Author Archives: Craig Stevens

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 The backlog includes crumbling roads and bridges, run-down trails, rotting historic buildings, and outdated utility systems.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


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


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.

Great Relationships Start with Communication

Most nonprofits and associations of a certain size undergo an annual audit of their financial statements. While not necessarily a pleasant experience, it is an important discipline to maintain fiscal health and accountability. Having performed audits for 34 years here are some thoughts on what makes for a mutually beneficial relationship between auditors and clients.

What should an organization expect from their auditors?

  • A team of knowledgeable and intelligent professionals throughout the organization.
    • Junior staff members should inspire confidence regardless of their experience level.
  • Attentive client service – prompt and responsive communications, a logistical schedule well in-advance of an audits start date, and deadlines should be met ahead of due dates.
  • Technical advice – regular updates on standard changes, regulations etc. that affect your business; and answers to your questions or a referral source when necessary.
  • Pleasant to work with!
  • Fees – reasonable charges for services rendered and regular billing updates to avoid surprises.
  • Presentation skills – auditors should be able to competently present to your Board and/or other advisors such as lawyers, actuaries, and investment managers.
  • Deliverables that exceed your expectations.

What should auditors expect from their clients?

  • Adequate and advanced preparation for the audit and tax return. If a client is still reconciling accounts and making adjustments to the books after the audit commences, it’s almost a guarantee the auditor will incur overruns. Auditors need to be able to do the audit when they have staff in the field for efficiency, not by managers back in their office over weeks as clients process adjustments and make changes.
  • Consistent client engagement during the audit and tax process, and prompt responses to open item requests.
  • Advance notice of transactions and major events before the audit commences such as lease transactions, property sales, loss events, new programs or activities, personnel turnover, and fraud or malfeasance.
  • Prompt payment for agreed upon services.
  • A collegial working relationship.

What do you think makes for a great auditor/client relationship? Tell us.

Endowment Updates


Nonprofits dream of substantial endowments to allay rising operating costs and for greater flexibility to pursue new programs and ideas. Nonprofits such as prestigious universities, have often achieved this goal. Endowments generally involve donations to nonprofits whereby the corpus or principal of the gift are to remain intact and the “earnings” on the corpus can be used to fund programs.

In practice, arrangements can be diverse based on the donor’s specific wishes regarding the endowment. For example, a donor could stipulate the principal of the endowment be spent over a certain time or conversely that the “corpus” of the gift be increased by some percentage anually to account for the loss of purchasing power. Endowments are different from a nonprofit’s reserve funds that have accumulated over time to cover unforeseen pressing financial needs. Some organizations designate their reserve funds to function as a quasi-endowment to manage long-term finances.

However, many nonprofits never achieve a true or quasi-endowment accumulation because current need surpasses long-term dreams and operating reserves can be difficult to come by. Similarly, the average donor lacks the financial wherewithal to make a significant endowment gift and may prefer to see their gift assist with current needs, and/or receive the benefits of an annual donation. Donors of significant means may have different motivations to make an endowment gift. They may be concerned about the operational impact of a large one-time gift and the use of the funds. A sense of permanence may also motivate larger donors to make a named gift so that future generations are aware of their philanthropy. This sense of permanence guides many to establish a named private foundation for the same reasons.

Furthermore, organizations with endowments are required to record transactions a certain way and to provide disclosures about their endowments by financial reporting standards. The accounting standards are influenced by “endowment law” and known as the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which has been adopted by all states except Pennsylvania. UPMIFA replaced the prior standard that was in place since 1972, the Uniform Management of Institutional Funds Act (UMIFA). In addition to a law change, accounting standards are evolving with the issuance of ASU 2016-14, Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities.  Early adoption is permitted; these amendments are effective for years beginning after December 15, 2017.

Under both present and future GAAP, contributions are restricted only upon a donor’s designation. If the donor creates a true endowment fund, the contributions are permanently restricted net assets under current GAAP or net assets with donor restrictions under the latest changes. A board-designated endowment fund is created when a governing board designates or earmarks a portion of its net assets without donor restriction to be invested, generally for a long but possibly unspecified period. When classifying a donor restricted endowment fund, consideration is given to both the donor’s explicit instructions and the applicable laws (usually UPMIFA) that extend donor restrictions. Investment returns are recorded in accordance with any donor stipulation such as for use in a particular program, and in this case would be considered restricted until the amounts are spent on the specific program or otherwise considered restricted until appropriated for expenditure by the nonprofit’s governing board.

One of the major changes to both governing law (UPMIFA vs UMIFA) and in the recent accounting update is the treatment of “underwater endowments”. Under UMIFA, there was a concept of the historical dollar value of an endowment consisting of the original gift plus any additions to the fund made by the donor, which constituted a floor that the value of the fund should not fall below. Regardless of interpretation, in practice the accounting guidance followed the prescription that the historic dollar value and recorded permanently restricted net asset was fixed. Therefore, any decrease in fair market value below this had to be covered by otherwise unrestricted net assets creating a loss in that column, assuming there was no temporarily restricted net assets on net appreciation of the fund that was unspent. UPMIFA eliminated the concept of historic dollar value and applied prudent man standards to how an endowment fund may be spent over time. As a result, the new accounting standards are a significant change that would treat a drop in fair market value of a restricted donor endowment as a loss in the donor restrictions column.

There are specific financial statement disclosures related to endowment funds as stated in the new standards ASU 2016-14, Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities. A nonprofit will disclose information to enable users of financial statements to understand all of the following about its endowment funds both donor-restricted and board-designated:

  • Net asset classification such as net assets with donor restrictions or net assets without donor restrictions.
  • Net asset composition such as board-designated endowment funds or donor-restricted endowment funds.
  • Changes in net asset composition
  • Spending policies
  • Related investment policies

At a minimum, a nonprofit shall disclose all of the following information for each period that it presents financial statements:

  • A description of the governing board’s interpretation of the laws that underlie the nonprofit’s net asset classification of donor-restricted endowment funds, including its interpretation of the ability to spend from underwater endowment funds.
    • A description of the nonprofit’s policy or policies for the appropriation of endowment assets for expenditure (its endowment spending policy or policies) including its policy and any actions taken during the period concerning appropriation from underwater endowment funds.
    • A description of the nonprofit’s endowment investment policies including their return objectives and risk parameters, how return objectives relate to the nonprofit’s endowment policy or policies and the strategy for achieving return objectives.
  • The composition of the nonprofit’s endowment by net asset class at the end of the period, in total and by type of endowment fund, showing donor-restricted endowment funds separately from board-designated endowment funds.
  • A reconciliation of the beginning and ending balance of the nonprofit’s endowment in total and by net asset class including, if applicable 1) investment return 2) contributions 3) amounts appropriated for expenditure that contain no purpose restrictions and other changes.

If a nonprofit is subject to a donor restriction or applicable law that its governing board interprets as requiring the maintenance of purchasing power for donor-restricted endowment funds, they should periodically adjust the disclosed amount that is required to be maintained either by the donor or by law.

Furthermore, for each period that a statement of financial position is presented, a nonprofit shall disclose each of the following, in the aggregate, for all underwater endowment funds:

  • The fair value of the underwater endowment funds.
  • The original endowment gift amount or level required to be maintained by donor stipulations or by law, which extends donor restrictions.
  • The amount of the deficiencies of the underwater endowment funds.

Endowments are complicated. Please call Aronson’s Craig Stevens at 301.231.6200, if you have specific questions, or would like to discuss how the new accounting standards apply to your specific situation.


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