Nonprofit Organization Update

7/29/2019 Nonprofit Organization Update

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January 11, 2013

Nonprofit Organization Update:

2012 in Review and Hot Topics for 2013


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Agenda

9:0010:15 amExempt Organizations in the News A Retrospective of What MadeHeadlines in 2012

Doug Boedeker, CPA, CMA, Audit Partner; Katrina Henderson, CPA, Audit

Manager

10:1510:25 am: Break

10:2511:15 amAccounting & Audit Update Looking Back at 2012

Jeffrey Stefan, CPA, Audit Partner; Rich Banner, CPA, Senior Audit Manager

11:1512:30 pmRevisi ting Executive Compensation Reporting on the Form 990

Subrina Wood, CPA, Tax Manager; Sara Smith, Senior EO Tax Specialist

12:30 pm1:15 pm: Lunch


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Exempt Organizations in the News A Retrospective of What Made Headlines

in 2012

Douglas Boedeker, CPA, CMA

Audit Partner

Katrina Henderson, CPA

Audit Manager

January 11, 2013


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Course Outline

Introduction

Charity Fundraising Issues

Super-PACs & Campaign Activities

Governance Issues

Disaster Relief Issues

General Scrutiny of Exempt Organizations

Copyright 2013 Tate & Tryon CPAs and Consultants


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Charity Fundraising Issues



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Bloomberg Takes Notice

Charities Deceive Donors Unaware Money Goesto a Telemarketer and Telemarketers Lying forCharities Prompts Call for U.S. Probe David Evans; Bloomberg Markets Magazine; September

12, 2012 and December 4, 2012, respectively. InfoCision Management Group handles telemarketing for the

American Cancer Society (ACS) and other major nonprofits Questioning scripts used by telemarketers deceptive tactics used

to say one percentage went to charities but actually another

Ex. the agreement with them states 44% will go to ACS

but the script says 70% Another mistake telemarketers saying they were volunteers when

actual employees of InfoCision InfoCision has provided a response to this article and it is posted on

their website http://www.infocision.com

http://www.infocision.com/http://www.infocision.com/


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Senators Are Taking Notice

Dont Be Taken In by Bogus Charities Senator Blumenthal;

www.blumenthal.senate.gov/blog/dont-be-taken-in-

by-bogus-charities; May 25, 2012.

Be aware when making donations

Veterans Support Organization hired paid solicitors to serve

as volunteers to solicit contributions Several complaints of similar tactics



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The Senate Committee on Finance RemainsActive

Baucus, Burr Investigate Nonprofit ForExploit ing Veterans, Taxpayers, Abusing

Tax-exempt Status

Senator Richard Burr; Committee On Finance NewsRelease; May 23, 2012.

Press release discussing whether tax-exempt organizations

are being used for financial/political gain Letter issued to the Disabled Veterans National Foundation

requesting revenue information, the fundraising expense and

other information



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An Interesting Take on Grant Proposals

Guarding Against Grant Fraud Barbara Floersch; The NonProfit Times; December 3,

2012.

Grant writing is susceptible to fraud

Policies and procedures should be set in place to protect the

organizations

Examples include:

Having a grant development project leader

Verify all data presented

Perform an accuracy ethics review prior to signing

Monitor consultants timely



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Fighting the Fiscal Cliff

Charitable-Deduction Limit Would HurtPoor, Say Nonprofit Leaders

Doug Donovan; The Chronicle of Philanthropy;

November 13, 2012.

Cap on deductions will reduce the amount of donations

received by nonprofits as the additional tax will be taken from

their overall donation



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.and still Fighting the Fiscal Cliff

In Fine Print of Fiscal Debate, Charit iesUnite to Defend Deductions

Annie Lowrey; The New York Times; December 5,

2012. Nonprofits uniting for the tax deduction on donations

Normally, every nonprofit is focused on its own particular

mission, whether saving the environment, or helping children,

or imbuing a greater appreciation for art. For the first time,

Ive seen the sector coming together. Were like Rip Van

Winkle waking up and saying, This is not O.K. said Diana

Aviv, Chief Executive of Independent Sector



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New Fundraising Initiatives Keep Popping Up

Organizers launch Giving Tuesday to helpcharities

Annie Gowen; The Washington Post; November 27, 2012.

National Day of Giving

Beyond the consumer focus of Cyber Monday and Black Friday, I

think people are a little anxious to do something more this holiday

said Allyson Burs, Vice President of Communication for the

foundation of AOL founder Steve Case and his wife, J ean Everybody talks about the giving seasonWe thought it would be

great to give the giving season an opening day said Henry Timms,

Deputy Executive Director of 92nd Street Y



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Scrutiny of Cause Related Marketing

Breast Cancer Awareness Month Criticizedfor Little Pink Lies

Rick Cohen; Nonprofit Quarterly; October 18, 2012.

Pink Ribbon campaign may be deceptive as the money raised

may not actually go to the cause

Are nonprofits really benefiting more from the cause related

marketing?



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Super-PACs & CampaignActivities



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Super-PAC Spending

Rove Biggest Super-PAC Loser, Trump SaysWaste of Money

J ulie Bykowicz & Alison Fitzgerald; Bloomberg L.P.;

November 8, 2012.

Are Super-PACs productive?

How will future donations be impacted?



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Super-PAC Governance

Post-Campaign Super-PAC Cash Stil l Flowingto Consultants

J ulie Bykowicz; Bloomberg L.P.; December 3, 2012.

Administration vs. Program Expense Ratios for

some Super-PACs are shockingly high.

An amazing lack of governance and oversight.



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Campaign Disclosures

States Crack Down on CampaigningNonprofits

Matea Gold & Chris Megerian; Los Angeles Times;

November 26, 2012.

Political activities of 501(c)(4) entities are

drawing scrutiny at the state level. (Amid

frustration of the Federal reporting rules.)

Fears of nonprofits participating in campaign

money laundering.



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Governance Issues



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BoardSource Governance Index

Nonprofit Governance Index 2012 Suggests SomePositive Trends and Continued Concerns

Philanthropy J ournal Staff Report; Philanthropy Journal;

October 3, 2012.

BoardSource Nonprofit Governance Index 2012can

be obtained via www.Boardsource.org

Fundraising is singled out as the area where Board

members perform most poorly.

http://www.boardsource.org/http://www.boardsource.org/


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Governance Factors

The Role of the Nonprofit Board: FourEssential Factors for Effective Governance

Alice Korngold; The Huffington Post; September 9,

2012.

Achievement

Accountability

Ownership

Oversight



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Call to Strengthen NFP Oversight

Improve Oversight of Nonprofits Nicholas P. Carardi; Pittsburgh Post-Gazette; April 8,

2012.

Editorial in the wake of the Penn State scandal.

Questions effectiveness of Boards

Advocates a Private Attorney General statute

a charitys stakeholders could sue for

mismanagement.



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The University of Maryland

Legality of University System of MarylandsBig Ten Vote Questioned

J enna J ohnson; The Washington Post; November 20,2012.

Concern over state sunshine laws in conjunctionwith decision to leave the ACC.

Does process kill the offer? University issued a statement on December 7,

2012 expressing regret about not following thesunshine laws.



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The University of Virginia

Anatomy of a Campus Coup Andrew Rice; The New York Times; September 11, 2012.

Tension over strategic direction of UVA was there

even a strategy?

Did the Board listen too much to mid-level

management (professors)?

