Accounting for Endowments: What You Need to Know

Transcription

1 Accounting for Endowments: What You Need to Know February 12, 2019 To Receive CPE Credit Individuals Participate in entire webinar Answer polls when they are provided Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to within 24 hours of webinar If all eligibility requirements are met, each participant will be ed their CPE certificate within 15 business days of webinar 2

2 Presenters Neely Duncan Partner Sara Grenier Director Emily George Senior Managing Consultant Danika Mendrygal Attorney Today s Topics Understanding Endowments Endowment Risk Management & Legal Structure Endowment Policy Considerations NFP Reporting Standard Impact on Endowments & Investments Investments Financial Statements from ASU : Statement of Financial Position 4

3 Today s Topics Financial Statements from ASU : Statement of Activities & Changes in Net Assets Endowment Disclosure Requirements Underwater Endowment Fund Changes Board & Management Designations/ Appropriations & Enhanced Disclosure Requirements Net Asset Requirements for Presentation & Enhanced Disclosure Requirements Liquidity Disclosure Requirements 5 Understanding Endowments

4 Common Myth: Accountants & lawyers speak the same language 7 General Types of Endowments Perpetual type of endowment Term endowment Quasi-endowment Board-designated endowments Board-designated (reserves, rainy day funds, capital campaigns) These are NOT endowments, they are different Therefore, NOT included in the enhanced endowment disclosures But, they are required to be considered for the impact to liquidity 8

5 UPMIFA Legal Definition (As Adopted by Texas) Endowment Fund Institutional fund a fund held by an institution exclusively for charitable purposes Institution includes A person (other than an individual) organized & operated exclusively for charitable purposes A government or governmental subdivision, agency or instrumentality, to the extent it holds funds exclusively for charitable purposes A trust that had both charitable & noncharitable interests, after all noncharitable interests have expired Endowment fund an institutional fund (or part thereof) that, under the terms of a gift instrument, is not wholly expendable by the institution on a current basis Does not include board-designated endowments since there is no gift instrument 9 Investment Management Code of Conduct (CFA Institute) Act with loyalty & proper purpose Act with skill, competence, prudence & reasonable care Abide by all laws, rules, regulations & founding documents Show respect for all stakeholders Review investment strategy & practices regularly 10

6 Endowment Risk Management & Legal Structure Endowment Risk Management Endowments impose upon the organization Contractual Legal Ethical Financial Management Reporting responsibilities 12

7 Regulatory/Legal Framework Restricted Gifts General Tips New endowment set up Structure & options for endowments Hurdles & leadership decision making 13 Endowment Structure Structural options Separate 501(c)(3) Stand-alone public charity Private foundation Supporting organization Legal & governance implications of structure Other implications of structure Related considerations Control by operating nonprofit 14

8 What Can Go Wrong? Reputational risk Donor relations Change in culture or values over time Change in circumstances Conflicts of interest Donor actions/reputation Donor default on payment Restrictions or requirements the charity cannot handle Lack of clarity around provisions State regulatory enforcement Private donor enforcement (or attempts) Charitable pledges 15 Regulatory/Legal Framework Restricted Gifts Federal/IRS Completed gift Charitable deduction/quid pro quo rules Conditional get it back restrictions Impact on 501(c)(3) status/private benefit Private foundation rules, i.e., selfdealing State Donor intent UPMIFA Attorney General/Charities Bureau Other issues Private litigation 16

9 Education/Training Issues Acceptance when & how Applicable approval thresholds Importance of record-keeping Documenting conversations regarding intent, restrictions & conditions Guidelines for communications with donors Checklists for potential issues Consider print & online solicitations also Periodic review & revisit existing restrictions Internal tracking of spending/investments 17 Endowment Policy Considerations

