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Webinar Slides: What's New in Not-for-Profit Accounting and Auditing Standards?
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Transcript of Webinar Slides: What's New in Not-for-Profit Accounting and Auditing Standards?
EXECUTIVE EDUCATION SERIES: What's New in Not-for-Profit Accounting
and Auditing Standards?
Presented by: Shareholders Laura Krueger Brock & Patrick Quinn
July 18, 2013
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To view this webinar in full screen mode, click on view options in the upper right hand corner.
Click the Support tab for technical assistance.
If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.
Before We Get Started…
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This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic polling questions throughout the webinar.
External participants will receive their CPE certificate via email immediately following the webinar.
CPE Credit
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Laura Krueger Brock, CPA, CFE Shareholder 727.572.1400 | [email protected] Laura is a Shareholder in the Not-For-Profit & Education Audit Practice and has over 30 years experience in public accounting primarily with Not-For-Profit and Government clients. She is head of the public sector attest practice in the Tampa Bay office. She is a past conference chair and speaker at the annual Not-For-Profit conference of the Florida Institute of CPAs. Her subjects have included fraud, internal controls and auditing and accounting.
Today’s Presenters
Patrick Quinn, CPA Shareholder 401.626.3211 | [email protected] Patrick is a Shareholder in the Not-For-Profit & Education Audit Practice. He has more than 17 years of accounting and audit experience working with not-for-profit and education organizations. He performs audits and reviews of financial statements, and assists clients with analyzing and interpreting financial results as well as debt offerings and internal control matters. He is a past conference chair and speaker at the annual Not-For-Profit conference of the Rhode Island Society of CPAs.
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The information in this Executive Education Series
course is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM service provider to further
discuss the impact on your financial statements.
Disclaimer
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Today’s Agenda
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Accounting and auditing standards
Current events and ongoing projects
Changes to the AICPA NFP A&A guide
The FASB NFP financial reporting initiative
Regulatory and other developments
OMB Circular A-133 changes
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Fair value measurements
Patient service revenues
Multiemployer pension plans
Donated assets
Other standards updates
Clarity standards
Theft, fraud and internal control
Accounting and Auditing Standards
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The good news is there is not much new regarding fair value this year.
Items of significance: Enhanced Fair Value disclosures Level 2 and 3 financial instruments, not under the NAV
practical expedient, must disclose techniques that were used in valuation This involves not just indicating “Level 3 inputs” but indicating what
specific inputs are used. For instance, some Level 3 inputs are discounted cash flows models or market comparisons
Fair Value Measurements
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Enhanced Fair Value disclosures (continued) The non-NAV items are generally investments such as:
Alternative investments that are not investment companies Alternative investments reported on the tax basis or a non-US
GAAP framework Direct investments in private companies Direct investments in real estate Mortgage portfolios (i.e. organizations that hold employee
mortgages)
Fair Value Measurements
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Enhanced Fair Value disclosures (continued) Requires detailed disclosure of the inputs used to valuation Disclose ranges of assumptions such as discount rates,
earnings multiples, etc. This information is required to be disclosed in tabular format Private equity/venture capital fund financial statements
should have good examples of what is required, should you need to implement something
Discuss these disclosures early on with your auditors, keeping in mind materiality
Fair Value Measurements
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Enhanced Fair Value disclosures (continued) Supplemental fair value
disclosure information for financial instruments not measured and reported at fair value: Must now include information on
how fair value was determined within the hierarchy
Also need to describe the inputs to valuation that are used (see previous slides)
Fair Value Measurements
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Fair Value Measurements
Fair Value Measurement The fair value of the Organization’s bonds payable approximates $98,000,000 and $96,500,000 at June 30, 2013 and 2012, respectively, based upon observable quoted market prices for the same or similar issues utilizing Level 2 inputs. The market prices utilized reflect the rate the Organization would have to pay a creditworthy third party to assume its obligation and do not reflect an additional liability to the Organization. The Organization has concluded that fair value approximates carrying value for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and deposits given the short-term nature of these instruments. The fair values of such instruments have been derived, in part, by management’s assumptions, under Level 2 fair value methods that include discount rates and other observable inputs. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially different from the estimates presented on the Statements of Financial Position at June 30, 2013 and 2012. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the Organization.
Sample disclosure for reported only items
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ASU 2013-08, Financial Services-Investment Companies Relates to investment companies
Clarifies the definition of an investment company
Could impact NFPs if alternative investments that Organizations invest in are now out of the scope of the Investment Company Guide, thus will no longer qualify for the NAV Practical Expedient
Fair Value Measurements
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ASU 2013-08, Financial Services (Continued)
Good news – the FASB chose
not to change accounting at the real estate entity level, thus these entities use consistent fair value measurements as other investment companies and should still qualify for NAV.
