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Local Council Guide to the 2012 Audit Release date: 2/21/2013

4

The Audit Committee………………………………………………………………………………….….5

The Audit and the Auditor……………………………………………………………………………....10

Audit Standards………………………………………………………………………………………….13

Preparing the Financial Statements…………………………………………………………………...15

Audit Costs………………………………………………………………………………………………..17

The Management and Representation Letters…………………………………………………………..…………………………………………18

APPENDIX

A: Typical Audit Committee Meeting Schedule……………………………………………………….19

B: Sample Letter of Request for Proposal…………………………………………………………….21

C: Representative Questions About Audit Scope and Approach…………………………………..25

D: Sample Letter of Engagement from an Independent Auditor……………………………………26

Key Points to Look for in a Letter of Engagement……………………………………………28

E: Representative Questions for Reviewing the Draft Copy of Annual Financial Statements…..29

F: Resources Available to the Audit Committee…………………………………………………….. 31

G: Audit Costs Reduction………………………………………………………………………………..32

H: Sample Independent Auditor’s Report………………………………………………………………35

I: Sample Confirmation of Service Letter to Auditor………………………………………………….36

J: Sample Financial Statements and Notes to the Financial Statements…………………………..39

K. Sample Local Council Audit Review Record………………………………………………………..40

LOCAL COUNCIL GUIDE TO THE 2012 AUDIT


Table of Contents

Introduction .......................................................................................................................1 New for 2012 ......................................................................................................................... 1-3 Standards Affecting the 2012 Audit .......................................................................... 3-4 The Audit Committee ............................................................................................................... 4 Local Council Requirements .............................................................................................. 5-6

Auditing Developments ............................................................................................... 7-9 Local Councils and Service Organizations .......................................................................... 9

Required Financial Statements ............................................................................... 10-11

Chart of Accounts .................................................................................................... 12-17

Year-End Close ......................................................................................................... 18-21

Accounting Policies Fund Accounting ........................................................................................................ 22 Consolidated Financial Statements ............................................................................ 23 National Service and Charter Fees .................................................................................... 23 Contributions ........................................................................................................ 24-25 Donor Restrictions ..................................................................................................... 26 Split-Interest Agreements ............................................................................................... 26-28 United Way ............................................................................................................................. 28 Special Fundraising Events ................................................................................................. 29 Sale of Supplies and Product Sales .............................................................................. 30-31 Investments and Investment Income ............................................................................ 32-35 Interfund Loans ...................................................................................................................... 36 Transfers ................................................................................................................................. 36 Net Assets .............................................................................................................................. 36 Retirement Plan ..................................................................................................................... 36 Deferred Revenues and Expenses .................................................................................... 36 Net Assets Released from Restriction ............................................................................... 37

Endowment Funds and UPMIFA ............................................................................. 38-41

Fair Value Measurement .......................................................................................... 42-43


Reports and Subsidiary Ledgers ............................................................................ 44-57 Statements and Reports Available to the Auditor – Legacy System………….......45-46 Statements and Reports Available to the Auditor – PeopleSoft Financials……….47-55 Statements and Reports Available to the Auditor – Both Systems……….……….56-57

Culture of the BSA ................................................................................................... 58-60

Communications Management Letter (or SAS 115/Management Letter) .............................................. 61 Management Letter Response ................................................................................... 62 SAS 114 Letter........................................................................................................... 62 Management Representation Letter ........................................................................... 63 Audit Committee Meeting Minutes ..................................................................................... 63

Appendix A—Sample Financial Statements Statement of Financial Position ............................................................................... A-2 Statement of Changes in Net Assets ....................................................................... A-3 Statement of Functional Expenses .......................................................................... A-7 Statement of Cash Flows ......................................................................................... A-8 Employee Time Study .............................................................................................. A-9 Functional Expense Category Definitions .............................................................. A-10

Appendix B—Code of Ethics and Sample Notes to Financial Statements Code of Ethics ......................................................................................................... B-1 Sample Notes to Financial Statements .................................................................... B-5 Sample Engagement Letter (NEW) Sample Management Representation Letter ......................................................... B-23 Sample SAS 114 Letter ......................................................................................... B-25 Sample SAS 115 Letter ......................................................................................... B-27

Local Council Guide to the 2012 Audit Page 1 Release date: 2/21/2013

Introduction December 2012

The Fiscal Management Team is pleased to present the Local Council Guide to the 2012 Audit (“the Guide”). Due to its fairly technical nature, this document is targeted mainly at local council auditors, audit committee members, senior accounting staff, and other council leadership possessing financial expertise. The Guide contains recent accounting and auditing standards that may affect your 2012 financial statements as well as examples and illustrations that clarify the requirements under generally accepted accounting principles (GAAP), generally accepted auditing standards (GAAS), and the National Council’s financial reporting standards. We hope the Guide answers some of your questions and minimizes confusion over what is expected when performing a financial statement audit of a local council of the Boy Scouts of America.

New for 2012!

No Provision for Uncollectible Pledges to be Presented in the Statement of Activities and Changes in Net Assets

Starting with your 2012 audited financial statements, all contribution revenue should be presented on the face of the Statement of Activities and Changes in Net Assets as a single line item, net of any provision calculated by the fundraising subsidiary ledger. [Note: For ScoutNET Fiscals users, this means your system-generated Statement of Changes in Net Assets will not agree with your audited financial statements (because the ScoutNET statement displays a provision for uncollectible accounts). This has been anticipated and is perfectly acceptable. As the BSA’s resources are currently devoted to the conversion to PeopleSoft Financials (see below), known issues with the legacy system (ScoutNET) will not be addressed further]. The Contributions Received section of the FASB ASC states that contributions received shall be measured at their fair values (ASC 958-605-30-2). Unconditional promises to give that are expected to be collected in less than one year may be measured at net realizable value because that amount results in a reasonable estimate of fair value (ASC 958-605-30-6). Since local councils record current promises to give at net realizable value, this means that upon initial recognition of these contributions receivable (in 2012), there would be no allowance or provision for uncollectible accounts presented in the financial statements. (Note: Do not confuse this with a discount on multiyear gifts—those rules have not changed.)

If contributions receivable carried over from a prior year are deemed uncollectible in the current year, the council would recognize in its financial statements a bad debt expense or loss per ASC 958-310-35-7 (to be classified as a fundraising expense in the statement of functional expenses). For more on this topic, see page 24.

PeopleSoft® Financials v. 9.1

For the past few years, the National Council has been working toward finding a suitable replacement for the soon-to-be obsolete (legacy) accounting software it provides to local councils. In 2011, it was decided to move forward with Oracle’s enterprise accounting solution, PeopleSoft Financials. As of December 2012, twenty nine local councils had converted to the new software. As with any software conversion, you can expect changes in terminology, chart of accounts structure, and functionality, among other things. Throughout this guide, references to the legacy software will be indicated by “(LS).” References to the new PeopleSoft Financials software will be indicated by “(PS).”


New for 2012! - continued Statement of Cash Flows

Cash Received with a Donor-Imposed Restriction That Limits Its Use to Long-Term Purposes

o When a local council reports cash received with a donor-imposed restriction that limits its use to long-term purposes, an adjustment is necessary for the statement of cash flows to reconcile beginning and ending cash and cash equivalents. Too often, we see local councils include these receipts in cash flows from operating activities. This is incorrect. For a detailed discussion of this and related issues, see pages 10 and 11.

Legacy Software System-Generated Statement of Cash Flows

o There are known issues with the legacy software (i.e., ScoutNET) statement of cash flows

that render it noncompliant with GAAP. As the BSA’s resources are currently devoted to the conversion to PeopleSoft Financials (see above), known issues with the legacy system will not be addressed further. Steps are currently being taken to ensure that all PeopleSoft external reports will be GAAP compliant. See pages 10 and 11 for more information.

Long-term Interfund Loans

Although not recommended, some local councils carry interfund loan balances for more than one year. In some cases, these balances are material to the financial statements. As it is the recommendation of the National Council that interfund loan balances should be settled within a year, the legacy software was written so that balances in the interfund general ledger accounts appear in the current assets section of the Statement of Financial Position. If interfund loans are indeed long-term, they should not appear here. If your council has long-term interfund loan balances and you currently use the legacy software, work with your auditors to prepare a “report entry” in your 2012 audited financial statements that reclassifies any long-term interfund loan balances from the current assets section of the Statement of Financial Position to the noncurrent section. Note: In the preceding situation, your system-generated financials will not agree with your audited financial statements. This is completely acceptable and will not affect your compliance status for BSA purposes. For PeopleSoft Financials users, long-term interfund loan accounts exist in the general ledger and are properly classified in the system-generated Statement of Financial Position.

Special Events—Clarification

In prior years, we have noticed that some local councils have been improperly recording certain special fundraising events (e.g., Friends of Scouting dinners) as annual giving campaigns, with the cost of direct benefit to participants (meals, cost of facilities rental, etc.) buried in operating expenses. BSA policy requires that these direct costs offset revenues, with gross and net amounts displayed on the face of the statement of changes in net assets. A detailed discussion of this topic can be found on page 29.

Negative Cash Balances

Although not a new concept, the National Council will be looking at negative cash during the review process for 2012 audited financial statements. If, at year-end, your council has a negative cash balance in any fund (but a positive overall cash balance) the negative balance should be reclassified to a current interfund loan account (i.e., debit cash, credit interfund loan). If total cash is negative at year-end, the negative balance(s) should be reclassified to a current liability account and listed as “Bank overdraft” (or similar) on your audited financial statements.


New for 2012! - continued Notes to Audit Committee Meetings

Please include in the notes to your audit committee meetings an acknowledgement of any BSA deficiencies noted in your 2011 audited financial statements and steps taken in the current year to correct them. Include a copy of those notes with the annual audit package you submit to the National Council.

The Codification – a Reminder

FASB Accounting Standards Codification (FASB ASC)—At this point, no references to pre-codification standards (e.g., SFAS 157) should be used. Plain English references to the ASC in your financial statements are allowed and encouraged by the BSA. For example, a fair value footnote like this: “Under FASB ASC 820-10-35-18, the Council is required to use …” could instead be worded as: “The fair value measurement topic of the FASB ASC requires. …”

Issuance of New Accounting Standards—New accounting standards are now issued by the

Financial Accounting Standards Board through Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). The FASB does not consider the updates authoritative on a standalone basis; they become authoritative when incorporated into the ASC.

Accounting Standards “on the Horizon”

Statement of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (“ASU 2012-05”)—Currently, there is diversity in practice under U.S. GAAP about the presentation of the cash receipts from the sale of donated financial assets in the statement of cash flows as either an investing activity or a noninvesting (operating or financing) activity. Issued in October 2012, the amendments in this update attempt to eliminate the diversity in practice. ASU 2012-05 requires a local council to classify cash receipts from the sale of donated financial assets (e.g., stocks, bonds, and other contractual claims) as cash inflows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes, in which case those cash receipts should be classified as cash inflows from financing activities and shall be simultaneously reported as cash outflows from investing activities. ASU 2012-05 is effective for fiscal years beginning after June 15, 2013, with early adoption permitted under certain circumstances.

Recently Issued Standards to Affect 2012 Financial Statements

Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80), Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”)—Issued in September 2011, this ASU requires expanded disclosures for certain defined benefit pension and other postretirement plans. The only effect on local councils will be to include the name of the plan in the Retirement Plan footnote (see pages 36 and B-20). The other disclosures will essentially remain the same. ASU 2011-09 is effective for local councils in 2012. See disclosure example on page B-20.


Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement

and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”)—In May 2011, the FASB issued ASU 2011-04, which amended ASC 820, Fair Value Measurement, to change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The adoption of ASU 2011-04 becomes effective for local councils starting in 2012 and is not expected to have a material effect on their financial statements.

Be Prepared…………

IRS Form 990—Although not new for 2012, we all have learned that it is never too early to start preparing for the 2012 Form 990 or 990-EZ. Use information obtained during the budgeting and audit-planning processes to help identify and quantify program service accomplishments. Review your council’s 2011 Form 990, Part VI (Governance, Management, and Disclosure), Section B, Lines 11 through 15b, for any “no” answers to policy questions. It is never too late for the council to adopt and implement these good governance policies. We strongly recommend that you review and provide to your tax preparer documentation related to completing Form 990 that is available on the Finance Impact Department website: http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx. Be on the lookout for the Local Council Guide to the 2012 IRS Form 990 coming in early 2013.

Post-Audit Fieldwork Requirements Note: After audit fieldwork is completed, ensure that you and your accounting specialist review any proposed audit adjustments. If you agree with them, have the accounting specialist make the adjustments to the general ledger. Print the basic financial statements and any other statements requested by your auditors. When you receive a draft copy of the audited financial statements, be sure to compare it with your council’s internal financial statements to ensure that they match. Pay particular attention to net assets and ensure that they agree by amount, classification (i.e., temporarily restricted, permanently restricted, unrestricted), and fund. The next step will be to schedule a meeting with the council’s audit committee to review and discuss the draft audited financial statements. Your council’s independent auditors should be present at this meeting. If the audit committee accepts the draft financial statements, it will recommend them to the executive board. Minutes of the meeting should be taken contemporaneously and approved, evidenced by signatures of the audit committee chair and the Scout executive.

The Audit Committee

As a part of the National Council Strategic Plan 2011–2015, we established a goal that each local council have in place by December 31, 2011, an audit committee that follows the guidelines set forth in the AICPA’s Not-for-Profit Audit Committee Charter Matrix, which can be found in the AICPA Audit Committee Toolkit, Not-for-Profit Organizations, 2nd Edition. The Boy Scouts of America has tailored the Charter Matrix for local councils and included it in its own Audit Committee Guidebook (revised May 2011). The Guidebook, this Local Council Guide to the 2012 Audit, and a wealth of other documents are located on the Finance Impact Department website: http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx.

The audit committee should schedule meetings with the auditor at least twice during the audit process; once during the planning stage (prior to fieldwork) and once prior to the final presentation of the audited financial statements to the council executive board. The council is required to submit to the National Council signed minutes of this meeting along with the audited financial statements and other documents.

http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx



Local Council Requirements

Each local council is required to obtain a management letter (or comments included as a part of the SAS 115 letter) from its independent auditors. In this letter, we are looking for suggestions on how the council can improve its internal controls and any other issues that the auditor may have observed during the audit. In the event there are no material weaknesses noted during the audit, a letter is required stating such. A copy of the management letter should be provided to the chair of the audit committee, council president, council treasurer, and Scout executive.

Prior to the acceptance of the audited financial statements by the executive board, make sure the council has entered any audit adjustments, generated the internal financial statements, and compared them to the audited financial statements to assure they match.

Each local council’s audited financial statements must be sent to the national office by June 1 of each year. In planning your engagement, please keep this deadline in mind. Audited financial statements must be presented to the local council’s executive board and accepted before being sent to the National Council.

There are several items that are due to the national office by June 1, 2013:

o One copy of the audited financial statements. o One copy of the audit management representation letter. o One copy of The Auditor’s Communication with Those Charged with Governance (SAS

114) letter including a listing of all audit adjustments and uncorrected misstatements (NEW).

o One copy of the Communicating Internal Control Related Matters Identified in an Audit (SAS 115) letter/management letter.

o One copy of the management letter response addressing all advisory comments. o One copy of the signed audit committee meeting minutes recommending that the audited

financial statements be presented to the executive board for approval (including an acknowledgement of any BSA deficiencies noted in your 2011 audited financial statements and steps taken in the current year to correct them-NEW).

o One copy of IRS Form 990 or 990-EZ and, if filed, the IRS Form 990-T. Note: The due date for local councils for Form 990 (also 990-EZ and 990-T) is May 15, 2013. An automatic three-month extension to file may be obtained by filing Form 8868 by the due date. However, the national office strongly recommends that councils make every effort to file by the initial due date.

In an effort to reduce costs and help safeguard the environment, all of the above documents will be accepted in portable document format (.pdf). Please email them to [email protected].

Sections of this guide marked with indicate requirements for “BSA-compliant” audited financial statements. Another document available to help your council achieve compliance is the 2012 BSA Compliant Audit Toolkit. Look for the Local Council Self-Audit Review Form contained therein to ensure your council’s audited financial statements “make the grade.” A copy of the Toolkit can be found on the Finance Impact Department website: http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx.



We strive for all local councils to have BSA-compliant audited financial statements. In the spirit of continuous improvement, noncompliant statements become the focus of area and regional leadership.

Fiscal Management Team Finance Impact Department Impact Group Boy Scouts of America


AUDITING DEVELOPMENTS In order to make generally accepted auditing standards for nonpublic companies easier to understand and apply, the AICPA's Auditing Standards Board (ASB) launched its Clarity Project in 2004. Starting with Statement on Auditing Standards (SAS) Nos. 117 through 121 (clarified and currently effective for local council audits), generally accepted auditing standards (GAAS) now more clearly state the objectives of the auditor and the requirements with which the auditor has to comply when conducting an audit in accordance with U.S. GAAS. The Clarity Project will result in the first complete redrafting and recodification of U.S. GAAS since 1972. In addition to reformatting and reorganizing existing U.S. audit standards, the Clarity Project will integrate them with the International Standards on Auditing (ISAs). When completed in 2014, clarified auditing standards will be issued as one SAS that will replace all prior SASs.

Recently Issued Clarified Auditing Standards to Affect 2012 Audits (all effective for audits of financial statements for periods ending on or after December 15, 2012). SAS No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted), addresses the auditor’s responsibilities in an audit of financial statements with respect to evaluating whether there is substantial doubt about the entity's ability to continue as a going concern. This SAS applies to all audits of financial statements regardless of whether the financial statements are prepared in accordance with a general-purpose or a special-purpose framework. This SAS does not apply to an audit of financial statements based on the assumption of liquidation (for example, when [a] an entity is in the process of liquidation, [b] the owners have decided to commence dissolution or liquidation, or [c] legal proceedings, including bankruptcy, have reached a point at which dissolution or liquidation is probable.

SAS No. 125, Alert That Restricts the Use of the Auditor’s Written Communication, addresses the auditor’s responsibility, when required or the auditor decides, to include in the auditor’s report or other written communication issued by the auditor in connection with an engagement conducted in accordance with GAAS language that restricts the use of the auditor’s written communication. In an auditor’s report, such language is included in an “other-matter” paragraph. In October 2011, the ASB achieved what it called “a major milestone” in its Clarity Project with the issuance of SAS Nos. 122–124, which include a total of 40 finalized, clarified SASs in the following statements:

SAS No. 122, Statements on Auditing Standards: Clarification and Recodification SAS No. 123, Omnibus Statement on Auditing Standards—2011 SAS No. 124, Financial Statements Prepared in Accordance With a Financial Reporting Framework

Generally Accepted in Another Country

AU-C Section 210 (source SAS 122), Terms of Engagement, will affect language contained in the engagement letter you receive from your auditors for the audit of your council’s 2012 financial statements. The elements required in SAS No. 108 (of the pre-Clarified Auditing Standards) are essentially unchanged. There are, however, two new requirements under AU-C Section 210:

1. Identification of the financial reporting framework (e.g., U.S. GAAP or IFRS) 2. A reference to the form of report expected to be issued accompanied by a statement that the actual

report might have to be different

Many engagement letters, by audit firm practice, already refer to a reporting framework, so this requirement may not change anything for your council. See pages B-23 and B-24 for a sample engagement letter.


