what makes grant‐funded accounting unique€¦ · 4/5/2020 · promises to give/pledges...

© Wipfli LLP 1© Wipfli LLP 1

What Makes Grant‐Funded Accounting Unique

Trainer: John Hemming, CPA, Partner

© Wipfli LLP 2© Wipfli LLP

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© Wipfli LLP 4

THE CYCLE OF GRANTS MANAGEMENT


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We got the grant!!!!!

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Paperwork, paperwork, paperwork…..

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What do I do now?????• Deadlines

• Budgets

• Sub‐grantees

• Forms

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Chart of Accounts – Common Segments

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• General Ledger• Fund or Revenue Source• Grant• Program• Department• Activity• Location• Program Year• Restriction

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INTRODUCTION TO FUND ACCOUNTING


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Intro to Fund Accounting

Essentially, fund accounting is the same as other accounting, but with more than 1 set of self balancing accounts—known as funds.

Using funds, not‐for‐profits and governments can track expenses against grants and restricted funds.

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Your organization has a grant that will reimburse you for a vehicle that costs

$30,000. In the fund for this grant, you will debit capital asset expense and credit a due to/from account. In the general fund you will debit the due to/from account and the vehicle fixed asset account and credit cash and the vehicle expense account.

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Intro to Fund AccountingYour organization has a grant that will reimburse you for a vehicle that costs $30,000. In the fund for this grant, you will debit capital asset expense and credit a due to/from account. In the general fund you will debit the due to/from account and the vehicle fixed asset account and credit cash and the vehicle expense account.

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General Fund OrganizationCash (30,000) (30,000)Vehicle Asset 30,000 30,000 Due to/from ‐Vehicle Expense ‐


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Intro to Fund AccountingYour organization has a grant that will reimburse you for a vehicle that costs $30,000. In the fund for this grant, you will debit capital asset expense and credit a due to/from account. In the general fund you will debit the due to/from account and the vehicle fixed asset account and credit cash and the vehicle expense account.

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Grant fund General Fund OrganizationCash (30,000) (30,000)Vehicle Asset 30,000 30,000 Due to/from (30,000) 30,000 ‐Vehicle Expense 30,000 (30,000) ‐


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When you request reimbursement on the grant, you can pull a profit and loss statement for that fund showing the $30,000 expense.

At the same time, you can pull your financials for the organization that will show the vehicle properly capitalized.

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Intro to Fund Accounting In addition to having separate sets of self balancing

accounts, fund accounting has some unique accounting concepts we will discuss in detail, including:– Recording grant funded equipment

– Promises to give (pledges)

– Financial reporting

– Restricted net assets

– In‐kind contributions/expenses

– Agency transactions

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Unique concepts (cont.)

– Financial reporting

– Restricted net assets

– In‐kind contributions/expenses


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FUND ACCOUNTING TERMINOLOGY


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Fund accounting vocabulary

Financial reporting

– Balance Sheet is the Statement of Financial Position

– Income Statement is the Statement of Activities (there may also be a Statement of Functional Expense)

– Retained Earnings and Owner’s Equity are Net Assets

– Net Income/Loss is Increase/Decrease in Net Assets

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Grants

– Indirect cost rates and direct allocation of expenses

– Subgrantees/Subrecipients/Vendors/Contractors

– Grant year

– Single audit, Uniform Guidance, program regulations

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Contributions

– Conditional/Restricted/Unrestricted

– Promises to Give/Pledges

– Endowments

– Match/In‐Kind/Non‐Federal Share


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UNIQUE NOT‐FOR‐PROFIT ACCOUNTING CONCEPTS


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Unique Not‐for‐Profit Accounting Concepts

• Recording grant funded equipment– In the grant fund, expense account is debited and transfer in/out credited. In the unrestricted fund, cash is credited, transfer in/out is debited. Equipment expense is credited and fixed asset account is debited. (include T accounts).

– End result for the organization is a reduction in cash and increase in fixed assets, but when the cash draw is prepared for the grant the total expense will include the cost of this asset.

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A not‐for‐profit has $20,000 in their federal grant to purchase a vehicle. The organization purchases a new vehicle for $35,000. What would this journal entry look like to record this asset?

