Monthly Archives: May 2017

Why Independent Schools are Implementing ERM

Risk Management

In a recent article from Net Assets by the National Business Officers Association, Janice M. Abraham noted that an increasing number of independent schools are borrowing a page from universities and corporations. Schools are using Enterprise Risk Management (ERM) to help identify risks and take advantage of opportunities.

With so many emerging risks in today’s world, ERM has become a best practice for managing risk at the enterprise-wide level. There are many short- and long-term benefits to implementing effective ERM at a school. An ERM implementation can:

  • Help prioritize where to invest limited resources
  • Inform and aid with timely decision-making
  • Aid in awareness of emerging risks
  • Assist in achieving strategic objectives
  • Improve succession management – enhanced human capital

Do you know where a school faces the greatest risks and how leadership teams currently address them? Some of the most common risks schools face are:

  • Poor crisis planning
  • Privacy management and information security
  • Social media snafus
  • Economic conditions
  • Conduct risk/organizational culture
  • Employment practices
  • Field trips/foreign travel
  • Fraud
  • Loyalty and retention of teachers/student families
  • Conflict on the board and lack of long-term strategy

How should a school start implementation of ERM? 

  • Conduct risk surveys to identify risks
  • Benchmark against other schools
  • Rank the enterprise-wide risk assessment of the school (address all risks)
  • Gain accountability and ownership from administration and staff
  • Form a risk council and sub committees such as safety committees
  • Develop a written program and action plan

For more information on ERM, please read the Committee of Sponsoring Organizations of the Treadway Commission (COSO) guidance. In 2004, the COSO Board commissioned and published 2004 Enterprise Risk Management — Integrated Framework, this publication has gained broad acceptance by organizations in their efforts to manage risk. Last year, COSO issued an update to their 2004 ERM framework that is still out for public exposure and comment, check it out here.

COSO’s overall plan appears to bring the basic framework more up-to-date by aligning ERM with an organization’s strategic plan. COSO emphasizes that ERM can and should be used by organizations of any size with a mission, strategy, and objectives, as well as the need to make decisions under uncertainty.

Want to start ERM at your school?

For more information, please contact Aronson Nonprofit and Industry Association Group Manager Melissa Musser, CPA, CISA, at mmusser@aronsonllc.com or 240.364.2598.

Addressing the Crumbling Infrastructure of our National Parks

National Parks infrastructure Many nonprofits are involved in advocacy work on issues relevant to their membership or specific purpose. As a Board Member and Treasurer with the Shenandoah Valley Battlefields Foundation and National Park Foundation donor, Aronson Partner Craig Stevens was invited to participate in a lobby day on May 23, to advocate on behalf of funding for deferred maintenance in our National Parks. The effort was put together as a joint project of the National Trust for Historic Preservation, The Pew Charitable Trusts, and the National Parks Conservation Association.

The specific issue the group addressed was the nearly $12 billion in deferred maintenance in the National Parks. The backlog includes crumbling roads and bridges, run-down trails, rotting historic buildings, and outdated utility systems. Moreover, half of the backlog is comprised of transportation-related repairs. In addition to being a source of great national pride and identity, the National Parks are proven economic boosters. In 2016, over 300 million known tourists visited the parks; additionally, the parks directly and indirectly employ almost 300,000 people, and add $32 billion to the national economy.

Virginia’s delegation for the event included many well-known and passionate community leaders. Rebecca Knuffke from The Pew Charitable Trusts who works full-time on this issue guided the group for the day. Other group participants included John McCarthy of the Piedmont Environmental Council and former county manager for Rappahannock County, Virginia, which borders Shenandoah National Park; Zann Nelson who ran a friends group for the Fredericksburg and Spotsylvania National Military Park; and, Mark Andrews the Executive Director of Therapeutic Adventures, Inc., an organization from Charlottesville that develops programs and services to provide greater access to the outdoors for persons with differing abilities.

Throughout the day, the Virginia delegation met with staff representatives of US Senate Committee on Energy and Natural Resources Chair and Senator Lisa Murkowski from Alaska, and staff from four Virginia congressional offices – Representative Morgan Griffith (Virginia’s 9th District), Representative Don Beyer (Virginia’s 8th District), Representative Bob Goodlatte (Virginia’s 6th District), and Representative Barbara Comstock (Virginia’s 10th District). Their mission was to educate on the issue and recommend support for S. 751, National Park Service Legacy Act of 2017, which was introduced by Senator Mark Warner of Virginia, and a companion House Bill H.R 2584, introduced by Representative Will Hurd of Texas. Without proper attention and support for this legislation, park infrastructure may collapse hurting visitors to the parks and the economic activity around them.

