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.
By Kyle Fritch
As the end of the year approaches, many individuals and businesses will be planning their holiday and year-end giving. Charitable donations are an excellent way for donors to reduce their tax burdens while also supporting their communities and nonprofit organizations. Donors commonly have questions about the timing of contributions to ensure they receive a deduction for their charitable donation in the appropriate year. In addition, charities must provide the date that a contribution was received when providing acknowledgements to their donors. These rules are complicated, so care needs to be taken in evaluating these year-end donations.
Charitable contributions are deductible in the year the donation is made. A contribution is considered to be made on the date of delivery to the charity if the donor has irrevocably parted with ownership (possession and control) of the property. The date of delivery rules vary depending on the type of property contributed and how it is transmitted to the charity. Click here for some of the most common donation scenarios, along with the rules pertaining to each type of donation.
By Anne Stoll
As 2016 comes to a close, it is important to set aside time in the midst of holiday preparations and planning for the New Year to ensure you have taken care of your private foundation. Here are a few key things to think about with respect to your foundation as the end of the year draws near.
First, have you made your required minimum distributions? Private non-operating foundations are required to distribute approximately 5% of the fair market value of their assets for exempt purposes every year. Failing to do so will result in an excise tax of 30% of the amount under-distributed, and will not allow the Foundation to take advantage of the 1% reduced tax rate for the next 5 years. If you are unsure if the foundation has required distributions remaining to make, review your most recently filed Form 990-PF and compare the amount of undistributed income calculated in Part XIII to the distributions that have already been paid in the current year. Be sure to make any remaining distributions by the end of the year.
Next consider if it is worth the effort to estimate the amount of distributions needed to qualify for the reduced tax rate of 1% vs the standard 2% tax rate. With a good projection of the average fair market value of your assets during the year, you can determine the level of distributions necessary to qualify for the 1% tax rate. This could allow you to distribute more money for your exempt purpose and take advantage of a reduction in taxes, thus leaving more money for the future.
Finally, review your net investment income so you will not have any surprises at year-end. Look especially at your capital gains/losses. Private foundations are unique in that capital losses can only be used to offset capital gains and are not allowed to be carried forward or back to other years. If you find that you have a net capital loss consider taking advantage of this loss by selling appreciated property. After determining if you will qualify for the 1% or 2% tax rate and looking at your total investment income, review the estimated quarterly payments you have made for the year. Use this time to adjust the final quarter payment if necessary in order to avoid underpayment penalties.
Taking a few minutes during this already busy time to do some year-end reviews can ensure a penalty free and happy new year!
By Kim Hunwardsen
The political season is in its final months, and we all have our opinions. Important issues like the fate of the Affordable Care Act and the impact of tax reform on charitable contributions have us talking.
But organizations exempt under 501(c)(3) and their leaders need to be careful about what they say — and do — politically. These types of nonprofit organizations are prohibited from engaging a substantial part of their activities in lobbying and from engaging in any direct intervention in elections for public office. Failure to follow these rules could result in loss of tax exemption. Certain other types of nonprofit organizations like those exempt as trade associations under 501(c)(6) are not subject to these same types of limitations. For more information read the full article here.
By: Tim McCutcheon
Ransomware is a software that locks users out of their computer or specific files until a “fee” is paid to release the lock and these attacks on organizations have become ever more common. Any organization that relies on real-time or near-real-time access to data may be subject to an attack. Although there has been a rise in the number of attacks, the full implications are still being understood and worked out. Read this article by PoynerSpruill to learn more about Ransomware and what is known on these attacks.