OTHER NFP ENTITIES

1. OTHER NFP ENTITIES

2. 18-2 Not-for-Profit Organizations • General Characteristics • Contributed resources from providers without a return of equal financial value • Operating purpose that is other than providing goods and services for profit • They do not have ownership interests as do for- profits • They may be governmental or private • Great variety • Charitable • Educational • Civic organizations • Political parties • Trade organizations • Fraternal associations (In 2007, approximately 2.8 million not-for-profits existed just in the United States)

3. 18-3 Contributions to Various Not-for-Profits in 2004 Religious $ 88.30 Billion Education 33.84 Billion Foundations 24.00 Billion Health 20.89 Billion Arts and culture 13.99 Billion Environmental 7.61 billion Source: AAFRC Trust for Philanthropy website, http://www.aafrc.org (2005) “That’s a lotta Dough!!

4. 18-4 Large Nonprofits 2005 Revenues YMCA of the USA $5,130,851,000 Salvation Army $4,559,292,000 American Red Cross $3,888,172,726 Catholic Charities USA $3,286,072,070 Goodwill Industries $3,022,623,000 (Source: The Nonprofit Times, November 1, 2006)

5. 18-5 Authoritative Jurisdiction

6. The financial statements should focus on the entity as a whole. • Reporting requirements for not-for-profits should be similar to business entities, unless there are critical differences in the needs of users. 18-6 Financial Reporting Two basic ideas form the FASB’s framework for not-for-profit standards:

7. PRIVATE, NFP ENTITIES • Reporting subject to FASB • Classification of “Net Assets” • Unrestricted • Temporarily restricted • Permanently restricted • SFAS Nos. 93, 116, 117, 124, 136

8. 18-8 A Little History…. • Prior to 1993, there was a confusing variety of private not-for-profit accounting practices • In that year, FASB tried to standardize this reporting by issuing • SFAS 116, “Accounting for Contributions Received and Contributions Made” • SFAS 117, “Financial Statements of Not-for-Profit Organizations”

9. 18-9 Financial Reporting • Statement of Financial Position • Uses “Net Assets” instead of owners’ equity or fund balance. • Statement of Activities and Changes in Net Assets • Statement of Cash Flows • Statement of Functional Expense (required only for voluntary health and welfare organizations). FASB No. 117 requires three financial statements.

10. 18-10 Statement of Financial Position Report assets, liabilities, and net assets. • Net assets are presented in 3 categories: • Unrestricted • Temporarily Restricted • Permanently Restricted Use the term “Net assets” rather than owners’ equity or fund balance. ? ?

11. 18-11 Statement of Financial Position • Restrictions must be imposed by outside donors before an asset is classified as “restricted” • For financial statement purposes, board-designated or internally restricted assets continue to be classified as “unrestricted” • Temporarily restricted • For a particular purpose OR • For use in a future time period • Permanently restricted • Expected to remain restricted for as long as the organization exists

12. 18-12 Statement of Activities and Changes in Net Assets Change in net assets = difference between revenues and expenses Change in net assets is reported instead of net income. Revenues & expenses are measured on the accrual basis. Per FASB No. 116, donors’ unconditional promises to give are recognized as both a revenue and a receivable in the period of promise.

13. Uses accrual accounting Restricted Hospital Accounting Fund Groups • General • Specific purpose • Time Restricted • Plant replacement and expansion • Endowment

14. Overview of Hospital Accounting/Reporting Accounting basis Distinguishing features Financial statements Specific Purpose Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Resources restricted for specific operating purposes. Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

15. Overview of Hospital Accounting/Reporting Accounting basis Distinguishing features Financial statements Time Restricted Funds Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Resources not available until date specified by donor. Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

16. Overview of Hospital Accounting/Reporting Plant Replacement and Expansion Funds Accounting basis Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Distinguishing features Resources restricted for addition to plant assets. Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

17. Overview of Hospital Accounting/Reporting Endowment Funds Accounting basis Contributions, transfers, and other changes are recorded directly in the fund. Resources are held until transferred to general fund for expenditures. Distinguishing features Principal must be preserved. Financial statements Balance Sheet Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows

18. Balance Sheet - Hospitals Receivables should be reported at the anticipated realizable amount. • amounts due from patients • third-party payors • other insurers of health care • pledges or grants • interfund transactions Receivables may include--

19. Balance Sheet - Hospitals Investments are initially recorded at cost if purchased, or at fair value at the date of receipt if received as a gift.

