Mark Koscinski NFP

And the Runner Up for Grinch Is….

NFP organizations, like other employers, had a rough spell the last two years. In recognition of that, Congress provided for a deferral of the employer portion of payroll taxes due from March 27, 2020 until December 31, 2020 in the CARES Act. This was a deferral, and not a a forgiveness of these taxes. The chicken has now come home to roost. This is a reminder that 50% of the deferred balances must be deposited by December 31, 2021, with the balance due by December 31, 2022. Employers who do not make this deposit by year end will be subject to interest and penalties.

Given the fact the pandemic is still impacting many organizations, shouldn’t the IRS consider providing a more lenient repayment schedule? I can understand that remission of payroll taxes is out of the question, but many businesses and NFPs may struggle to make these payments. So, the runner-up in the 2021 Grinch election has to be the IRS.

Mark Koscinski NFP, Uncategorized

Who is the New Grinch This Christmas?

The Financial Accounting Standards Board (FASB) recently delivered an unwelcome holiday season body blow to the NFP world (and privately owned companies as well). 
Working hard to earn the title of Grinch, the FASB  decided on November 10 not to defer the new lease accounting standard for a third time.  The previous justifiable deferrals of the original implementation date were caused by the Pandemic, as many organizations were shut down or forced to adapt to their new reality. 

The new lease accounting will take effect for fiscal years beginning after December 15, 2021, and for interim fiscal periods beginning one year later. This standard requires all lease obligations to be recognized on the balance sheet of the organization, with only minor exceptions. Management could be in for some surprises  as bank loan covenants might be impacted because of the new debt on the balance sheet.  Additionally, an NFP organization will need to not only implement the lease accounting for future years but also to retroactively recalculate the impact of the new accounting for prior  years. This is required even if the NFP decides to adopt a “cumulative change” approach to implementation.  In short, NFPs shouldn’t underestimate the amount of work involved in this effort. Many organizations have already found the implementation more difficult than they originally anticipated. 

To say I disagree with the Grinch’s action is to put it mildly.  Many NFP organizations have been operating on a shoestring budget for extended periods of time, not to mention the fact the job market for accountants is extremely tight.  This means just finding the bodies to do the work is a difficult proposition. Mercifully, many NFP organizations have fiscal years such as June 30, giving them some more time to complete the required work. Nevertheless, it is imperative to begin working on this project as soon as possible so the delivery of financial statements to donors and other stakeholders is not delayed.  

Perhaps the FASB should adopt green as its new official color? 

Mark Koscinski NFP

Meanwhile, Back in Rome…

Meanwhile, Back in Rome…

Vatican financial reform efforts are still underway, even this far into Pope Francis’ reign.  The current state of affairs is described by John L.  Allen in an excellent article published on the Crux website.  That article can be accessed here. It seems the Vatican sustained an eye popping loss of $130 million dollars disposing of an ill considered investment in the London real estate market.  To add insult to injury the original investment was made from  Peter’s Pence, the annual collection taken up in every Catholic Church in the world to help defray Vatican operating costs. 

The upshot of this mess is Peters’s Pence collections, a major source of income for the Vatican, has been much reduced.  There is no doubt the Pandemic was a major reason for the decline, but even the Vatican has been forced to admit the recent bad publicity has a lot to do with this.  (Please click here for an article from CNA about this). 

I have made similar comments such as these many times in this blog, but for those of you that are new and may be managing NFP organizations, they bear repeating:

  1. Changing the “corporate culture” often requires replacing the entire cast of characters and not just “the boss”.  Yes, the cardinal who foolishly invested in London real estate has been dismissed, but what about all of those that assisted him? The Catholic Church has been loath to do such things.  Time and time again we have seen the clergy rally to “protect itself” from “outsiders”.  Extreme clericalism is not a healthy culture by any stretch of the imagination. Deep cancer often requires extensive surgery to uproot it.  Has this happened at the Vatican?
  2. Has an investment policy been adopted? Any organization with any amount of money needs to have an investment policy. This will at least hinder miscreants from making such horrible investments as we have seen here. A proper investment policy could have prevented such speculative investments as we saw here. Is there one now in place?
  3. Will there ever be a real audit of Vatican finances?  If the Pope and the Curia really wanted to get to the bottom of the problem then it is time to bring back PriceWaterhouse or another respected international accounting firm to give the books a good once over. The Vatican seems to be reacting like a vampire afraid of sunlight. A little more transparency please. (Note:  this is good advice for bishops in their dioceses as well…)
  4. Does the Vatican understand the implications of prospect theory for its donors?  Prospect theory, the brainchild of Daniel Kahneman and Ivan Tversky, states people on average feel economic loss more than twice as much as they feel economic gain.  That is why publicly traded corporations try to get all bad news out at one shot. They do not want investors to continually keep hearing bad news and feeling pain over and over again.  Such conduct will get CEOs and CFOs fired.  Hopefully, the Vatican has been completely transparent about this affair and no more bad news will come out.  Hopefully. 

