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2020 HIGHER EDUCATION

Annual OutlookThe Race to Financial Sustainability

ChangeVideo


Annual OutlookThe Race to Financial Sustainability

AgendaIntroduction

Mindset of Institutional Leaders

Outliers or Successful Innovators

BKD Survey Results

Outlook & Observations

Introduction

Introduction“Successful people maintain a positive focus in life no matter what is going on around them. They stay focused on their past successes rather than their past failures, and on the next action steps they need to take to get them closer to the fulfillment of their goals rather than all the other distractions that life presents to them”

– Jack Canfield, The Success Principles

Stay Focused“Successful people maintain a positive focus in life no matter what is going on around them. They stay focused on their past successes rather than their past failures, and on the next action steps they need to take to get them closer to the fulfillment of their goals rather than all the other distractions that life presents to them”

– Jack Canfield, The Success Principles

Mindset of Institutional LeadersCrisis of Confidence – Culture of Insecurity

Source: Inside Higher Ed, surveys of CBOs & Presidents, 2019


Source: AGB Trustee Report; Affordability and Value, the Governance Lens 2018


Source: AGB Trustee Report: Affordability and Value, the Governance Lens, 2018

Outliers or Successful Innovators

Outliers or Successful InnovatorsIn contrast to the lack of confidence & the culture of insecurity, there are pockets of hope for some colleges. This list even includes a good number of smaller private universities

The Chronicle of Higher Education’s list of the fastest-growing colleges from 2007 to 2017

– Published August, 2019

Outliers or Successful Innovators• Half the institutions that cracked this year’s The Chronicle

of Higher Education list of the 20 fastest-growing private nonprofit colleges with at least 5,000 students in 2017 identify as faith-based campuses. The total list of schools ranked by growth were 349

• A review of the list of fastest-growing public colleges shows the presence of a significant number (two-thirds) of small public colleges (2007 enrollment below 10,000). These small public universities grew at rates from 49 percent to 666 percent

Outliers or Successful Innovators: Average Growth Rates for the Top 35 Schools

Source: The Chronicle of Higher Education Almanac, August 2019

Outliers or Successful Innovators: Growth Is Good, but Margin Is Better

Fastest-Growing Colleges – 2007 to 2017

Classification

Private Faith Based Fastest-Growing

Growth Rate Over Ten Years

Average Loss in High Growth Schools –Latest Year (2017)

Doctoral 1 of 7 130.6% (16.1%)

Master 5 of 16 114.7% (5.7%)

Baccalaureate 1 of 5 57.8% (6.1%)

Source: The Chronicle of Higher Education Almanac, August 2019

Finishing the Financial Sustainability Race• New academic programs

Adults Alternative students Credential programs

• Location changes• Athletic team additions• Tuition resets• Relationships with secondary schools

Finishing the Financial Sustainability Race

Purdue Polytechnic High School is a free public charter high school that encourages learning outside the box—& the traditional classroom—through the lens of science, technology, engineering & mathematics (STEM). Here, students take learning into their ownhands, earning a well-rounded education, & mastering the skills needed to succeed in college & a technology-rich world

Finishing the Financial Sustainability RaceArizona State University President Michael Crow recently called the shortage of prospective students “a fallacy.” He elaborated saying, “In fact, we estimate that there are nearly 100 million working-age adults in America who don’t have a college degree, nearly 44 million of whom are not earning a living wage of $35,000 annually or in a family with at least $70,000 of income. Compared to the 20 million undergraduates American colleges and universities enroll each year, there is plenty of room for growth

https://go.stradaeducation.org/on-ramps

https://nces.ed.gov/programs/digest/

BKD Survey Results

Survey ResultsKEY QUESTIONS1. Where is your institution investing resources to address

financial sustainability?2. In addressing the changing environment of higher

education, select how the listed actions have affected your institution’s overall financial sustainability

3. What do you anticipate will have the most significant positive impact on financial sustainability over the next five to 10 years?

