Federal

Work-Study

(FWS) excluded from PPP eligibility determination

As 2018 is about to come to a close, organizations with fiscal year ends after December 15, 2018, are poised to start implementing the new not-for-profit reporting standard. Here are three areas to address before the close of the fiscal year to set your organization up for a smooth and successful transition, and keep in compliance:

1. Update and approve policies—organizations need to both change certain disclosures and add new ones. The policies in place at the end of the year will be pivotal in creating the framework within which to draft these new disclosures (for example, treatment of board designations, underwater endowments, and liquidity).
2. Functional expense reporting—if you have not historically reported expenses by natural and functional classification, develop the methodology for cost allocation. If you already have a framework in place, revisit it to determine if this still fits your organization. Finally, determine where you will present this information in the financial statements.
3. Internal investment costs—be sure you have a methodology to segregate the organization’s internal investment costs such as internal staff time (remember, this is the cost to generate the income, not account for it) and consider the overall disclosure.

While the implementation of the new reporting standard will not be without cost (both internal costs and audit costs), if your organization considers this an opportunity to better tell your story, the end result will be a much more useful financial narrative. Don’t forget to include the BerryDunn implementation whitepaper in your implementation strategy.

We at BerryDunn are helping organizations gain momentum with a personal touch, through our not-for-profit reporting checkup. This checkup includes initial recast of the prior financial statements to the new format, a personalized review of the checklist to identify opportunities for success, and consideration of the footnotes to be updated. Contact me and find out how you can join the list of organizations getting ahead of the new standard.

With the wind down of the Federal Perkins Loan Program and announcement that the Federal Capital Contribution (FCC) (the federal funds contributed to the loan program over time) will begin to be repaid, higher education institutions must now decide how to handle these outstanding loans. The Department of Education’s (DOE)’s plans to recover their FCC (or “distribution of assets”) in the coming 2018-19 year can be found here, with the Fiscal Operations Report and Application to Participate (FISAP) playing a crucial role in the close-out excess cash calculation. Colleges and universities are now faced with two options:

1. Continue servicing their loans, refunding future FCC excess cash as loans are repaid
2. Assigning loans back to the DOE (subject to certain requirements)

Colleges and universities have been evaluating these options since the decision was made to not renew the loan program. There are many considerations when deciding which path to choose:

• Continuing to service loans has the disadvantage of ongoing administrative costs. While there is potential an administrative cost allowance could be paid to institutions that continue to service loans in the future, legislation would need to be enacted for this to occur.
• In assigning loans back to the DOE, the institution will lose any Institutional Capital Contribution (ICC).  It is important to note the decision of whether or not to assign loans has not reached “now or never” status. You can assign loans your institution continues to service to the DOE in the future.

NACUBO recently published advisory guidance on the Perkins Loan Program close-out. This guidance provides a broader look at the close-out process, and explores the ramifications of how the two options above can impact alumni relations. The guidance also provides a useful cost/benefit calculation template and sample accounting entries for the close-out process.

Need help or have additional questions? Our experience with Perkins Loan liquidation/closeout can help as you plot a course through the Perkins wind down.

While GASB has been talking about split-interest agreements for a long time (the proposal first released in June of 2015, with GASB Statement No. 81, Irrevocable Split-Interest Agreements released in March of 2016), time is quickly running out for a well-planned implementation. With the effective date looming on the horizon, (statement effective for periods beginning after December 15, 2016 unless early adopted), now is the time to start gathering needed information to record existing agreements under GASB 81.

We have learned from GASB’s not-for-profit FASB cousins that irrevocable agreements are rarely where they should be: in the hands of financial professionals. Compiling these agreements will require participation from many stakeholders. Your finance team will likely have to provide some education to avoid a great deal of confusion when asking the “do we have any irrevocable split-interest agreements?” question.

So, where do you start?

1. Have you been tracking this information right along, nicely documented in a folder by your desk? Great! Do a quick check of others in your organization to be sure your file is complete and skip steps 2-5.
    
2. Dig into your general ledger. Have you been receiving regular distributions from a trust? Some of these trust agreements pay out on a quarterly or annual basis and your accounting staff should be able to identify these payors. It may require a quick call to the administrator for the trust agreement to be sure the agreement qualifies under GASB 81.
    
