Create Your Construction Invoice Template Word for NPOs Easily

Construction invoice template word for NPOs

good morning everybody I guess it's morning here it's starting to get almost afternoon some places we're so glad that you're here with us today my name is Beth Farley and I'm a partner out of our Reno Nevada office and later Stacy will be joining us um to go over some of the things and she's out of our su falls office both of us work significantly in the nonprofit area so we're excited to be able to talk through some of these common errors that we find in nonprofit financial statements so our objectives today is to identify some of the most common errors we find um not all of them but just the most common and what those effect would have on the financial statements and then maybe hopefully we can give you a few best practices to avoid some of those common errors our agenda today is we're going to go over the statements that we see on the screen here so financial position activities expenses by nature and cash flows and then we'll have a quick final review um although we're only going through the financial statements today I do want to be uh clear that we're going to talk a little bit as we go through this the importance of making sure the notes the financial statements you know align with what we're seeing in the financial statements as well we will have another webinar in next month that goes talks specifically on the notes the financial statements so hopefully you can tune into that one as well all right we're going to jump right into the statement of financial position the primary purpose of the statement financial position is to talk to show your assets liabilities and net assets and their inner relations with each other at a moment in time so at one date um at the end of the fiscal year calendar year there are five required elements that show should show up on your statement financial position you should see a total asset line total liabilities line total net assets and then the breakout between with and without donor restrictions anything else as far as subtotals or additional breakout would be left up to the organization to include those for better readability for the user the financial statements that these are required to have so we want to make sure we're seeing those as we set up the statement of financial position an important piece is going to be looking at the liquidity and on the face of the financial statements how we're seeing that is sequencing your assets ing to The Nearness of their conversion to cash so how how how quickly those get converted and then sequencing your liabilities in the order of the maturity by the use of that cash as well um sometimes you'll see the CL classifying assets and liabilities as current and non-current and making sure that those are if you're doing that that they're classified properly into the different sections and then disclosing your financial statements any relevant information about the liquidity or maturity of those assets and liabilities and making sure that those tie into the statement of financial position so you kind of go through and evaluate that and how you're ordering things is really important to understand all the accounts that are going in to create your financial statements and what the restrictions and liquidity would be on all of those items couple of factors that will affect the liquidity are um the three that you're seeing here these are the top three that we usually see um the first one is donor imposed restrictions so if you have a donor imposed restricted endowment or maybe you've been donated some assets for the purchase of longlived assets those would be maybe the liquidity would be different than just a general cash account board designations uh quasi endowments there reserve for spe special purposes and then legal and contractual restrictions usually that's a retirement syncing fund for the retirement of debt but there might have some other contractual restrictions as well that you'd want to detail out so again making sure you have a clear understanding of all the restrictions and designations as you put together that and you're splitting out different types of assets into those uh different restricted items or contractually restricted items all right we're going to take a quick look at a couple options so this is and we're just going to look at assets but you kind of conv vision liabilities are very similar where we're going to look at the um sequencing of those so here you're going to see option one to show your assets and you'll see that total asset so again that was one of the five required items um you're you'll see here that you've got cash and cash equivalents at the very top but then you see other cash for restricted for building projects that's lower down because there is some restriction to that um so it's it's it's you want to be clear in how you're breaking those out and having that liquidity shown that so the sequencing of that is going to be very important the second option here is you can see the breakout between current assets and non-current assets you notice these are the same dollar amounts that on the other one but as you look between the two statements this one's a little bit longer and that's because you're going to see like up the top you'll see the promises to give and then you'll also see promises to give net of current portion down below so you may see a couple items that are broken out between your current and non-current so again being really clear on what is current and what is non-current so common error you would see here is that something's not in the correct category and not being classified correctly both of these are good options that you can present and um either one is acceptable couple of common errors that we see within the classification has to do with cash I know I kind of mentioned that already uh there is no specific definition of what constitute restricted funds so net assets restricted for donors for operating activities typically are not shown as restricted since they're for use for general purposes however they're if they're restricted for long-term purposes such as the endowment or those that would be um restricted for other reasons would be shown as that and you'd want to have that separation other things that we would see that would be restricted typically are deposits that are held maybe escrow a Debt Service like we talked about split split interest agreements if you have those and any endowment so as you're looking through that um again there's no specific definitions but you really want to understand how your cash is being held so that you can break that out properly since that is a very common um issue that we can find sometimes now we're going to look at receivables problems that we see here are typically related to the timing of recognition of the valuation uh we want to recognize promises to give when they're received but we want to make sure that they're actually a promise words that we sometimes see from donors will say I plan to give or I hope to give or if your pledge card says that it's not legally enforcable those are intentions and those should not be recognized until they're actually pledged you would want to recognize only unconditional promises um if it's a conditional promise you have to make sure that you're meeting those conditions before