Mark Koscinski Uncategorized

Contract Review

As the COVID-19 pandemic continues to wreak havoc with the United States economy, some organizations are beginning to dig in for the long haul. While everyone wishes we could get back to business as soon as possible (and there are some indications this is what will occur), it may be many months before that happens.  Increased expense control is becoming the watchword for many NFP organizations as donations and other sources of revenue dwindle.  In some cases, stringent cost controls will be a matter of survival. Sadly, many employees may be furloughed in upcoming week because of the fallout from current events. 

One area all NFPs should investigate thoroughly is the possibility of business interruption clauses in their contracts.  Lease contracts often provide rent abatement for “Acts of God” preventing the normal operation of the organization or if the landlord closes down the building. Yes, there is a good reason for the landlord to close a building in an epidemic, but it is good for any NFP management to understand what its options are in the circumstances.  Perhaps a negotiated settlement fair to all parties can be reached. Needless to say, rent is often a major expense for any organization and an abatement for the period of the national emergency could be a lifesaver for an NFP. On the other side of the coin, many NFP organizations may also be landlords.  Knowing if your lease contains an “out” clause for tenants could be a nasty surprise, but it is better for management to find out about it now rather than later.

NFP management should also take the time to review other contracts where services are contracted or services are being provided.  These contracts may contain force majeure clauses.  Management will also want to know if there are liquidated damages clauses in these contracts.  A liquidated damages clause will spell out what one party may have to pay the other in case of nonperformance under the terms of the agreement.  Contracts with major vendors and customers should be reviewed because of the material consequences such clauses could have on its future operations.

Finally, NFPs should consider opening up a general ledger account where losses from this crisis can be accumulated.  No one knows how long the current state of affairs will continue or what the federal government will do about losses sustained by NFPs because of it.  If the federal government does provide additional relief, you can bet there will be reporting requirements. It is better to be ahead of the curve and have the information neatly stored in one place and readily accessible. 

More to come as the days go by! 

Mark Koscinski Uncategorized

Houses of Worship and the CARES Act

The new CARES Act signed by President Trump on March 27, 2020 provides potential relief to financially stressed not-for-profit (NFP) organizations.  Congress and the Administration realize NFPs employ approximately 10% of the workforce and constitute about 5% of Gross Domestic Product.  Even though this is a small portion of the economy, there cannot be a true economic recovery without this sector rebounding also.  This blog addresses one specific group of NFP organizations:  houses of worship (called Churches hereafter for the sake of simplicity.)

The activity of clergy has been severely curtailed by recent events, and worship gatherings are limited to ten people in many if not all areas. Even though some Churches are live streaming their services, donations have dropped precipitously in many places.  One of my colleagues remarked it is often a challenge to get people to donate in the first place and the current environment makes this situation even more difficult. Increased unemployment and economic uncertainty will lead to decreased donations putting stress on Churches’ (and other NFP organizations) finances.  

One way to alleviate some of the stress is to apply for a Payroll Protection Plan (“PPP”) loan administered by local banks.  The application form is extremely simple and can be found at the SBA website.  The bank will lend 2.5 times the average monthly payroll and the loans will be forgiven if certain less than onerous conditions are met.  Houses of worship should apply for the PPP loans if they meet  the basic criteria of the program contained right on the loan application itself.

Churches  should also take advantage of payroll tax deferrals as well. Payment of the employer portion of Social Security taxes may be delayed until the end of this year as well.  It is critical to note the Medicare portion ( both employer and employee portions) and the income tax withholding from employees must still be remitted by the normal due date. This is a reasonable requirement since the vast majority of that money is a deduction from the employee’s paycheck and therefore belongs to the employee. Half of the deferred payroll taxes payment may be deferred until December 31, 2020 and the other half until the same time the following year.  Please note this applies to the federal payroll taxes only and not state payroll taxes.  Churches should look for local guidance on this subject.

Finally, Congress has now allowed a $300 charitable contribution deduction to adjusted gross income in 2020.  This means at least a portion of donations made to Churches will be tax deductible.  Previously, charitable contributions were considered itemized deductions and often did not result in a tax benefit since the standard deduction is now so high.   The cap on charitable contributions has also been increased from 60% to 100%  of adjusted gross income.

While this may boost contributions somewhat, Churches and the NFP sector as a whole will need more assistance than this.  The President has recently come out and said he is not opposed to another round of fiscal stimulus.  Perhaps a new stimulus package will be more charitable to charitable organizations.

