Join Joshua Bream and Tim Koehl, Audit Supervisor at PKF Mueller, for an in-depth interview on accounting in the Not-For-Profit industry. In this episode, they provide insight on trends and challenges not-for-profit organizations are facing and PKF Mueller’s approach to assisting clients during post-COVID times.
[00:00:00] Ashley: Hi, I’m Ashley, and you’re listening to the “Business Owner’s Guide Podcast: Tips, Trends, and Talks From a CPA.”
[00:00:10] Ashley: Today, w e welcome two PKF Mueller Professionals, Joshua Bream, and Tim Koehl from our Audit Department, as well as our Not-For-Profit Practice Group for a discussion on accounting in the not-for-profit industry. But before we begin, let’s find out more about our guests.
[00:00:29] Ashley: Joshua is a Director in the Firm’s Audit Department. As part of PKF Mueller’s assurance practice, Joshua leads attestation engagements primarily for not-for-profit, construction, and manufacturing clients.
[00:00:40] Ashley: Tim is an Audit Supervisor here at PKF Mueller. Tim has over 15 years of professional experience assisting clients in areas of auditing and accounting.
[00:00:49] Ashley: I would like to start off by saying thank you both for being here today. And with that let’s jump right in. What are some current trends you are seeing within the not-for-profit industry?
[00:00:57] Joshua: Yeah. Thanks Ashley. Uh, I mean, of course with COVID, one of the biggest changes we’ve seen is, uh, a move to remote offerings or work settings. A lot of our clients have had to pivot their service offerings to operate in a remote environment wherever possible, and still carry out their missions, which created huge challenges, but also opened up a whole world of opportunities that catapulted, uh, a lot of organizations forward into working in a virtual environment and seeing what kind of services they could could provide in that setting. Which has really been a boon for some definitely a challenge for, for others. And they also had to move a lot of their administrative services to, uh, a remote environment.
[00:01:48] Joshua: So all of your back office work, uh, has moved into this remote environment, just dealing with the challenges of interacting with people, processing things has become a little more, more challenging, um, on a positive front we’ve actually seen, uh, increased giving to a lot of not-for-profits during this time so, that’s a trend that we really hope continues. We’ve seen foundations, uh, giving a lot more in response to the pandemic. They’ve been helped by improved market conditions that have allowed for much higher gains in their investment portfolios and the ability to give out more and just a desire to give out more, to help during this crisis.
[00:02:33] Joshua: Uh, some of our clients are having some challenges with state of Illinois or other state funding, uh, as the states grapple with this as well. We did see quite a few clients have, uh, an increase in federal funding, some for the very first time. Uh, and there’s a lot of unique challenges that come with having large amounts of federal funding. The single audits, the uniform guidance, there’s a lot of complex compliance requirements that clients were suddenly faced with, that they had never experienced before.
[00:03:08] Joshua: Um, the Illinois attorney general had a whole system shut down that that created challenges. The IRS has been on a, a constant backlog for going on about two years now. So we’re seeing lots of issues with notices, um, and, and other complexities around, uh, the IRS. And then finally just kind of reconfiguring their, their work environment with this remote, um, situation we’re seeing, um, organizations reconsider their space footprint, but they’re also looking at, um, staffing. I mean, there’s lots of hiring challenges right now. So we are seeing quite a big shift in the, not-for-profit space to move, to outsourced accounting, for a lot of their back office or other outsource services ,where you know, they really want to spend the time focusing on their, their mission delivery and don’t want to be boggled down with, remote interviewing and have having to deal with, you know, if you have a small staff all of that is very important, but it’s not top of your mind when you’re trying to deliver your programs. So, uh, we’re seeing quite a bit of a shift in that, and that’s one area where our consulting and advisory services group has really seen, uh, an uptick in being able to provide services to a lot of those clients to, to fulfill that need.
[00:04:36] Ashley: As a followup question, what are some issues, concerns, or challenges that not-for-profit organizations are facing?
[00:04:42] Joshua: Yeah. Uh, as I previously mentioned, many of the trends are stemming out of issues impacting the not-for-profit community, as well as the business community at large, on top of the continued challenges with the COVID pandemic and pivoting and response to it, many not-for-profits are continuing to face rising costs, uh, of carrying out their missions.
