Is Your Nonprofit Organization a Voluntary Health and Welfare Organization?
by Kimberly A. Robinson, CPA, Partner
Posted on May 18, 2012
What is a voluntary health and welfare organization?
Voluntary health and welfare organizations (VHWO’s) are those not-for-profit organizations that derive their revenue primarily from voluntary contributions from the general public to be used for general or specific purposes connected with health, welfare, or community services. There are two separate parts to this definition:
- the organization must derive its revenue from voluntary contributions from the general public (which does not include governmental entities), and
- the organization must be involved with health, welfare, or community services.
Many organizations fit the second part of this definition, but receive a substantial portion of their revenues from sources other than public contributions. For example, an opera company would not be a VHWO even though it exists for the common good, since its primary source of income would be box office receipts. Likewise, a community organization like the YMCA would be excluded because it normally receives most of its revenues from dues and program fees. On the other hand, a museum would be excluded even if most of its revenue came from contributions, since its activities are essentially educational and not focused on the areas of health and welfare.
Some additional examples of VHWO’s are: Salvation Army, Red Cross, Goodwill (local chapters), United Way, Boy Scouts, Girl Scouts, Boys & Girls Clubs, and nonprofit organizations whose purpose is to find cures for diseases or to assist people diagnosed with diseases such as cancer, diabetes, heart disease or muscular dystrophy.
How does this impact my organization?
FASB ASC 958 differentiates between voluntary health and welfare entities and other nonprofit entities. For example, only VHWO’s are required to present a statement of functional expenses as a basic financial statement. Therefore, it is important to know how your organization should be defined to know if this requirement applies to your financial statements. But, as noted above, sometimes the distinction can be difficult to make. If you are unsure, it is recommended to include a statement of functional expense as a basic financial statement.
Where can I find additional guidance?
There is additional guidance available in a book titled Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, Fourth Edition, 1998 (also known as the Black Book). The Black Book’s objective is to attain uniform accounting and external financial reporting in compliance with GAAP by all voluntary health and welfare organizations. The Black Book does not establish GAAP but rather explains existing authoritative literature and gives illustrations relevant to VHWO’s.
The Black Book expands on the definition and notes that voluntary contributions from the general public may include the following:
- Direct gifts from board members
- Private foundations
- Corporations
- Allocations of contributions that federated fund-raising organizations or affiliated organizations receive from the general public
Finally, the Black Book states that an organization’s membership in, or affiliation with, the National Health Council, Inc., the National Human Services Assembly, or the United Way of America is usually an indicator that the organization should be identified as a VHWO.