4. What are the most & least preferred actions to support financial sustainability?

Survey Results

Survey Results

84.34% 62.65% 57.83% 45.78%

28.92%46.99%

Survey Results

Growth Initiative Examples• A public university in the South launches a data analytics program

to augment their school of accountancy in partnership with an international CPA firm

• A small private university in the Midwest launches an osteopathic medical college (the second medical school in the state)

• A private school in the Upper Midwest launches innovation labs to support innovation in the classroom for several programs

• A West Coast private university launches aviation science & starts an online degree completion program

• A large public university builds an 80-seat esports arena & launches an esports program

Growth Initiative Examples• A large private university in the South launches a social media

management major

• A larger private university in the Midwest is launching a bilingual social work program

• Several schools starting cannabis-related certificate programs

• A midsize public university in the South launches a cybersecurity engineering program

• Many colleges launching master’s degree programs in clinical mental health counselling

Growth Initiative Examples

What Programs Are Growing?

Outlook & Observations

Create a senseof urgency

Pull together the guiding team

Develop the change vision & strategy

Communicate for understanding & buy-in

Empower othersto act

Produce short-term wins

Don’t let up

Create a new culture

This is indeed a race to build financial strength in the midst of the

many changes that seem to be accelerating. Use the eight steps

above and create urgency about the problems being faced. Build a new

culture and grow financial resiliency.

Discussion & Questions

Program Prioritization & Four Keys to Strategic Enrollment GrowthVideo


Four Keys to Strategic Enrollment Growth Discussion

Practices – Enrollment Partnership• How healthy is your “partnership” with VP

enrollment?• Best practices

Regular meetings with VP enrollment Attend weekly financial aid/enrollment meetings

with third-party partner KPI reviews, e.g., deposits, FAFSA, campus

visits, etc. Prebudget discussions: realistic enrollment

goals, discount rate plan, athletic recruitment

Practices – Arrival Branding• What is your key “TO DO” for your team after

hearing Tim’s thoughts on “arrival branding?”• How can you improve the first five minutes of a

campus visit? • Best practices

Tour with admissions, VP enrollment, physical plant team Learn to Listen, So You Can Listen to Learn Regular conversations with grounds crew –

thoughts/ideas/limitations Limited resources (people & supplies)? Develop a

three-year plan

Programs – Attract & Persist

• NACUBO study: 91% of CBOs want to use data analytics to perform academic program assessment How do you measure the “attractiveness” of programs?

• What do students want to study?

How do you measure the “persistency” of programs?• Who (degree/skills) do employers want to hire?

Is your institution making data-informed decisions on academic programs?

BKD’s higher education consulting can help … talk with your BKD Trusted Advisor™

Programs – Attract & Persist

• Tracking KPIs by major Funnel – applicants, FAFSA, net deposited Yield – % of accepted to enrolled Retention

• What success stories could you share on tracking KPIs by major?

Price (Value)

• People will pay for what they value … What conversations are happening on your

campus related to value?

• “Top of the funnel” strategy What success have you found monitoring the ROI

on name purchases? What warnings would you share with others who

are considering this strategy?


R3EDUCATIONHIGHER

BREAK


Responding or Reacting?Cyber Incidents & Breach Response

Expectations of

Cybersecurity Readiness

Requirements of an Incident Response Plan

Incident ResponseWill Your Plan Work?

Agenda

Expectations of

Cybersecurity Readiness

Cybersecurity FactsAre You REALLY Ready?

Global $3.92 million 27% in 2018

Source: Ponemon Institute 2019 Cost of Data Breach Study

Average total cost of a data

breach in U.S.

$8.19 million

Average cost per lost or

stolen record in U.S.$313

Likelihood of a recurring

breach within two years

29.6%

Companies with an incident

response team & extensive

testing of their response planscould save more than $1.2 million

Breach Detection & Expense“You can’t afford to ignore cybersecurity”

Mean time to identify a

breach in HE212 days

Mean time to contain69 days

Average cost per record

globally in HE$142/record

Cybersecurity ReadinessGuidance from the Department of Education relating to the security of financial information & certain federal information

Dear Colleague Letter – DCL ID: GEN-15-18, July 29, 2015 In addition to other provisions within the SAIG Agreement, FSA requires institutions to comply with the Gramm-Leach-Bliley Act. Under Title V of the Gramm-Leach-Bliley Act, financial services organizations, including institutions of higher education, are required to ensure the security and confidentiality of customer records and information. This requirement was recently added to the Program Participation Agreement and is reflected in the Federal Student Aid Handbook.

