including receivables, payables, payroll and tax payments. She performed reconciliations and prepared financial reports for the administrative staff and the board. She was the only member of the staff who knew how to use the accounting software, print checks and prepare the financial information and reports. When Linda Smith, RDT’s Executive Director, became aware of the bookkeeper’s illness, the company was challenged and in need of current and accurate financial information for grant proposals and end-of-year reconciliation. There was a struggle to get the books caught up while attempting to advise other members of the staff and board treasurer how to use the software to record transactions, prepare reports and print checks.

RDT wanted to honor a dedicated employee’s years of service while recruiting a new bookkeeper. A smooth transition needed to be created to keep financial continuity in the interim. I was asked as the board treasurer to step in for a two-week period to get invoices recorded, payables paid and the journal entry | January 2014

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Accounting for Change at Repertory Dance Theatre

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With support from members of the UACPA, our goals are to: 1) Improve the quality of our community through good government 2) Assure that the UACPA is invited to the table on taxation, business policy and other relevant community issues 3) Have access to the decision makers in State Government when needed

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travel per diem checks printed for the dancers going out on tour, before another bookkeeper was hired and took over.

The transition is still a work in progress. RDT’s new bookkeeper is adjusting to new software and accounting methods that function differently. It will take some time before the financial process is running smoothly again, but with the help of experienced CPAs on the board, the succession is nearly complete.

This situation has demonstrated to the staff and board the importance of cross-training and information — sharing in a small non-profit organization. Going forward, a plan is being created to ensure that more than one person knows how to perform basic financial functions within the company, and that key personnel feel comfortable sharing those duties with other members of the staff. Currently the board and administrative members of the RDT staff are formulating a strategy that incorporates segregation of duties and contingency planning to ensure accurate financial reporting and financial stability. Meanwhile, the artistic staff continues focusing on the mission of the organization which is still, after 48 years, dedicated to the creation, preservation, performance and appreciation of modern dance.

Many people confuse the non-profit status of an organization with the organization’s goals to be profitable in order to achieve its mission. Incorporating skilled accounting professionals on the staff and on the board of a non-profit arts organization like Repertory Dance Theater help ensure financial continuity while enabling the artistic staff and performers to provide quality entertainment and educational opportunities to the community. ■ Photos of Rosy Goodman Tennant (main image) and Sarah Donohue by Christopher Peddecord Joanna L. Johnston is a Senior Tax Accountant with a passion for non-profit arts organizations. She is the Vice-President of Finance for the Utah Wind Symphony and Board Member and Treasurer for Repertory Dance Theatre. She has been a member of the Nonprofit Committee and the UACPA since 2007.

She can be reached at jljohnstoncpa@ hotmail.com

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Finances and Furry Friends Best Friends Animal Sanctuary Becomes the Largest no-Kill animal Shelter in the U.S.

By Benjamin Shaw, CPA and Kate Schnepel

T

he year was 1984. Prince was at the top of the charts, Ghostbusters was king at the box office, and Reagan was in the White House. And in remote Southern Utah, a diverse group of friends founded a no-kill animal sanctuary that would one day become the largest in the country and eventually evolve into a national organization with a mission of ending the killing of dogs and cats in shelters.

of those so-called “unadoptables” a safe haven in which to heal. With proper care and patience, the vast majority of these animals found loving families. The remaining animals spent the rest of their days romping in the new sanctuary.

That group of friends who cared so deeply about animals grew and flourished and became Best Friends Animal Society (“Best Friends” or the “Organization”).

It all began with the simple philosophy that every animal is an individual with intrinsic value, deserving of life. Created as a “home between homes” for hard-to-place or specialneeds animals, Best Friends Animal Sanctuary (the “Sanctuary”) was built on 3,700 breathtakingly beautiful acres of land in the red-rock canyons near Kanab, Utah.

Today, around 1,700 dogs, cats, rabbits, horses, parrots, pigs and other animals are given specialized, loving, individualized care at the Sanctuary on any given day. Many of them would have had little chance of life or adoption at traditional shelters, but at Best Friends they find a safe haven and the second chance for happiness that every homeless pet deserves. At the Sanctuary, each animal, regardless of special needs, receives the love, veterinary care and help to heal from a hard life’s journey and become ready for a new life with a loving adoptive family. And, if the right home doesn’t come along, they’re welcome to stay at the Sanctuary for the rest of their lives.

For so many animals, it was the beginning of a miracle. At the time, cats and dogs were routinely killed in America’s shelters as the primary method of controlling pet populations. Tragically, around 17 million animals perished every year. Older, sick and problem animals were the first to go.

Best Friends Animal Sanctuary was created to provide some

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Best Friends’ mission to end the killing of dogs and cats in America’s shelters is encapsulated in the Organization’s new call to action campaign, Save Them All™. Recognizing that achieving no-kill communities can only be achieved when like-minded organizations and individuals come together, Best Friends works collaboratively with other groups, governments, and individual animal lovers throughout the nation.

This collaborative ideal was put to the test when Hurricane Katrina struck in 2005. Recognizing that the Organization’s expertise in animal care would be valuable in rescue efforts, and that leadership was needed, a team was sent to New Orleans. Best Friends was the first national animal welfare organization on the ground in New Orleans, and the last to leave. The rescue operation generated media coverage across the country, garnering a major spike in supporters of the Organization.

Back in 1984, when Best Friends began, more than 17 million animals were being killed in shelters every year, simply because they didn't have a safe place to call home. Now that number is down to about 4 million. Incredible progress has been made, but much work remains to be done. Best Friends is committed to doing whatever it takes to reduce that number to zero.

When the Michael Vick dogfighting case captured headlines in 2008, many animal organizations believed that all dogs rescued from fighting busts should be killed. But Best Friends advocated on behalf of these dogs as individuals. In 2008, Best Friends welcomed 22 of the dogs rescued from Michael Vick’s Bad Newz Kennels to the Sanctuary. With care and love, they overcame their pasts, and 10 of the dogs have been adopted into loving homes. Dubbed the “Vicktory vices (LAAS), in a commitment to end the killing of healthy dogs,” they’ve helped change public perception about pit bull and treatable dogs and cats in the city’s shelters by 2017. Best terriers and have given many other victims of animal cruelty Friends provides NKLA partner organizations with adoption the chance to begin new lives. subsidies for placing city shelter animals, along with grants for spay/neuter projects targeting pets of low-income resiNearly two decades ago, Best Friends’ leadership decided to dents, which cumulatively reduced the number of healthy expand their ongoing work beyond the Sanctuary, opening or treatable animals killed in shelters from approximately offices and running lifesaving programs in Utah and Los An17,000 to 13,000 in 2012. geles. Early on in this outreach work, the choice was made to work with shelters, rather than against them. Much effort In addition to running comprehensive programs in LA and was made in building coalitions focused on saving lives colUtah, Best Friends has many national outreach programs delaboratively. In 2000, when Best Friends officially launched signed to get to the very root of animal homelessness. From an effort to create a no-kill state, about 46,000 animals were running cat trap/neuter/return (TNR) programs, to helping being killed in the California’s shelters every year. As of 2012, communities combat dog-breed discrimination, to fighting that number has been reduced by more than half. puppy mills, Best Friends is committed to helping animals and the people who love them.

