Mark Koscinski NFP

Memorial Day Musings

Memorial Day Musings

Despite the fact we have had some decidedly “unsummer like weather” in the Northeast, Memorial Day is the unofficial start of the summer.   It is also the start of the real negotiations on the tax bill currently  moving through Congress.  Speaker Mike Johnson has said he would like to get the bill to the Senate for a vote before Memorial Day.   The bill will change as it moves through the Senate and back to conference,  but let’s take a look at how the current provisions in the bill  might impact the not-for-profit  (NFP) world.

Congress appears to be ready to increase the allowable deduction for state and local taxes (SALT) on an individual’s federal income tax return.  This may have a positive impact on NFP organizations. The hike from the current $10,000 cap on SALT deductions  for married couples to $40,000 is substantial.  There is a phase-out for those making more. At the same time, the bill proposes a hike in the standard deduction to $32,000 for a married couple.  On the face of it, these changes could make it more likely individuals can  itemize deductions on their federal income tax returns. This means it will be easier to deduct charitable contributions again.  Previously, the low cap on SALT deductions precluded people from itemizing since the standard deduction is so high. If you live in a “Blue” State, you pay a pretty hefty state income tax and property tax, most of which is not deducible.  Increased charitable contribution deductions may mean more donations to qualified NFPs.  Onc can only hope at this point. 

There have been two other developments in the NFP space worth mentioning.  As I write this, the U.S. Supreme Court has deadlocked on the legality and constitutionality of state  funding of  charter schools. The whole issue of charter schools is a contentious one, with public school unions opposing any funding for them at all, let alone those schools chartered by religious groups. There was no opinion issued by any of the Justices, so it is difficult to determine exactly what their thinking was on the matter. The tie vote was possible because Justice Barrett, a practicing Catholic, recused herself from the case.  The Court affirmed the decision of the Oklahoma Supreme Court that state funding of a religiously affiliated charter school was unconstitutional. In recent years the Court has been very accommodating to  religious groups.  Perhaps there was something about this case that Chief Justice Roberts, the presumed swing vote, did not like. Only time will tell if this ruling will stand. For now, the ban on state funding of religiously backed charter schools  applies only in Oklahoma and not nation-wide. 

The second development is the cost-cutting activities of the Trump Administration.  Many have been blocked by  federal district court judges. The issue of the “universal injunction”  will also be decided by the Supreme  Court in the near future.  I believe some of the cuts will in fact be enacted. Which will survive and which will be blocked is still up in the air, as well as any impact on NFP organizations. 

In closing, I want to wish all of you a wonderful Memorial Day.  And remember to contribute to your favorite charity.  It is the American thing to do.  Even if you don’t get a tax deduction. 

Mark Koscinski NFP

Taking Your NFP From Good to Great

So, you are the executive director of a Not-For-Profit (NFP) organization.  You look around, and think that you have a good organization.  The first question that comes up is: “Is this good enough?” Many people would say no. We want to have a great organization. We all strive for this. The next question is: How do you make it a great organization?  One way is to look at the book “Good to Great” by Jim Collins. “Good to Great” has become a bestseller in the business world, influencing management practices and leadership styles. It can be adapted to the NFP world as well.  “Good to Great” emphasizes the importance of long-term vision, building a strong culture, and having the right people in place for sustainable success.

 The book focuses on how ordinary companies can make the leap from being merely “good” to becoming truly great over a sustained period. The principles Collins puts forth work just as well for NFP organizations as well as for for-profit companies.  Collins identifies “Level 5” Leadership as the crucial factor differentiating good organizations from great ones. A Level 5 leader blends humility and “professional will”, prioritizing the organization’s success over personal success. Great organizations  understand the “Hedgehog Concept,” the intersection of three key circles: what they can be the best in the world at (passion), what drives their economic engine (cash flow), and what truly matters to their clients (passion). Many NFP leaders are not comfortable dealing with the fiscal side of the business, but as one religious leader told me, “it takes money to do God’s work.” Similarly, it takes cash flow to keep your  doors open. 

Collins believes organizations can build a culture of discipline  This is achieved by having:

  • Discipline of People: Great organizations  foster a culture of discipline by employing and promoting talented individuals who embody the company’s core values and principles. This same principle applies to volunteers as well. 
  • Discipline of Thought: Great organizations maintain a culture of thinking and challenging assumptions, fostering a data-driven approach while remaining adaptable. Harold Geneen, the former president of ITT famously said, “the numbers will set you free.”
  • Discipline of Action: Great organizations  translate plans into action with a relentless focus on execution and achieving results.

