Community Health Centers

In September 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2025-06: Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This ASU supersedes the project stages described below and requires an entity to start capitalizing software costs when both of the following occur: 

1) Management has authorized and committed to funding the software project. 

2) It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). 

In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software (referred to as “significant development uncertainty”). The two factors to consider in determining whether there is significant development uncertainty are whether:  

1) The software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, has not been resolved through coding and testing.  

2) The entity has determined what it needs the software to do (for example, functions or features), including whether the entity has identified or continues to substantially revise the software’s significant performance requirements. 

The ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. If this ASU is not early adopted, the existing guidance should be followed until this ASU is adopted. 

In sticking with the project stage example below, assuming the two criteria for capitalization have been met (the project has been authorized and it’s probable of being completed), there would likely be no change in the conclusions reached. In other words, the API design costs would still be capitalized. The training costs would still be expensed in accordance with ASC 350-40-25-4, which explicitly states internal and external training costs are not internal-use software development costs and shall be expensed as incurred. And the ongoing maintenance costs would also be expensed as incurred (ASC 350-40-25-17C indicates maintenance costs shall be expensed as incurred). 

A financial institution’s core banking system, or core processing system, is an essential software that provides the backbone for day-to-day operations and transaction processing. Accounting for the costs of these systems can be tricky because of the complexities often involved in these contracts.  

The contracts tend to be long-term, as it would be infeasible (and undesirable) for financial institutions to have to re-negotiate and possibly switch core providers on a frequent basis. In addition, the contracts often include varying fees and provisions listed throughout the contract. The accounting team is often provided this lengthy contract and then left with the task of deciphering what is meaningful from an accounting standpoint.  

There are two key pieces of accounting guidance to consider when analyzing core contracts: 

1) Accounting Standards Codification (ASC) 705 – Cost of Sales and Services 

2) ASC 350-40 – Intangibles – Goodwill and Other – Internal-Use Software 

Core contracts may provide incentives or credits that can be applied against the fees charged by the core provider. According to ASC 705-20-25-1, “consideration from a vendor also includes credit or other items (for example, a coupon or voucher) that the entity can apply against amounts owed to the vendor (or to other parties that sell the goods or services to the vendor). The entity shall account for consideration from a vendor as a reduction of the purchase price of the goods or services acquired from the vendor…” 

As an example, let’s say your financial institution receives a one-time credit as part of signing a new core contract of $100,000 and the contract is to provide services to your institution over five years. This credit can be applied to future invoices received from the core provider. The contract has a monthly maintenance fee of $20,000 (likely among other charges). This credit would thus reduce the monthly maintenance expense of $20,000 to $18,333 (reduced by $100,000 divided by 60 months). This is a simple example, but hopefully, it will provide insight into the mechanics of the accounting for credits and incentives. In reality, these contracts tend to be much more complex, with variable fees and possibly even credits or incentives that can only be applied against certain fees. These credits/bonuses may not be recognized fully up front as a gain, revenue, or reduction of expense.  

There are often many fees listed in a core contract and these fees tend to be for various services related to the contract. Each fee should be considered on its own and assessed against the criteria listed in ASC 350-40-25, which establishes three project stages for internal-use software: 

1. Preliminary Project Stage. This stage may include: 

a. Conceptual formulation of alternatives 

b. Evaluation 

c. Determination 

d. Final selection 

All costs associated with the preliminary project phase shall be expensed as incurred. 

2. Application Development Stage. This stage may include: 

a. Design 

b. Coding 

c. Installation 

d. Testing 

Whether or not costs in this stage shall be expensed or capitalized is dependent on the type of cost: 

1. Costs incurred to develop internal-use software shall be capitalized. 
2. Costs to develop or obtain software that allows for access to or conversion of old data by new systems shall be capitalized. 
3. Training costs shall be expensed as incurred. 
4. Data conversion or clean-up costs shall be expensed as incurred. 
5. Postimplementation-Operation Stage. This stage may include: 

a. Training 
b. Application maintenance 

All costs associated with the post-implementation-operation stage shall be expensed as incurred. 

Costs incurred for upgrades and enhancements to internal-use software shall be expensed or capitalized in accordance with the guidance provided above. Costs incurred for maintenance shall be expensed as incurred.  