In 2012, Best Friends launched a comprehensive $25 million initiative, No-Kill Los Angeles (NKLA), that brings together Best Friends started Strut Your Mutt as a fundraising event the new Best Friends Pet Adoption and Spay/Neuter Cen18 years ago in Salt Lake City. The popular event brought ter, the entire Los Angeles community, and more than 50 people and their dogs together for an annual festival and animal organizations, including Los Angeles Animal Ser22

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nonprofit dog walk. It was such a success that a few years ago, Best Friends brought the event to cities across the nation to help animal welfare groups raise critical funds for their own work.

Participating nonprofits in each community spread the word about Strut Your Mutt, engage their supporters in raising money, and get to showcase their work at the event. In 2013, more than $1.6 million were raised for local groups, money that will be used to save lives of dogs and cats in shelters.

This money raised presented Best Friends with an accounting consideration that it had not previously experienced.

Most (93%) of the funds raised are donated in the name of the local animal welfare group, not to Best Friends. As a consequence, Best Friends determined that it was acting as an agent in collecting and remitting the funds to the local animal welfare groups. Careful tracking of the funds is performed to ensure that the money goes only to the party specified by the donor.

Back in 1984, when Best Friends began, more than 17 million animals were being killed in shelters every year, simply because they didn’t have a safe place to call home. Now that number is down to about 4 million. Incredible progress has been made, but much work remains to be done. Best Friends is committed to doing whatever it takes to reduce that number to zero.

To learn more about Best Friends, including how to visit the Sanctuary in Southern Utah, visit bestfriends.org. ■

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Kate Schnepel is the Director of Strategic Communications for Best Friends Animal Society. She can be reached at kates@bestfriends.org

Benjamin Shaw, is an Audit Senior Manager with Tanner LLC. He can be reached at bshaw@tannerco.com

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the journal entry | January 2014

23

100 Years of Honor in Utah

The beehive state celebrates the Great Salt Lake Council, Boy scouts of America

By Kristian Rickard, CPA and Brian Sheets, CPA

O

ne of the biggest and best known charities in Utah is the Boy Scouts of America (“Boy Scouts”). In the State of Utah, there are three different Boy Scouts councils: Great Salt Lake Council, located in Salt Lake City; Utah National Parks Council, located in Orem; and Trapper Trails Council, located in Ogden. The organization adheres to the following: The mission of the Boy Scouts of America is to prepare young people to make ethical and moral choices over their lifetimes by instilling in them the values of the Scout Oath and Scout Law. On October 29, 2013, the Boy Scouts and one of its primary supporters, the Church of Jesus Christ of Latter-day Saints (LDS), celebrated 100 years of scouting in Utah with an outstanding non-denominational event. The event was held at the LDS Conference Center and was the largest attended event in Boy Scouts history. You can watch or download the full broadcast by visiting www.gslc-bsa.org and selecting the “A Century of Honor: Celebrating 100 Years of Service to God and Country.” Alternatively you can view the event

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at www.scouts100.lds.org. A standout moment pays tribute to mothers of Eagle Scouts by the name of “Ma You Earned Your Eagle” which can be found on YouTube by searching the song title.

The Great Salt Lake Council (the “Council”) is comprised of all of Salt Lake, Tooele and Summit counties and the southern part of Davis County. Within that geographic boundary, there are more than 75,000 registered Scouts and 32,000 volunteers. The Council offers one of the largest camping programs in the United States of America, with five different locations in two states and 11 separate camping experiences and sites. During the summer of 2013, the Council had 12,722 Cub Scouts and 9,810 Boy Scouts participating in camping programs.

The slogan for the Boy Scouts of America is "to do a good turn daily." Service is a vital component of the values taught to the young men and women in Scouting. Young men earning the rank of Eagle Scout, the highest advancement rank in Boy Scouting, are required to perform extensive service projects. In 2012, 2,297 Eagle Scout service proj-

nonprofit ects were performed involving more than 180,000 hours of community involvement with an estimated value of $2.7 million. Additionally, the Council sponsors the largest food drive in Utah to benefit the Utah Food Bank. In March 2013, volunteers of the Council spent over 38,000 service hours to collect 587,304 pounds of food for the Utah Food Bank.

The Council’s revenue sources are diverse and the largest fundraiser is the annual Friends of Scouting campaign.

During 2013, the Friends of Scouting campaign included more than 80,000 donors and raised approximately $2.3 million. Other significant sources of revenue are the Council’s camping program which generated approximately $2.7 million in gross revenues. The chart below illustrates the sources of revenue for the year ended 2012.

As detailed in the Council’s Internal Revenue Service (“IRS”) Form 990, expenses are segregated by functional classifications: program service, management and general and fundraising expenses. For most well-run notfor-profit entities (“NFPs”), program service expenses represent the largest category and consist of expenses related to the mission of the NFP. The following chart depicts the components of expenses for the Council as a percent of total expenses by functional classification for the year ended December 31, 2012. the journal entry | January 2014

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100 Years of Honor in Utah The Council’s program service expenses make up the majority of the expenditures at 87%, followed by fundraising at 10%, which is usually a large figure for NFPs that rely heavily on fundraising activities. The smallest component is management and general expenses at 3%. This expense category primarily consists of the Scout Executive’s time and a portion of the finance staff ’s time for overseeing such activities as the monthly preparation of the consolidated financial statements, overseeing the audit and preparation of the various tax filings, primarily the IRS Form 990.

Of the Council’s total expenses, salaries are the largest natural expense, as they are for most NFPs. In 2012, the Council’s salaries and its related components of fringe benefits, payroll taxes and workers compensation made up 58% of the Council’s total expenses.

Of the Council's total expenses, salaries are the largest natural expense, as they are for most NFPs. In 2012, the Council's salries and its related components of fringe benefits, payroll taxes and workers compensation made up 58% of the Council's total expenses.

Many CPAs assume that accounting for NFPs is relatively simple or mundane. This is not the case, as NFPs are not only subject to the same accounting principles generally accepted in the United States of America (U.S. GAAP) as for-profit entities, but are also subject to specific accounting rules and other accounting challenges particular to NFPs. The Council is subject to these specific NFP accounting rules and has its own accounting challenges. Furthermore, the Council is subject to an annual audit and works closely with its auditors throughout the year to avoid accounting “surprises” and to assure both parties are on the same accounting page.

Over the years, the Council has had to address a variety of complex accounting issues and challenges. Not the least of which is maintaining its books and records using fund accounting, a requirement of the Boy Scout National Council.

