Mark Koscinski Uncategorized

We Are Only Here For a Short While.

I was saddened to hear of the passing of a fellow member of the board of directors of MOCEANS, Inc. in May 2020. Victoria Kaloss, a kind and gentle soul left this veil of tears after a very accomplished life. She was an  advocate for the disabled and volunteered with many NFP organizations including Riverview Medical Center, The ARC of Monmouth County, and the Monmouth-Ocean County Educational System.  Victoria was also a poet.   She made a difference in the lives of everyone she came in contact with.  A blessed repose and eternal memory!

At times like these, we should stop and think about our lives.  Do we make a difference to those WE come in contact with?  Can we do more to help others? Victoria left this world too early, reminding us we are only here for a short time at most. Make a difference.  Volunteer at an NFP and help where you can. 

Mark Koscinski Uncategorized

NFP Internal Controls and COVID-19

Internal Control Concerns in an NFP Due to COVID-19

The “new normal” of the post COVID-19 world poses significant risks to NFP organizations. Aside from the myriad of operational issues, internal control effectiveness may have deteriorated as well.  Much of the daily accounting work was done at home without segregation of duties. For instance, checks may have been printed  with one person controlling the check stock, writing the checks and signing the checks out of necessity.  When you compound the current sometimes limited level of internal control with the “new normal”, NFP management and boards will need to be more attentive  to fraud and mismanagement flags.  Even NFPs with an independent audit are not immune from potential issues.  Remember, independent auditors do not audit to find fraud.  Even the typical audit procedures may not be as effective as before since much if not all of an audit may be conducted remotely.

What should NFPs do in order to protect themselves?  Here are ten concrete steps Boards and Management should consider:

  1. Have a reporting system in place that detects and reports unusual payments. Payments above a certain threshold should be reported to a responsible offer for review. 
  2. Insist financial reporting be brought up to date as quickly as possible. Small accounting staffs wear  many hats and are often challenged getting out monthly financial reports already.  Depending on the workload, a slowdown in financial reporting in the current environment is to be expected. However, the relaxation of internal controls does increase the risk of fraud and management to an organization.  Timely financial statements provide a valuable detective control. The faster they are brought up to date the less the risk there is to the organization. 
  3. Make sure the quality of financial reporting does not deteriorate.  Variance explanations between actual results and budget need to be maintained at the same level as before, if not increased. 
  4. Make sure all payroll taxes are being paid. Personal liability attaches to responsible parties for delinquent payroll taxes and withholding. If you are an officer, you could be left “holding the bag”.  If  payroll taxes have been deferred under recently enacted guidelines, make sure there is sufficient liquidity to pay them when due.  Remember, employee withholding still needs to be remitted. 
  5. Make a list of and make sure any other statutory payments are being made.  For instance, your organization may owe the government money from a performance audit.  It is critical such payments are made  in compliance with contractual provisions.  Government contracts may be a big source of revenue for NFP organizations.  An action as simple as not paying a bill should not be allowed to jeopardize the future prospects of the organization. 
  6. Be alert for any unanticipated losses, increases in other expenses, or increases in other assets.  These are common ways  for fraudsters to hide illicit payments. 
  7. Have an audit committee even if there is no external auditor.  Just knowing someone is watching can deter some fraudsters. 
  8. Require separation of duties be restored as quickly as possible.  It may have been necessary to make exceptions during the COVID Crisis, but the “old normal” of segregation of duties should be brought back as soon as possible. 
  9. Review the controls around electronic banking.  Electronic banking has exploded during the crisis. Make sure adequate controls are installed around this process as soon as possible. 
  10. Remain vigilant! Good internal control and a healthy skepticism is always warranted when liquid assets are concerned. This is even more true in a crisis environment!
Mark Koscinski Uncategorized

Some Welcome Relief

As if the rugged terrain of managing an NFP entity wasn’t difficult enough, then came along the Coronavirus.  This created turmoil in the NFP world  and in the world in general) and will certainly result in some organizations suffering deep budget cuts or even failing.  The State of New Jersey for instance has announced a new budget deficit as a result of the pandemic that could  reduce its spending across the board.  The Financial Accounting Standards Board, the private body that sets accounting standards for NFP entities, has proposed some welcome relief for NFPs. It is  postponing the implementation of the new lease accounting standard  for private businesses and NFPs until fiscal years beginning after December 15, 2021. In effect, this gives these entities a year’s grace period for implementation. 