Probably the most visible auditing standards to local councils are SAS Nos. 114 and 115. They involve written communication to the council’s board of directors, audit committee, and others. Statement on Auditing Standards No. 114—The Auditor’s Communication with Those Charged with Governance (supersedes SAS No. 61, as amended)—This standard relates to communication with those individuals in the organization charged with governance. In local councils, this would be your audit committee and executive board of directors. SAS No. 114 adds requirements (to SAS No. 61) to communicate 1) an overview of the planned scope and timing of the audit*, and 2) representations the auditor is requesting from management. It also provides additional guidance on the communication process, including the forms and timing of communication. Significant findings from the audit should be in writing when, in the auditor’s professional judgment, verbal communication would not be adequate. Other communication may be verbal** or in writing. SAS No. 114 requires the auditor to determine the appropriate person(s) in the entity’s governance structure with whom to communicate particular matters. That person may vary depending on the nature of the matter to be communicated. It also requires the auditor to evaluate the adequacy of the two-way communication between the auditor and those charged with governance. Other items to be communicated by the auditor include management’s judgments and accounting estimates, audit adjustments, and uncorrected misstatements. The SAS 114 letter will also communicate information regarding any new accounting policies adopted by the council, any disagreements with management, major issues discussed prior to the audit, and difficulties encountered during the audit. *The planned scope and timing of the audit are typically spelled out in the engagement letter, which is written communication between the auditor and local council management clearly stating the terms and conditions of the audit engagement. **If the auditor chooses to communicate verbally, ensure the communication is well-documented in the audit committee meeting minutes and provided to the National Council. Statement on Auditing Standards No. 115—Communicating Internal Control Related Matters Identified in an Audit (supersedes SAS No. 112)—Under SAS 112, there are three categories of deficiencies that may be identified during the external audit of the financial statements: control deficiencies, significant deficiencies, and material weaknesses. SAS 115 modified the definitions of significant deficiency and material weakness as originally presented in SAS 112.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. An example of a control deficiency is the lack of review and reconciliation of departmental expenditures.

A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

SAS 112 introduced new definitions of significant deficiency and material weakness that will lower the threshold for reportable control deficiencies for local councils. The result is likely to be an increase in the number of reportable findings during the course of the council’s annual financial statement audit. The materiality of the control deficiency is determined based on what potentially could go wrong, not just on the amount of actual misstatements.


The most common deficiencies identified by auditors in SAS 115 letters for local councils relate to auditors preparing various aspects of local council financial statements, including entries to record investment and fixed asset activity, year-end accruals, and footnotes. Many of these deficiencies are categorized by auditors as material weaknesses because the local council’s lack of ability to perform these functions indicates that there is a reasonable possibility that the council’s system of internal controls will not detect, prevent, or correct a material misstatement in its financial statements. Another common deficiency noted in smaller councils has to do with a lack of segregation of duties.

Note: The BSA will accept a combination SAS 115/management letter.

Local Councils and Service Organizations Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization SSAE No. 16 essentially replaces SAS No. 70, Service Organizations, and became effective for fiscal years ending after June 15, 2011. As you are aware, the National Council serves as a data center that provides applications and technology that enable local councils to process financial transactions. In this capacity, the National Council acts as a service organization for local councils (known as user entities). Similarly, IOIPay processes payroll for most local councils and transmits data that is included in their general ledgers. Other activities affected by SSAE No. 16 include credit card processing, pension plan processing (IRC § 403(b) and 457 plans), insurance claims processing, investment fund accounting, and trust and custody operations, to name a few. In SSAE No. 16, an auditor who audits the financial statements of a user entity is known as a user auditor. In auditing a user entity’s financial statements, the user auditor needs to obtain evidence to support assertions in the user entity’s financial statements that are affected by information provided by the service organization. One way for the user (local council) auditor to do this is to obtain a copy of the service auditor’s report on the fairness of the presentation of the description, the suitability of the design of the controls, and, in certain engagements, the operating effectiveness of the controls. That report, including the description of the system, can be used by all the user auditors to obtain information about the controls at the service organization that are relevant to the user entities’ internal control over financial reporting. Be sure to discuss SSAE No. 16 with your auditor in advance of fieldwork in connection with the 2012 audit. For a copy of the National Council’s most recent service auditor’s report, contact Richard Harper at 972-580-2266 or [email protected]. IOIPay’s most recent service auditor’s report can be obtained by calling IOI Customer Service at 888-697-0021. A copy of Easy Office’s SSAE No. 16 report can be requested through the customer service line at 877-354-4775. Mercury Payment System’s most recent report can be obtained by contacting Ken Moran at 972-580-2311 or [email protected].

Internal Controls

Internal controls that are written, approved, communicated, and monitored are one important defense against fraud. It is important to have your council’s internal control policies and procedures well-documented, as the auditor will use his or her understanding of those controls to develop audit procedures. Other sample policies can be found on the Finance Impact Department website: http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx.

Code of Ethics The Boy Scouts of America encourages all local councils to adopt a code of ethics. See Appendix B for a sample code.



Required Financial Statements

Required Statements

BSA Policy

Three-Fund Presentation

The Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) includes unique standards relating to general-purpose external financial statements for a not-for-profit entity (NFP). An NFP should follow the industry-specific guidance and all effective provisions of the FASB ASC unless the specific provision explicitly exempts the NFP or its subject matter precludes such applicability. FASB ASC 958-205-45-5 specifies that a complete set of financial statements should include a Statement of Financial Position, a Statement of Activities (the BSA calls it a Statement of Changes In Net Assets), a Statement of Cash Flows, accompanying notes to the financial statements, and a Statement of Functional Expenses.

It is a requirement of the BSA that local council audited financial statements are presented in the three-funds-plus-total-of-all-funds format with prior-year comparative amounts displayed. Preferably, prior-year amounts should be displayed by fund and in total; however, presentation of only a prior-year totals column will be acceptable. The use of an “elimination column” is not an acceptable format. See page 36 for an explanation of the financial statement presentation requirements for interfund loans and transfers.

Statement of Financial Position

A Statement of Financial Position should focus on the organization as a whole and should report the amounts of its assets, liabilities, and net assets. Assets and liabilities should be aggregated into reasonably homogeneous groups (FASB ASC 958-210-45-1). See Appendix A for a sample report.

Statement of Activities/Statement of Changes in Net Assets

A Statement of Activities (the BSA calls it a Statement of Changes in Net Assets) should focus on the organization as a whole and should report the amount of the change in net assets for the period. The statement should report the amount of change in permanently restricted net assets, temporarily restricted net assets, unrestricted net assets, and total net assets (FASB ASC 958-225-45). See Appendix A for a sample report.

Statement of Cash Flows

The Statement of Cash Flows provides relevant information about an organization’s cash receipts and cash payments during a period. The statement classifies these receipts and payments as resulting from investing, financing, or operating activities. Two methods can be used to prepare the Statement of Cash Flows: the direct method and the indirect (or reconciliation) method (FASB ASC 230-10-45-25). Currently, the legacy general ledger software used by the national office generates a Statement of Cash Flows using the indirect method.* Therefore, the national office will accept from local councils an audited Statement of Cash Flows using the same (indirect) method. It is important to note that a Statement of Cash Flows prepared using the direct method contains all of the same information as one prepared using the indirect method plus support and revenue collected and cash paid to suppliers and employees. The FASB has acknowledged that the direct method is preferable. In time, we may see it becoming the required method. *It is important to note that the current (legacy) system-generated Statement of Cash Flows is not in conformity with GAAP. The system does not treat depreciation expense and gains and losses as adjustments to net cash flows from operating activities as required by the standards. Rather, it treats such items as cash flows from investing activities. Therefore, the system-generated report may be disregarded when preparing the audited financial statements.


Statement of Cash Flows— Requirements

The Statement of Cash Flows should be in a comparative format and should show all funds. Per ASC 230-10-45-14, receipts from contributions and investment income that by donor stipulation are restricted for the purposes of acquiring, constructing, or improving property, plant, equipment, or other long-lived assets or establishing or increasing a permanent endowment or term endowment are cash inflows from financing activities. An adjustment to reconcile the change in net assets to net cash provided (or used) by operating activities would be required for these items. Per ASC 230-10-50, noncash investing and financing activities and interest and taxes paid are required to be disclosed.

Statement of Functional Expenses

To help donors, creditors, and other stakeholders in assessing a council’s service efforts—including the costs of its services and how it uses resources—a Statement of Activities or notes to financial statements shall provide information about expenses reported by their functional classification such as major classes of program services and supporting activities (FASB ASC 958-720-05-4). The Statement of Functional Expenses provides this information by aggregating all council expenses (regardless of the fund in which it is recorded) into three functional categories: program service, management and general, and fundraising. Expenses are charged directly to functional categories based on usage codes (called class codes in PeopleSoft Financials) assigned to general ledger account numbers (the last two digits are discussed later in this guide). If the expense relates to more than one functional category (usage/class code 99), it is allocated using percentages derived from a local council time study and/or other rational, systematic methodology. The council should review these methods with its auditors. We suggest councils conduct a time study at least every three years. This process should reflect the amount of time that the professional staff members spend on various responsibilities. A sample worksheet for conducting a time study is available in Appendix A.

Required Financial Statements (continued)


Chart of Accounts In the New for 2012 section of the Guide, we mentioned that local councils have begun to transition from the legacy general ledger and accounts payable software (LS) to PeopleSoft Financials (PS). As of December 2012, forty councils have converted to the PeopleSoft product. To help you, the auditor, better understand the systems in place at local councils, we will compare and contrast the two systems. Both the LS and PS systems use a 10-digit account number (called a chartfield string in PS) consisting of four segments separated by hyphens and defined as follows:

Legacy Software PeopleSoft Financials 1-4511-123-90 1-4501-123-91

Fund Base Account Cost Center Usage Code Fund Account Project Code Class Code

In both of the examples above, the account number/chartfield string equates to temporarily restricted, “other direct” contribution revenue in the Operating Fund (Fund 1). Let’s break down the components of these examples to see how they compare:

Fund—This is identical for both systems and is limited to a 1 (Operating Fund), 2 (Capital Fund), or 3 (Endowment Fund).

Base Account (LS)/Account (PS)—In both systems, the base account/account number is limited to four digits with the first digit denoting the type of account, e.g., asset, liability, revenue, expense, etc., as shown in the following table:

Account Range Type of Account Natural Balance

1000 Series Asset Debit

2000 Series Liability Credit

3000 Series Net Asset Credit

4000, 5000, and 6000 Series

Support and Income Credit

7000, 8000, and 9000 Series

Expense Debit

That is where the similarities end, however. In the legacy software, with few exceptions, the third digit of the base account number indicates a donor-imposed restriction, or lack thereof, for Support and Income and Net Asset accounts. Generally, a zero in the third digit position of one of these accounts indicates that the amount is unrestricted. A one in the third digit position denotes a temporarily restricted amount, and a two in the third digit slot indicates that the amount is permanently restricted. There are only a few exceptions (shown in blue text) to this pattern as the following tables illustrate:


Chart of Accounts (continued)

Legacy Software Contribution Revenue (Support) Accounts

Revenue Type Unrestricted Temp Restricted

Perm Restricted

Friends of Scouting 1-4001 1-4011

Capital Campaign 2-4111

Special Events 4201 4211 3-4221

Legacies and Bequests 4301 4311 3-4321

Foundations and Trusts 4401 4411 3-4421

Other Direct Contributions 4501 4511 3-4521

James E. West 3-4524

1910 Society (now known as Second Century Society)

3-4525

Learning for Life 4561

United Way 1-4701 1-4711

Other Indirect Contributions 4901 4911 2-, 3-4921

Fees From Government Agencies 5001 5011

Legacy Software Income and Gain/Loss Accounts

Income Type Unrestricted Temp Restricted

Perm Restricted

Investment Income–Operating 6501 6511

Investment Income–Capital 6502 6512

Investment Income–Endowment 6503 6513 3-6523

Investment Income–Royalties 6531 6541 3-6551

Gain/Loss on Investments 6601 6611 3-6621

Unrealized Gain/Loss on Investments 6651 6661 3-6671


Chart of Accounts (continued)

Legacy Software Net Asset Accounts

Net Asset Type Unrestricted Temp Restricted

Perm Restricted

Net Assets 1-3101

Board Designated Funds 1-3102

Investment in Fixed Assets 2-3201

Unexpended Capital Funds 2-3202

Original Gifts 3-3301

Accumulated Appreciation 3-3302

Friends of Scouting – Temp Restricted 1-3111

Project Sales – Temp Restricted 1-3112

Special Events – Temp Restricted 1-3114

Legacies and Bequests – Temp Restricted 1-3115

Foundations – Temp Restricted 1-3116

Other Direct – Temp Restricted 1-3117

United Way Allocated – Temp Restricted 1-3118

Other Indirect – Temp Restricted 1-3119

Government – Temp Restricted 1-3120

Investment income – Temp Restricted 1-3141

Investment Gain/Loss – Temp Restricted 1-3142

United Way Donor Des. – Temp Restricted 1-3148

Investment in Fixed Assets – Temp Restr 2-3211

Unexpended Capital Funds – Temp Restr 2-3212

Original Gifts – Temp Restricted 3-3311

Accumulated Appreciation – Temp Restr 3-3312

Accumulated Invest Income – Temp Restr 3-3312

Original Gifts – Perm Restricted 3-3321

Accumulated Appreciation – Perm Restr 3-3322

Accumulated Invest Income – Perm Restr 3-3323

Original Gifts – J.E. West – Perm Restr 3-3324

Original Gifts – 1910 Soc. – Perm Restr 3-3325


Chart of Accounts (continued) Base Account (LS)/Account (PS) (continued)—In summary, donor restrictions are generally

described by the four-digit base account number in the legacy software as illustrated in the preceding tables. In PeopleSoft Financials, donor restrictions are indicated by the class code (discussed later), which is known as the usage code in the legacy software and consists of the last two digits in the chartfield string (PS) or general ledger account number (LS).

Cost Center (LS)/Project Code (PS)—In the legacy software, this is a three-digit number ranging from 000 to 999, defined by the local council and used to identify everything from activities, special events, and camps to program service accomplishments, purpose restrictions, and construction projects. Revenue and expense accounts can be aggregated by cost center for internal reporting purposes. Cost centers can also be used in revenue and expense accounts associated with camps, activities, etc., for which the council may receive fees and incur expenses well in advance of their occurrence. In such cases, it is possible to defer recognition of these amounts in the Statement of Activities and Changes in Net Assets (and show them the Statement of Financial Position) by entering a final date for the event in the cost center setup screen.

In PeopleSoft Financials, project codes serve the same purpose as cost centers in the legacy software (except for the deferral feature); however, they can range from three to eight digits. Because software that interfaces with the general ledger (e.g., fundraising, membership, and Sellwise) is currently limited to 10 digits, councils are advised to limit project codes to three digits.

Usage Code (LS)/Class Code (PS)—In both the LS and PS systems, this two-digit code is used to facilitate internal financial reporting (e.g., camping and activities reports) and to prepare the Statement of Functional Expenses. As discussed above under “Base Account (LS)/Account (PS),” in PS the class code is also used to identify net asset classes (e.g., temporarily or permanently restricted) and donor restrictions on contributions. The following table compares usage and class codes:

Usage Code (LS)

Description Class Code (PS)

00 Asset, liability, and net asset (denotes unrestricted for net assets in PS)

00

N/A Net asset accounts that are temporarily restricted by donors

01

N/A Net asset accounts that are permanently restricted by donors

02

10 Revenues and cost of direct benefits to participants N/A

20 Revenues and expenses for activities 20

21 Revenues and expenses for camps 21

25 Expenses purely program in function 25

50 Expenses purely management in function 50

70 Expenses related to special events (includes all fundraising functional expenses in PS)

70

75 Fundraising expenses other than those related to special events

N/A

90 Contribution revenue and income (in PS denotes unrestricted, including special event direct benefits)

90

N/A Contribution revenue and income – temporarily restricted

91

N/A Contribution revenue and income – permanently restricted

92

99 Expenses that are not allocated by function 99

N/A Contributions receivable in future years by year of expected receipt of payment.

2012, 2013, 2014, 2015, etc.


Chart of Accounts (continued) Usage Code (LS)/Class Code (PS) (continued)—The following table illustrates how class codes

are used in chartfield strings (PeopleSoft) to identify restrictions in contribution revenue and

investment income:

Contribution Revenue/Income Unrestricted Temporarily Restricted

Permanently Restricted

Friends of Scouting 4001-90 4001-91 N/A

Direct Mail Campaign 4010-90 4010-91 4010-92

Project Sales 4071-90 4071-91 4071-92

Capital Campaign 4101-90 4101-91 4101-92

Special Events – Sponsorships 4201-90 4201-91 4201-92

Special Events – Participants 4202-90 4202-91 4202-92

Special Events – Souvenir Programs 4203-90 4203-91 4203-92

Special Events – Advertising 4204-90 4204-91 4204-92

Special Events – Concessions 4205-90 4205-91 4205-92

Special Events – Resale Items 4206-90 4206-91 4206-92

Special Events – Other 4231-90 4231-91 4231-92

Legacies and Bequests 4301-90 4301-91 4301-92

Foundations/Trusts 4401-90 4401-91 4401-92

Other Direct Contributions 4501-90 4501-91 4501-92

Associated Organizations – OA 4601-90 4601-91 4601-02

Associated Organizations – National Council 4602-90 4602-91 4602-92

Associated Organizations – Other 4603-90 4603-91 4603-92

Contributions – Learning For Life 4604-90 4604-91 4604-92

United Way Allocations 4701-90 4701-91 4701-92

United Way Donor Designated 4702-90 4702-91 4702-92

Unassociated Organizations 4801-90 4801-91 4801-92

Other Indirect 4901-90 4901-91 4901-92

Government Grants/Fees 5001-90 5001-91 5001-92

Investment Income – Operating 6501-90 6501-91 6501-92

Investment Income – Capital 6502-90 6502-91 6502-92

Investment Income – Endowment 6503-90 6503-91 6503-92

Investment Income – Royalties 6531-90 6531-91 6531-92

Gain (Loss) on Investments 6601-90 6601-91 6601-92

Unrealized Gain or Losses 6651-90 6651-91 6651-92


Chart of Accounts (continued) Usage Code (LS)/Class Code (PS) (continued)—The following table illustrates how class codes are

used in chartfield strings (PeopleSoft) to identify restrictions in net asset accounts:

Unrestricted Net Assets For Use in Funds: Class Codes:

Acct Description Unrest Temp Perm

3001 Unrestricted 1 2 3 00

3002 Board Designated 1 2 3 00

Restricted Net Assets

3005 Friends of Scouting 1 01

3006 Direct Mail 1 2 3 01 02

3007 Project Sales 1 2 3 01 02

3010 Capital Campaign 2 01 02

3015 Special Events 1 2 3 01 02

3020 Legacies and Bequests 1 2 3 01 02

3025 Foundations and Trusts 1 2 3 01 02

3030 Other Direct Contributions 1 2 3 01 02

3035 Associated Orgs 1 2 3 01 02

3040 United Way Allocated 1 2 3 01 02

3041 United Way Donor Designated 1 2 3 01 02

3045 Unassociated Orgs 1 2 3 01 02

3050 Other Indirect Contributions 1 2 3 01 02

3055 Government Grants 1 2 3 01 02

3060 Investment Income 1 2 3 01 02

3065 Gain or Loss on Investments 1 2 3 01 02


Year-End Close

Closing Date The Boy Scouts of America recommends that councils close their year-end books by tenth business day in January of the following year, and no later than January 31. Under no circumstances should the books be kept open for bank statements, audit adjustments, etc. You can use audit adjustments at any time during the new fiscal year to make modifications. These transactions will appear in detail with a transaction date of 12/32/xx.

The Closing Process

Attention, Auditors

Legacy Software—The current general ledger software, written and updated by the Boy Scouts of America, is designed to close all income, expense, transfer, reclassification, and net asset adjustment accounts to the appropriate net asset accounts. This is completed automatically as part of the December month-end closing process. Closing transactions will have a date of 12/36/xx.

PeopleSoft Financials—The PeopleSoft general ledger software functions similarly to the legacy system in that all nominal chartfield strings (called accounts in LS) close to the appropriate net asset chartfield strings. This is completed in the year-end close process and occurs in a separate period 999.