As an example in applying the above project stages, let’s say your institution has hired your core provider to develop an application programming interface (API—essentially a “bridge” between two software programs, allowing them to “talk” to one another) so a new automated account reconciliation software can interface directly with your core. The core provider is charging you directly for the design of this API. These costs would be capitalized. Once designed, the core provider also provides your institution training on the API (for a fee)—these training fees would be expensed. Any internal training expenses, such as ongoing training, would be expensed as incurred. Furthermore, if your core provider charges a maintenance fee for ongoing maintenance of the API, these fees would also be expensed as incurred. 

Given these core contracts and the fees associated with them can be quite voluminous, it is best practice to establish a list of the services and associated fees listed in the contract. An accounting determination can then be made in accordance with ASC 705 and 350-40 and listed next to each service/fee. Such a list can also be helpful in tracking the various credits and incentives that are being provided and how much of these credits and incentives remain to be utilized by your financial institution. 

It should be noted that the FASB has an ongoing project related to the accounting for and disclosure of software costs. More details and a current status update on the project can be found on the FASB website. A proposed ASU was issued in October 2024 and a final ASU, as noted at the top of this article, was issued in September 2025. The ASU eliminates the project stages detailed above. Instead, costs will start to be capitalized when both of the following occur: 

1. Management has authorized and committed to funding the software project. 
2. It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). 

Although financial institutions may early adopt this ASU (which is effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods), those that do not early adopt should continue to follow the project stage guidance detailed above in assessing the accounting treatment for the fees in their core contracts. As always, your BerryDunn team is here to help should you have any questions! 

In today's rapidly evolving business landscape, boards of directors are more than just stewards of governance—they are the strategic compass guiding an organization toward enduring success. As the challenges facing companies grow increasingly complex, from disruptive technological trends to shifting societal expectations, the board's role has never been more critical.  

This series is designed to empower board members with the insights and tools necessary to navigate change with confidence. Our experts, each a leader in their respective fields, will share real-world examples, practical frameworks, and actionable advice in a Q&A format, as well as lessons learned from their personal and professional journeys.   

Learning and development: Developing talent

For the latest installment of our board leadership series, BerryDunn Director of Learning & Development, Shawn Tuttle, shares key insights on developing talent within an organization, including the importance of experiential learning, artificial intelligence, employee retention, and the role of managers.  

Q: What professional experiences helped shape your perspective on Learning & Development?  

A: Early in my career, I participated in, and then led, experiential outdoor leadership programs. They were pivotal for me and my career. The experiential nature of them was incredibly impactful. As a result, I recognize the tremendous value of experiential learning such as real-world practice and application, coaching, mentoring, feedback, and communities of practice. Over the past three years, the entire BerryDunn Learning & Development team has worked to provide frameworks and systems to advance and embed these types of learning experiences at the firm. 

Q: What impact has the development of BerryDunn’s strengths-based culture had? 

A: It has been rewarding to foster and witness the firm’s growing strengths culture from the expansion of the suite of courses and requests for custom sessions, to meaningful personal examples and testimonials. CliftonStrengths is an empowering resource and tool through which we can all learn to be at our best—more collaborative and more effective, both personally and professionally. The more we use our unique talents, the more energizing our work is.  

Q: What trends or challenges do you see impacting the future of Learning & Development? 

A: Artificial intelligence is being used in myriad ways and is, once again, providing us with new ways to learn—especially in the moment and through role play—and new ways to create learning resources. The possibilities are exciting and there are more and more advanced tools for our industry being developed. While we’re not quite ready to move in that direction in a big way, we are looking in that direction and staying aware of all that is happening. 

Q: What do you consider the most critical skills for employees to develop in today’s work environment and how do you foster their growth? 

A: Some key capabilities necessary for the ways we work and the current environment include strong and efficient collaboration, adaptability and flexibility, compassion, and inclusivity. But I also always come back to self-leadership. When we maintain responsibility for our own behavior, initiative, development, and performance, we proactively bring our best to our roles.   

Q: How do you tailor development programs for remote or hybrid employees, and what additional challenges do you face in this context?   

A: All of our current offerings are virtual, eliminating any difference in experience based on work location. However, we frequently offer custom sessions with departments and practice groups that are hybrid and advise on the planning of hybrid events. What’s critical for the success of hybrid events is careful attention to planning the engagement of all participants, regardless of where they are located. 

While hybrid events are a reality of how we operate inclusively, careful attention to maintaining inclusivity during the events is challenging and important. A must-have for us is engaging both an in-person and an online facilitator for hybrid events. 

Q: What role does employee development play in improving employee retention, and how do you make sure that development programs have a lasting impact? 

