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Updates on our funds

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stellakafka
stellakafka's picture
Updates on our funds

Friends,

 

I am posting this on behalf of our treasurer, Bob Stephens. For those who don’t know him, Bob has an MBA and he is a CPA, specializing in non-profits. We are lucky to have him joining our leadership team, and we all use his wisdom and experience to make sure that we follow non-profit best practices (you can read more about Bob here: https://www.aavso.org/aavso-officers-and-council-robert-stephens).

 

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As astronomers, we are used to dealing with technical issues from data measurement to presentation. Presenting our financial data has similar issues. In astronomy, we have governing bodies such as the IAU to help define terms. In accounting, the Financial Accounting Standards Board recently released a new proclamation called the Accounting Standards Update (ASU) 2016-14 which changes the way non-profit organization’s books are kept and financial statements are presented.

 

ASU 2016-14 and other recent updates will have several small impacts on how the AAVSO treats its contributions. The most obvious one concerns the ‘Funds’ we have set up to hold monies received. Gone are the days of ‘Permanently Restricted Funds’ and ‘Temporarily Restricted Funds’. When you think about it, those are ambiguous terms. Restricted by whom? Temporarily restricted until when?

 

ASU 2016-14 implements a new structure. Now we have ‘Net assets with donor restrictions’ and ‘Net assets without donor restrictions’. As the popular saying goes; it’s in the name. Moving forward, ‘Net assets with donor restrictions’ will have several subcategories. It will contain the Janet A. Mattei Research Fellowship Fund, the Margaret Mayall Assistantship Fund and the AAVSOnet Fund amongst others. Most everything else will be classified as ‘Net assets without donor restrictions’. This will include a ‘Board-designated endowment fund’. I use that title from the ASU. Most non-profits call their governing body a ‘Board’ instead of a ‘Council’.

 

There are a number of other changes in ASU 2016-14 that effects the way we record things. For example, it says that a ‘Building Fund’ is used as a donor restricted fund to purchase a new building. Once that building is bought, any excess funds are released for general purposes (unless the donor specified that excess funds be returned). We have had a ‘Building Fund’ to collect monies for general repairs. The annual repairs always greatly exceeded the amounts donated. In that example, the funds are expected to be spent annually and therefore are without donor restrictions. The same can be said for the ‘Solar Fund’, the ‘VPHOT Maintenance Fund’, and a few others.

 

For these reasons, we are simplifying the list of Funds in our accounting records. We will still encourage people to donate towards these items, but just will not track them separately as donor-restricted in the future. 

 

We are required to implement these new rules at the start of our fiscal year, October 1, 2018. Our new fund definitions can be found here: https://www.aavso.org/funds

Our auditors will be assisting us. If astronomy doesn’t consume your life and you wish to learn more, an article can be found at:

https://www.cpajournal.com/2017/04/24/implementing-asu-2016-14-presentation-not-profit-financial-statements/

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Best wishes – clear skies,

Stella and Bob

 

 

 

sfra
sfra's picture
10% overhead rate

My question refers to the following fund information seen at the link gived to the bottom of page the  https://www.aavso.org/funds that talks about the "funds".

"Net Funds with Donor Restrictions"  

"Policy on overhead: The AAVSO is implementing a 10% overhead rate on contributed Net Funds with Donor Restrictions aimed at covering expenses related to administrative support and management activities. When appropriate this overhead rate can be increased or decreased at the discretion of the Director."

In my opinion 10% of a fund per year taken for "covering expenses related to administrative support and management activities" seems excessive for perhaps writing a handful of checks a year on at least some of these fund.

My guess is that this "overhead" charged will deplete these funds pretty quickly, and in my view, take away much of the donation monies which then would not be used for the reason for which they were donated.

Perhaps I don't understand what the 10% fee is all about.

Frank Schorr (SFRA)

sfra
sfra's picture
10% overhead rate

I'm looking very forward to meeting Bob Stephens, maybe in Toronto next spring.  It sounds like the AAVSO is lucky to get somebody with his background and expertise, particularly with changes in Non-profit accounting practices.