In any event, this will be an unfolding story, with a lot more to come.

Mark Koscinski Uncategorized

Shut Down!

New Jersey and other states have ordered many organizations to close in an effort to contain the Corona Virus contagion. As part of its effort to eliminate larger group meetings, the State announced new workplace guidelines that included the following:

All businesses or non-profits in the State, whether closed or open to the public, must accommodate their workforce, wherever practicable, for telework or work-from-home arrangements.

At times like these our hearts go out to everyone, most especially to those who have become ill or unemployed as a result of the virus. Despite all the travail, we all have faith there will be a recovery and the world will return to a more normal status. Economic and social service activity will come back.

When that happens, what lessons will NFP organizations have learned from this tragic episode? What questions should NFP board members be asking? How should strategic plans of NFPs change in response to this new reality? Some needed adjustments might include:

  1. A renewed focus on service delivery methods. It is a sad many NFPs will not be able to reopen their doors after social distancing ceases. The disruption in service and the potential loss of trained employees will be too great of a burden to overcome. The NFPs that have been able to provide some services through technological means have the best chance of surviving. Yes, it is difficult to provide certain essential services on-line, but perhaps some can. NFPs should examine each step of their operation to see which services can be delivered through technology. Many NFPs have continued to function even at a minimal level that way. Technology is not only a mitigating factor during business interruption but has been an effective cost reduction tool overall.
  2. Business interruption plans need to be kept up to date. Besides considering the increased use of technology, NFPs need to assess other aspects of their business interruption plan including the need for business interruption insurance.
  3. Succession planning and the training of middle management are mission critical. Recent events have shown how necessary succession planning and the training of middle management is. World leaders such as Boris Johnson of the United Kingdom have tested positive for the Corona Virus and are being put into isolation. Suppose he begins to show severe symptoms? While the U.K. does have a contingency plan for this eventuality, does your NFP? What happens if an executive director of an NFP tests positive and is required to go into isolation? Does the organization have enough depth of management to weather the storm? The board should insure it has a plan in place to insure continuity of management, even if (and hopefully) for a short time. The finding and training middle management can be a difficult proposition even in the best of times and gives lip service to succession planning. NFPs should step up their efforts in this area!

Mark Koscinski Uncategorized

VITA–Volunteer Income Tax Assistance

Moravian College is once again proud to take part in the annual Volunteer Income Tax Assistance (VITA) program sponsored by the Internal Revenue Service. Fifteen students and three accounting professors help local residents prepare their federal, state, and local income tax returns. Students not only learn about taxes through hands on return preparation, but also gain invaluable lessons about interacting with the Bethlehem PA community. What’s more, studies have shown VITA tax returns have one of the highest accuracy rates in the industry. VITA is available to taxpayers with income of less than $56,000.

For additional information about the Moravian VITA site, please see https://www.moravian.edu/economics/volunteer-income-tax-assistance.

For the types of tax returns VITA can prepare, please see https://www.irs.gov/pub/irs-pdf/p3676bsp.pdf.

Mark Koscinski Uncategorized

Financial Accounting Rules for NFP Organizations

Many financial executives are a little stunned to hear NFP organizations do not use fund accounting any more for their financial statements. To add to complexity of the situation some of the guidance produced by the Financial Accounting Standards Board has is not clear and confusing (at least to my mind).

To help out your understanding of the accounting requirements of your NFP organization I am sharing an article from Scot Levy, an outstanding financial professional, on the new accounting requirements for contributions received and contributions made. This new accounting guidance is effective for any NFP entities with a year-end of December 31, 2019. So, the new rules will need to be reflected in the financial statements your organization is preparing now. Is your organization ready? Good luck with implementation!

The article can be found at: https://www.linkedin.com/pulse/nonprofits-you-ready-new-contribution-guidance-scott-levy/

Mark Koscinski Uncategorized

New Year Wishes

As the New Year approaches,  here is my “Top Five”  NFP wish list for 2020:

5.  The Vatican finally arrives at a workable and fiscally responsible structure.   You may protest the Catholic Church should not be considered here.  After  all, it is a sovereign entity and the leadership of one of the world’s largest religious denominations.  The current  Vatican organization is one Roman Emperors would be familiar with.  Granted it has proven resilient but that doesn’t necessarily mean effective.   Pope Francis continues to struggle with the Vatican “Deep State” as he tinkers with the levers of power in the Vatican.  I hope he figures it out this year. 