Fund accounting, which is permitted by, but is not required under U.S. GAAP, requires the Council to track its activity into three self-balancing funds: The Operating Fund, the Capital Fund and the Endowment Fund. This fund ac-

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counting structure allows the Council to more accurately track its finances, to ensure that donor-imposed restrictions are accurately captured and that restricted donations are spent for their intended purposes. While fund accounting can lead to an improvement in the overall accuracy of a NFP’s financial information, it can be quite complex, as each fund must self-balance and inter-fund transactions and transfers can often be complex.

In addition to the complexities associated with fund accounting, the following are just a few of the accounting challenges the Council and its auditors have had to deal with over the past few years: Valuation of long-term pledges: U.S. GAAP requires that unconditional promises to give (“pledges”) that are expected to be collected in future years initially be recorded at the fair value of their estimated future cash flows as of the date of the promise to give through the use of a present value discount technique. In periods subsequent to initial recognition, pledges are reported at the amount management expects to collect and are discounted over the collection period using the same discount rate as determined at the time of initial recognition. The discount rate determined at the initial recognition of the pledge is based upon management’s assessment of many factors, including when the pledge is expected to be collected, the creditworthiness of the donors, the Council’s past collection experience and its policies concerning the enforcement of promises to give, expectations about possible variations in the amount or timing, or both, of the cash flows, and other factors concerning the receivable’s collectability. Amortization of the discounts is included in support from contributions.

Determining the appropriate present value discount factors, as well as assessing the ultimate collectability of pledges can be quite challenging, particularly in light of the current economy.

Impairment of long-lived assets: The Council owns river raft permits which allow it to conduct whitewater rafting trips down the Snake River for the young men at the Council’s Teton High Adventure Base. The river raft permits were originally capitalized at acquisition by the Council’s wholly-owned subsidiary. Unfortunately, the subsidiary has operated at a loss since the permits were acquired. As a result, this raised the question as to whether the value of the permits was impaired. The Council worked to assess

nonprofit the future cash flows associated with the permits in order to assess if an impairment occurred.

The NFP sector of the economy is growing and presents a unique set of challenges that requires those in internal accounting and their external auditors to be ever vigilant in this changing environment.

Valuation of securities in the endowment: Unlike many for-profit entities, the majority of investments held by NFPs are required to be carried at fair value. While determining fair value for readily marketable and tradeable securities is typically straightforward, determining the fair value of so called “alternative investments” can be complex and challenging. For example, the Council’s Statement of Investment Policies and Guidelines allows for an investment in an asset class called complementary strategies which include such asset classes as private equity and hedge fund investments.

The Council’s Investment Committee allowed complementary strategies solely as a mechanism to reduce overall volatility in the endowment’s portfolio. These type of investment instruments often involve complex valuation models and unobservable inputs, requiring a great deal of effort on the part of management to determine the fair value, not to mention the significant efforts involved by the auditor to audit the underlying assumptions and valuation techniques management has used to estimate fair value.

Diverse revenue streams: The Council has approximately five distinct sources of revenue. This can present a variety of challenges in the area of revenue recognition, the most significant of which relates to contribution accounting. U.S. GAAP requires that contributions received be recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor-imposed restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires (that is, when a stipulated time restriction ends or a purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated financial statements as net assets released from

restrictions. The Council has more than 80,000 donors and frequently receives donor-imposed restricted contributions.

The Council spends a great deal of time and effort to ensure that donor-imposed restricted contributions are properly tracked and that the funds are used only for their designated purposes.

The last year has been a great one for Scouting especially in Utah. The NFP sector of the economy is growing and presents a unique set of challenges that requires those in internal accounting and their external auditors to be ever vigilant in this changing environment.

If you would like to learn more about the Council and the wide variety of programs it offers today’s youth, or if you would like to donate to help support the Council, visit www.gslc-bsa.org. ■

Kristian Rickard, CPA, is an Audit Manager with Mayer Hoffman McCann P.C. He is a member of the UACPA, AICPA and Association of Certified Fraud Examiners. Rickard is a member of the UACPAs Nonprofit Committee and is a board member of a Utah NFP that improves quality of life for illiterate adults. Rickard has a Master of Accountancy degree and a Bachelor of Arts degree in Accounting from the University of Utah. Kristian can be reached at krickard@cbiz.com.

Brian Sheets, CPA, CGMA, is Chief Financial Officer of the Council.

Brian is a member of the UACPA and AICPA and is an active member of both the UACPAs Non-Profit Committee and the Utah Nonprofit Association Finance Committee. He teaches various NFP courses for both the UACPA and AICPA. Brian can be reached at bsheets@bsamail.org.

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Speed Mentoring and the Community Foundation In five years, the community foundation enhances Innovation and philanthropy

By Scott Czaja, CPA

W

hen Utahns come together for the common good, we are an unstoppable force. Our citizens are by far the most charitable in the nation, and we spend more hours volunteering than any other people. But until five years ago, a fundamental aspect of philanthropy was missing in Utah: A community foundation. In fact, until 2008, Utah was the only state in the nation without a thriving foundation built by and for the people of our region.

Five years later, the growth of the Community Foundation of Utah is another testament to the giving nature of our community, and what a few visionary citizens can achieve.

Under the leadership of investor and entrepreneur Greg Warnock and nonprofit leader Fraser Nelson, and with the support of an exceptional and generous board, the Foundation has grown from an idea, a used laptop, donated space and no assets, to more than 100 individual charitable funds which have received contributions in excess of $22 million dollars. Most impressively, the Foundation’s donors have made 750 grants to 360 organizations, pumping 7 million

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dollars into the nonprofit economy.

The Community Foundation of Utah, one of 700 across the United States, is a not-for-profit, public charity organization focused on the people, places, causes and resources of Utah.

The foundation is a catalyst for philanthropy that is visionary, sustainable, inclusive and engaged. Like all community foundations, ours has a long-term goal of building permanent, named component funds established by many separate donors to carry out their charitable intent. More than 100 individuals, corporations and regions have established Donor Advised Funds (DAF), Scholarships, Memorial Funds, Endowments and Issue-specific funds with the foundation.

A Great Option for CPAs CPAs have played an important role in the Foundation’s growth, and accountants are increasingly recommending donor-advised funds to clients who want to be involved in philanthropy but who do not want the cost, administrative and organizational burden of a private foundation.

nonprofit Donor-advised funds provide more-generous tax breaks than family foundations and none of the legal, accounting and administrative hassles. For example, our clients can deduct the value of cash gifts up to half of their adjusted gross income, compared with a deduction of up to 30% for cash gifts to charities from a private foundation. Gifts of stock and property also receive more favorable tax treatment: Individuals can deduct the value of such gifts to DAFs up to 30% of their AGI, compared with up to 20% with a private foundation. Donor-advised fund also avoid an excise tax on net investment income levied annually on foundations.

