By: Mike Herold
Many nonprofit organizations utilize single member limited liability companies (SMLLCs) in their operations. SMLLCs are popular vehicles for holding real estate and are an easy way to conduct separate activities in different locations. For example, a skilled nursing or senior care corporation might consist of various locations or centers each held within its own SMLLC. This provides a vessel for managing the operations and profitability of each location more effectively and accurately.
Because a SMLLC is considered a disregarded entity for federal tax purposes, the IRS allows the SMLLC to operate as a tax exempt entity without seeking its own application for tax exempt status. This makes the SMLLC a relatively low cost entity to create while affording the parent an additional level of liability protection through an isolating entity.
For more information on SMLLCs and tax exemption, read the full article here.
By: Anders Erickson, CISA, CISSP, CRISC
“This is one of the most dangerous email phishing scams we’ve seen in a long time. It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns. We need everyone’s help to turn the tide against this scheme,’’ said IRS Commissioner John Koskinen referring to the phishing scam resulting in theft of W-2 information across many industries including nonprofit organizations.
Cyber criminals are using spoofing techniques to disguise an email making it appear as if it is coming from an executive within the organization so that the recipient (usually in the payroll or HR department) feels compelled to respond. The cyber-criminal is asking for a list of employees with their W-2s and intend to use this information in order to fake a tax return and fraudulently collect an employee’s return before they have a chance to file themselves. Cyber criminals may also be asking to wire money as a part of this scam and continue to evolve their scams.
If you believe that your organization has been a victim of these types of scams you can take many steps at the organization level:
- Report the W-2 thefts to the IRS immediately so that they can begin to help protecting the employees from tax-related identity theft. Forward to email@example.com and place “W2 Scam” in the subject line.
- File a complaint with the Internet Crime Complaint Center (IC3,) operated by the Federal Bureau of Investigation.
If you are an employee who’s W-2 has been stolen:
- You should review the recommended actions by the Federal Trade Commission at www.identitytheft.gov or the IRS at www.irs.gov/identitytheft.
- File a Form 14039, Identity Theft Affidavit, if your tax return gets rejected because of a duplicate Social Security number and/or if instructed to do so by the IRS.
If your organization is lucky enough to have avoided such scams so far, there are measures to take to protect and prevent attacks ahead of time.
- Consult cyber security experts about how to establish a culture of security at your organization
- Enact policies and procedures safeguarding the handling of W-2s during tax season
- Encourage your employees to be safe online and avoid to scam site fronting as Tax Return eServices sites.
Eide Bailly has cyber security and computer forensic experts that can help organizations prevent or respond to these and other cyber threats. Please contact your Eide Bailly representative or Eide Bailly’s Cyber Security Leader, Anders Erickson at 208.383.4731 or email firstname.lastname@example.org for more information.
By Deb Nelson, CPA, Senior Tax Manager
In efforts to provide information about tax exempt organizations to the general public, the IRS has announced that data from previously filed and approved Form 1023-EZ applications will be available electronically.
The IRS released the streamlined exemption application in July 2014 to assist smaller organizations in obtaining tax-exempt status under 501(c)(3). Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. The 1023-EZ contains limited information, but does include the following:
- Name, address and phone number
- Employer identification number
- Names of officers, directors and trustees
- Whether the organization is a corporation, unincorporated association, or trust
- Date of incorporation and applicable state
- NTEE Code that describes intended activities as well as several yes/no questions about activities; such as whether or not compensation will be paid to any officers, directors or trustees
- Type of classification – public charity or private foundation
This data will be updated quarterly on the IRS website and will allow taxpayers to more easily research information on tax exempt organizations. To read the full news release click here.
By: Laurie Hansen, CPA, Tax Manager
With all the changes that occur within an organization during the course of a year, it’s important to take a step back and review policies and procedures at the beginning of the year. For example, it’s critical that an organization classify its workers properly. Are your workers employees, or independent contractors? Let’s take a look at the rules to make sure workers are classified in accordance with IRS guidelines for the coming year.
In general, a person will qualify as an independent contractor if the employer has the right to control or direct the result of the work, but not how or what will be done to achieve the end result. Conversely, in an employer-employee relationship, the employer has the right to direct and control the work done by the employee. Visit our website here for factors that are important in determining worker classification.
