Are You Evaluating Mission Effectiveness?

According to a recent Oracle NetSuite, only 20% of nonprofit executives believe they are very effective at demonstrating outcomes. This statistic and plenty of others comes from NetSuite’s study, Connecting Dollars to Outcomes. The software provider asked over 350 nonprofit executives

• if and how they evaluate mission impact
• whether they were using outcomes measurement to determine program effectiveness
• about their use of Charity Navigator (nonprofit watchdog agency) metrics
• what works and doesn’t when evaluating impact.

The results of the study reveal an ongoing tension in the nonprofit world. In this article we will show that outcomes and impacts must be sufficiently defined to be measurable, and leaders must have the right people and tools to tie results to expenditures.

Moving Beyond the Overhead Metric

In recent years, experts have cautiously backed away from relying too heavily on overhead costs as a means for measuring fundraising effectiveness. According to researchers Ann Goggins Gregory and Don Howard, when nonprofits underreport administrative costs to secure funding and then run into deficits, the result is a starvation cycle.   

Current food for thought is the notion that a robust infrastructure is linked to a nonprofit’s overall success. This concept runs counter to the opinions held for the last several decades, which claims that overhead is inherently wrong. This thinking appears to foreshadow an emerging need, which is evident by the NetSuite survey; nonprofits need people to manage measurement, competent systems in place to measure outcomes, and cross-functional teams to bring the message to market.

29% of Nonprofit Executives Render Outcome Measurement Unimportant

Many small and midsize organizations may wonder if they payoff of outcome measurement justifies the expense. Some may struggle with how to evaluate program delivery to demonstrative outcomes. Effective outcome management, no matter what your size, can help you communicate your impact, create trust, and find a better footing when requesting support, both operationally and with funding. If you are the outcomes measurement champion in your nonprofit, there are a couple things you can do to prepare for a new year of funding.

1. Embrace program logic models. This method allows a nonprofit to determine the effectiveness of its program(s) tracking inputs, activities, outputs, outcomes, and impact. Illustrating the “logic” within a program helps managers to educate their organization on program evaluation principals.
2. Revise your accounting system. Appropriately correlating activities to revenue and expenses requires a data structure that allows visibility into program sustainability and transparency reports. The professionals in our office can help you determine the appropriate dimensions and key performance indicators (KPIs).

Evaluating the effectiveness of fundraising programs should be part of every nonprofit’s routine. So, when was the last time you assessed your fundraising effectiveness? How do you measure success? Looking at one metric or one isolated fundraising event will not tell a complete story, and unfortunately, a magic equation to calculate the effectiveness of a nonprofit does not exist. This is not a signal to throw the baby out with the bathwater. Instead, it is a challenge to evaluate how and why you measure impact and determine if there are better ways of doing it.

There are many tools available to nonprofits that will help measure their fundraising effectiveness. The key is the right consultant to help guide your decision-making.  

The professionals in our office can help you better identify your programmatic and financial outcomes, call us today.

Here’s What Your Nonprofit Needs to Know About New Revenue Recognition

FASB’s Revenue Recognition Standards significantly affected revenue recognition practices for most organizations. The changes, while apparent for many, were not so for many nonprofits. In response to the standard’s ambiguity, FASB issued ASU 2018-08, which clarified the gray areas around revenue accounting for nonprofit grants and contributions. Many are still scratching their heads, wondering how the new standards will affect their accounting practices. The answer is – dramatically. We have put together the following highlights to help address some of the uncertainty around the new revenue recognition.

• If your nonprofit engages in both contribution and exchange transactions, you need to be aware of the implementation dates for both standards. While their timelines are pretty similar, there are a few deviations.

*Early adoption is permitted; see ASUs

• Revenue streams that come from an exchange will follow the guidance under ASU 2014-09, while nonexchange revenue streams will follow the guidance under ASU 2018-08.
• In the case of grants and similar contracts with government agencies, unless the resource provider receives matching value from the resource recipient, the transaction is probably best classified as a contribution. The ASU outlined several examples of indirect benefits that do not constitute commensurate value:
  • Indirect benefit(s) received by the public.
  • Indirect benefit(s) received by a resource provider, i.e., societal benefit is not direct commensurate value.
  • Furthering a resource provider’s mission or positive sentiment from acting as a donor.

• The new exchange transaction standard requires nonprofits to follow five steps before recording contract revenue.

1. Identify contracts with the customer
   • It is important to note that not all revenue sources will fall under this model. Before you approach the first step, determine if the transaction is genuinely an “exchange transaction.” In order for the model to apply, the revenue must result from a contract where there is an exchange of goods and services. Examine your contributions, grants, and sponsorships carefully. If your transaction has elements of both contribution and exchange, the revenue will need to be separated and follow the appropriate guidance for each. The professionals in our office can help you review ASC 606 for nonprofits. FASB released an ASU update to clarify the scope of eligibility.
2. Identify separate performance obligations within the contract
   • When a nonprofit makes separate and distinct promises within their contract, they must be recorded as such.
3. Determine the transaction price
   • Ensure the value of your contract aligns with the transaction price. Any amount above this threshold must be accounted for outside of ASC 606.
4. Allocate the transaction price to the performance obligations
   • If your contract includes a single performance obligation, this can be a simple step. Under this step, you must allocate the transaction price among the performance obligations. If the value is not clear, and you need to make a judgment on the standalone price of a performance obligation, be sure to record your reasoning in the notes to the financials.
5. Recognize revenue when, or as, the performance obligation is satisfied
   • Record revenue in real-time, as your contract indicates. Some contracts fulfill promises at one point in time, while others fulfill over a period of time.

• The new exchange transactions standard also requires specific disclosures on financial statements. For instance, FASB now requires qualitative transition disclosures to account for the nature and reason for the change in accounting method. Nonprofits will also need to disclose quantitative changes, like when contracts become nonrefundable. The scope of disclosure changes can be discussed further with your accounting professional.

These complexities will force many nonprofits to examine their processes with a renewed goal of structure and simplification. Nonprofits already face many challenges in recognizing their revenue. This issuance of two new revenue recognition standards adds another layer of complexity. It is no secret that accurate financial statements are critical to the success and future of your organization. As the compliance deadline quickly approaches, we encourage you to review your revenue streams with a professional that can assess your conditions with a trained and critical eye.

Give one of our members a call today!

Lease Accounting Changes

Following concern over the new lease accounting changes, the Financial Accounting Standards Board (FASB) has made the decision to delay the effective dates for three major standards. The new Accounting Standards Update (ASU) will give private companies and certain other entities an adoption extension on the new standards for leases, credit losses (CECL), and hedging.

This delay will allow preparers more time to understand and implement the changes and give these groups the opportunity to watch and learn how well-resourced public companies respond to the changes. Here is what you need to know.

New Effective Dates

**Employee benefit plans that file or furnish financial statements + nonprofits entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market.

The new lease accounting standard will take effect for the majority of nonprofit organizations

for fiscal years beginning after December 15, 2019, and in interim periods within fiscal

years beginning after December 15, 2020. Early adoption is permitted for all organizations.

If you have a question about how the lease accounting changes and delays will affect your nonprofit, please give one of the professionals in our office a call today.