I had a lovely talk/visit with the previous treasurer at the Spring meeting in Nashville last year but have not been able to attend either meeting this year.

However, maybe Bob can answer my question here about the "10% overhead rate" question I posed when he gets a chance.  I would very much appreciate it as I'm sure my concerns are unwarrented.

Many thanks,

Frank Schorr (SFRA)

Eric Dose
Eric Dose's picture
Expected uses of Overhead funds?

Perhaps rather than reflexively claiming that a 10% overhead is inherently wasteful, we might simply ask the Council's thoughts on their intentions for the money so generated. I'm not a priori opposed to a reasonable set-aside for maintenance, for example--we can all name many examples of facilities donated but never with donations to maintain them.

I must admit that the ASU 2016-14 fund categories as described seem clearer to me than the previous ones ever did. Hope springs eternal.

And if this is the same Bob Stephens, CPA I've encountered in California, my, my, we have gotten lucky indeed.

sfra
sfra's picture
10% overhead rate

Eric,

I agree with much of what you say except I'm not sure it's really the case with these 4 funds.

The 4 funds in question are the Net Funds with Donor Restrictions on page https://www.aavso.org/funds

Janet A. Mattei Research Fellowship Fund

Margaret Mayall Assistantship Fund

AAVSOnet Fund

Sponsorship fund

I guess I am being a bit reflexive to a degree, as the amount being suggested to be taken for overhead seems excessive to me for all 4 funds.  I didn't see anything said about a set-aside for the use of these funds.  Perhaps there is more expenses related to administrative support and management activities for these 4 funds then I can imagine or know about.  I like your idea of having the Council comment on this along with Bob!

I'd feel much better knowing how this will work.

Again, many thanks,

Frank Schorr (SFRA)

 

rstephens
rstephens's picture
10% Overhead rate

To clarify the Council's direction concerning the 10% overhead rate, it is intended for new Donor Restricted Funds. It is not intended to be retroactively applied to funds already donated. The Mattei and Mayall Funds, and the AAVSONet Fund will operate as they always have in the past. Especially since they have little overhead burden.

The reason the Council decided to bring these policies more in line with other nonprofits is that sometimes, funds are donated for a purpose not directly in line with an organization's mission or goals. A member's 'pet project'. Often, that project comes with a significant overhead burden, either in needed staff time, or even matching funds. At a minimum, all donor restricted funds have to be tracked by the accounting department and then audited at year end by our CPA's. Usually these projects require staff time to organize volunteers, write and maintain programs, and purchase equipment. The result is that in accepting a contribution, the organization sometimes loses funds intended for other projects of its core mission.

The policy the Council inacted is merely a guideline to the Director. Upon the proposal of gift restricted for a certain purpose, the Director can now discuss the issue with the giver and arrive at an appropriate rate. I would imagine that for most small donor restricted gifts (think Scholarship Fund), that no overhead rate at all would be charged. But in the case of a major gift spanning years and involving significant staff time, the Director can figure out what the additional costs are and negotiate the appropriate rate. The 10% guideline was used because that is the default rate the NSF allows for organizations handling grants to charge without a cost analysis study. I know this because my second day job is running a grant management company managing NASA and NSF grants. Our last NSF grant was allowed 10% overhead - take it or leave it. Our last NASA grant was allowed an overhead burden rate of 23.75%, the statutory maximum amount without a cost analysis study and a negotiated rate.

It is possible we could go quite some time without ever discussing this rate. Most gifts are without donor restrictions. The really just gives us the tools to talk about the issues if/when the time comes.

sfra
sfra's picture
10% Overhead rate

Robert,

Thank you for taking the time to give this excellent explanation!!  I think I now have a very good understanding on how this works and have answers to my questions.  It all makes perfect sense!

Again, thank you for your time!

Frank Schorr (SFRA)

 

kevinbmarvel
kevinbmarvel's picture
Beat me to it...

Thanks Bob for that explanation...you beat me to it.  As the CEO of the AAS and a proud AAVSO member and AAVSO Countil member I was 100% in support of this Council action.  An organization like the AAVSO (or the AAS) can be very burdened administratively with donor restricted contributions and the 10% rate is justifiable to charge against the donation (one time) to capture a small portion of the costs of fulfilling the donor's request.