Board composition came under scrutiny. Avoidance of sunshine laws?

Back-end involvement by former Board members?



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Dartmouth College

Leon Black Investing Dartmouth Money StirsEthics Debate

Gillian Wee; Bloomberg Markets Magazine;J anuary

7, 2013.

Basic conflict of interest issue.

Can safeguards overcome perception?

But, what if the conflict is profitable?



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The Corcoran Gallery of Art

Corcoran Gallery of Art to Remain in HistoricWashington Home

David Montgomery; The Washington Post; December

10, 2012.

Capped a six-month period of public exploration

about the Corcorans future.

Public discussion appears to have been fruitful.

A fascinating story to follow as it unfolded.



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Disaster Relief



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Hurricane Sandy Funds

N.Y. Sandy Fund Scrutinized Laura Nahmias; The Wall Street Journal; December

9, 2012.

Use of a state agency to oversee fund distribution and a

board of political fundraisers Contrary to what other states have done as other states have used large

nonprofits with disaster relief experience such as United Way

Approach is problematic because of state regulations thatmust be followed RESULT, delays in aid

Daniel Borochoff, president of CharityWatch says It isinteresting that they are raising money in direct competitionwith the charities

Their defense every dollar raised will go to N.Y. citizensrather than cover overhead expenses



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Contingency Plans in the Wake of Sandy

Charities Strike Back After SandysKnockdown Punch

Mark Hrywna; The NonProfitTimes; December 3,

2012.

Raised over a $100M for aid within 1 week of the storm

Contingency plans initiated for relief agencies impacted

Ex. moving departments to other states, learning from past situations



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Hurricane Katrinas Impact

Lessons Learned From Katrina Ann Silverberg Williamson; The NonProfitTimes;

December 3, 2012.

The needs of organization may be larger than those currently

served

Principles to help maintain balance

Stick to the mission

Use all means of communication

Take care of service providers

Maintain strong systems for accountability



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General Scrutiny of ExemptOrganizations



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Bloombergs Expose

Tax-Exempt Firm Gets $600 Million ProfitFlying First Class

David Evans; Bloomberg Markets Magazine;

November 14, 2012.

A must-read article for association executives!

Questions the U.S. practice of allowing

associations to self-declare exempt status.

Should royalties be tax-exempt?

Executive compensation always draws scrutiny!



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Bloombergs Editorial

Making Sure Nonprofits Arent All AboutProfit

Editors; Bloomberg View; November 14, 2012.

Dovetails off of the Bloombergs various articlesexamining exempt organizations.

Calls for increased Federal and state

enforcement of exempt organizations. Interesting discussion of the Tax Reform Act of

1969s excise tax on the investment income ofprivate foundations.



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College Athletics

Football-Ticket Tax Break Helps Colleges GetMillions

Curtis Eichelberger & Charles Babcock, BloombergL.P.; October 25, 2012.

Part of the debate over what constitutes acharitable deduction.

History of the authorizing legislation is a funread.

Should a colleges television, sponsorship, androyalty revenue be tax exempt?



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Charities as Fraud Conduits

Bronx Councilman is Convicted of Fraud andLoses Seat

Benjamin Weiser; The New York Times;J uly 26,2012.

Ex-D.C. Council member Harry Thomas Jr.gets 3-year sentence Tim Craig & Mike DeBonis; The Washington Post;

May 3, 2012

Both stories involve local officials stealinggovernment money through charities.



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Thank you for your time!



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Speaker Biography

Douglas Boedeker , is a partner within Tate & Tryons Audit andAssurance Services unit and is also actively involved in the Firm's

exempt organization tax services group. He has more than 20

years of experience providing an array of audit, tax, and consulting

services to a variety of nonprofit organizations and employee

benefit plans. He takes particular pride that his family has

contained at least one CPA every year since 1923.

Doug graduated summa cum laude from Susquehanna University

in Selinsgrove, Pennsylvania with a Bachelor of Science degree in

accounting while simultaneously completing the coursework for a

second major in arts administration.

Known for an enthusiastic and entertaining style, he is a frequentspeaker on a variety of exempt organization audit, accounting, and

tax issues. Doug is also a coauthor to Guide to the Newest IRS

Form 990: Interpreting and Complying with the New Tax Reporting

Requirements for Transparency and Accountability, (published by

ASAE).

Doug Boedeker, CPA, CMA

Audit Partner

Tate & Tryon

202-419-5106

[email protected]
mailto:[email protected]:[email protected]


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Speaker Biography

Katrina Henderson, CPA, is a manager within Tate & TryonsAudit and Assurance Services unit. She has more than 12 years

of experience providing an array of audit services to a variety of

nonprofit organizations and employee benefit plans.

Katrina graduated cum laude from the University of Maryland in

College Park, Maryland with a Bachelor of Science degree in

accounting and marketing.

Katrina Henderson, CPA

Audit Manager

Tate & Tryon

202-419-5121

[email protected]


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Revisiting Executive CompensationReporting on the Form 990

January 11, 2013

Subrina Wood, CPA

Tax Manger

Tate & Tryon

Sara Smith

Senior Exempt Organization Tax Specialist

Tate & Tryon

Speakers:


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Agenda

General Overview of CompensationReporting

Voting members and independence

Definitions and time periods

Common paymaster treatment

Reporting on the Statement of Functional Expenses


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Agenda

Schedule J and Compensation Information

Special Topics

Accountable plans and Cash Advances

Severance, non-qualified plans, and equity basedpayments

Miscellaneous topics


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Overview

Board of Directors/Trustees

Voting members

Officers - By-laws

Independence Conflict of interest

Officers

Board Officers

Organization Officers

DeemedOfficers CEO and CFO


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Overview

Key Employee

Authority broad based or quantified by control overat least 10% of the total assets, expenses, revenue

or program.

Salary threshold - $150,000 reportable (W-2 Box 1or5 whichever is higher or 1099 Box 7) compensation

Must be one of the top 20 employees who satisfy theresponsibility and $150,000 test

Five Highest Paid

Salary threshold - $100,000 in reportablecompensation


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Overview

Officers, Trustees and Key Employees areseparately reported on Line 5.

Amount includes salary,pension, and non taxablebenefits

Fiscal year organizations must provide an additionalcalculations for Line 5.

Allocation differences of key and officer salaries

Amounts are based on the fiscal year of organization Amounts will not tie to the totals found in Part VII due

to the $10,000 exception rules.


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Overview

Common paymaster treatment

Method of allocation between organization is timebased and is only for the reportable compensation.

Reportable Compensation allocated to relatedorganizations and reported as if paid by thatorganization

Columns (D) and (E) of Part VII equal the total amount

of reportable compensation. Column E Other

compensation is not allocated and does not change.

Amounts reported in Part V for the number of W-2sfiled is based on the EIN of the organization thatactually filed the W-2s.


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Schedule J Compensation Information

Special Topics

First class travel and travel for companions

Not business class or bumps to first class

Any guest or family member not on bona fide businesspurpose

Health or social clubs dues or initiation fees

Does not include on premise facilities

Does not include athletic facilities provided by a school

Tax indemnifications and gross ups

Any reimbursement of any tax obligation paid by theorganization.


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Special Topics

Business use of personal residence

Payment for use of all or any part of a listed personsresidence for any purpose of the organization.

Discretionary spending accounts

Any sum of money controlled by a listed personscontrol that is not under an accountable plan, whetheror not used for any personal expense.