Expectations of

Cybersecurity ReadinessDear Colleague Letter – DCL ID: GEN-16-12, July 1, 2016 We also advise institutions that important information related to cybersecurity protection is included in the National Institute of Standards and Technology (NIST) Special Publication 800-171 (NIST SP 800-171). Specifically, the NIST SP 800-171 identifies recommended requirements for ensuring the appropriate long-term security of certain Federal information in the possession of institutions.

Expectations of

Cybersecurity ReadinessGramm-Leach-Bliley Act (GLBA) • Section III.C. Manage and Control Risk. Each institution shall:

• f. Monitoring systems and procedures to detect actual and attempted attacks on or intrusions into customer information systems;

• g. Response programs that specify actions to be taken when the institution suspects or detects that unauthorized individuals have gained access to customer information systems, including appropriate reports to regulatory and law enforcement agencies

Expectations of

Cybersecurity ReadinessNational Institute of Standards and Technology (NIST) 800-171 R1Section 3.6 Incident Response• 3.6.1. Establish an operational incident-handling capability for

organizational systems that includes preparation, detection, analysis, containment, recovery, and user response activities.

• Effective incident handling capability includes coordination among many organizational entities including, for example, mission/business owners, system owners, authorizing officials, human resources offices, physical and personnel security offices, legal departments, operations personnel, procurement offices, and the risk executive.

Expectations of

Cybersecurity ReadinessNational Institute of Standards and Technology (NIST) 800-171 R1Section 3.6 Incident Response• 3.6.2. Track, document, and report incidents to designated

officials and/or authorities both internal and external to the organization.

• Reporting incidents addresses specific incident reporting requirements within an organization and the formal incident reporting requirements for the organization.

NIST Special Publication 800-61 provides guidance on incident handling.

Expectations of

Requirements of an

Incident Response Plan

Incident Response PlanGramm-Leach-Bliley Act (GLBA) Supplement A, Section II. Response Program• Institutions should take preventative measures to safeguard

customer information against attempts to gain unauthorized access to the information

• Institutions should place access controls on customer information systems and conduct background checks for employees who are authorized to access customer information

• Institutions should also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems

Requirements of an

Incident Response PlanRequirements of an

Gramm-Leach-Bliley Act (GLBA) Supplement A, Section II. Response Program, A. Components of a Response Program1. At a minimum, an institution's response program should

contain procedures for the following:a. Assessing the nature and scope of an incident, and

identifying what customer information systems and types of customer information have been accessed or misused;

b. Notifying its primary Federal regulator as soon as possible when the institution becomes aware of an incident involving unauthorized access to or use of sensitive customer information, as defined below;

Incident Response PlanGramm-Leach-Bliley Act (GLBA) Supplement A, Section II. Response Program, A. Components of a Response Program

c. Consistent with the Agencies' Suspicious Activity Report ("SAR") regulations, notifying appropriate law enforcement authorities, in addition to filing a timely SAR in situations involving Federal criminal violations requiring immediate attention, such as when a reportable violation is ongoing;

d. Taking appropriate steps to contain and control the incident to prevent further unauthorized access to or use of customer information, for example, by monitoring, freezing, or closing affected accounts, while preserving records and other evidence; and

Requirements of an

Incident Response PlanGramm-Leach-Bliley Act (GLBA) Supplement A, Section II. Response Program, A. Components of a Response Program

e. Notifying customers when warranted.2. Where an incident of unauthorized access to customer information involves customer information systems maintained by an institution's service providers, it is the responsibility of the financial institution to notify the institution's customers and regulator.

Requirements of an

Incident Response PlanGramm-Leach-Bliley Act (GLBA) Supplement A, Section II. Response Program, B. Content of Customer NoticeCustomer notice should be given in a clear and conspicuous manner. The notice should describe the incident in general terms and the type of customer information that was the subject of unauthorized access or use. It also should generally describe what the institution has done to protect the customers' information from further unauthorized access. In addition, it should include a telephone number that customers can call for further information and assistance. The notice also should remind customers of the need to remain vigilant over the next twelve to twenty-four months, and to promptly report incidents of suspected identify theft to the institution.