At the AAS we use overheads charged against each cost center to help cover the administrative and infrastructure costs that are not or cannot be tied directly to some activity.  For example, we choose to operate our photocopier as an indirect, or overhead recapture expense, all the activities in the organization benefit (potentially) from having a photocopier at the ready and it is administratively expensive to track photocopier usage to specific programs, therefore all programs contribute an amount in proportion to their cost to pay for the copier.  As we make the most money from our journals and our meetings, they shoulder the bulk of these expenses, which also include our finance staff, IT expenses and so on.  On the contrary, our meeting staff salaries are direct expenses that are apportioned out to each event we help run.

This is suitable for an organization the size and complexity of the AAS, while likely not so useful for a smaller organization like AAVSO.  

I am so glad we have Bob Stephens on board helping us out as Treasurer.  He brings a wealth of knowledge and experience to our organization that will very much help us in the long run.

Thanks Bob!

Best!

Kev.

 

Eric Dose
Eric Dose's picture
Thanks

Thanks, Bob, for the clear explanation.

The changes sound perfectly fine to me.

BGW
BGW's picture
Sounds like good changes

These sound like good changes.  The "relabeling" better describes what I understood to be the intent all along.

The overhead charge against restricted donations is reasonable.  I hope the overhead assigned against specific donor-restricted donations will be adjusted to correspond to the actual overhead costs of the specific projects.  Donors do like to fund hardware, in which case a very high overhead charge might be quite appropriate if there is a large staff cost in integrating or operating the hardware, processing data from it, etc.  On the other hand, a donation to fund a mostly volunteer-run activity might have a very low actual "overhead" cost.

Re the Building Fund, it was started when the new building was purchased, with the intent of restoring to "The Endowment" (broadly defined) the monies used to purchase the new building that were in excess of the monies received from the old building.  Except perhaps for the first year, I believe it has only attracted quite small donations -- as you say, not even enough for yearly maintenance.  I think it would be a good simplification to do away with this fund category.

Gary Billings (a former AAVSO Treasurer)

mgw
mgw's picture
Good changes...

These are good changes and as a Council member I fully support them.  As Bob described, the 10% is the nominal starting point.  It will spawn conversations between donors and our Director regarding staff time needed to support initiatives.  This should improve planning so there is less confusion on the roles and responsibilities of staff and volunteers.  Expectations will be clearer. And it will also ensure good accouting of costs.

 

Gordon Myers

HQA
HQA's picture
changes

I'm happy with the way Bob has explained the Fund changes.  The reorganization of categories to reflect current accounting practices is a great idea.  However, I think the description on

https://www.aavso.org/funds

needs to change according to Bob's responses.  What might be clear in his mind or the minds of Council may not be clear to the membership.  There are some important words missing.  That page lists the "Net Funds with Donor Restrictions" and then ends with the paragraph that starts "The AAVSO is implementing a 10% overhead rate on contributed Net Funds with Donor Restrictions...".  If you mean for the overhead rate to only be applied to new Funds, and that the existing ones are grandfathered, then you need to include ""newly" before "contributed".  If you mean for the rate to be a one-time charge, then you also need to include "one-time" before "10%".; if it is meant to be an annual charge, then include "annual". It is not clear to me from the Fund descriptions if a donor can contribute, say, her/his Required Minimum Distribution from IRAs to a specific goal for one year and not be charged overhead.  It is also not clear to me that additional donations contributed to an existing Fund, such as AAVSOnet or Margaret Mayall, will or will not be charged overhead.  Also, the drop-down menu on the donation page for "Select a Fund" needs to be pared down to only those Funds still in existence (it has many more entries than on the "Funds" page).  These seemingly small changes will make the new policy much clearer in my mind.

I think there is a world of difference between the administrative requirements for an NSF/NASA grant and for the typical donor-restricted Fund for an organization like the AAVSO.  I would hope that the Council and Director would be very careful in how they apply such an overhead rate, especially since this is a new policy that specifically impacts donations.

Arne

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