Post on 22-Dec-2015
©20
10 L
arso
nA
llen
LLP
1
Fringe Benefit Testing
ACUIAAustin, Texas
June 15th, 2011
©20
10 L
arso
nA
llen
LLP
2
Speaker’s Biography – Greg Schwartz• Greg Schwartz, CPA, CMA, is a principal in the Financial Institution Credit Union
Group of LarsonAllen. Greg has been auditing credit unions for 25 years and his areas of expertise include audit and supervisory committee agreed-upon procedure engagements, GAAP and GAAS issues related to credit unions, supervisory committee issues, and review and evaluation of internal audit functions.
• Greg has worked with hundreds of credit unions all over the country and is considered an expert on credit union audit and accounting issues. He has made numerous presentations to credit union boards, supervisory committees and management on a variety of accounting and credit union issues.
• Greg graduated from Minnesota State University, Mankato, with a Bachelor of Science in Accounting and a minor in Computer Science. He is a CPA and a member of the American Institute of Certified Public Accountants (AICPA) and the AICPA credit union conference planning committee.
©20
10 L
arso
nA
llen
LLP
33
Fringe Benefit - Definition
• A fringe benefit is a form of pay (including property, services, cash or cash equivalent) in addition to stated pay for performance of services.
©20
10 L
arso
nA
llen
LLP
44
Fringe Benefit Audit - Benefits
1. Better control over credit union activities2. Develop better internal policies3. More equitable employee plans4. More accurate financial reporting5. Minimize tax consequences6. Better employee moral
©20
10 L
arso
nA
llen
LLP
5
Auditing Fringe Benefits
• How to identify• Are the expenses within policy/ Is it clear• Are they recorded correctly• Are the tax effects reported
©20
10 L
arso
nA
llen
LLP
6
How to identify
• Interview management• Miscellaneous or other expense• Expense reports• Corporate credit cards
©20
10 L
arso
nA
llen
LLP
77
Are the expenses within policy
• Clearly defined policy• Defined business purpose• Documentation requirements• Clearly defined eligibility• Clearly defined terms
©20
10 L
arso
nA
llen
LLP
88
Recorded Correctly
• If discovered through policy – probably ok• If discovered from management inquiries – possibly ok• If discovered any other way – probably redo
©20
10 L
arso
nA
llen
LLP
99
Are the tax effects reported
• Accountable plan1. Must be a business connection2. Must be adequate accounting/reasonable period of time3. Excess must be returned
• Nonaccountable plan1. Taxable wages
©20
10 L
arso
nA
llen
LLP
1010
Tax Consequences
• Accountable to Nonaccountable1. Withholding of social security, medicare and
income taxes2. Employer matching of social security and
medicare
©20
10 L
arso
nA
llen
LLP
1111
Tax Resource
• The IRS Taxable Fringe Benefit Guide
©20
10 L
arso
nA
llen
LLP
1212
Identification – the List
• Working Condition Fringe Benefits (slide)• De Minimis Fringe Benefit (slide)• No Additional Cost Fringe Benefits (slide)• Qualified Employee Discounts• Qualified Transportation Fringe Benefits• Health and Medical Benefits• Travel and Transportation Expenses• Moving Expenses • Meals and Lodging
©20
10 L
arso
nA
llen
LLP
1313
Identification – the List (Cont)
• Use of Employee-Owned Vehicle• Employer – Provided Vehicle• Equipment and Allowances• Other types of Compensation• Awards and Prizes• Professional Licenses and Dues• Educational Reimbursments
©20
10 L
arso
nA
llen
LLP
1414
Working Condition Fringe Benefits
• Property of services that, if the employee had paid for, he or she could have deducted as a business expense
• Uniform
©20
10 L
arso
nA
llen
LLP
1515
De Minimis Fringe Benefit
• Small and infrequent1. Personal use of photocopier2. Group meals3. Theater or sporting event tickets4. Coffee, donuts, or soft drinks5. Flowers for special circumstances6. Local phone calls7. Birthday or holiday gifts (not cash) with a low FMV8. Commuting use of employer’s car < 1 day per month
©20
10 L
arso
nA
llen
LLP
1616
De Minimis Fringe Benefit
• Not De Minimus1. Cash2. Cash equivalent3. Transportation passes4. Use of employer’s apartment, vacation home, boat5. Commuting use of employer’s car > 1 day per month6. Membership in a country club or athletic facility
©20
10 L
arso
nA
llen
LLP
1717
De Minimis Fringe Benefit
• An employer gives employees snacks each day valued at 75 cents. Even though small in amount, the benefit is provided on a regular basis and is, therefore, taxable as wages.
©20
10 L
arso
nA
llen
LLP
1818
No Additional Cost Fringe Benefits
• A service provided to employees the does not impose any substantial additional cost.
