Nonprofit Advice Corner

New rules affect endowment fund accounting for nonprofit organizations in Wisconsin

By: Andrew Holman, CPA, partner, RitzHolman CPAs in Milwaukee

Wisconsin has enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as of Aug. 4, 2009. Although quite a mouthful, the new law and related accounting standards bring substantial changes to how nonprofits must account for endowment funds.  Endowment funds are nonprofit net assets for which the donor has specified in most cases that the principal must be preserved but an organization may use the earnings from such funds.
First a brief history.  Until UPMIFA was passed, prior law, called UMIFA, allowed for prudent spending of net appreciation of endowment funds combined with actual earnings.  Accounting standards permitted such earnings to be considered unrestricted unless specified for restriction by the donor.  Historical donative value of such endowments had to be tracked to make sure that the original value was maintained in existing assets such as cash, stocks and bonds.  This caused problems for organizations that had large losses from the market downturn and therefore had to use unrestricted resources to make up the difference where the market value fell below the original donated value.
To determine the need for compliance with UPMIFA, it is important for organizations to determine if endowments on the books are true endowments or board designated endowments…

To read more of the advice from Holman, click here

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