10 Endowment Fund Policy Policy of the management of endowments Philosophy & attitude Delegation of authority considerations Fiduciary responsibilities board, committees, reporting Objectives related to growth, targets, goals & benchmarks Allowable investments, asset allocation Clarity of fund restrictions & interpretations Periodic reviews & updates of the policy 19 Fiduciary Responsibility & Delegation of Authority Policy Considerations What documents govern activities? Charter Bylaws Laws Trust documents What governing body is tasked with managing the endowment? Board of separate 501(c)(3) Finance & investment committee Executive committee Development & public relations committee Outsourced Any person serving on the governing committee has a fiduciary responsibility under UPMIFA 20

11 Gift Acceptance Policy Mission requirement Types of gifts (liquid, real estate, land, partnerships, alternative investments) Restrictions to programs/campaigns Administration fees Credit risk of the donor Donor advised funds Delegation of Authority 21 Gift Instruments UPMIFA Donor gift document in whatever form available Expansive definition Can include Electronic writing Will, deed, grant or conveyance Agreement or memorandum Articles/Certificate or bylaws (where gift is made for general purposes) Minutes of meetings Canceled checks Institutional solicitation (where gift is made in response) 22

12 Investment Policies Business plan of the ENTIRE investment portfolio Reassures potential donors of investment stewardship Required by UPMIFA Sets the risk tolerance Fiduciary responsibility of the board Necessary for GAAP-required disclosures Financial advisors/investment managers 23 Spending Distribution Policies Donor always rules! Parameters Mission Communicates the prudent distribution method Sets parameters for spending patterns & distribution uses Frequency, percentages & disbursements are made in accordance with the spending policy Prevents excessive distributions, promotes good stewardship Fiduciary liability required by UPMIFA 24

13 UPMIFA General Approach UPMIFA takes a two-tier approach its provisions apply to Institutional Funds (the duties & factors related to management & investment) & a portion (the expenditure/appropriation/spending rules) only apply to Endowment Funds So, whether (& how) UPMIFA applies to you depends on whether you have an institutional fund or endowment fund UPMIFA potentially applies to all charitable entities regardless of form, e.g., nonprofit corporations, nonprofit associations, limited liability companies, trusts 25 UPMIFA Presumption of Imprudence Common misconception that this is a safe harbor, particularly because UMIFA gave us a bright line rule Applies to expenditures from TUPMIFA endowment funds, but not to institutional funds If spending from endowment fund exceeds thresholds Funds > $1MM presumption at 7% FMV University systems > $450MM 9% FMV Funds < $1MM presumption at 5% FMV FMV determined quarterly & averaged over a 3-year period (or if in existence less than 3 years, for the period since inception) Presumption is rebuttable if facts & circumstances dictate that expenditure from the endowment fund was prudent (for example, a fund for a major construction project may have no expenditures for 3 years & then spend 20% in year 4) 26

14 UPMIFA Protections & Duties Delegation of Management & Investment Functions Duty of Loyalty Duty of Care Duty to Diversity Duty to Manage Costs & Verify Facts 27 Modification & Release UPMIFA Permits release or modification of restrictions by donor, charity or court in specific instances Small/Old Funds if restriction is unlawful, impracticable, impossible to achieve or wasteful, an institution may release or modify a restriction without donor consent or court approval if all of these conditions are met Institutional fund < $25,000 Institutional fund is more than 20 years old Will be used consistent with charitable purposes Requires Attorney General notice Example $15,000 fund set up in 1973 for the cure of polio with AG notice, can release restriction & use for a purpose consistent with original purpose, i.e., cure of other children s diseases 28

15 Modification of Restrictions Outside of UPMIFA What if the UPMIFA modification provisions don t apply? Does the gift agreement address? Can donor consent? Court Action Attorney General Approval 29 NFP Reporting Standard Impact on Endowments & Investments

16 Effective Date: ASU , Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of NFP Entities Effective for financial statements for fiscal years beginning after December 15, 2017, & for interim periods within fiscal years beginning after December 15, 2018 Consideration of single year financial statements Fee increases & expectations 31 Investments