20. Balance Sheet - Hospitals Property, plant, and equipment is reported, together with any accumulated depreciation. Depreciation is recorded in the general fund. Separate disclosure should be made for assets that have restrictions placed on their use by the donor or have been designated by the board of directors for special use.

21. Balance Sheet - Hospitals Long-term debt is shown in the balance sheet. This differs from most governmental entities in which a separate debt service fund is established to service debt. The net asset are segregated between those which are unrestricted, temporarily restricted, and permanently restricted.

22. Statement of Operations - Hospitals • Net patient service revenue • Revenue from inpatient and outpatient care (excluding charity care and contractual adjustments). • Contractual adjustments • A deduction from revenue based on contracts with third-party payors in the medical reimbursement process. • Income from ancillary programs • Income from television rentals, cafeteria sales, sales in the gift shop, parking fees, and educational program’s tuition. • Interfund transfers • Release of restricted funds to unrestricted status when the stipulations set by the donor have been met. • General fund expenses • Expenditures for nursing and other professional services, depreciation, bad debts, and administrative costs.

23. create or enhance nonfinancial assets, or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Donations - Hospitals FASB 116requires donatedservices to be recognized if the services received --

24. Donations Donated assets are reported at fair market value at the date of contribution: When the restriction no longer applies, the net assets released are reported in the unrestricted fund. • Donated assets are reported as contributions in the statement of operations, if unrestricted. • Restricted donated assets are reported as contributions to the temporarily restricted funds in the period received.

25. 17-25 Public Colleges and Universities Public colleges and universities must follow the same guidelines as state and local governments. (GASB retains primary reporting authority) Their statements will differ from those of private colleges and universities.

26. Colleges and Universities--Special Conventions Revenue and Expenditure Recognition Tuition and fees are primary revenue sources for the unrestricted current fund. • For university-sponsored scholarships, revenue is credited at full standard rate for tuition. • Scholarships recorded as contra revenue (no service required) or expenditure (service required)

27. Colleges and Universities--Special Conventions Revenue and Expenditure Recognition If a student withdraws and receives a partial reimbursement of tuition and fees, record as contra revenue

28. Colleges and Universities--Special Conventions Revenue and Expenditure Recognition When an academic term begins in one academic term and ends in another, revenue is recognized in the fiscal year in which the term is predominantly conducted.

29. Colleges and Universities--Special Conventions Mandatory transfers = transfers resulting from binding legal agreements on financing or renewals and replacements of education plants, and from grant agreements with agencies of the federal government, donors, and others. Nonmandatory transfers = discretionary transfers specified by the governing board for a variety of purposes. Nonmandatory transfers may also be made from the loan, endowment, or annuity funds to the current funds. Designated funds = internal designation similar to appropriations of retained earnings. These funds remain unrestricted.

30. Public Colleges and Universities The GASB has specified that public colleges and universities must follow the accounting and financial reporting standards as used for other governmental entities.

31. Private Colleges and Universities The three financial statements required by the FASB for private, not-for-profit colleges and universities are: (1) Statement of financial position (2) Statement of activities (3) Statement of cash flows

32. Voluntary Health and Welfare Organizations Financial statements for a VHWO: • Statement of financial position • Statement of activities • Statement of cash flows • Statement of functional expenses

33. Other Not-for-Profit Entities • Cemeteries • Civic organizations • Fraternal organizations • Labor unions • Libraries • Museums • Other cultural institutions • Performing arts organizations • Political parties

34. Other Not-for-Profit Entities • Private and community foundations • Private elementary and secondary schools • Professional associations • Public broadcasting stations • Religious organizations • Social and country clubs • Trade associations • Cemeteries • Civic organizations • Fraternal organizations • Labor unions • Libraries • Museums • Other cultural institutions • Performing arts organizations • Political parties

35. Other Not-for-Profit Entities Financial statements for a ONPO: • Statement of financial position • Statement of activities • Statement of cash flows • Statement of functional expenses • Not required but often appropriate