Requirements of an

Incident Response PlanRequirements of an

U.S. Department of Education’s Student Aid Internet Gateway Enrollment Form • Must ensure that all Federal Student Aid applicant information is

protected from access by or disclosure to unauthorized personnel. In the event of an unauthorized disclosure or breach of applicant information or other sensitive information (such as personally identifiable information), the DPA must immediately notify Federal Student Aid at [email protected]

• Excerpt from agreement – “I or my designee will notify CPS/SAIG Technical Support within one business day, by e-mail at [email protected] or call 1-800-330-5947 when any person no longer serves as a designated authorizing official, Primary DPA, or Non-Primary DPA”

Incident Response

Will Your Plan Work?

Responding or Reacting?The response program must be designed to protect the critical assets of an organization

Identify• What are the most critical assets?• Members of the organization that play a role• Levels of severity for bad things to happen• Actions to be taken if these bad things happen

Will Your Plan Work?Incident Response


Asset Identification• Has management identified the institution’s critical assets? • This may be done through a risk assessment, inventories, data

classifications or business impact analysis (BIA) • This is a critical step in the process, it will aid in identifying the

most critical resources to be recovered first. Without this information, response procedures may not adequately prioritize restoration of critical systems

• The recovery prioritization is the responsibility of the board of trustees & senior management

Responding or Reacting?

Response Teams1. Start with creating a strong incident response team. Coordinate

efforts between your institution’s various departments or roles to determine the team members. This process should include the CEO, CISO, the head of IT, legal personnel, human resources & the head of communications

2. Select a leader for the incident response team & identify the members of the senior management team who can declare an incident; typically the CISO

3. Outline a structure of internal reporting to ensure executives & everyone on the response team is up to date & on track during a data breach



Response Teams4. Clearly define steps, timelines & checklists to keep the team

focused during the stress of a data breach5. Conduct preparedness exercises for the incident response team 6. Exercises must include more than IT

NIST states: Effective incident handling capability includes coordination among many organizational entities including, for example, mission/business owners, system owners, authorizing officials, human resources offices, physical & personnel security offices, legal departments, operations personnel, procurement offices & the risk executive




Responding or Reacting?Escalation Procedures• How to address potential damage & limit loss of resources• Whether evidence needs to be preserved• Criterion when special forensics may be required

Digital evidence forensic is a very specialized activity Organizations usually outsource this function to specialized

forensics labs• How service availability is affected, such as network

connectivity or services provided to external parties• Assessment of the time & resources needed to implement the

response strategy

Escalation Procedures• How to measure the effectiveness of the strategy; that is,

whether it partially or fully contains the incident• How long remediation solutions are intended to last• For example, an emergency workaround might need to be

removed after some period of time, or a solution might be permanent



Monitoring & Detection• Incident response plans are most useful with adequate

monitoring in place to detect breaches • Based on these numbers, how sure are you that your

institution has monitoring in place?

Mean time to identify a

breach in HE212 days

Mean time to contain69 days

Average cost per record in

HE$142/record

Source: Ponemon Institute 2019 Cost of Data Breach Study



Responding or Reacting?Final thoughts

Before or after the breach …

The cybersecurity bill will be paid

Take time & invest in this process

Is Your School Addressing These Eight Legal ChallengesVideo


A&A Update

BKD LeaseVision

GAAP Refresher

1 Overall Effective Dates

Implementation Matters: NFP Financial Statements, Revenue Recognition Including Grants & Contracts of NFPs

Implementation Matters: Leases

2

3

4 Other Recent ASUs

5 Projects in Process

6 Q&A

Major Standards for NFPsCurrent/Upcoming Effective Dates

LeasesRevenueNot-for-Profit

Financial Statements

*Or FYs beginning in those years**& All other year ends thereafterNOTE: “Public” includes NFPs with public debt (conduit or direct)

CY 2018* (All) CY 2018* (Public)CY 2019* (Nonpublic)

CY 2019* (Public)CY 2021* (Nonpublic)

Grants & Contracts

RecipientsFYE June 2019** (Public)CY 2019* (Nonpublic)Resource ProvidersCY 2019* (Public)CY 2020* (Nonpublic)

Implementation MattersNFP Financial Statements (ASU 2016-14)