By doing this culture of discipline, your organization will achieve The Flywheel Effect. Your NFP will  build momentum through the flywheel effect, where sustained effort in core areas like people, strategy, and operations reinforces each other, leading to continuous improvement.

To be sure, there are some criticisms of this book. A common one is its treatment of an organization’s development is simplistic, and doesn’t deal with root causes. Nevertheless, “Good to Great” offers valuable insights for NFP organizations aiming to achieve long-term excellence. It highlights the importance of leadership, culture, and a consistent focus on core principles for achieving sustainable success.  It can be a roadmap for taking your organization from being merely “good” to “great”!

Mark Koscinski NFP

NFP New Year’s Resolutions

As the New Year has passed, it is time to get back to business.  Before we get lost in the day to day activity cluttering our calendars, we need to think about how we are going to do things differently this year. This takes time: time to think about what we would like to change and time to actually implement what we want to change. However, if we never take the opportunity  to plan and improve our current situation we are doomed to live a Ground Hog Day existence, repeating the same day (and probably the same mistakes)  over and over again. 

  Perhaps our New Year’s resolution will be to undertake at least one of those projects this year we have been putting off.  Need help thinking about this?   Here are five potential resolutions for NFP managers:

  1. Take the time to do formal planning.  No matter how large or small your organization is, this is a good time to formalize your planning process. Any organization can profit from organized, systematic planning. Look at the vision and the mission of your organization.  Think in terms of strategy maps ( example here) to put your plans into action. Budget in greater detail to get a deeper understanding of where the money leaks out. 
  2. Enhance your human capital.  Perhaps this is the year you start that graduate degree you have been thinking about. Larger organizations may offer tuition reimbursement, a cost effective way to compensate employees.  Even if your organization is too small to offer this benefit, look at using the various tuition tax credits that might be available to you.  Look around for colleges and universities  that offer discounts to employees of tax-exempt organizations.  Remember, an investment in your education will benefit not only you, but the organization you work with. 
  3. Be open to new points of view.  Effective leaders are willing to listen, to learn to get different points of view, even if they disagree with their own. As John Maynard Keynes is alleged to have said, “ When the facts change, I change my mind. What do you do?”
  4. Update the organization’s Social Media presence.  Perhaps it is time to refresh that website or even more importantly, look at new social media applications. What worked last year, or even yesterday for that matter may not work today.  Are you trying to reach a younger audience?  Maybe it is time to use Instagram or, perish forfend, TikTok.  Do you want to engender a lively discussion?  Perhaps Discord is the way to go.  You get the idea. 
  5. Look at new technology.  You don’t have to be on the bleeding edge of technology to benefit from the use of technology. Used correctly, it is a labor multiplier, not a labor divider.  What processes in your office can be automated?  Maybe something as simple as learning Quickbooks can cut down on your accounting fees. Investigate AI.  I have learned that even the free version of ChatGPT can provide insights to operational issues and extensive information we can use to run our organization. 

Good luck everyone, and once again, Happy New Year!

Mark Koscinski NFP

Shoutouts

The coming end of  2023  and the beginning of 2024 means it is time for shoutouts to some extraordinary people and organizations I have had the pleasure of working with this year. Higher Education and students have been taking a lot of hits lately.  Despite all of the negative press there has been a lot of good going on at campuses around the country.  Let’s look at just a few examples of that on the Moravian University campus: 

Dr. Sonia Aziz–a wonderful scholar and academic, whose work in health economics has helped reduce the sum total of misery in the world.  She was recently named Dean of the Moravian University School of Business and Economics, a well deserved appointment.  For more information about her work, click here.

The Moravian University Craft Club, Stitches– The members of this club crocheted and sold Christmas ornaments and collected donations for  the Bethlehem Emergency Shelter this holiday season. It was a great experience for me as their faculty advisor to watch their camaraderie develop from week to week as they worked toward their worthwhile goal. 

The Moravain University Catholics on Campus–Another remarkable group of students, who spent time every week learning and practicing their faith. It takes courage to say you are religious if you live on a college campus these days. These students are proud of their faith and aren’t afraid of saying so. 

Moravian University Chess Club–Members practiced the Game of Kings, not over the internet, but in person.  It was great to sit over the chessboard and once again hit the time clock….