Fair Value Measurements
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ASU 2013-08 (Continued)
Entities with the following characteristics generally qualify as investment companies: More than one investor Investors are not related parties of the investment advisor More than one investment Ownership interests in the fund are either equity or partnership
interests
Fair Value Measurements
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ASU 2013-08 (Continued)
What can you do to assess whether this ASU will impact your organization? Contact your investment funds to assess whether they are still
considered to be “investment companies” Examine the current financials of the investment funds, if
traditional private equity/venture capital funds then this new standard is not likely an issue
If they are closely held funds with few investors, need to consider this new guidance
Fair Value Measurements
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ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and Allowance for Doubtful Accounts for Certain Healthcare Entities
Was issued two years ago, but generally effective for fiscal
2013 for most entities
Key provisions: Patient revenue bad debts must now be presented as a reduction
of Net Patient Service Revenue Bad debts can no longer be presented as an operating expense
Patient Service Revenue
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Key provisions (continued): Bad debt expense from receivables Other Than patient service
revenue can be presented as an operating expense
Requires enhanced disclosures about an entity’s revenue recognition and bad debt policies
Disclose, by major payor source, policy for assessing collectability in determining the timing and amount of net patient service revenue to be recognized
Disclose, by major payor source, net patient service revenue before the provision for bad debts
Provide qualitative and quantitative analysis of the changes in the allowance for doubtful accounts
Patient Service Revenue
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New guidance effective for periods ending after 12/15/12 for nonpublic entities, was effective calendar 2011, fiscal 2012 for public entities
Multiemployer Pension Plans
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Disclose: Plan name (enough info to allow users to access the Form
5500) Funded status Expiration dates of any collective bargaining agreements If employer’s contributions represent more than 5% of total,
disclose this fact Contributions made to each plan Description of any changes impacting comparability among
years
Multiemployer Pension Plans
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Statement of Cash Flows Presentation – ASU 2012-05 Classify donated financial assets as inflows from operating
activities if: Upon receipt, assets were directed for sale without any limitations Assets were converted to cash nearly immediately Donor did not restrict the use of the assets for long-term purposes
If donor restricted for long-term purposes, such as a capital expenditure, then the donation is classified in the financing section
In all other cases (i.e. not converted to cash), classify as investing activities
Donated Financial Assets
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EITF Issue 12-B, Not-for-Profit Entities: Services Received from Personnel of an Affiliate for Which the Affiliate Does Not Charge the Recipient NFP
Other Recent Accounting Standards Updates
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Affiliate Services Questions have arisen about whether a recipient
organization should consider personnel costs incurred on its behalf by an affiliate as contributed services and apply the relevant recognition guidance.
The question was how such contributions should be measured – based on cost or an estimated fair value?
New rules effective on a Prospective basis for fiscal years beginning after June 15, 2014 (fiscal 2015, calendar 2015), can be early adopted.
Other Recent Accounting Standards Updates
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Affiliate Services (Continued) Final ASU
Measure services at the cost recognized by the affiliate providing the services
If recognizing at cost will significantly overstate the value of the services received, then recipient NFP may elect to recognize at either: Cost recognized by affiliate Fair value of the service
If Health Care Entity, report the services as an equity transfer from the affiliate and increase in net assets. All others can elect where to report, but cannot report as contra-expense or contra-asset
Other Recent Accounting Standards Updates
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Clarity Standards
The AICPA’s Auditing Standards Board (ASB) redrafted all but one of the auditing sections in Codification of Statement on Auditing Standards (contained in AICPA Professional Standards)
Resource: AICPA Financial Reporting Center
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Exposure Draft of Proposed Statement on Auditing Standards Using the Work of Internal Auditors Released The ASB has completed the clarity redrafting of its last AU section in AICPA
Professional Standards and has issued proposed Statement on Auditing Standards (SAS) Using the Work of Internal Auditors.
This proposed SAS would supersede AU section 322 and AU-C section 610, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements, and, among other amendments, would also significantly amend AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AICPA, Professional Standards).
Comments were due July 15, 2013.
Clarity Standards
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Effective for years ended on or after December 15, 2012.
The codification of the clarified standards uses section numbering established by SAS No. 122, Statements on Auditing Standards: Clarification and Recodification and contains “AU-C” section numbers.
“AU-C” is a temporary identifier to avoid confusion with the references to AU section and will remain effective through 2013.
Clarity Standards
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Primary effects: 1. Opinion format 2. Opinion terminology 3. Component materiality and group audits 4. Legal inquiry letters 5. Fraud inquiries 6. Opening balances in initial audit engagements
Clarity Standards
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See the sample Auditor’s Report included as a download on this webinar.