you recognize those cost reimbursement grants are not specifically always um mean that it's going to be conditional what's important when you're looking at conditional contribution is that the recipient has limited discretion over the manner in which the activity can be conducted limited discretion means that it's more specific than a donor imposed restriction a restriction would be more um specific about an activity or a time but it wouldn't necessarily put limitations on how the activity is performed examples of an unlimited discre discretion would include requirements to follow specific guidelines um incurring how you qualify the expenses or a requirement to hire a specific person or any spefic specific protocol that you have tohere to that would be more of a condition than you would see as restricted and so of course when you're looking at federal grants that is uh would be a condition because you're following uniform guidance that is very specific to that the other thing to look at with receivables is making sure that you're measuring it correctly so when you receive a promise to give you want to measure it at the um net realizable value if it's due within one year or the fair value if it's due within more than one year so that's typically calculated at the present value of future cash flows so really evaluating that measurement and making sure that you've done that discount corre correctly if required in addition um you want to assess the collectibility of your promises to give do you have an allowance for Delo account that you may need to take into consideration all that kind of comes into you know the presentation as well between uh fby 605 and 606 so 605 and 606 we're going to talk a lot about between the financial position and also statement of activities 605 is your non-exchange Revenue really talks about the conditional um and restricted uh revenues that you receive and 606 is exchange revenue and there's different ways that you present those throughout the financial statements and notes so making sure that you understand and this is something that I would recommend from the very beginning when you have a revenue stream type of Revenue that's coming in you're going to evaluate this what standard does this fall under and then you're going to really make sure that you're documenting okay if this falls under 605 do we have conditions do we have a right of return and barrier that's going to then flow through how you record it in the financial statements and the accounting system to go into the financial statements if it's 606 you know are you following that non that exchange transaction Revenue recognition processes couple things on liabilities won't spend a lot of time here but one thing that we see sometimes as an error as debt issuance cost should be subtracted from the debt and not as a deferred charge as it was previously many years ago um and then funds held for others are not properly segregated we do see that quite a bit sometimes if you have an employee benefit Pension Plan making sure that that presentation of the cash of any assets and liabilities related to that are properly split out and then you've got deferred revenue refundable advances I would say that I see this um used interchangeably correctly quite a bit again deferred revenue this is goes back to the 606 the non-exchange and the exchange Revenue so deferred revenue is going to be your contractual obligations under exchange revenue and refundable advances would be uh conditional guidance uh for non-exchange transactions so making sure that you've got those receivables those deferred amounts and refundable advances categorized correctly let's jump into net assets so so what you see here on the top is the minimum presentation required on your statement Financial deposition you have to show total net assets and you have to say show with and without donor restrictions I would say that a lot of nonprofits do end up presenting more information because they want it to be useful to the reader that's a really important part as everything we talk about you've got minimum requirements but then what is use useful for the reader um when you when you break it out more as you see on that alternative there with undesignated and designated in different types of restrictions you're letting the user identify your availability of resources identifying that you have endowments and what programs they support and you're identifying purposes of what the resources can be spent for um also when we see really good detail both on the statement of financial position and then the notes the financial statements it really tells a user that you understand the restrictions that you have you understand the fiary responsibilities that you have as a nonprofit to uh track all these report them and making sure that you're spinning it correctly so it can be really good for the user to see that more detailed breakdown um all right net assets for board designated I want to be clear that these are um so these are self-imposed limits versus restricted from a donor they can be for a variety of purposes short-term or longterm um that designation how they're used how they're appropriated can be delegated to management and you can disclose them on the face or in the notes but they should be disclosed what I want to bring up here is that the documentation of your net assets can be really crucial you want to have a really good role forward of your net assets that's very clear about what's restricted what's board designated and then the remaining piece that would be undesignated um sometimes what I've seen is that the board has designated something but it's not clear how how it's supposed to be used in the future it's not clear when that was designated or really what the full purpose was it might just say you know operating reserves designation but what does that mean you know what why did you determine that dollar amount so really having that underlying documentation within your accounting system within your processes to show why you have board designated how what additions and uses were during that year and then also same thing that you would have with donor restricted balances making sure that all of that can flow through and you have that information ready to prepare your financial statements a couple other things I just want to briefly touch on for the statement of financial position is leases as most people I'm sure have heard lots of webinars there lots of discussion about leases they should be fully adopted now it's for um calendar year 22 or fiscal year 23 that just recently ended so those should be all adopted you want to make sure you have separate lines for operating and financing use right of use assets as well as the financing obligations those should not be combined together as assets and liabilities there shouldn't be a net amount so those should be all separated out every once in a while we see an eror where outstanding checks in excess of bank balance are shown as negative cash those need to be presented as a liability be very clear about related party receivables and payables those shouldn't be netted those should be broken out and shown that way and then if you do have capitalized interest we don't see this um we see it sometimes but we want to make sure that if you do have capitalized or interest in a building project that you're really kind