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Nonprofit

Taking Stock of COVID and Its Impact on Nonprofits

The good news is that 2020 will soon be over. The coronavirus (COVID-19) pandemic is causing enormous consequences across the globe and there are few, if any, aspects of our society that are immune to its impact. We know many nonprofits (NFPs) are experiencing uncertainty and concern for the future. Among the many effects of COVID-19, entities are facing operational, accounting and financial reporting challenges. At the time of this writing, the pandemic has reached its highest point of spread with new lockdown orders going into effect. Simultaneously, the first use of new vaccines are being deployed in Britain, with America likely to follow suit in a matter of weeks. This is unprecedented territory for all of us and we can only hope that the deployment of the vaccine will change the trajectory of the pandemic and that we might “return to normal” in the next six to nine months.

Regardless of the trajectory of the pandemic, it is important that nonprofit organizations tackle the impact (past, present, or future) of the pandemic head on. To that end, here are a few considerations, as well as resources available, that can be of assistance to organizations as they strategize for calendar year 2021 and beyond.

First, many organizations that service nonprofits have established useful resource centers online that are worth exploring. You can find valuable information at our website, the AICPA’s website and many others. I personally find that the CalNonprofits resource center is particularly useful and kept up to date. Any new relief programs (such as the Cares act) are sure to be publicized in these areas.

Second, consider disclosures in your financials that can help the reader understand the impact of COVID  on your activities. Opportunities within your financial statements to really tell your story are few and far between. At present, the best opportunities are in the description of your organization and in your liquidity and availability of resources disclosure. In these areas there is the possibility of inserting some reasonable management discussion and analysis amongst the required disclosure components. Since the pandemic began, organizations have been including a COVID disclosure either as a subsequent event or a risk factor-type disclosure. We recommend that management consider expanding this generic disclosure to really bring to life the specific impact this event has caused. Considering that the effect of the virus is almost certainly going to be spread across multiple reporting periods, a detailed disclosure could help the reader put the impact into context and how it’s grown or been mitigated over time. Bringing your numbers to life for the benefit of the reader is important. We have a variety of sample disclosures we can share for your consideration during your audit engagement.

Finally, consider ways in which you can strengthen controls in the COVID world. Designing a solid internal control structure has always been largely about addressing the primary concern: “What could go wrong?” COVID is providing a robust stress test of this question as the pandemic has scattered workforces in to remote environments for a time period that has transitioned from “temporary” to something less clear.

It’s important to recognize that if the circumstances of your employees have changed, so too may have your internal control risks. Every organization should reevaluate its risks and be prepared to modify policies to make them align with current work realities. Now is the perfect time to document the controls that govern key areas of the financial statements and ensure that all related activity is tracked and supported by appropriate documentation. In addition, we’d highly recommend that all organizations reinforce and strengthen the segregation of duties controls to help prevent any unforeseen new weaknesses (due to new COVID realities) in internal controls from negatively impacting the organization.

No matter what stage a nonprofit organization is in with its response to COVID-19, it’s imperative that management and those in governance keep a sharp eye on its changing environment so as to sustain its mission work. In the meantime, we can all do our part and be optimistic that the vaccines will bring the pandemic under control during 2021.

If you have questions or would like more information, please contact Mike Barloewen at mbarloewen@windes.com or 844.4WINDES (844.494.6337).

Mike Barloewen
Michael Barloewen, CPA, CGMA

Partner – Chairman, Audit & Assurance Services

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