[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9787]
[[Page Unknown]]
[Federal Register: April 22, 1994]
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COMMISSION OF FINE ARTS
Notice to National Capital Arts and Cultural Affairs Applicants
The National Capital Arts and Cultural Affairs (NCACA) Panel met on
29 March, 1994 to consider NCACA grant applications for fiscal year
1994. The Panel also reviewed the question of whether in-kind
contributions of goods and services should be included in annual income
for purposes of determining the eligibility of individual grant
applicants, as well as the amount of the grants. After review of the
1994 grant applications, and consideration of the comments of
interested parties, the Panel decided to permit the inclusion of in-
kind contributions in income subject to the standards set forth in the
attached Statement of Policy. The Panel also decided to revise the
application process for fiscal year 1995 to require each applicant to
submit an opinion from a certified public accountant to ensure
compliance with these standards.
In accordance with the Stipulation and Order entered in The Studio
Theatre versus Commission of Fine Arts, et al., Civil Action No. 94-
0417 (D.D.C.), distribution of grant funds will be deferred for a
minimum of thirty days from the date of this Notice. In addition,
announcement of grant awards will be deferred pending further
developments in the litigation.
Questions can be referred to Donald B. Myer, Assistant Secretary
and Program Administrator, at 202-504-2200.
Dated: April 18, 1994.
Charles H. Atherton,
Secretary, Commission of Fine Arts.
National Capital Arts and Cultural Affairs Program Statement of Policy
Eligibility for grants under the National Capital Arts and Cultural
Affairs Program (NCACA) is ``limited to not-for-profit, non-academic
institutions of national repute and is further limited to organizations
having annual income, exclusive of Federal funds, in excess of
$1,000,000 for each of the three years prior to receipt of a grant.''
20 U.S.C. 956a. The statute also contains a formula for computing each
eligible institution's grant which is based, in part, upon the
institution's ``total annual income, exclusive of Federal funds,
compared to the combined total of the annual income, exclusive of
Federal funds, of all eligible institutions.'' Id.
During the 1994 application cycle, several issues arose concerning
the proper construction of the term ``annual income.'' The statute does
not define the term, nor does it contain any explanation of the
underlying purpose of the $1 million minimum annual income requirement.
Given the nature of the requirement and the limited funding available
for the NCACA Program, the NCACA Panel has concluded that the
requirement was intended to ensure that NCACA grants are provided to
cultural and arts institutions of demonstrated national repute which
are located in the District of Columbia and have substantial non-
federal support.
Since eligibility for NCACA grants is limited to not-for-profit
organizations, the Panel believes that Congress intended annual income
to include the gross income of the applicant, as distinguished from net
income. The term ``annual income'' should not be equated with gross
receipts of an organization, and may differ from the revenues and
support reported in an applicant's audited financial statements. For
example, in the case of a sale by an organization of real or personal
property, gross income is generally limited to the gain realized as a
result of the transaction. 26 U.S.C. 61. Regardless of whether an
organization treats the entire proceeds of a sale of an asset as
revenues or receipts for purposes of its financial statements, only the
gain realized from the transaction represents the type of non-federal
support encompassed within ``annual income,'' as used in the NCACA
statute.
The Panel has also carefully considered the question of whether in-
kind donations of goods and services should be included in annual
income for purposes of the NCACA Program. During the 1993 grant
application cycle, the Panel was presented with an application in which
the applicant sought to include in-kind contributions in its annual
income that had not been included in the revenues and support reflected
in its audited financial statements. The notes to the applicant's
financial statement stated that the value of in-kind contributions was
not reflected because the auditor had determined that they could not be
objectively measured and valued. The Panel determined that the claimed
in-kind contributions should be excluded from the applicant's income,
and modified the 1994 application guidelines to reflect that ``income
shall be limited to actual dollars, and shall not include volunteer
time, or donated goods and services.''
The Panel has now had both an opportunity to examine more fully the
question of whether in-kind contributions should be included in income
and the benefit of comments received from interested parties. The
majority of applicants that submitted comments and expressed an opinion
supported the inclusion of at least some types of in-kind
contributions. Based upon further review of the issue, the Panel has
determined that the policy reflected in the 1994 guidelines should be
modified. In certain circumstances, in-kind donations of goods and
services represent the substantial equivalent of cash donations and
facilitate the organization's ability to carry on its activities to the
same degree as a cash donation. Consequently, the Panel has concluded
that in-kind contributions made in such circumstances can represent one
of the types of non-federal support included in the congressionally
mandated annual income requirement.
A review of the fiscal year 1994 applications reveals considerable
variations in the practices of individual applicants insofar as they
relate to accounting for in-kind contributions of goods and services.
In addition, the comments submitted by applicants reflect a range of
views on whether in-kind donations of goods should be treated
differently from in-kind contributions of services or volunteer time.
In the context of the NCACA Program, the particular method of
accounting utilized by the applicant for in-kind contributions may
affect not only that applicant's eligibility for a grant, but also the
amount of the grant awarded. Consequently, the Panel believes that
consistent and objective standards need to be applied to ensure
fairness to all applicants.
As a general rule, the Panel believes that the value of in-kind
contributions of goods or services should be included in the annual
income of the applicant only when the contributions directly support
the activities of the organization. Donations of goods and services the
benefits of which inure not to the institution itself, but instead to
contributors in connection with fund-raising events, do not provide any
non-federal support for the organization's activities over and above
the proceeds generated by the fund-raising event. Consequently, the
value of in-kind contributions made in such circumstances should not be
included in the annual income of the applicant for purposes of the
NCACA Program. The Panel believes that this policy is consistent with
generally accepted accounting principles for computing revenues and
support for not-for-profit organizations. See Statement of Position 78-
10, Accounting Principles and Reporting Practices for Certain Non-
Profit Organizations (December 31, 1978), Sec. 93, which states that
the cost of merchandise or direct benefits provided to contributors in
connection with fundraising events ``should be applied against gross
proceeds received from the person receiving such direct benefit.'' In
any event the Panel has concluded that in-kind contributions inuring
solely to the benefit of contributors do not represent the type of non-
federal support encompassed within ``annual income,'' as used in the
statute.
