Mark Koscinski NFP

Dear Santa…

December 21, 2021

Dear Santa:

It truly has been a tough year, but we were all good.  We worked hard to keep our organization going, often on a shoestring budget.  So, when you are making your rounds tonight and come to town, could you please bring us:

  • A Web designer.  We need to update our website so we can get our message out more effectively and to more people.  Oh yes, we have to  add a donation button to the website as well.  Could you see to that as well? 
  • A Cyber security expert.  Obviously, if we get a new website we need to make sure it is hacker resistant. Data security is so important these days.  We can’t afford to get our website hacked and held for ransom. 
  • A CPA.  Who can understand the PPP rules, not to mention that new lease accounting we have to figure out?  Maybe those guys at the FASB will leave us alone this year?  If they have any bright ideas about new accounting standards in 2022 we hope they keep them to themselves. 
  • A whole bunch of volunteers.  That includes the first four people on this list and a lot of others to help us carry out our mission this year.  
  • People willing to serve on our board.  We know these are far and few between. We also know this is a big time commitment for someone.   You have a pretty wide network of friends.  Perhaps you can convince some of them to donate their time and talent to help us out?  

Of course, you don’t have to drop them down the chimney.  They can knock on the front door and we will let them in. If you want though, could you leave us five gallons of hand sanitizer and wipes?  You can definitely leave those under the tree in the office. If that isn’t possible because of supply chain issues,  perhaps you can just leave a check to help us balance our budget this year? 

 Please kindly remember all of our volunteers,donors, employees,  clients, vendors and other stakeholders  this year as well.   We couldn’t have done it without them. A few of them might deserve coal in their stocking like the members of the FASB, but please overlook this. They have had a tough year too.  On second thought, perhaps the FASB board members do deserve coal in their stocking for that lease accounting decision they made last month. We’ll leave that up to you.  

 Santa, if it is not too much to ask, can you please bring an end to this Pandemic?  We keep hearing about the “new normal”.  However, the “old normal” was difficult enough for all of our clients and us.  This new world is really putting a strain on the delivery of services to those who are most in need of them. Perhaps you can put a vaccine that works on all mutations of the COVID virus in our stockings?  We know this sounds magical, but we also know you use magic to carry all of those presents in your sleigh.

Finally Santa, we are sad to tell you that there will be no milk and cookies for you tonight.  The Governor won’t let anyone eat or drink in the office.  Unfortunately, that includes you.  When you drop in tonight, you have to wear a mask in the office as well.  By the way, are you vaccinated? 

Have a wonderful and restful Christmas Santa.  We hope Mrs. Klaus, the elves, and you all have a great New Year as well.  

Very truly yours,

The Board and Management

Any NFP Organization

PS.  Don’t forget to get the elves vaccinated if there are more than 100 of them! We don’t want OSHA coming after you. 

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 Uncategorized

PPP Loan Forgiveness–Part II

The  Small Business Administration(SBA) has just published its PPP loan forgiveness process. Borrowers are required to submit a package to their lenders documenting use of the funds was done in accordance with the terms of the loans.  The lender will have 60 days to make a good faith determination this was so.  Any deficiencies in the application will need to be corrected before the package is submitted to the SBA. Assuming this is done properly, the SBA will then have 90 days to make a determination of forgiveness.  If rejected, there is an appeals process. The SBA has indicated it will review all loans in excess of $2 million for compliance and possibly for eligibility as well.  

In a previous blog I was critical of the Financial Accounting Standards Board requiring organizations to wait until the SBA formally grants forgiveness of the PPP loans before they could be removed from the borrowers’ balance sheet. Let’s look at this situation. There is a high probability the loan packages will be rejected by either the bank or the lender along the way. Corrections will be made, adding more time to the process. (You have all dealt with banks and regulators before, right?)  Optimistically, this could take a minimum of six months.   The borrower could have satisfied all of the requirements for forgiveness except not  hand-in complete paperwork. This simple action, subject to the whims of bankers and regulators, could determine the date the loan is forgiven and not the economic event of compliance. Since the SBA will not begin accepting applications until August 10, PPP liabilities will be on the balance sheet for six months minimum, clouding  readers’ analysis of the financial statements. Does this make sense to anyone?

Let’s look at some of the practical implications of this. I had complained  NFP organizations with a fiscal year-end of June 30 had no chance of having the debt removed from their balance sheet.  Now, NFP organizations with a fiscal year-end of September 30 will also be carrying the debt on their year-end balance sheets. This will probably be the case for December 31 year end organizations as well. 

In the meantime, bankers will need to give very clear instructions about what they will accept as proof of compliance to speed the process along.  Similarly, NFP management should not make the lenders or the SBA work hard to recommend or grant forgiveness.  Take the time to put together an easy to follow package with sufficient detail. Make the package easy to review.  In short, don’t scrimp on the upfront preparation.  It will only slow the process down.  You want this loan off your balance sheet as fast as you can. 

Mark Koscinski Uncategorized

Accounting for PPP Loan Forgiveness

The Financial Accounting Standards Board (FASB) decided  forgiveness of the Payroll Protection Program (PPP) loans should be accounted for as forgiveness of debt income when the Small Business Administration (SBA) formally absolves the NFP from repayment. This is consistent with previous FASB pronouncements but is somewhat puzzling in this context. The old maxxim consistency is the hobgoblin of small minds is apt. In more normal circumstances, the lender wants repayment when a loan is made  and the borrower normally intends to repay the loan.  This is not how PPP loans are structured.  The lender’s intent  from the very beginning was to forgive the loan if certain conditions were met. These conditions include  using  the borrowed funds to meet payroll and pay other agreed upon expenses. It seems the better matching of income and expense occurs when the NFP uses the funds to make payroll and satisfies the conditions of the program. The  probability of loan repayment becomes remote at that point, triggering the accounting recognition of income then and there. . The final paperwork absolving the debtor from repayment is only a ministerial action by the SBA under this theory, with no impact on the financial accounting.  

Many NFP entities have a June 30 fiscal year-end. Their  financial statements  will reflect a decrease in revenues due to the shutdown from the ongoing pandemic, their ongoing operating expenses  and a liability to the federal government.  In effect, this is a double-whammy.  The operating statement will reflect dismal results due to the loss of revenue and the balance sheet will show  deterioration due to the loan.  This is not where any NFP, depending on public support for its funds, wants to be.  The absurdity continues into the following fiscal year when its financial statements will  show a windfall from the loan forgiveness, distorting yet another year’s operating statement.  The only remedy NFPs will have is disclosing the probability of repayment  and pro-forma results of operations assuming repayment will not be made. This is not a satisfactory “work-around” as many readers do not take the time to read all of the footnotes.  Operating a NFP is tough enough.  Management doesn’t need to be weighed down with pedantically correct rules ignoring the substance of s transaction. 

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/