Auditor’s Report
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Fraud risks specific to NFPs
Per Association of Certified Fraud Examiners, a typical organization loses an estimated 5% of its annual revenue to fraud
Damaged reputation can have devastating consequences Donors Grantors Other public sources
Theft, Fraud & Internal Control
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Management should establish fraud risk management program Fraud risk assessment – identify the
fraud schemes that could potentially occur
Consider red flags or warning signals
Theft, Fraud & Internal Control
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Changes to the AICPA Not-for-Profit Accounting and Auditing Guide
Other accounting developments
Changes to OMB Circular A-133
Current Events and Ongoing Projects
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2013 Overhauled Audit and Accounting Guide
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The AICPA has issued a comprehensive revision of the Audit and Accounting Guide Not-for-Profit Entities in the spring of 2013 Financial Reporting Executive Committee (FinREC) Not-for-Profit Entities Expert Panel Not-for-Profit Guide Task Force
First revision (other than annual conforming changes) since the Guide was released in 1996.
Changes in the new AICPA NFP A&A Guide
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Considered over 100 questions that had been asked by members who called the AICPA Help Line
Authoritative guidance from FASB Codification
Non-authoritative guidance from FinREC conclusions
Incorporated relevant nonauthoritative AICPA literature
Background for New Content
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Accounting & Financial Reporting Basis of accounting content is from GAAP, but the Guides
provide additional explanation and practical guidance
Auditing Auditing guidance considered interpretive publication under
AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards
“The auditor should consider applicable interpretive publications in planning and performing the audit.”
AU-C 200.27
Authoritative Status of AICPA Guides
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16 Chapters in the Guide
Chapter 2 – General Auditing Considerations Conformed to the Clarity project Includes NFP specific guidance Fraud risks specific to NFPs Other guide chapters have NFP specific suggested
audit procedures relating to the particular chapter’s topic
Chapter Updates
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Chapter 3 – Financial Statements, the Reporting Entity, and General Financial Reporting Matters Significantly expands guidance on interest in related
entities Summary chart of examples: NFP entities For-profit entities Special-purpose leasing entities
Chapter Updates
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Relationship
FASB Accounting Standards Codification
(ASC) Reference
Discussion in This Chapter
The reporting entity controls another NFP through a majority voting interest in its board and has an economic interest in that other entity.
Use the guidance in FASB ASC 958-810-25-3
Paragraphs 3.67-.69
The reporting entity controls an NFP through a form other than majority ownership, sole corporate membership, or majority voting interest in the board of the other entity and has an economic interest in that other entity.
Use the guidance in FASB ASC 958-810-25-4
Paragraph 3.70
The reporting entity has control over another NFP or an economic interest in the other, but not both
Use the guidance in FASB ASC 958-810-25-5
Paragraph 3.71
Excerpt from Exhibit 3-2
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Chapter 3 – Financial Statement/Reporting Entity Statement of functional expenses Required as a basic financial statement for voluntary health
and welfare entities FinREC encourages presentation by all NFPs that are
supported by the general public -NFP with contributions of 20-30% of total revenue presumed to
be supported by general public (excluding gov’t support) -Consider facts & circumstances and use judgment
Chapter 4 – Cash, Cash Equivalents, and Investments Expanded guidance on investments commonly used by
NFPs with summary chart of examples
Chapter Updates
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Chapter 5 – Contributions Received and Agency Transactions Contribution vs. exchange transaction Table 5-1 Membership dues Grants Contribution recognition and measurement Contributed fundraising material, info material or
advertising, including media time or space Examples – public service announcements, radio advertising,
newspaper print space Donated asset vs. donated service FinREC recommend: Recognize a contribution in NFP has active
involvement in determining and managing the message and use of the materials; otherwise not a contribution
Chapter Updates
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Chapter 5 – Contributions Received and Agency Transactions (Continued) Below-market interest rate loans No or low-interest loan of funds is a contribution to the
NFP. Record contribution revenue and interest expense for fair
value of the contribution Fair value typically estimated at the difference between market rate
interest and actual interest Related party status doesn’t impact recording. Recognition of contribution/interest different for long-term
loan vs. due-on-demand loan See attached examples
Chapter Updates
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1/1/2013 NFP receives 0% interest loan of $200,000 payable 12/31/2015 Market interest rate is 6%
1/1/2013 Dr. Cash $200,000 Cr. Loan Payable* (169,775) Cr. Contribution revenue** (30,225) To record receipt of loan * calculated at PV of $200k at 6%
over 2 yrs ** donor restricted, release over term of
loan