And of course, let’s not forget all of the Moravian students and groups that participated in the annual Christmas Vespers. To listen to this truly majestic service, please click here.

And what about in the broader world? 

Bethlehem Emergency Sheltering– In Luke 3:11 we hear, “John answered, ‘Anyone who has two shirts should share with the one who has none, and anyone who has food should do the same.’” Need I say more?

All the volunteer workers, employees of not for profit organizations, and clergy tirelessly working for a better world–Although we are all sure you could work for a higher wage somewhere else, please do take the time to remember Matthew 5:12, “ Rejoice and be glad for your reward is great in heaven…”

Wishing you all a wonderful Christmas and a Happy New Year. 

Mark Koscinski NFP

The NFP World

As the Spring semester grinds to a close, and the burden of grading, the bane of all professors’ lives comes inevitably to an end, it is time to get back into the world of blogging.  Today’s topic comes courtesy of an assignment I gave to my Not For Profit Accounting class. Municipal and NFP accounting constitutes approximately 20% (give or take for any particular year) of the financial reporting section of the Uniform CPA exam so students are intensely interested in it.  They are often amazed how municipal accounting differs from the previous accounting they have learned.  That is a story for another day though.  

We sometimes need to stop and remind ourselves how important the nonprofit segment of the economy is.  I assigned a short paper to my class on the importance of the NFP segment to the entire economy.  Ashley Robinson, one of my students who earned two bachelor’s degrees in four years and will be employed by Pricewaterhousecoopers, summarized  what a powerful economic force the NFP sector is.  Ashley reported, 

“As of 2022 there are about 1.5 million not-for-profit organizations in the United States,and over 10 million worldwide. They employ about 10% of the workforce, but worldwide they employ about 7.4% of the workforce. About 5.7% of the United States GDP comes from not-for-profits. This is the third largest workforce in the United States just behind retail and manufacturing. These entities make money off donations, and in 2021 about 56% of people in the United States donated to charity, and 45% of those people donate in a monthly program. There is about 10% of the overall revenue that comes from individual donations. 80% of their revenue comes from government grants.”

These are truly staggering numbers in many respects. I am continuously amazed by the number of NFP organizations, the often underpaid and overworked employees who keep at their jobs because of their personal values, and the number of Americans who donate to a charity on a monthly basis.  This continues to show the United States and its citizens are and have been a generous nation.  There were times when I served on the board of an NFP organization that I felt as if no one cared. I would quickly come to my senses though and realize I was wrong.  Perhaps this little reminder that the vast majority of Americans do care will provide a little lift to those involved in the NFP world.

Another student made some interesting comments about the geographical  dispersion of NFP organizations.  He posited that there are more NFP organizations located in capital cities and in the eastern part of the United States. The former assertion seems reasonable to me and the latter he suggests occurs because of legacy wealth in the United States.  I think that bears additional research though.  If any of my readers have any insight into that, please let me know.  

Mark Koscinski NFP

Nurses

May 6 is Nurses Day in the United States and May 12 is International Nurses Day.  I just wanted to stop and give a shout out to the nurses both here in the United States and around the world. Medieval thinkers reckoned there were only three noble professions:  divinity (clergy), law, and medicine. You may perhaps notice the first two on that list have fallen out of disfavor in recent years for circumstances that I won’t discuss today but may be apparent to many of my readers. 

Nursing constitutes  the largest group of medical practitioners. How many people are involved in the nursing profession?  Just to give you an idea, the American Association of Colleges of Nursing reports:

“Nursing is the nation’s largest healthcare profession, with nearly 4.2 million registered nurses (RNs) nationwide. Of all licensed RNs, 84.1% are employed in nursing. The federal government projects that more than 203,000 new registered nurse positions will be created each year from 2021-2031.”  (1)

 The nursing  practitioners of all stripes generously give of their time not only to their patients but also to many volunteer and not-for-profit groups. Do nurses volunteer?  You bet they do.  Just ask the Red Cross or other agencies handling disaster relief. The National Association of Free and Charitable Clinics report 14,700 volunteer nurses took part in their clinics in 2021.  This is a phenomenal record of charitable activity.   

INursing is  among  the most highly regarded professions in the United States. Along with firefighters and doctors, nurses have been held in high esteem by the general public for many years. Perhaps my profession (certified public accounting) should take a hint from this. 

