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MISSION CRITICAL:
A PRACTICAL UPDATE OF NONPROFIT
ACCOUNTING, TAX, AND
GOVERNANCE HOT TOPICS
JIM SHELLENBERGER, CPA
MISSION CRITICAL:
A PRACTICAL UPDATE OF NONPROFIT
ACCOUNTING, TAX, AND
GOVERNANCE HOT TOPICS
JIM SHELLENBERGER, CPA
ABOUT ME
• Senior Manager in M&A’s Audit
Group
• 11+ years working with
nonprofit organizations
• Member of the statewide ...
DO WE HAVE A
STANDARD
SLIDE?
MCKONLY & ASBURY
AGENDA
• Accounting Standards Update
• Proposed Changes to Single Audit Guidance
• 5 Policies All Nonprofits Should Have i...
Besides CPE?
Multiple Reasons!
• This is the nonprofit “Busy Season”
• Nonprofits are a huge part of the economy
• Account...
DISCLAIMER
The information contained in this presentation, both in the slides and
expressed by the presenter, is not inten...
ACCOUNTING STANDARDS
UPDATE
CLASSIFICATION OF SALES PROCEEDS OF
DONATED FINANCIAL ASSETS
ASU 2012-05 issued in October 2012
• Exposure draft previousl...
CLASSIFICATION OF SALES PROCEEDS OF
DONATED FINANCIAL ASSETS
FASB concluded that the donation of financial assets is consi...
CLASSIFICATION OF SALES PROCEEDS OF
DONATED FINANCIAL ASSETS
Most organizations already have a conversion policy
Effective...
SERVICES RECEIVED FROM PERSONNEL OF AN
AFFILIATE
• ASU 2013-06 issued in April 2013
• Requires all NFPs to apply similar r...
SERVICES RECEIVED FROM PERSONNEL OF AN
AFFILIATE
Previously only recognized at fair value if services are regularly perfor...
SERVICES RECEIVED FROM PERSONNEL OF AN
AFFILIATE
Fair value practicability exception if cost will significantly overstate ...
CLARIFIED AUDITING STANDARDS
• Effective for periods ending after December 15, 2012.
• (Most NFP’s will see this for June ...
PROPOSED SINGLE AUDIT
CHANGES
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
January 31, 2013 - Office of Management and Budget (OMB) issued proposed
changes...
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
Key Changes:
• Audit Requirement raised from $500,000 a year to $750,000
• Entit...
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
Total Number of Audits (2010)
• More than $750k: 38,704 (86%)
• Less than $750k:...
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
Key Changes:
• Type A/B Threshold revised from $300,000 to $500,000
• High-Risk ...
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
Key Changes:
• Number of types of compliance requirements to be tested in a sing...
PROPOSED CHANGES TO SINGLE AUDIT
GUIDANCE
Key Changes:
• Percentage of coverage rule reduced from current 50% (normal) and...
FIVE CRITICAL NONPROFIT
DOCUMENTS
• Expands on Core Values
• Written, and not “stale”
• Employees and Board Members
• States organization’s values and becom...
Board Members
• Push down to employees
Monitoring!
Don’t look at it just one time
• 990 (IRS provides a sample with
the Fo...
• Why?
• Safeguards
• Procedures
• Response
• Hotline
• Committee or designated person responsible
• 990 disclosure
WHISTL...
• If you don’t have one, create one.
• If you have one, update it.
• Used to train new employees and
to prevent downtime i...
• Review to ensure proper compliance
with state and federal laws
• Grant Agreements!
• Paper vs Electronic Retention
• Sto...
10 HOT TOPICS IN THE
NONPROFIT WORLD
• Executive compensation should be
performance based and tied to
predetermined goals
• IRS 3-Step process
• Salary and ben...
• Documentation required!
• Receipts - $25+
• Review and Approval
• Fraud indicators :
• Unusual or unexpected fluctuation...
• Critical document
• Public document
• Not just a restatement of the mission,
but program accomplishments (Part III)
• Bo...
• Need to identify early… put processes
in place.
• Donor restrictions dictate proper
accounting treatment.
• Failure to f...
• Selection
• Read fine print in grant agreements
• Monitoring
• Internal Controls
• Vendor payments
5. RECIPIENTS OF FUNDS
• Required statement for voluntary health and
welfare organizations
• Three categories
• Management and General
• Program
...
• “Going mobile”
• Capital expenditure
• Data security risk
• Cost / Benefit Analysis
7. MOBILITY
• Determine optimal size – Effectiveness
• Composition – Expertise and
requirements
• Encourage Frankness
• Board Retreats...
• Independent Members
• (not always a subset of the Board)
• Written Charter (or responsibilities)
• Financially literate
...
• Fraud risk is present.
• Performed by senior management
or by outside party.
• Goal is to determine where risks
exists, ...
CONTACT
Jim Shellenberger, CPA
• jshellenberger@macpas.com
• 717-761-7910
• www.macpas.com.com
McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics
McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics
McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics
McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics
McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics
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McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics

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We continued our Celebrating 40 Years of Excellence! Webinar Series with a webinar entitled “Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics” presented by Jim Shellenberger, Senior Manager with McKonly & Asbury. Thank you to everyone that attended.