17 ASU : Investments Report investment return net of external & direct internal investment expenses & no longer require disclosure of those netted expenses. Direct internal investment expenses involve the direct conduct or direct supervision of the strategic & tactical activities involved in generating investment return. These include, but are not limited to, both of the following Salaries, benefits, travel & other costs associated with the officer & staff responsible for the development & execution of investment strategy. Allocable costs associated with internal investment management & supervising, selecting & monitoring of external investment management firms. Direct internal investment expenses do not include items that are not associated with generating investment return. For example, the costs associated with unitization & other such aspects of endowment management would not be allocated. 33 Expenses Versus Losses Expenses are outflows of assets or incurrences of liabilities that result from an NFP's ongoing major or central operations & activities Losses are decreases in net assets from an NFP's peripheral or incidental transactions & other events & circumstances affecting the NFP other than those that result from expenses Gains & losses result from holding assets or liabilities while their values change 34

18 Expenses Versus Losses No requirement to report losses by functional category Examples of losses Bad debt can be either expense or loss Impairment of long-lived assets Change in market value of investments Foreign exchange rates Natural catastrophes Sell of building & equipment Winning/losing a lawsuit 35 UPMIFA Factors to Consider for Investments General economic condition The possible effect of inflation or deflation The expected tax consequences, if any, of investment decisions or strategies The role that each investment or course of action plays within the overall investment portfolio of the fund The expected total return from income & the appreciation of investments Other resources of the institution The need of the institution & of the fund to make distributions & preserve capital An asset s special relationship or special value, if any, to the charitable purposes of the institution 36

19 Investment Policies Disclosures Requirement A description of the NFP s endowment investment policies, including all of the following Return objectives & risk parameters How return objectives relate to the NFP s endowment spending policy (often included in the spending policy) The strategies employed for achieving return objectives 37 Investment Policy Example Return Objectives and Risk Parameters - The School has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowments while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the school must hold in perpetuity or for donor-specified periods as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results so that the endowment investments are in the top quartile of any distribution of competitors performance over rolling five-year or ten-year periods. The School expects its endowment funds, over time, to increase faster than the rate of inflation. Actual returns in any given year may vary. Strategies Employed for Achieving Objectives - To satisfy its long-term rate-of-return objectives, the School relies on a total return strategy in which investment returns are achieved through both capital appreciation, realized and unrealized, and current yield, such as interest and dividends. The School targets a diversified asset allocation that has a long-term target of 60% equities, 20% inflation protection, and 20% fixed income to achieve its long-term return objectives within prudent risk constraints. 38

20 Investment Policy Example Return Objectives and Risk Parameters - The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Foundation s Board of Directors, the endowment assets are invested in a manner that is intended to achieve a cumulative real rate of return (nominal return less the Consumer Price Index) of between 1% and 2.5% compounded annually for a moving five-year period. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives - To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation, realized and unrealized, and current yield such as interest and dividends. The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. 39 Example Disclosure Investment/Spending Laws & regulations allow the governing board to appropriate so much of an endowment fund as is prudent considering the following relevant factors: the duration & preservation of the endowment fund, the purposes of Not-for-Profit Entity A & the endowment fund, general economic conditions, the possible effect of inflation or deflation, the expected total return from income & the appreciation of investments, Not-for-Profit Entity A s other resources & Not-for-Profit Entity A s investment policy Under Not-for-Profit Entity A s endowment spending policy, 5% of the average of the fair value at the end of the previous three years is appropriated, which was $7,500 for the year ended June 30, 20X1 40

21 Spending Policy Examples The School has a policy of appropriating for distribution each year four to five percent of its endowment assets average fair value over the prior 12 quarters through the fiscal yearend preceding the fiscal year in which the distribution is planned. This is consistent with the School's objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. 41 Spending Policy Examples The Alliance has a policy of appropriating for distribution each year an amount appropriate to the various endowments. The distribution rate, expressed as a percentage of market value of the endowment investments, is determined on a year-to-year basis by the Executive Committee upon recommendation of the Finance and Audit Committee of the Board. In light of current market conditions, the Alliance does not expect to make distributions from the earnings of permanently restricted endowment funds in the next fiscal year. 42