To be fair, it seems Pope Francis has taken some measures to correct the situation. He was late to the game though.  Only time will tell if he has done enough to restore the confidence of the laity in the pews

Mark Koscinski NFP

Giving Tuesday

The Tuesday after Thanksgiving has become known as Giving Tuesday, a day where we who have much share with those who may need much. Obviously, the past two years have been rough on many people given the Pandemic. Many organizations, particularly NFP organizations have not completely recovered from this. On this Giving Tuesday, remember to give generously to your favorite NFP organization. It doesn’t matter which one it is. Pick a worthy one and help those who help others.

Many employers will match contributions to specific organizations or will match donations made on this day. Please take advantage of this if you are employed by such a forward thinking organization. And remember, charitable contributions up to $600 can be deducted from taxable income in 2021 without itemizing deductions.

Mark Koscinski Uncategorized

The Birthday Problem

Hello Everyone! I hope you all had a wonderful, long and restful Thanksgiving Weekend! There was some excitement in my family as my fifth grandchild was born on Thanksgiving Day. Interestingly enough, this was the third grandchild out of the five born on Thanksgiving Day itself. They were all born in different years but all on Thanksgiving Day of that year. I have told my children the individual birthdays are now irrelevant. All three now have an official birthday, like the Queen of England does.

How unlikely is this scenario? I teach Decision Analysis at Moravian University and have acquainted my students with the mathematics of combinatorics. Check out this amusing little video made by David Knuftke for Ted-Ed called the Birthday Problem. it describes the use of combinatorics in calculating a similar but somewhat different problem.

PS. You can calculate the odds of three people being born on the same day by watching this video. Enjoy!

Mark Koscinski Uncategorized

The Delegation Heuristic

Heuristics have been called “fast and frugal” decision-making rules.  There are many types of decision-making heuristics, some notably better than others.  For instance, I am not a particular fan of the concept of satisficing, a term coined by Herbert Simon.  Simon won the Nobel Prize in Economics in 1978, but I have always believed his theory of  satisficing short-changes the process decision makers actually employ.  Daniel Kahneman (another Nobel Prize winner) and his partner Ivan Tversky (who sadly passed away before he could be awarded the Nobel Prize) developed or discussed many other heuristics.  For a more complete discussion of these, I suggest you take a look at Kahneman’s outstanding book Thinking Fast and Slow.  Some of my graduate students have called this the best book they have ever read. 

I would modestly like to propose another heuristic I will call the delegation heuristic. Many of us have seen organizations grind to a halt because the decision maker was often overwhelmed with many small decisions or with subdividing  a major project into many smaller tasks.  A prime example of this is history is how Robert E. Lee controlled the Confederate Army of Northern Virginia during the Civil War. Lee made very little use of his staff, who jokingly referred to him as “the Tycoon”. Lee insisted on coordinating every aspect of a potential  engagement. This constant exertion wore Lee out and may have contributed to the final defeat of his army after years of combat. Contrast this with Union General U. S. Grant, who maintained a large military staff for the time and used them effectively.  Even while he campaigned with the Union Army of the Potomac, Grant left General Gordon Meade in command of this army while Grant concentrated on strategic issues.  In short, one of the reasons why Grant could effectively manage multiple armies was because he could delegate effectively and knew the rules of delegating.  He maintained final responsibility but he gave authority to his subordinates to issue orders and coordinate the campaign in detail. 

Delegating is perhaps the most fast and frugal of all heuristics. A leader understands heuristics conserves critical time and energy and brings more mental firepower to solving the problem at hand.  This type of leader will often delegate smaller less consequential decisions to staff members or subordinates.  In other words such a leader will make a decision by appointing someone else to make a decision. The decision is always made in the name of the leader, who may not even know sometimes the decision has been made. 

The decision heuristic can be executed in several different ways.  For instance, i would divide decisions I faced into the following categories: (a) delegate the decision entirely to someone else; (b) delegate the decision to someone else but provide the decision rule or decision methodology for the delegatee; (c ) delegate the decision but ask the person to inform me or discuss the potential decision before it was issued; and (d) major decisions I would reserve to myself. In this way I would be able to provide strategic leadership and deal with complex tactical problems without being encumbered by many smaller decisions, all of which needed to be made but would distract from my dealing with the “tougher decisions”. 