I  am proud  Moravian University, where I hang my mortar board and doctoral hood during the academic year,  granted over 100 bachelors’ degrees in nursing and many students with masters degrees in 2023. 

Whether working for pay or doing charitable work, stop and think about the number of times a nurse brought a smile to the face of someone facing a tough medical situation or their loved one. How many times has a nurse made you smile when you were facing uncertainty? It is no wonder nurses come to the top of the most respected charts. 

A happy International Nursing Day to one and all!

  1. Source: Nursing Fact  Sheet.
https://www.aacnnursing.org/news-data/fact-sheets/nursing-fact-sheet#:~:text=Nursing%20is%20the%20nation’s%20largest,84.1%25%20are%20employed%20in%20nursing.&text=The%20federal%20government%20projects%20that,each%20year%20from%202021%2D2031.
Mark Koscinski fraud

Fraud and the Smaller NFP

The Association of Certified Fraud Examiners (ACFE) reported the median loss for any single fraud in a not-for-profit organization (NFP) was approximately $100,000 in 2016. This amount was less than the median losses from  frauds committed in governmental entities ( $109,000), public companies ($178,000) and public companies ($180,000) during the same time period.  Sadly, NFP fraud constituted approximately 20% of all the reported cases. Putting the median loss number in perspective, a $100,000 loss would have been devastating to the NFP I served as board chair.  On top of this, the $100,000 loss was the median loss, meaning one-half of the losses were larger than $100,000 so the pain could even be more acute. Why are the median losses in the NFP sector smaller than in other organizations?  My guess is that there is simply less cash available for conversion in the NFP than in the other entities, but more research will be needed to support my supposition. The ACFE also reports the average fraud in an NFP organization will last two years as opposed to eighteen months in public companies. 

That is not all the bad news though.  In a recent report, ACFE expects the amount of fraud will increase after the pandemic.  Many small NFP entities are chronically short staffed so there is often a lack of segregation of duties, a key element of internal control. This is compounded by the pandemic as skilled labor is often in short supply. One executive director I worked with joked she would need to sweep up on the way home because the NFP couldn’t afford janitorial services. Being underfunded as most small NFP organizations are also means a lack of software that supports good internal controls as well.  

Is the situation hopeless then?  No.  There are some cost effective compensating controls the ACFE has found to be effective and they are relatively cost efficient as well.  Here are a few suggestions:

  • Management review of the financial data and performance indicators.  An involved upper management regularly reviewing financial information and  performance indicators is often an effective fraud deterrent.  No one knows the company better than the senior management.  Getting in the habit of reviewing operating data on a regular basis is one cost effective way to combat fraud.
  • Fraud training for managers and executives.  Training courses are relatively inexpensive, especially compared to the pain an organization will feel from a major fraud. Training heightens  management and employees’ awareness of fraud possibilities.  
  • Fraud assessments. These can be undertaken annually as a joint venture among board members, management, and the external auditors.  Knowing the weaknesses in internal controls can often focus management’s attention on them and lead to future mitigation. 
  • Employee assistance programs (EAPs).  Many of you are familiar with the fraud triangle. This relatively simple theoretical construct says fraud is most likely to occur when there is pressure (financial, psychological, etc.) on an employee, the opportunity for the employee to commit fraud (due to a lack of internal control) and rationalization of the action by the employee (“I don’t get paid enough for what I do!”). Organizations can deter fraud by addressing any and all of these root causes. Fraudsters often succumb to psychological pressure because they feel isolated and believe they have to deal with their personal problems themselves. They may be overwhelmed by the situations they find themselve in. An EAP gives employees an opportunity to get counseling help on an anonymous basis.  Many benefit plans contain an EAP feature. It is cheap compared to a fraud loss. 
  • An anti-fraud policy and a code of conduct.  The existence of these documents and their annual review also deters fraud.  They should contain a clear policy about who whistleblowers should speak to when they suspect fraud and an anti-retaliation policy against whistleblowers. Anonymous tips are still one of the most significant ways frauds are uncovered. Employees and clients should not be afraid of retaliation from making a legitimate whistleblower complaint. 

These suggestions are not in and of themselves sufficient as a system of internal controls. General, application, processing  and reconciliation internal controls should be used wherever possible. This list is just a few recommendations for compensating internal controls when the organization lacks the time, talent, and treasure to implement a more functional, effective system of internal controls. 