of presenting those properly got a a polling question here so um just looking to see you know kind of what you guys' prepare as the financial statements see is most your most difficult part in preparing those um I would say probably receivables deferred revenue revenue recognition has continues even with a clarification continues to be um some difficult areas and then I see a lot of net assets just making sure that it's clarified properly again that the documentation the roll forward properly is is so important okay everyone we have our first polling question up if you are here for CPE please please make sure you are answering these polling questions you will make your selection right on the screen and then after you make your selection you will scroll down just a bit and hit submit make sure after you make your selections you are hitting submit so the answer will count and we'll keep this up for just a few more moments and then we will continue and then be there is a question in the Q&A box let's take a look there so what the question is what are underwater endowments an underwater endowment would be that the amount that you were given to be held in perpetuity has now gone under that dollar amount meaning that you probably had some unrealized uh losses that reduced it so if you're if you received something that for $100,000 it be held in perpetuity but now it's only sitting at 95,000 that's underwater so you would you need to report that separately to show what that is and it's because you know you never know what the Market's going to do and sometimes you'll see it underwater one year and then it jumps back up the next year uh monitoring that your endowments is very crucial to make sure that you're understanding your spending policy with potential realized gains and losses to to watch out for those all righty and we are ready for results there you go all right leases yes leases are very difficult that first year hopefully once you kind of get it all gathered rolling forward will um be a little bit easier after that first year but receivable net assets are right up there too okay great let's go ahead and jump forward we're going to now dive into the statement of activities with the statement activities there's a lot of flexibility with in your presentation they're you're required to present totals for net assets net assets with and without um donor restrictions the change is there but there's not a lot of other very specific things that you're supposed to do as far as the format of it so we're going to talk through a couple of different options you have you have a single step or a multi-step which would be you know talking about your operating measure or not um if you want to do that a single column or a multiple column sometimes referred to as pancake or colar um and so I'll those two I'm going to have a presentation on the next couple slides so you can kind of see what those differences are comparative statements are recommended by fby but are not required and so that would be full comparative meaning you're showing all your statements at both years your notes also are full presentation a summarized comparative information is allowed but again also not required so you are allowed to do a summarized presentation so let's go ahead and take a look at this multiple column format so you can see here that you're going to show your revenue and expenses and you're changing at assets you've got with and without donor restrictions than total and then over here on the right hand side that's your summarized comparative information because it's not showing all of the changes with and without donor restrictions so that's why it's summarized comparative and what you'll see down here is you've got the change in net assets by with and without donor restrictions you also see that beginning of your net assets as well as the end of your net Assets in in um with and without donor restrictions so you've got some detail there so when we jump forward here to the single column um you're going to see the same information presented in a single column and we're going to start off with the without donor restrictions so this is also considered a full comparative because all the lines are presented for the prior year um for both with and without donor restrictions again you so one of them is going to be wider one is longer um just depending on how you want that presented and then when we jump forward to the second page you're going to see the change in the net assets with donor restrictions your total change but what you won't see is your net assets beginning of the year um with and without donor restrictions so that is a difference between the two um there's positives and negatives just depending on how you want that to be presented okay let's go ahead and jump into some of the errors that we see so some of the things you want to be aware of is incorrectly presenting your agency transactions within your statement of activities again going back to understanding what an agency transaction is getting that recorded in your accounting system so it can roll it properly certain types of Revenue such as due and SP dues and sponsorships may need to be bifurcated so if you have a due or sponsorship for an event for example somebody purchases a table at a Gala and then a part of that is exchange cont uh exchange and part of that is a contribution those need to be split out and evaluated separately for how they're recognized and so that can I can see that happening quite a bit because it kind of all gets lumped into maybe special event income same thing with dues If part of it is contribution being very clear on on what is um following the two different Revenue recognition areas are important sometimes we can see net assets relief from restrictions don't net to zero you would normally see that in that single column format um and I'll jump back real quick just to show up here you've got that uh release from restriction here and then down here you've got the same one down here on the two columns you can kind of see them go across and it Nets to zero that's really easy to see but sometimes when they're separated like that there can be an erron there meaning that you have one of your contribution listed incorrectly possibly um so making sure that those ma um match are important and then missing maybe some required subtotals or totals for the change in net assets so you've got to make sure you have those separated both out between with and without use of operating measure I know I mentioned that there um we do see this sometimes this is not required to split out between operating measure but if you are going to I'm just kind of including this here so that you really consider what is operating and non-operating and why you're including those an example would be like a defined benefit plan the service cost would be operating the components of the net periodic pension cost and those would be um not included in operating so you just want to evaluate that if you're using that operating met model we always get a lot of questions about netting you know what can be netted and where so investment expenses are required to be netted against investment return sometimes you'll see a breakout in your investment return presented separately for different types of investment return operating versus Endowment for ex for example but that investment expense