The result is that all accounts are updated and opened with either zero balances (for revenue, expense, reclassification, and net asset adjustment accounts) or with a new beginning balance (for Statement of Financial Position accounts) when appropriate. After the year-end close is completed, council and audit adjustments are still possible.

In both the PS and LS systems, local council and audit adjustments cannot be made directly to net asset accounts. If adjustments to net asset accounts are required, they should be made using the net asset adjustment accounts (see General Ledger User’s Guides (for both systems) for explanations). Entries to these accounts appear at the bottom of the last page of the Statement of Activities and Changes in Net Assets under the heading Adjustments to Net Assets (see Appendix A).


Year-End Close—Account Closings

Overview: The following tables show account closings at the end of the year by fund. Refer to the master chart of accounts listing for account descriptions.

FUND 1–OPERATING FUND

Legacy System PeopleSoft Financials

These accounts Close here These accounts Close here 4001–9692, 3901–3999, 3161 3101 3101-00, 3605-00–3665-00, 3900-00, 4001-90–4089-90, 3601–3610, 3631, 3632, 3638, 4201-90–5001-90, 6301-90– 3162 3102 6941-90, 7002-XX–9451-XX, 9589-XX–9692-90 3001-00 3171, 3611, 4070, 4011, 4020 3111 3105-01, 3605-01, 4001-91– 4069-91 3005-01 3172, 3612, 4081, 4090 3112 3106-01, 3606-01, 4010-91– 4018-91 3006-01 3174, 3614, 4211, 4250 3114 3107-01, 3607-01, 4071-91, 4089-91 3007-01 3175, 3615, 4311 3115 3110-01, 3610-01, 4101-91- 4189-91 3010-01 3176, 3616, 4411 3116 3115-01, 3615-01, 4201-91– 4209-91, 4257-91–4258-91 3015-01 3177, 3617, 4511 3117 3120-01, 3620-01, 4301-91– 4369-91 3020-01 3178, 3618, 4711, 4770 3118 3125-01, 3625-01, 4401-91– 4469-91 3025-01 3179, 3619, 4911, 4561 3119 3130-01, 3630-01, 4501-91– 4569-91 3030-01 3180, 3620, 5011, 5511 3120 3135-01, 3635-01, 4601-91– 4604-91 3035-01 3641, 6511, 6541, 6512, 6513, 3140-01, 3640-01, 4701-91, 4769-91 3040-01 3191 3141 3141-01, 3641-01, 4702-91– 4768-91 3041-01 3642, 6611, 3192, 6661 3142 3145-01, 3645-01, 4801-91 3045-01 3150-01, 3650-01, 4901-91 3050-01 3648, 4712, 3198 3148 3155-01, 3655-01, 5000-91 3055-01 3160-01, 3660-01, 6501-91-

6531-91 3060-01 3165-01, 3665-01, 6601-91, 6651-91 3065-01

In PeopleSoft Financials, most of the accounts listed above are available in all three funds and many could also carry a permanent restriction (Funds 2 and 3 only). See the PeopleSoft Master Chart of Accounts for details.


FUND 2–CAPITAL FUND

Legacy System PeopleSoft Financials

These accounts Close here These accounts* Close Here

9500–9536, 3261, 4551 3201 3110-00, 3610-00, 4101-90– 4189-90 3010-00 4000–9499, 3901–3999, 3601– 3110-01, 3610-01, 4101-91– 3610, 3631, 3632, 9589, 3262 3202 4189-91 3010-01 3271, 4561 3211 3110-02, 3610-02, 4101-92– 4189-92 3010-02 3612–3620, 4111–6611, 3272, 3641, 3642, 6661, 4020, 4081, 9501-XX–9536-XX 3001-00 4090 3212 4121, 4321, 4421, 4521, 4921,

3621, 3281, 6671, 3652 3221

*Accounts shown under the PeopleSoft Financials heading above are unique to Fund 2 and cannot be used in any other fund. As noted on the previous page, most of the PS accounts listed under Fund 1 are available in all three funds. See the PeopleSoft Master Chart of Accounts for details.


FUND 3–ENDOWMENT FUND

Legacy System

These accounts Close here

4001–5999, 3361 3301

7001–9499, 6301–6499, 6601–6699,

6701–6799, 6801–6899, 6901–6999,

3901–3999, 3601–3699, 3362 3302

6501–6599, 3363 3303

4001–5999, 3371 3311

3372, 6611, 6661 3312

3373, 3641, 3642, 6512, 6513,

6541, 3612–3620 3313

4001–5999, 3381 3321

3382, 6621, 6671 3322

Note: For PeopleSoft Financials, there are no accounts unique to Fund 3. Most of the accounts listed under the PeopleSoft heading on page 19 are also available for use in Fund 3. See the PeopleSoft Master Chart of Accounts for details.


Accounting Policies Fund Accounting

Background The FASB Codification Presentation of Financial Statements subtopic for not-for-profit entities indicates:

“Reporting by fund groups is not a necessary part of financial reporting; however, this Subtopic does not preclude providing disaggregated information by fund groups.” (ASC 958-205-45-3)

The BSA’s Use of Three Funds

The BSA has determined that the segregation of assets, liabilities, and net assets into separate accounting entities associated with specific activities, donor-imposed restrictions, or objectives is a meaningful practice that it chooses to continue. The BSA’s executive board members, staff, and contributors have become accustomed to reading the financial statements in this format. For this and other reasons, the BSA will continue to use three funds to segregate activities. Each statement must also include a total-of-all-funds column.

The Three Funds The three funds used in the BSA accounting system are:

Operating Fund (Fund 1). This fund is a combination of the Unrestricted Current Fund and the Restricted Current Fund.

Capital Fund (Fund 2). This fund is the same as the Plant (or Land, Building, and Equipment) Fund.

Endowment Fund (Fund 3). This fund is self-explanatory.

BSA Policy

It is a requirement of the BSA that local council audited financial statements be presented in the three-funds-plus-total-of-all-funds format with prior-year comparative amounts displayed. Preferably, prior-year amounts should be displayed by fund and in total; however, presentation of just a prior-year totals column will be acceptable. See page 36 for an explanation of the financial statement presentation requirements for interfund loans and transfers.

Sample Reports See Appendix A for samples of the four statements required by the Boy Scouts of America; they are in the prescribed fund accounting format.


Accounting Policies (continued) Consolidated Financial Statements

Overview

BSA Policy

Consolidated financial statements are required if the council has control of a second entity (e.g., trust fund, foundation, camp corporation, etc.) through the replacement of board members or financial ownership of the entity. Therefore, councils with separate foundations, trusts, or other controlled entities, must report on a consolidated basis (ASC 810-10-45-1) with all intercompany balances and transactions eliminated in the totals column. The use of an eliminations column is not acceptable by the BSA when presenting consolidated financial statements.

National Service and Charter Fees

BSA Practice Each local council is required to remit annually to the National Council a service fee, which is based on a percentage of salaries expense (professional, paraprofessional, and office) from two years prior. The fee is used to cover the costs related to providing administrative, technical, and other support to local councils, excluding IT-related support. The type of support varies from year to year and from council to council. Councils are also required to pay an annual charter fee ($100) to the National Council to continue to operate as local councils of the Boy Scouts of America. The BSA does not include payments to the National Council (an affiliated organization) as expenses to be allocated within the Statement of Functional Expenses. Instead, they are shown as a separate line item on the Statement of Changes in Net Assets after Total functional expenses and before Total expenses (see page A-4).

Accounting Guidance

Regarding service and charter fees described above, ASC 958-720-45-26 explains:

“Payments to related* local and national NFPs shall be reported by their functional classification to the extent that is practicable and reasonable to do so and the necessary information is available, even if it is impossible to allocate the entire amount of such payments to functions. Payments to affiliates that cannot be allocated to functions should be treated as a separate supporting service, reported on a statement of activities as a separate line item and labeled unallocated payments to local (or national) organizations.” *Note: For IRS Form 990 purposes, Payments to affiliates is included in Part IX, Statement of Functional Expenses, and is required to be allocated to the functional categories. This will create a difference between the Boy Scouts system-generated financial statements and the tax return.

BSA Policy Therefore, the Boy Scouts of America shall continue its policy of not including the national service fee and charter fee expenses as allocated expenses in the Statement of Functional Expenses.


Accounting Policies (continued) Contributions

ASC 958-605 and subsections, Accounting for Contributions Received and Contributions Made, establish accounting standards for contributions and apply to all entities that receive or make contributions. Generally, contributions received, including unconditional promises to give, are recognized as revenues in the period received at the fair value of the assets or services received or promised, or the fair value of liabilities satisfied. Contributions arising from unconditional promises to give that are expected to be collected within one year of the financial statement date may be measured at their net realizable value*. Contributions of unconditional promises to give with payments due in future periods should be reported as restricted support unless explicit donor stipulations or circumstances surrounding the receipt of the promise make it clear that the donor intended it to be used to support current period activities (ASC 958-605-45-5). By specifying future payment dates, it is reasonable to assume that donors wish to support the activities in each period in which a payment is scheduled. Receipts of unconditional promises to give cash in future years generally increase temporarily restricted net assets. FASB ASC 958-605-30 discusses the initial measurement of contributions received at fair value. ASC 820 establishes a framework for measuring fair value. * Unconditional promises to give that are expected to be collected in less than one year may be measured at net realizable value because that amount results in a reasonable estimate of fair value (ASC 958-605-30-6). This means that, upon initial recognition of these contributions receivable, there would be no allowance or provision for uncollectible accounts recorded. ASC 958-310-35 discusses the subsequent measurement of receivables. If, upon subsequent measurement, the fair value of a contribution receivable decreases because of changes in the quantity or nature of assets expected to be received, ASC 958-310-45-3 requires that decrease to be reported as an expense or loss in the net asset class in which the net assets are represented.

Present value of future cash flows is one valuation technique for measuring the fair value of contributions arising from unconditional promises to give cash (ASC 958-605-55-22).** The present value of unconditional promises to give should be measured using a discount rate that is consistent with the principles for present value measurement discussed in ASC 820-10-55-5. In conformity with FASB ASC 835-30-25-11, the discount rate should be determined at the time the pledge is initially recognized and should not be revised subsequently unless the council has elected to measure the promise to give in conformity with the “Fair Value Option” subsections of FASB ASC 825-10. Discounts on contributions receivable that are measured at present value should be amortized between the date the promise to give is initially recognized and the date the cash is received. In conformity with FASB ASC 958-310-35-6, the interest method should be used to amortize the discount. Amortization of the discount results in contribution revenue. Per FASB ASC 958-310-45-1, pledges receivable should be reported net of the discount if measuring the pledge at present value. The discount should be separately disclosed by reporting it as a deduction from pledges receivable either on the face of the Statement of Financial Position or in the notes to the financial statements. **In a recent AICPA Financial Reporting Whitepaper, Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities, we are reminded that FASB ASC 820-10-55-5 states that “A fair value measurement of an asset or a liability using a present value technique captures all of the following elements from the perspective of market participants at the measurement date:

a) An estimate of future cash flows for the asset or liability being measured. b) Expectations about possible variations in the amount and timing of certain cash flows representing the

uncertainty inherent in the cash flow. c) The time value of money, represented by the rate on risk-free monetary assets that have maturity dates or

durations that coincide with the period covered by the cash flows and pose neither uncertainty in timing nor risk of default to the holder (that is, a risk-free interest rate). For present value computations denominated in nominal U.S. dollars, the yield curve for U.S. Treasury securities determines the appropriate risk-free interest rate.

d) The price for bearing the uncertainty inherent in the cash flows (that is, a risk premium). e) Other factors that market participants would take into account in the circumstances. f) For a liability, the nonperformance risk relating to that liability, including the reporting entity’s (that is, the

obligor’s) own credit risk.


Accounting Policies (continued) Contributions (continued)

Contributions made, including unconditional promises to give, are recognized as expenses in the period made at their fair values. Conditional promises to give, whether received or made, are recognized when they become unconditional; that is, when the conditions are substantially met. This statement requires not-for-profit organizations to distinguish between contributions received that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. It also requires recognition of the expiration of donor-imposed restrictions in the period in which the restrictions expire. Contributions of services are recognized only if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The fair value of contributed services that create or enhance nonfinancial assets should be estimated based on (a) the fair value of the services received or (b) the fair value of the assets created.

Donor Restrictions

Classes of Net Assets

While generally accepted accounting principles do not prohibit the use of fund accounting, they do require information about three classes of net assets:

Unrestricted Temporarily restricted Permanently restricted

Unrestricted This class of net assets has no donor restrictions imposed on the contribution

and is available for the general use of the council.

Temporarily Restricted

BSA Policy

A temporarily restricted contribution generally is recognized as support when it is received and is reclassified from temporarily restricted net assets to unrestricted net assets when the donor’s restriction is satisfied or when the stipulated time has elapsed. Cash received in connection with a campaign to raise funds for renovating a facility would be reported as support, increasing temporarily restricted net assets. When the expenditures for the renovations are incurred, the financial statements would report a reduction in temporarily restricted net assets and an increase in unrestricted net assets.

The total of temporarily restricted net assets in each fund should always be a positive number.

Although temporarily restricted contributions typically are reported as support that increases temporarily restricted net assets, per FASB ASC 958-605-45-4, they may be reported as unrestricted support if the restrictions are met in the same reporting period, the policy is followed consistently, and it is disclosed.

Permanently Restricted

Permanently restricted net assets are contributions received with donor-imposed restrictions placed in perpetuity that can never be removed by time or the actions of the council’s executive board. Typically, these are gifts to the council’s Endowment Fund but may also include gifts of permanently restricted fixed assets, such as land that can never be sold or used for a purpose other than that originally specified by the donor.


Board Designations

Designations are voluntary board-approved segregation of unrestricted net assets for specific purposes, projects, or investments. The local council executive board may approve designations as an aid in planning future expenditures, but designations are not expenses and should not be reported in the Statement of Activities and Changes in Net Assets.

Because designations are voluntary and may be reversed by the governing board at any time, designated portions of net assets are not considered temporarily or permanently restricted.

Designations may be reported as classifications of unrestricted net assets on the Statement of Financial Position or may be disclosed in the notes to the financial statements. However, ASC 958-205 and subsections require them to be reported as a part of the unrestricted class of net assets.

Explicit and Implicit Restrictions

Donor restrictions can be explicit in the gift instrument with specific directions for use and restrictions, or they can be implicit through the fundraising campaign conducted by the council. For example, if the council is conducting a capital campaign to build a new camp building, any gifts to the campaign would carry a temporary donor restriction for that purpose even though the donor did not specifically declare a restriction in a gifting document. Many councils advertise planned giving (such as the BSA’s Pooled Income Fund and Charitable Gift Annuity programs) under an “Endowment” heading and containing language such as “perpetual support” that would lead a potential donor to believe that his or her gift will be used to fund the council’s endowment. This is a good example of an implicit permanent restriction.

Some donors enter into trust or other arrangements under which not-for-profit organizations share benefits with other beneficiaries. Donors to the BSA’s Pooled Income Fund and Charitable Gift Annuity programs, for example, designate local councils as remainder beneficiaries. During their lifetimes, the donors or others chosen by the donor receive distributions of income (and sometimes capital gains for a Charitable Gift Annuity). Upon the death of the donors, the remainder interests in each case transfer to the local council. In both the Pooled Income Fund and Charitable Gift Annuity programs, donors may choose to restrict (temporarily or permanently) the local council’s use of the remainder assets or give it the immediate right to use its interest without restriction. Both programs are administered by the BSA Foundation on behalf of the Boy Scouts of America National Council.

Accounting Policies (continued)

Donor Restrictions (continued)

Split-Interest Agreements


Pooled Income Fund

Charitable Gift Annuity

Journey to Excellence Opportunity

The BSA Pooled Income Fund is divided into units, and contributions of many donors’ gifts are pooled and invested as a group. The FASB ASC glossary defines a pooled income fund as a trust in which donors are assigned a specific number of units based on the proportion of the fair value of their contributions to the total fair value of the pooled income fund on the date of the donor’s entry into the pooled income fund. The donor (or donor’s designated beneficiary or beneficiaries) is paid the income (defined by the agreement) earned on the donor’s assigned units. Per the Pooled Income Fund agreement, upon the death of the donor, the value of the units is to be transferred to the local council. Per FASB ASC 958-30-30-11, since the assets are held by a third party (the National Council), the council records a noncurrent asset called a beneficial interest in its Statement of Financial Position.

The other side of the entry is recorded as contribution revenue, which should be classified as temporarily restricted unless the donor has permanently restricted use of the assets or given the immediate right to use them without restriction (unrestricted) per FASB ASC 958-30-45-1. The council should recognize the agreement in its financial statements upon notification of its existence. Each year, the assets held in the Pooled Income Fund are subsequently measured in conformity with FASB ASC 958-30-35-10 or FASB ASC 958-605-35-3. The change in value of the beneficial interest in the fund should be classified depending on the original classification of the contribution revenue. Annually, the BSA Foundation, serving as administrator for the BSA National Council, provides to local councils the fair value of their beneficial interests in the Pooled Income Fund.

The BSA Charitable Gift Annuity is a contract between the BSA National Council and a donor in which the donor contributes assets to the BSA in exchange for a promise to pay an amount quarterly to the donor or others chosen by the donor for their lifetimes. The payout amount depends on the age of the beneficiaries. The older the beneficiary, the larger their payment. Payments are guaranteed by the general assets of the Boy Scouts of America. As with the BSA Pooled Income Fund (see above), the council recognizes a beneficial interest in the assets received from the donor. The recognition and measurement principles and presentation and disclosure requirements for beneficial interests in Charitable Gift Annuities are the same as for Pooled Income Funds. One of the objectives of Scouting’s Journey to Excellence is for local councils to add permanently restricted gifts to their endowment funds. Because both the BSA Pooled Income Fund and Charitable Gift Annuity programs could carry permanent restrictions (see discussion above), initial recognition of beneficial interests in these arrangements may result in permanently restricted contribution revenue. Many councils have received notification from the BSA Foundation of their beneficial interests in these programs but have not “booked” them in their financial statements. If you think your council may be party to one of these programs, please contact Ken Moran, Fiscal Management Team (contact info listed below).


Split-Interest Agreements (continued)


Fair Value Issues

Disclosure

Per FASB ASC 958-30-30-8, under remainder interest agreements (as is the case with Pooled Income Funds and Charitable Gift Annuities), the present value of the future payments to be made to other beneficiaries can be estimated directly based on the terms of the agreement. Future distributions will be received by the not-for-profit only after obligations to other beneficiaries are satisfied. In those cases, the fair value of the contribution may be estimated based on the fair value of the assets contributed by the donor less the fair value of the payments to be made to other beneficiaries. Beneficial interests in BSA Pooled Income Fund and Charitable Gift Annuity split-interest agreements use significant unobservable inputs (level 3) in estimating fair value due to their unique features, including no active market for selling them. Beneficial interests may have inputs into the valuation technique at level 2 and level 3; however, market returns for similar assets would be considered a level 2 input while all other unobservable market inputs into the present value technique would be level 3 inputs. Since there are significant inputs at both level 2 and level 3, the overall measurement of the beneficial interest would likely be level 3 in the hierarchy. Beneficial interests use a recurring fair value measurement and should therefore be included in the tabular disclosure as well as in the level 3 roll forward. A description of the inputs and the information used to develop the inputs should also be disclosed each year. Note: There are numerous types of split-interest agreements. For information on those not covered in this guide, please contact Ken Moran, Fiscal Management Team, at 972-580-2311 or [email protected].