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Grant fund General Fund OrganizationCash (35,000) (35,000)Vehicle Asset 35,000 35,000 Due to/from (20,000) 20,000 ‐Vehicle Expense 20,000 (20,000) ‐


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Revenues and RestrictionsTwo types of contribution1. Without Donor Restriction (formally unrestricted)

1. No donor imposed restrictions on use

2. With Donor Restriction (formally temporary / permanent)1. To be used for explicit or implied purposes

2. Can be time restricted (use over X years)

3. Contributed assets’ use can be restricted permanently

4. Donor may allow earnings to be used towards a specific purpose

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Promises to GivePromises to give/Pledges Receivable: There are two types of promises to give which have very different account treatment.

– Conditional promise to give• Donor promises to contribute assets if specified and uncertain events occur

– Unconditional promise to give• Promise whose receipt depends only on the passage of time or the donor’s demand for performance

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Promises to Give

Conditional promise to give example:

Donor promises to give NFP $50,000 if the NFP raises $100,000 from other sources.

Unconditional promise to give example:Donor promises to give NFP $50,000 for a new bus.

Donor promises to give money for general use

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Promises to Give/Pledges ReceivableWhen / how do you record?

• Conditional promise– When conditions on which the promise depends are substantially met or explicitly waived by the donor (ASC 958‐605‐25‐13)

• Unconditional promise– Should be recognized in the period the promise is made (ASC 958‐310‐25‐1)

• Restrictions on use do not determine when it gets recorded as revenue

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Promises to Give/Pledges ReceivableOther factors to consider when recording pledges / promises to give

– Allowance for doubtful pledges

– Present value of pledges greater than 1 year

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Promises to Give/Pledges Receivable

Common pitfalls with pledges• Recording pledges in the incorrect fiscal year

• Recording conditional pledges before the conditions are met

• Recording restrictions as deferred revenue, versus temporarily restricted

• Differentiating between restrictions and conditions

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Financial Reporting

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Not‐for‐profit vs. for‐profit

• Balance sheet = Statement of net position

• Arranged in similar way– Assets, Liabilities

– Order of liquidity

• Difference is net asset categories


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Financial Reporting

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• Income statement = statement of activities

• Big differences between for‐profit and not‐for‐profit– Revenues by

restriction

– Net assets released from restriction

– Two ways to present restrictions met in current year

– Expense by function (versus natural category)


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Net Assets

For comparative terminology, net assets are equity in for‐profit accounting

– Two classes of net assets

• Net assets without donor restrictions

• Net assets with donor restrictions

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Net Assets– Net assets without donor restrictions

• Net assets whose use has not been restricted by donors

• Board designations are unrestricted

– Net assets with donor restriction• Use is limited by (a) time restrictions or (b) purpose restrictions (formally temporarily restricted)

• Includes net assets whose restrictions do not expire with the passage of time and cannot be removed or fulfilled by the organization (formally permanently restricted)

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In‐Kind Contributions• In‐kind (GAAP)

– Contributions of noncash items• Gifts in‐kind:

– Inventory, property, equipment, etc.

• Services– Accountants, lawyers, architects, teachers

• Measured at fair value in the period received

• Different measurement criteria from a Head Start Grant (do not include volunteers)

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In‐Kind Contributions– Gifts in‐kind

• Quality of the gift when determining fair value• Gifts that can’t be used internally or sold have no value

– Gifts used for fund‐raising purposes• Recognize as contribution and measure at fair value• Record the cash received over or under the fair value as a credit or debit to contributions, respectively

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In‐Kind Contributions

Donor contributes a laptop to an organization with a fair value of $1,000 to be auctioned at a fund‐raiser.

Asset $1,000Contribution $1,000

Sells for $1,500:Cash $1,500Asset $1,000Contribution $500

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Sells for $900:Cash $900Asset $1,000Contribution $100


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In‐Kind Contributions• In‐kind services

• Recognize if they create or enhance a nonfinancial asset, or meet all the following:

– Service requires specialized skills– Service is provided by individuals who possess those skills

– Service would typically need to be purchased if not contributed, whether or not it could afford such a service

• Fair value

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Agency Transactions– Agency transactions are when a not‐for‐profit receives funds that are directed by the donor to a specific beneficiary.