should be netted there gains and losses can be reported as a net amount if it's resulting from peripheral or incidental transactions so what's peripheral and incidental that's looking at the frequency of events part of an unusual activity or strategy or significant of the gross revenues or expenses so you want to evaluate whether or not those gains and losses can be reported net together or if they need to be reported separately so like a pledge with a loss to pledge those would be reported separately because those are frequent usual significant um but maybe the the sale of a building or land that's no longer used would be peripheral an important part to is special events you know you have a lot of different special events how are we going to report the expenses and the revenue to that netting special event expenses against the revenue is again only allowed if it's an incidental or peripheral activity which is probably not um as common so let's look at what you would normally present you're going to have your gross revenue it can subtract the direct cost to benefit to donors that direct cost would be the exchange the donor is receiving for something in return so not all of the expenses that go to that special event but what they're actually getting directly in return for that you would present special event gross revenues in the revenue section and then cost of those directly would be reduced as that and then you would also support them as uh on your statement of functional expenses as too as well and they get backed out there which we'll look at that a little bit in um couple slides when Stacey's going over that um you also want you could also have an option of presenting that contribution as I talked about that important piece of breaking out your contribution exchange portion of your net of your special events you can report those as separate or combined depending on how you would like to show that but the direct benefit to donors can only be reducing the um exchange portion of the gross revenue and nothing else again is allowed to be netted against that other than the direct benefit to donors I think we kind of say that a couple different ways just because that some sometimes gets a little confusing okay going on back to contributions and a lot of this ties back into the receivables that we already talked about um conditional versus unconditional really understanding the underlying accounting and how that rolls up into your financial statements documenting your revenue streams to make sure you understand that um contribution revenue for prop promises to give for future periods there's kind of an assumption that if you're receiving promises to give in future periods it's supporting those future periods unless the donor specific says I'm going to give you this money now I'm going to pledge this money now it's all for this year we're going to pay it later probably not as common so there's that assumption that that is um restricted for future periods you should have an a policy for when you have contributions that are met in the same reporting period so you receive a contribution you meet the condition you can either report that as um donor with donor restrictions or without donor restrictions so so with donor restrictions you'd see a release without donor restrictions you would just see it in that column there um you want to be consistent in how you apply that uh within your organization and then you want to make sure the disclosure is there and then you're actually following that policy because sometimes we'll see where it's not consistently applied across all contributions or the policy is written differently than how it's been presented in the statement of activities failure so the next two uh last two bullets here are talking about gifts and in kind contributed non-financial assets uh sometimes we see that people just don't organizations don't realize that they what uh noncash items they do need to record and get that recorded properly and then if it is material they should be separately reported grants can be contribution or exchange and so if a grant is determined to be an exchange transaction those would be reported as without donor restriction um and so again eras that we see here kind of similar to contributions is that they usually relate to properly identifying the conditions within the Grant and getting that properly reported if you do have a split interest agreement you want to make sure that you recording and documenting those properly so contributions from split interest agreement should be reported on a separate line or disclosing your financial statements any changes in that value of the split interest agreement again should be detailed out um contribution revenues recognized from the split interest Agreements are typically with donor restrictions unless there is one of the two Exceptions there that the donor has given you immediate use of it or your laws and regulations um allow you to do that but normally those split interest agreements be with donor restrictions expenses and losses so on the statement of activities you can present a mixture of natural and functional expense classification on the statement of activities but then you also need to present that statement of functional expenses or disclose it that's still required expenses are reported as only decreases in net assets without donor restrictions you would never see expenses in that with donor restrictions the way you're seeing that release of restrictions to reduce the restricted amounts would be with that uh release from restrictions so not the expense side of it losses may be reported as decreases with or without donor restrictions as applicable so understanding your losses where they're being driven from and be getting those reported properly and then losses from example from property equipment don't belong in expenses those would be on your statement of activities I'm G I just kind of put this out there real quick and not going into to too much detail but um sometimes we see referring to a related party as an affiliate so I've got the definition of an affiliate there um you can see an error of recording transaction is with Affiliates when it's really just doesn't have that control relationship so if you have something you know ask the question kind of take a look and see if that's being reported correctly couple other things that we see uh to make sure that you're being aware of if you have discontinu operations unusual and frequent if you have some agency transactions changing your notal total net assets um for non-controlling interest or collections on capitalized so these are kind of just some overall things probably not usual and you're seeing on your day-to-day transactions but if you have something that's unusual make sure you're taking a look the other thing I'm going to kind of throw in here too is that if you have an other revenue account really understanding what goes into that and especially if it becomes a material amount we sometimes will see this very large other Revenue amount so you want to make sure you're breaking that into smaller categories if needed so that it's not being lump too much couple other common errors I'll try to go through these quick I want to make sure Stacy has plenty of time for the other two statements as well um imp inappropriate counting for investment return again