Nonprofit Planning: Considerations for Selecting a Fiscal Year End
Does your organization have an unusual fiscal year end that no longer works with your current operations? Or maybe you are considering a merger with another organization that has a different year end than yours? Whether at start-up, or to address an operational change in your organization, following are some factors you may want to consider when adopting or changing your organization’s fiscal year end:
Timing of Significant Programmatic Activity: Consider when and how the organization makes or raises money. It is often more beneficial for an organization to know how they are doing related to their revenue goals at the beginning of their fiscal year as opposed to the end of the year so that adjustments can be made to expenditures, if necessary.
Grant Making Cycle: Altering your fiscal year end may impact the grant making cycle for organizations whose activities include awarding funds to grantees.
Audit Committee and/or Board Meetings: These meetings are often fixed, and consideration should be given to the impact a change in year-end will have on the timeliness of fiscal year end reporting to the appropriate governing body.
Availability of Audit Evidence: Does finalizing you year end financial results rely heavily on obtaining information from third parties, such as for alternative investments or from subrecipients? Changing your fiscal year end could impact the availability of timely and sufficient audit evidence.
Debt Covenants: A revised fiscal year end may impact covenants with a nonprofit’s banking institution for any debt outstanding. Consider the cyclical nature of your organization’s operations and the impact upon balance sheet amounts and debt covenant calculations throughout the year.
Impact on Audit Period and Presentation in Year of Change: Making a year-end change will affect how an organization presents its audited financial statements in the year of the change and in the following year. An organization can choose to extend the period under audit in the year of a change (i.e. have an audit for a 15-month period end), or have an audit for a short period, plus the organization’s original year end. For this reason, single year audit statements will likely need to be presented rather than comparative statements in the year of change.
State Charitable Registrations: Consider the impact of a change in year end on the availability of audited financial statements and your Form 990 for purposes of state charitable registrations.
Application for Combined Giving Campaigns: During the year of a change, consider the impact of the availability of an audit on your organization’s application for the Combined Federal Campaign or other combined giving campaigns.
Are there other factors you have considered related to selecting a fiscal year end? Or have you recently changed your year-end and been impacted by other things not mentioned here? I’d love you hear them!