To minimize any unfairness resulting from differences in the
accounting practices of individual applicants, the Panel also believes
that objective standards are necessary for assessing the reasonableness
and verifiability of in-kind contributions. At a minimum, the value of
in-kind contributions of goods and services may be included in annual
income for purposes of the NCACA Program only in circumstances where
such contributions have been included in the applicant's audited
financial statements as revenues and/or support. In addition, because
generally accepted accounting principles permit divergent practices
among non-profit institutions, the Panel believes that further
objective standards are necessary with respect to the methods of
valuation and types of documentation required to support in-kind
contributions.
The Office of Management and Budget has developed cost accounting
standards which are applicable to all federal grants, including those
made under the NCACA Program. OMB Circular A-110, Uniform
Administrative Requirements for Grants and Agreements With Institutions
of Higher Education, Hospitals and Other Non-Profit Corporations, 58 FR
62992 (Nov. 29, 1993). Section ______.23 of OMB Circular A-110
specifies the circumstances in which a recipient of a federal matching
grant may utilize the value of in-kind contributions of goods and
services to satisfy the recipient's matching share of program costs.
Id. at 62997-62998. The Panel recognizes that section ______.23 of OMB
Circular A-110 was not developed for the purpose of defining annual
income, but instead to establish uniform cost accounting standards for
federal grant recipients. Nonetheless, the Panel has concluded that
those same standards should be applied in determining whether in-kind
contributions included in annual income for purposes of the NCACA
Program have been properly valued and documented. Use of the same
standards in this context promotes consistency and uniformity in the
administration of federal grant programs which is one of the objectives
of OMB Circular A-110. In addition, use of the provisions in OMB
Circular A-110 provides a consistent and objective standard, thereby
minimizing any unfairness resulting from variations in the accounting
practices of individual applicants.
The Panel has also considered the practical difficulties involved
in ensuring that applicants have computed their income in accordance
with this Statement of Policy. The Commission of Fine Arts does not
have adequate staff or resources available for reviews or audits of the
books and records of each applicant to determine whether it has
properly computed its annual income. Moreover, a detailed review by
either the Panel or the Commission of Fine Arts staff of documentation
maintained by individual applicants to ensure that the value ascribed
to in-kind contributions conforms with OMB Circular A-110 would be
impractical and would unduly delay distribution of grant funds.
The Panel is authorized to establish an application process for
purposes of the NCACA program. 20 U.S.C. 956a. Given the practical
limitations on the resources available to administer the Program and
the need to avoid unnecessary delays in distributing grant funds, the
Panel has directed the Commission staff to modify the applications for
the NCACA Program to require applicants to attach an opinion from a
certified public accountant, subject to any appropriate qualifications,
that states:
(a) That the annual income reported in the application has been
computed in conformance with this Statement of Policy;
(b) The amount and reasons for any material deviation between the
annual income set forth in the application, and the revenue and/or
support disclosed in the applicant's audited financial statements;
(c) The dollar value of any in-kind contributions included in the
annual income reported in the application; and
(d) That the value of any in-kind contributions of goods or
services included in the annual income set forth in the application:
(1) Has been computed in conformance with this State of Policy and
section ______.23 of OMB Circular A-110, and (2) is reflected in
revenue and support reported in the applicant's audited financial
statements.
The Panel recognizes that, in developing the above standards, it
was not possible to anticipate and account for all of the myriad
circumstances which may arise in connection with the computation of
each organization's annual income, as well as future changes in
generally accepted accounting principles. In addition, the use of an
eligibility standard tied to the annual income of an applicant poses
unique issues when applied to financial statements prepared for non-
profit organizations. Consequently, further modifications of this
Policy may be appropriate in future application cycles, and the Panel
reserves the right to modify the quidelines when necessary or
appropriate in light of the Panel's experience with their operation.
The Panel has also carefully considered whether the above standards
should be applied to 1994 grant applications. In view of the ambiguity
in the standards to be applied by applicants in accounting for in-kind
contributions and determining annual income, application of the above
standards in 1994 would require each applicant to resubmit a grant
application with appropriate supporting documentation. Such a process
would constitute a burden on applicants and unnecessarily delay
distribution of NCACA grants. At the same time, the Panel recognizes
that some applicants, in accordance with the 1994 guidelines, may have
excluded the value of in-kind contributions from the annual income
reported in their application. In view of the Panel's decision to
modify the 1994 guidelines, the value of in-kind contributions will be
included in the annual income of all applicants so long as the value of
such contributions is reflected in the applicants' audited financial
statements. Accordingly, for fiscal year 1994 only, the annual income
of applicants will be determined based solely upon the non-federal
revenue and support reflected in the applicants' audited financial
statements. The guidelines in this Statement of Policy for computation
of annual income and inclusion of in-kind contributions in annual
income shall become effective for grant applications submitted in
fiscal year 1995.
Dated: April 18, 1994.
J. Carter Brown,
Chairman, Commission of Fine Arts.
Ana M. Steele,
Senior Deputy Chairman, National Endowment for the Arts.
Marsha Semmel,
Director, Division of Public Programs, National Endowment for the
Humanities.
[FR Doc. 94-9787 Filed 4-21-94; 8:45 am]
BILLING CODE 6330-01-M