Key Provisions of ASU 2016-14

NET ASSET CLASSIFICATION

Updated net asset classification scheme to two classes, changes to

underwater endowment accounting, enhanced disclosures

LIQUIDITY & AVAILABILITY

Quantitative & qualitative disclosures about liquidity &

availability of resources EXPENSESRequirement to report expenses by function (already required), nature,

& an analysis showing the relationship between function &

nature

STATEMENT OF CASH FLOWS

Continue to allow direct or indirect method for operating cash flows; indirect reconciliation no longer

required for direct method

INVESTMENT RETURNPresent investment return net of

external & direct internal investment expenses, no longer

required to disclose netted expenses

Implementation MattersRevenue Recognition Contracts with Customers (Topic 606), Grants & Contracts of NFPs (ASU 2018-08)

(ASU 2018-08) – Background

Long-standing diversity in practice in classifying grants & contracts, particularly from governmental entities

Issue 1: reciprocal versus nonreciprocal Issue 2: conditional versus unconditional

ASU 2014-09, Revenue from Contracts with Customers, including related disclosures, heightened the issue

Raised question as to whether grants & contracts are in scope of that guidance (reciprocal or nonreciprocal)

Project Added to FASB’s Technical Agenda to Improve & Clarify Existing Guidance

Key: focus on terms of agreement, not type of resource provider

Key: focus on point(s) of entitlement, not probability of it

ISSUE 1: RECIPROCAL (EXCHANGE) VS. NONRECIPROCAL (NONEXCHANGE/CONTRIBUTION) TRANSACTIONS

Follow Topic 606 (or other, such as Leases) Follow Topic 958-605

*To an existing exchange transaction. The revenue recognized would actually be the underlying contract’s patient service revenue, tuition revenue, etc.

Key judgment area #1

EXCHANGE

Direct commensurate value to resource

providerSpecified third parties General public

Current Practice

EXCHANGE

Direct commensurate value to resource

provider

Specified third parties

General public

ClarificationNONEXCHANGE

Government/resource provider is a third-party payer

on behalf of an identified customer

Others, including groups of

beneficiaries with eligibility criteria

Who Receives the Benefit?

Rev Rec – Overview of Model

1. Identify the contract(s) with the customer

2. Identify the performance obligations

3. Determine the transaction price

5. Recognize revenue when (or as) a performance obligation is satisfied

4. Allocate the transaction price

Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services

• Unit of account• Distinct criteria

• Variable consideration

• Significant financing• Noncash

consideration• Consideration

payable to customer

• Criteria for identifying a contract

• Combinations• Modifications

• Relative standalone selling price

• Discounts & contingent amounts

• Over time criteria• Point-in-time

indicators

Steps to apply the core principle

Rev Rec Partial List of Disclosures

Remaining performance obligations

Interim requirements

Information about contract balances

• Transaction price allocated to remaining performance obligations*

• Quantitative or qualitative explanation of when amounts will be recognized as revenue*

Disaggregation of revenue

92

*Optional for nonpublic entities

• Qualitative & quantitative* disaggregation of revenue into categories that depict how revenue & cash flows are affected by economic factors

• Opening & closing balances • Amount of revenue recognized from contract liabilities*• Explanation of significant changes in contract balances*

• Quantitative disclosures*

List of AICPA Papers on NFP Issues• All finalized & included in Revenue Recognition Guide

Tuition & housing revenue in higher education (Issue 2) Exclusion of contributions (Issue 3) Subscriptions & membership dues (Issue 5) Bifurcation of transactions between contribution & exchange

components (Issue 6)

NOTE: Issue on grants was referred to FASB in ASU 2018-08

Also, see NACUBO guidancehttps://www.nacubo.org/publications/advisories

https://urldefense.com/v3/__https:/www.nacubo.org/publications/advisories__;!!IgwtyA!egYWWoC_2ERTCBPXoUgx77wok6SVhdQHZLczbsumb5nzRcVx6nLCMqxhup4$

Rev Rec – TransitionTransition Method Comparative

YearYear of

AdoptionFootnotes for

Year of Adoption

Retrospective(with optional

practical expedients)