The nonprofit sector continues to play a large and vital role in our economy, and it is imperative for anyone that is involved with a nonprofit organization to obtain a clear understanding of relevant legislative, regulatory, and industry best practices. This webinar provided updates in the areas of nonprofit accounting and tax technical pronouncements, and in addition, we reviewed key governance topics and best practices. The webinar was geared to employees and executives of nonprofit organizations, and also for individuals and companies that serve nonprofit organizations and those that volunteer their time as board members.

Check out our Upcoming Events page for news and updates on our future seminars and webinars at www.macpas.com/events.

http://www.macpas.com/mckonly-asburys-free-nonprofit-webinar

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McKonly & Asbury Webinar - Mission Critical: A Practical Update of Nonprofit Accounting, Tax, and Governance Hot Topics

  1. 1. MISSION CRITICAL: A PRACTICAL UPDATE OF NONPROFIT ACCOUNTING, TAX, AND GOVERNANCE HOT TOPICS JIM SHELLENBERGER, CPA
  2. 2. MISSION CRITICAL: A PRACTICAL UPDATE OF NONPROFIT ACCOUNTING, TAX, AND GOVERNANCE HOT TOPICS JIM SHELLENBERGER, CPA
  3. 3. ABOUT ME • Senior Manager in M&A’s Audit Group • 11+ years working with nonprofit organizations • Member of the statewide PICPA nonprofit committee • Nonprofit volunteer
  4. 4. DO WE HAVE A STANDARD SLIDE? MCKONLY & ASBURY
  5. 5. AGENDA • Accounting Standards Update • Proposed Changes to Single Audit Guidance • 5 Policies All Nonprofits Should Have in Place • 10 Hot Topics in the Nonprofit World
  6. 6. Besides CPE? Multiple Reasons! • This is the nonprofit “Busy Season” • Nonprofits are a huge part of the economy • Accounting rules are not getting any easier • Governance is a great tool to fight fraud, abuse, and bad press WHY DO THIS WEBINAR?
  7. 7. DISCLAIMER The information contained in this presentation, both in the slides and expressed by the presenter, is not intended to be complete and comprehensive. To obtain a more detailed understanding of technical literature mentioned, please consult the exposure drafts, final standards and interpretations.
  8. 8. ACCOUNTING STANDARDS UPDATE
  9. 9. CLASSIFICATION OF SALES PROCEEDS OF DONATED FINANCIAL ASSETS ASU 2012-05 issued in October 2012 • Exposure draft previously issued in April 2012 Previously inconsistent treatment between classification on statement of cash flows, often reported as an investing activity.
  10. 10. CLASSIFICATION OF SALES PROCEEDS OF DONATED FINANCIAL ASSETS FASB concluded that the donation of financial assets is consistent with a cash contribution, and as such, should be reported as an operating activity when: • Upon receipt by the NFP, the securities are directed for sale, and • The NFP has the ability to avoid significant investment risks and rewards through near immediate conversion to cash If proceeds are restricted (by the donor) to a long-term purpose, then classified as a financing activity.
  11. 11. CLASSIFICATION OF SALES PROCEEDS OF DONATED FINANCIAL ASSETS Most organizations already have a conversion policy Effective for fiscal years beginning after 6/15/2013. Early adoption is permitted.
  12. 12. SERVICES RECEIVED FROM PERSONNEL OF AN AFFILIATE • ASU 2013-06 issued in April 2013 • Requires all NFPs to apply similar recognition and measurement for services received from an affiliate that directly benefits the recipient organization. • Goal is to increase transparency of transaction and reduce diversity in practice.
  13. 13. SERVICES RECEIVED FROM PERSONNEL OF AN AFFILIATE Previously only recognized at fair value if services are regularly performed and the services: • Create or enhance nonfinancial assets, or • Require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation Measured at actual cost incurred by the affiliate
  14. 14. SERVICES RECEIVED FROM PERSONNEL OF AN AFFILIATE Fair value practicability exception if cost will significantly overstate or understate the value of the service provided. Effective for fiscal years beginning after 6/15/2014. Early adoption permitted.
  15. 15. CLARIFIED AUDITING STANDARDS • Effective for periods ending after December 15, 2012. • (Most NFP’s will see this for June 30, 2013 year end) • Change in Standard Independent Auditor’s Report • Additional communications from auditors
  16. 16. PROPOSED SINGLE AUDIT CHANGES
  17. 17. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE January 31, 2013 - Office of Management and Budget (OMB) issued proposed changes related to the administration, cost principles, and audit requirements of federal awards. Designed to streamline and improve the way the federal government administers more than $600 billion in grants annually • Eliminate unnecessary and redundant requirements to achieve better outcomes at a lower cost.