A: Growth and development are key aspects of employee engagement. This is why the firm measures it through the annual employee engagement survey. As a firm that values and invests in its people, BerryDunn excels in this area, offering opportunities to learn new skills and capabilities, grow professionally, and advance careers. When an employee has someone at work who encourages their development, as well as opportunities to learn and grow, they are more likely to stay with their organization.   

Q: What role do managers and team leaders play in supporting employee development, and how do you train them to be effective in this role? 

A: People managers impact 70% of team engagement according to Gallup research, which, as noted above, is heavily influenced by the opportunity employees have to develop. Our leadership competencies set clear expectations, and our self-directed leadership journeys provide a roadmap for managers and leaders to develop these capabilities. One of our competencies in particular outlines the importance of the need for managers to help employees belong, grow, and thrive by cultivating an environment of trust, curiosity, and openness.  

The leadership development journeys offer resources for engaging in learning activities, practical experiences, reflection questions, and guidance on seeking feedback. We also have a strong mentor program, which provides an opportunity to partner with a mentor for direct guidance and support. Lastly, we are in the process of planning for developing our leaders as coaches, providing coaching options, and considering cohort structures to support learning in community.

About Shawn 

Shawn Wade Tuttle is a strategic leader with a track record of improving organizational performance through learning, development, and process improvement. With broad experience in education across K12, higher education, nonprofit, and corporate sectors, she combines curiosity, clarity, and collaboration with practical strategy that leads to sustainable solutions. As Director of Learning & Development at BerryDunn, Shawn fosters a culture of continuous development, supports long-term capability building, and helps enhance employee engagement. She is known for designing scalable systems that align with strategic goals, building high-performing teams, and developing strengths-based organizations. Before BerryDunn, Shawn held leadership roles at Tufts University, City Year, and Harvard University, where she strengthened client engagement, enhanced cross-functional collaboration, and expanded professional development initiatives. She holds dual BAs from UMass Amherst and is certified as a Gallup® CliftonStrengths Coach and Prosci® Change Management Practitioner. 

BerryDunn partners with organizations to create work environments where business success and personal growth coexist and where people are confident knowing their workplace positively contributes to their well-being. We take a comprehensive approach to our workforce and well-being work, considering how business needs, organizational capacity, and the employee experience work together to drive your business forward. Learn more about our workforce and well-being team and services.   

Read this article if your organization relies on HHS grants. Effective October 1, 2025, new federal rules will impact how you manage your budget.

The US Department of Health and Human Services (HHS) has revised its federal grant policy, introducing stricter oversight into budget adjustments. Effective October 1, 2025, the new rule lowers the allowable rebudgeting threshold from 25% to 10%. This change is expected to significantly reduce reallocation flexibility. It will also increase the administrative workload and compliance risks for health centers and other HHS grantees.  

Then vs. now: Budget reallocation rules 

The previous rule allowed health centers and other HHS grantees to transfer funds between budget categories (e.g., personnel, fringe benefits, travel, supplies, contract services) without requiring prior approval, provided the cumulative changes were within 25% of the total approved federal grant budget. The new HHS grants policy statement cuts the threshold for prior approval requirements for budget revisions to 10% of the total approved federal budget (including any cost shares). For example, if a grantee makes several smaller budget category reclassifications that cumulatively add up to more than 10%, prior approval will be required.  

To put this in perspective, prior to the change, a grantee with a $1 million grant could reallocate up to $250,000 per budget category without prior approval. Under the new policy, reallocation is limited to $100,000 per budget category. This reduction substantially restricts grantees’ flexibility in managing grant expenditures. 

Calculating the new threshold 

The 10% threshold is cumulative across all reallocations affecting a budget category, not calculated per individual reclassification. For example, for a $1 million grant, if a grantee reclassifies $75,000 from personnel to contract services and then reclassifies $50,000 from fringe benefits to contract services, the reclassifications of both personnel and fringe benefits are below the 10% threshold individually. However, the total impact on contract services exceeds the threshold and would require prior approval. 

The change only applies when the grant award exceeds the Simplified Acquisition Threshold (SAT), which will increase from $250,000 to $350,000 on October 1, 2025.  

Impacts for health centers and why this matters

For health centers, which are accustomed to ample flexibility in how they spend HHS grant funds, this change in policy will require diligence in monitoring grant expenditures and staying alert to changes that could trigger the need for prior approval from their grants manager for budget revision. 

