Accounting, Counting & Recognition Beyond the Annual Fund

Transcription

1 Accounting, Counting & Recognition Beyond the Annual Fund April 11, 2019 Marie Ruzek Senior Philanthropic Specialist, Wells Fargo Philanthropic Services Athena Mihas Vice President, Finance, Greater Twin Cities United Way 1

2 Marie Ruzek Vice President, Senior Philanthropic Specialist for the Great Lakes Region Professional Experience Marie Ruzek joined Wells Fargo Private Bank in 2016 and is currently a philanthropic specialist Focuses on tax-wise philanthropic solutions for individuals, families, nonprofits and private family foundations Prior to joining Wells Fargo, Ms. Ruzek worked for 20 years in healthcare, higher education, and human services nonprofits, most recently at Greater Twin Cities United Way as the director of planned giving and endowment Education Bachelor of Arts in Business Administration from Concordia College, Moorhead, MN Juris Doctor from Mitchell Hamline School of Law Professional Affiliations President-elect, MN Planned Giving Council Twin Cities Estate Planning Council Minnesota Women Lawyers United Way Women s Giving 90 South 7 th Street, flr 11 Minneapolis, MN Direct Line marie.ruzek@wellsfargo.com Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its affiliates. Brokerage services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and separate non-bank affiliate of Wells Fargo & Company. Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies. Not available in all states. WCR Wells Fargo Bank, N.A. All rights reserved. Member FDIC. NMLSR ID One Time Use Only 2

3 Athena Mihas Vice President, Finance, Greater Twin Cities United Way Professional Experience Athena Mihas joined Greater Twin Cities United Way in 2015 and is currently the Vice President of Finance Oversees Finance, Information Services and Facilities Prior to joining GTCUW, Ms. Mihas worked for 27 years in several nonprofit leadership roles, most recently at Volunteers of America of MN/WI as the Vice President of Finance Education Bachelor of Arts, University of Minnesota, Minneapolis, MN Masters of Business Administration, University of St. Thomas Professional Affiliations United Way Worldwide Finance Issues Committee Nonprofit Financial Group Women s Health Leadership Trust 404 South 8 th Street Minneapolis, MN Direct Line Athena.mihas@gtcuw.org

4 TODAY S GOAL Gain a high level understanding of the: Differences between accounting, counting, and donor recognition for charitable gifts Impact on reporting of fundraising results based upon audience/purpose Cash flow -- when funds become available for investing in our mission 4

5 WHY IS THIS IMPORTANT? When embarking on a capital campaign or fundraising beyond the annual fund, anticipating questions and needs of various internal and external stakeholders and having clear answers will help foster positive relationships and avoid stress and misunderstandings Fundraising results reported will be higher than revenue reported in financial statements o Full positive impact will not be reflected in a lower accounts receivable Much of the funds raised for the organization will likely not be available for operations for many years Need to track and report clear, transparent, and easily understandable results internally and externally Donors are expecting to be recognized for their gift and accounting rules are not top of mind for them 5

6 FOCUS AND TYPES OF GIFTS FOCUS GIFTS OUTSIDE OF THE ANNUAL FUND Long-term Legacy Gifts (endowment and planned gifts) Capital Campaigns TYPES OF CHARITABLE GIFTS EXPECTED Outright Gifts Irrevocable Deferred Gifts Revocable Gifts There are differences between the accounting of these gifts versus the counting versus recognition for donors! 6

7 GIFT TYPE DEFINITIONS Outright Gift: o Gifts that are usable for organizational purposes for current use o Examples: Cash gift for a program, or cash gift to our endowment Irrevocable Deferred Gift: o Gifts committed now but usable by the organization in the future Deferred Gift: o Gifts solicited and committed or pledged now but which the donor retains the right to change the commitment and/or beneficiary Note: Some of the information in this presentation taken from Guidelines for Reporting and Counting Charitable Gifts, Partnership for Philanthropic Planning

8 ACCOUNTING Definition: A process of keeping financial records based upon Generally Accepted Accounting Principles (GAAP) in order to present a fair, comparable and understandable picture of the organization s financial state at any given time Revenue Recognition (when included in Financial Statements) Outright Gift: o Full value when commitment is made and payment will be received within pledge period (single year or multiple years) Irrevocable Deferred Gift: o When commitment is made, discounted to present value Revocable Gift: o Only when gift is realized or converted to irrevocable gift Note: Some of the information in this presentation taken from Guidelines for Reporting and Counting Charitable Gifts, Partnership for Philanthropic Planning