Mark Koscinski NFP

Last Round of Horseshoes for Summer 2021

Last Round of Horseshoes for Summer 2021

As Labor Day approaches many organizations are returning to the office and schools will be holding in person classes. We can only hope and  pray the pandemic will abate as we move through the rest of the year.   As summer fades away, it is now time for the last round of NFP horseshoes for the Summer of 2021. For the sake of brevity, I won’t repeat the scoring rules here as I have already done that earlier this Summer. 

A Ringer!–RSM LLP, a large accounting and consulting firm,  acquires C Systems, a technology services provider to the NFP world. To be sure, RSM is known for its presence in the NFP world, but this acquisition shows their confidence in the rebound of this sector. Perhaps it is a good sign for all those working in the NFP world!  PNC Bank also recently spoke about the increased potential of merger and acquisitions in the NFP sector. (Access the article here.) You can read the press release from RSM here. As an aside, RSM offers continuing education courses for NFP personnel that can be accessed here. 

A Ringer! Moceans CIL going strong! Moceans CIL is a center for independent living, serving Monmouth and Ocean counties NJ.  Despite the pandemic, the staff of Moceans continues to serve their client base. They  and  all the NFP organizations that have persevered through the pandemic are to be commended for their dedication to their mission. The MOCEANS website can be found here.  May they  and all NFP organizations continue to have good fortune in their future endeavors. 

Missed the Stake.  The Trial of Cardinal Becciu adjourned until October. The trial of the former papal chief of staff  (or, sostituto as the position is known) started in late July and was adjourned until early October.  Yes, Italy tends to shut down for the month of August so that explains some of the delay. However, it seems there has been a certain level of incompetence in the management of the trial.  For instance, the defense has not received all of the evidence against Angelo Cardinal Becciu yet.  One can only hope the Vatican has the wherewithal to deal with such a complicated trial.  That remains to be seen. Pope Francis has made some strides lately to clean up the corruption of the Vatican Curia (including this trial) , but it seems it is too little and way too late in his pontificate. I won’t even get into the petty corruption and graft that exists in all of the dioceses around the world. The Catholic Church is arguably the largest NFP entity in the world and should set the standard for Good Stewardship of the Faithful’s assets for not only the Vatican curia but for all dioceses throughout the world.  Sadly, this has not been the case. 

Missed the Stake.  FASB has not delayed the implementation of ASC 842.  For those of you who aren’t aware, ASC 842 is the new lease accounting standards issued by the Financial Accounting Standards Board (FASB).  Due to the pandemic, the previous effective date has been delayed for NFP entities that begin their fiscal year after December 21, 2021.  While one might think that this gives NFPs the whole year to get the lease accounting under control, that is not correct.  ASC 842 is effective for interim financial periods as well.  So, if the NFP has to provide financial information to lenders on a quarterly basis it needs to get cracking on this project now.  One has to wonder though.  Many NFP organizations are having a hard time operating in the pandemic as it is. This is just one more burden for them.   Will they be sacrificed on the altar of theoretically correct accounting? Would it have been so traumatic for the FASB to grant one more extension? 

Wel, that wraps up our horseshoe games for this summer!  The semester at Moravian University has is starting so I will be concentrating on that for a while.  I hope you had a great summer. Stay healthy!

Mark Koscinski Uncategorized

Delivering Bad News

Robert Stack, portraying  Eliot Ness in the TV show and movie The Untouchables was asked if he heard about Al Capone’s death.  Stack responded, “Good news travels fast.” That is so true. Not only that, but good news also has many parents. I once overheard the CEO of my company being asked if he heard about the collection of a  long overdue accounts receivable  He said, “Yes, from about a dozen people.” 

On the other hand, bad news travels much more slowly than good news, if at all, throughout an organization. Unfortunate information about a problem is an orphan as people are often reluctant to pass it along.  This can be a problem as sometimes as an immediate response may mitigate the effects of the  problem.