The new rule adds to the administrative burden for health centers and other grantees already grappling with funding gaps. Budget shifts that exceed the lower 10% threshold cannot be implemented until prior approval is granted. Approval typically is not retroactive. As a result, centers are unable to redirect grant dollars in real time and must wait to cover essential expenses. 

The change will likely lead to an increase in prior approval requests, creating delays given limited federal staff capacity to review them. Smaller health centers are expected to feel the impact more acutely since their payroll is often heavily grant-funded, making them more likely to exceed the 10% reclassification threshold. With fewer resources, their finance teams face added pressure managing forecasting, reporting, and approval delays.  

Proactive, strategic planning is key. Grantees must get prior approval in advance of reclassifying items in their budget. Failing to do so increases audit and compliance risks, as auditors will focus on this due to the significance of the change.  

Immediate actions for health centers and other grantees 

The new rule requires health centers and other grantees to closely monitor grant expenditures and be aware of changes that could require prior approval on a budget revision. Health centers should take the following steps to ensure compliance with the new 10% threshold: 

1. Conduct a thorough review of all budget reallocations made to date.  
2. Identify any reallocations that exceed the new 10% threshold and did not receive prior approval.  
3. Submit prior approval requests for any further reallocations as soon as possible.  
4. Adjust internal processes to ensure future reallocations are tracked and approved in advance. 

Now is the time to assess the budget process and determine how to alter current processes to remain compliant. 

BerryDunn can help

With this tightening of federal oversight, health centers need to prepare by implementing proactive monitoring and strategic planning to ensure compliance and avoid administrative delays. By closely monitoring grant expenditures and securing prior approvals, health centers and other grantees can mitigate risks and continue to utilize their grant funds effectively. Now is the time to assess and adapt budget processes to align with the new requirements. 

BerryDunn’s team partners with a diverse range of healthcare organizations—including Federally Qualified Health Centers (FQHCs), FQHC Look-Alikes (LALs), and Rural Health Clinics (RHCs)—to enhance efficiency, improve patient outcomes, and strengthen community health systems. In a rapidly evolving regulatory environment, our healthcare compliance consultants help community health centers navigate complex compliance requirements, from grant and 340B program adherence to healthcare credentialing. With expert guidance, we help you mitigate risk, gain regulatory confidence, and enhance operational integrity. Learn more about our services and team.  

Read this article if you are a manager, executive director, or CFO at a private foundation. 

Private foundations play an essential role in the philanthropic landscape, supporting charitable causes and driving social impact. However, their activities are subject to significant oversight by tax authorities and must adhere to strict standards regarding how funds are invested and distributed. Among the most important areas of compliance for private foundations to understand are the calculation of Minimum Investment Return (MIR), understanding qualifying distributions, and recognizing the significance of direct charitable expenditures. Over the next few months, we will take a deep dive into each of these three core concepts. For this first article in our three-part series, we’ll explore the MIR.  

As with all trilogies, the first chapter sets the stage for future installments. For illustrative purposes, we will be following the McQueen Family Foundation, a non-operating foundation, which must calculate its MIR as a first step in determining the number of distributions required for the year.  

MIR: The foundation of distribution obligations 

The MIR is a critical component for all private foundations—whether operating (i.e., conducting an exempt purpose function) or non-operating (i.e., an organization that primarily makes grants to other public charities in furtherance of their exempt purposes). MIR is used in part to determine how much the foundation must distribute annually to avoid penalties and maintain tax-exempt status. MIR is not a measure of profits or actual earnings, but rather is a standardized calculation based primarily on the value of the foundation’s investment (i.e., non-charitable use) assets. 

The primary purpose of the MIR is to ensure private foundations put their endowments to charitable use rather than accumulating excessive wealth with little to no public benefit. By imposing a minimum distribution requirement, Congress and the IRS seek to prevent foundations from serving as perpetual savings vehicles and help to encourage timely and impactful giving. 