Personal services

Babysitter, bodyguard, chauffeur, chef, tax preparer,pet sitter, financial planner, lawyer, personal assistant.

S C f


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Expense reimbursements

Accountable plans require substantiation

Method is not material: credit card, reimbursement orcash advances are permitted by these plans

Payments to employees that were not substantiated orallowances for more than spent are compensation

Directors and trustee are considered employees forpurposes fringe benefits and can be reimbursedsubstantially identically as employees under the plan.

Outstanding salary advances that are not under anaccountable plan are considered loans and reportedon Schedule L, Part II.

S h d l J C ti I f ti


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Severance payments

Report if amount paid by reporting or relatedorganization

Includes payments for wrongful termination ordemotion

Payments resulting in termination or change ofemployment made under a change-of-control

Report name, amount and any terms in SupplementalInformation section of Schedule J



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Participation in supplemental non-qualifiedplans

Does not include 457(b) plans or split-dollar life

insurance plans, but does include 457(f) plans.

All plans that are not generally available to allemployees, but only to highly paid ones

Disclose name, amount, and description of plan in theSupplemental Information section of Schedule J



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Participation in equity based plans

Paid by organization or related organization

Includes stock, stock options, stock appreciationrights, restricted stock or shadow stock.

Includes payments determined by reference to equity

in a partnership, limited liability company, orcorporation



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Special compensation considerations forpublic charities 501(c)(3) and social welfare501(c)(4) organizations

Compensation contingent of net earnings or revenue

Bonuses and non-fixed payments rules

Contracts and employment agreements

Initial contract exception and the

rebuttable presumption procedure

Mi ll T i


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Miscellaneous Topics

Insurance policies

Form 8925 Report of Employer Owned LifeInsurance Polices

Only for contracts issued after 8/17/06 and in force atthe end of the tax year

Insured must be a US citizen or resident

Answer YES to payment of premium of personal benefitcontract on page 5

Mi ll T i


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Payments to Owners of Single Member LLCs

Form W-9 indicates if the payment is to thecorporation of the individual

Payments made to the corporation appear onSchedule L, Part IV if over the reporting threshold.

Consider additional disclosure on Schedule O

Payments made to the individual are reported on a

1099-MISC. The amount in Box 7 should be reportedin Part VII

Mi ll T i


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Management companies

Report payments as Independent Contractors in PartVII, Section B

Check question about delegating control overmanagement duties in Governance and Managementsection YES.

Report top management or financial person from themanagement company in Part VII with full disclosure

Leased employees

Professional employer organization (PEO)

Reporting is the same as above, if appropriate.

R f M t i l d W b it


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Reference Material and Website

Interpreting and Complyingwith the New Tax ReportingRequirements forTransparency and

AccountabilityBy:

Charles F. Tate, CPA

Deborah G. Kosnett, CPA

Douglas A. Boedeker, CPA

Subrina L. Wood, CPA

Frederick U. Longwood, CPA

ASAEcenter.org/bookstore

Speaker Biography


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Speaker Biography

Subrina Wood, CPA, is a Tax Manager in the Firms ExemptOrganization Tax department with more than 25 years of exempt-

organization tax experience. Previously, Ms. Wood worked in the

tax departments of the Boston offices of KPMG, Mellon Bank, and

Thompson Reuters.

Ms. Wood has extensive experience establishing and maintaining

private foundations and charitable gift strategies, and has worked

with organizations such as Carnegie Mellon University, Virginia

Military Institute, and Smith College. In addition, she has

considerable experience with the following exempt organization

tax specialty areas: Form 990 reporting; tax reporting for

nonprofits holding alternative investments; preparing entities for

electronic filing and payment options; accounting and reporting forspecial events and fundraisers; and handling nonresident alien tax

issues.

Ms. Wood has presented on a variety of exempt organization tax

issues at nonprofit industry conferences such as the AICPA

National Not-For-Profit Industry Conference and ASAEs Annual

Association Law Symposium.

Subrina Wood, CPA

Tax Manager

Tate & Tryon

202-419-5129

[email protected]

Speaker Biography


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Speaker Biography

Sara Smith, is a senior exempt organization tax specialist with theFirm. She has extensive experience in dealing with a variety of

exempt organization tax areas such as governance policies, nexus

issues, functional allocation of expenses, non-cash contributions,

and foreign reporting requirements on the Form 990. Ms. Smith

also recently published an article in the Firms newsletter titled,

The Value of Good Governance Policies, in which she discusses

the importance of establishing good governance policies and how

this information should be disclosed on the Form 990.

Ms. Smith is involved in the oversight of the tax engagements

such as American Society of Association Executives (ASAE);

American Society of Cataract and Refractive Surgery; American

Association of Justice, American Association of Universities;Common Cause; Council of Better Business Bureaus;

Pharmaceutical Research & Manufacturers of America; United

States Capitol Historical Society; and Washington DC Economic

Partnership.

Sara Smith

Senior Exempt Organization

Tax Specialist

Tate & Tryon

[email protected]


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Form 990 (2012) Page 5

Part V Statements Regarding Other IRS Filings and Tax Compliance

Check if Schedule O contains a response to any question in this Part V . . . . . . . . . . . . . .Yes No

1a Enter the number reported in Box 3 of Form 1096. Enter -0- if not applicable . . . . 1a

b Enter the number of Forms W-2G included in line 1a. Enter -0- if not applicable . . . . 1b

c Did the organization comply with backup withholding rules for reportable payments to vendors andreportable gaming (gambling) winnings to prize winners? . . . . . . . . . . . . . . . . . 1c

2a Enter the number of employees reported on Form W-3, Transmittal of Wage and Tax

Statements, filed for the calendar year ending with or within the year covered by this return 2a

b If at least one is reported on line 2a, did the organization file all required federal employment tax returns? . 2b

Note. If the sum of lines 1a and 2a is greater than 250, you may be required to e-file (seeinstructions) . .3a Did the organization have unrelated business gross income of $1,000 or more during the year? . . . . 3a

b If Yes, has it filed a Form 990-T for this year? I f No, provide an explanation in Schedule O . . . . . 3b

4a At any time during the calendar year, did the organization have an interest in, or a signature or other authority

over, a financial account in a foreign country (such as a bank account, securities account, or other financialaccount)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4a

b If Yes, enter the name of the foreign country: a

See instructions for filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.

5a Was the organization a party to a prohibited tax shelter transaction at any time during the tax year? . . . 5a

b Did any taxable party notify the organization that it was or is a party to a prohibited tax shelter transaction? 5bc If Yes to line 5a or 5b, did the organization file Form 8886-T? . . . . . . . . . . . . . . . 5c

6a Does the organization have annual gross receipts that are normally greater than $100,000, and did the

organization solicit any contributions that were not tax deductible as charitable contributions? . . . . . 6a

b If Yes, did the organization include with every solicitation an express statement that such contributions orgifts were not tax deductible? . . . . . . . . . . . . . . . . . . . . . . . . . . 6b

7 Organizations that may receive deductible contributions under section 170(c).a Did the organization receive a payment in excess of $75 made partly as a contribution and partly for goods

and services provided to the payor? . . . . . . . . . . . . . . . . . . . . . . . . 7a

b If Yes, did the organization notify the donor of the value of the goods or services provided? . . . . . 7bc Did the organization sell, exchange, or otherwise dispose of tangible personal property for which it was

required to file Form 8282? . . . . . . . . . . . . . . . . . . . . . . . . . . . 7c

d If Yes, indicate the number of Forms 8282 filed during the year . . . . . . . . 7d

e Did the organization receive any funds, directly or indirectly, to pay premiums on a personal benefit contract? 7ef Did the organization, during the year, pay premiums, directly or indirectly, on a personal benefit contract? . 7f

If th i ti i d t ib ti f lifi d i t ll t l t did th i ti fil F 8899 i d? 7


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Form 990 (2012) Page 6

Part VI Governance, Management, and Disclosure For each Yes response to lines 2 through 7b below, and for a No

response to line 8a, 8b, or 10b below, describe the circumstances, processes, or changes inSchedule O. See instructions.

