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Accounting for CDFI Grants
Thursday, December 29, 2016 6:45 AM

Cheryl Ehmann, AVP Staff Analyst, Credit Union Resources

Normally when a credit union receives a donation, generally accepted accounting principles require that the donation be recognized as non-operating income when received. However, special accounting rules apply to Community Development Financial Institutions (CDFI) grants.

The CDFI fund is managed by the US Treasury and helps generate economic growth and opportunity in some of the most distressed communities. There are two types of grants offered to credit unions: financial and technical. Financial grants are meant to assist in certain areas of operation and technical grants have specific purposes or conditions, such as purchasing particular tangible assets like hardware and software or paying for training. Accounting for both types of grants is similar.

Although NCUA’s Accounting Manual for Federal Credit Unions addresses basic accounting for grants received by small credit unions (under $10 million in assets), CDFI grants are not specifically discussed. NCUA guidance on this topic can be found in Supervisory Letter 16-01, dated Sept. 19, 2016.

The main difference between NCUA’s prescribed accounting treatment and generally accepted accounting principles revolves around timing. Normally credit unions would be required to recognize the entire grant when it is received; however, due to the larger amount of the CDFI grants and the fact that expenditures related to the grants are disbursed over longer time periods, NCUA would like the income to be recognized as the disbursements are made. This will help ensure that the credit union’s net worth ratio is not significantly impaired.

When the credit union receives the grant agreement notifying them of the amount of money they will receive, an entry should be made to debit a receivable account and credit a deferred revenue (other liability) account. 

When the credit union actually receives the funds, cash is debited and the receivable account is credited.

As disbursements related to the grant are made, they are recorded as usual to the appropriate expense category. A corresponding entry is made to debit the deferred revenue account and credit non-operating income.

Although the expenses will still affect the operating expense ratio, they will not affect ratios involving net income, as the operating expense and non-operating revenue will offset each other.

Now that you know how to account for the grant, you can turn your attention to serving the community—what credit unions do best!

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Need financial consulting or auditing services?
Credit Union Resources may be just the help you you're looking for. Credit Union Resources offers a variety of audit and compliance review services. Visit our site here to view the many ways our professional staff can help you. For more information, please contact Deana Brown at 800-442-5762, ext. 6464, or 469-385-6464, or via email at dbrown@curesources.coop.

About Credit Union Resources
Credit Union Resources is a service corporation that provides industry-leading solutions and expertise to credit unions across the country. Credit Union Resources is a part of the Cornerstone Credit Union League, a regional trade association representing the interests of credit unions in Arkansas, Oklahoma, and Texas.