3. Look to your fundraising professionals. Development departments like to keep track of all types of donations. It helps to quantify their good fundraising work. Be clear about what you need from them. Remember, irrevocable split-interest agreements, often trusts or other legally enforceable agreements, are agreements wherein a donor irrevocably transfers resources to a third party to hold for the benefit of the government and at least one other beneficiary —the “split” in “split-interest agreement”!
    
4. Keep talking to your fundraising professionals. Many of the split-interest agreements we find are very old, often created well before your current development software was put into place. Do you have old files that track this kind of information? It may require some digging in the paper files. Remember those?
    
5. All hands on deck. While the finance and fundraising teams are scouring their records, look to others in the organization that might have record of these types of agreements. You know who holds the keys to historical knowledge at your organization, so be sure to include them in your search.

Once the finance department has collected all of the agreements, take one more look to be sure they meet the requirements of GASB 81.“Are they really irrevocable? Or do we just hope they are?” Then you can get down to the business of accounting for them. If you have questions about the accounting for these agreements, please contact me. I would love to chat. And that is irrevocable.

With the implementation of GASB 72 now in full force, GASB organizations are hard at work drafting their new fair value disclosures. The addition of a fair value hierarchy table in the footnotes will add a bit more thickness to a likely already hefty financial package. With this added material comes valuable information for many financial statement users, including a much better explanation of the valuation approach of assets and liabilities reported at fair value.

Since GASB 72 (formally Fair Value Measurement and Application, effective for financial statement periods beginning after June 15, 2015) comes a few years after a similar FASB implementation, most investment professionals have dealt with the growing pains of the FASB implementation, and are well poised to provide the information necessary for the new fair value disclosures.

However, there are a few other things we have learned from the FASB implementation that can be shared with the GASB financial statement preparers:

• The unit of account is a big deal. While investments held by organizations may be specific stocks regularly traded on the open market (here’s a tip: these are level 1); there are other investment vehicles where an organization’s investment share represents a portion of a fund that holds all kinds of other investments (level 1? Maybe, maybe not – you will need to dig deeper). The good news is, with these kinds of investments, the organization is disclosing the level within the fair value hierarchy of their investment - the share of the fund. This is not the same as the level of the investments held within the fund. This is an important distinction and should result in much less time and effort in determining the appropriate level for an investment. GASB 72 uses the example of a mutual fund. An organization owns a share of the mutual fund, not the underlying investments, therefore the disclosure requirement is for the share of the mutual fund, not the underlying assets.
• GASB 72 requires investments measured at net asset value to be reconciling items to the fair value disclosure, but does not require these assets to be listed by level in the table (a recent change to the FASB). Further, a roll forward of level 3 items from year to year was also excluded.
   
• If you have heard of GASB 72, then likely you have heard of the three levels. The required disclosure includes three categories of valuation to be disclosed (aptly named level 1, level 2 and level 3). With each level, comes more involvement (or even, difficulty) in determining the fair value that is recorded. The new disclosure will make it clearer to the users of the financial statements how fair value is being measured.
   
• GASB 72 does provide some guidance in determining fair value through the use of one or more of the following valuation approaches: market approach, cost approach, or the income approach. GASB 72 discusses each of these separately, but remember there can be more than one approach, and not all items are measured equally.
• When you think about fair value, don’t focus solely on the investments, or even only on the assets. Liabilities are in there too! Think of measuring a warranty liability, for example.

We have the advantage of hindsight after the FASB implementation. I have great hope, that as with FASB, after the initial pain of the GASB 72 implementation, once our tables are setup, and a process is in place for identifying levels, our financial statements will be much more transparent, giving us all a clearer picture of the organization.

Please contact Emily Parker if you have questions on the latest GASB updates.

In auditing, the concept of professional skepticism is ubiquitous. Just as a Jedi in Star Wars is constantly trying to hone his understanding of the “force”, an auditor is constantly crafting his or her ability to apply professional skepticism. It is professional skepticism that provides the foundation for decision-making when conducting an attestation engagement.

A brief definition

The professional standards define professional skepticism as “an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence.” Given this definition, one quickly realizes that professional skepticism can’t be easily measured. Nor is it something that is cultivated overnight. It is a skill developed over time and a skill that auditors should constantly build and refine.