Local councils may have two sources of United Way support: allocations from the general pool and donor designations. Upon written notification from a United Way, a pledge receivable and contribution revenue should be recorded for each category of support. A United Way allocation letter may be conditional; if so, a contribution is not booked until the condition is removed. Also, a United Way may not disburse all of its allocations, so a council may want to establish an allowance for uncollectible United Way pledges based on its experience. The general ledger provides allowance and provision for uncollectible pledges accounts for this purpose, if necessary. Because United Way support serves as a conduit through which donor contributions “flow” to local councils, it is presented under an Indirect support heading in local council financial statements.


Split-Interest Agreements (continued)

United Way



Special Fundraising Events

Background/Accepted Practices

Although not specifically defined in the FASB ASC, special fundraising events are generally interpreted to be fundraising activities that include elements of both contributions and exchange transactions. Fundraising activities are defined as “… activities undertaken to induce potential donors to contribute money, securities, services, materials, facilities, other assets, or time” (FASB ASC glossary). An exchange transaction is a reciprocal transfer in which each party receives and sacrifices approximately equal value. Per the IRS, fundraising events “… include dinners ... sports events … and similar events not regularly carried on that are conducted for the primary purpose of raising funds.” Because an annual “Friends of Scouting” dinner contains both an exchange element (the value of the meal and entertainment provided to the participant) and a contribution element (the excess of the contribution over the value of the meal and entertainment), it meets the definition of special fundraising event (described above) and should be accounted for with the cost of direct benefit to participant netted with revenue as shown below. Conversely, special events should not be accounted for as annual giving campaigns with costs included in operating expenses rather than offsetting special event revenues. Whether an organization chooses to call a fundraising activity an “ask event” or a “special event” is inconsequential in determining how to account for it. If both the exchange and contribution elements are present, the activity is a special event. GAAP requires the reporting of the gross amounts of revenues and expenses from special events and other fundraising activities that are ongoing major or central activities, but it permits (does not require) reporting net amounts if the receipts and related costs result from special events that are peripheral or incidental activities (FASB ASC 958-225-45-17).

BSA Policy Most special events conducted by councils are peripheral and incidental to the

programs of the BSA. However, it will continue to be the practice of the Boy Scouts of America to report, on the face of the Statement of Activities and Changes in Net Assets, gross revenues from special events as follows:

Special fundraising events—gross XXXX

Less cost of direct benefit to participants** XXXX

Special fundraising events—net XXXX

**This line item would include the cost of meals, greens fees, etc. All other costs that do not directly benefit the donor (for example, postage and printing) would be reported as expenses in the Statement of Activities and Changes in Net Assets. Although not the preferable presentation, an acceptable alternative to the above would be to show a parenthetical presentation on the face of the Statement of Activities and Changes in Net Assets as follows: Special fundraising events (net of cost of direct benefit to participants of $XXXX).


Background A statement of activities shall report the gross amounts of revenues and expenses (ASC 958-225-45-14).

Accounting Guidance

GAAP explains in part (ASC 958-720-45-20 and 21):

The way that costs related to sales of goods and services are displayed depends on whether the sales constitute a major or central activity of the organization or a peripheral or incidental activity. For example, a museum that has a store that is a major or central activity should report and display separately the revenues from its sales and the related cost of sales. Cost of sales is permitted to be reported immediately after revenues from sale of merchandise, and may be followed by a descriptive subtotal, or it may be reported with other expenses.

BSA Practice

Although the sale of goods or products in a council is peripheral to the delivery of the Scouting program, the BSA will continue its practice of reporting, on the face of the Statement of Activities and Changes in Net Assets, gross revenues from the sale of supplies as follows:

Sale of supplies—gross XXXX

Less cost of goods sold XXXX

Sale of supplies—net XXXX

Although not the preferable presentation, an acceptable alternative to the above would be to show a parenthetical presentation on the face of the Statement of Activities and Changes in Net Assets as follows: Sale of supplies (net of cost of goods sold of $XXXX).

Note to councils with National Scout shops: Your contract with your National Scout shop requires that it remit to you rent based on a percentage of its gross sales. This revenue should never be recorded in Sale of supplies—gross. Councils should instead appropriately record the revenue in the general ledger, account number 1-6903-XXX-90, Income from rents.


Income from Sale of Supplies and Product Sales


The BSA will continue to report gross revenues from product sales as follows:

Product sales—gross XXXX

Less cost of goods sold XXXX

Less commissions paid to units* XXXX

Product sales—net XXXX

A note regarding commissions paid to units: Regardless of whether the local council remits a check to the unit, records a credit in the unit custodial account, or allows the unit to retain (from gross sales proceeds collected) its commissions earned, the BSA requires the above presentation on the face of the Statement of Activities and Changes in Net Assets.

*May also read: Less commissions earned and retained by units if appropriate under the circumstances.

Although not the preferable presentation, an acceptable alternative to the above would be to show a parenthetical presentation on the face of the Statement of Changes in Net Assets as follows: Product sales (net of cost of goods sold of $XXXX and commissions paid to units of $XXXX).


Income from Sale of Supplies and Product Sales (continued)


Accounting Policies (continued) Investments and Investment Income

Background The BSA has historically recorded unrestricted interest and dividends from the Endowment Fund as unrestricted investment income in the Operating Fund.

Investment income Per FASB ASC 958-320-45-2:

Dividend, interest, and other investment income should be reported in the period earned as increases in unrestricted net assets unless the use of the assets is limited by donor-imposed restrictions. Donor-restricted investment income should be reported as an increase in temporarily restricted net assets or permanently restricted net assets depending on the type of restriction.

BSA Policy

Gains (Losses)

It is the policy of the Boy Scouts of America that unrestricted investment income should be recorded in the fund group that will use it. Unrestricted investment income from all fund groups should be recorded in the Operating Fund unless donor or legal restrictions or board policies or directives dictate otherwise.

The Boy Scouts of America defines unrestricted investment income (available to the Operating Fund) as interest, dividends, royalties, certain rents, and other income generated on property held for investment, earned during the current year, not restricted by donors or law, and net of related expenses (such as investment management fees).

Generally, realized gains and losses on investments should be recorded in the same fund where the assets are recorded. Note: Realized gains and losses result from the actual sale or other disposition of assets (stocks, bonds, real estate, etc.).

Exception: Net realized gains (on endowment fund investments, for example), i.e., the excess of realized gains over realized losses—if not restricted—may be recorded directly in the Operating Fund only if the net investment income discussed in the preceding paragraph is insufficient to meet the amount required by the council’s endowment spending policy. If any net realized gains are recorded in the Operating Fund, they must be shown under a separate Investment gains (losses) heading.

If, during the year, the total realized losses on all security sales in the endowment fund portfolio exceeded total realized gains, no amount in addition to the net investment income described above would be recorded in the Operating Fund.


Here’s How it Works

No Double-Dipping

Spending Policy

The following examples illustrate how a local council would record in the Operating Fund investment income received from the Endowment Fund in conformity with BSA policy. Upon receipt of a cash distribution from an investment account held in its endowment fund, the following entry is recorded: Dr. Cash – Fund 1 $XXX Cr. Investment income from Endowment – unrestricted $XXX Cr. Realized inv gains – unrestricted (if needed) $XXX -To record 1st Q dist from Smith Barney- The above could be recorded as a general journal entry (in the event of a wire transfer) or as part of the daily cash-receipting process (if a check was received and entered in the point-of-sale system). When the council receives its periodic endowment investment account statement(s), the following would be included in its entry to summarize the activity therein: Dr. Investment income – Fund 3 $XXX Dr. Realized inv gains – Fund 3 (if needed) $XXX Cr. Long-term investments – Fund 3 $XXX -To record activity per SB statement, 1st Q 2012- The amount of the distribution, which was recorded as investment income (and realized gains, if applicable) in the Operating Fund, is charged against investment income (and realized gains) in the Endowment Fund, thereby preventing double-recording of the income (i.e., “double-dipping”). Remember: Endowment fund distributions in excess of investment income (and net realized gains, if needed) earned during the year are recorded as transfers of unrestricted net assets from the Endowment Fund to the Operating Fund. Unrealized gains and losses on investments represent the cumulative difference between the cost and market values of securities held in the investment portfolio and are always recorded in the fund where the investment assets are recorded (usually the Endowment Fund). In no case shall net unrealized gains on endowment fund (or capital fund) investments be recorded in the Operating Fund. The actual amount of the annual cash distribution(s) from the council’s endowment fund(s) depends on its board-approved endowment spending policy or, for trust funds, the provisions set forth in the trust instrument. All councils that have endowment funds are encouraged to have such a policy. An example of a typical spending policy follows:

Accounting Policies (continued) Investments and Investment Income (continued)


Spending Policy (continued)

BSA Policy

BSA Policy

The council has a policy of appropriating for distribution each year 4 percent (for example purposes) of its endowment fund’s average fair value over the prior 12 quarters through the calendar year-end preceding the fiscal year in which the distribution is planned. In establishing this policy, the council considered the long-term expected return on its endowment. Accordingly, over the long term, the council expects the current spending policy to allow its endowment to grow at an average of 4 percent annually (for example).

This is consistent with the council’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return.

Important note to councils with trust funds—Your council’s spending policy with respect to these funds must follow the requirements set forth in the trust instrument(s). These trusts are governed by your state’s trust laws. Any deviation from these requirements could place your council in jeopardy. If this applies to you, we strongly recommend that you consult legal counsel before adopting a spending policy.

The Boy Scouts of America Financially Sustainable Councils Strategic Plan recommends that local council spending policies define a spending rate of between 4 and 5 percent of a benchmark value as described above. Endowment fund spending rates in excess of 7 percent are considered to be imprudent. Depending on the structure of a local council’s endowment fund, state law may define a maximum spending rate above which would create a rebuttable presumption of imprudence. Board-approved spending rates of less than 4 percent may not be adequate to support the operating needs of the council. When the investment committee determines a spending rate (and/or calculates the dollar amount) and the board approves it, trustees or money managers will be directed to issue periodic distributions to the council from the endowment fund(s).

For budgeting purposes, and especially during volatile markets, we suggest that councils and their investment advisers actively re-evaluate estimates of future-year market performance in order to formulate the most accurate investment income budget amounts.

It is important for the council to reconcile the endowment fund investment statements to the general ledger on a regular basis. Should the reconciliation reveal that cash distributions to the Operating Fund from the endowment fund(s) exceed the amount of investment income earned on the endowment fund(s) (as defined above), the difference would be accounted for as a Transfer.



Accounting Guidance

ASC 958-225-45-14 explains:

A statement of activities should report the gross amounts of revenues and expenses. It also notes, however, that investment revenues may be reported net of related expenses, such as custodial fees and investment advisory fees, provided that the amount of the expenses is disclosed either in the statement of activities or in notes to financial statements.

BSA Policy

Therefore, the BSA will continue the practice of reporting investment revenues net of related expenses, such as custodial fees and investment advisory fees, with the fees disclosed in the notes.

Investments – Additional Guidance

BSA Policy

The Investments – Debt and Equity Securities subtopic of the FASB Codification (ASC 958-320 and subsections) requires the following:

Investments in equity securities with readily determinable fair values and all investments in debt securities should be reported at fair value (see next page) with gains and losses included in the Statement of Changes in Net Assets.

Certain disclosures must be made about all investments held by not-for-profit organizations and the return on those investments. This is normally covered in the notes section of the council’s audited financial statements. (See FASB ASC 958-320-50 for more information.)

In the absence of donor stipulations or law to the contrary, losses on the investments of a donor-restricted endowment fund should reduce temporarily restricted net assets to the extent that donor-imposed restrictions on net appreciation of the fund were not met before the loss occurred. Any remaining loss should reduce unrestricted net assets.

Note: Any local council audited financial statements displaying a deficit balance in temporarily restricted net assets are not in compliance with GAAP or BSA standards.




Interfund Loans Interfund loans are to be recorded on a single line in the asset section of the Statement of Financial Position. The total of all three funds should be zero (FASB ASC 958-210-45-2). See the sample Statement of Financial Position in Appendix A. An important note regarding negative cash balances in one fund where positive cash balances in other funds exist: Such balances should be reclassified as interfund balances; otherwise the fund(s) presenting the positive balance(s) will be overstating its (their) cash position(s).

Transfers Transfers are movements of unrestricted net assets between funds. All transfers should have a supporting board resolution. The transfers to/from each fund (3900 series) should equal zero when added together. The transfer line on the Statement of Activities and Changes in Net Assets should appear on a line that is between the beginning net assets and ending net assets of each fund (see example in Appendix A). Transfers should NEVER show above the increase/decrease in unrestricted net assets line.

Net Assets The council’s net assets by fund and by restriction in ScoutNET must match the audited financial statements.

Retirement Plan

The Boy Scouts of America has a defined benefit retirement plan, administered by the National Council, which covers eligible employees of the National Council and local councils. The plan name is Boy Scouts of America Master Pension Trust – Boy Scouts of America Retirement Plan for Employees. For 2012, eligible employees contribute 2 percent of compensation, and the council contributes an additional 7.00 percent of compensation to the plan (see pages 59 and 60 for more information on compensation). A letter is provided annually to the local council from the National Council concerning the retirement plan. A copy of this letter should be provided to your auditor. See the sample footnote on page B-20.

Deferred Revenues and Expenses

Reporting Generally accepted accounting principles and the Boy Scouts of America require these items to be shown in the assets and liabilities sections, respectively, of the Statement of Financial Position.

Background Deferred revenues and expenses are council cash receipts and disbursements, respectively, that relate to activities, special events, and camping events that are scheduled to occur in a future year. (For special events, only the exchange portion is deferred. The contribution portion is recognized upon receipt unless there is sufficient uncertainty as to whether the event will be held, in which case the contribution is treated as a refundable advance.) It is necessary to segregate this information as the council has a fiduciary responsibility to provide the events as advertised or refund the participants’ money. When the council conducts the activity or event, it may then recognize the cash receipts as revenue and the related cash disbursements as expenses in the Statement of Activities and Changes in Net Assets.


Accounting Policies (continued) Net Assets Released From Restriction

Two Methods A council may choose to “release” temporarily restricted contribution revenue (for example, restricted as to time) ratably during the accounting year by moving a portion of the revenue from a temporarily restricted income account to an unrestricted income account as time passes.

By Revenue If a council records a temporarily restricted contribution (restricted for time; for example, United Way allocations) for which some (or all) of the restriction will expire during the current year, it may release the temporary restriction by simply debiting the temporarily restricted contribution revenue account and crediting the unrestricted contribution revenue account.

By Net Asset If, however, a year-end close has occurred since the temporarily restricted contribution was booked, then it is necessary to release the net assets generated from this contribution. When a temporarily restricted contribution account is processed during the Boy Scouts of America general ledger year-end close, the revenue account closes to a net asset account that is also temporarily restricted. See the General Ledger User’s Guide (one each for the legacy system and PeopleSoft Financials) for an outline of the net assets that can be temporarily restricted and the reclassification accounts to be used to release from restriction a net asset.

Net Asset Accounts The Capital and Endowment Funds may contain unrestricted, temporarily restricted, and permanently restricted net asset accounts. The Operating Fund may only contain unrestricted and temporarily restricted net asset accounts. Each fund should show changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets.

Each fund should show the beginning net assets for each class of net assets.

Each fund should show ending net assets by classification.

The adjustments to net assets (as with transfers; see above) appear between the beginning and ending net assets.

Both the legacy BSA general ledger software and PeopleSoft will not allow any direct audit adjustments to net asset accounts. This ensures the integrity of net asset accounts. However, if an adjustment is necessary, it may be made using the net asset adjustment accounts (in both systems) provided in the chart of accounts, which will display the requested adjustment on December statements, and the final adjustments will occur in the year-end close procedure.


Endowment Funds and UPMIFA

Accounting Standard FASB ASC 958-205-05 and subsections (originally FASB Staff Position No. 117-1) provide guidance on the net asset classification of donor-restricted endowment funds for nonprofit organizations subject to a version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) enacted by the state in which the organization operates. UPMIFA does not apply to trust funds managed by banks and trust companies as required by the Rules and Regulations of the Boy Scouts of America for special funds. If your council’s endowment trust fund substantially conforms to the Model Form, UPMIFA would not apply to endowments held therein. The Boy Scouts of America strongly recommends that all local councils consult with their lawyers, trustees, investment advisers, and auditors to determine which of the council’s endowment funds, if any, would be subject to UPMIFA and therefore subject to the provisions of FSP FAS 117-1. The staff position also expands disclosures about an organization’s endowment funds (both donor-restricted and board-designated), regardless of the applicability of UPMIFA.

Minimum Disclosure Required for Endowment Funds ASC 958-205-50-1B requires that, at a minimum, an organization shall disclose the following information for each period for which the organization presents financial statements: a. A description of the governing board’s interpretation of the law(s) that underlies the organization’s net asset classification of donor-restricted endowment funds.

b. A description of the organization’s policy or policies for the appropriation of endowment assets for expenditure (its endowment spending policy or policies). c. A description of the organization’s endowment investment policies. The description shall include the organization’s return objectives and risk parameters; how those objectives relate to the organization’s endowment spending policy or policies; and the strategies employed for achieving those objectives. d. The composition of the organization’s endowment by net asset class at the end of the period, in total and by type of endowment fund, showing donor-restricted endowment funds separately from board-designated endowment funds. e. A reconciliation of the beginning and ending balance of the organization’s endowment, in total and by net asset class, including, at a minimum, the following line items (as applicable): investment return, separated into investment income (for example, interest, dividends, rents) and net appreciation or depreciation of investments; contributions; amounts appropriated for expenditure; reclassifications; and other changes. ASC 958-205-50-2 requires an organization to disclose the aggregate amount of the deficiencies for all donor-restricted endowment funds for which the fair value of the assets at the reporting date is less than the level required by donor stipulations or law.


Endowment Funds and UPMIFA (continued)

If UPMIFA Does Apply: If it is determined that your council is subject to UPMIFA, you will be required to reclassify unrestricted net assets associated with the affected endowment fund to temporarily restricted net assets (see the example under Note 2 on page B-11). The temporarily restricted net assets would remain temporarily restricted until the council’s board of directors appropriated them for expenditure, at which point they would be reclassified to unrestricted net assets. Because one state has not yet enacted a version of UPMIFA, and because enacted versions may have different effective dates, a council might apply this FSP before or after the period in which UPMIFA is first effective for that council, as follows:

1. If a council initially applies the FSP on or before the effective date of UPMIFA, any net asset reclassification resulting from the initial application of this FSP to donor-restricted endowment funds in existence when UPMIFA is first effective must be presented in that period. Such reclassifications must be reported in a separate line item in the Statement of Activities and Changes in Net Assets.

2. If a council initially applies the FSP for financial statements issued for a period after UPMIFA is first effective, any resulting reclassification should be reported in those financial statements in the earliest comparative period presented for which UPMIFA was effective. If the period in which UPMIFA first became effective is not presented, the effects of the reclassification must be reported retrospectively in the earliest period presented.

The sample footnote disclosure (see pages B-11 through B-13) assumes that the local council is subject to an enacted version of UPMIFA. Please note that the sample disclosure will need to be modified to reflect each council’s unique situation. If the council is not subject to UPMIFA, the disclosure would be essentially the same as shown in Appendix B, only without the state UPMIFA references and reclassification of net assets shown under the heading Changes in Endowment Net Assets for the Year Ended December 31, 2012. In the sample footnote disclosure, the local council’s board of directors interpreted its state’s enacted version of UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary.