Mark Koscinski Uncategorized

The Colonial Pipeline Cyberattack

The cyberattack on May 7, 2021 shutting down the Colonial Pipeline caused gas shortages throughout the Southeastern United States This ransomware attack is a stark reminder of how important technology is in the modern world.  In the most recent semester that just ended I spent a considerable amount of time with my students studying critical new  technologies such as  Blockchain, the Cloud, VR/AR, AI,  and RPA.  These and  other new technologies will permanently impact how  organizations operate.  

It is also a reminder  cyberattacks against NFP organizations and governmental entities have continued unabated.  At the same time the pipeline cyberattack was occurring, the District of Columbia police department systems were hacked.  The hackers began releasing the personal information from 22 police officers.  Obviously, this can be a life threatening situation for these officers.   

NFP organizations that ignore the new technological reality and the “New Normal” risk failure in carrying out their vision and their mission.  At the same time, organizations must ensure cybersecurity is still a major concern.  It is inconceivable an NFP can operate in the modern world without adequate technology. Yet, many ignore the risk of cyberattack.  Perhaps they believe they are too small or inconsequential to be of interest to a hacker.  That is a dangerous assumption.  A client of mine, a small church, suffered a devastating cyberattack.  

 At the end of the day, technology can be a great boon for the efficiency of an organization’s operations.  With increased return though, there is often increased risk.  One of management’s core functions is to manage and balance risk and return. Cyberattacks are a risk to the mission critical new technology.  A management that ignores this risk is simply not doing its job. 

Mark Koscinski Uncategorized

On the Horizon

As summer approaches, it is time to take a look and see if any large issues are on the horizon for NFP organizations.  Of course, the biggest one will be how to cope with reopening after the COVID pandemic.  Many NFPs have been financially weakened by the enforced shutdowns and social distancing.  Finding employees and volunteers may prove to be difficult in the “New Normal”.  The final accounting for the Payroll Protection Plan (PPP) loans will also be looming on the horizon.  Nevertheless, as NFPs fight for their survival in the post pandemic era, there are some other interesting developments on the horizon management may wish to keep an eye on. .  

The first is the United States Supreme Court has recently heard oral arguments in a major NFP case, Americans for Prosperity Foundation v. Rodriquez.  The State of California requires NFP organizations to disclose major donors.  The petitioner is backed by a large donor to the Republican Party  causes and opposed the Constitutionality of the California law, claiming it is a restriction on the freedom of association and could put a chilling effect on donors to potentially unpopular causes.  California has responded by claiming the collection of this information is one way to combat fraud.  What makes this case so interesting is not only its implications for NFPs but the unusual alignment of groups for or against this particular law.  For instance, the ACLU has come out in support of the petitioner, a group largely composed of Republicans. It is difficult to predict how the Court will rule on this case and a decision is expected by June, 2020. 

All NFP development personnel need to keep an eye on the Biden Administration tax proposals.  The proposed increase in the capital gains rate for wealthy Americans as well as the proposed change in the inheritance tax law (elimination in the stepped-up basis)  would make gifts of appreciated property significantly more attractive to potential donors.  There are  a lot of things that can change between now and Congress adopting the new taxes and there is no certainty the proposed changes will even be adopted given the slim Democrat majorities in both houses of Congress.  Nevertheless, the effective dates of any new tax legislation will probably be January 1, 2022. Therefore, NFPs have to be ready to discuss these possibilities this year in order to generate additional donations. Wealthier individuals will need to do tax planning this year to minimize future taxes. NFPs will have to get up to speed very quickly in order to take advantage of this fundraising opportunity. 

The third development is the pending divorce of Bill and Melinda Gates. While I have been critical of his business practices, I have also applauded his charitable work. It is truly sad that anyone would get divorced, but we are all happy to hear the soon to be former couple will still cooperate and continue to run their foundation. It has done a lot of good for a lot of people. I wish them good luck in their personal lives.

Mark Koscinski Uncategorized

Use Them or Lose Them!

We all know the airline industry has suffered horribly during this pandemic. Only a fraction of the airline fleet is being used, and I can’t even guess at what capacity. It should come as no surprise though many frequent flier points are lapsing. One way you can help your favorite Not-For-Profit organizations is to donate your expiring points to them. I am told this will update your usage record and roll the points forward. If this is correct, it is a win-win for both the NFP and you. Even so, donating points seems like a painless way to help struggling organizations serving the common good. Please consider this as another way to help!