with or without donor restrictions this all drives back you know to really understanding the donor's intents on the contributions and everything that goes through um one thing this middle uh section here is really important is that you have to use uh restricted dollars with donor restrictions prior to using unrestricted dollars so you can't just squirrel away those you know restricted net assets for future purposes uh improperly releasing your donor restrictions that are subject to both time and purpose so if they have both the time and purpose and they haven't met both of those it's still restricted a couple things that are important with long-lived assets is making sure that once those assets are placed into service you've released that again on the flip side of it if it's still Construction in progress that release has not happened yet so you have to show that as still restricted as long as the construction in progress is still going ongoing and it hasn't been placed in service um and again just reporting revenues and exchange transactions as um in net assets with donor restrictions that they should be exchange should only be with out donor restrictions all right so that's a lot of information and now we're going to jump into a couple other statements here all right thank you Beth and there are a few questions we want to just make sure we get through all the material first and then we'll jump jum back in and address those questions if for some reason we don't have time we'll reach out um separately after the presentation so want just don't want you to worry that your questions aren't getting answered uh we will get to those um so statement of functional expenses so this is a required presentation um for all nonprofit organizations it's kind of unique to nonprofit reporting where the nonprofit is required to report information about all of their expenses in one location so this can be done in a couple different ways it can be included in the face of the statement of activities um it can be included as a separate schedule in the notes to the financial statements or it can be a separate financial statement which is frequently referred to as the schedule of um functional expenses or the statement of functional expenses and I'll kind of show you an example of all three of those uh it is not appropriate however to include that information as a supplemental schedule it does need to be included uh within the basic financial statements or footnotes so what is the purpose of this this is really to kind of help your donors creditors and others in assessing your your service your mission and how you are spending those dollars for each of those services so it really gives you the opportunity to tell tell your story so we want to make sure you are not underestimating the importance of preparing it correctly so first screen here this is the present where the information is included directly within the statement of activities you can see it's broken down into two categories you've got Grant activities which would be your program services and then there's management in general um with the detail included below this is probably most common if you got a a smaller non less non-complex organization where it's not too much to include all of that directly on the face of the statement of activities alternatively for for some of the larger nonprofits or if you have multiple programs um this is a good a good way to present that information this is an example where you would include maybe this table within your footnotes or this could be your actual um statement of functional expenses as well so you can see um down across the left side we've got all of the the nature of those expenses and then across the top we've got the function so we've got program services in this example they have two programs they've got advisory and training we've got management in general and then we've got fundraising and we're going to talk about we'll jump back to this slide in a minute to kind of talk about a couple of things so program expenses these are the costs directly Associated um by the organization to to perform your mission um fundraising would be those expenses for activities undertaken to you know either induce potential donors to contribute money to contribute their services or maybe they're contributing other assets management General sometimes referred to as general and administrative those are those management and administrative costs which are incurred by your organization just for the overall operation of the nonprofit and then some of our um organizations might have member development activities so if you're an association or some sort of membership um type organization you may also have member development cost for soliciting those prospective members um related cost related to dues member relations Etc so those are kind of the main functional categories when we look at um allocation of those expenses by nature and function there's some different ways that you may be allocating those expenses because your expense may not just be attributable to one function um it may be program and management it may be multiple programs so how how can those amounts be allocated the the first method is a direct allocation so you're specifically identifying the expense and allocating it to that respective program an example might be you look at your invoice and you can say oh this was all for our advisory program and so that invoice is going to be allocated directly to the advisory program another uh allocation basis is based on salaries this is very common that I see in a number of the organizations that I work with they are using those employee time sheets to allocate expenses B Bas on how their employees are spending their time so if employees are spending that 50% of their time on program a 25% on program B and maybe 25% of management General that's how those underlying costs will be allocated out using those percentages square footage is also a pretty common one that we see used you may look at your office space or your building to say okay how much of our spaces is being used by programs and you will use that to allocate out that percentage of for instance maybe depreciation maybe rent um that would be a good good examples of expenses that could be allocated out using square footage there are you can use any other rational and systematic basis um for example it costs you maybe would be allocating those out based on the number of computers um so there's no no um hard and fast rule in what you need to be using for basis as long as you're systematic and that it uh makes sense is Justified so uh Beth had mentioned our next session is on footnotes to the financial statements well this is kind of a footnote type item we just want to point it out here um based on however you are doing your allocation of those expenses you want to make sure that you were including information in your policy note both what types of expenses are being allocated and then the basis over which they are being allocated so this is a sample it's just an example um in this particular organization they're allocating out Personnel facility professional legal for example and they are allocating those based on estimates of time and effort all right so we have our next polling question and while you are answering that question U maybe I can address one of the questions