Check if Schedule O contains a response to any question in this Part VI . . . . . . . . . . . . . .Section A. Governing Body and Management

Yes No

1a Enter the number of voting members of the governing body at the end of the tax year . . 1aIf there are material differences in voting rights among members of the governing body, orif the governing body delegated broad authority to an executive committee or similarcommittee, explain in Schedule O.

b Enter the number of voting members included in line 1a, above, who are independent . 1b2 Did any officer, director, trustee, or key employee have a family relationship or a business relationship with

any other officer, director, trustee, or key employee? . . . . . . . . . . . . . . . . . . 23 Did the organization delegate control over management duties customarily performed by or under the direct

supervision of officers, directors, or trustees, or key employees to a management company or other person? . 3

4 Did the organization make any significant changes to its governing documents since the prior Form 990 was filed? 45 Did the organization become aware during the year of a significant diversion of the organizations assets? . 5

6 Did the organization have members or stockholders? . . . . . . . . . . . . . . . . . . 67a Did the organization have members, stockholders, or other persons who had the power to elect or appoint

one or more members of the governing body? . . . . . . . . . . . . . . . . . . . . 7a

b Are any governance decisions of the organization reserved to (or subject to approval by) members,stockholders, or persons other than the governing body? . . . . . . . . . . . . . . . . . 7b

8 Did the organization contemporaneously document the meetings held or written actions undertaken duringthe year by the following:

a The governing body? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8ab Each committee with authority to act on behalf of the governing body? . . . . . . . . . . . . 8b

9 Is there any officer, director, trustee, or key employee listed in Part VII, Section A, who cannot be reached atthe organizations mailing address? If Yes, provide the names and addresses in Schedule O . . . . . 9

Section B. Policies (This Section B requests information about policies not required by the InternalRevenue Code.)Yes No

10a Did the organization have local chapters, branches, or affiliates? . . . . . . . . . . . . . . 10ab If Yes, did the organization have written policies and procedures governing the activities of such chapters,

affiliates, and branches to ensure their operations are consistent with the organization's exempt purposes? 10b

11a Has the organization provided a complete copy of this Form 990 to all members of its governing body before filing the form? 11ab Describe in Schedule O the process, if any, used by the organization to review this Form 990.

12 Did th i ti h itt fli t f i t t li ? If N t li 13 12


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Form 990 (2012) Page 7

Part VII Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and

Independent Contractors

Check if Schedule O contains a response to any question in this Part VII . . . . . . . . . . . . . .

Section A. Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees

1a Complete this table for all persons required to be listed. Report compensation for the calendar year ending with or within the

organizations tax year. List all of the organizations current officers, directors, trustees (whether individuals or organizations), regardless of amount of

compensation. Enter -0- in columns (D), (E), and (F) if no compensation was paid.

List all of the organizations current key employees, if any. See instructions for definition of key employee.

List the organizations five current highest compensated employees (other than an officer, director, trustee, or key employee)who received reportable compensation (Box 5 of Form W-2 and/or Box 7 of Form 1099-MISC) of more than $100,000 from theorganization and any related organizations.

List all of the organizations former officers, key employees, and highest compensated employees who received more than$100,000 of reportable compensation from the organization and any related organizations.

List all of the organizations former directors or trustees that received, in the capacity as a former director or trustee of theorganization, more than $10,000 of reportable compensation from the organization and any related organizations.

List persons in the following order: individual trustees or directors; institutional trustees; officers; key employees; highestcompensated employees; and former such persons.

Check this box if neither the organization nor any related organization compensated any current officer, director, or trustee.

(A)

Name and Title

(B)

Averagehours per

week (list anyhours forrelated

organizationsbelow dotted

line)

(C)

Position(do not check more than onebox, unless person is both anofficer and a director/trustee)

Individualtrustee

ordirector

Institutionaltrustee

Officer

Keyemployee

Highestcompensated

employee

Former

(D)

Reportablecompensation

fromthe

organization(W-2/1099-MISC)

(E)

Reportablecompensation from

relatedorganizations

(W-2/1099-MISC)

(F)

Estimatedamount of

othercompensation

from theorganizationand related

organizations

(1)

(2)

(3)


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Form 990 (2012) Page 8

Part VII Section A. Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees (continued)

(A)

Name and title

(B)

Averagehours per

week (list any

hours forrelated

organizationsbelow dotted

line)

(C)

Position(do not check more than onebox, unless person is both anofficer and a director/trustee)

Individualtrustee

ordirector

Institutionaltrustee

Officer

Keyemployee

Highestcompensated

employee

Former

(D)

Reportablecompensation

from

theorganization

(W-2/1099-MISC)

(E)

Reportablecompensationfrom

related

organizations(W-2/1099-MISC)

(F)

Estimatedamount of

other

compensationfrom the

organizationand related

organizations

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

1b Sub-total . . . . . . . . . . . . . . . . . . . . . a

T t l f ti ti h t t P t VII S ti A a


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Form 990 (2012) Page 9

Part VIII Statement of Revenue

Check if Schedule O contains a response to any question in this Part VIII. . . . . . . . . . . . . . . .

Contributions,

Gifts,

Grants

andOtherSimilarAmounts

(A)Total revenue

(B)Related or

exemptfunctionrevenue

(C)Unrelatedbusinessrevenue

(D)Revenue

excluded from taxunder sections

512, 513, or 514

1a Federated campaigns . . . 1ab Membership dues . . . . 1b

c Fundraising events . . . . 1c

d Related organizations . . . 1d

e Government grants (contributions) 1e

f All other contributions, gifts, grants,

and similar amounts not included above 1f

g Noncash contributions included in lines 1a-1f: $

h Total.Add lines 1a1f . . . . . . . . . a

ProgramS

erviceRevenue

Business Code 2a

b

c

d

e

f All other program service revenue .g Total.Add lines 2a2f . . . . . . . . . a

3 Investment income (including dividends, interest,

and other similar amounts) . . . . . . . a4 Income from investment of tax-exempt bond proceedsa

5 Royalties . . . . . . . . . . . . . a

6a Gross rents . .

(i) Real (ii) Personal

b Less: rental expenses

c Rental income or (loss)

d Net rental income or (loss) . . . . . . . a

7a Gross amount from sales of

assets other than inventory

(i) Securities (ii) Other

b Less: cost or other basis

and sales expenses


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Form 990 (2012) Page 10

Part IX Statement of Functional ExpensesSection 501(c)(3) and 501(c)(4) organizations must complete all columns. All other organizations must complete column (A).

Check if Schedule O contains a response to any question in this Part IX . . . . . . . . . . . . . .Do not include amounts reported on lines 6b, 7b,8b, 9b, and 10b of Part VIII.