Calculating the MIR 

The MIR is generally calculated as 5% of the average fair market value of the foundation’s non-charitable-use assets over the preceding year. Below is a general overview:  

• Identify non-charitable-use assets: These include investments such as stocks, bonds, real estate held for investment, and other assets not directly used in the foundation’s charitable programs. Assets used directly in conducting charitable activities (such as office space for grantmaking) are excluded from this calculation. 
• Calculate the average value of cash and securities: Typically, foundations determine the fair market value of these assets monthly (beginning of month value + end of month value)/2. These balances (there should be 12 of them) are then added together and divided by 12 to arrive at an average annual value. 
  • Note: While many would consider cash to be exclusively for charitable use (it is generally what is used by foundations for grant-making purposes after all), the IRS only deems 1.5% of average cash balances to be held for charitable use. All other cash is considered fair game for the MIR calculation. 
• Identify the fair market value of all other assets: In this step, the fair market value of any other assets not used for charitable purposes must be identified. This determination of value is done annually, and any date can be used as long as the same date is used every year. Special rules apply for real estate, which can be revalued every five years and must be appraised by a qualified appraiser. 
• Reductions claimed for blockage and acquisition indebtedness: Blockage refers to a reduction in the fair market value of certain assets—typically securities—and reflects the reality that selling a large block of securities may depress the market price, especially if the securities are not widely traded. There is also an allowable reduction in arriving at MIR for any amount of acquisition indebtedness (debts used to acquire or improve the property) related to assets includible in the calculation. 
• Apply the 5% rate: The IRS-mandated percentage (currently 5%) is applied to determine the minimum investment return.  

Example: 

The McQueen Family Foundation, working diligently with their CPA firm, has computed the value of all non-charitable-use assets for the year to be $10,700,000 based on the calculation in the chart below. After reducing this amount for cash deemed held for charitable use, the MIR for the year is calculated to be $526,975. This figure forms the basis for the McQueen Family Foundation’s distribution requirements for the year.  

Implications and compliance 

Accurate calculation of a foundation’s MIR is imperative. Failure to meet minimum distribution requirements can result in excise taxes and repeated/uncorrected distribution errors can potentially jeopardize the foundation’s tax-exempt status. Foundations often establish and document investment and grantmaking practices and policies to ensure distributions meet these required minimum thresholds.  

The MIR serves as a vital mechanism to ensure private foundations fulfill their philanthropic missions and remain accountable to the public. By adhering to IRS guidelines and maintaining diligent records, foundations not only avoid costly penalties but also contribute meaningfully to the communities and causes they support. Ultimately, the minimum investment return is more than a regulatory hurdle—it is a catalyst for purposeful giving and sustained charitable impact.  

Our nonprofit tax team has deep expertise in private foundation compliance and strategy and understands the unique challenges that come with tax planning, governance, and financial sustainability. We provide specialized guidance on IRS regulations, minimum distribution requirements, excise taxes, and complex accounting matters, ensuring foundations remain compliant while optimizing their financial strategies. Learn more about our team and services and stay tuned for the next installment in our series, where we will dive into the McQueen Family Foundation’s qualifying distributions. 

On March 25, 2025, President Trump issued an executive order regarding federal tax payments and refunds. Effective September 30, 2025, the US Secretary of Treasury will discontinue the issuance of paper checks for tax refunds. Additionally, “as soon as practicable,” all payments to the federal government must be made electronically. This change could have a significant impact on taxpayers, especially those who do not have a US bank account. 

The AICPA (American Institute of Certified Public Accountants) has proposed adjustments to this mandate, including a longer transition period and clearer guidance for taxpayers. We will continue to monitor any developments related to these suggestions. 

Our recommendation

We advise taxpayers to prepare to make their 2025 Q4 estimated payments and any balance due with their extended tax return electronically. There are several ways to pay your taxes electronically, as outlined below. 
 
Payment options: 

1. Your online IRS account: Access at https://www.irs.gov/account
2. IRS Direct Pay: Make payments directly from a bank account
3. Electronic Federal Tax Payment System (EFTPS): Enroll at https://www.eftps.gov 
4. Same-day wire: 
   • Offered by some financial institutions
   • Complete the same-day taxpayer worksheet and bring it to your financial institution
   • Contact your financial institution for availability, cost, and cut-off times 

BerryDunn will proactively monitor and communicate any updates related to this executive order to our clients. Please reach out to your BerryDunn team with questions or concerns. 

About BerryDunn 

Our seasoned tax professionals partner with you to offer practical, accessible guidance and to develop a detailed strategy that supports your unique needs. We excel at tax strategy and solutions, placing an emphasis on building long-term relationships. Our deep expertise spans a full range of tax concerns, tax services, and consulting to support individuals, businesses, and nonprofit organizations. Our tax consultants are specialists in their industry, working closely with their colleagues across the firm to deliver integrated, comprehensive solutions. Learn more about our services and team.