22 Spending Policy Examples The XXX has a spending policy to distribute from the Endowment Fund annually no more than four percent (4%) of the average of the fair market value of the Endowment Fund on June 30 of the current year and the immediate two prior years. In the event of exceptional growth in the Endowment Fund, the Finance Committee and Endowment Committee may consider additional distributions, subject to approval of the Board of Trustees. 43 Spending Policy Examples The XXX Garden Endowment is a permanently restricted endowment fund with a donorimposed spending policy that overrides the general spending policy of the Foundation. The donor has specified an annual spending rate of 4% which is to be followed even if it should result in some use of principal. 44

23 Financial Statements from ASU : Statement of Financial Position NFP Statement of Financial Position Previous Presentation: Net Assets NET ASSETS Unrestricted Board-designated operating reserve 3,158,984 Board-designated strategic growth reserve 11,400,000 Property & equipment 9,286,537 Previous classifications Other 8,293,744 Total unrestricted 32,139,265 Temporarily restricted 2,926,049 Permanently restricted 1,409,634 Total net assets 36,474,948 Total liabilities & net assets $ 36,636,280 46

24 NFP Statement of Financial Position ASU Presentation: Net Assets NET ASSETS Without donor restrictions Board-designated operating reserve 3,158,984 Board-designated strategic growth reserve 11,400,000 Note: NFP does not have any quasi-endowments Undesignated 17,580,281 Total without donor restrictions 32,139,265 With donor restrictions 4,335,683 Total net assets 36,474,948 Total liabilities & net assets $ 36,636,280 Classification in ASU Financial Statements from ASU : Statement of Activities & Changes in Net Assets

25 NFP Statement of Activities ASU Presentation: Revenues REVENUES, GAINS & OTHER SUPPORT Contributions $ 4,235,098 Without Donor With Donor Restrictions Restrictions Total $ 15,000 $ 4,250,098 In-kind contributions 74,837-74,837 Government grants 2,692,546-2,692,546 Special events, net of cost of direct benefit to Two classifications Determination of without donor restrictions remains unchanged from previous unrestricted classification donors of $608,853 2,106,429-2,106,429 Investment return, net 292, , ,093 Miscellaneous income Net assets released from restriction Total revenues, gains & other support 11,731-11,731 1,215,402 (1,215,402) - 10,629,610 (1,032,976) 9,596,634 Determined by adding previously classified temporarily restricted & permanently restricted together 49 NFP Statement of Activities ASU Presentation: Expenses & Changes in Net Assets Revised from Allocations Without Donor With Donor Restrictions Restrictions Total EXPENSES Program A 4,984,948-4,984,948 Program B Program C General & administrative 484, ,519 Fundraising 527, ,367 Total expenses 5,996,834-5,996,834 Identification of major programs on the face of the statement of activities Assumes that the entity has no losses CHANGES IN NET ASSETS 4,632,776 (1,032,976) 3,599,800 NET ASSETS AT BEGINNING OF YEAR 27,506,489 5,368,659 32,875,148 NET ASSETS AT END OF YEAR $ 32,139,265 $ 4,335,683 $ 36,474,948 Remains unchanged Expense totals change to reflect presentation of investment return, net & change based on functional analysis 50

26 Endowment Disclosure Requirements Disclosure Requirements An NFP shall disclose information to enable users of financial statements to understand all of the following about its endowment funds (both donor-restricted & board-designated) A description of the governing board s interpretation of the law or laws that underlie the NFP s net asset classification of donor-restricted endowment funds Net asset classification Net asset composition Changes in net asset composition 52

