Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 25, 1993 TAG: 9307210317
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: JOHN LEVIN
DATELINE: LENGTH: Medium
Accounting standards among the not-for-profit organizations generally are informal, inconsistent and provide too few clues about the effectiveness and needs of charitable groups.
"I'm a CPA [certified public accountant]. I've audited a lot of for-profit and not-for-profit organizations, and I can tell you honestly the statements for the not-for-profits are too complicated," said Roger Kienzel, vice president of finance and administration at United Way of Roanoke Valley. In many cases, he said, they're more complex than businesses that intend to earn profits.
Perhaps as important an issue is the people who serve as directors of charitable groups. They generally have too little financial information to make intelligent decisions, much less assume the legal and ethical liability that generally comes with a board position.
"The most successful organizations are those whose board members take an active role in managing," said W. Hope Player, a Roanoke CPA who works for some area nonprofit groups. "Presenting them a monthly financial statement is a strong step, but if what they see is not understandable, what good are you doing?" she asked.
Indeed, one of the most common complaints of his firm's clients is that board members and donors can't understand financial statements, said David Snyder, an accountant with Brown, Edwards & Co. of Roanoke.
The comments are in reaction to statements issued last month by the Financial Accounting Standards Board, a Norwalk, Conn., agency that is the accounting profession's self-regulator. The board sets standards for financial accounting and reporting, and its rules generally are accepted by government agencies and private business.
Its latest statements, numbers 116 and 117, tell groups to report contributions, including promises of future gifts, and establishes procedures for disclosing them. The rules take effect for large organizations - those with assets of $5 million or more and annual budgets of at least $1 million - for the fiscal year beginning after Dec. 15, 1994. For smaller groups, the effective date is a year later. Groups whose reports are essentially for internal use only, such as PTAs and small churches, would be exempt.
Under the new standards, even donors who are not accustomed to working with financial records should be able to decide how needy a charity is and how much of past contributions have gone to the organization's mission, said Susan E. Weiss, a Standards Board assistant project manager who helped write the new standards.
"It will make decision-making about whether to give easier," she said.
She said there are currently four distinct sets of rules for non-profits, governing accounting for health care service providers; colleges and universities; health and welfare organizations; and everybody else, from museums to cemeteries.
A major problem in preparing and reading financial reports is finding the bottom line.
"The objective of a typical for-profit organization is to increase economic wealth of those who provide resoruces to finance its operations; or in other words, to crease a net provide for its owners," Snyder said.
"The objective for a not-for-profit organization, however, is to provide a service that meets the various goals for which the organization was founded."
For most businesses it's a comparatively simply issue of profit or loss. Putting it on paper for charities can be far more complicated, Weiss said.
And because organizations have had little pressure from the public for disclosure, few have made their financial records easy to understand.
But that can backfire, as the local United Way recently learned.
This spring, the organization, which raises about $4.3 million a year from the community, ordered an image check-up. Among other things, Martin Research found that area donors don't have an accurate idea of how much of their contributions goes to provide services vs. the amount devoted to the United Way's own administration and fund raising activities.
About 37 percent of those polled said they didn't know. The next largest portion, 28.5 percent, estimated as much as half of United Way's dollars support its own organization. Just 8 percent came close, guessing that 14.5 cents of each dollar goes to overhead, which at the Roanoke Valley United Way includes depreciation on equipment and dues to United Way of America as well as salaries and fund raising. Expenses last year totaled $630,838 of a $4,337,678 budget.
As a result, brochures for this fall's United Way campaign will include a prominent photo of two stacks of pennies meant to illustrate the point.
The new accounting standards, presumably, will routinely make the numbers as clear.
"It will put some consistency in the reporting and make them reader-friendly," Player said.
John Levin is business editor of the Roanoke Times & World-News.
by CNB