Section 17.0: Affiliated Organizations
Introduction
Last modified: November 4, 2010
Affiliated organizations play an important role in serving the financial and services needs of ÐÔÊÓ½çAPP (USG) institutions. Changes in reporting requirements have put greater focus upon the relationship between institutions and their affiliated organizations.
This section provides a definition of affiliated organizations in the context of Board of Regents (BOR) policy, describes minimum requirements for the memoranda of agreement that each institution must have with its affiliated organizations and offers details regarding financial reporting obligations.
17.1 Definition
Last modified: November 4, 2010
An affiliated organization is defined as an organization that operates primarily:
To solicit gifts or donations, or assist a USG institution to solicit gifts and donations, from third parties in the name of the institution or any of its programs.
To solicit grants and contracts, or accepts grants and contracts for research or services to be performed in conjunction with a USG institution, or using the institution’s facilities.
To bill or collect professional fees in the name of, or on behalf of, faculty members of a USG institution who provide services within the scope of their employment by the institution.
To provide services to a USG institution which serve the best interests of that institution.
Normally, affiliated organizations operate as entities with separate legal standing if created under articles of incorporation that distinguish it from the ÐÔÊÓ½çAPP. Most affiliated organizations also will qualify for tax-exempt status defined by section 501.c.3 of the federal Internal Revenue Service tax code. By Board of Regents policy, an affiliated organization will include officials, faculty or staff of a system institution as ex officio members on its governing board and be designated as an affiliated organization by the Board of Regents, or by the relevant USG institution president.
17.2 Memorandum of Agreement
Last modified: November 4, 2010
The relationship that a USG institution has with its affiliated organization or organizations must be defined by a memorandum of agreement that describes each party’s roles and responsibilities. Minimally, the memorandum of agreement must address the affiliated organization’s authority and responsibilities with regard to the following:
Solicitation of gifts, donations and grants
Liability
Adequate capitalization for activities
Evidence of satisfactory insurance coverage
Use of institutional facilities, programs and services subject to established policies and procedures
Expense reimbursement
Use of the institution’s name, symbols and trademarks
Disposition of the affiliate organization assets upon dissolution
Compliance with internal revenue code and state law
Use of generally-accepted accounting principles
Submission of an independent annual audit report and financial statements
Elimination of conflicts of interest concerning institutional employees and in the relationship with the institution
Disclosure of funds and other items of value received by the affiliated organization and assurance that funds intended for institutional accounts are properly deposited
17.3 Financial Reporting
Last modified: November 4, 2010
Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations are component Unit - an amendment of Statement No. 14, requires that the financial statements of foundations and affiliated organizations that meet the criteria to be considered component units of an institution be included with the financial statements of the institution. An organization is considered a component unit if it is a legally separate, tax-exempt entity, and if it meets the criteria for materiality and/or is significant to the institution. An organization would be considered significant if it would be misleading to exclude it from the financial statements.
An example is a research foundation whose assets are not material and the dollar amount contributed to the university was not material, but the value of the organization to the research mission of the university is critical.
The criteria for materiality are as follows:
The economic resources received or held by the separate affiliated organization are entirely or almost entirely for the direct benefit of the institution, its component units or its constituents.
The institution, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the affiliated organization.
The economic resources received or held by the individual affiliated organization that the institution, or its component units, is entitled to, or has the ability to otherwise access, are significant to the institution.
If it is determined that the foundation or affiliated organization is a component unit of the institution and the financial statements must be included, then the institution must determine if discrete (separate columns) or blended (combined with the institution statements) presentation is required. For most of the institutions within the ÐÔÊÓ½çAPP, the discrete presentation will be used.
Most of the foundations and/or affiliated organizations comply with the Financial Standards Board (FASB) requirements instead of the GASB requirements. Starting with the FY2004 Annual Financial Report (AFR), institutions will present their reports and any component units that use GASB reporting on one page (in separate columns), and any component unit that use FASB reporting on the following page (in separate columns). This is the discrete presentation.
17.4 Adjustments Required to Convert Foundation Display to GASB Requirements
Last modified: March 29, 2021
For the State Department of Audits and Accounts preparation of the Annual Comprehensive Financial Report (ACFR) for the State of Georgia, the foundation and/or affiliated organization financial reports must be converted to the GASB presentation. The affiliated organization, with the assistance of the institution if required, will perform this conversion. Sample spreadsheets for the conversion process (FASB to GASB) are available.