By: Peggy E. Jennings, CPA, Partner
If you are like me, you have already forgotten the promises made in the wee hours of 2017 meant to improve health, personal outlook and work habits. We might be forgetful when it comes to self-improvement, but it isn’t too late to consider some improvements to your accounting process that can find efficiencies to be enjoyed all year round.
Some things to consider for 2017:
- Walkthroughs –determine how processes for transactions, information flow and approvals are actually working on a daily basis. The goal isn’t to create a fancy spreadsheet but to consider improvements to processes that can save valuable time. Challenge the adage “we’ve always done it this way” to determine the most efficient means to achieve the tasks.
- Ask questions – is this process necessary? Does it add value? Can it be automated? Is there a duplication of effort between teams? Is anyone using the output? Are roles and responsibilities appropriate?
- Document – after evaluating existing processes and procedures, documenting any updates to existing policies, or creating policies in areas where little documentation existed previously, will provide a tool for staff to utilize in successfully implementing the procedures. Such documentation can also be incorporated into training materials.
- Training – after you have determined the most efficient means to achieve tasks and have created new and improved processes, take the time now to fully training your personnel in the new processes so that all can be successful in their positions and responsibilities.
- Develop process metrics – a good way to measure success is by measuring activity. Consider what metrics can be tracked, such as number of invoices processed, number of days in cycle time (invoice date to approval date), number of manually processed payments, number of invoices processed electronically
Reward success! Change is not easy and it takes a lot of effort to change established processes even when the personnel involved are fully on-board. Listen for needed tweaks to the new processes (internal controls are never final) and take the time to recognize achievement.
Here’s to an efficient and successful 2017!
By: Doug Cash, MBA, CFE, CFI, CFCI
Fraudulent expense reporting by employees continues to be a common threat to operations. A recent survey by the Association of Certified Fraud Examiners estimated the median loss from expense reimbursement fraud was $30,000 per year. This is a considerable amount of money for many NPOs!
As with most areas of internal controls, to prevent and/or detect this type of scheme, start with a solid, clear reimbursement policy and then review reimbursement requests to ensure the policy is being followed. Do you have to review 100%? Not likely. Reviewing on a sample basis, as long as the employees are aware this is happening, should be adequate to ensure the policy is being followed. By setting up this “perception of detection”, employees will be less likely to commit a fraud due to the increased chance of their misdeeds being uncovered.
Elements of a strong reimbursement policy include:
- Timely reporting – reimbursement requests should be submitted within 30 days of the expense
- Appropriate expenditures – the policy should be very clear as to expectations regarding reimbursement for alcoholic beverages, family members, expensive hotels and restaurants, excessive tipping
- Proper documentation – if it is not feasible to require original receipts, have the employees responsible for retaining the original receipts so that they can be produced if a reimbursement request is chosen for review
- Minimum receipt threshold – set a reasonable level, such as $25 or $50, below which a receipt is not required for reimbursement
- Chargeback provisions – if undocumented expenses are found during the review process, have a clear policy regarding potential charge-back to the employee
We mentioned earlier that testing 100% of reimbursement requests may not be necessary, depending on the nature of your operations and available staff time for review. In addition to reviewing reimbursement requests in detail, which should always include all original receipts, you might consider running a report to evaluate and identify the employees having the most charges below the minimum threshold.
Prevention is always less expensive than detection and Eide Bailly can help protect your organization. Our forensic teams enjoy assisting with preventative measures including all areas of internal controls. Contact us today!
By: Peggy Jennings, CPA
The allocation of expenses among program, management & general (M&G), and fundraising functions is sometimes a mysterious process, often left to chance or defaulted to SALY (same as last year), or, in certain unfortunate cases, is determined based on desired ratio outcomes. If done properly, the allocation methodologies can be as diverse as the nature of the expenses incurred.
For those wanting to “do things right,” why the confusion?
One reason is the sometimes over-generalization of the requirements, which themselves are rather sparse in the FASB Accounting Standards Codification (ASC). For example, the definition of program services found in the ASC is “The activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the not-for-profit entity (NFP) exists. Those services are the major purpose for and the major output of the NFP and often relate to several major programs.” Little wonder that a question often heard is, “Aren’t all of our expenses incurred in fulfilling our mission?”
A more useful reference can be found in the AICPA Audit and Accounting Guide, Not-For-Profit Entities (Guide), which provides helpful guidance in Chapter 13, Expenses, Gains and Losses.
To learn more, read the full article here.