Implementing this  accounting  standard would be a burden on many organizations as accounting staffs will be pressured to even maintain and close the books for  these organizations.  Many accountants could not even access source data  for extended periods of time as offices were shuttered across the country. Adding another burden of adopting a new accounting standard  let alone one as complex as this one  would be beyond many organizations’ capabilities.  In the meantime, many NFPs are either granting rent concessions for facilities they lease out or receiving rent concessions for properties they rent.  The NFP financial statements should clearly disclose any material concessions granted and received, as well as the accounting treatment used. 

On another front, the President signed a bipartisan bill expanding uses of the Payroll Protection Plan (PPP) loans.  Previously, 75% of the funding had to be used for payroll purposes in order to have the loan balance forgiven. The new law lowers that threshold  to 60%. This flexibility will also be a welcome relief to many NFPs struggling with utility bills and other operating expenses.  The bill also lengthened the amount of time the funding could be used.  When you couple these two developments with the surprising May 2020 jobs numbers, perhaps there is some more hope on the horizon!  Stay tuned.

Mark Koscinski Uncategorized

Coming Into the Light

Not For Profit organizations will face a vastly different landscape when the Great Social Distancing ends. What  planning steps should NFPs consider for that eventuality?

  1. Liquidity management will be key.  Many NFPs are perennially underfunded and used to living from “paycheck to paycheck”. The situation will be even more acute as an organization attempts to ramp up operations.  The danger is the desire to resume operations may outstrip funding. Discretionary spending should be kept to a minimum until it becomes apparent a “Second Wave” of Corona Virus is not coming.   NFPs should evaluate drawdowns on any available lines of credit and the status of any receivables outstanding.  If an NFP doesn’t have a line of credit and is financially stable it should consider applying for one when it can. 
  2. Monitor all possible government assistance plans announced in the future.  The first assistance to small business programs enacted by Congress lapsed as of the date of this blog.  The funds provided by the CARES Act  have been completely dispersed.  Management should keep an eye out for future aid programs or announced by the Administration.
  3. Planned capital spending needs to be reevaluated.  Needless to say, any discretionary spending should be delayed while there is a potential liquidity crunch.  Any remaining scarce resources that can be spent should be prioritized with a shift to digital service delivery receiving a higher priority than before.  While many, if most services can’t be pushed into the digital realm, those that can should be done as quickly as possible.  This is even more important if a  “Second Wave” is coming.  The shift to virtual service delivery will also become important because of potential labor issues in the new operating environment.
  4. Labor requirements need to be assessed.  This will be critical because of two new factors:
    • Many employees may have been forced to take jobs elsewhere.  Believe it or not, some companies have been hiring during the pandemic.  Your employees may have been forced to take jobs elsewhere simply as a matter of economic survival.
    • Retraining will be required. Some employees may need refresher courses on their job duties.   Other employees will need training to survive in the digital realm as the organization ventures into the “Brave New World”.
  5. Have a communication plan for stakeholders ready.  The NFP needs to manage the expectations of its stakeholders during the crisis and through the “recovery period”. The organization should be in constant communication with its stakeholders throughout the crisis.  It will become even more important as the organization comes out of the dark into the light.  The NFP needs to tell its client base it is back up and running and when each service will be available.  

This series on the Pandemic Crisis and NFP management will continue in the coming weeks!

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.