(A)Total expenses

(B)Program service

expenses

(C)Management andgeneral expenses

(D)Fundraisingexpenses

1 Grants and other assistance to governments andorganizations in the United States. See Part IV, line 21

2 Grants and other assistance to individuals inthe United States. See Part IV, line 22 . . .

3 Grants and other assistance to governments,organizations, and individuals outside theUnited States. See Part IV, lines 15 and 16 . .

4 Benefits paid to or for members . . . .5 Compensation of current officers, directors,

trustees, and key employees . . . . .6 Compensation not included above, to disqualified

persons (as defined under section 4958(f)(1)) andpersons described in section 4958(c)(3)(B) . .

7 Other salaries and wages . . . . . .8 Pension plan accruals and contributions (include

section 401(k) and 403(b) employer contributions)

9 Other employee benefits . . . . . . .

10 Payroll taxes . . . . . . . . . . .

11 Fees for services (non-employees):a Management . . . . . . . . . .

b Legal . . . . . . . . . . . . .

c Accounting . . . . . . . . . . .

d Lobbying . . . . . . . . . . . .

e Professional fundraising services. See Part IV, line 17

f Investment management fees . . . . .

g Other. (If line 11g amount exceeds 10% of line 25, column

(A) amount, list line 11g expenses on Schedule O.) . .

12 Advertising and promotion . . . . . .13 Office expenses . . . . . . . . .

14 I f ti t h l


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SCHEDULE J(Form 990)

Department of the TreasuryInternal Revenue Service

Compensation InformationFor certain Officers, Directors, Trustees, Key Employees, and Highest

Compensated EmployeesaComplete if the organization answered "Yes" to Form 990,

Part IV, line 23.aAttach to Form 990. aSee separate instructions.

OMB No. 1545-0047

2012Open to Public

InspectionName of the organization Employer identification number

Part I Questions Regarding CompensationYes No

1a Check the appropriate box(es) if the organization provided any of the following to or for a person listed in Form

990, Part VII, Section A, line 1a. Complete Part III to provide any relevant information regarding these items.

First-class or charter travel Housing allowance or residence for personal use

Travel for companions Payments for business use of personal residence

Tax indemnification and gross-up payments Health or social club dues or initiation fees

Discretionary spending account Personal services (e.g., maid, chauffeur, chef)

b If any of the boxes on line 1a are checked, did the organization follow a written policy regarding payment

or reimbursement or provision of all of the expenses described above? If No, complete Part III to

explain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b

2 Did the organization require substantiation prior to reimbursing or allowing expenses incurred by all officers,

directors, trustees, and the CEO/Executive Director, regarding the items checked in line 1a? . . . . . 2

3 Indicate which, if any, of the following the filing organization used to establish the compensation of the

organizations CEO/Executive Director. Check all that apply. Do not check any boxes for methods used by arelated organization to establish compensation of the CEO/Executive Director, but explain in Part III.

Compensation committee Written employment contract

Independent compensation consultant Compensation survey or study

Form 990 of other organizations Approval by the board or compensation committee

4 During the year, did any person listed in Form 990, Part VII, Section A, line 1a, with respect to the filing

organization or a related organization:

a Receive a severance payment or change-of-control payment? . . . . . . . . . . . . . . . 4a

b Participate in, or receive payment from, a supplemental nonqualified retirement plan? . . . . . . . 4bc Participate in, or receive payment from, an equity-based compensation arrangement? . . . . . . . 4c

If Y t f li 4 li t th d id th li bl t f h it i P t III


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Schedule J (Form 990) 2012

Part II Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees. Use duplicate copies if add

For each individual whose compensation must be reported in Schedule J, report compensation from the organization on row (i) and from rela

instructions, on row (ii). Do not list any individuals that are not listed on Form 990, Part VII.

Note. The sum of columns (B)(i)(iii) for each listed individual must equal the total amount of Form 990, Part VII, Section A, line 1a, applicable column (D(B) Breakdown of W-2 and/or 1099-MISC compensation

(A) Name and Title (i) Basecompensation

(ii) Bonus & incentivecompensation

(iii) Otherreportable

compensation

(C) Retirement and

other deferredcompensation

(D) Nontaxable

benefits

(E

1

(i)

(ii)

2

(i)

(ii)

3

(i)

(ii)

4(i)

(ii)

5

(i)

(ii)

6

(i)

(ii)

7

(i)

(ii)

8

(i)

(ii)

9

(i)

(ii)

10

(i)

(ii)

11

(i)

(ii)

12

(i)

(ii)

13

(i)

(ii)

(i)

3 . 2


67/178

Page

3

criptionsrequ

ire

dfor

Part

I,lines

1a,

1b

,3

,4a,

4b

,4c

,5a,

5b

,6a,

6b

,7

,and

8,

an

dfor

Part

II.

ScheduleJ(Form9

90)2012


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Accounting & Audit Update LookingBack at 2012

January 11, 2013

J effrey Stefan, CPA

Audit Partner

Tate & Tryon

Rich Banner, CPA

Senior Audit Manager

Tate & Tryon

Speakers:

Agenda


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Agenda

Not-for-Profit Advisory Committee

Accounting Standards Update

Clarity Project

FASB Not-for-Profit Advisory Committee


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FASB Not-for-Profit Advisory Committee

Established in 2009 to be a resource for theFASB in obtaining input from the NFP sectoron existing guidance, current and proposedtechnical agenda projects, and longer-term

issues affecting NFPs.

In 2011, the NAC began a standard-settingproject to reexamine the existing standards

for financial statement presentation by NFPs.The project has three goals:

Not-for-Profit Advisory Committee cont


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Not for Profit Advisory Committee cont.

1. Improve the current net asset classificationscheme.

2. Improve statements of activities and cash

flows to more clearly communicate financialperformance.

3. Review existing NFP-specific disclosurerequirements to improve relevance andunderstandability.

In May 2012, the NAC recommendations toFASB.



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Revising the net asset classification to have onlytwo general net asset classes:

1. Donor-restricted

2. Other net assets

NAC believes that the distinction betweentemporarily and permanently restricted netassets has outlived its usefulness.

Net Asset recommendations



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Prefers the termOther Net Assets rather thanUnrestricted. The termUnrestrictedcan confuse

and perhaps mislead stakeholders to believethat those net assets are without anyrestrictions. They can be subject to limitationsthat result from laws, regulations, debt

covenants, and other contractual restrictions.

Focus on liquidity of net assets.

Net Asset recommendations cont.



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Supports requiring presentation of an operatingmeasure in the statement of activities.

Suggested the FASB consider extending therequirement of a statement of functionalexpenses for all NFPs except those with aninsignificant percentage of revenue fromcontributions. Currently only required for VH&Worganizations.

Presentation recommendations



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Highlights the need for cross-referencing the fairvalue disclosures with the endowment

disclosures to provide clarity about the extent towhich investments represent restricted netassets and restricted asset.

Wants to better depict financial risks throughdisclosure requirement.

Notes to f inancial statements recommendations

Not-for-Profit Advisory Committee cont.


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Recommends a management commentary thatis presented as supplemental information placed

before the financial statements and notes. (Seehandout)

The NAC staff projects that a final statementshould be issued in 2014.