17.4.1 Adjustments Required for the Balance Sheet/Statement of Net Assets
Last modified: November 4, 2010
The adjustments required for the Balance Sheet/Statement of Net Assets are as follows:
Adjustments Required to Convert Foundation Display to GASB Requirements
Balance Sheet/Statement of Net Assets
(Adjustments to Reports - not journal entries)
The GASB compliant Statement of Net Assets must be shown in a classified format, (i.e. assets and liabilities are separated by current (12 months or less) and noncurrent (more than 12 months). FASB statements are not required to be separated by current and noncurrent. Therefore, several adjustments are required to separate the current and noncurrent portion. Other adjustments are necessary for the different ways FASB and GASB classify some items and report net assets. The following examples are not journal entries, but rather adjustments to reclassify some of the items on the FASB Balance Sheet to the GASB Statement of Net Assets.
A Pledges
Pledges are not normally reported in GASB financial statements. This adjustment will show the pledges on the GASB statements and segregate the current portion (amount to be collected in the next 12 months) from the noncurrent portion (amount to be collected in more than 12 months).
Increase Foundation current assets pledges receivable
Decrease Foundation unclassified pledges receivable
To segregate Foundation current portion of pledges receivable
Increase Foundation noncurrent assets pledges receivable
Decrease Foundation unclassified pledges receivable
To segregate Foundation noncurrent portion of pledges receivable
B Compensated Absences
Compensated Absences are included in Accounts Payable in FASB financial statements. This adjustment takes the compensated absences out of A/P and shows them separately on the GASB statements, separating current (amount to be paid in next 12 months or less) from noncurrent (amount to be paid in more than 12 months).
Decrease Foundation accounts payable & accrued liabilities
Increase Foundation current portion of compensated absences
To segregate Foundation current portion of compensated absences
Decrease Foundation accounts payable & accrued liabilities
Increase Foundation noncurrent portion of compensated absences
To segregate Foundation noncurrent portion of compensated absences
C Long-term Debt
All long-term debt is shown as one amount on the FASB statements. This adjustment separates the current portion (will be paid in 12 months or less) from the noncurrent portion (will be paid in more than 12 months).
Decrease Foundation unclassified long-term debt
Increase Foundation current portion of long-term debt
To segregate Foundation current portion of long-term debt
Decrease Foundation unclassified long-term debt
Increase Foundation noncurrent portion of long-term debt
To segregate Foundation noncurrent portion of long-term debt
Net Asset Display - FASB/GASB
FASB has three net asset classes:
- Unrestricted
- Temporarily Restricted
- Permanently Restricted
GASB also has three net asset classes:
- Capital assets, net of related debt
- Restricted – Expendable and Nonexpendable
- Unrestricted
GASB prohibits display of net asset designations. The following three adjustments (D, E, and F) move the FASB net assets to GASB net assets.
D Unrestricted Net Assets
FASB financial statements do not separate capital assets, net of related debt from other unrestricted net assets. This adjustment separates the capital assets, net of related debt to be shown as a separate line item on the GASB compliant statements.
Decrease Foundation unrestricted net assets
Increase Foundation capital assets, net of related debt
To segregate Foundation capital assets, net of related debt
E Permanently Restricted Net Assets
FASB financial statements show “permanently restricted net assets”. This is comparable to the GASB designation of “restricted - nonexpendable” net assets. This adjustment moves the “permanently restricted” to “restricted nonexpendable” and separates by category. Although the detail is necessary for correct designation, only totals will be shown in the BOR financial statements for this category.
Decrease Foundation permanently restricted net assets
Increase Foundation restricted nonexpendable net assets
Student financial aid Research Instruction
To segregate Foundation permanently restricted net assets by category
F Temporarily Restricted Net Assets
FASB financial statements show “temporarily restricted net assets”. This is comparable to the GASB designation of “restricted - expendable” net assets. This adjustment moves the “temporarily restricted” to “restricted expendable” and separates by category. Although the detail is necessary for correct designation, only totals will be shown in the BOR financial statements for this category.