9 COUNTING Definition: A numerical summary of activity, results and progress toward fundraising goals using face value of gift Includes outright gifts, irrevocable deferred gifts, and revocable gifts Reporting Guidelines: There should be no confusion between o Outright - Gifts usable today or in near future o Irrevocable Deferred - Gifts guaranteed but use postponed until a future date o Revocable - Gifts that are of potentially great value in the future, but that require continued stewardship o Reported only when the gift instrument is executed and sufficient documentation is received by the charity Only new commitments should be counted Note: Some of the information in this presentation taken from Guidelines for Reporting and Counting Charitable Gifts, Partnership for Philanthropic Planning

10 ACCOUNTING versus COUNTING Irrevocable deferred gift: $750,000 charitable remainder trust that is discounted to a total present value of $300,000 GIFT TYPE ACCOUNTING (revenue recognition for financial statements) COUNTING Outright Gift $50,000 $50,000 Irrevocable Deferred Gift $300,000 $750,000 Revocable Planned Gift $0 $1,700,000 Total $350,000 $2,500,000

11 ACCOUNTING versus COUNTING Multi-year pledge of $30,000 over 3 years ($10,000 per year) for annual fund Cost-reimbursement government grant of $1M to be spent over next 3 years Revocable planned gift of $1M GIFT TYPE ACCOUNTING (revenue recognition for financial statements) COUNTING Outright Gift $30,000 $30,000 Government Grant $250,000 Costs incurred in year 1 $1,000,000 Revocable Planned Gift $0 $1,000,000 Total $280,000 $2,030,000

12 ACCOUNTING versus COUNTING Irrevocable Deferred Gift Illustration Original Gift Outright Pledge AND Deferred Gift (made in 2006): $10,000/year until death and then $1,150,000 payable upon death Joint life expectancy of 29 years (2035) Counting: $1,440,000 = ($10K x 29 years + $1.15M) Accounting: $460,718 (discounted to present value) Note: None of the above amounts represent the donor s charitable income or estate tax deduction. That would be calculated separately. 12

13 Recognition (aka Crediting) Recognition is free there are no rules Is organization-specific and represents the way in which the organization grants recognition to its donors Each organization should establish its own standards and requirements Note: Some of the information in this presentation taken from Guidelines for Reporting and Counting Charitable Gifts, Partnership for Philanthropic Planning

14 ACCOUNTING, COUNTING, RECOGNTION Multi-year pledge of $30,000 over 3 years ($10,000 per year) for annual fund Donor is recognized each year for annual fund gift of $10,000 YEAR ACCOUNTING COUNTING RECOGNITION Pledge Made in Year 1 $30,000 $30,000 $30,000 Annual Fund in Year 2 $0 $0 $10,000 Annual Fund in Year 3 $0 $0 $10,000

15 Availability of Funds for Operating Gifts could be endowment related and/or realized many years into the future Reported (i.e. counted ) gifts, such as planned gifts or endowment gifts, will be higher than what will be fully available for Operating in the near term Purpose-restricted or time-restricted, outright gifts are available, based on the donor intent, for spending of the gift when payment has been received and the donor restriction is met o Purpose-restriction for specific purpose will be available for operating use when purpose has been met o Time-restricted gift that is intended for next fiscal year will be available next year for operating use 15

16 NEW REALIZED ENDOWMENT GIFTS What is your current policy? How are those gifts invested? Are unrestricted, board-designated, and permanently restricted gifts treated differently? How are realized bequests classified if unrestricted as to use? Consider investing these gifts in board-designated endowment. What is the endowment spending policy (usually between 4%-5%)? How are the annual distributions from the endowment spent? 16

17 OTHER RELATED ISSUES AND CONSIDERATIONS Cash flow versus counting of multi-year pledges, long-term, legacy, and endowment gifts. What are the consequences if a significant portion of gifts are revocable or long-term, irrevocable deferred gifts? What is your policy regarding donor-restricted or board-designated gifts (including gifts to the endowment)? Endowment pledge payment schedule how many years will be allowed? Consider the relationship between Finance and Fundraising Teams How can we work together to promote mutual understanding and positive working relationships? Other issues?

18 Thank You! Contact Information: Marie Ruzek Athena Mihas