– The not‐for‐profit generally would not record these as revenue, unless they have ‘variance power’—the ability to use these funds other than as directed by the donor.

– These transactions are common for Community Foundations, but can occur with any organization.

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GRANTS MANAGEMENT PROCESS


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Organize the Paperwork ‐ Each Grant

• Section 1 – Copy of the executed grant including the approved grant budget

• Section 2 – Copy of the budget as it will flow through the accounting system – Budget to Actual

• Section 3 – Correspondence with the funding source (including copies of emails) from earliest to latest

• Section 4 – Financial reports – all those SF forms

• Section 5 – Program progress reports – how many children served, contracted for and actually served

• Section 6 – Audit and projected closeout documentation

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What if you track LOTS of grantsUse a Grant Manager Status File

• Section 1 – Tracking form of grants applied for but not yet awarded

• Section 2 – Awarded grants

• Section 3 – A grant profile for each awarded grant

• Section 4 – Documentation of grant administration problems

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Grant Administration

• What is Grant Administration?

• Keep track of basic grant information:─ Dates

─ Contacts

─ Amounts

─ Terms

─ Award information

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Common Grant Reports

• Unposted Activity

• Posted Activity

• Check Register

• Aging Reports

• Trial Balance – Grant

• Financial Statements

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Aging Reports

• Current period dates

• Aging dates

• Aging periods

• Reports by funding source

• Aging by due date or invoice date

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Cash Draw Report

• Sort by fund• Consider dates

– Invoice date

– Due date

– Discount date

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Encumbrance Reporting

• Current period budget, actual, encumbrance and variance

• Prior year budget

• YTD budget, actual, encumbrance and variance

• Total Budget and variance

• Percent total budget remaining and used

• Custom columns

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Statement of Revenues and Expenditures

• Beginning period actual

• Current period actual

• Current period change

• Current period % change

• Current year actual

• Prior year actual

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• Current period budget

• Current period budget variance

• YTD budget

• YTD budget variance

• Total budget

• Total budget variance

• Percent total budget remaining


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Definition of Closeout

• The award closeout is the process by which a determination is made that all applicable administrative actions and all required work have been completed.

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To Close or Not to Close the FY?

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When to close the Fiscal Year

• When all grants are closed

• When you have audited financial statements

• When you are confident you have no more adjustments

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What does a Fiscal Close Do?

• Checks for a valid closing account assignment for each revenue and expense account

• Creates and posts an opening balance entry for each account for the year being closed into

• updates the fiscal year‐end date shown on the Organization Information form in the Administration module

• Posts entries created by the close year process

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Closeout

Recipient’s responsibility:• Submit all financial and performance reports

within 90 calendar days after the date of completion

• Liquidate all obligations within 90 calendar days of completion date

• Promptly refund any excess balances of unobligated cash

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Do Not Close Grants If…

• Refunds not submitted

• Actions not completed

• All costs not paid to recipient

• Excess funds not deobligated

• All reports are not submitted

• Final NICRA has not been received

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Settlement of Accounts

• Reconcile final financial report with approved award budget.

• Identify any disallowed costs.

• Collect unused or disallowed funds.

• Deobligate unliquidated balances

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Retention of Records

• Financial records, supporting documents, statistical records, and all other records pertinent to an award must be retained by the Grants Office for a period of three years.

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Grant Year End• Liquidate Encumbrances• Chart of Accounts‐ create new grants or Grant Year

depending on COA setup• Grant Admin module‐ update as needed• Distribution Codes update• Allocations and allocation code update• Fixed Assets distribution and code update• Session Maintenance• Print final reports• Give instructions on any late AR or AP invoices to staff

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Fiscal Year EndAfter close:

– Print reports• Trial Balance• Financial Statements by grant and by agency

– Update Current Reporting Year defaults on customized Financial Statements and GL Analysis Reports

– Vendor and Chart of Accounts List review‐New, Inactive or Discontinued Codes

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Fiscal Year EndAfter close:

– Update Distribution Codes in Payroll and Accounting modules

– Order Supplies (checks, forms)

– Adjust entry dates in Organizational Preferences

– Run Data Integrity Checks

– Make a backup

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what makes grant‐funded accounting unique€¦ · 4/5/2020 · promises to give/pledges...

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