Establishing a fund can be accomplished in less time than it takes to open a bank account. The Foundation takes care of all administrative and grantmaking activities, eliminating the need for a separate institution, legal and accounting expertise, policies, or due diligence for the status of grant recipients. In addition, according to charity expert Ken Nopar, an advisor to the Community Foundation of Utah, “Each year many more donor-advised funds are being created than are private foundations. … Many advisors welcome the efforts of some DAF sponsors to educate them about charitable giving so they can best help their clients, while others appreciate the opportunity to meet or connect with other local professional advisors at events that the DAF sponsors.” Because the foundation is a nonprofit, the donor gets the total tax benefit of the gift a the time of the gift, but can recommend grants form the Fund for generations to come.

The Community Foundation of Utah also has the benefit of accepting many forms of assets, including publicly traded stock, privately-held C- and S- company stock, real estate, life insurance, art and collections. Haynie & Co, recently assisted a valued client with the creation of a Donor Advised Fund using a privately held asset. The Foundation was able to take a very complex asset and, because of its expertise and flexibility, create a Donor Advised Fund for the client.

‘speed mentoring’ events. In November 2013, the foundation brought 50 entrepreneurs and business people into a room with 50 nonprofit leaders. Each had 20 minutes to help the agency think about and solve a business problem. “I have to say in all honesty that this event was the most creative and unique event I’ve participated in. I had a blast,” said one entrepreneur. “The opportunity to bounce ideas and generate some out-of-the-box thinking was fantastic. I got as much from this as I do many conferences with way, way less cost in time and money.”

Nonprofits appreciate the access to dozens of individuals they would otherwise never get to meet, the free advice, and the innovative approaches they take to their business models.

The Utah Fund Every other state in the nation has a fund built by and for the people of the region, able to respond to emerging needs.

The Foundation has embarked on an ambitious effort to grow The Utah Fund, to catalyze change and fund innovative solutions to our most challenging problems.

In 2014, the Fund will make $50,000 in investments in organizations doing high impact work and meeting real needs in their communities. These programs and services are unique and sometimes difficult to find. Like the Community Foundation of Utah, the fund is a way that people of all means can support Utah now, and far into the future.

Positive results have come as Haynie recommends clients that share a deep love and commitment to Utah, and its people, places and causes, leave part of their estate to the Utah Fund.

Learn more about the Community Foundation of Utah at www.utahcf.org or by calling 801.559.3005. ■

Engage Your Giving Mind The Foundation is also dedicated to building the capacity of the state’s non-profit organizations. The foundation may be best known for its 24-hour day of giving called Love UT Give UT, which raised $800,000 last year for schools, universities and nonprofits across the state. This year’s Love UT Give UT is March 20, 2014.

Scott Czaja CPA, MST, is the Shareholder in Charge of TaxExempt Organizations and Employee Benefits at Haynie & Company. He can be reached at Scottc@Hayniecpas.com

CPAS have also been involved in The Foundation’s infamous the journal entry | January 2014

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South Davis Community Hospital Commits to Loving, Caring, and Healing

by Lisa Roskelley

S

outh Davis Community Hospital (SDCH) is an organization committed to healing, new beginnings and embracing life. The reality of a place like SDCH is that we wish it weren’t necessary — that no one would ever require the specialty healthcare services provided.

For those who come to SDCH after a life-changing accident, an unexpected illness or a serious medical condition, the staff are a part of their journey in healing. They want to share this journey with the community, to draw in support for patients and their families, and to share the amazing opportunity for love, care and healing that this specialty healthcare organization offers.

As an independently owned, nonprofit specialty hospital, care services include pediatric transitional and specialty care programs, advanced respiratory therapy care, long term acute care and skilled nursing. As a patient’s required care level moves from critical to complex, the services at SDCH give patients and their families an alternative to healing in an Intensive Care Unit (ICU) setting. The staff provides complex care and healing with a focus on planning for optimal outcomes to transition patients home.

Our mission is to feature person-to-person care to enable a patient to find an improved quality of life, adapt to their current situation, and celebrate their personal recovery

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milestones.

Historically, SDCH has expanded its expertise into other services on campus such as orthopedic rehabilitation, assisted living, hospice and home health, in order to help subsidize the Hospital’s super-skilled programs.

Patients may stay at SDCH for days, weeks or months depending on the care they need. SDCH is creating new options for neonatal patients who require critical and complex care. As demand grows for these types of specialty care services, particularly for pediatrics and respiratory care, SDCH must grow with the demand.

This need for increased capacity has molded SDCH's current evolution. The next milestone is for South Davis Community Hospital to engage the community to support our vision for an expansion of the pediatric unit that will help us provide more patients with our unique and state of the art programs that support patient needs throughout our community, the state of Utah, and the surrounding region.

The SDCH Foundation will publicly launch the "Love. Wish.

Build." capital campaign in 2014 to support the Hospital’s effort to build the much needed expansion. This is an opportunity for community investment and awareness.

Prior to breaking ground for an expansion, SDCH will create an engaging space to invite community involvement with

nonprofit

sdch has expanded its expertise into other services on campus such as orthopedic rehabilitation, assisted living, hospice and home health in order to help subsidize the Hospital's super-skilled programs the Wishing Fountain to show momentum and progress.

The fountain will provide space for patients, families and community members to share, representing healing and support not only for the new building, but for all of our patients and their families. It will include a wishing pool and a walking path with the names of all donors. Named spaces within the new building will also be available for various contribution levels. The Hospital and its Foundation is continually cultivating grant and contribution opportunities to raise funds for the expansion.

Be a part of "Love. Wish. Build." Learn more by visiting www.sdch.com or www.sdchfoundation.org. â–

We are different because we can produce the best results for YOU. Give us a call today so that we can start working to remove your selling headache and to obtain the goal you desire.

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Save $698 on UACPA Conferences By simply joining the UACPA, you

Lisa Roskelley is a the Executive Officer for the South Davis Community Hospital Foundati-on. Roskelley served as communications director and spokeswoman for former Gov. Jon Huntsman and participated in his 2012 presidential bid. She and her husband, Christian George, own and operate the historic Prairie Schooner Restaurant in Ogden. She can be reached at lisaroskelley@sdch.com

save money for every class, conference and event you attend with us. If you only come to conferences, you'll save almost seven Benjamins.

That's just one of the many ways we make your UACPA membership count.

Learn more about membership and benefits by talking to Tisha Smith, 801.466.8022 or ts@uacpa.org

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Potential Tax Consequences of Alternative Revenue Streams with Nonprofits

By Brenda Blunt and Kim Hunwardsen

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n April 2013 the IRS issued a final report on a study of colleges and universities. The study, which began in 2008, originated with a questionnaire issued to 400 colleges and universities throughout the United States and resulted in 34 IRS audits and an assessment of $60 million in taxes.

One of the key findings in the report was that the treatment of revenue and expenses treated as unrelated business income (UBI) was often inconsistent, inaccurate, or miscalculated. These findings are not unique to higher education; non-profits of all types (and their accountants) must now pay more attention than ever before to the potential tax consequences of alternative revenue streams.

Not only can such revenue streams result in taxable income, if the revenue is significant it could jeopardize the organization’s tax exemption.

