Accounting and Auditing Update Janet Brocklehurst, Partner Angela Cain, Senior Manager Agenda • Legislative Developments • IRS Form 990 • Cost Allocation Environment • Corporate Scandals – Sarbanes-Oxley Act • Charitable Scandals – United Way – American University Issues Identified by IRS and Presented to Senate Finance Committee • Misuse of charitable entities to benefit the donor rather than the public good • Overstated charitable deductions by taxpayers most often involving non-cash contributions • Widely varying methods for determining the compensation of executives • Inconsistent and limited disclosure of governance practices Congressional Intent vs Charitable Community Self Regulation • Panel on Non-Profit Sector • Over 120 specific recommendations • Fall in three major categories – Governance – Transparency – Accountability Overview of Panel’s Recommendations • The governing boards of charitable organizations must be more active – – – – Audit Procedures Conflict of Interest Policies Travel Policies Whistleblower Policies Overview of Panel’s Recommendations • Greater transparency is needed to help the public make informed choices and to assist with government oversight and enforcement – Improve design of Form 990 – Mandated financial statement audits for organizations with revenues over $1,000,000 – Mandated financial statement reviews for organizations with revenues between $250,000 $1,000,000 Overview of Panel’s Recommendations • Congress should strengthen laws to address abuse and clarify standards and penalties – – – – Donor advised funds Supporting organizations Abusive tax shelters Executive and Board compensation • All to protect against personal benefits to donors Overview of Panel’s Recommendations • Enforcement of laws and regulations governing charitable organizations be strengthened – IRS is understaffed – Do away with laws that limit IRS sharing information with state Attorney Generals and other state charity officials Legislative Status 10 IRS Form 990 Discussion • E-Filing • Require highest ranking officer to sign 990 • Organizations exempt from filing would be required to file basic contact and financial information • Revision of Form 990 11 Revision of Form 990 • Separate sections and schedules • More disclosure required on potential abusive items – Donor advised funds, financial awards, grants • More disclosure of executive compensation and benefits • Require same accounting method used to prepare audited financial statements 12 Functional Expenses • Requirements • Voluntary Health and Welfare Organizations • Cost Allocation 13 Cost Allocation • Functional expense reporting – Required in financial statements and IRS Form 990 • Program Services • Management and General • Fund-Raising • Reporting allocated indirect costs – OMB, Federal, State or Local agency requirements • Grant reimbursement • Unrelated business income 14 Cost Allocation – Indirect Costs • Salary and benefit cost – – – – – – 15 General and administrative Human Resources department Accounting department IT department Executive officers Program directors and staff Cost Allocation – Indirect Costs • Cost of operating and maintaining facilities – – – – – 16 Utilities Insurance Repairs and maintenance Building and equipment depreciation Equipment leases Cost Allocation Criteria In decreasing order of preference: • Cause and effect • Benefits received • Equitable or reasonable • Ability to bear 17 Cost Allocation Common Allocation Bases • Office support – Direct labor dollars or hours • Occupancy – Square footage • Data processing – Computer time 18 Contact Information Goodman & Company, L.L.P 4510 Cox Road, Suite 200 Glen Allen, Virginia 23060 804-282-7636 jbrocklehurst@goodmanco.com acain@goodmanco.com 19 [...]... General and administrative Human Resources department Accounting department IT department Executive officers Program directors and staff Cost Allocation – Indirect Costs • Cost of operating and maintaining facilities – – – – – 16 Utilities Insurance Repairs and maintenance Building and equipment depreciation Equipment leases Cost Allocation Criteria In decreasing order of preference: • Cause and effect... Health and Welfare Organizations • Cost Allocation 13 Cost Allocation • Functional expense reporting – Required in financial statements and IRS Form 990 • Program Services • Management and General • Fund-Raising • Reporting allocated indirect costs – OMB, Federal, State or Local agency requirements • Grant reimbursement • Unrelated business income 14 Cost Allocation – Indirect Costs • Salary and benefit... Organizations exempt from filing would be required to file basic contact and financial information • Revision of Form 990 11 Revision of Form 990 • Separate sections and schedules • More disclosure required on potential abusive items – Donor advised funds, financial awards, grants • More disclosure of executive compensation and benefits • Require same accounting method used to prepare audited financial statements