If the local council’s board of directors interprets its state’s enacted version of UPMIFA as requiring the maintenance of purchasing power for donor-restricted endowment funds, then the council would periodically adjust the amount in permanently restricted net assets to reflect that interpretation. Under those circumstances, the council would use the inflation (deflation) index (or indices) that it deems most relevant for adjusting the permanently restricted net assets of the funds (for example, the Consumer Price Index [CPI] or the Higher Education Price Index [HEPI]). If the council in this example were subject to an enacted version of UPMIFA that its governing board interpreted as requiring the council to maintain the purchasing power of its donor-restricted endowment funds, the Interpretation of Relevant Law paragraph in the example disclosure could be modified to read as follows:



Note X. Endowment

Interpretation of Relevant Law

The board of directors of the council has interpreted the [NAME OF STATE] Prudent Management of Institutional Funds Act as requiring the preservation of the purchasing power (real value) of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the council classifies as permanently restricted net assets: (1) the original value of gifts donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent endowment, (3) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund, and (4) the portion of investment return added to the permanent endowment to maintain its purchasing power. For purposes of determining that portion, each year the council adjusts permanently restricted net assets by the change in the Consumer Price Index (CPI) for that year. If the endowment assets earn investment returns beyond the amount necessary to maintain the endowment assets’ real value, that excess is available for appropriation and, therefore, classified as temporarily restricted net assets until appropriated by the board for expenditure. In accordance with the Act, the council considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

(1) The duration and preservation of the fund (2) The purposes of the council and the donor-restricted endowment (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the council (7) The investment policies of the council



Disclosure for Local Councils Located in Pennsylvania

Note X. Endowment

Interpretation of Relevant Law

In 20XX the Council adopted the disclosure provisions of FASB ASC 958-205 and subsections, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds. Adoption of this standard did not materially affect the Council’s financial statements.

The Council’s endowment consists of ___________donor-restricted permanent (or term Endowment) funds and ____ unrestricted endowment funds established by the board of directors for a variety of purposes.

The Commonwealth of Pennsylvania has not adopted the Uniform Management of Institutional Funds Act (UMIFA) or the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Rather, the Pennsylvania Uniform Principal and Income Act (Pennsylvania Act) governs the investment, use, and management of the Council’s endowment funds. The Pennsylvania Act does not require the preservation of the fair value of a donor’s original gift as of the gift date of a donor-restricted endowment fund, absent explicit donor stipulations to the contrary. However, based on its interpretation of the Pennsylvania Act and relevant accounting literature, the Council classifies as permanently restricted net assets for reporting purposes: (i) the original value of gifts donated to the permanent endowment; (ii) the original value of subsequent gifts to the permanent endowment; and (iii) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The Pennsylvania Act allows a nonprofit to elect to appropriate for expenditure between 2% and 7% of the endowment’s fair value, determined at least annually and averaged over a period of three or more preceding years.

Insert investment and spending policies here ….

Note: If your council’s state has adopted UPMIFA, we highly recommend that you consult with your council’s lawyers, investment advisers, independent auditors, and others to assess the effect of UPMIFA and this pronouncement on the council’s financial statements and operations. Remember that the requirements under ASC 958-205 extend to the year in which UPMIFA was effective in your state so prior-year amounts shown in your comparative financial statements may be affected. If you have questions regarding this or other audit and accounting matters, please contact Ken Moran of the Fiscal Management Team at [email protected] or 972-580-2311. Please see following page for additional guidance regarding investment disclosures.


Fair Value Measurement

Accounting Standard The Fair Value Measurement standard (ASC 820-10 and subsections) was originally issued on September 15, 2006, as Statement of Financial Accounting Standards No. 157, Fair Value Measurement (FAS 157). The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The FASB states that ASC 820 “… does not expand the use of fair value in any new circumstances.”

ASC 820 changed previous practice by:

o Defining fair value: “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is particularly important when local councils receive noncash property such as equipment or real estate, or contributed services for the construction of fixed assets (for example, at summer camp as the result of a capital campaign). Donor restrictions on the use of noncash property can significantly affect its fair value. For example, a donated parcel of land restricted for a particular use with the restriction legally incorporated into the deed (i.e., the restriction would transfer to a third party if sold) would have a very limited market and limited market value. A donated piece of equipment restricted for a specific use but with no restriction on the use of proceeds if sold could be valued using a “highest and best use” premise. ASC 820 will also affect councils involved in split-interest agreements.

o Requiring certain methods to be used to measure fair value—measured as a market-based measurement, not an entity-specific measurement—based on assumptions market participants would make in pricing the asset or liability. ASC 820 establishes a three-level hierarchy for measuring fair value, described further below.

o Expanding disclosures about fair value measurements.

Three-Level Hierarchy

Entities are to use inputs for measuring fair value according to the three-level hierarchy established in ASC 820. The three levels for measuring fair value are:

Level 1

o Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Publicly traded securities at major exchanges would fit into this category.

Level 2

o Level 2 inputs are inputs other than quoted prices included within Level 1 that have observable inputs for the asset or liability, either directly or indirectly. Level 2 inputs include:

a. Quoted prices for similar assets or liabilities in active markets.

b. Quoted prices for identical or similar assets or liabilities in markets that are not active; that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets), or


Fair Value Measurement (continued)

in which little information is released publicly (for example, a principal-to-principal market).

c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).

d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

A Level 2 example would be a plain vanilla fixed-for-floating interest-rate swap, where its components are observable data points like the London Interbank Offered Rate (LIBOR).

Level 3

o Level 3 inputs are unobservable inputs for the asset or liability.

o Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability on the measurement date.

o However, the fair value measurement objective remains the same; that is, an exit price from the perspective of a market participant that holds the asset or owes the liability.

o Therefore, unobservable inputs shall reflect the reporting entity’s own

assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

o Unobservable inputs shall be developed based on the best information

available in the circumstances, which might include the reporting entity’s own data.

o In developing unobservable inputs, the reporting entity need not undertake all

possible efforts to obtain information about market participant assumptions. o However, the reporting entity shall not ignore information about market

participant assumptions that is reasonably available without undue cost and effort. Therefore, the reporting entity’s own data used to develop unobservable inputs shall be adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.

A Level 3 example would be a beneficial interest in a perpetual trust.


Reports and Subsidiary Ledgers

Statements and Reports Available to the Auditor—Legacy System

Background The (legacy) accounting software used by councils is maintained by the National Council of the Boy Scouts of America and provides management, the governing board, and auditors with many reports useful in conducting an audit. A few of these reports are discussed below. Note: All reports listed here may be provided to your auditor electronically.

General Ledger Report

The General Ledger (GL) Report is the official record of transactions for the council. It shows transaction information from the various journals in other BSA software programs. When journals are posted, two sets of files are created for each transaction: summary records and detail records. The general ledger receives these files from the following journals:

Accounts payable journal from the accounts payable software

Cash disbursements journal from the accounts payable software

Contributions journal from the PAS fundraising software

Cash receipts journal from the PAS fundraising software (if applicable)

Cash receipts journal from the general ledger software

General journals from the general ledger software

Payroll journal from the payroll software

Trading post journal from the point-of-sale software

Membership journal from the PAS membership software

The General Ledger Report can be printed either monthly or for the complete fiscal year. It can be also be printed for the three most recent prior years.

Trial Balance The trial balance can be printed for one fund or all three funds. It is available for any year-to-date period in either the current fiscal year or the three most recent prior fiscal years. On the last page of the trial balance, one of the following messages may be printed to indicate a problem that may need to be corrected:

One or more funds are out of balance.

Transfers are out of balance.

Interfund loans are out of balance.

Invalid cost center being used in an account number.

Invalid usage code being used in an account number.

Invalid base account number.


Reports and Subsidiary Ledgers (continued)

Statements and Reports Available to the Auditor—Legacy System (continued)

Working Trial Balance

The working trial balance can be printed for one or all funds and is available for any year-to-date period in either the current or three most recent prior fiscal years. This report can also be provided to the auditor as a comma-delimited file.

Posted Detail Listing

This exportable report lists all transactions recorded in a GL account number (or range of GL account numbers) in a month or range of months. The report is in a four-column format arranged as follows:

1. Beginning balance

2. Debits

3. Credits

4. Ending balance

Chart of Accounts This report lists all accounts currently selected for use by the council.

Cost Center Listing

This report lists all cost centers currently used by the council. Cost centers used for camps, activities, and special events that require a deferred or nondeferred status are identified with the end date of the activity. On this date, the deferred income/expenses will be converted to nondeferred income/expenses. It is recommended the end-date of the activity should not be December 31, 20XX.

Fixed Assets Register

The general ledger software has a complete fixed assets register module that tracks all fixed assets and monthly depreciation. Reports available from this module include:

Fixed assets list

Disposed assets list

Fixed assets change log

Assets master listing

Detailed assets schedule


Reports and Subsidiary Ledgers (continued)

Statements and Reports Available to the Auditor—Legacy System (continued)

Insurance Register

The general ledger software has a complete insurance register module that tracks insurance policies over multiple fiscal years. Reports available include:

Listing of insurance policies

Insurance history

Insurance change log

Accounts Payable–Legacy System

The accounts payable software functions as a subsidiary ledger to the general ledger and maintains detailed accounting of accounts payable transactions. Reports available from accounts payable that may be useful during the audit include:

Open Payables by Date Report. This report lists unpaid invoices as of a specified date.

Payables Aging Report. This report should be printed as part of the year-end close process; it shows the age of all open payables as of December 31.

Vendor History Check Register. This report lists all checks issued to a vendor within a specified date range. It can show invoice detail.

Vendor History Report. This report is available for a single vendor or range of vendors over a specified date range and lists all history with those vendors.

Alphabetic Vendor List. This is a list of all vendors in alphabetical order.


General Ledger Reports—PeopleSoft Financials

In addition to the standard financial statements, PeopleSoft Financials is capable of generating detailed GL reports valuable to auditors:

In addition to GL reports, GL queries can be executed to provide detailed information:

Statements and Reports Available to the Auditor—PeopleSoft Financials


General Ledger Reports—PeopleSoft Financials

Statements and Reports Available to the Auditor—PeopleSoft Financials (continued)


Accounts Payable Reports—PeopleSoft Financials



Fixed Assets Reports— PeopleSoft Financials



Fixed Assets Reports—PeopleSoft Financials



Fundraising Reports

(Used by Both Legacy and PeopleSoft Councils)

Payroll Reports—(Used by Both Legacy and PeopleSoft Councils)

If the council is using the fundraising software supported by the national office, fundraising reports should be printed immediately after all pledges and payments for the current fiscal year have been entered into the system. Pledges and payments received in the council office or postmarked by December 31 shall be counted in that fiscal year’s transactions. The fundraising software can be used to record transactions for a prior or future period in the appropriate general ledger account. Other special features of the fundraising software include:

Allowance for uncollectible pledges. Pledges are reduced to net realizable value by establishing allowance and provision accounts for the fundraising campaigns listed below. No other campaigns have the allowance/provision accounts feature. These campaigns are:

Other direct Friends of Scouting

Project sales

Capital

Special fundraising events Legacies and bequests

United Ways

Endowment

Collectible vs. uncollectible pledges. At the end of the year, it is the responsibility of management to create a list of collectible and uncollectible pledges based on management’s judgment and experience. Two reports are available for this purpose:

Collectible Pledges Report

Uncollectible Pledges Report

All local councils use an outside service provider to handle their payroll and payroll tax needs. IOIPay is the recommended provider, although a few councils use other services. The IOIPay software interfaces with and updates the BSA general ledger (both legacy and PeopleSoft systems). Reports from IOIPay that may be useful during the audit include:

Payroll Reconciliation Tax, direct deposit, checks, vendor check, and banking information.

Current Check Listing Check number, department, employee SSN, employee name, and check amount.

Payroll Register Employee information, description of earnings,

deductions, taxes withheld, and check number.

Statements and Reports Available to the Auditor—Both Systems


Payroll Reports—(Used by Both Legacy and PeopleSoft Councils)

Deduction Register Employee ID, employee name, current amount withheld, YTD amount, and arrears balance.

Combined Register Employee information, current period, month-to-

date, quarter-to-date, and year-to-date.

Quarterly Reports and Annual Reports Forms 941 and worksheets, and Forms W-2 and W-3.

SellWise Point-of-Sale

If the council uses SellWise point-of-sale software, the Inventory Valuation Report will show the value of the store inventory at average cost at the end of an accounting period. It is a “custom” report listing all inventory items, balance on hand, price, current cost, average cost, department, and extended totals, based on selections made by the user.

Statements and Reports Available to the Auditor—Both Systems


Culture of the BSA

Overview It is important that the auditor understand the culture of the Boy Scouts of America. The culture of the Boy Scouts of America includes the following elements:

The National Council

The mission of the Boy Scouts of America is to prepare young people to make ethical and moral choices over their lifetimes by instilling in them the values of the Scout Oath and Scout Law.

The headquarters is in Irving, Texas.

The National Council develops the programs of the Boy Scouts of America.

The Boy Scouts of America includes a subsidiary corporation to administer Learning for Life.

The National Council is divided into four regions:

Northeast Region

Southern Region

Central Region

Western Region

Regions are divided into areas. Program support is delivered to the local councils in each area.

Local Council Governance

There are approximately 290 local councils.

The local council is chartered by the National Council to deliver the program of the Boy Scouts of America and administer the Learning for Life program.

Each local council is incorporated as a not-for-profit corporation in the state in which it is located. Articles of incorporation and bylaws are filed with the state.

Each local council is recognized by the Internal Revenue Service as a 501(c)(3) organization covered under a group exemption by the National Council.

A local council may subdivide into service areas, districts, and subdistricts. These subdivisions are administrative groupings created to carry out the mission of the council.

Voting members

Local community organizations are chartered by the local council to deliver the Scouting program. Each organization is required to appoint a representative. This representative and the members-at-large are the voting members of each council.


Governance (continued)

Annual meeting

Each council will conduct an annual business meeting to elect an executive board, receive an annual report, and conduct other business. Each council may appoint members of the executive board to serve as members of an executive committee.

Scout executive

The Scout executive has received a professional commission from the Boy Scouts of America and serves as the chief executive officer of the corporation and secretary to the executive board. The Scout executive is accountable to the executive board through the council president.

Performance and compensation

The Boy Scouts of America utilizes the Performance and Development System (PDS). PDS is both a professional development program and a self-initiated, automated tool. Each employee sets his or her own goals and completes self-evaluations of his or her performance during the year. The goals are reviewed, revised, and approved through the management chain. For Scout executives, goals and performance evaluations are coordinated through their area director to their council president. All PDS goals are linked to the national and local council strategic plans through the goal-setting process. PDS has several types of goals: a job essential function is required for all employees to ensure basic responsibilities are completed; a people management goal is required for all managers to develop their employees; all employees have an additional three to five performance goals that move the council forward. Competencies, which are standards of behavior, and professional development activities are also included for each employee in the PDS program. The PDS cycle begins late in the calendar year with goal setting for the upcoming year and includes quarterly informal but documented reviews and a final annual review after the close of the year. All performance and development records are retained in the PDS tool and accessible to managers and Human Resources in support of the National Council’s internal personnel system for promotions, mobility, and succession planning.

The compensation program for commissioned and certified professionals is based on generic job profiles that provide a clear career path, consistent job responsibilities and experiences, and mobility across councils. Each job profile is valued against current labor market values for similar jobs. Jobs of similar value are placed within the broad salary grades to provide professional hierarchies in program, youth-serving, development, and council management jobs. To ensure that the jobs reflect local labor markets, each council location is placed in a geographical salary range. Geographical salary ranges can vary from –7.5 percent to +20 percent, depending on the cost of labor and the council location. The cost of labor for each location is reviewed every three years and changes are communicated to councils. Generic jobs are valued to the market and differentiated by local cost of labor to ensure that councils are competitive in their local markets.


Governance (continued)

Business Expense Reimbursement

Compensation is tied to performance. Salary increases are based on the performance rating and contribution of each individual. Performance increases include annual salary increases, promotion increases for moves to a higher grade job, and development increases for milestones and increased responsibility within the same grade. Managers use their own discretion (within budget constraints) to grant increases that reward and recognize performance. Managers distinguish performance by providing high performers with higher increases, average performers with average increases, and poor performers with little or no increase. To assist councils in establishing increase budgets, a labor market increase projection is provided with the benefits bulletin each September for the upcoming year.

Scout executive compensation, benefits, and perquisites are governed under IRS code regarding not-for-profit organizations. For this reason, all salary, benefits, and perquisites increases and changes must be authorized and approved in writing by the council president. All documentation must be retained as part of the board documents for the council.

The monthly business expenses for the Scout executive are to be approved by the council president or designee.

Program Delivery

The program of the Boy Scouts of America contains the following types of membership:

Cub Scouts—Boys in first through fifth grades.

Boy Scouts—Boys 11 through 18 years of age.

Venturing—Young men and women 14, or 13 with completion of the eighth grade, through 20 years of age.

The program of Learning for Life contains the following types of participation:

Exploring—Coed career-based program for youth 14 through 20 years of age.

Groups—Classroom-based program with character-building curriculum for boys and girls in kindergarten through 12th grade.

Many councils own property for conducting a camping program. Not all camping programs are conducted on council-owned property.

Boy Scout summer camps are usually conducted on council-owned property.

Cub Scout day camps may be conducted in a variety of locations.


Communications

Management Letter

Letter Requirements

Generally accepted auditing standards require auditors to communicate reportable control deficiencies they identify during the audit (SAS 115). There is no audit requirement to communicate “management points,” that is, observations and suggestions regarding the organization’s activities that go beyond internal control-related matters. Such comments may deal with operational or administrative efficiencies and other items of perceived benefit to the organization. Authoritative literature contains very little discussion about and no required format for, or illustrations of, management letters.

However, Statement of Auditing Standards No. 115 notes that auditors are not precluded from communicating to a client on a variety of matters.

Format The flexibility of not having a fixed format for a management letter is a major advantage to the auditor. This allows the auditor to design a format to meet the individual needs of the local council. The specific objectives and purpose of the management letter will vary based on individual audits, but the general objectives are to improve communications between the auditor and the council and to add value to the audit.

BSA Policy It is a requirement of the National Council, Boy Scouts of America, that the audits of local councils include a management letter for use by management and officers of the corporation. The BSA will accept a combination SAS 115/management letter. A sample letter can be found in Appendix B.

Management Letter Response A written response, addressing each of the advisory comments of the management letter, is required to be submitted to the national office. This is required even if there were no advisory comments in the management letter. This document should be drafted by council management and reviewed by the audit committee. Upon approval by the audit committee, the response to the management letter should be presented to the executive board and approved.


Communications (continued)

SAS 114 Letter SAS No. 114—The Auditor’s Communication with Those Charged with Governance (supersedes SAS No. 61, as amended) is required: This standard relates to communication with those individuals in the organization charged with governance. In local councils, this would be your audit committee and executive board of directors. SAS No. 114 adds requirements (to SAS No. 61) to communicate: 1) an overview of the planned scope and timing of the audit* (often outlined in the engagement letter, see pages B-23 and B-24), and 2) representations the auditor is requesting from management. It also provides additional guidance on the communication process, including the forms and timing of communication. Significant findings from the audit should be in writing when, in the auditor’s professional judgment, oral communication would not be adequate. Other communications may be oral or in writing. SAS No. 114 requires the auditor to determine the appropriate people in the entity’s governance structure with whom to communicate particular matters. That person may vary depending on the nature of the matter to be communicated. It also requires the auditor to evaluate the adequacy of the two-way communication between the auditor and those charged with governance. Other items to be communicated by the auditor include management’s judgments and accounting estimates, audit adjustments, and uncorrected misstatements. The SAS 114 letter will also communicate information regarding any new accounting policies adopted by the council, any disagreements with management, major issues discussed prior to the audit, and difficulties encountered during the audit. A sample letter can be found in Appendix B. A copy of the SAS 114 letter is required to be submitted to the national office. *Important note regarding the audit committee’s involvement in the audit: The audit committee should meet at least two times during the audit process. One meeting should be held prior to the start of fieldwork to discuss with the auditor the scope and timing of audit procedures, among other matters. A second meeting should occur after fieldwork to review the results of the audit including the audited financial statements and other BSA- and GAAP-required documents such as the SAS 114 letter described above. For more information regarding the audit committee and its role in the audit process, please visit the Finance Impact Department website at http://www.scouting.org/sitecore/content/FinanceImpact/Council%20Fiscal%20Management/Document%20Library.aspx to view the Audit Committee Guidebook.



