Accounting and auditing update VDA

Accounting and Auditing Update
Janet Brocklehurst, Partner
Angela Cain, Senior Manager

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Agenda
• Legislative Developments
• IRS Form 990
• Cost Allocation

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Environment
• Corporate Scandals
– Sarbanes-Oxley Act

• Charitable Scandals
– United Way
– American University

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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
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Congressional Intent vs. Charitable
Community Self Regulation

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

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Overview of Panel’s Recommendations

• The governing boards of charitable
organizations must be more active
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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
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Overview of Panel’s Recommendations

• Congress should strengthen laws to address
abuse and clarify standards and penalties
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Donor advised funds
Supporting organizations
Abusive tax shelters
Executive and Board compensation

• All to protect against personal benefits to
donors
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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

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Legislative Status

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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

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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
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Functional Expenses
• Requirements
• Voluntary Health and Welfare Organizations
• Cost Allocation

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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

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Cost Allocation – Indirect Costs
• Salary and benefit cost
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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
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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

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

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Contact Information
Goodman & Company, L.L.P.
4510 Cox Road, Suite 200
Glen Allen, Virginia 23060
804-282-7636


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