27 Disclosure Requirements An NFP shall disclose information to enable users of financial statements to understand all of the following about its endowment funds (both donor-restricted & board-designated) A description of the NFP s policy or policies for the appropriation of endowment assets for expenditure (its endowment spending policy or policies) Related investment policies Disclosure of aggregate deficiencies of all donor-restricted endowment funds. Therefore, if one endowment has unrealized gains while another has unrealized losses, the not-for-profit organization should account for each donor-restricted endowment fund individually rather than netting the gains of one endowment fund with the losses of another endowment 53 Endowments Disclosure New disclosure format Changes in endowment net assets are as follows Without Donor Restrictions With Donor Restrictions Total Endowment net assets at beginning of year $ - $ 2,021,145 $ 2,021,145 Investment return, net - 9,550 9,550 Contributions - 125, ,000 Annual adjustment to corpus for inflation Appropriation of endowment assets for expenditure - (91,115) (91,115) Endowment net assets at end of year $ - $ 2,064,580 $ 2,064,580 54

28 Example Disclosure Endowment Funds Endowment net assets composition by type of fund as of June 30, 20XX 55 Example Disclosure Endowment Funds Changes in endowment net assets for the fiscal year ended June 30, 20XX 56

29 Introduction to the Note Example: The School s endowments consist of approximately 155 funds established for a variety of purposes. Its endowments include both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments (quasi-endowments). As required by GAAP, net assets associated with endowment funds, including quasi-endowments, are classified and reported based on the existence or absence of donorimposed restrictions. The School manages its endowments on a pooled basis, under the direction of the Assets Management Committee, and earnings on the pooled investments are allocated on a pro rata basis to each of the funds. 57 Description of Law Example: Interpretation of Relevant Law - The Board of Trustees of the School has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the School classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, and (b) the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the School in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the School considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund; The purposes of the School and the donor-restricted endowment fund; General economic conditions; The possible effect of inflation and deflation; The expected total return from income and the appreciation of investments; Other resources of the School; and The investment policies of the School. 58

30 Other Disclosure Issues What about the organization that has a Community Foundation hold its endowment? Beneficial Interest Note: In November 2007, the Organization established a designated endowment fund at the ABC Foundation. The assets of the Funds are held and owned by the Foundation in its corporate capacity and are not deemed held by the Foundation as trustee of a separate trust for the Organization. Donors granted no variance power to the Foundation. The Foundation must distribute not less often than annually, unless otherwise requested by the Organization, approximately 5% (determined by the Board of Trustees of the Foundation) of the fair market value of the Funds, with the excess earnings, if any, being added to principal. The principal of the endowment must be retained, administered, and managed by the Foundation for the benefit of the Organization. The Organization requested that no funds be distributed for either year ended June 30, 20XX or 20XX. Endowment Note: Endowment Policies and Strategies - The Organization s endowment is invested at the ABC Foundation and subject to its investment policies. As noted in Note 5, the Foundation must distribute not less often than annually, unless otherwise requested by the Organization, approximately 5.25% (determined by the Board of Trustees of the Foundation) of the fair market value of the Funds, with the excess earnings, if any, being added to principal. The principal of the endowment must be retained, administered, and managed by the Foundation for the benefit of the Organization. The Organization requested that no funds be distributed for either year ended June 30, 20XX or 20XX. 59 Underwater Endowment Fund Changes

31 ASU : Underwater Endowment Fund What is an underwater endowment fund? Accounting change of underwater endowment funds & classifications Provide the following enhanced disclosures about Underwater endowment funds, which include required disclosures of An NFP s policy & any actions taken during the period, concerning appropriation from underwater endowment funds Aggregate fair value of such funds Aggregate of the original gift amounts (or level required by donor or law) to be maintained Aggregate amount by which funds are underwater (deficiencies), which are to be classified as part of net assets with donor restrictions 61 Deficiencies Requirement For each period for which a statement of financial position is presented, an NFP shall disclose the aggregate amount of the deficiencies for all donor-restricted endowment funds for which the fair value of the assets at the reporting date is less than the level required by donor stipulations or law. 62