that are included in our uh Q&A um someone asked the question about what a split interest agreement is with whom would that split interest be um or with whom would that be split so that can take on a number of different forms a lot of times it's donors um they may be leaving money through this trust to a number of nonprofit organizations so maybe you're just receiving a portion of it 25% maybe um also it can be where um there's there's lots of different forms of split interest agreements where maybe the earnings on the split interest are coming to the nonprofit uh over the period period of the trust with the Corpus or the original gift going either to another entity at the end or maybe to the donor itself so there's a number of different types of of split interest agreements we don't have time to go through today but that would be an example of what a split interest would be some of the terminology might here is charitable remainder unitrust or charitable gift annuity so if you've heard those kind of poking around that's what we're talking about sure all right everyone this is our second pulling question if you are here for CPE please make sure you are answering these pulling questions make sure your slides box is maximized you'll make your selection right on the screen and then make sure you hit submit right after answering your question so the questions count and we'll keep this up for just a few more moments and then we'll continue I'm sorry about that Stacey do you want to take care of that next question you are fine I was just going to read the the polling question so the question was you know when was the last time your organization re-evaluated your allocation you know sometimes um an organization will go through that initial allocation determine how things should be broken out or allocated across but never really going back and saying okay does this still make sense um two three you know five years later 10 years later so just a question asking you how often um or when was the last time you evaluated that and we are ready for the results all right so great I'm glad happy to see this uh that a number of you are responding that you have reevaluated within the last year 52% so that's amazing as Auditors we like to see that all right so common errors that we see in regards to the statement of functional expenses um some of those would be oops excuse me um missing expenses that were netted on the statement of activities so as I mentioned a little bit ago we were going to jump back to that statement so Beth talked a little bit about those costs of direct benefits that those can be netted against your special events of cost on the statement of activities they are still expenses to the organization so we want them to be included in our our statement of functional expenses or our summary but we also want to reconcile back to what are the expenses that are included on the um in the expensive section of the statement of activities so an example of how that can be presented is a separate column here for cost of direct benefits to donors um with a line item and then it does get backed out so that we can come down to what were the expenses in the expense section on the statement of activities so very similar with um cost of goods sold for instance if you have a gift shop um that is an example of of how that can be um presented as well all right let get back to my slide here too far another common error that we see is including losses or other Equity transactions as part of expenses so as we kind of talked about gains or losses those are not expenses um you would not include those in your statement of functional expenses those would be a separate uh in the separate separate section there inadequate alloc allocation method disclosures um making sure that how you are allocating them is appropriate for the type of expense that you have in ER natural expense classifications so there's no requirement on the number of or the level of detail of those natural expense classifications that you use sometimes we'll have organizations that will have a large number maybe 15 different line items or more um you really want to step back and take a look at uh what's important to the readers of your financial statements this again does give you the opportunity to kind of tell your story to make sure you're providing enough detail without going kind of Overboard so in some cases less can be more so um take that into consideration as you are determining what level of detail um what level of disaggregation you're going to include in the statement of functional expenses another item that we typically see is the breakdown of the programs on the statement of activities may not agree with the breakdown of the programs on the statement of functional expenses so if you've got to two programs or two different level of program revenues that are showing up in your statement of activities you want to make sure that that is reflected in your statement of of functional expenses as well and that you were including all the the appropriate breakdown by um function within that statement okay other common errors relating to functional expenses occup and's facility cost being presented as a separate program so those are not a program of the entity those really should be allocated out across the program and across management in general and fundraising as applicable we might see errors agreeing to other statements or disclosures um an example here maybe in your statement of functional expenses you've got a line item for your rent expense making sure that that rent expense or the total rent expense agrees back to your disclosure um in your lease footnote as to total rent expense uh expenses that should be in management in general classification that are not so um 201614 which is kind of that nonprofit standard several years ago really provided a lot more guidance as far as what shouldn't shouldn't be included in management in general there was lots of disparity and practice in what organizations were including and so that provided a little more guidance into what you should or shouldn't be using um for example accounting payroll HR it type thing or not it not necessarily always it but those are examples of things that typically would be included in management in general and should not be included in program expenses uh expenses not being allocated among categories but should be so for example if you've got depreciation um very likely the the whole organization is benefiting from those assets so we would typically expect to see depreciation being allocated between program management in general and fundraising certainly there are exceptions um but for the most part making sure you are taking that into consideration that if if an expense is benefiting more than one function it is being allocated out including investment expenses instead of netting them with the investment return so this is one example where netting is is appropriate in the statement of activities you are going to net those in investment expenses with your realized unrealized gains and losses and report them as investment return as a result those amounts should not be included in your statement of functional expenses um fundraising by nonprofits is not considered advertising another thing is relating to fundraising consider if if those fundraising type costs are benefiting more than