Accounting and Auditing Update

1
Accounting and Auditing Update

• Janet Brocklehurst, Partner
• Angela Cain, Senior Manager

2
Agenda

• Legislative Developments
• IRS Form 990
• Cost Allocation

3
Environment

• Corporate Scandals
• Sarbanes-Oxley Act
• Charitable Scandals
• United Way
• American University

4
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

5
Congressional Intent vs. Charitable Community
Self Regulation

• Panel on Non-Profit Sector
• Over 120 specific recommendations
• Fall in three major categories
• Governance
• Transparency
• Accountability

6
Overview of Panels Recommendations

• The governing boards of charitable organizations
  must be more active
• Audit Procedures
• Conflict of Interest Policies
• Travel Policies
• Whistleblower Policies

7
Overview of Panels 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

8
Overview of Panels 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

9
Overview of Panels 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

10
Legislative Status
11
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

12
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

13
Functional Expenses

• Requirements
• Voluntary Health and Welfare Organizations
• Cost Allocation

14
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

15
Cost Allocation Indirect Costs

• Salary and benefit cost
• General and administrative
• Human Resources department
• Accounting department
• IT department
• Executive officers
• Program directors and staff

16
Cost Allocation Indirect Costs

• Cost of operating and maintaining facilities
• Utilities
• Insurance
• Repairs and maintenance
• Building and equipment depreciation
• Equipment leases

17
Cost Allocation Criteria

• In decreasing order of preference
• Cause and effect
• Benefits received
• Equitable or reasonable
• Ability to bear

18
Cost Allocation

• Common Allocation Bases
• Office support Direct labor dollars or hours
• Occupancy Square footage
• Data processing Computer time

19
Contact Information

• Goodman Company, L.L.P.
• 4510 Cox Road, Suite 200
• Glen Allen, Virginia 23060
• 804-282-7636
• jbrocklehurst_at_goodmanco.com
• acain_at_goodmanco.com