Recently, the extent to which professional skepticism is being employed has gained a lot of criticism. Specifically, regulatory bodies argue that auditors are not skeptical enough in carrying out their duties. However, as noted in the white paper titled Scepticism: The Practitioners’ Take, published by the Institute of Chartered Accountants in England and Wales, simply asking for more skepticism is not a practical solution to this issue, nor is it necessarily always desirable. There is an inevitable tug of war between professional skepticism and audit efficiency. The more skeptical the auditor, typically, the more time it takes to complete the audit.

Why does it matter? Audit quality.

First and foremost, how your auditor applies professional skepticism to your audit directly impacts the quality of their service. Applying an appropriate level of professional skepticism enhances the likelihood the auditor will understand your industry, lines of business, business processes, and any nuances that make your company different from others, as it naturally causes the auditor to ask questions that may otherwise go unasked.

These questions not only help the auditor appropriately apply professional standards, but also help the auditor gain a deeper understanding of your business. This will enable the auditor to provide insights and value-added services an auditor who doesn’t apply the right degree of skepticism may never identify.

Therefore, as the white paper notes, audit committees, management, and investors should be asking “How hard do our auditors get pushed on fees, and what effect does that have on the quality of the audit?” If your auditor is overly concerned with completing the audit within a fixed time budget, professional skepticism and, ultimately, the quality of the audit, may suffer.

Applying skepticism internally

By its definition, professional skepticism is a concept that specifically applies to auditors, and is not on point when it comes to other audit stakeholders. This is because the definition implies that the individual applying professional skepticism is independent from the information he or she is analyzing. Other audit stakeholders, such as members of management or the board of directors, are naturally advocates for the organizations they manage and direct and therefore can’t be considered independent, whereas an auditor is required to remain independent.

However, rather than audit stakeholders applying professional skepticism as such, these other stakeholders should apply an impartial and diligent mindset to their work and the information they review. This allows the audit stakeholder to remain an advocate for his or her organization, while applying critical skills similar to those applied in the exercise of professional skepticism. This nuanced distinction is necessary to maintain the limited scope to which the definition of professional skepticism applies: the auditor.

Specific to the financial statement reporting function, these stakeholders should be assessing the financial statements and ask questions that can help prevent or detect flaws in the financial reporting process. For example, when considering significant estimates, management should ask: are we considering all relevant information? Are our estimates unbiased? Are there alternative accounting treatments we haven’t considered? Can we justify our selected accounting treatment? Essentially, management should start by asking itself: what questions would we expect our auditor to ask us?

It is also important to be critical of your own work, and never become complacent. This may be the most difficult type of skepticism to apply, as most of us do not like to have our work criticized. However, critically reviewing one’s own work, essentially as an informal first level of review, will allow you to take a step back and consider it from a different vantage point, which may in turn help detect errors otherwise left unnoticed. Essentially, you should both consider evidence that supports the initial conclusion and evidence that may be contradictory to that conclusion.

The discussion in auditing circles about professional skepticism and how to appropriately apply it continues. It is a challenging notion that’s difficult to adequately articulate. Although it receives a lot of attention in the audit profession, it is a concept that, slightly altered, can be of value to other audit stakeholders. Doing so will help you create a stronger relationship with your auditor and, ultimately, improve the quality of the financial reporting process—and resulting outcome.

As a new year is upon us, many people think about “out with the old and in with the new”. For those of us who think about technology, and in particular, blockchain technology, the new year brings with it the realization that blockchain is here to stay (at least in some form). Therefore, higher education leaders need to familiarize themselves with some of the technology’s possible uses, even if they don’t need to grasp the day-to-day operational requirements. Here’s a high-level perspective of blockchain to help you answer some basic questions.

Are blockchain and bitcoin interchangeable terms?

No they aren’t. Bitcoin is an electronic currency that uses blockchain technology, (first developed circa 2008 to record bitcoin transactions). Since 2008, many companies and organizations utilize blockchain technology for a multitude of purposes.

What is a blockchain?

In its simplest terms, a blockchain is a decentralized, digital list (“chain”) of timestamped records (“blocks”) that are connected, secured by cryptography, and updated by participant consensus.

What is cryptography?

Cryptography refers to converting unencrypted information into encrypted information—and vice versa—to both protect data and authenticate users.

What are the pros of using blockchain?

Because blockchain technology is inherently decentralized, you can reduce the need for “middleman” entities (e.g., financial institutions or student clearinghouses). This, in turn, can lower transactional costs and other expenses, and cybersecurity risks—as hackers often like to target large, info-rich, centralized databases.