Communications (continued)

Management Representation Letter A copy of the representation letter from the council management to the auditing firm is required to be submitted to the national office.

Audit Committee Meeting Minutes As indicated on the previous page, the audit committee should meet at least twice during the audit process and minutes should be taken at all meetings. At a minimum, the national office will accept minutes from the final meeting to review the audited financial statements and other required documents. The minutes must list those in attendance, those absent, and actions taken, and have the signature of the audit committee chairman and Scout executive. New requirement for 2012: Please include in the notes to your audit committee meetings an acknowledgement of any BSA deficiencies noted in your 2011 audited financial statements and steps taken in the current year to correct them.

Local Council Guide to the 2012 Audit Page A-1 Release date: 2/21/2013

Appendix A—Sample Financial Statements

Statement Samples

Employee Time Study

Samples of the following statements are included in this section. The sample financial statements represent actual BSA system-generated financial statements and are presented to illustrate the BSA’s requirements regarding financial statement presentation. Note: Some amounts presented in the following financial statements may contain small rounding errors. It is expected that your council’s audited financial statements will be free of any such errors. Due to space constraints, abbreviations have been used in the following statements for certain headings and line items. Complete descriptions should be used in your council’s audited financial statements.

Statement of Financial Position Statement of Changes in Net Assets Statement of Functional Expenses Statement of Cash Flows

Page A-9 contains a sample worksheet used to capture information obtained as a result of an employee time study. The time study relates to the Statement of Functional Expenses. See discussion on page 11. Note: This is not a BSA system-generated report.


Nation's Best Council

Statements of Financial Position

December 31, 2012 and 2011

Assets 2012 2011 2011 2011 2011

Current Assets

Cash $989,318 $980,880 $90,511 $351,700 $1,423,091

Short‐Term Investments 591,344 745,160 745,160

Accounts and Notes Rcvbl 82,354 81,917 81,917

Pledges Receivable 321,407 488,615 27,746 11,440 527,801

Inventories 205,138 200,672 200,672

Interfund Loans 10,000 0

Deferred Activity Expenses 43,578 40,608 40,608

Defered Camping Expenses 1,000 980 980

Defered Special Event Exp. 1,000 1,020 1,020

Prepaid Expense 173,252 171,753 171,753

Other Current Assets 3,000 1,000 1,000

Total Current Assets 2,421,391 2,712,605 118,257 363,140 3,194,002

Land, Building, and Equip. 8,535,192 8,535,192

Long‐Term Investments 7,000 7,000 112,385 6,306,235 6,425,620

Total Noncurrent Assets 7,000 7,000 8,647,577 6,306,235 14,960,812

Total Assets $2,428,391 $2,719,605 $8,765,834 $6,669,375 $18,154,814

Liabilities and Net Assets

Current Liabilities

Accounts Payable $263,997 $668,963 $10,780 679,743

Accrued Expenses 100 100

Payroll Taxes Withheld 15,604 7,263 7,263

Custodian Accounts 232,109 172,273 172,273

Short‐Term Notes Payable 5,000

Deferred Activity Income 114,586 110,175 110,175

Deferred Camp Income 50,549 58,254 58,254

Deferred Special Event Income 10,000 15,000 15,000

Other Current Liabilities 12,854 13,021 13,021

Total Current Liabilities 704,699 1,045,049 10,780 1,055,829

Long‐Term Indebtedness 23,860 23,860

Total Noncurrent Liabilities 23,860 23,860

Total Liabilities 704,699 1,045,049 34,640 1,079,689

Net Assets

Unrestricted Net Assets 1,331,641 1,291,367 8,588,733 44,412 9,924,513

Temp. Restricted Net Assets 392,051 383,189 142,460 10,000 535,649

Perm. Restricted Net Assets 6,614,963 6,614,963

Total Net Assets 1,723,692 1,674,556 8,731,193 6,669,375 17,075,125

Total Liabilities and Net Assets $2,428,391 $2,719,605 $8,765,833 $6,669,375 $18,154,814

Operating Fund Capital Fund Endowment Fund Total All Funds

2012 2012 2012

82,354

26,156 1,667 349,230

$51,207 $462,161 $1,502,686

591,344

43,578

1,000

205,138

(10,000) 0

3,000

67,363 463,828 2,952,582

1,000

173,252

78,962 6,559,666 6,645,628

8,440,844 6,559,666 15,007,510

8,361,882 8,361,882

$8,508,207 $7,023,494 $17,960,092

$1,250 $265,247

5,000

114,586

15,604

232,109

12,854

1,250 705,949

50,549

10,000

22,415 727,114

21,165 21,165

21,165 21,165

8,364,886 328,053 10,024,580

120,906 10,000 522,957

$8,508,207 $7,023,494 $17,960,092

6,685,441 6,685,441

8,485,792 7,023,494 17,232,978


Nation's Best Council, Inc.Statements of Changes in Net Assets

Years Ended December 31, 2012 and 2011

Changes in Unrestricted Net Assets Operating Fund Capital Fund Endowment Fund Total All Funds

Support and Revenue 2012 2011 2012 2011 2012 2011 2012 2011

Friends of Scouting $1,160,177 $1,254,629 $1,160,177 $1,254,629

Capital Campaign $32,257 $13,615 32,257 13,615

Special Events ‐ Gross 935,493 1,446,276 935,493 1,446,276

Less Cost of Direct Benefit (169,558) (282,953) (169,558) (282,953)

Net Special Events 765,935 1,163,323 765,935 1,163,323

Foundations and Trusts 213,150 88,730 213,150 88,730

Other Direct Support 101,001 29,400 1,500 101,001 30,900

Total Direct Support 2,240,263 2,536,082 32,257 15,115 2,240,263 2,537,582

Indirect Support

United Ways 244,355 318,874 244,355 318,874

Total Indirect Support 244,355 318,874 244,355 318,874

Revenue

Sale of Supplies ‐ Gross 975,000 900,000 975,000 900,000

Less Cost of Goods Sold (633,750) (585,000) (633,750) (585,000)

Net Sale of Supplies 341,250 315,000 341,250 315,000

Product Sales ‐ Gross 1,532,038 1,419,453 1,532,038 1,419,453

Less Cost of Goods Sold (653,061) (610,017) (653,061) (610,017)

Less Commissions Paid to Units (459,611) (425,700) (459,611) (425,700)

Net Product Sales 419,366 383,736 419,366 383,736

Investment Income 291,591 303,677 291,591 303,677

Gain or Loss on Investments 520 (33,423) 2,129 275,422 242,519 2,129

Camping Revenue 1,173,326 1,207,779 1,173,326 1,207,779

Activity Revenue 397,588 340,251 397,588 340,251

Other Revenue 204,037 212,041 1,150 205,187 212,041

Total Revenue 2,827,678 2,762,484 (32,273) 2,129 275,422 3,070,827 2,764,613

Net Assets Released From Restrictions

Reclass Friends of Scouting 59,602 60,591 59,602 60,591

Reclass Capital Campaign 21,554 21,554

Reclass Special Events 24,065 23,950 24,065 23,950

Reclass Foundations 15,000 15,000

Reclass United Way 299,556 299,567 299,556 299,567

Total Reclassification of Net Assets 383,223 399,108 21,554 404,777 399,108

Total Support and Revenue 5,695,519 6,016,548 21,538 17,244 275,422 5,960,222 6,020,177


Nation's Best Council, Inc.

Statements of Changes in Net Assets (continued)


Changes in Unrestricted Net Assets Operating Fund Capital Fund Endowment Fund Total All Funds

Expenses 2012 2011 2012 2011 2012 2011 2012 2011

Program Services $4,786,001 $4,869,689 $213,816 $504,906 $4,999,817 $5,374,595

Support Services

Management and General 461,753 469,758 20,626 48,706 482,379 518,464

Fundraising 334,736 340,816 14,964 35,337 349,700 376,153

Total Supporting Services 796,489 810,573 35,590 84,043 832,079 894,616

Total Functional Expenses 5,582,490 5,680,262 249,406 588,949 5,831,896 6,269,211

Charter and National Service Fee 60,516 60,267 60,516 60,267

Total Expenses 5,643,006 5,740,529 249,406 588,949 5,892,412 6,329,478

Inc (Dec) in Unrestricted Net Assets 52,513 276,019 (227,868) (571,705) 275,422 100,067 (295,686)





Changes in Temp. Restricted Net Assets Operating Fund Capital Fund Endowment Fund Total All Funds

Direct Support 2012 2011 2012 2011 2012 2011 2012 2011

Friends of Scouting $22,604 $55,802 $22,604 $55,802

Special Events ‐ Gross 40,233 40,233

Less Cost of Direct Benefit

Net Special Events 40,233 40,233

Foundations and Trusts 34,250 34,250

Other Direct Support 22,192 22,192

Total Direct Support 97,087 55,802 22,192 97,087 77,994

Indirect Support

United Ways 294,998 299,567 294,998 299,567

Total Indirect Support 294,998 299,567 294,998 299,567

Net Assets Released From Restrictions

Reclass Friends of Scouting (59,602) (60,591) (59,602) (60,591)

Reclass Capital Campaign (21,554) (21,554)

Reclass Special Events (24,065) (23,950) (24,065) (23,950)

Reclass Foundations (15,000) (15,000)

Reclass United Way (299,556) (299,567) (299,556) (299,567)

Total Reclassification of Net Assets (383,223) (399,108) (21,554) (404,777) (399,108)

Total Support and Revenue 8,862 (43,739) (21,554) 22,192 (12,692) (21,547)

Inc (Dec) in Temp. Res. Net Assets 8,862 (43,739) (21,554) 22,192 (12,692) (21,547)






Changes in Perm. Restr. Net Assets 2012 2011 2012 2011 2012 2011 2012 2011

Direct Support

Other Direct Support $70,478 $125,015 $70,478 $125,015

Total Direct Support 70,478 125,015 70,478 125,015

Indirect Support

Total Indirect Support

Revenue

Gain or Loss on Investments 120,052 120,052

Total Revenue 120,052 120,052

Net Assets Released From Restr

Ttl Reclassification of Net Assets

Total Support and Revenue 70,478 245,067 70,478 245,067

Inc (Dec) in Perm. Res. Net Assets 70,478 245,067 70,478 245,067

Inc (Dec) in Total Net Assets 61,375 232,280 (249,422) (549,513) 345,900 245,067 157,853 (72,166)

Net Assets, Beg. of Year

Unrestricted Net Assets 1,291,367 978,988 8,588,733 9,160,439 44,412 90,772 9,924,513 10,230,199

Temp. Restricted Net Assets 383,189 426,927 142,460 120,268 10,000 535,648 547,195

Perm. Restricted Net Assets 6,614,963 6,369,896 6,614,963 6,369,896

Total Net Assets, Beg. of Year 1,674,556 1,405,915 8,731,193 9,280,707 6,669,375 6,460,668 17,075,124 17,147,290

Transfers (12,239) 36,360 4,020 8,219 (36,360)

Adjustments to Net Assets

Unrestricted Adjustments (10,000) (10,000)

Temp. Restricted Adjustments 10,000 10,000

Perm. Restricted Adjustments

Total Adjustments to Net Assets

Net Assets, End of Year

Unrestricted Net Assets 1,331,641 1,291,367 8,364,885 8,588,734 328,053 44,412 10,024,579 9,924,513

Temp. Restricted Net Assets 392,051 383,188 120,906 142,460 10,000 10,000 522,957 535,648

Perm. Restricted Net Assets 6,685,441 6,614,963 6,685,441 6,614,963

Total Net Assets, End of Year $1,723,692 $1,674,555 $8,485,791 $8,731,194 $7,023,494 $6,669,375 $17,232,977 $17,075,124


Nation’s Best Council, Inc.

Statement of Functional Expenses

Year Ended December 31, 2012 with 2011 totals

Program Management Fundraising Support

Expenses Service and General Services

2012 2012 2012 2012 2012 2011

Salaries $2,317,454 $218,137 $109,069 $327,206 $2,644,660 $2,723,538

Employee Benefits 369,274 37,447 18,723 56,170 425,444 423,492

Payroll Taxes 210,632 20,396 10,198 30,594 241,226 265,712

Employee‐Related Expenses 8,590 1,011 505 1,516 10,106 15,175

Total Employee Compensation 2,905,950 276,991 138,495 415,486 3,321,436 3,427,917

Other Expenses

Professional Fees 15,000 123,061 123,061 138,061 126,590

Supplies 519,440 2,565 5,018 7,583 527,023 498,362

Telephone 50,350 3,867 1,934 5,801 56,151 75,510

Postage and Shipping 26,274 2,359 15,430 17,789 44,063 51,049

Occupancy 448,564 10,718 20,586 31,304 479,868 468,111

Rent and Maintenance of Equipment 114,959 8,569 17,188 25,757 140,716 125,675

Printing and Publications 45,632 1,869 32,984 34,853 80,485 99,790

Travel 185,988 10,465 5,409 15,874 201,862 223,969

Conferences and Meetings 137,816 4,085 7,459 11,544 149,360 168,788

Specific Asst. to Individuals 85,260 85,260 30,130

Recognition Awards 47,645 3,238 29,811 33,049 80,694 86,572

Interest Expense 1,893 223 111 334 2,227

Insurance 157,905 6,681 3,391 10,072 167,977 185,728

Other Expenses 50,288 3,470 59,774 63,244 113,532 118,168

Total Other Expenses 1,887,014 181,170 199,095 380,265 2,267,279 2,258,442

Expenses Before Depreciation 4,792,964 458,161 337,590 795,751 5,588,715 5,686,359

Depreciation of Buildings/Equipment 205,852 24,218 12,109 36,327 242,179 582,852

Loss on disposal of fixed assets 1,000 1,000

Total Functional Expenses $4,999,816 $482,379 $349,699 $832,078 $5,831,894 $6,269,211

Functional Expense Percentages 85.73% 8.27% 6.00%

Total Expenses

100.00%

All Funds



Statements of Cash Flows



2012 2011 2012 2011 2012 2011 2012 2011

Increase (Decrease) Total Net Assets $61,375 $232,280 ($249,422) ($549,513) $345,900 $245,067 $157,853 ($72,166)

Adjustments to reconcile inc (dec) in

net assets to net cash from oper. activ.

Depreciation 242,179 582,852 242,179 582,852

Loss on disposal of fixed assets 1,000 1,000

Net real. and unreal. (G) or L on inv. (520) 33,423 (2,129) (275,422) (120,051) (242,519) (122,180)

Contrib. restr.for L‐T investment (70,447) (125,018) (70,447) (125,018)

Bad debts 36,847 3,750 36,847 3,750

Transfers (12,239) 36,360 4,020 8,219 (36,360)

Accounts Receivable (437) 27,024 (437) 27,024

Pledges Receivable 167,208 (52,935) 11,590 38,299 9,773 188,571 (14,636)

Inventory (4,466) (10,201) (4,466) (10,201)

Interfund Loans (10,000) 10,000 0

Prepaid Expenses (4,470) 1,654 (4,470) 1,654

Other Current Assets (2,000) (2,000)

Accounts Payable (404,966) 386,248 (9,530) (8,186) (414,496) 378,062

Accrued Expenses (100) 100 (100) 100

Payroll Taxes 8,341 (16,584) 8,341 (16,584)

Custodial Accounts 59,837 48,406 59,837 48,406

Deferred Income (8,294) 18,077 (8,294) 18,077

Other Current Liabilities (167) (872) (167) (872)

Total Adjustments (175,426) 441,027 292,682 610,836 (327,877) (281,429) (210,621) 770,434

Net Cash Flows from Operating Activ. (114,051) 673,307 43,260 61,323 18,023 (36,362) (52,768) 698,268

Cash Flows from Investing Activities

Purchase of fixed assets (79,869) (155,556) (79,869) (155,556)

Proceeds from sale of investments 556,263 1,186,779 257,933 326,114 14,035,246 18,521,669 14,849,442 20,034,562

Purchase of investments (433,774) (1,518,799) (257,933) (326,114) (13,902,824) (18,368,597) (14,594,531) (20,213,510)

Change in restricted cash (110,461) (115,144) (110,461) (115,144)

Net Cash Flows from Investing Activ. 122,489 (332,020) (79,869) (155,556) 21,961 37,928 64,581 (449,648)

Cash Flows from Financing Activities

Proceeds from notes payable 23,860 23,860

Principal payments on notes pbl. (2,695) (2,695)

Proceeds from contributions restr.

for investment in endowment 70,477 113,578 70,477 113,578

Net Cash Flows from Financing Activ. (2,695) 23,860 70,477 113,578 67,782 137,438

Net Increase (Decrease) in Cash 8,438 341,287 (39,304) (70,373) 110,461 115,144 79,595 386,058

Cash at Beginning of Year 980,880 639,593 90,511 160,884 351,700 236,556 1,423,090 1,037,032

Cash at End of Year $989,318 $980,880 $51,207 $90,511 $462,161 $351,700 $1,502,685 $1,423,090


Employee Time Study

Use this worksheet to allocate a council employee’s time to the categories listed. See the guidelines on the next page. Also see the Local Council Accounting Manual for more information on time analysis.

Employee ______________________________________________________________

Instructions

1. This time study covers the two-week period indicated below. 2. Use the definitions on the next page as guidelines. 3. Exclude absences due to illness, holidays, vacations, etc. 4. Report time in each category to the nearest half-hour. 5. Total the hours across by day and down by column heading.

Day Date Program Management Fundraising Total

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

Totals


Functional Expense Category Definitions

Use the following descriptions to determine the proper allocation of your time.

Program Services Services to chartered organizations, units, volunteer leaders, camping (year-round and summer), activities, leadership training, recruiting, organizing new units and conservation of established ones, health and safety, advancement, unit money-earning projects, district committee meetings, roundtables, community relations, meetings and training related to the program and field service in general, and direct supervision of the above.

Management Only the following items are included as management activities:

Nonprogram executive direction, meeting on overall council management and personnel administration

Accounting, auditing, budgeting, legal services, and administrative reporting (annual reports, announcements of board meetings, etc.)

Office management, purchasing, maintenance of membership records

Any time that the Scout executive or other professional spends supervising camps, activities, and other program services should be categorized as program services.

Fundraising Only time spent on the following should be categorized as fundraising:

Participation in and direction of an FOS or capital campaign, recruitment and training of workers for same, processing of prospect lists, etc.

Solicitation of grants, project sales, or bequests

Participation in and direction of publicity for fundraising and meetings with prospective contributors

Local Council Guide to the 2012 Audit B-1 Release date: 2/21/2013

Appendix B—Code of Ethics and Sample Notes to Financial Statements Code of Ethics

Overview The executive board should formally adopt a code of ethics with which all board

members, staff, and volunteers are familiar and to which they adhere. The following Statement of Values and Code of Ethics was developed and provided by the Independent Sector (a not-for-profit organization of which the BSA is a member) as an encouragement to all not-for-profit organizations to set aside time in their board meetings to discuss in detail all aspects of an ethical code. It may be used as a model in your council.

Statement of Values

Below is the Statement of Values for councils of the Boy Scouts of America.

The values of this council include:

Commitment to the public good. Accountability to the public. Commitment beyond the law. Respect for the worth and dignity of individuals. Inclusiveness and social justice. Respect for pluralism and diversity. Transparency, integrity, and honesty. Responsible stewardship of resources, and commitment to excellence and to

maintaining the public trust.

All staff, board members, and volunteers of the council act with honesty, integrity, and openness in all their dealings as representatives of the council. The council promotes a working environment that values respect, fairness, and integrity.