How do you deliver bad news?  Well, let’s start with some ways you should NOT deliver bad news:

  • Email.  When I was a busy CFO I would receive a massive number of emails per day. It was hard to keep up with them, and sometimes a whole day would pass  before I worked through my entire email queue.  Like most people, I would respond to  the most recent email first and work backwards.  If the bad news or the problem was buried in my email, I  often could not respond to it on a timely basis. It was even worse if I accidentally deleted the email before reading it. I eventually turned the tables by sending out an email to my colleagues prohibiting the communication of bad news to me via email. I did not want to play email roulette with bad news.  I thought it was ironic when some of my colleagues  said that email  was lost in their email. 
  • The “desk document dump”.  This sneaky method consists of waiting until your manager leaves his office and then throwing a document with the bad news on her desk. The person doing this prays it won’t be found until the next day, or even better, it will be buried by other documents thrown on top of it. I truly hated this, and I eventually learned to close my office door when I left it, even for a short while. 
  • The casual conversation in the hallway.  As you are rushing off to an appointment, your colleague tries to quickly deliver bad news, often requiring an immediate answer.  You can’t focus on it, and even worse, feel forced to give a quick, off the cuff response.  As Daniel Kahneman writes in his best-selling book, Thinking Fast and Slow, these initial reactions are often wrong, potentially compounding the problem. 
  • Delivering bad news at 4 pm on a Friday. You wait  until the very end of the workweek to lower the boom on your  manager, depriving her of the ability to react appropriately to the situation.  Companies and government agencies have raised this to an artform. They rely on the fact their audience may already be focusing on the weekend. What’s worse, the manager on the receiving end thinks about the bad news over the weekend, feeling frustrated at her inability to respond to the problem.  
  • Not delivering the bad news at all.  People simply  do not like confrontation. They hope the situation will turn around or the crisis will blow over before anything needs to be done about it. Obviously, this can be disastrous if the bad news needs to be addressed right away. 

How should someone deliver bad news?  Here are a few suggestions: 

  • It is okay to think about the problem for a little bit before going to your manager with it.  Please note this does not mean sitting on a problem for an extended period of time.  It means quickly ascertaining all of the facts about a situation, organizing them in a logical manner so they are easily communicated and coming up with potential solutions. Managers hate having a problem dumped on their desk without  a  proposed solution. A good manager  values colleagues who work harder in adversity and having a proposed solution shows this. 
  • Make sure the recipient of the bad news has engaged their System 2.  Kahneman writes that we make decisions and eventually take action in two different ways.  System 1 responses are fast and intuitive and often wrong. That is one of the problems with the casual hallway conversation.  System 2 is the application of our full conscious attention to a problem. Make sure the person receiving the bad news has engaged System 2 or they otherwise might not even remember receiving the information at all! How do you do this?  Each person has their own preferred decision-making process. I liked it when someone made an appointment with me so I could focus all of my attention on a problem. I would engage my System 2 and work on the problem with minimal distraction.  You will need to find your colleagues’ preferred method of focusing on bad news or a problem. They will also appreciate the honesty. 
  • If you are forced to communicate problems via email, follow up. If circumstances require communicating bad news via email and you did not hear anything back from your manager, wait an appropriate amount of time and then follow up with a phone call or a visit to their office. Who knows? The email might have been accidentally deleted or your manager’s attention is diverted elsewhere. Not everyone is glued to their cell phone or their computers. They may not even know a problem has occurred. 

Besides the sneaky methods of delivering bad news I listed in this article, what other ways have you received bad news?  I would certainly be interested in hearing from you!

Mark Koscinski ESG

ESG and the Disabled

ESG (Environment, Social, and Governance) reporting is an  important topic in today’s corporate world. Even the SEC has required increased disclosure in this area.  For many years the SEC has required publicly traded companies to disclose the number of employees.  That disclosure has now been expanded to include the types of employees and independent contractors the company has. The purpose of this is to give investors a window into how the company regards its workers. 

The Value Reporting Foundation (VRF) was recently created by the merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council. Its purpose is to help provide a holistic view of what creates corporate value and advance the development of ESG reporting standards.  These include standards for reporting on six capitals, including human capital.  

While it is hard to disagree with the fundamental proposition investors would like to know as much as possible about companies they invest in, I somehow can’t shake the feeling that once again disabled are being left behind.  For instance, the SASB  announced a new project for reporting on the use of plastics in certain industries.  By itself, this seems innocuous enough. However, these initiatives have implications. Several years ago I wrote a post on how the banning of plastic straws has impacted the disabled.  That post can be accessed here.  Perhaps a more humane disclosure would include the impact on the disabled where applicable?  Similarly, the expanded human capital disclosures don’t seem to include any disclosure about the number of disabled personnel a company employs.  Shouldn’t that be considered by the VRF as well?  

As Gandhi said, “The true measure of any society can be found in how it treats its most vulnerable members.”  Perhaps this is a lesson the VRF should take to heart as it promulgates reporting standards about what truly creates corporate value.