4. The City of Baltimore  implements an adequate system of internal control.  I have written about the City of Baltimore at length in this blog and via articles.  If fact, I am making the City of Baltimore a case study in my  Advanced Accounting class this year.  Students will study such things as the  lack of a control environment in the City, poor cyber-security, and the resignation of the city auditor.   Before anyone can say I am picking on Baltimore,  please allow me to point out Baltimore is not alone when it comes to a genuine lack of cyber security.  Many cities and  NFP entities were subject to cyber-attacks, most often with ransomware.

3. The Financial Accounting Standards Board focuses on the Little Guy. Yes, the FASB is an NFP organization.  I do not want to rehash the arguments the FASB has become the captive of major corporations.  However, in an  era of deregulation, perhaps the FASB should consider lightening the burden on private companies.  At the end of the day, small business has been an engine of economic growth.  The FASB should help that along. 

2.  Increased funding for Centers for Independent Living.  Yes, this is a little parochial, since I have been a CIL chairperson. Even though I am not associated with MOCEANS CIL anymore, I still see the good work this and other CILs have done.   Perhaps I am a little out of line here by quoting the Bible, but the words there ring so true at a CIL: “Go back and report… what you hear and see: The blind receive sight, the lame walk, the lepers are cleansed, the deaf hear…” (Matthew 11:15).

1. Increased charitable contribution limitations for federal income tax purposes.  Yes, I know the recent tax law changes have increased the limits to 60% of adjusted gross income for individuals.  It should be more and it should be an adjustment to adjusted gross income.  The government should encourage giving to the needy.  And yes, the corporate limitation should go up as well.  I don’t know if I  agreed  with  the politics of Paul Newman ( or even knew what his politics was) , but if his company wanted to give away 100% of its earnings to a deserving charity, I am all for that.  I buy Newman’s salad dressing to this day.

Mark Koscinski Uncategorized

Another Round of Horseshoes

Time for Another Round of Horseshoes!

This blog started using horseshoe scoring for important events in the NFP and state government world.  Here is the result of the second round of horseshoes: 

A Double Ringer–that’s right, six points!  Rare indeed for this column. The double ringer was scored by the Bill  and Melinda Gates Foundation, combined with the Rotary. Yes, I know. I am not a big Bill Gates fan.  However, only the most bitter of critics would not acknowledge his foundation and the Rotary may commit  up to $1.5 billion to end childhood polio in the world. We in the United States have taken this for granted for a long time. Hopefully, the rest of the world will be able to do so as well soon. The following websites have more information:   

https://www.forbes.com/sites/michelatindera/2017/06/12/gates-foundation-and-rotary-pledge-additional-450-million-to-end-polio/#78aa249a65ec

https://www.gatesfoundation.org/what-we-do/global-development/polio

Missing the stake–Following the lead of several other states,  New Jersey is considering banning independent contractor status.  Businesses are already fleeing the State because of high tax rates and the inhospitable climate there.  The current Governor and his administration is devising yet another way to impose a burden on business. Governor Murphy is in line to receive the Grinch award at this holiday season.  Additional information can be found at:

https://www.washingtonexaminer.com/news/proposed-new-jersey-legislation-threatens-independent-contractors

Not only missing the stake, but the entire horseshoe pit— The former mayor of Baltimore was indicted on eleven counts of  fraud, conspiracy and tax evasion charges. To be sure, the mayor is entitled to the presumption of innocence and her day in court. The articles on this webpage have talked about the need for internal control in NFP and governmental entities. The most critical component of internal control is the control environment, often referred to as the “tone at the top”.  If the head of the organization and the executive management exhibit a concern for effective internal control then the rest of the organization will too. Perhaps this sounds a bit cynical, but if the person at the top of the pyramid is alleged to be defrauding other people, including NFP entities, the finance department and the auditors may want to be a little more cautious as they are carrying out their duties. 

https://www.baltimoresun.com/politics/bs-md-pol-pugh-20191120-kzmc2v7cafetjladglhgnyusdy-story.html

Mark Koscinski Uncategorized

Another Good Semester at Stitches

Clubs and voluntary associations have been with us for a long time and have had a profound influence on the world.   For instance, many scholars believe the early Christian Church was organized in much the same way ancient Roman clubs were organized.   Many of these associations were for eleemosynary purposes.  This tradition goes on to this day.  A great deal of charitable work is still done by voluntary associations and clubs such as fire departments, emergency rescue squads, and the Coast Guard Auxiliary just to mention a few.  Members of these organizations demonstrate the best qualities of humanity, contributing their time, talent, and treasure to improve the lives of others.