Communications other than financial statements

Lease Accounting Changes (again)


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Lease Accounting Changes (again)

Right of Use ModelControl of the use of the leased asset

ROU asset

Consumption of ROU Asset

Significant portion of ROU asset

Other than property

Amortization expense and interest expense

Insignificant portion of ROU asset

Property (land and/or buildings)

Lease expense

Lease Accounting Changes


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Lease Accounting Changes

Schedule for the Proposed New StandardSecond Exposure Draft

due in the first quarter of 2013

After Exposure Draft

Consultations and outreach

Final Standard Released

TBD

Intangibles Topic 350 (ASU 2012-2)


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Intangibles Topic 350 (ASU 2012 2)

Testing Indefinite-Lived Intangible Assets for ImpairmentWhy was the standard changed?

Cost and complexity of recurring quantitative impairment testing

What changed?

Permits assessment of qualitative factors to determine if it is more likelythan not that the asset has been impaired

Qualitative assessment determines necessity of quantitativeassessment

What does more likely than not mean?

Likelihood of more than 50%

Statement of Cash Flows


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S a e e o Cas o s

Donated Securities exposure draft

If directed for immediate sale, then operatingactivity.

If donor restricted for long-term purposes,then financing activity.

Otherwise, investing activity.

Contributed Services from an Affiliate


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The proposal in the exposure draft wouldrequire a recipient NFP to recognize in itsstandalone financial statements all personnelservices received from an affil iate that

directly benefit the recipient NFP. Thoseservices would be measured at the costrecognized by the affil iate for the personnel

providing those services.

OMB Update


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p

Increase audit threshold to $1,000,000.

Creation of a new type of audit for auditeesbetween $1M - $3M.

Change criteria for testing compliancerequirements.

Making federal agencies more responsible

for audit follow-up and audit resolution.

Audit Clarity Project SAS 122


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y j

Changes to Auditing Standards 58 AU sections 47 new AU-C sections

3 withdrawn

37 redrafted to corresponding SAS

7 combined into 1 new SAS 11 combined/split into 9 SASs

AU section numbers changed to converge with ISA numbering

Effective for audits of periods ending on or after 12/15/2012

Audit Clarity Project SAS 122 (continued)


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y j ( )

Examples of Impact of Selected StandardsAuditor Reports

Opinion(Basis for qualified, adverse, ordisclaimer)

Emphasis of Matter Matters appropriately presented or

disclosed

Other Matter To understand audit matters

Headings and Subheadings

Other auditor reportingresponsibilities

Managements Responsibilities

Audit Clarity Project Group Audits


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y j p

Special ConsiderationsAudit of Group FinancialStatements (AU 600)

Acceptance and continuance - group auditor;identify components; preconditions

Understanding - group; components;component auditors; make reference?

Materiality decisions and responding to risksof material misstatement

Other procedures - consolidation process;subsequent events; evaluating evidence

Communications - with component auditors;

with group governance and management

Audit Clarity Project SAS 122


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y j

Impact of Selected StandardsGroup Audits

Understanding ofentity includescomponents

Extent group auditorwill be able to be

involved withcomponent auditor

Decision to make

reference

Obtainingmisstatements above

trivial noted bycomponent auditor

Communicationsbetween group andcomponent auditor

increased

Group auditorsreporting of

component auditorsMW and SD

Speaker Biography


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p g p y

Jeff Stefan, is the partner in charge of Tate & Tryons auditing practiceand has more than 25 years of experience serving the nonprofit sector.

In addition to his extensive audit and tax experience, he has provided

consulting services to organizations such as The World Bank, Public

Company Accounting Oversight Board, and ASAE & The Center for

Association Leadership in a variety of areas, including grant

compliance, merger due diligence, and internal controls. He has also

been called upon to consult on a variety of complex issues such as fairvalue accounting (FAS 157), accounting for alternative investments

(FAS 133), split interest agreements, endowment accounting (UPMIFA

/ FSP 117-1), single member limited liability corporations, uncertain tax

positions (FIN 48), and interest rate swap agreements.

Mr. Stefan has presented and authored articles on many recent

accounting and auditing issues including : FASB Staff Position (FSP)FAS 117-1, Endowments of Not-for-Profit Organizations, Educating

Your Board About Audits, Understanding Statement of Auditing

Standards (SAS) 103, Audit Documentation, SAS112,

Communicating Internal Control Matters Identified in an Audit, and A

Summary of the new Audit Risk Standards. Jeff is a member of the

American Institute of CPAs (AICPA), the Greater Washington Society

of CPAs (GWSCPA), and ASAE.

Jeff Stefan, CPA

Audit Partner

Tate & Tryon

202-419-5104

[email protected]

Speaker Biography


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g y

Rich Banner, CPA, is a senior audit manager with the Firm andhas been working with nonprofits for the past 15 years. Prior to

joining Tate & Tryon, Mr. Banner was an internal auditor with a

national labor organization based in Washington, DC.

Mr. Banner has extensive experience managing and performing

audits of various types of nonprofit organizations including trade

and membership associations, related for-profit subsidiaries,charitable organizations, and Section 527(f) political action

committees. Mr. Banner has experience with a variety of complex

auditing issues such as Federal awards and OMB A133

requirements, alternative investments and fair value accounting,

and bond financing. He also has extensive experience with

restricted contributions, trade shows, exhibits, and sponsorship

arrangements.

Rich Banner, CPA

Audit Manager

Tate & Tryon

202-419-5183

[email protected]


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10.5%Other

10.3%Professional

Examinations

6.3%Organization &Membership

Development 4CoPu

10%Regulation &

Legislation

6.6%

Technical

9 5%8Ot

50.7%Membership Dues

9.8%Publications

18.7%Professional Development &Member Service Conferences

9.2%Investment &Other Income

11.6%ProfessionalExaminations


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How to Effectively Facilitate theInvestment Manager Selection Process

January 11, 2013

Lisa Swatkoski, Investment Consultant

Vanguard Institutional Advisory Services

Camille Alexander, CFA, Institutional ConsultingDirector

Graystone Consulting

Charles Tate, CPA

Managing Partner

Tate & Tryon

Speakers: Moderator:

Graystone Consulting a business of Morgan Stanley


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January 2013

Introduction to Alternative Investments

Camille M. Alexander, CFA Institutional Consulting Director


12505 Park Potomac Avenue | Suite 420

Potomac, Maryland 20854

301-279-6411

GRAYSTONE CONSULTING


January 2013

T bl f C


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SECTION 1 Introduction

SECTION 2 Hedge Funds

SECTION 3 Commodities

SECTION 4 Real Estate

Table of Contents

2


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Section 1Introduction to Alternative Investments



January 2013

I t d ti t Alt ti I t t


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What is an Alternative Investment?

Alternative investments typically utilize traditional investment instruments such as equities and bonds, but

may approach investing in different ways.

May involve holding both long and short positions in publicly traded investments as well as holding

private securities

May use derivatives or hedging strategies

Benefits:

Potential to enhance the risk and/or return characteristics of an investment portfolio as low correlation to

traditional investments may improve diversification and produce lower portfolio volatility.

Ability to be more flexible and invest in a wider opportunity set

Can hedge certain portfolio exposures, reducing concentration risk

Considerations:

Long-term investment horizon

Lack of liquidity and limitations on transferability

Limited access to performance and investment information

4


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Section 2Hedge Funds



January 2013

What Is A Hedge Fund?


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What Is A Hedge Fund?