just fundraising if you have those joint costs that are meeting the the purpose the audience criteria condition um that those are being allocated Out Among the various programs a few best practices as it relates to statement of functional expenses um payroll and related costs one second here um for no most nonprofits payroll and related costs are a significant part of your total expenses so if your nonprofits approach involves allocating those expenses based on time and effort you want to make sure that you're training your staff on the importance of uh diligent timekeeping so make sure those time sheets for which they are being used to allocate are correct you want to verify consistent application of those allocation allocation methodologies and again update them regularly for any changes in your cost structure or maybe you have a triggering events such as you have office space that you've given up or maybe you've taken on additional office space um maybe you've have a new significant new program that was started or if you've discontinued a program these are all examples of triggering events that should make you step back and think okay how is this affecting my statement of functional expenses and how do I need to change my my allocation methodology it's good to take a analytical review of those functional classifications and compare them to the prior year Um this can help you identify if you may have errors um and if you have significant variances may make sure that you are able to explain to your Auditors why there is a variance this year this is the thing that triggered there to be more program service revenues for example remember that your financial statements tell a story about your organization and the use of your resources to to accomplish your mission so consider uh the readers of your financial statements and what information would be beneficial to them if if your functional expense methodologies are in need of an overhaul don't hesitate to reach out to your external Auditors um most are familiar with those industry practices and can help provide recommendations to you to help understand various options available all right with that we are going to jump into the statement of cash flows um there's a number of information here we'll kind of through some of it a little fast but just wanting to make sure you have it available to you as a reminder there's two different methods of statement of cash flows there's the direct and the indirect method the direct method is where you're starting with um your cash flows from operating activities and listing those out individually the indirect method you're starting with your change in net assets to reconcile back to your change in operating cash flows so with that um you are required to present the change in cash cash equivalents restricted cash and restricted cash equivalents so as Beth mentioned earlier you may have some of those restricted cash for either long-term or um Capital campaign type type purposes Gap does not define restricted cash um you would have the ability to Define what you your organization is considering to be restricted cash in your policy footnote and you want to make sure that you're showing a Reconciliation between the amounts included in the statement of financial position and the statement of cash flow um what's all being included in your cash and cash equivalents and restricted cash that can be done within the statement of cash flows or it can be um included in the notes to the financial statements leases our fun our favorite new standard this year there's lots of um disclosures or different effects to the cash flows both operating financing and investing so this slide list those out your principal payments from Finance leases are going to be considered a financing cash flow payments on operating leases to bring that right of use asset to necessary condition would be considered an investing cash flow ongoing payments on operating leases and variable and short-term lease payments not included are both operating cash flows and any interest that you have on finance leases is going to follow those um codification 230 statement of cash flows where you are required to report um the amounts of cash paid for um interest all right um some typical issues that we see with state statement of cash flows uh the signs of those amounts that are included making sure the positive versus negative you have them going the correct way commonly we'll see captions that don't agree to the corresponding captions in the statement of financial position statement of activities or functional expenses so for a good example here is maybe on the statement of financial position you've got it listed as um acur acur acrs and other expenses make sure then your um statement of cash flows has the same caption it doesn't just doesn't just say acral so you want to make sure your captions are agreeing throughout the financial statements to each other similarly you want to make sure your amounts agree to the corresponding amounts within those other statements if you have um depreciation expense that's being disclosed in or a separate line item in your statement of functional expenses make sure the dollar amount of that depreciation expense agrees to the dollar amount of depreciation expense in your statement of cash flows so make sure you don't have any rounding errors um and everything balances out cash received and paid in agency transactions would be considered cash flows from operating activities and that can be presented at either gross or net um some issues we see is failing to properly report those adjustments so bad debt expense um this is an item that should be reported separately in your statement of cash flow um it should not be included in your change in accounts receivable but it should be listed out as a separate line item gains and losses similarly um would be included um as a separate line item those gains and losses are going to be an adjustment to your operating cash flows and then alternatively any proceeds from the sale would be included in the investing section split interest agreements which we talked about a little bit depending on the type of the nature of the transaction um the contribution portions of a new split agreement are going to be adjustments to the operating section as well as that change in value of split interest split interest obligations so it's both if you are um the there's different rules if you are holding the split interest agreement or if you are just a beneficiary of the split interest agreement so making sure you have them Broken Out In the proper proper sections contributions for long long-term Investments or fixed assets need to be included in the adjustment section and in the financing section so amounts recognized in the statement of activities those actual contributions those are going to be adjustments to arrive at operating cash flows alternatively the cash received or collected for those long-term um investment or fixed assets is going to be shown as financing inflows so those amounts may not match up within your statement of cash flows if you have contributions receivable um as the cash portion should only be the cash portion reflected in financing flows is only for the cash collected so you may have received a contribution and collected in the same year um or you may be collecting payments from a prior