[00:05:03] Joshua: Many are reassessing the cost of doing business and considering whether to downsize their physical footprint and what impact that would have on their mission. On top of all this, there’s an almost endless stream of new accounting pronouncements, uh, that NFPS are facing while doing everything else.
[00:05:22] Joshua: During 2021, most of our not-for-profits had to adopt a major accounting pronouncement involving changes to revenue recognition guidance that took a considerable amount of time and effort, but for a large portion of our not-for-profits, it really didn’t change much and how they record their revenue on a day to day basis.
[00:05:41] Joshua: The biggest impact was for their financial statements, presentation and disclosure, but a large investment was, was made in making sure all of that information was in accordance with the new standard. There’s also a major leasing standard that effective now for calendar year end clients and will impact their December 31st, 2022 financial reporting for fiscal year ends.
[00:06:06] Joshua: It’s going to be their 2023 reporting. One of the big challenges in this standard is that it puts all of the leases that a client has on their statement of financial position as an offsetting asset and liability. With the liability presented at the net present value of future cash flows, which is a very new concept for many organizations.
[00:06:29] Joshua: Uh, and that’s a challenge in and of itself, uh, on top of that it requires management to, um, have to contend with, uh, a new concept, which is a concept called embedded leases. Where a lease can actually co-exist in a service contract and has to be assessed and, and likely pulled out of that service contract.
[00:06:52] Joshua: This is something that, um, they haven’t had to deal with before. So it’s really going to require management to comb through not only all of their existing, and if known quote unquote lease agreements, but also all their service agreements to aggregate all the information needed for this new standard, which is going to be a major, major undertaking, especially for organizations who might have fleet vehicles, unique service agreements, um, hosting agreements, where there’s dedicated servers, there’s so many unique attributes to this that it will be a fairly daunting standard and something that everybody needs to be starting on right now, finally, briefly there is, uh, a new standard coming out related to in kind contributions, also called gifts in kind or contributed nonfinancial assets.
[00:07:49] Joshua: That standard is effective in reverse for a fiscal year ends June 30th, 2022 and December 2023. Uh, the biggest impact here is that these in kind contributions are required to be presented separately on the statement of activities. Uh, there’s enhanced disclosures around the valuation techniques used, uh, whether those contributions were utilized during the year or how their planned to be utilized, um, by type of assets. So just some additional enhanced disclosures that again, is going to take, uh, some time and effort, especially for organizations who receive a large volume of these in kind contributions.
[00:08:36] Ashley: COVID hit not-for-profit organizations particularly hard over the last couple of years. Can you describe PKF Miller’s approach to assisting clients during post COVID times?
[00:08:44] Tim: Yes, Ashley, a lot of the things that happened during COVID, as we lost that face-to-face contact. So to get around that the best that we could we were doing things now virtually through teams and zoom. Utilizing that for our audits, where we can ask the questions, see people’s reactions, and then also being able to share the information we would do normally in person, but it would be over the computers. Uh, so basically this way we didn’t lose connections with the clients we’re just adapting to the, the new way of things going through. Especially now, after COVID some of our clients not having offices anymore, the virtual teams and zoom is the way that they’re doing their audits now.
[00:09:28] Tim: In addition, we have our virtual, um, events and communications.
[00:09:33] Tim: So we started pushing out webinars and podcasts and then we also got creative with our clients with virtual fundraising events.
[00:09:40] Ashley: Well, I think this was a really great discussion and thank you for your time today to explain accounting and the not-for-profit industry, trends and challenges not-for-profit organizations are facing, and PKF Mueller’s approach to assisting clients during post-COVID times.
[00:09:54] Ashley: If any of our listeners have any questions or would like to learn more, would you please share how they might be able to reach you?
[00:09:59] Joshua: All right, you can reach me at firstname.lastname@example.org, or give me a call at (312) 888-4630.
[00:10:14] Tim: You can reach me at email@example.com, or you can give me a call at (847) 649-8173.
[00:10:26] Ashley: And thank you to our listeners. Don’t forget to visit us at pkfmueller.com to learn more about our Firm’s services. You can also follow us on social media for more updates, insights, and upcoming events.