32 Deficiencies Example Funds with Deficiencies - From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or UPMIFA requires the School to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $3,199,944 as of June 30, 20XX. These deficiencies resulted from unfavorable market fluctuations that occurred during the year. 63 Deficiencies Examples Funds with Deficiencies - From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the total amount of the gifts made to the endowment by the donor. Deficiencies of this nature that are reported with donor restrictions were $858,399 and $2,599,771 as of December 31, 20XX and 20XX, respectively. These deficiencies resulted from unfavorable market fluctuations. Funds with Deficiencies - From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor contributed. There were no deficiencies at December 31, 20XX or 20XX. 64

33 Board & Management Designations/ Appropriations & Enhanced Disclosure Requirements ASU : Board & Management Designations Provide the following enhanced disclosures about Amounts & purposes of governing board designations that result in selfimposed limits on the use of resources Examples Earmarked for future programs Investment Contingencies Purchase or construction of fixed assets Other uses Some governing boards delegate the designation to internal management, which are required to be considered & included in board-designated net assets 66

34 Provide Enhanced Disclosures Board Designations/Appropriations Governing board designations, appropriations & similar transfers that result in the addition or removal of self-imposed limits on the use of resources without donor-imposed restrictions Those disclosures would include A description of the purpose, if not clear on the statement of financial position Amounts Types of transfers, e.g., those done because of standing board policies, as onetime decisions, or for other reasons Qualitative & Quantitative information about any period-end balances of board designations of net assets without donor restrictions 67 Net Asset Requirements for Presentation & Enhanced Disclosure Requirements

35 Classification of Net Assets Example net assets classification (think of these as the new buckets required) Assets, such as land or works of art, donated with stipulations that they be used for a specified purpose, be preserved & not be sold Assets donated with stipulations that they be invested to provide a permanent source of income. These result from gifts & bequests that create a donor-restricted endowment that is perpetual in nature Support of particular operating activities should use the top three programs Investment for a specified term Use in a specified future period Acquisition of long-lived assets 69 Donor-Designated Restriction Disclosure 2016 With donor restrictions: Specific future periods Unconditional Promises to Give Not received $ 80,000 Unconditional Promises to Give Program A 2,138,114 Allowance for Uncollected Promises (42,000) Specific program and support activities Endowment Endowment A 147,350 Endowment B 422,467 Endowment C 32,213 Other 147,905 Endowment Perpetual Endowment A 534,122 Endowment B 875,512 Total net assets with donor restrictions $ 4,335,683 70

36 ASU Format A Net Assets Released from Restrictions FY 2016 One line on the face of the SOA for Net Assets released from restrictions ASU Format A provides the following additional disclosure on the face of the SOA related to Net Assets released from restrictions Satisfaction of program restrictions Satisfaction of equipment acquisition restrictions Expiration of time restrictions Changes in unconditional promises to give Appropriation from donor endowment & subsequent satisfaction of any related donor restrictions 71 Release of Restrictions Footnote Example 72

37 Liquidity Disclosure Requirements ASU : Liquidity Disclosures/Presentation Provide the following enhanced disclosures about Quantitative information that communicates the availability of an NFP s financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date Availability of a financial asset may be affected by 1) its nature, 2) external limits imposed by donors, grantors, laws & contracts with others, & 3) internal limits imposed by governing board decisions 74

38 ASU : Liquidity Disclosures/Presentation Relevant information about the nature & amount of limitations on the use of cash & cash equivalents (such as cash held on deposit as a compensating balance) Contractual limitations on the use of particular assets These include, for example, restricted cash or other assets set aside under debt agreements, assets set aside under self-insurance funding arrangements, assets set aside under collateral arrangements, or assets set aside to satisfy reserve requirements that states may impose under charitable gift annuity agreements 75 The NFP Financial Assets, at Year End 2016 FINANCIAL ASSETS, AT YEAR END Cash and cash equivalents $ 4,664,717 Investments 17,588,836 Investments endowments with donor restrictions 2,011,664 Grants receivable 463,921 Pledges receivable, net 2,176,114 Other receivables 168,599 Beneficial interest in agency endowment 147,905 Total assets $ 27,221,756 76