Council Mission

The Boy Scouts of America has one mission, which extends to all local councils: “The corporation shall promote, within the territory covered by the charter from time to time granted it by the Boy Scouts of America and in accordance with the Congressional Charter, Bylaws, and Rules and Regulations of the Boy Scouts of America, the Scouting program of promoting the ability of boys and young men and women to do things for themselves and others, training them in Scoutcraft, and teaching them patriotism, courage, self-reliance, and kindred virtues, using the methods which are now in common use by the Boy Scouts of America.” It is important for all local councils to use this mission statement when preparing their annual IRS Form 990.


Governing Body

The organization has an active governing body that is responsible for setting the mission and strategic direction of the council, and for the oversight of the finances, operations, and policies of the council. The governing body:

Ensures that its board members have the requisite skills and experience to carry out their duties, and that all members understand and fulfill their governance duties acting for the benefit of the organization and its public purpose.

Has a conflict-of-interest policy that ensures that any conflicts of interest or the

appearance thereof are avoided or appropriately managed through disclosure or other means.

Is responsible for hiring, firing, and regular review of the performance of the

Scout executive, and ensures that the compensation of the Scout executive is reasonable and appropriate.

Ensures that the council conducts all transactions and dealings with integrity

and honesty. Ensures that the council promotes working relationships with board members,

staff, volunteers, and program beneficiaries that are based on mutual respect, fairness, and openness.

Ensures that the council is fair and inclusive in its hiring and promotion policies

and practices for all board, staff, and volunteer positions. Ensures that policies of the council are in writing, clearly articulated, and

officially adopted. Ensures that the resources of the council are responsibly and prudently

managed. Ensures that the council has the capacity to carry out its programs effectively.

The council is knowledgeable of and complies with all laws, regulations, and applicable international conventions.


Fund Management

The council manages its funds responsibly and prudently with the following considerations:

It spends a reasonable percentage of its annual budget on programs in pursuance of its mission.

It spends an adequate amount on administrative expenses to ensure effective

accounting systems, internal controls, competent staff, and other expenditures critical to professional management.

The council compensates staff reasonably and appropriately.

It spends a reasonable percentage of its annual budget on fundraising costs,

recognizing the variety of factors that affect fundraising costs. The council does not accumulate operating funds excessively. The council prudently draws from endowment funds consistent with donor intent

and to support the public purpose of the council. The council ensures that all spending practices and policies are fair,

reasonable, and appropriate to fulfill the mission of the council. It presents financial reports that are factually accurate and complete in all

material respects.

Public Information

The council provides comprehensive and timely information to the public, the media, and all stakeholders, and is responsive in a timely manner to reasonable requests for information. All information about the council will fully and honestly reflect the policies and practices of the council. Basic information about the council, such as Form 990 and the audited financial statements, will be posted on the council’s website or otherwise be made available to the public. All solicitation materials accurately represent the council’s policies and practices and will reflect the dignity of program beneficiaries. All financial, organizational, and program reports will be complete and accurate in all material respects.

Program Effectiveness

The council regularly reviews program effectiveness and has mechanisms to incorporate lessons learned into future programs. The council is committed to improving program and organizational effectiveness and develops mechanisms to promote learning from its activities and the field. The council is responsive to changes in its field of activity and is responsive to the needs of its constituents.

Staff Makeup The council has a policy of promoting inclusiveness, and its staff, board, and

volunteers reflect diversity in order to enrich its programmatic effectiveness. The council takes meaningful steps to promote inclusiveness in its hiring, retention, promotion, board recruitment, and constituents served within the policies of the Boy Scouts of America.


Raising Funds The council is truthful in its solicitation materials. The council respects the privacy

concerns of individual donors and expends funds consistent with donor intent. The council discloses important and relevant information to potential donors. In raising funds from the public, the council will respect the rights of donors, as follows:

To be informed of the council’s mission, the way resources will be used, and the capacity to use donations effectively for their intended purposes.

To be informed of the identity of those serving on the council’s executive board

and to expect the board to exercise prudent judgment in its stewardship responsibilities.

To have access to the council’s most recent financial reports. To be assured their gifts will be used for the purposes for which they were

given. To receive appropriate acknowledgement and recognition. To be assured that information about their donations is handled with respect

and with confidentiality to the extent provided by the law. To be informed whether those seeking donations are volunteers, employees of

the council, or hired solicitors. To have the opportunity for their names to be deleted from mailing lists. To feel free to ask questions when making a donation and to receive prompt,

truthful, and forthright answers.


Sample Notes to Financial Statements

Note: Most of the following sample disclosures will apply to all local councils. Some will not. Please ensure that your council’s footnote disclosures are clearly representative of its unique financial situation.

LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization

The Local Council, Boy Scouts of America (the “Council”) operates in XXXXXXX, Texas, including the counties of XXXXX, XXXX, XXXXXXX, and XXXXXXXXX XXXXX. The Council has five camping facilities. The Trust Fund was established for the benefit of the Council. The Council is a not-for-profit organization devoted to promoting, within the territory covered by the charter from time to time granted it by the Boy Scouts of America and in accordance with the Bylaws, and Rules and Regulations of the Boy Scouts of America, the Scouting program of promoting the ability of boys and young men and women to do things for themselves and others, training them in Scoutcraft, and teaching them patriotism, courage, self-reliance, and kindred virtues, using the methods which are now in common use by the Boy Scouts of America.

The Council’s programs are classified as follows:

Tiger Cubs—One-year, family-oriented program for a group of teams, each consisting of a first-grade (or 7-year-old) boy and an adult partner (usually a parent). A Tiger Cub den is part of the Cub Scout pack.

Cub Scouts—Family- and community-centered approach to learning citizenship, compassion, and courage through service projects, ceremonies, games, and other activities promoting character development and physical fitness.

Boy Scouting—With the Scout Oath and Scout Law as guides, and the support of parents and religious and neighborhood organizations, Scouts develop an awareness and appreciation of their role in their community and become well-rounded young men through the advancement of the program. Scouts progress in rank through achievements, gain additional knowledge and responsibilities, and earn merit badges that introduce a lifelong hobby or a rewarding career.

Varsity Scouting—Program for young men ages 14–17 that provides options for those who are looking for rugged high adventure or challenging sporting activities and still want to be a part of a Scouting program that offers the advancement opportunities and values of the Boy Scouts of America. There are five fields of emphasis, including advancement, high-adventure sports, personal development, service, and special programs and events.

Venturing—Provides experiences to help young men and women, ages 14—or 13 with completion of the eighth grade—through 20, become mature, responsible, caring adults. Young teens learn leadership skills and participate in challenging outdoor activities, including having access to Boy Scout camping properties, a recognition program, and Youth Protection training.


LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Learning for Life—Program to enable young people to become responsible individuals by teaching positive character traits, career development, leadership, and life skills so they can make ethical choices and achieve their full potential.

The Council’s website address is ____________________________.

Principles of Consolidation

The Council has voting control over and an economic interest in the Trust Fund, which results in the accounts of the Trust Fund being consolidated with those of the Council in the accompanying consolidated financial statements. All intercompany balances and transactions have been eliminated in the consolidation. The Council and the Trust Fund are hereinafter collectively referred to as the “Organization.”

Fund Accounting

To ensure observance of limitations and restrictions placed on the use of available resources, the accounts of the Organization are maintained in accordance with the principles of fund accounting. Under such principles, resources for various purposes are classified for accounting and reporting purposes into funds that are in accordance with specified activities or objectives.

The Organization also prepares financial statements in accordance with the Financial Accounting Standards Board (FASB) standards for not-for-profit organizations (ASC 958-205 and subsections). Under these standards, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. In addition, the Organization is required to present a Statement of Cash Flows.

Contributions

Contributions receivable are recognized upon notification of a donor’s unconditional promise to give to the Organization. Unconditional promises to give that are expected to be collected in less than one year are measured at net realizable value because that amount results in a reasonable estimate of fair value in accordance with the Contributions Received section of the FASB ASC. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the consolidated Statement of Changes in Net Assets as assets released from restrictions.





Donated Materials and Services

Donated land, buildings, equipment, investments, and other noncash donations are recorded as contributions at their fair market value at their date of donation. The Organization reports the donations as unrestricted support, unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets must be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.

Donated services that do not either require specialized skills or enhance nonfinancial assets are not recorded in the accompanying consolidated financial statements because no objective basis is available to measure the value of such services. A substantial number of volunteers have donated significant amounts of their time to the Organization’s program services and its fundraising campaigns, the value of which is not recorded in the accompanying consolidated financial statements.

Advertising

Advertising costs are charged to operations in the period in which the advertisement is placed. Advertising for 2012 and 2011 amounted to approximately $XXX and $XXX, respectively. Advertising costs for 2012 include a contribution totaling approximately $XXX for advertising services performed for the Organization.

Investments

Investments consist primarily of assets invested in marketable equity and debt securities, alternative investments, commodities, and money market accounts. The Organization accounts for investments in accordance with the FASB standard for investments held by not-for-profit organizations (ASC 958-320 and subsections). This standard requires that investments in equity securities with readily determinable fair values and all investments in debt securities be measured at fair value in the consolidated Statement of Financial Position. Fair value of marketable equity and debt securities is based on quoted market prices. Alternative investments are stated at the fair value of their underlying assets and allocated to the investors in proportion to the investor’s ownership percentage. The realized and unrealized gain or loss on investments is reflected in the consolidated Statement of Changes in Net Assets.

Investments are exposed to various risks such as significant world events, interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the fair value of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated Statement of Financial Position. See also Notes 6 and 7.





Investment Policy

The Council’s investment policy intends for the Council to invest in assets that would produce results exceeding the investment’s purchase price and incur a significant yield of return, while assuming a moderate level of investment risk. The Council expects its Endowment Fund, over time, to provide a reasonable rate of return. To satisfy the long-term rate-of-return objective, the Council relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Council targets a diversified asset allocation that places a greater emphasis on marketable equity and debt securities and money market accounts to achieve its long-term return objectives within prudent risk constraints.

Spending Policy

On September 15, 2010, the board of directors (through the executive committee) approved an endowment spending policy. The policy defines the total funds available from the Endowment Fund in a given year (the distributable income) as up to 5 percent of the Endowment Fund’s average market value over the preceding three years. The Endowment Fund is to have returns greater than the proposed distribution plus management and trustee fees. If the market value of the Endowment Fund falls to or below the amount of the fund’s donor-restricted gifts, then the spending policy will be amended in accordance with the guidelines not to exceed the actual earnings of the fund. The executive committee (subject to the board of directors’ approval) may amend this spending policy.

Accounts Receivable

Accounts receivable are recorded primarily for product sales and are reported at net realizable value if the amounts are due within one year. An allowance for doubtful accounts is based on an analysis of expected collection rates determined from experience. No allowance for doubtful accounts was considered necessary as of December 31, 2012 and 2011.

Interfund Loans

The interfund loans at December 31, 2012, result from the Operating Fund making advances of surplus cash funds to the Capital Fund for operating purposes. In March 2013, the amounts due from the Capital Fund were relieved by the Operating Fund, thus satisfying the obligation.

Inventory

Inventory consists of Scouting and other items available for resale and is stated at the lower of cost or market. Cost is determined using the average method.





Land, Buildings, and Equipment

Land, buildings, and equipment acquired prior to January 1, 1973, are stated at appraised values as established by officials of the Council. Land, buildings, and equipment purchased subsequent to January 1, 1973, are recorded at cost. Donated land, buildings, and equipment are recorded at the approximate fair market value of the asset on the date of donation. Improvements or betterments of a permanent nature are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The costs of assets retired or otherwise disposed of, and the related accumulated depreciation, are eliminated from the accounts in the year of disposal. Gains or losses resulting from property disposals are credited or charged to operations currently. Land, buildings, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets.

Construction in progress represents costs incurred on the construction of assets that have not been completed or placed in service as of the end of the year.

Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements.

Functional Allocation of Expenses

The costs of providing the various programs and supporting services have been summarized on a functional basis in the consolidated Statement of Functional Expenses. Costs that are not directly associated with providing specific services have been allocated based upon the relative time spent by employees of the Council providing those services. In accordance with the policy of the National Council of the Boy Scouts of America (the “National Council”), the payments of the charter and national service fees to the National Council are not allocated as functional expenses.

Reclassifications

Certain reclassifications have been made to the 2011 summarized financial statement information to conform to the current-year presentation. These reclassifications had no effect on the increase in net assets for 2011.





Income Taxes

The Council is a not-for-profit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and comparable state law as a charitable organization, whereby only unrelated business income, as defined by Section 512 of the Code, is subject to federal income tax. The Council currently has no unrelated business income. Accordingly, no provision for income taxes has been recorded. The Council has adopted the provisions of the FASB standard on Accounting for Uncertainty in Income Taxes (ASC 740-10-25). The Council does not believe there are any material uncertain tax positions and, accordingly, it will not recognize any liability for unrecognized tax benefits. For the year ended December 31, 2012, there were no interest or penalties recorded or included in its consolidated financial statements.

Recent Accounting Pronouncements

New accounting standards are now issued by the Financial Accounting Standards Board (FASB) through Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). The FASB does not consider the updates authoritative on a standalone basis; they become authoritative when incorporated into the ASC. The ASUs will be in a six-digit, two-segment format (20YY-XX) where YY is the year issued and XX is the sequential number of each update. So, ASU 2012-01 would be the first update issued in 2012, and so forth.

Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80), Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”)—Issued in September 2011, this ASU requires expanded disclosures for certain defined benefit pension and other postretirement plans. ASU 2011-09 is effective for local councils in 2012 with early adoption permitted. The Council adopted the provisions of this ASU on October 1, 2011, which did not materially affect the Council’s financial statements (see Note 11).

Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”)—In May 2011, the FASB issued ASU No. 2011-04, which amended ASC 820, Fair Value Measurement, to change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The adoption of ASU 2011-04 became effective for local councils starting in 2012 and had no material effect on the Council’s financial statements (see Note 7).

Improving Disclosures about Fair Value Measurements (“ASU 2010-06”)—In January 2010, the

FASB issued ASU No. 2010-06, which amended ASC 820 to require new disclosures related to transfers in and out of Level 1 and Level 2 fair value measurements, including reasons for the transfers, and to require new disclosures related to activity in Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures were effective for the Council starting in 2011(see Note 7).




NOTE 2—ENDOWMENT FUND

The Council’s Endowment Fund includes donor-restricted endowment funds. As required by accounting principles generally accepted in the United States, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Unrestricted net assets, identified by the Council’s board of directors to be used for future investment and growth, are included in unrestricted net assets—board-designated.

The Council has interpreted the State Prudent Management of Institutional Funds Act (“SPMIFA”) as requiring the preservation of the original gift amount of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Council classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Council in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Council considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

(1) The duration and preservation of the fund (2) The purposes of the Council and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Council (7) The investment policies of the Council




NOTE 2—ENDOWMENT FUND (CONTINUED)

Changes in the endowment net assets (deficit) for th e years ended Decem ber 31, 2012 and 2011, are as follows:

Unrestricted— Unrestricted— Non-Board- Board- Temporarily Permanently Designated Designated Restricted Restricted Total

Endowment Fund net assets, December 31, 2010 $ XXX $ XXX $ XXX $ XXX $ XXX Net asset reclassification based on change in law XXX XXX XXX XXX XXX

Endowment Fund, after reclassification XXX XXX XXX XXX XXX

Investment return XXX XXX XXX XXX XXX

Contributions XXX XXX XXX XXX XXX

Other revenue XXX XXX XXX XXX XXX

Appropriation of endowment assets for expenditure $ XXX $ XXX $ XXX $ XXX $ XXX

Endowment Fund net assets, December 31, 2011 XXX XXX XXX XXX XXX

Investment return XXX XXX XXX XXX XXX

Contributions XXX XXX XXX XXX XXX Appropriation of endowment assets for expenditure XXX XXX XXX XXX XXX Endowment Fund net assets (deficit), December 31, 2012 $ XXX $ XXX $ XXX $ XXX $ XXX




NOTE 2—ENDOWMENT FUND (CONTINUED)

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the donor or SPMIFA requires the Council to retain as permanently restricted. Deficiencies of this nature result from unfavorable market fluctuations and would be included in unrestricted net assets. As of December 31, 2012, total deficiencies are $XXX. There were no deficiencies at December 31, 2011.

NOTE 3—NET ASSETS AND RESTRICTIONS

Substantially all of the restrictions on net assets at the end of 2012 are related to funds raised through the ongoing capital and endowment campaigns to help prepare the Council for future Scouting needs, charitable trusts of which the Council is a beneficiary, and United Way Services funding for the next year.

Temporarily restricted net assets are available for the following purposes at December 31, 2012 and 2011:

2012 2011

Endowment funds subject to a time restriction by explicit donor stipulation or by SPMIFA:

With purpose restrictions: gift $ XXX $ XXX With purpose restrictions: Other XXX XXX Capital campaign XXX XXX United Way XXX XXX General operations XXX XXX

$ XXX $ XXX Permanently restricted net assets consist of the following at December 31, 2012 and 2011:

2012 2011

Permanently restricted endowment gifts required to be retained either by explicit donor stipulations or by SPMIFA: General endowments $ XXX $ XXX Charitable lead and remainder trusts (see Note 7) XXX XXX Cash surrender value of life insurance XXX XXX

$ XXX $ XXX


LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 4—NET ASSETS RELEASED FROM RESTRICTIONS

Net assets were released from donor restrictions during 2012 and 2011 by incurring expenses satisfying the restricted purposes or by the occurrence of other events specified by donors. Net assets released were donated by the following:

2012 2011

Capital campaign $ XXX $ XXX United Way XXX XXX Friends of Scouting XXX XXX Foundations XXX XXX Camperships XXX XXX Other direct contributions XXX XXX

$ XXX $ XXX

NOTE 5—CONTRIBUTIONS RECEIVABLE

Contributions receivable at December 31, 2012 and 2011, consist of the following:

2012 2011

United Way $ XXX $ XXX Friends of Scouting XXX XXX Foundations XXX XXX Other unrestricted promises XXX XXX Restricted to capital campaign XXX XXX Restricted to Endowment Fund XXX XXX Total $ XXX $ XXX

Contributions receivable, due in: Less than one year $ XXX $ XXX





NOTE 5—CONTRIBUTIONS RECEIVABLE (CONTINUED)

Allocations from United Way of $XXX and $XXX (designated for general operating purposes for the first three months of 2012 and 2011, respectively) have been recorded in the consolidated financial statements since the amounts were pledged in 2012 and 2011, respectively. The Council has been notified of an additional allocation from United Way in 2013 of approximately $XXX. The revenue from the additional allocation will be recorded in 2013 when the firm commitment is received.

NOTE 6—INVESTMENTS

Investments at December 31, 2012 and 2011, are composed of the following:

2012 2011 Fair Fair Cost Value Cost Value

Corporate common and preferred stocks $ XXX $ XXX $ XXX $ XXX Corporate and other bonds XXX XXX XXX XXX U.S. government obligations XXX XXX XXX XXX Commodities XXX XXX XXX XXX Hedge funds XXX XXX XXX XXX Money market XXX XXX XXX XXX

$ XXX $ XXX $ XXX $ XXX

The following schedule summarizes the investment return in the consolidated Statement of Changes in Net Assets for the years ended December 31, 2012 and 2011:

2012 2011 Interest and dividend income $ XXX $ XXX Net realized and unrealized gains (losses) XXX XXX Investment expenses (XXX) (XXX) $ XXX $ XXX The above investment return is classified in the 2012 and 2011 co nsolidated Statement of Changes in Net Assets as follows: 2012 2011 Unrestricted $ XXX $ XXX Temporarily restricted XXX XXX $ XXX $ XXX





NOTE 6—INVESTMENTS (CONTINUED)

Income from interest and dividends on investments and realized and unrealized gains and losses on the sales of investments (“Investment Income, Gains, and Losses”) are recorded initially in the Endowment Fund. Distributions of Investment Income, Gains, and Losses from the Endowment Fund are recorded as income by the Operating and Capital Funds in the period in which the distributions are made in accordance with the Council’s spending policy (Note 1). For 2012 and 2011, investment expenses were $XXX and $XXX and are netted against investment return in the consolidated Statement of Functional Expenses (see schedule on previous page).