• Use of the credit union meeting facilities after hours
©20
10 L
arso
nA
llen
LLP
1919
Qualified Employee Discounts
• Excludable if:
– Merchandise – less than the employers gross profit percentage time the price charged the member
– Services – less than 20% of the price charged the member
• Difficult to find• Policy may or may not be clear• Accounting is usually ok
©20
10 L
arso
nA
llen
LLP
2020
Qualified Transportation Fringe Benefits
1. Commuter transportation in a commuter highway vehicle2. Transit passes3. Qualified Parking4. Qualified bicycle commuting expenses
• Difficult to find• Policy may or may not be clear• Accounting is usually ok
©20
10 L
arso
nA
llen
LLP
2121
Moving Expenses
• Often buried in “other”• Often no clear policy• Tax effect is often wrong1. Time test – 39 weeks full time2. New job is +50 miles further from the former home than
the old job was from the former home3. Moving of household goods and travel costs only4. Must actually incur the expenses
©20
10 L
arso
nA
llen
LLP
2222
Use of Employee-Owned Vehicle
• Not difficult to find• Policy may or may not be clear• Accounting is usually ok• Taxes – federal standard mileage rate
©20
10 L
arso
nA
llen
LLP
2323
Employer Provided Vehicle
• Not difficult to find• Policy may or may not be clear• Accounting is usually ok• Taxes –1. If records are provided then personal use is wages to the
employee2. If records are not provided then all use is wages to the
employee
©20
10 L
arso
nA
llen
LLP
2424
Listed Property - Cell phones, Computers
• Usually not hard to fine• Usually mentioned in policy• Accounting usually ok• Tax effects-1. Business use is not taxable2. Personal use is wages3. If records are not kept – all personal
©20
10 L
arso
nA
llen
LLP
2525
Other Types of Compensation
• Performance bonuses• Signing, recruiting or relocation bonuses• Awards for outstanding service or performance• Back Pay• Severance pay• Administrative pay• Legal settlements/damages related to performance• Grossed-up wages to pay for taxes
©20
10 L
arso
nA
llen
LLP
2626
Employee awards
• Easy to find• Probably not in policy• Accounting probably ok• Tax effect – 1. Must be length of service or safety only2. Cannot be cash, cash equivalent, vacation, meal, lodging,
theater or sports ticket, stocks or bonds.3. Other special rules – no more than 10% can receive, etc
©20
10 L
arso
nA
llen
LLP
2727
Employee Awards
• Employee of the month, outstanding member service, highest productivity – always taxable
• Dollar limitations – Qualified plan vs nonqualified plan
©20
10 L
arso
nA
llen
LLP
2828
Club Membership
• Can be difficult to find• Policy may not be clear• Probably recorded in “other”• Tax effect – 1. Taxable to the employee2. Employee may deduct business use
©20
10 L
arso
nA
llen
LLP
2929
Education Reimbursements
• Not hard to find• Policy probably fairly clear• Accounting probably ok• Tax effect – 1. Must not be minimum requirements of current job2. Must not qualify employee for a new job3. Subject to verification requirements
©20
10 L
arso
nA
llen
LLP
3030
Corporate Credit Cards
• Hard to find• Policy not clear• Accounting usually wrong• Tax effect – can be a problem
©20
10 L
arso
nA
llen
LLP
3131
Actual situation
• Missing receipts• No business purpose documented• Shared cards• Tuition reimbursements to terminated employees not
followed up• Spouse travel• Other mysterious expenses
©20
10 L
arso
nA
llen
LLP
3232
Actual Situation
• Rolex watches
©20
10 L
arso
nA
llen
LLP
3333
Actual Situation
• 1000 Golf balls
©20
10 L
arso
nA
llen
LLP
3434
Actual Situation
• A CEO attended a conference in Hawaii - a “Supervisory Committee” conference
©20
10 L
arso
nA
llen
LLP
3535
Actual Situation
• Property improvement – moving expenses
©20
10 L
arso
nA
llen
LLP
3636
Actual Situation
• No documented compensation package for the CEO
©20
10 L
arso
nA
llen
LLP
3737
Actual Situation
• Over 200 corporate credit union cards
©20
10 L
arso
nA
llen
LLP
3838
Actual Situation
• Over a three year period, 9 people left without tuition reimbursement follow-u.p
©20
10 L
arso
nA
llen
LLP
3939
Actual Situation
• $10,000 contribution to the University the CEO attended
©20
10 L
arso
nA
llen
LLP
4040
Actual Situation
• CEO used a golf club 3 times in one year. Family used it daily.
©20
10 L
arso
nA
llen
LLP
41
Thank You
Greg Schwartz, CPAgschwartz@larsonallen.com (612)376-4684 or (972)-644-3167