No standard definition term mostly describes the vehicle

Typically seek an absolute return

Unlike traditional vehicles which manage relative to a market oriented benchmark

Primarily invest in publicly traded securities

Stocks, Bonds, Commodities, Currencies

Employ return enhancement tools such as leverage and derivatives

Typically treated as a limited-partnership for US taxable investors, and as a corporation domiciled in a low-tax or

no-tax jurisdiction for US tax-exempt investors and non-US persons

6



January 2013

Available Hedge Fund Strategies


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7

Available Hedge Fund Strategies

Strategy Definition Sources of Value

Equity Market Neutral Equal-weighted long and short equity portfolioswith similar risk characteristics Relative changes in value of long and shortportfolios

Arbitrage Typically a two-sided strategy involving

purchase and sale of related securities.

Depending on strategy, includes equity,

convertible, and bond instruments

Mispricing of related securities

Distressed Investing in securities that have been or areexpected to be affected by a situation such as

bankruptcy, distressed sale, or reorganization

Value appreciation as companies arerestructured

Global Macro Leveraged, directional investing in global

currency, equity, bond, and commodity markets

Directional price movements

Long/Short Equity Long and short equity investments generallywith a long bias

Directional price movements



January 2013

Potential Advantages of Hedge Fund Investing


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Alpha

Skill-based returns

Seek absolutereturns

May exceed returns generated from risky asset exposures

Controlled beta exposure

Hedge fund beta tends to come from relative value properties rather than the market properties that are

contained in asset classes themselves, resulting in lower correlations in relation to traditional asset classes.

Hedge fund managers tend to manage direct market exposures whereas fully invested strategies attempt

to track market risk and manage returns.

Use risk management techniques to help reduce volatility

Important note: Lower beta exposure tends to outperform during declining markets

Dynamic beta exposure

Hedge fund managers may increase risk exposures to increase market participation while still managing

downside risks.

Evaluate risk/reward opportunistically

Potential Advantages of Hedge Fund Investing

8



January 2013

Hedge Fund Managers Generally Have Increased Investment Flexibility


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9

Hedge Fund Managers Generally Have Increased Investment Flexibility

Hedge Fund Managers Traditional Money Managers

Have the flexibility to invest opportunistically where they seevalue May be constrained to invest in certain pre-defined markets

Can short-sell securities they believe will fall in value and

thereby may profit from declining markets

Face limits on short-selling and may be required to be invested even if

they believe markets are in a declining trend

Can use derivatives and leverage to hedge or magnify returns Are limited in their use of derivatives and leverage



January 2013

Risk and Return Diversification Benefits from Broadening the Opportunity Set


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Risk and Return Diversification Benefits from Broadening the Opportunity Set

10



January 2013

Liquidity Characteristics Vary


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Liquidity Characteristics Vary

Bonds

Equities

Managed Futures

Private Equity

Real Estate

Convertible Arbitrage

Fixed Income Arbitrage

Statistical Arbitrage

Equity Market Neutral

Long/Short Equity

Global Macro

Merger Arbitrage

Distressed Debt

Liquid Illiquid

11



January 2013

Despite Attraction Hedge Funds Have Unique Risks


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12

Despite Attraction, Hedge Funds Have Unique Risks

Risk Description

Valuation Risk Certain alternative investment funds trade in esoteric or illiquid securities. In normalmarkets, it is sometimes difficult to price these instruments, causing managers to

estimate market values.

Specialized Trading Special investment techniques such as leveraging, short-selling and investing in

derivatives, including options and futures, require unique skills and are associated with

additional risk.

Manager Risk In alternative investment strategies, idiosyncratic risk is much greater than traditional

investments which derive more of their return from market direction than from

manager strategy and/or decision .

Liquidity Risk Investments in Hedge Funds are not readily marketable and often entail lock-up

periods.



January 2013

Some Hedge Fund Myths


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13

Some Hedge Fund Myths

Myths Facts

Hedge funds are a new investment product Hedge funds have been around since the late 1940s.

Hedge funds are risky Different hedge fund strategies have widely different risk characteristics that can be

diversified.

Hedge funds are unregulated Hedge funds are regulated, however, regulation differs with respect to other forms of

investing as it relates to disclosure requirements and reporting. Most hedge fundsare registered with the Securities Exchange Commission, and pending legislation may

cause all remaining funds to register.

Hedge funds generate strong returns in all

market conditions

Different hedge fund strategies are exposed to different risk factors, such as market

risk, mergers and acquisitions activity, credit spreads, and volatility.

Hedge funds are always hedged Not all hedge funds are hedged. However, some funds are always hedged againstmarket risk.

Hedge funds do not invest, they trade The range of hedge funds varies from extremely short-term (trading) to extremely

long term (distressed securities).


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Section 3Commodities



January 2013

Two Broad Groups of Commodities


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Two Broad Groups of Commodities

15

The first is characterized by its relatively fixed supply and low degree of perishability and includes:

Energy (such as crude oil, heating oil, natural gas and unleaded gasoline)

Base metals (such as copper, aluminum, lead, nickel, zinc and tin)

Precious metals (such as gold, silver, platinum, palladium and rhodium)

The second may be characterized as perishable, consumable and affected by weather and includes:

Grains(such as corn, soybeans and wheat)

Softs (such as coffee, sugar, cocoa, orange juice and cotton)

Livestock (such as live cattle, feeder cattle and lean hogs).

Spot market indices also track the prices of basic materials such as scrap metals; selected textiles and fibers,

fats, oils and foodstuffs; and raw industrials.



January 2013

Choices for Investing in Commodities


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Physical form

Returns determined by the commoditys upward or downward price movements, less any applicable

storage, financing, insurance and other costs.

Collateralized commodity futures

Returns are determined by:

the price performance of the underlying commodity

the return derived from the continuous rolling of near-term commodity contracts into more deferred

lower-priced contracts or higher-priced contracts

the interest earned from the investment of any excess margin collateral used to secure the overall

unleveraged futures position.

Regulated Commodity Trading Advisors (CTAs)

Employ highly leveraged, trend-focused high-turnover trading strategies in commodity futures markets and

in financial futures involving currencies, interest rates and stock indexes.

Exchange-traded funds (ETFs), exchange-traded notes (ETNs), and commodity mutual funds may also be used to

provide exposure to commodities.

Choices for Investing in Commodities

16



January 2013

Advantages and Disadvantages of Commodities Investing


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17

g g g

Advantages Disadvantages

Tend to lower the overall volatility of a portfolio by functioning as a

diversifying, countercyclical asset relative to many other asset

classes.

May involve leverage in the form of futures and/or be commission-

turnover- and fee-intensive investment vehicles, many of which

tend to be tax-inefficient.

In their original form and/or after some form of processing,

commodities offer intrinsic utility to fulfill basic human needs.

Commodities price trends may often reflect a magnified degree of

exposure to upward or downward movements in the global

economy.

May serve as an effective hedge against inflation, generallypreceding upward moves in consumer prices by 9 to 12 months.

Commodities borrowing and lending activity may exacerbatesupply-demand imbalances and exaggerate price movements.

Returns generally have negative correlations with US equity, bonds,

cash, high-yield bonds, real estate and emerging markets debt and

equity. Modestly positive correlations with non-US equity and

bonds, hedge funds, private equity and inflation-indexed bonds.

Although producer prices, consumer prices and commodity futures

prices tend to move upward together during periods of

accelerating inflation, they do not necessarily move together

during periods of disinflation.

Different kinds of commodities tend to be subject to different kinds

of economic influences and may have low correlations with each

other.

Sometimes viewed as illiquid, volatile assets that exhibit intense

and somewhat transient price movements in response to

economic or other developments.