39 The NFP: Liquidity Example Financial assets available at year end $ 27,221,756 Less those unavailable for general expenditures within one year, due to: Undesignated bonds that mature in a period of time greater than one year (3,029,852) Contractual or donor-imposed restrictions: Restricted by donor for perpetual purpose (1,409,634) Restricted by donor for time restriction beyond one year (1,135,119) Subject to appropriation and satisfaction of donor restrictions (749,935) Board designations: Amounts set aside for long-term investing (11,400,000) Amounts set aside for liquidity reserve (3,158,984) Financial assets available to meet cash needs for general expenditures within one year $ 6,338, Liquidity Disclosure New standard The NFP's financial assets available within one year of the balance sheet date for general expenditure are as follows Cash and cash equivalents $ 4,664,717 Grants receivable 463,921 Pledges receivable expected to be collected in less than one year 1,040,995 Other receivables 168,599 $6,338,232 As part of The NFP's liquidity management, it has a policy to structure its financial assets to be available as its general expenditures, liabilities and other obligations come due. In addition, The NFP invests cash in excess daily requirements in short-term investments. 78

40 ASU : Liquidity Example Note Not-for-Profit Entity A is substantially supported by restricted contributions. Because a donor s restriction requires resources to be used in a particular manner or in a future period, Not-for-Profit Entity A must maintain sufficient resources to meet those responsibilities to its donors. Thus, financial assets may not be available for general expenditure within one year. As part of Not-for-Profit Entity A s liquidity management, it has a policy to structure its financial assets to be available as its general expenditures, liabilities & other obligations come due. In addition, Not-for-Profit Entity A invests cash in excess of daily requirements in short-term investments. Occasionally, the board designates a portion of any operating surplus to its liquidity reserve, which was $1,300 as of June 30, 20X1. 79 ASU : Liquidity Example Note There is a fund established by the governing board that may be drawn upon in the event of financial distress or an immediate liquidity need resulting from events outside the typical life cycle of converting financial assets to cash or settling financial liabilities In the event of an unanticipated liquidity need, Not-for-Profit Entity A also could draw upon $10,000 of available lines of credit (as further discussed in Note XX) or its quasiendowment fund 80

41 ASU : Liquidity Example Note The following slide reflects Not-for-Profit Entity A s financial assets as of the balance sheet date reduced by amounts not available for general use because of contractual or donor-imposed restrictions within one year of the balance sheet date Amounts not available include amounts set aside for long-term investing in the quasi-endowment that could be drawn upon if the governing board approves that action Amounts already appropriated from either the donor-restricted endowment or quasi-endowment for general expenditure within one year of the balance sheet date are not subtracted as unavailable 81 ASU : Liquidity Example Note Not-for-Profit Entity A is substantially supported by restricted contributions. Because a donor s restriction requires resources to be used in a particular manner or in a future period, Not-for-Profit Entity A must maintain sufficient resources to meet those responsibilities to its donors. Thus, financial assets may not be available for general expenditure within one year. As part of Not-for-Profit Entity A s liquidity management, it has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. 82

42 ASU : Liquidity Example Note In addition, Not-for-Profit Entity A invests cash in excess of daily requirements in shortterm investments. Occasionally, the board designates a portion of any operating surplus to its liquidity reserve, which was $1,300 as of June 30, 20X1. There is a fund established by the governing board that may be drawn upon in the event of financial distress or an immediate liquidity need resulting from events outside the typical life cycle of converting financial assets to cash or settling financial liabilities. In the event of an unanticipated liquidity need, Not-for-Profit Entity A also could draw upon $10,000 of available lines of credit (as further discussed in Note XX) or its quasiendowment fund. 83

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