  18. 18. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE Key Changes: • Audit Requirement raised from $500,000 a year to $750,000 • Entities that spend less than $750,000 in federal awards in a year would be required to make records available for review or audit by appropriate officials of the federal agency, pass-through entity, and the U.S. Government Accountability Office,
  19. 19. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE Total Number of Audits (2010) • More than $750k: 38,704 (86%) • Less than $750k: 6,115 (14%) Total Federal Dollars (2010) • More than $750k: 99.7% • Less than $750k: 0.3%
  20. 20. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE Key Changes: • Type A/B Threshold revised from $300,000 to $500,000 • High-Risk Type A Program criteria changed • Simplified process for identifying high-risk Type B programs to be tested
  21. 21. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE Key Changes: • Number of types of compliance requirements to be tested in a single audit be reduced from 14 to 6: • Activities allowed or unallowed, and allowable costs/costs principles • Cash management • Eligibility • Reporting • Subrecipient monitoring • Special tests and provisions
  22. 22. PROPOSED CHANGES TO SINGLE AUDIT GUIDANCE Key Changes: • Percentage of coverage rule reduced from current 50% (normal) and 25% (low-risk auditee) to 40% (normal) and 20% (low-risk auditee) • Criteria for Low-Risk Auditee Status revised • More data required to be reported in auditor findings • Threshold for reporting questioned costs increased from $10,000 to $25,000 • Combine eight (8) existing OMB circulars into one comprehensive document
  23. 23. FIVE CRITICAL NONPROFIT DOCUMENTS
  24. 24. • Expands on Core Values • Written, and not “stale” • Employees and Board Members • States organization’s values and becomes part of the organization's culture CODE OF CONDUCT
  25. 25. Board Members • Push down to employees Monitoring! Don’t look at it just one time • 990 (IRS provides a sample with the Form 1023 CONFLICT OF INTEREST POLICY
  26. 26. • Why? • Safeguards • Procedures • Response • Hotline • Committee or designated person responsible • 990 disclosure WHISTLEBLOWER POLICY
  27. 27. • If you don’t have one, create one. • If you have one, update it. • Used to train new employees and to prevent downtime in the future • Walkthroughs POLICY AND PROCEDURE MANUAL
  28. 28. • Review to ensure proper compliance with state and federal laws • Grant Agreements! • Paper vs Electronic Retention • Storage System • 990 disclosure DOCUMENT RETENTION AND DESTRUCTION POLICY
  29. 29. 10 HOT TOPICS IN THE NONPROFIT WORLD
  30. 30. • Executive compensation should be performance based and tied to predetermined goals • IRS 3-Step process • Salary and benefits • Succession Plan for Key Executives 1. EXECUTIVE COMPENSATION
  31. 31. • Documentation required! • Receipts - $25+ • Review and Approval • Fraud indicators : • Unusual or unexpected fluctuations, patterns, or amounts • Compare dates to work assignments 2. EXPENSE REIMBURSEMENTS
  32. 32. • Critical document • Public document • Not just a restatement of the mission, but program accomplishments (Part III) • Board review and approval 3. IRS FORM 990
  33. 33. • Need to identify early… put processes in place. • Donor restrictions dictate proper accounting treatment. • Failure to follow restrictions can cause penalty. 4. RESTRICTED CONTRIBUTIONS
  34. 34. • Selection • Read fine print in grant agreements • Monitoring • Internal Controls • Vendor payments 5. RECIPIENTS OF FUNDS
  35. 35. • Required statement for voluntary health and welfare organizations • Three categories • Management and General • Program • Fundraising • Allocation • Common Errors 6. FUNCTIONAL EXPENSE ALLOCATION
  36. 36. • “Going mobile” • Capital expenditure • Data security risk • Cost / Benefit Analysis 7. MOBILITY
  37. 37. • Determine optimal size – Effectiveness • Composition – Expertise and requirements • Encourage Frankness • Board Retreats • Board Report Card • Use Committees • Focus on strategy and risk 8. BOARD OF DIRECTORS
  38. 38. • Independent Members • (not always a subset of the Board) • Written Charter (or responsibilities) • Financially literate • Meet and communicate with external auditors 9. AUDIT COMMITTEE
  39. 39. • Fraud risk is present. • Performed by senior management or by outside party. • Goal is to determine where risks exists, and if controls are in place to mitigate those risks. 10. FRAUD RISK ASSESSMENT
  40. 40. CONTACT Jim Shellenberger, CPA • jshellenberger@macpas.com • 717-761-7910 • www.macpas.com.com

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