If you’ve ever had a complaint about nonprofit accounting rules, you have a friend in former President Bill Clinton.
In a recent article from the New York Times, the Bill, Hillary and Chelsea Clinton Foundation has come under criticism for mismanaging the foundation’s finances.
According to the New York Times article, “The foundation piled up a $40 million deficit during those two years [2007 and 2008], according to tax returns [IRS Form 990].”
In an open letter on the Clinton Foundation website, Bill Clinton indicates his frustration with accounting rules. He says:
“The New York Times recently reported that the Foundation ran a deficit of $40 million in 2007 and 2008 and $8 million in 2012. The reporting requirements on our tax forms, called 990s, can be misleading as to what is actually going on. Here’s why. When someone makes a multi-year commitment to the Foundation, we have to report it all in the year it was made. In 2005 and 2006 as a result of multi-year commitments, the Foundation reported a surplus of $102,800,000 though we collected nowhere near that. In later years, as the money came in to cover our budgets, we were required to report the spending but not the cash inflow… In other words, for any foundation with a substantial number of multi-year commitments, the 990s will often indicate that we have more or less money than is actually in our accounts.”
In other words, according to President Clinton, it’s not me, it’s the accountants.
There is a great deal of merit in President Clinton’s claim.
In a previous blog I wrote about The Single Biggest Problem With Nonprofit Accounting Rules. (See https://ericyptc.com/2013/01/20/the-single-biggest-problem-with-nonprofit-accounting-rules/)
The trouble making accounting rule in question is commonly known as FASB 116.
(FASB stands for Financial Accounting Standards Board. Several years ago the accounting rules were “codified” to make them easier to follow. Send me an email if you’d like the reference to the new rule number.)
This troublesome rule obscures, rather than illuminates, nonprofit performance. In our accounting practice we spend a lot of time helping nonprofit managements explain to their boards and to funders this quirk in their financial reporting.
Bill, if you are listening, call us. We have a New York City office!
Comments welcome.
Eric Fraint, President and Founder
Your Part-Time Controller, LLC
The NONPROFIT accounting specialists
Washington, DC – New York, NY – Philadelphia, PA
EricYPTC 
I agree that accrual accounting for pledges can be misleading at times. Many non-profits have limited funding compared to the Clinton Foundation, and so are forced to solve this problem in order to serve a mission and manage funds appropriately. Through our annual fundraising strategy, our cash collection and accrued pledges value must closely match (think of a balancing scale). If cash collection is significantly higher than accrued pledges (for a given period) you need to raise funds more aggressively and on the other hand if you are booking a significant amount of multi-year pledges (accrual) you must collect cash quickly (to cover expenses budgeted that year). To Clinton’s point regarding the cash being available while operations shows a significant net loss, the organization’s Balance Sheet is also presented on the 990 allowing the reader to evaluate the organization appropriately, so there is no real reason for him to explain. While the report referenced the deficits it also notes a few other issues as well, lack of mission focus (the mission is not even listed on their website), expensive travel for celebrities and employees, and high CFO turnover, the most recent having an 8 month tenure. When comparing the Gates Foundation website to the Clinton Foundation website you will find a significant difference in mission focus and transparency, the Clinton Foundation does not post 990 reports or audited financial statements, a red flag in the non-profit industry.
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