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  1. Behind the HeadlinesLouis Mezzina, National Industry DirectorHigher Education and Other Not-for-Profits PracticeFinance & Administration Roundtable January LuncheonWednesday, January 18, 2012 AUDIT

  2. Speaker Biography Lou Mezzina, based in KPMG's NYC office, is an audit partner and KPMG’s National Industry Director for Higher Education and Other Not-for-Profit Organizations. In this national role, he serves as a resource to several of the firm's clients and their service teams, leads internal knowledge sharing efforts, and is a frequent speaker on matters of interest to higher education and other not-for-profit institutions. With more than 37 years of experience, Lou has served many of KPMG's clients, including AARP, American Heart Association, Archdiocese of New York, Brown University, Dartmouth College, Hofstra University, Johns Hopkins University, Juvenile Diabetes Research Foundation, and the University of Chicago. Lou received his BS degree in accounting, summa cum laude, from The State University of New York at Albany. He is a former chairman of the Not-for-Profit Organizations Committee of the New York State Society of Certified Public Accountants and served a three-year term on the Not-for-Profit Organizations Committee of the AICPA. He is a past president of the Make-A-Wish Foundation of Metro New York. 2

  3. Learning Objectives Articulate the critical financial and management issues facing the nonprofit sector Determine the governance and tax priorities that will impact the nonprofit community Explain the effects the economy will have on fundraising and revenue generation Recognize how changes in business policies and regulations will change internal operations

  4. Very Recent Headlines State Budget Losses Expected to Cause Problems for Nonprofits Through 2013… “Despite signs the economy is improving, nonprofits that rely on state money should brace for at least two more years of tough times, a new report warns.” The Chronicle of Philanthropy, December 8, 2011 2012 Resolutions for the Nonprofit World, “a sampling of responses…Think first about what people want and what they expect, and only second about what you want to provide them…Explicitly fund overhead—we all have it and we all need it…Establish formal collaborations between complementary organizations that can increase both the efficiency and impact of each partner agency…Accelerate progress on measuring the impact of our work…Unleash the full potential of social media and Internet marketing for fund raising, community organizing, and advocacy...” The Chronicle of Philanthropy, December 30, 2011

  5. Governance How to Manage Communication About Risks… “A board must gain information from a variety of sources so it can test and supplement the information management provides, and to fill in any blind spots management may have.” Compliance Week, January 20, 2010 Risk and Audit Information Directors Want to Hear… “One overwhelming challenge… ‘Finding the right balance between over-reporting and under-reporting to the board’… ‘The issue I think we face most often is the tug between transparency and relevance… A lot of information appears relevant, but gets you down into the weeds.’… ‘Sometimes board members themselves may ask for too much information.’…One way to build trust: Report information early… ‘We spend a lot of time on preparations for the meetings and sharing pre-reads…providing information upfront and engaging in dialogue, as opposed to going through the formal presentation in the meeting.’ Compliance Week, June 8, 2010 5

  6. Governance Harvard U. Overhauls Governing Board in Recession’s Wake, a First After 360 Years… “The Harvard Corporation is a bit of an anomaly in higher education...Boards of private colleges, on average, have 29 members and eight separate committees, according to…the Association of Governing Boards of Universities and Colleges. The Chronicle of Higher Education, December 6, 2010 6

  7. Governance – Harvard “Sound Bites” “… it is imperative that the Corporation assure ample time on its agendas to weigh the major strategic challenges and opportunities facing Harvard…and to avoid an over-allocation of time and attention to matters transactional, transient, or tactical…” “… we should bear in mind the important if not always easily articulated difference between management and governance — and consider how governance can monitor, guide, and enable sound management, without conflating the two.” “… the Corporation must be ever attentive not only to opportunity but also to risk, in its various dimensions…ambition and innovation must go hand in hand with carefully calibrating and managing risk, especially as the University navigates a more constrained and volatile economic environment and faces rising outside scrutiny of higher education.” 7

  8. Governance 8

  9. Governance 9

  10. Governance – Audit Committee

  11. Governance – Policies and Procedures

  12. Fundraising A Stark Outlook for Fund Raising in 2012… “Two new surveys suggest that fund-raising challenges for charities will persist through year’s end and beyond. But a third shows a burst of optimism among people who raise money for nonprofit causes.” The Chronicle of Philanthropy, December 7, 2011 First Half of 2011 Was Sluggish for Fund Raising… “The study, based on data from more than 800 groups, found that more than half achieved no increases or saw donations drop. Thirty percent of the groups said they had a decline, while 25 percent said giving was flat.” The Chronicle of Philanthropy, September 29, 2011 America’s Top Fund-Raising Groups Face Big Struggles… “America’s big charities expect fund raising to rise in 2011, but the increase won’t come close to making up ground they lost in the downturn…And even this year’s healthy figure masks a big divide in the charity world: Most of the gains came at international charities and other groups that get a lot of donated medicine, food, and other products. The other large increases were achieved by community foundations and organizations…that depend largely on gifts of donated stock…When those groups are excluded from analysis, the increase in gifts was flat.” The Chronicle of Philanthropy, October 16, 2011

  13. Fundraising

  14. Fundraising

  15. Fundraising

  16. Social Media Few Charities Are Raising Big Amounts Via Social Media, Says Study… “of the 27 charities [out of 11,196 that responded] that reported raising more than $100,000 on Facebook, 30 percent had annual budgets of $1-5 million.” The Chronicle of Philanthropy, May 12, 2011 16

  17. Social Media Getting Social Media Right: A Short Guide for Nonprofit Organizations… “This report lays out a rubric we call the “Seven C’s” of social media: Cause, Communication, Community, Collaboration, Costs, Capital, and Competition. By challenging yourself to ask questions around the Seven C’s, you can quickly begin to organize your thinking about social media...” The Bridgespan Group, October, 2010 17

