Management must educate their Board members so that they understand that there is a lot of gray area from service to service, and from budget line item to budget line item.
income. To manage liquidity, nonprofits rely on collection of accounts receivable for their general expenditures. When there are timing or collection issues with accounts receivable, organizations must dip into reserves or borrow on lines of credit to cover short-term expenditures. In other words, nonprofits do not operate like most other businesses, which creates an education gap between nonprofit management and their Boards. When presenting your budget to the Board of Directors, you will present your projected revenue. If you are a human services organization, your projec- tion will likely include your current census of resi- dents, multiplied by your rate. But what if you do not have a final rate? How do you explain to your Board that although you are currently being paid a prospec- tive rate, you are not sure when you will know what the final rate and potential recoupment will be? In addition, you need to explain that the rate you are getting for the service is not dollar for dollar; the cost of what you are providing is substantially higher. With prospective rates, rate component cutbacks and recoupments considered common practice in this industry, Board members with accounting and finance backgrounds are left scratching their heads because they don’t understand the nuances of nonprofit accounting. A great example of recoupment is the Certified Community Behavioral Health Clinics (CCBHCs) that were created through Section 223 of the Protecting Access to Medicare Act. The CCBHC implementation
began in 2017 as a two-year demonstration program consisting of 13 providers in New York State. CCBHCs have a uniform payment amount per visit and day, regardless of the amount of services or intensity of services used by an individual that day, and the providers were all issued their respective fixed rates. After the implementation period, the providers were notified of a substantial retroactive decrease in the rate, and that the monies paid previously would be recouped. This notification had a negative effect on the bottom line of all 13 providers in 2019. It also proved the nonprofit 2017–2019 budgets incorrect. It is not all negative and take-backs, though. For instance, New York City understands that the services being provided are often not being paid for in full. In March 2019, the City of New York Health and Human Services, in collaboration with providers and the Nonprofit Resiliency Committee, developed a Cost Policies and Procedures Manual that standardizes indirect cost rate calculation and claiming policies for New York City Health and Human Services contracts. In many situations, providers will get reimbursed for indirect costs. Management must educate their Board members so that they understand that there is a lot of gray area from service to service, and from budget line item to budget line item. Teaching your Board about nonprofit accounting is a key way to get more brains from different industries and backgrounds all working toward improving the financial viability of your organization.
markspaneth.com FIRST QUARTER, 2020 Nonprofit & Government Times 7
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