For more information about the issue at hand, please contact Aronson’s Craig Stevens at 301.231.6200.

Staying on Top of the Standards

standards

Association and nonprofit financial teams have a never-ending stream of work comprised of budgets, monthly and annual closes, annual audits, and constant interruptions from people wanting information. The ability to stay current on financial accounting changes is often relegated to updates from an organization’s public accounting firm of record. Often times because those seeking the information do not know where to find it.

An excellent source of information is the Financial Accounting Standards Board’s website.

The website is an excellent resource for accounting and finance professionals to stay up-to-date on the latest changes to accounting rules and standards. On the site, users can gain access under the Standards tab​ to the entire Accounting Standards Codification (ASC), access is free but you do have to register, with access users can view all the accounting standards updates issued such as ASU Update 2016-14, “Not-for-Profit Entities – Presentation of Financial Statements of Not-for-Profit Entities”. Section 958 in the codification deals with not-for-profit entities. Review of ASC Section 958 tells the user much of what they need to know relative to not-for-profit accounting.

For forward-looking information, visit the Projects tab to view FASB’s technical agenda. To view what FASB is currently working on, and the stage the project is in, visit the All Projects tab. Association and nonprofit finance and accounting personal may be particularly interested in projects related to the Revenue Recognition of Grants and Contracts by Not-for-Profit Entities, which is currently in initial deliberations. Also of interest may be a research project on Financial Statements of Not-for-Profit Entities (Phase 2). Users can follow the progress of these projects and review exposure drafts of proposed ASC changes as they are posted. If and when implemented, these updates will have a profound impact on not-for-profit accounting and reporting.

As always, please do not hesitate to contact Aronson LLC for accounting, tax, or other questions you might have at 301.231.6200.

IRA Charitable Rollovers

IRA

Individuals cannot keep money in their retirement accounts forever. Beginning on April 1, of the calendar year after turning 701/2, individuals must start making withdrawals from their IRA, Simple IRA, SEP IRA, or retirement plan account. The minimum withdrawal amount is called the Required Minimum Distribution (RMD). Generally, the RMD is calculated from an IRS Uniform Lifetime table.

Some people find they do not need the RMD for living expenses and prefer to donate the funds toward their favorite charity or charities. A law made permanent in 2015, allows donors aged 701/2 to make a qualified charitable distribution from a traditional IRA or ROTH IRA directly from the IRA trustee to the charitable organization, and not declare the amount as part of their gross income. The amount distributed to the charity or charities would count as part or all of the individual’s RMD. The maximum amount that can be transferred with this result is $100,000 per year. Note that this applies to IRAs but not retirement plan (401(k) or 403(b)), money purchase plan, profit sharing etc., or other accounts you have with your employer even though the RMD rules also apply to those accounts. Of course, many donors have rolled over their retirement plan accounts to an IRA.

For example, let’s say Mary wants to support the private school where her grandchildren attend but budgets carefully and does not want to donate from her regular accounts. She is required to take RMD amounts from her IRA this year in the amount of $10,000; therefore, she instructs her IRA custodian to directly transfer the $10,000 to the school. Through her donation, Mary has met her RMD requirement, avoided any penalties, and does not have to declare the $10,000 as income on her Federal tax return. States and municipalities differ on whether the rollover is excluded from state income tax calculations.

For some donors this may not convey any tax benefits as the amount included in income is offset by the charitable deduction with no difference in the ultimate federal tax paid. However, there are many situations where not including the RMD in income will achieve a better tax result. This could be because of the donor not itemizing deductions, bumping up against a percentage of AGI limit for all of their charitable contributions, affecting an exemption or itemized deduction phase-out situation, or might decrease the amount of social security benefits subject to tax. Roth IRA rules can be tricky when determining the best outcome. Donors may also find it administratively easier.

For a married couple both spouses may have IRAs so they could each make a charitable rollover in this manner up to $100,000 each. The IRA rollovers can only be outright gifts (although the charity may consider the donations to meet a pledge or matching requirement) but they cannot be used to fund a life income gift such as a charitable gift annuity or a charitable remainder trust. IRA charitable rollovers cannot fund donor advised funds, private foundations, or supporting organizations. In addition, the donor cannot receive any privileges in exchange for the gift that would have reduced the tax deduction they would have otherwise qualified for. It usually can be counted toward a particular giving level designation provided no benefits are provided as a result.

Everyone’s tax situation is different, so please consult your Aronson tax advisor to address your specific situation, and how to report this properly on your tax return when you receive a 1099-R from your IRA administrator.

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