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The Definition of UBI When considering whether or not an activity’s revenue and expenses should be treated as UBI, ask three questions.

Mission-Related Question Is this activity related to the organization’s mission?

As you consider whether or not the activity relates to the mission, ask whether it contributes importantly to the organization’s purpose. If not, there may be an exception (see below) that allows it. Otherwise, assume that it will be subject to taxation.

Regularity Question If you compare the activity to other similar commercial activities, is the activity conducted with the same regularity? For instance, if a non-profit sets up a

Tax sandwich stand for two weeks every year at the state fair, this would likely not be considered “regular” because commercial operations would operate the sandwich stand year-round. However, if a non-profit runs a parking lot once a week for a year, this activity would be considered “regular” and taxable.

Profitability Question Is our activity conducted with a profit motive? Even if you don’t “make money” on an activity, it might still count as UBI if it was conducted in a commercial manner. Factors that may indicate you are engaging in business include: 1) The activity is priced to produce a profit, 2) it is conducted similarly to commercial business, 3) efforts are made to improve profitability, 4) significant time and effort is expended.

Sponsorships vs.

Advertisements Great confusion arises over the difference between the definitions of Advertising (taxable) and Sponsorship (non-taxable).

The key piece to understand in this analysis is whether or not a qualitative statement was made by the non-profit in the acknowledgement of the sponsor.

For example:

If you determine the activity is unrelated, regularly carried on and conducted with a profit motive, you probably have unrelated business income.

“This law firm is the best for non-profit legal services.”

(Qualified statement = advertisement = taxable)

Special Exceptions

“This law firm serves the non-profit industry.”

(No qualifying statement = sponsorship = not taxable)

As with all rules, there are exceptions to the UBI definitions. The information below is not exhaustive, but provides a sampling of some of the most common occurrences of exceptions we see with our own non-profit clients.

Volunteers If at least 85% of the labor for an activity is conducted via volunteers, the activity may not be taxable. A common example of this exception concerns gift shops at hospitals.

Often, these shops are run primarily by volunteers and, therefore, enjoy the tax relief.

Convenience Exception If an organization offers something for the convenience of its members, visitors, or employees, then that revenue may be excluded from UBI taxation. For instance, a zoo or botanical garden may find it necessary to sell water and sunscreen to its patrons and a hospital finds it necessary to offer a cafeteria for visitors and employees. These are excluded convenience offerings.

Permissible acknowledgement of a sponsor by a non-profit includes: • recognition of payment from sponsor • inclusion of logos or slogans (that do not contain comparative or qualitative descriptions) • sponsor locations and telephone numbers • a list of product or service lines offered by the sponsor

Donated Merchandise Thrift stores are generally able to avoid paying tax on sales if 85% of the merchandise sold has been donated.

Public Entertainment Non-profits that offer entertainment as part of an event are also excluded from paying taxes on that entertainment. For instance, concerts at state fairs and relief performances can be offered without the worry of a tax burden. the journal entry | January 2014

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Potential Tax Consequences Passive Income

Making UBI-Related Decisions

Income related to investments, royalties, and rent (mostly real estate, not personal property) are also excluded from UBI taxation. In addition, gains or losses from the sale of capital property are also excluded from UBI treatment.

A recent article by The NonProfit Times, “The NPT 2013 Top 100: An In-Depth Study of America’s Largest Nonprofits,” leads with:

Although the idea of a tax-exempt organization paying taxes can seem counterintuitive, alternative revenue streams are increasing in popularity, even amonst the nation's largest nonprofits.

Not So Fast!

Just when many organizations think they understand and have figured out how to avoid getting into taxable activities, a curveball can be thrown their way. Common missteps include: Joint Ventures with For-Profits While such joint ventures can have business advantages, caution should be taken when setting them up. Structure and control are critical pieces to these arrangements. Forprofits often approach these ventures and accompanying activities very differently, so non-profits must ensure a high level of involvement to ensure the activity operates for an exempt purpose and in a charitable manner to avoid taxation.

“As charitable giving continued a modest ascent during the economic recovery, the nation’s largest charities continued to generate revenue that isn’t (emphasis added) from the formerly tried and true government support and investments.”

Although the idea of a tax-exempt organization paying taxes can seem counterintuitive, alternative revenue streams are increasing in popularity, even amongst the nation’s largest nonprofits. These alternative activities can offer non-profits valuable revenue generating opportunities. The tax considerations are just one of the many business decisions that must be analyzed in determining whether to engage in the new activity. ■ Brenda Blunt, CPA is partner at Eide Bailly LLP. She works with tax-exempt organizations to help them strategically address taxrelated issues and concerns. She also helps them plan for the tax aspects of unrelated business income. Brenda teaches on a range of topics. Contact Brenda at bblunt@eidebailly.com

Debt-Financed Property In general, if a non-profit finances a property purchase with debt, the purchase is considered debt-financed property. There are a number of exceptions to this definition, but generally-speaking, income received from debtfinanced property does not meet the exception described above for rental income. In addition, if securities are purchased on margin, then dividends are considered UBI under the debt-financed property rules.

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Kim Hunwardsen, CPA is a partner at Eide Bailly LLP, providing non-profit organizations with tax consulting, planning, and compliance services. She helps clients with corporate restructuring strategies to minimize tax costs and other issues unique to tax-exempt organizations. She can be reached at khunwardsen@eidebailly.com.

The Inverted Pyramid

How to rearrange the firm with too many partners, but not enough staff

By Gary Adamson, CPA

T

here is no question that the most profitable firms (defined as high per partner income) in our profession have figured out that leverage and a well managed pyramid is one of the key ingredients. Why is it then that so many firms, and I would suggest the majority, are struggling with just the opposite — an upside down or inverted pyramid where there are lots of partners and managers but few staff.

We didn’t get here overnight and I would suggest that few of us planned to be here. We wound up with our top heavy firms due to a number of factors. Here are some of the primary culprits: • Generational issues including the Baby Boomer Bubble, Xers, Millenials, etc.

• Lack of a people plan with effective, consistent recruiting and staff development processes in our firms.

We don’t have a process to see enough new faces and we let people hang around too long.

• Promoting non-partner-track people or sometimes marginal folks to higher positions because “we’re preserving staff continuity” and “it’s best for the client” when perhaps it is just the path of least resistance and/or we have no one else.

• Partner compensation plans that focus on chargeable time. Partners stay busy first. Managers are doing staff work and no one has incentive to push the work down.

• “It’s just easier to do it myself and besides I’m a lot more efficient at it.”

If any of this sounds like you, here are some of the outcomes that are not desirable but pretty common. You have too few if any younger staff. You have a tough time keeping the ones you do have busy. Really talented staff, your “all stars”, leave because they don’t see any opportunity to advance in the firm. Managers and staff do the same work on the same clients year after year after year. You have a relatively expensive workforce and you have a difficult time getting paid at their billing rate for work that they have outgrown.