Cum

ulat

ive

catc

h-up

Cumulative effect at date of

applicationC

umul

ativ

eca

tch-

up

Existing & new contracts under new standard

Existing & new contracts under

legacy standard forYear of adoption

Issue 2: Conditional vs. Unconditional Contributions

For a donor-imposed condition to existA right of return/release must exist; &The agreement must include a barrier • Indicators & examples to

help in determination

To determine what is a barrier, an NFP will consider indicators, which will include, but are not limited to,

the following

The inclusion of a measurable performance-related barrier or other measurable barrier, e.g., specified level of service,

specific output(s) or outcome(s), match

The extent to which a stipulation limits discretion by the recipient on the conduct of an activity, e.g., qualifying

expenses, specific protocol

The extent to which a stipulation is related to the purpose of the agreement (excludes administrative or trivial)

Key judgment area #2: performance metrics on which entitlement depends versus “best efforts” metrics

Contributions Disclosures

No additional recurring disclosures have been added in the guidance

Guidance in Subtopic 958-310 includes disclosures for unconditional & conditional promises to give

For conditional promises to give, recipients are required to disclose

• The total of the amounts promised• A description & amount for each group of

promises having similar characteristics

Not intended to be a laundry list disclosure

Consider key attributes of the barriers such as

• Subject to matching• Incurring qualifying expenses• Measurable performance barrier

Recipient Disclosures

Transition Approach• Modified prospective

Apply to all agreements

Existing at the effective date (only apply to the portion of existing agreements not previously recognized)

Entered into after the effective date

• No restatement of prior amounts recognized

• Retrospective application permitted

A

B

New agreements

Effective date

Existing agreements

Implementation Issues

• How to account for cost sharing arrangements & when to recognize revenue

Cost sharing

• Whether & how to apply the limited discretion indicator to various requirements, including a budget

Application of the limited discretion

indicator

Staff Q&A on these questions was posted to the FASB website on June 6, 2019

Implementation MattersLeases

Lessee Accounting Overview

Finance(formerly, capital)

Operating

Right-of-use (ROU) assetLease liability

Amortization expenseInterest expense

Cash paid for principal &

interest payments

Right-of-use (ROU) assetLease liability

Single lease expense on a straight-line

basisCash paid for

lease payments

Income Statement Cash Flow StatementBalance Sheet

• Classification is similar to the classification in Topic 840• Recognition & measurement exemption for short-term leases

• Other than public business entities may use risk-free rates for measurement of all lease liabilities

Identifying a Lease(The new primary determinant for on/off balance sheet treatment)

Lease contracts in the scope of Topic 842

involve

An identified asset

That is explicitly or implicitly specified

Supplier has no practical ability to substitute &

would not economically benefit from substituting

the asset

The right to control the use during the lease

term

Decision-making authority over the use of

the asset

The ability to obtain substantially all

economic benefits from the use of the asset

Effective Date Delay

Leases – Getting Ready

Inventory of leases – What’s out there? Know your leases

Materiality – How modern is your capitalization policy?

Debt covenants – To what extent will capitalizing your operating leases affect covenants based on leverage ratios?

BKD LeaseVision

A one-stop GASB/FASB lease standard implementation solution, which includes

An implementation road map – a

process framework, i.e., step-by-step

guide

Excel tools – to perform the necessary calculations, generate the journal entries & develop/maintain the lease amortization

schedules

AI technology – use of KIRA tool to extract

key lease terms

Other Recent ASUs & Projects in Process

Cloud Computing – Today’s Accounting

On-Premise Software CCAs with a License CCAs Without a License

Balance sheet –asset

Present an asset for the cost of the software

Present an asset for the portion of the CCA fee related to the cost of the software

No asset is presented for the software, but a prepaid asset may be presented if the CCA fee is paid in advance

Balance sheet –liability

Present a liability for any unpaid amounts

Present a liability for any unpaid amounts

No liability is presented until payment is due

Treatment of implementation costs

Costs to implement the software are capitalized as part of the software asset

Costs to implement the software are capitalized as part of the software asset

Diversity today, but many implementation costs are not capitalized as an asset & are expensed

Income statement presentation

1) Generally straight-line amortization of software cost over useful life of software

2) Interest expense on the liability

1) Generally straight-line amortization of software cost over useful life of software

2) Interest expense on the liability

3) Generally G&A expense for the portion of CCA fee related to the hosting service

1) Generally straight-line G&A expense for CCA fee

2) Many implementation costs are expensed as the underlying activities are performed (near contract inception)