Decrease Foundation temporarily restricted net assets
Increase Foundation restricted expendable net assets:
Student Financial Aid Research Instructions Loans Student services Capital projects
To segregate Foundation permanently restricted net assets by category
17.4.2 Adjustments for the Statement of Revenues, Expenditures, and Changes in Net Assets
Last modified: March 24, 2021
The adjustments for the Statement of Revenues, Expenditures, and Changes in Net Assets are as follows:
Adjustments Required to Convert Foundation Display to GASB Requirements
Statement of Activities/Statement of Revenues, Expenses, and Changes in Net Assets
(Natural Display)
For GASB compliance, the Statement of Revenues, Expenses, and Changes in Net Assets must separate operating and non-operating revenue and expenses. This is not required on the FASB Statement of Activities. Therefore, adjustments are required to separate the operating and non-operating revenues and expenses. Also, some items are classified differently on the two statements, which requires adjustments. The following examples are not journal entries, but rather adjustments to reclassify some items on the FASB Statement of Activities to the GASB Statement of Revenues, Expenses, and Changes in Net Assets.
Operating Expenses can be classified as natural or functional by GASB. The Board of Regents of the ÐÔÊÓ½çAPP and the State of Georgia use natural classification. FASB allows the natural classification, but requires functional. If the foundation shows the functional classification in the Statement of Activities, a crossover will be necessary. The Board of Regents uses a note to show the operating expenses both ways. It is recommended that the foundations do the same and then report the natural classifications for GASB statements. The FASB reports with the functional classifications should be used in the BOR financial statements (see AFR FY2004 model). The GASB reports with the natural classifications are necessary for the State Auditors to prepare the State ACFR.
G Gifts
On FASB statements, gifts are not separated by operating and non-operating. Since this separation is required on GASB statements, the following adjustment separates “Gifts” into “Additions to permanent endowments” (non-operating) and “Gifts and Contributions” (operating).
Decrease Foundation gifts
Increase Foundation additions to permanent endowments
To segregate Foundation non-operating endowment gift revenues
Decrease Foundation gifts
Increase Foundation endowment gifts and contributions
To segregate Foundation operating non-endowment gift revenues
17.4.3 Other Adjustments
Last modified: November 4, 2010
These adjustments should be made if applicable to your foundation/affiliated organization:
H Endowment Income
The following adjustment reclassifies “investment income” on the FASB statement to “Endowment Income (per spending plan)” on the GASB statement.
Decrease Foundation investment income
Increase Foundation endowment income
To segregate Foundation endowment income per spending plan
The following adjustment reclassifies “rental income” on the FASB statement to “Endowment Income (per spending plan)” on the GASB statement.
Decrease Foundation rental income
Increase Foundation endowment income
To segregate Foundation endowment income per spending plan
The following adjustment reclassifies “sale of real estate” on the FASB statement to “Endowment Income (per spending plan)” on the GASB statement.
Decrease Foundation gain on sale of real estate
Increase Foundation endowment income
To segregate Foundation endowment income per spending plan
The following adjustment reclassifies the operating portion of “net realized and unrealized gain on securities” on the FASB statement to “Endowment Income (per spending plan)” on the GASB statement. (The non-operating portion is reclassified as investment income.)
Decrease Foundation net gain on sale of securities
Increase Foundation endowment income
To segregate Foundation endowment income per spending plan
Total Endowment Income
The following adjustment reclassifies the non-operating portion of “Net realized and unrealized gain on securities” on the FASB statement to “Investment income” on the GASB statement. [The operating portion is reclassified as “Endowment Income (per spending plan)].
Decrease Foundation net gain on sale of securities
Increase Foundation classified investment income
To segregate Foundation non-operating investment income
17.4.4 Eliminations
Last modified: November 4, 2010
It will be necessary to make some eliminations between the foundation/affiliated organization financial statements and the institution AFR. For example, a building should not be shown as an asset on both sets of books. Also, revenue may need to be eliminated if it is contributed to the institution and shown as gift revenue by the institution. In most instances, the elimination should be on the foundation/affiliated organization statements.
Required eliminations will be discussed as required at annual accounting workshops.
17.4.5 Footnote Disclosures
Last modified: March 24, 2021
An institution’s Annual Financial Report (AFR) must include one or two footnotes as follows:
The institution needs to indicate its compliance with GASB Statement No. 39 Determining Whether Certain Organizations are Component Units – an amendment of Statement No. 14 for the fiscal year being reported by indicating either:
- That the institution has affiliated organizations that meet the definition of a component unit as defined in GASB Statement No. 39, and that the financial statements for these affiliated organizations are included in the AFR; or,
- That the institution has determined that its affiliated organizations are not component units as defined in GASB Statement No. 39, and therefore the financial statements for these affiliated organizations are not included in the AFR.