  18. Social Media How Small Groups Can Put Social Networks to Use… “Building a social-media strategy from scratch can be a daunting challenge, especially for smaller organizations that have limited money and employee time…it is possible for even the smallest groups to create effective online strategies.” The Chronicle of Philanthropy, June 2, 2011 (podcast) Social Media Policies After the NLRB “Facebook Firing” Case Settles: What are Employers to Do?… “The constantly changing realm of social media requires regular review of your business’s social media or Internet usage policy.” DrinkerBiddle Labor & Employment Alert, February 2011 Federal Agency Says Firing of Nonprofit Workers Over Facebook Posts Illegal… “The National Labor Relations Board says…charity acted illegally in firing five employees who complained on Facebook about working conditions.” The Chronicle of Philanthropy, May 23, 2011 18

  19. Social Media

  20. Charitable Deduction 20

  21. Charitable Deduction Charitable Deduction Faces a Fresh Challenge as Lawmakers Attempt to Close Deficit… “But the latest proposal shows that the idea of tinkering with the charitable deduction as a way to raise more revenue is not going away.” The Chronicle of Philanthropy, November 17, 2011

  22. Watchdog Group Ratings Watchdog Group Adopts Change in Rating System… “Charity Navigator revamped its ratings system this week as part of a plan to move beyond evaluating charities based solely on their financial performance. The Web site now places equal weight on a charity’s governance and openness about its operations as it does on financial information.” The Chronicle of Philanthropy, September 22, 2011

  23. Tax Risk Excerpts While modifications to the tax code could negatively affect the not-for-profit sector, the changes that would have the most severe effect are also those least likely to occur. Not-for-profit organizations primarily derive three benefits from the US federal tax code: tax-free earnings on investment income, the ability to issue tax-exempt debt, and tax benefits for donors.Prolonged budgetary pressure has prompted state and local governments to pursue revenue from not-for-profit organizations, including denying their tax-exempt status.

  24. Tax Risk Squeezed Cities Ask Nonprofits for More Money… “A growing number are seeking more money – just don’t use the word taxes – from nonprofit institutions that occupy valuable land but by law do not pay property taxes.” The New York Times, May 11, 2011 City Sends Tax Bills to Major Nonprofits… “Boston’s major tax-exempt institutions...are being asked to make regular voluntary payments to the City based on the value of their property.” The Boston Globe, April 24, 2011 Illinois Nonprofit Hospitals Get Reprieve on Reevaluation of Tax-Exempt Status… “the State would temporarily hold off on further decisions about their exemptions from property taxes.” The Chicago Tribune, September 23, 2011 24

  25. Tax Risk 25

  26. Outcomes/Impact Outcomes Measurement Is No Longer Optional for Human Service Nonprofits… “highlight three reasons why it is essential for these organizations to specify and measure their outcomes amidst the ongoing tightening of government funding…”, May 31, 2011 1. Rally the troops to focus on what the work is all about. The real power of measuring outcomes and is to drive internal reflection and learning about how the work is going and prospective planning about how it can be improved. 2. Identify where and how you can do more with less. Measuring and using outcomes data is also essential for improving productivity (vs. simply cutting costs). 3. Compete for—and manage the downside risk in—performance-based contracts. A nonprofit organization with the capability to define, measure and understand its outcomes will be in a stronger position to compete for such funding. 26

  27. Outcomes/Impact … 27

  28. Outcomes/Impact

  29. Miscellaneous U.S. Firms Expect Healthcare Costs to Rise at Lowest Rate Since 1997… “Healthcare expenses for U.S. employers are expected to increase next year at the lowest rate in more than a decade, but the cost of benefits for workers is likely to outpace the growth of their earnings, a national survey has found.”, September 22, 2011 Nonprofit Employers Don’t Meet Workers’ Needs for Job Satisfaction, Surveys Find… “Seventy percent of workers in two surveys said their jobs were either disappointing or only somewhat fulfilling. That might be a reason 25 percent of workers said they were considering looking for a job outside the nonprofit world.” The Chronicle of Philanthropy, October 24, 2011 Senate Rejects Proposal to Deny Grants to Charities That Use Offshore Tax Havens… “But Sen. Charles E. Grassley, who promoted the idea as an amendment to a spending bill, said he would continue pushing the measure…it was designed to cover groups like Boys & Girls Clubs of America – an organization he has criticized since a 2010 Senate investigation found it held more than $50-million in off-shore equities and partnerships. That allowed it to avoid paying unrelated business income tax, or UBIT….Boys and Girls Club acknowledged its off-shore investments last year but called them ‘completely legal, routine, and widely implemented by large nonprofit organizations.’” The Chronicle of Philanthropy, October 21, 2011 Charities Oppose Plan to End Their Postal Discounts… “Charities are protesting Congressional plans to gradually phase out the discounts they receive for mail appeals and other materials...lawmakers are concerned about huge deficits faced by the Postal Service, which lost $10-billion last year.” The Chronicle of Philanthropy, October 24, 2011

  30. FASB News Release – November 9, 2011

  31. FASB Board Meeting Handout – November 9, 2011 Background information with respect to Not-for-Profit Advisory Committee’s (NAC) deliberation and suggestions Key recommendations outlined in October 3, 2011 Press Release:

  32. FASB Board Meeting Handout – November 9, 2011 • Summary of November 2010 Survey of FASB’s Not-for-Profit Resource Group (53 replies)

  33. AICPA TIS Section 6140 – Not-For-Profit Entities

  34. AICPA TIS Section 6140 – Not-For-Profit Entities

  35. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Presenter’s contact detailsLouis J. MezzinaKPMG LLP(212) 872