ASU 2018-15 addresses

Cloud Computing Arrangements(ASU 2018-15)

• Implementation costs of CCAs that areservice contracts would be accounted for in accordance with the guidance in Subtopic 350-40: most would be capitalized

• The amortization period of the costs wouldbe the term of the arrangement, including periods covered by renewal options of the CCA that are reasonably certain to be exercised

• The amortization of the costs would be recorded in the same line item on the income (activities) statement as the fees for the CCA

Results in consistent capitalization of

implementation costs across platforms (in-

house; CCAs that involve a software

license; CCAs contracts that are

service)

Cloud Computing Arrangements• Require existing disclosures in paragraph 350-40-50-1 for

implementation costs of a hosting arrangement that is a service contract, supplemented with description of hosting arrangement

• Transition method options

Prospectively to arrangements entered into, renewed or materially modified after the effective date

Retrospectively

• Effective date for NFPs: CY 2021 (FY 2021–2022); early adoption permitted

Disclosure FrameworkFair Value Measurement (Topic 820)

Removals• Amount of & reasons for transfers between

Level 1 & Level 2 • Policy for timing of transfers between levels• Valuation processes for Level 3• Nonpublic entities only: unrealized gains &

losses in earnings for Level 3 held at period end

Modifications• Net asset value disclosure• Measurement uncertainty disclosure• Nonpublic entities only: transfers,

purchases & issues into or out of Level 3 in lieu of a rollforward

Additions• Unrealized gains & losses in other

comprehensive income for Level 3 held at period-end (public entities only)

• Range & weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (public entities only)

ASU 2018-13 is effective for all entities for CY 2020 (FY 2020–2021). Can early adopt removals & modifications without having to early adopt addition. Public entities include NFPs that are obligated for publicly traded conduit (or direct) debt

Disclosure FrameworkDefined Benefit Plans (Subtopic 715-20)

Removed• Next 12 months accumulated other

comprehensive income• Rollforward Level 3 assets for

nonpublic entities• Effect of 1 percent change in health

care trend rates (previously required for public entities only)

Added• Interest crediting rate for cash plans• Reasons for significant gains or

losses

Considered but not part of final update• Add net asset value disclosures• Remove accumulated benefit

obligation

ASU 2018-14 is effective for PBEs for CY 2020 (FY 2020–2021); for other entities, for CY 2021 (FY 20021–2022). Early adoption is permitted

Goodwill & Intangibles(ASU 2019-06)

• Extends the private company alternatives here to NFPs, as a package Amortize goodwill over 10 years (or less)

Subsume certain customer-related intangibles, all noncompete agreements into goodwill, & amortize

Test goodwill for impairment upon triggering event, instead of annually

Option to do impairment test at entity level, instead of reporting unit level

• Similar open-ended effective date as private companies: one-time ability to elect without having to demonstrate preferability

Reference Rate ReformOverview: Two Areas of Focus

Contract Modifications

Current Accounting Optional Relief

Hedge Accounting

High volume of modifications results in burdensome accounting

evaluations

Simplified accounting evaluations scaled for high volume of

modifications

Hedge accounting discontinued if hedging relationships are not

highly effective during the temporary transition period

Hedge accounting discontinuedwhen contracts are modified

Hedge accounting preserved when contracts are modified

Hedge accounting preserved during the temporary transition period, with any hedge breakage/ineffectiveness

visible in the financial statements

Balance Sheet Classification of DebtClassification Principle

• Liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date

• Entity has a contractual right to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date

Debt arrangements*

would be classified as a noncurrent

liability if either of the following

criteria are met as of the balance

sheet date

*The scope also includes liability-classified mandatorily redeemable financial instruments, debt with conversion options & lease liabilities


R3EDUCATIONHIGHER

LUNCH

Time to Procrastinate with EllenVideo


Tax Update

Tax Cuts and Jobs Act

Challenges/Lessons Learned• What new requirements from the Tax Cuts and

Jobs Act (TCJA) did your institution find the most difficult to implement? Qualified transportation fringe benefits Excise tax on compensation Endowment excise tax Other?

• What are some of the lessons learned in complying with the new requirements from TCJA?