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Section 4Real Estate



January 2013

Broad Groups of Real Estate


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Real Estate (Commercial and Residential)

Real estate is a traditional asset that is perceived to offer significant inflation protection.

Private real estate has a positive correlation with inflation

REITs have sometimes demonstrated negative correlation in inflationary environments when

inflation is relatively high and rising. Conversely, during quarters when inflation was lower than

average, REITs substantially outperformed other inflation hedges, TIPS, commodities as well as the

S&P 500.

Real estate is likely to offer its best performance during a time of rising inflation from low and moderate

absolute levels or high and persistent inflation. Income returns do not seem to have a positive correlation

with inflation, whereas capital returns are positively correlated with inflation in some countries.

Timber

Farmland

19

p



January 2013

Access to the Real Estate Markets


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Public securities markets exposure to real estate and other real assets is available through direct or mutual fund

investment in:

REITs dedicated to the apartment, office/industrial, hotel, retail, and other sectors in the US, Europe and

Asia

Non-REIT real estate operating companies

Equities with significant real estate assets, in the hotels, gaming, and healthcare industries

Real estate-related companies such as homebuilders, construction firms and title insurers

The non-public markets for US and non-US real estate and other real assets are many times larger than the publicmarkets and include leveraged or unleveraged exposure to:

Owner occupied residential homes, second homes, single-family rental properties, and smaller commercial

assets

Outright ownership of real estate properties, participation in real estate opportunity funds, core funds, and

other types of funds that focus on underperforming assets, or co-investment with partnership sponsors

Farmland, forestry and timber, and oil and gas properties

20



January 2013

Advantages and Disadvantages of Real Estate Investing


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21

Advantages Disadvantages

Can possess important defensive characteristics. Increasing cash

flows may also allow real estate to prosper in favorable economic

and demographic environments.

May not be a good investment in credit constrained,

disinflationary, or deflationary global, national or local economic

environments.

May have low correlations of returns with US and developed non-

US equities, and slightly negative correlations of returns with US

and non-US bonds, high yield bonds, and emerging markets equity.

May at times, be subject to feast-or-famine prices and returns,

with substantial divergences between property prices and

replacement values; and share prices and per share net asset

values.

A tangible asset whose supply is reasonably fixed and whose

income generating ability and/or capital values respond to such

forces as employment trends, immigration, new household

formation and long-term inflation.

Often not divisible and are characterized by illiquidity, high

transactions costs, lengthy time periods to effect the sale or

purchase of a property, and significant price discounts associated

with distressed sales.

Standard deviation of real estate returns tends to be lower than

the standard deviation of equity returns, and for REITs, tends to be

higher than the standard deviation of bond returns.

May be expensive and/or complicated to locate, research, value,

finance, maintain, manage, lease, pay taxes on, recapitalize,

improve, transfer, calculate returns and identify exit strategies.

Skilled participants may be able to identify and capture value

through understanding the structure and potential of specific

properties, financial and operating expertise, market knowledge

and access to relationships.

May be subject to a number of special considerations, including

bubble-like price movements, environmental laws and claims

relating to the property itself or its building materials,

depreciation, depletion or obsolescence, and the quality of funds

from operations (FFO).



January 2013

Disclaimers


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This document is confidential and solely for the use of Graystone Consulting and the clients of Graystone Consulting to whom it has

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summary

Investment Policy Statements

for Nonprofi t Organizationsa template for prudent investment decisions

online report

As a nonprofit trustee, keeping your or-

ganizations portolio on track through

the markets ups and downs can be a

challenging proposition. To help withthis process, many institutions benefit

Through their philanthropic e-orts, oundations rom Maineto Maui have been making a lasting

impact on their region, nation and

the world. Taking on the responsibil-ity or a nonprofit organization, such

the Association o Small Foundations

ound that more than a third (34%) o

its members surveyed were operating

without a ormal written investment

policy.

1

the importance of

C P

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Define strategic and tactical asset

allocation strategies

Guide the evaluation and selection

o investment managers and advi-

sors

Discourage random or emotional

investment decisions inconsistent

with prudent management prin-

ciples

Promote long-term investment

decision-making

Provide written documentation

against allegations o fiduciary

imprudence.

Studies have illustrated that non-

profit fiduciaries and directors do

indeed spend a significant amount o

time (21.5%) during board meetings

on investment oversight and that they

review their investment perormance

on average our times per year.2 Writ-

ten investment policy statements pro-

vide committees and board members

with the structure to conduct these

regular discussions.

whats in the investmentpolicy statement?

Typical investment policy state-

ment eatures may include: Investment objectives o the insti-

Perormance benchmarks

How endowment earnings or

returns relate to spending policy

The degree o risk permitted in the

investment portolio

Portolio rebalancing strategies

and requency o rebalancing

Considerations relevant to the hir-

ing, retaining and firing o invest-

ment managers

Use o social investing criteria and/

or mission-related investing and

related investment restrictions

Endowment sustainability as an

influence on investment decision

making

The degree o liquidity required in

the investment portolio

Definitions o roles and responsi-

bilities o members involved in the

investment process

Frequency o investment policy

statement review

The ollowing sections describe

some common components o an

investment policy statement in more

detail.

statement of purpose

The statement o purpose shoulddefine your entity, its mission and

Define and assign the responsibili-

ties o all involved parties

Establish a clear understanding o

the overall investment goals and

objectives

Discuss how the investment

policy statement will meld with

the spending policy statement

Establish the relevant investment

horizon or which the oundations

assets will be managed

In general, this section will outline

your philosophy governing the man-

agement o assets. It is intended to

be suf ciently specific to be meaning-

ul, yet flexible enough to be practical

and eectively implemented.

statement of responsibilityYour oundation most likely has

a board that oversees your mission,

guides operations, makes invest-

ment decisions and ensures ethical

conduct. Members o your govern-

ing board should be involved with

the creation o the investment policy

statement and possess the knowledge

and experience to make inormed

investment decisions.

The statement o responsibilitysection should clearly define who is

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the delegation o responsibilities to

investment consultants, investment

firms and custodians.

Additional specialists such as

attorneys, auditors and actuaries

should have their responsibilities and

obligations outlined in this section.

general investmentprinciples and objectives

In general, this section should

define liquidity needs, investment

time horizon, investment restrictions

and unique circumstances. It should

include general guidelines or:

Adherence to prudent investor

standards

The overall investment goals o the

oundation

Allowable assets including the use

o alternative investments

Definition o annual spending

policy and liquidity requirements

Asset allocation and diversification

requirements

The selection, hiring and monitor-

ing o investment managers

General guidelines or investment

management might cover:

Preservation o capital Risk aversion

on certain assets such as fixed income

investments (e.g., only investment

grade bonds rated BBB [or equiva-

lent] or better).

Some o these stipulations would

in turn govern the selection o invest-

ment managers, a process that must

be based on prudent due diligence

procedures. These procedures could

include a review o key qualitative

actors such as the overall financial

health o the firm, the depth o its

portolio management and research

team, its technological capabilities

and the strength o its investment

process. Other key actors could be

quantitative, such as a review o past

perormance results and levels o

investment risk.

The specific investment guide-

lines section should also include the

market benchmarks that will be used

to evaluate the perormance o each

asset class, investment style and the

investment manager responsible or

each portion.

sta

Nonprofit Organization Update

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Transcript of Nonprofit Organization Update