If the institution has determined that it has affiliated organizations that are component units as defined in GASB Statement No. 39, then, along with the financial statements, additional information needs to be provided regarding these affiliated organizations in a footnote disclosure in the AFR. This footnote disclosure should include the following information:
- Description of component unit
- Relationship to institution
- Significant activities during the fiscal year
- Reporting period
- FASB or GASB presentation
- Information on debt associated with assets
- Relationship to, and significant activities with, other foundations
- Information on how to receive copy of financial statements
Sample footnotes are presented below.
1a. Footnote Example for Compliance with GASB Statement No. 39, the Affiliated Organization is a Component Unit, and the Affiliated Organization Financial Statement is Included
The Board of Regents of the ÐÔÊÓ½çAPP (and thus Peachtree State University) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Units – an amendment of Statement No. 14 for fiscal year 2004. This statement requires the inclusion of the financial statements for foundations and affiliated organizations that qualify as component units in the Annual Financial Report for the institution. These statements (Balance Sheet and Statement of Activities) are reported discretely in the University’s report. For FY2004, Peachtree State University is reporting the activity for the Real Estate Foundation, the Fund Raising Foundation, and the Athletic Foundation.
1b. Footnote Example for Compliance with GASB Statement No. 39, the Affiliated Organization is a not Component Unit, and the Affiliated Organization Financial Statement is not Included
The Board of Regents of the ÐÔÊÓ½çAPP (and thus Peachtree State University) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Units- an amendment of Statement No. 14 for fiscal year 2004. This statement requires the inclusion of the financial statements for foundations and affiliated organizations that qualify as component units in the Annual Financial Report for the institution. For FY2004, Peachtree State University does not have any foundations or affiliated organizations that qualify as component units.
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Peachtree State University Foundation (foundation) is a legally separate, tax-exempt component unit of Peachtree State University (university). The foundation acts primarily as a fund-raising organization to supplement the resources that are available to the university in support of its programs. The seven-member board of the foundation is self-perpetuating and consists of graduates and friends of the university. Although the university does not control the timing or amount of receipts from the foundation, the majority of resources or income thereon that the foundation holds and invests are restricted to the activities of the university by the donors. Because these restricted resources held by the foundation can only be used by, or for the benefit of, the university, the foundation is considered a component unit of the university and is discretely presented in the university’s financial statements.
The foundation is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the foundation’s financial information in the university’s financial reporting entity for these differences. However, the FASB reports will be converted to the GASB presentation for the State ACFR. The foundation’s fiscal year is July 1 through June 30.
During the year ended June 30, 2004, the foundation distributed $20,317,471 to the university for both restricted and unrestricted purposes. Complete financial statements for the foundation can be obtained from the Administrative Office at 300 College Drive, Peachtree, GA 30000.
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Peachtree State University Real Estate Foundation (foundation) is a legally separate, tax-exempt component unit of Peachtree State University (university). The foundation constructs research and auxiliary buildings and facilities for use by the university and then leases the completed buildings to the institution. The seven-member board of the foundation is self-perpetuating and consists of graduates and friends of the university. Although the university does not control the timing or amount of receipts from the foundation, the majority of resources or income thereon that the foundation holds and invests are restricted to the real estate activities of the university by the donors. Because these restricted resources held by the foundation can only be used by, or for the benefit of, the university, the foundation is considered a component unit of the university and is discretely presented in the university’s financial statements.
The foundation is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the foundation’s financial information in the university’s financial reporting entity for these differences. However, the FASB reports will be converted to the GASB presentation for the State ACFR. The foundation’s fiscal year is July 1 through June 30.
[Buildings valued at 63 million and the associated long-term debt of 55 million] or [investments valued at 63 million and the associated long-term receivables of 55 million] are included in the financial statements of the foundation. The corresponding capital leases and associated long-term debt are included in the university’s report and will be eliminated for ACFR reporting. Complete financial statements for the foundation can be obtained from the Administrative Office at 300 College Drive, Peachtree, GA 30000.
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