Recent Developments• 512(a)(7) – Tax on qualified transportation fringe

benefits Repealed – Further Consolidated Appropriations Act, 2020 Effective retroactively to amounts paid or incurred after

December 31, 2017 Opportunity to amend prior return(s)

• 512(a)(6) – Siloing of activities Repeal bill – House Resolution 3323 – Nonprofit Relief Act

of 2019• Introduced to House Ways & Means Committee on June 18,

2019, but has yet to pass• Stay tuned

Recent Developments• Doubling of the standard deduction

S.2123 – Universal Charitable Giving Act of 2017• Amends the IRC to allow an above-the-line deduction for

charitable contributions of individuals who do not elect to itemize deductions

• Introduced to the Senate Finance Committee on November 14, 2017

• Silent since

State Conformity to TCJA

• States decoupling from UBIT siloing under 512(a)(6)

• Conformity with transportation fringe benefit tax under 512(a)(7)

Other Updates

2019 Draft Form 990 – Changes• Part X, Balance Sheet – Net assets reporting

now consistent with financial statement reporting With donor restrictions Without donor restrictions

2019 Draft Form 990 – Changes

• Nondiscrimination policy Policy must be publicized – newspaper &

broadcast media are acceptable Publicizing on university website now satisfies

this requirement Policy should be on homepage Notice should be visible through scrolling on

homepage, not a link

Leverage These Student Housing Trends to Help Boost RevenueVideo


Program Economic Analysis in Action How Schools Are Using the Data

Introduction from David ArmstrongVideo

What Is Program Economic Analysis?

About Program Economic Analysis• Developed to help schools understand the cost to

educate• Visualization model to explain complex data sets• Encourages critical thinking & data-informed decisions• Improve program & course optimization• Supports program decisions

Return on Investment

Case Studies

University ACHARACTERISTICS

• FTE: under 1,000• Bachelor & master degrees (60 areas of study)• Liberal arts• Traditional campus

RESULTS• Contribution margin: increased by 7.5 points• $865K increase in direct teaching margin

University AWHY

• Declining enrollment with no changes to budgets

• Initiated a full program review

PROCESS• Provost & academic council reviewed results over a six-month

period

• Previously attempted internally with Excel BKD’s analysis “helped add credibility to the process”

• Combined PEA with existing internal review process

University AKEY DECISIONS

• Focused attention on course/section utilization

• Analyzed faculty student credit hours taught by semester

• Reduced faculty & staff by 5.5 FTE

• Incentivized retirement program

COMMUNICATION• Provost/president communicated upcoming process with

faculty

• Town hall meetings with staff/faculty throughout process

University BCHARACTERISTICS

• FTE: 1,500 to 2,000• Bachelor & master degrees (70 areas of study)• Liberal arts

RESULTS• Contribution margin: increased by 1.3 points• $1.4M increase in direct teaching margin

University BWHY

• Due to declining UG enrollment & flat cost structure

• Seeking increased efficiency in the online program

PROCESS• Institution performed a Dickeson model program prioritization

• Championed by chief academic officer with steering committee

• Focus: mission, margin, market

University BKEY DECISIONS

• Increase student/faculty ratio to 16:1• Established an “acceptable” margin for each academic

program If below – part of the overall mission, margin, market review

• Academic committee developed a rubric on Dickeson’s model

COMMUNICATION• Process helped drive conversation & looking at things

differently• Steering committee maintained consistent communication with

campus leaders & co-curricular working groups

University CCHARACTERISTICS

• FTE: 5,000• Bachelor, master & doctoral degrees (150 areas of

study)• Liberal arts• Main campus, distance learning & online

RESULTS• Pending – updating FY 19 now• January – presenting results at board meeting

University CWHY

• Board had been requesting cost data by program

• Internal reports: “manual & labor-intensive process”

PROCESS• Institution performed a Dickeson model program prioritization

• Strong board support (both finance & academic committees)

• Involved provost & deans – reviewed data

University CKEY DECISIONS

• Performing deep dive with four divisions performing below average CM %

• Deans using tool to make financial decisions Course loads, number of sections taught, faculty course load

efficiency

COMMUNICATION• Communicated process to campus leaders during “data

collection” phase

• “The deans did the work on their own, which in retrospect, was very helpful for buy-in & agreement”


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