NOTE 7—SUMMARY OF FAIR VALUE EXPOSURE

The FASB Fair Value Measurement standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosure about the use of fair value measurements in an effort to make the measurement of fair value more consistent and comparable. The Council has adopted this standard for its financial assets and liabilities measured on a recurring and nonrecurring basis (ASC 820-10).

Fair Value Measurement defines fair value as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants, i.e., an exit price. To estimate an exit price, a three-tier hierarchy is used to prioritize the inputs:

Level 1: Quoted prices in active markets for identical securities.

Corporate common and preferred stocks—Valued at the closing market price on the stock exchange where they are traded (primarily the New York Stock Exchange).

Money market and savings accounts—Composed of funds invested in sav ings accounts at various financial institutions and a m oney market mutual fund. Funds i nvested in savings account s are valued based on the value of deposited funds and net invest ment earnings less withdrawals and fees. The money market mutual fund consists primarily of domestic commercial paper and other cash management instruments, such as repurchase agreements and master notes, U.S. gove rnment and corporate obligations, and other securities of foreign issuers. The fund seeks to maintain a stable net asset value (“NAV”) of $1.

Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment spreads, credit risk, etc.).

The Investment Fund for Foundations (“TIFF”) Multi-Asset Fund (“MAF”)—Managed by TIFF Advisory Services Inc., which serves as the MAF’s investment adviser and is responsible for the selection of money managers and other vendors and for the MAF’s asset allocation. The fund seeks to achieve a total return that exceeds inflation plus 5 percent per year by employing a globally diversified portfolio.




NOTE 7—SUMMARY OF FAIR VALUE EXPOSURE (CONTINUED)

Level 2 (continued): At December 31, 2012 and 2011, the MAF held the following investments:

2012 2011 Common stocks XX% XX% U.S. Treasuries XX% XX% Private investment funds XX% XX% Repurchase agreements XX% XX% 100% 100%

Securities listed on a securities exchange or traded on the National Association of Securities Dealers National Market System (“NASDAQ”) are valued at their closing price or at the most recently quoted bid price if there is not a closing price. Debt securities and over-the-counter stocks not listed on the NASDAQ are valued at prices that reflect a broker/dealer-supplied valuation or are obtained from independent pricing services. If the available prices are deemed unreliable, the valuation is based on fundamental valuation methods, which may include the analysis of the effect of any restrictions on the resale of the security, industry analysis and trends, significant changes in the issuer’s financial position, and any other event that could have a significant effect on the value of the security. Short-term debt securities with a maturity of 60 days or less are valued at amortized cost, and those with a maturity of over 60 days are valued at market value. Repurchase agreements are valued at cost. Private investment funds are valued either by management of the private investment fund or based on the most recent estimated value provided by the management of the private investment fund plus all other relevant information reasonably available at the time of valuation, including total returns of indices or exchange-traded funds that track markets to which the private investment fund may be exposed. At December 31, 2012 and 2011, all MAF investments were determined by its management to be Level 1 or 2, with the exception of the private investment funds, which were determined to be Level 3. The NAV per share of the MAF is determined by dividing the assets of MAF, less its liabilities, by the number of outstanding shares of the MAF. At December 31, 2012 and 2011, the NAV is $XX.XX and $XX.XX, respectively. BSA Commingled Endowment Fund LP (“BSA Fund”')—Investments held by the BSA Fund are valued at fair value based on the closing price for securities listed on a securities exchange, the closing bid or ask price for over-the-counter securities not listed on a securities exchange, or at cost or obtained from an independent pricing service for securities not listed or traded on any exchange or on the over-the-counter market. The custodian of the investments in the BSA Fund also has the ability to determine the fair value of securities not listed or traded on any exchange or on the over-the-counter market based on available information. The BSA Fund is valued at the number of units held by the Council and the Fund’s unit value.





Level 3: Significant unobservable inputs (including the Council’s own assumptions in determining the fair value of investments).

XYZ Asset Allocation LP (“XYZ Fund”)—Investments held by the XYZ Fund are in private equity investments and valued at fair value based on the best information available. Securities listed on a securities exchange are valued at the closing price less a discount to reflect legal restrictions associated with the securities, if any. Private interests are valued based on a methodology that begins with the most recent information available from the general partner of the underlying fund or the lead investor of a direct co-investment and considers subsequent transactions, such as drawdowns or distributions, as well as other reliable information that reports or indicates valuation changes, including realizations and other portfolio company events. Generally, the private equity fund investments have a defined term with no right to withdraw. The XYZ Fund’s private equity investments are diversified in large-cap buyout, mid-cap buyout, special situations, venture capital, secondary holding, and investment holding. The XYZ Fund is valued at the Council’s ownership percentage in the Fund’s underlying net assets. Alternative investments—Composed of pooled investment funds. Acme Offshore Long/Short Fund Ltd., invests in hedge funds. The individual funds are valued at the NAV of shares held by the Council. NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is determined by the trust company of the individual investment. The inputs and methodology used for valuing the Council’s financial assets and liabilities are not indicators of the risks associated with those assets and liabilities.

The following tables provide fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011:

2012 Description Level 1 Level 2 Level 3 Total Corporate common stocks $ XXX $ $ $ XXX TIFF Multi-Asset Fund XXX XXX BSA Commingled Fund XXX XYZ Asset Allocation XXX XXX Pooled investment funds XXX XXX Money market accounts XXX XXX Total investments $ XXX $ XXX $ XXX $ XXX





Fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011 (continued):

2011 Description Level 1 Level 2 Level 3 Total Corporate common stocks $ XXX $ $ $ XXX TIFF Multi-Asset Fund XXX XXX BSA Commingled Fund XXX XYZ Asset Allocation XXX XXX Pooled investment funds XXX XXX Money market accounts XXX XXX Total investments $ XXX $ XXX $ XXX $ XXX

Effective for 2011, the FASB Accounting Standards Update, Improving Disclosures about Fair Value Measurements, requires that, in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements on a gross basis rather than as one net number (ASU 2010-06). The following table reconciles the Council’s assets and liabilities classified as Level 3 measurements during the years ended December 31, 2012 and 2011, on such a basis:

Investments 2012 2011 Balance, beginning of year $XXX $XXX Purchases, issuances, and settlements (XXX) (XXX) Net realized and unrealized losses included in earnings XXX XXX Balance, end of year $XXX $XXX Net unrealized gains (losses) on Level 3 securities Held at end of year

$(XX,XXX)

$XX,XXX




NOTE 8—LAND, BUILDINGS, AND EQUIPMENT

Land, buildings, and equipment at December 31, 2012 and 2011, consist of the following:

Useful Lives 2012 2011

Land $ XXX $ XXX Building, structures, and land improvements 5–30 years XXX XXX Furniture, fixtures, and equipment 2–10 years XXX XXX Construction in progress XXX XXX XXX XXX Less: Accumulated depreciation XXX XXX

$ XXX $ XXX

NOTE 9—LINE OF CREDIT

In December 2010, the Council entered into a $XXX line of credit agreement with a bank. The line includes interest payable quarterly at prime less 1 percent, principal due in September 2013. At December 31, 2012 and 2011, there were no outstanding balances on the line.

NOTE 10—CREDIT RISK

Financial instruments that potentially subject the Council to credit risk consist principally of cash at financial institutions and investments. At times, the balances in cash accounts may be in excess of FDIC insurance limits. Management continuously monitors the Council’s balances at financial institutions and invests excess operating cash in short-term investments.

NOTE 11—EMPLOYEE BENEFIT PLANS

Retirement Plan

The National Council has a qualified defined benefit pension plan (“the plan”) administered at the national office that covers employees of the National Council and local councils, including the Local Council Inc. The plan name is the Boy Scouts of America Master Pension Trust – Boy Scouts of America Retirement Plan for Employees and covers all employees who have completed one year of service and who have agreed to make contributions. Eligible employees contribute 2 percent of compensation, and the council contributes an additional 7 percent to the plan. Pension expense (excluding the contributions made by employees) was approximately $XXX and $XXX in 2012 and 2011, respectively, and covered current service cost. The actuarial information for the plan as of February 1, 2012, indicates that it is in compliance with ERISA regulations regarding funding.




NOTE 11—EMPLOYEE BENEFIT PLANS (CONTINUED)

Retirement Plan (continued)

Thrift Plan

The Council has established a Thrift Plan covering substantially all of the employees of the Council. Participants in the Thrift Plan may elect to m ake voluntary before-tax contributions based on a percentage of their pay, subject to certain li mitations set forth in t he Internal Revenue Code of 1986, as amended. The Council has elected to match employee contributions to the Thrift Plan up to 50 percent of contributio ns from each participant, limited to 3 percent of each e mployee’s gross pa y. The Council contribute d approximately $XXX and $XXX, respectively, to the Thrift Plan in 2012 and 2011, respectively.

Health Care Plan

The Council’s employees participate in a health care plan provided by the National Council. The Council pays a portion of the cost for the employees, and the employees pay the remaining portion and the cost for any of their dependents participating in the plan. During the years ended December 31, 2012 and 2011, the Council remitted approximately $XXX and $XXX, respectively, on behalf of its employees to the National Council related to the health care plan.

NOTE 12—SCOUT SHOP (If your council has a national Scout shop)

The National Council operates a Scout shop within the XXXXXX area. The National Council manages the Scout shop and pays the Council an 8 percent commission on gross sales up to $XXX, and 13 percent on sales in excess of $XXX. The commissions earned (before expenses) by the Council during 2012 and 2011 amounted to approximately $XXX and $XXX, respectively, which are included in other revenue in the consolidated Statement of Changes in Net Assets.

NOTE 13—LEASE COMMITMENTS

The Council accounts for the lease of office equipment and a Scout shop as operating leases. Total rental expense amounted to approximately $XXX and $XXX in 2012 and 2011. These leases will expire on various dates through 2014. The following is a schedule of future minimum lease payments under these leases:

For the Year Ending December 31: 2013 $ XXX 2014 XXX $ XXX

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NOTE 15—RELATED-PARTY TRANSACTIONS

A Council officer is employed as president of a lo cal bank where the Council maintains significant account balances. As of Decem ber 31, 2012 and 2011, t otal Council deposits with th e bank w ere $X,XXX,XXX and $X,XXX,XXX, respectively.

NOTE 16— PRIOR-PERIOD INFORMATION

The consolidated financia l statements include certain prior-year summarized comparative information in total. Such information does not include suffici ent detail to constitute a presentation in conform ity with accounting principles generally accepted in the United States. Accordingly, such information should be read in conjunction with the Council’s consolidated financial statements for the year ended December 31, 2011, from which the summarized information was derived.

NOTE 17— SUBSEQUENT EVENTS

These consolidated financial statement s considered subsequent events through May 19, 2013, t he date the financial statements were available to be issued.


SAMPLE ENGAGEMENT LETTER (New) To the appropriate representative of those charged with governance of Local Council Inc.: [The objective and scope of the audit] You have requested that we audit the financial statements of ABC Company, which comprise the balance sheet as of December 31, 20XX, and the related statements of income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. [The responsibilities of the auditor] We will conduct our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements may not be detected exists, even though the audit is properly planned and performed in accordance with GAAS. In making our risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. However, we will communicate to you in writing concerning any significant deficiencies or material weaknesses in internal control relevant to the audit of the financial statements that we have identified during the audit. [The responsibilities of management and identification of the applicable financial reporting framework] Our audit will be conducted on the basis that those charged with governance acknowledge and understand that they have responsibility a. for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; b. for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; and c. to provide us with

i. access to all information of which [management] is aware that is relevant to the preparation and fair presentation of the financial statements such as records, documentation, and other matters;

ii. additional information that we may request from [management] for the purpose of the audit; and

iii. unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence.

As part of our audit process, we will request from [management and, when appropriate, those charged with governance] written confirmation concerning representations made to us in connection with the audit. [Other relevant information] [Other information inserted here, such as fee arrangements, billings, and other specific terms, as appropriate.]


[Reporting] We will issue a written report upon completion of our audit of ABC Company’s financial statements. Our report will be addressed to the board of directors of ABC Company. We cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for us to modify our opinion, add an emphasis-of-matter or other-matter paragraph(s), or withdraw from the engagement. We also will issue a written report on [Appropriate reference to other auditor’s reports expected to be issued inserted here.] upon completion of our audit. Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities. XYZ & Co. Acknowledged and agreed on behalf of Local Council Inc. by ___________________________ [Signed] [Name and Title] [Date]


SAMPLE MANAGEMENT REPRESENTATION LETTER

Type on Council Letterhead

Date

Auditing Firm

Address

City, State, Zip

We are providing this letter in connection with your audit of the Statement of Financial Position of the ____________ Council,

Boy Scouts of America, as of December 31, 20XX, and the related statements of changes in net assets, functional expenses,

and cash flows for the year then ended for the purpose of expressing an opinion as to whether the financial statements

present fairly, in all material respects, the financial position, changes in net assets, functional expenses, and cash flows of the

__________ Council, Boy Scouts of America, in conformity with U.S. generally accepted accounting principles. We confirm

that we are responsible for the fair presentation in the financial statements of financial position, changes in net assets,

functional expense, and cash flows in conformity with generally accepted accounting principles. We are also responsible for

adopting sound accounting policies, establishing and maintaining effective internal control, and preventing and detecting

fraud.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material

if they involve an omission or misstatement of accounting information that in light of surrounding circumstances makes it

probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission

or misstatement. An omission or misstatement that is monetarily small could be considered material as a result of qualitative

factors.

We confirm to the best of our knowledge and belief, as of ____________, the following representation made to you during

your audit: 1. The financial statements referred to above are fairly presented in conformity with U.S. generally accepted accounting

principles and include all assets and liabilities under the organization’s control. 2. We have made available to you all:

a. Financial records and related data b. Minutes of the meetings of the audit committee, executive board, and executive committee or summaries of

actions of recent meetings for which minutes have not yet been prepared. 3. There has been no communication from regulatory agencies concerning noncompliance with or deficiencies in

financial reporting practices. 4. There are no material transactions that have not been properly recorded in the accounting records underlying the

financial statements. 5. We believe the effects of the financial misstatements summarized in the attached schedule are immaterial, both

individually and in aggregate, to the financial statements taken as a whole. 6. We acknowledge our responsibility for the design and implementation of programs and controls to prevent and

detect fraud. 7. We have no knowledge of any fraud or suspected fraud affecting the organization involving:

a. Management b. Employees who have significant roles in internal control c. Others where the fraud could have a material effect on the financial statements

8. We have no knowledge of any allegations of fraud or suspected fraud affecting the organization received in communications from employees, former employees, grantors, regulators, or others.

9. The organization has no plans or intentions that may materially affect the carrying value or classification of assets, liabilities, or net asset balances.

10. The following, if any, have been properly recorded or disclosed in the financial statements: a. Related-party transactions, including revenues, expenses, loans, transfers, leasing arrangements, and

guarantees, and amounts receivable from or payable to related parties.


SAMPLE MANANGEMENT REPRESENTATION LETTER (continued)

b. Guarantees, whether written or oral, under which the organization is contingently liable. c. All accounting estimates that could be material to the financial statements, including the key factors and

significant assumptions underlying those estimates, and we believe the estimates are reasonable in the circumstances.

11. There are no estimates that may be subject to a material change in the near term that have not been properly disclosed in the financial statements. We understand that near term means the period within one year of the date of the financial statements. In addition, we have no knowledge of concentrations existing at the date of the financial statements that make the organization vulnerable to the risk of severe impact that have not been properly disclosed in the financial statements.

12. We are responsible for compliance with the laws, regulations, and provisions of contracts and grant agreements applicable to us, and we have identified and disclosed to you all laws, regulations, and provisions of contracts and grant agreements that we believe have a direct and material effect on the determination of financial statement amounts or other financial data significant to the audit objectives.

13. ____________Council, Boy Scouts of America, is an exempt organization under section 501(c)(3) of the Internal Revenue Code. Any activities of which we are aware that would jeopardize the organization’s tax-exempt status, and all activities subject to tax on unrelated business income or excise or other tax, have been disclosed to you. All required filings with authorities are up to date.

14. Except as disclosed in the financial statements, there are no: a. Violations or possible violations of laws and regulations and provisions of contracts and grant agreements

whose effects should be considered for disclosure in the financial statements, as a basis for recording a loss contingency, or for reporting on noncompliance.

b. Pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the financial statements in accordance with FASB ASC 450-20-60 (or which would affect federal award programs); we have not consulted a lawyer concerning litigation, claims, or assessments.

c. Other liabilities, or gains or loss contingencies that are required to be accrued or disclosed by Statement of Financial Accounting Standards No. 5.

d. Designations of net assets disclosed to you that were not properly authorized and approved, or reclassifications of net assets that have not been properly reflected in the financial statements.

15. The organization has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets, nor has any asset been pledged.

16. We have complied with all restrictions on resources (including donor restrictions) and all aspects of contractual and grant agreements that would have a material effect on the financial statements in the event of noncompliance. This includes complying with donor requirements to maintain a specific asset composition necessary to satisfy their restrictions.

17. The organization deems the assets recorded that are due to prior agreements with existing trusts are fully collectible and have not allowed for this amount as of year-end.

____________________ _________________

Scout executive Accounting specialist


SAMPLE SAS 114 LETTER

May 19, 2013 Members of the Audit Committee Nation’s Best Council Inc. Boy Scouts of America 123 Main Street Anytown, USA 12345 Dear Committee Members: We have audited the financial statements of the Nation’s Best Council, Boy Scouts of America (“the Council”), for the year ended December 31, 2012, and have issued our report thereon dated May 19, 2013. Professional standards require that we provide you with the foIIowing information related to our audit. Our Responsibility Under U.S. Generally Accepted Auditing Standards As stated in our engagement letter dated November 12, 2012, our responsibility, as described by professional standards, is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter dated November 12, 2012. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Council are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, 2012. We noted no transactions entered into by the Council during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. The following material misstatements detected as a result of audit procedures were corrected by management: 1. Accumulated depreciation on property and equipment in the Capital Fund was corrected. 2. The amount of the transfer between the Endowment Fund and the Operating Fund was corrected.


SAMPLE SAS 114 LETTER (continued)

Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated May 19, 2013. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the Council’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Council’s auditors. However, these discussions occurred in the normal course of our professional relationship, and our responses were not a condition to our retention. This information is intended solely for the use of the board of directors and management of Nation’s Best Council Inc., Boy Scouts of America, and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, Nation’s Best Auditors Certified Public Accountants [Note: A schedule of audit adjustments and uncorrected misstatements should accompany this document.]


SAMPLE SAS 115 LETTER

May 19, 2013

To the Board of Directors Nation’s Best Council Inc. Boy Scouts of America

In planning and performing our audit of the financial statements of Nation’s Best Council Inc., Boy Scouts of America, as of and for the year ended December 31, 2012, in accordance with auditing standards generally accepted in the United States, we considered the internal control of Nation’s Best Council Inc., Boy Scouts of America, over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Council’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Council’s internal control.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the Council’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Council’s financial statements that is more than inconsequential will not be prevented or detected by the Council’s internal control.

A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Council’s internal control.

Our consideration of internal control was for the limited purpose described in the first paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above.

However, we identified the following deficiency in internal controls that we consider to be a significant deficiency:

Investments: Management is not reconciling investments on a periodic basis. Investment income and the fair market value of investments are not correctly stated in the monthly financial statements. Management should reconcile and adjust the investment accounts and related income no less than quarterly.

This communication is intended solely for the information and use of management, board of directors, and others within the Council, and is not intended to be and should not be used by anyone other than these specified parties.

Very truly yours,

Nation’s Best Auditors CPAs LLC

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