Decentralization removes central points of failure. In addition, blockchain transactions are generally more secure than other types of transactions, irreversible, and verifiable by the participants. These transaction qualities help prevent fraud, malware attacks, and other risks and issues prevalent today.

What are the cons of using blockchain technology?

Each blockchain transaction requires signature verification and processing, which can be resource-intensive. Furthermore, blockchain technology currently faces strong opposition from certain financial institutions for a variety of reasons. Finally, although blockchains offer a secure platform, they are not impervious to cyberattacks. Blockchain does not guarantee a hacker-proof environment.

How can blockchain benefit higher education institutions?

Blockchain technology can provide higher education institutions with a more secure way of making and recording financial transactions. You can use blockchains to verify and transfer academic credits and certifications, protect student personal identifiable information (PII) while simultaneously allowing students to access and transport their PII, decentralize academic content, and customize learning experiences. At its core, blockchain provides a fresh alternative to traditional methods of identity verification, an ongoing challenge for higher education administration.

As blockchain becomes less of a buzzword and begins to expand beyond the realm of digital currency, colleges and universities need to consider it for common challenges such as identity management, application processing, and student credentialing. If you’d like to discuss the potential benefits blockchain technology provides, please contact me.

Good fundraising and good accounting do not always seamlessly align. While they all feed the same mission, fundraisers work to meet revenue goals while accountants focus on recording transactions in compliance with accounting standards. We often see development department totals reported to boards that are not in line with annual financial statements, causing confusion and concern. To bridge this information gap, here are five accounting concepts every not-for-profit fundraiser should know:

Understanding the differences in how the development department and finance department track these gifts will allow for better reporting to the board throughout the year—and fewer surprises when you present financial statements at the end of the year. Stay tuned for parts two and three of our contribution series. Have questions? Please contact Emily Parker of Sarah Belliveau.

 

The late science fiction writer (and college professor) Isaac Asimov once said: “I do not fear computers. I fear the lack of them.” Had Asimov worked in higher ed IT management, he might have added: “but above all else, I fear the lack of computer staff.”

Indeed, it can be a challenge for higher education institutions to recruit and retain IT professionals. Private companies often pay more in a good economy, and in certain areas of the nation, open IT positions at colleges and universities outnumber available, qualified IT workers. According to one study from 2016, almost half of higher education IT workers are at risk of leaving the institutions they serve, largely for better opportunities and more supportive workplaces. Understandably, IT leadership fears an uncertain future of vacant roles—yet there are simple tactics that can help you improve the chances of filling open positions.

Emphasize the whole package

You need to leverage your institution’s strengths when recruiting IT talent. A focus on innovation, project leadership, and responsibility for supporting the mission of the institution are important attributes to promote when recruiting. Your institution should sell quality of life, which can be much more attractive than corporate culture. Many candidates are attracted to the energy and activity of college campuses, in addition to the numerous social and recreational outlets colleges provide.

Benefit packages are another strong asset for recruiting top talent. Schools need to ensure potential candidates know the amount of paid leave, retirement, and educational assistance for employees and employee family members. These added perks will pique the interest of many candidates who might otherwise have only looked at salary during the process.

Use the right job title

Some current school vacancies have very specific job titles, such as “Portal Administrator” or “Learning Multimedia Developer.” However, this specificity can limit visibility on popular job posting sites, reducing the number of qualified applicants. Job titles, such as “Web Developer” and “Java Developer,” can yield better search results. Furthermore, some current vacancies include a number or level after the job title (e.g., “System Administrator 2”), which also limits visibility on these sites. By removing these indicators, you can significantly increase the applicant pool.

Focus on service, not just technology

Each year, institutions deploy an increasing number of Software as a Service (SaaS) and hosted applications. As higher education institutions invest more in these applications, they need fewer personnel for day-to-day technology maintenance support. In turn, this allows IT organizations to focus limited resources on services that identify and analyze technology solutions, provide guidance to optimize technology investments, and manage vendor relationships. IT staff with soft skills will become even more valuable to your institution as they engage in more people- and process-centric efforts.

Fill in the future

It may seem like science fiction, but by revising your recruiting and retention tactics, your higher education institution can improve its chances of filling IT positions in a competitive job market. In a future blog, I’ll provide ideas for cultivating staff from your institution via student workers and upcoming graduates. If you’d like to discuss additional staffing tactics, send me an email.