I have been proud to be the faculty adviser to the Moravian craft club, Stitches. Though this club is not as old as Roman clubs (by maybe two millennia…), Stitches’ members have crocheted clothing items for those in need now for years.  Their devotion has been remarkable. As this semester winds down, I want to give a special shout out to another member of the Moravian faculty, Dr. Kristin Baxter, associate professor of art for giving her time and talent to the club this semester.  All members surely appreciated her presence.  The officers of the club all worked hard this semester.  Special thanks go to Gabriela Landi, the group president.  She will be going off into the working world at the end of this semester.  We wish her all the best! I congratulate the new president and executive board as they undertake their new duties at the end of this semester. I can’t mention everyone and their contribution here, but you know I appreciate your participation and I look forward to next semester.

Note: Moravian student clubs decorate the benches at the College.  The picture is the bench decorated by Stitches.

Mark Koscinski Uncategorized

Horseshoes

Horseshoes is a familiar lawn game in the United States, especially during the summer holiday seasons.  The rules of the game and scoring are simple. Players throw the horseshoe at a stake about forty feet away.  A horseshoe completely enveloping the stake (called a “ringer”) is worth three points; one leaning on the stake (called a “leaner”) is worth two points; and the closest to the stake is worth one point if there are no ringers or leaners.   I will be using this scale to rate some Not-For-Profit (“NFP”) entities in the news recently.

A Ringer:  Grant Thornton, an international accounting firm, announced it will help smaller NFP entities with financing.  Larger NFP organizations can find funding more easily than smaller entities. A smaller entity might be doing excellent work in a niche area and may never attain enough critical mass to attract funders.  Alternatively, an NFP might be in a start-up phase and is struggling with working capital.  Grant Thornton is graciously funding selected NFPs through its Purple Paladin program. For more information, please see their website at: https://www.thenonprofittimes.com/foundations/grant-thornton-launches-funding-for-emerging-npos/. This is wonderful news from a great organization. 

A Leaner:  Amtrak anticipates breaking even in 2020, fantastic news for this railroad system since it has run losses for almost fifty years.   The most recent year saw Amtrak posting an operating loss of approximately $30 million (that’s right—million with an “m” and not billion with a “b”) dollars, setting the stage for its first breakeven year.  This would be fantastic, not only for the taxpayers and Amtrak riders, but for those with a sense of nostalgia.  W.W. Rostow (who was unfortunately called ‘Bomber Rostow” by one of my professors because of his support of the Vietnam War) claimed railroads were a leading industry in the development of the United States.  While this theory has drawn much criticism, it is fair to say the railroads were an important part of American history.

Completely Missing the Stake:  The U. S. Post Office estimated its loss for this fiscal year could be $8 billion.  Even worse, there is no turnaround in sight. The amount of first-class mail will continue to decline, and its unfunded pension liability has been estimated to be about $40 billion.  You don’t have to be a business school graduate to figure out declining revenues with big liabilities is not a good thing.

If you have any other favorites, please forward them to me for my next game of horseshoes!

Mark Koscinski Uncategorized

Thanksgiving

At this time of the year, we pause and give thanks for the many blessings we have in the United States. Besides being thankful for our friends and family, I especially want to give thanks for the following:

  • Not-For-Profit organizations such as MOCEANS Center for Independent Living, that provide necessary services to those in need or are disadvantaged in many ways; 
  • Volunteer associations such as the Coast Guard Auxiliary, fire departments,  and EMT crews that save lives;
  • Federal, State, County, and municipal governments that provide essential services to modern societies; and
  • Religious organizations  of all denominations that feed the poor and comfort the afflicted. 

These organizations are filled with hard-working, well meaning people who generally strive to improve the conditions of humanity in the United States and the rest of the world.  This is not to say these organizations are above criticism. Indeed, this blog often provides critique and commentary about not-for-profit organizational management. However, it behooves us to understand and remember  these entities often operate with limited budgets, personnel, and resources. Even with all the constraints they often perform miracles. We have reason to be thankful for their efforts during this holiday season.