Partners are full with compliance work and are not cultivating the high value consulting work. And, worst of all, you don’t have the talent at the right levels to succeed you as a partner in the firm.

Ouch! So, what do we do? First of all, we need some time to work out of it. We didn’t get here overnight and we won’t fix it overnight either. Unfortunately, some firms are out of time and that is the reason the profession is seeing so much M&A activity. Hopefully that’s not you and you can start to make changes now to work on the pyramid. the journal entry | January 2014

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The Inverted Pyramid My advice is to begin the journey by prioritizing and tackling the following list in your firm: • If you don’t have a staff recruiting and development plan for the firm, create one now. It should include the commitments that we are always hiring whether we need people or not, we have expectations for performance at each level in the firm and we expect our people to grow and advance. The national firms have done this so well for years. They see lots of new faces every year, they manage the turnover and the cream rises to the top.

• Tell your people the truth. You have managers who are never going to be a partner. Tell them. More than likely, they already know it.

• As important, if not more so, make sure that the rest of the team knows it too. We have staff looking up at the layer(s) of people above them thinking, “there is no way that I can ever make it through or around all of them.”

We can tell our “all stars” that they are special and that we will promote them, until we’re blue in the face. But talk is cheap and if they can’t see the path, they will leave.

• Treat them differently; pay them differently. If you have all stars in your firm please don’t get sucked into making everyone look the same at a particular level. They are not.

• Make the tough decisions sooner. We tend to hang onto people hoping they will change or grow into what we are looking for. They rarely do and we fill up the firm with them.

• Decide how many spots we are willing to have in the firm at each staff level for “career” people. A career person is someone who is stuck in that spot and not moving up. A word of caution — this needs to be a small percentage of the staff and as we discussed above they need to be identified. Don’t clog up your ladder with career people and watch the all stars leave!

I know you’re thinking that this is just the old up or out policy. Not exactly, but I am suggesting a model that is a lot closer to up or out than where most firms have been. The difference is that you do make room for some career people.

Take a look again at the inverted pyramid at the beginning 36

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of this article. We need to change our approach.

• Every once in awhile, initiate a push down of work at each level in your firm. I promise that you have partners doing manager level work, managers doing senior work and so on. People cling to the familiar and comfortable.

So, shake it up and ask everyone to push down 100 or 200 hours. You’ll free up your high level people who are capable of creating new work, get more of the work done at the right level and give the younger staff some challenging work.

• If you have a partner compensation model that is heavily weighted toward billable time, change it.

• Promote a work environment that embraces nontraditional staff and partners. Technology and remote connectivity have created opportunities to find great people to help the pyramid but there is a hesitation to run with it because it’s different. Get over it and innovate.

• Last but not least, grow! It will be very difficult to turn the pyramid without a solid growth strategy for the firm. We will not see the “easy” growth that we had in the prior decade for some time to come. So, we have to work harder to get it. Dynamic growing people want to be a part of a dynamic growing firm. ■ Gary Adamson is the President of Adamson Advisory, specializing in practice management consulting for CPA firms. He is an Indiana University graduate and has extensive hands on experience as the recent managing partner of a top 200 CPA firm.

Conflicts of Interest Still Cause Trouble for CPAs

By Duncan B Will, CPA/ABV/CFF, CFE

C

onflicts of interest have long been a major factor in professional liability claims against CPAs. Part of the problem is that potential conflicts of interest are hard to recognize or identify until something goes wrong. When clients are satisfied, they tend to perceive the CPA as a competent advisor who has their best interests at heart. It’s not until clients become disappointed that their perception of the CPA begins to change. The CPA appears to no longer have the client’s best interests in mind. Sometimes the CPA may even appear to have sacrificed the best interests of his client to benefit himself or another party to the detriment of the client.

One common claim scenario is that of the CPA advising both parties to a transaction, or helping the parties resolve a dispute. For example, the CPA will sometimes agree to represent both the husband and the wife in a divorce when they are still friendly and cooperative. Many times, though, the relationship in a divorce will deteriorate rapidly, and the CPA is then caught in the middle.

The same is true for dissolutions or disputes between business partners. Disputes between partners or owners often result in the CPA’s advice becoming perceived by one of them as favoring the other partner.

Participating in business deals or investments with clients is another common scenario where everyone is happy as long as the investment performs well. But as soon as it takes a downturn or falls apart, the client’s perception of the CPA begins to change.

A Case Study Consider the following study where the names have been changed: For decades, Paul Noble, the founder and managing partner of his CPA firm, had served as a trusted financial advisor to his clients. Like many CPAs, he also had his own personal financial advisor — stockbroker Rich Arrington.

Noble frequently shared advice he received from Arrington with his firm’s clients and partners.

Chad Pennyworth, a junior broker at Arrington’s brokerage house, worked with some of Noble’s clients and took on many of Arrington’s accounts when Arrington retired.

Noble trusted Arrington’s judgment in Pennyworth’s training and development. Though Noble did not refer any of his clients or acquaintances to Pennyworth, he did inform a number of them that he had elected to work with him. Because of Noble’s reputation, many of his clients chose to engage Pennyworth as their own broker when the journal entry | January 2014

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Conflicts of Interest they learned that Noble had done so.

Almost immediately after Arrington left, Pennyworth sold Noble some bonds, based on incorrect information that misidentified the bonds’ guarantor as the state, when the bonds were actually guaranteed by a financially challenged local school district.

Project the scenario forward to anticipate what would happen if things go wrong. Juries tend to sympathize with clients — especially with the benefit of hindsight and all of the evidence laid out by a skilled attorney.

Pennyworth acknowledged the mistake to Noble, and the brokerage firm agreed to repurchase the bonds from Noble’s portfolio, subject to a nondisclosure agreement, which Noble signed. Within a couple of weeks Noble was pleased to see that a safer alternative was substituted for the bond investment.

Two years later, though, Noble had mixed feelings when he read of the financial disaster that was all over the news: the failure of a local school district and the worthlessness of the bonds it had guaranteed. A number of pension funds and investors, including some of his clients, were hurt badly by the losses. Noble felt sorry for the investors but was relieved that he had been able to avoid a similar fate.

His relief turned to dismay over the next few days, as some of his clients called him to discuss the impact of the losses they had sustained and their intentions to sue Pennyworth and the brokerage house.

Noble’s hands had been tied because of the nondisclosure agreement. He had not warned his clients of the elevated risk of the bond investment, and his clients were now surprised to learn that he was not in their failed investment.

During the course of the subsequent class action lawsuit against Pennyworth and the brokerage house, Noble’s initial investment, the reversal of that transaction, and 38

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the nondisclosure agreement became public knowledge.

Noble’s reputation was ruined. He was now seen as a greedy, self-interested collaborator. Ultimately, Noble and his firm were added to the list of defendants in the class action lawsuit. His former clients alleged that Noble and his firm had a duty to disclose the concerns regarding their investment, had ignored the apparent conflict of interest, and had prioritized their own interests over those of their clients.