year uh promise to give so the difference within that will be uh disclosed within the change in contributions receivable adjustment line item amounts designated by the governing board for long-term purposes are op operating activities so those would not be considered financing because they are board designated and the board can either um remove that designation if needed investing activities so purchases of fixed assets um that may be on a cruel basis need to be presented at the actual Cash Out FL so if you have items that you've purchased fixed assets that are still sitting in accounts payable at your end you should only be reporting the purchase for the cash portion um the impact the other side of that would be in your adjustment line item or your change in accounts payable within the operating section netting purchases abandonments or sales of fixed assets with purchases is another issue we see you want to make sure that those proceeds are being reflected um in the long um in the investing section for any of those long lived assets purchases and sales of Investments those are not allowed to be netted they need to be shown gross within the the statement of activities uh financing so proceeds from the issuance of debt should be presented separately from payments on debt um they should be presented gross not net similarly with your lines of credit those should also be pres presented at gross versus Net the exception there would be if that line of credit is due in three months or less you are able to net those amounts debt issuance cost are a c are a financing cash outflow um not an adjustment to reconcile to the change in net assets so those making sure the the initial costs are included as an adjustment um some other financing activities reporting reclassification of a liability from current to non-current we typically see errors there when you have uh refinancing of debt uh you need to look at what is the flow of the cash if if that cash actually flowed through your organization you received the new debt proceeds and paid off the old debt then you would show that as a financing cash inflow and outflow however if the bank or if the cash never went through your organization if it went from one lender to the other then you likely have a non-cash transaction to be disclosed some other issues that we typically see with financing activities um omitting those cash contributions as we mentioned from the long-term Investments or fixed assets so that cash collections for endowment or for Capital campaigns um those are going to be included in the financing activities um under the indirect method you're going to direct deduct those from operating and include in the financing X activities section and as we mentioned if you have contributions receivable those amounts may not agree from year-to year um and that change will flow through uh the adjustment or that change in account in contributions receivable as part of the the operating section another common error that we see is failing to report payments received um oh that we already talked about as far as kind of the the same thing there those long-lived assets and as fin financing inflows some other um errors relating specifically to other more unique situations uh the split interest agreement gifts if you have a gift in the current year making sure that is reported at a cash inflow U for financing for that cash transferred if you have annuity payments you want to make sure that you're reporting those anoing payments as a financing cash outflow non-cash investing in financing activities so we typically see um the failure to disclose information about non-cash gifts restricted for long-term purposes maybe you receive a donation of a stock donation for for example that would be a non-cash gift and making sure that is properly um reflected failing to adjust and disclose purchases of fixed assets that might still be in accounts payable as we mentioned uh the purchases should be should be shown only at the cash portion you would still while you don't include them in your statement of functional uh statement of cash flows you still want to disclose what those non-cash items are emitting disclosure relating to those lease liabilities resulting from obtaining the right of use asset those would be other examples of non-cash transactions and failing to disclose debt incurred for acquiring assets so similar to the accounts payable um you may have purchased assets during the year that were financed with debt um that would also be a non-cash item that should be um disclosed as well supplemental statement of cash flows um you have a requirement to disclose the cash paid for income tax Paces uh income taxes paid and interest paid paid so you want to make sure when you are looking at interest you're considering any acrs for interest you want to make sure you're only reporting the actual cash outflow um that was actually paid out for your interest you also need to consider if you had any capitalized interest in included in there as well so some of those disclosures relating to statement of functional cash flows so with that we just want to do a quick final review there will be one more polling question here coming um as you are putting together your statements take a look at whether you've got them classified are descriptions appropriate um any new items that need to be included or excluded are there things that you know should have changed based on the set of circumstances that happen during the year and also looking at formatting spacing an alignment U we have a slide here that's got some resources available for you um the accounting standards codification has several sections the aicpa's uh non-for-profit section has to save our Charities example Financial State statements which is great it gives you an example a visual of how some of these things would be presented um and there's other information there on the slide we we have running out of time so I won't go through each of those but you have those in your slide deck so with that we have our last polling question will you be joining us for part two of our webinar series um we've got the date there on October 18th more information about the disclosures and as mentioned we will um take all the questions if we didn't get them answered today we will Reach Out separately um to answer your questions since we ran out of time today okay everyone the last polling question is up right now if you are here for CPE you will be answering your this last polling question and then you will be able to download your certificate right from the certification box you will just click view certificate and then you will have the option to download your certificate and if for any reason you have any ISS issues with your certificate you will be receiving a thank you email and at that time you can respond back to that thank you email and we'll be able to take care of it on the back end alrighty and then we do have one last fourth extra pulling question if you need it um and with that if everyone has downloaded their certificate thank you so much for joining us today and thank you to our presenters who gave a awesome webinar and again we hope to see you on part two that's going to be coming up soon and I will give you back the rest of your day thank you everyone for joining us today and have a great rest of your week and weekend bye everyone