Loss Prevention Tips Recognize and communicate potential conflicts of interests. Project the scenario forward to anticipate what would happen if things go wrong. Juries tend to sympathize with clients—especially with the benefit of hindsight and all of the evidence laid out by a skilled attorney.

Embrace “active ethics.” The CPA should recognize that his or her own personal interests can be adverse to client interests and should not agree to sign nondisclosure agreements without first being able to protect clients.

Moreover, disclosing a conflict of interest with clients, while helpful, doesn’t solve the problem, even if the clients sign the disclosure. It can later be argued that the clients’ consent was not “informed” by a third party (such as an attorney). Don’t get too comfortable with disclosure as a form of protection. In the end, the question is whether there is a perception that the CPA no longer has unfettered loyalty to his or her clients.

Recognize there are risks associated with providing referrals. Clients often link the CPA who gives a referral to the professional who ultimately performs the services.

In instances where it may be perceived that a CPA is offering a referral, the CPA should be careful to name three or more qualified professionals to perform the service, and encourage the client to perform their own due diligence in assessing the suitability of the professional’s qualifications. ■

Duncan Will is the loss prevention manager and accounting and auditing specialist with CAMICO (www.camico.com). He advises Policyholders through the CAMICO Loss Prevention hotline and speaks to CPA groups on a wide range of topics.

MEet a uacpa member

Five Minutes with Stacy Weight

Stacy Weight has worked as the Controller for Children's Miracle Network Hospitals for 6 years. She has worked in the accounting field for 13 years and has been a licensed CPA for 6 years. Weight is currently serving as the Secretary of the UACPA Nonprofit Committee and the Utah Regional Chapter Chair for GPUG (Great Plains User Group). The mother of four, who has been married for 15 years, says, "I love to volunteer in the accounting community."

What led you to become a CPA? Growing up, I always wanted to be an elementary school teacher — but after one semester in college, I realized that wasn’t the job for me! I really enjoyed all of my accounting classes and seemed to have a knack for it, so I decided to switch my major and have never looked back.

What have been some highlights working for a nonprofit? One of the greatest things about working for a nonprofit is the opportunity to meet some amazing kids! The children we raise funds and awareness for are some of the most inspirational individuals on the planet. They are truly motivating to me and it makes the things I do every day special because I know I am making an impact on their lives as well.

What do you like to do outside of your work at CMN Hospitals? In my free time, I enjoy helping small businesses and individuals in my community with their accounting needs. It is very fulfilling to be able to use my skills to help others succeed. I currently volunteer as a Den Leader for my local Webelos Scouts. I also love spending time with my family riding ATVs in the desert.

What are some of your goals, both personal and professional? Over the last few years I have been learning a tremendous amount about leadership. I am fortunate to be surrounded by some of the most talented team members who have taught me so much. I plan to continue to grow this knowledge to one day oversee an organization in a CFO role. I also love to sing and would consider it an honor to one day join the Mormon Tabernacle Choir.

What advice do you live by? Choose to be a significant and unique contributor to this world by serving others. The best thing I can imagine is helping others reach their potential. I strive to live this way every day, whether it is in my work dealing with remarkable team members, at home with my incredible family, or in my community. ■

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Familiar Topics are Addressed at AICPA Meetings of Council

By Paul Skeen, CPA

(l-r) Barry Melancon, Susan Speirs, Paul Skeen and Tommye Barie discuss important issues at the AICPA's Meetings of Council.

I

n three separate AICPA Meetings of Council held by the AICPA, the topics have become familiar and the most recent meeting, held in Los Angeles, Oct. 20 - 22 was no different. In the most succinct way possible these familiar themes can be identified as follows: Municipal advisors: CPAs have been exempted from this portion of the Dodd Frank Act. This is a big win for the profession.

Mandatory auditor rotation: There is currently a bill on the Senate floor to preclude the PCAOB from requiring mandatory auditor rotation.

New audit report model: The PCAOB is pushing to expand the current audit report beyond the standard format to include a discussion of “critical audit matters.�

Merger activity among firms: There were 43 mergers

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of CPA firms in the previous 12 months. Twenty-four of these acquisitions involved Top 100 firms acquiring other firms.

Private Company Council established: The Financial Accounting Foundation established the PCC to decide on exceptions and modifications to U.S. GAAP for private companies.

Beyond the old reliable themes, there were two topics that were addressed over and over again that I am sure will become classics in the near future. The first related to education and the second was diversity and inclusion.

Education More than 82,000 students graduated with accounting degrees in 2012, which was a record number. Additionally,

UACPA Council Report public accounting firms hired 40,350 graduates which was also a record. Given the fact that more than 61% of CPA firm partners are over the age of 50 and that the AICPA estimated that 75% of today’s CPAs will retire in the next 15 years, the profession will require many years of record setting graduation rates and numbers.

AP Accounting: One very intriguing idea to attract the best and the brightest to the profession is the establishment of an Advanced Placement accounting course. Most high school accounting courses are simply bookkeeping classes.

The idea of a higher level accounting class certainly has the potential of attracting more high school students to accounting careers. This will not be an easy task as there is much more to be accomplished than simply developing an exam. The exam and curriculum would need to be approved by the College Board. Additionally, teachers with sufficient accounting background and knowledge would need to be hired or trained. Look for the AICPA to put time and effort into this initiative in the coming years.

Future of learning: Lawson Carmichael and Anthony Pugliese of the AICPA announced the creation of the Taskforce on the Future of Learning that will be drafting a multimedia Web-enabled white paper on this topic in the summer of 2014. As part of their presentation they provided compelling facts on why our current education model is unstainable, including the fact that college student loans now exceed $1 Trillion. Trillion with a T.

Diversity and Inclusion If you are tired or scared of the discussion on diversity and inclusion, the next few years are going to be difficult for you. I think we have only scratched the surface on candidly discussing these issues.

Dr. James Johnson of the University of North Carolina Kenan-Flagler Business School presented a report he prepared from the 2010 Census titled “Six Disruptive Demographic Trends: What Census 2010 Will Reveal.” These trends and a brief explanation are as follows: 1) The South Has Risen – Again: Slightly more than half the population increase in the United States was concentrated in the South. The West was second with slightly less than one third of the population growth.

2) The “Browning” of America: The Hispanic and Asian populations increased by 35.8% and 30.9%, respectively outpacing all other demographics.

3) Marrying Out in “In”: The Pew Hispanic Center revealed that the percent of individuals marrying someone of a different race or ethnicity has doubled since 1980.

4) The Silver Tsunami is About to Hit: Over the next 20 years, nearly 79 million workers will exit the workforce. In addition, with medical advancements, this group will live much longer than their parents or grandparents did.

5) The End of Men? Dr. Johnson states, “Men bore about 80% of the total U.S. job loss between 2007 and 2009, leading some to dub the most recent economic downturn a “man-cession.” Additionally the gender ratio in college admissions has been 60% female and 40% male for some time.

6) Cooling Water from Grandma’s Well and Grandpa’s Too! This has reference to a gospel song referring to the impact a grandmother had on a young man’s life. The point is that more and more children in the U.S. are being raised by their grandparents.

These topics are not fads that will be dismissed anytime soon. You can plan on hearing much more on these topics in the years to come.

To learn more about diversity and inclusion, read the full article at kenaninstitute.uc.edu/Census2010Trends. ■

Paul O. Skeen, CPA is an audit

partner with Eide Bailly and is currently serving as President Elect of the UACPA. He has 16 years experience in public accounting. He has been involved in all aspects of financial and compliance audits. Paul can be contacted at 801.532.2200 or at pskeen@ eidebailly.com

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Photos, Winter Conference 2

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1 Kent Thomas talks about Utah's Ethic's Requirement during lunch.

2. Travis Nielsen and a conference guest network at The Salt Palace.

3. Andrea gives away notepads and treats for ADP 4. Erica from Netwize invites guests to spin for prizes. 5) Jefferson and Shayne represent US Bank 6) Conference guests drop off gifts to donate for the UACPA's 2013 Toy Drive.

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Thanks to the 2013 Winter Conference Sponsors: US Bank, Social5, Durham Jones & Pinegar, Utah Educational Savings Plan, NetWize and ADP View more photos on our Facebook Page: www.facebook.com/UtahAssociationofCPAs

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UACPA member activities

UACPA Staff and Members Donate Dozens of Toys to Toys for Tots

Students Golf with Mini-Masters at Hawkins Cloward & Simister

The UACPA staff and members contributed a box loaded with new, unwrapped toys for children in need during the holiday season. Dozens of toys were collected at the new facilities at the Redman Building in Sugar House in addition to the drop box set up during the UACPA's Winter Conference held at the Salt Palace, Dec. 12 - 13.

In September 2013, Hawkins Cloward & Simister hosted their annual Mini-Masters event where students from across Utah could try their skills at the mini-golf course at their Orem office. Their one-ofa-kind course included "long fair(hall)ways, water hazards, obstacles, and even a three-story roller coaster." Attendees were treated to calypso music from a steel-drum band as they sipped Italian sodas and feasted on Waffle Luv waffles. One student commented, "This is like being on a cruise ship." See more pictures and watch an exclusive interview with LaVell Edwards and Dan Forsman on the HCS facebook page. Facebook.com/HawkinsClowardSimister

"The UACPA is excited to demonstrate how CPAs are giving back to the community," says Susan Speirs, CEO of the UACPA. "Watch for more service and volunteer opportunities in the upcoming year."

Tell us about the activities going on with you or your firm. Send us pictures with details so we can let other UACPA members know what you do outside of the profession.

Send info and press releases to Amy Spencer, as@uacpa.org or call 801.834.6633 the journal entry | January 2014

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Education Transforming Your Busy Season with Technology Tools You Already Use Date:

Wednesday, Jan. 15

Time:

7:30 a.m. - 3:45 p.m.

Location:

UACPA Education Center 1240 E. 2100 South, Suite 500

, p U d n a t S t u O d n a t S

Cost: $275 UACPA Members $330 Non-members CPE:

8 Hours

This course is packed with practical “how to” time saving tips to help make the busiest time of year more productive. Learn how to save 30 minutes each day by incorporating simple time management techniques that are available in the technology tools you use everyday with Outlook, Adobe and Excel. This practical, easy to understand, and cost-effective course is a “must have” to prepare for the upcoming busy season.

Chapter Meetings Mountain Chapter Date/Time: Wednesday, Jan. 15 | Noon to 1 p.m.

Presenter: Michael Blackburn, CPA Topic: Tax Update Location: Grub Steak Restaurant, 2200 Sidewinder Dr., Park City Cost: $15 for members; $20 for non-members

(Pay at the door) CPE: Two (2) hours

Downtown Chapter Date/Time: Presenter: Topic: Location: Cost:

CPE:

Wednesday, Jan. 15 | 7 to 9 a.m.

Gail Anger, CPA/Senator John Valentine, CPA Tax Update/Legislative Update Little America Hotel, 500 S. Main Street, SLC $35 for members; $40 for non-members in advance; $40 for non-members at the door Two (2) hours

Join the 2014 ProNet Leadership Academy Oct. 22 - 24, 2014 Learn more at uacpa.org

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CPE Where You Want It, When You Want It! The UACPA and our partners deliver fast and convenient CPE to your home or office.

With just a click you can earn 2 to 8 hours of CPE credit from the most experienced CPAs across the country from wherever you have a computer and Internet connection.

To view a list of upcoming Webcasts log on to uacpa.org, Education & Events and click on “Webcasts,” keyword search “Webinar.” the journal entry | January 2014

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ContactList Accounting Issues

When UACPA members have questions about accounting issues, help is available from the UACPA Accounting Issues Committee.

Each month, a member of the committee is assigned to answer accounting questions and help you interpret the rules as they apply to your particular situation. The following members may be contacted during the months listed.

January

February

Ted Rokich 801-263-3090 trokich@fdic.gov

Larry Deppe 801-626-7838 ldeppe1@weber.edu

AICPA Ethics Hotline

The AICPA Ethics Hotline provides non-authoritative guidance to members on questions related to ethics including independence. Each year it responds to more than 4,000 inquiries. The Ethics Hotline is open from 9 a.m. to 5 p.m. ET on weekdays and a staff members may be reached by dialing either (888) 777-7077, menu option #5, followed by menu option #2, or by e-mail at ethics@aicpa.org.

CPE Where You Want It, When You Want It!

March Mark Anderson 801-532-2200 manderson@hbmcpas.com

CPE Approval – Does This Qualify?

When UACPA members have questions regarding CPE Approval and whether or not something may or may not qualify, they can turn to the UACPA CPE Approval Committee for answers. Each month, committee members are assigned to answer member questions related to CPE approval, and below are those members’ names that may be contacted with your questions.

January - March Steve Avis 801-532-2200 savis@hbmcpas.com

Scott L. Robinson 801-990-5918 srobinson@tannerco.com

Tax Issues

The Tax Issues Committee focuses on legislative and regulatory issues and does not answer technical questions. For assistance with a technical matter, please refer to the UACPA referral tool at uacpa.org. Direct questions related to legislative or regulatory issues to taxissues@uacpa.org

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To view a list of upcoming webcasts log on to uacpa.org, Education & Events and click on “Webcasts,” keyword search “webinar.”

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Interested in Buying a Practice? See local and nationwide listings at www.AccountingPracticeSales.com and register for free email updates. Or call us at 800-397-0249.

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Officially, it’s Chartered Global Management Accountant . Established

by AICPA and CIMA, two of the world’s most prestigious accounting bodies, the CGMA designation represents accomplished professionals who drive and deliver business success, worldwide. ®

13085A-312

Find out more at cgma.org

Utah Association of CPAs 1240 E. 2100 South, Suite 500 Salt Lake City, UT 84106

Address Service Requested

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