12/31/13, 12/31/14 and 12/31/15 Dr. Interest expense $10,075 Cr. Loan payable (10,075) To record annual interest 12/31/15 Dr. Loan payable $200,000 Cr. Cash ($200,000) To record loan repayment
Example #1 – Long-term Loan from a Foundation
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1/1/2013 NFP receives 0% interest loan of $200,000 due on demand, repaid 12/31/2015 Market interest rate is 6%
1/1/2013 Dr. Cash $200,000 Cr. Loan Payable (200,000) To record receipt of loan
12/31/13, 12/31/14 and 12/31/15 Dr. Interest expense $12,000 Cr. Contribution (12,000) To record annual interest 12/31/15 Dr. Loan payable $200,000 Cr. Cash ($200,000) To record loan repayment
Example #2 – Due on Demand Loan from a Foundation
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Chapter 6 – Split Interest Agreements and Beneficial Interests in Trusts Beneficial interest in trust held by another entity NFP later becomes aware of trust where NFP is named
beneficiary or has a beneficial interest NFP needs to make reasonable efforts to obtain a copy of
executed trust document or statement from trustee or other information about the trust
Recognize the beneficial interest in trust and contribution the first year information becomes available
Should not record a prior period adjustment if NFP made reasonable efforts and continues to make efforts to obtain necessary information
Chapter Updates
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Chapter 10 – Debt and Other Liabilities New section on tax-exempt debt based on the AICPA
Audit and Accounting Guide for Health Care Entities Expanded discussion of debt extinguishments, debt
modifications, credit enhancements and other classifications
Chapter 11 – Net Assets and Reclassifications of Net Assets
Provides guidance on expiration of restrictions Use restricted contributions first
Chapter Updates
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Chapter 15 – Tax and Regulatory Considerations Expanded discussion regarding legal and regulatory
environment Discussion regarding maintaining NFPs tax-exempt
status Unrelated business income and income tax positions State and local regulatory issues such as state
charitable solicitation laws, gaming regulations and UPMIFA
Chapter Updates
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Lease accounting continues to be a topic for discussion, with continued exposure drafts and deliberation
2013 Lease accounting exposure draft For most leases other than real estate:
Recognize a right of use asset and a lease liability, initially recognized at the present value of lease payments
Recognize and report the interest expense on the lease liability separately from the amortization of the right of use asset
For most real estate leases: Recognize a right of use asset and a lease liability at the present
value of lease payments\ Recognize a single lease cost — that combines the interest on the
lease liability with the amortization of the right of use asset — on a straight line basis
Other Accounting Developments
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Revenue recognition Seems most NFPs will not be impacted given many
transactions are outside of the scope given they are contributions or collaborative arrangements
Most significant changes are likely to be enhanced disclosures
Definition of a Non-Public Entity Deliberation as to whether a distinction is necessary Some entities are public regardless of how this turns out
given the nature of their conduit debt arrangements
Other Accounting Developments
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Changes to OMB Circular A-133
Why Change? Single Audit guidance has not been significantly amended
since 1996.
OMB seeks to ensure the highest integrity in the financial management and operation of federal programs and to strengthen accountability for federal dollars by improving policies that protect against waste, fraud, and abuse.
Effort to reduce ‘‘red tape’’ that is attached to the financial assistance the federal government provides annually in the form of grants and cooperative agreements.
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OMB Uniform Guidance
www.whitehouse.gov/omb/grants_docs under Proposed Policies
Replaces OMB Circulars: A-21, A-87, A-89, A-102, A-110, A-122, and A-133
Federal Register: Reform of Federal Policies Related to Grants and Cooperative Agreements – provides a summary of changes and rationale for certain changes
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OMB Uniform Guidance
Subchapters: A through D: General and Pre Award Requirements E: Post Federal Award Requirements F: Cost Principles G: Audit Requirements H: Appendices
State/Local- Wide Central Service Cost Allocation Plans
State and Local Indirect Cost Proposals
Data Collection Form
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Subchapters A to D
CFDA (Catalog of Federal Domestic Assistance) will be replaced with
CFFA (Catalog of Federal Financial Assistance)
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Subchapter E: Post Federal Award Requirements
Subrecipient Monitoring – no significant changes Good reminders of NFP responsibilities: Inform the subrecipient of the CFFA title and number Ensure the subrecipient is aware of the federal
requirements Monitor the activities of the subrecipients
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Subchapter E: Post Federal Award Requirements
Procurement Standards Must have written selection procedures for procurement
transactions May be required to submit proposed procurement to the
Federal Awarding Agency except when purchase is considered a small purchase: Small purchase threshold increased to $150,000
(previously $100,000)
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Subchapter F: Cost Principles
Salaries Other Direct Costs Indirect Cost Rate
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Salaries
Salaries of administrative and clerical staff should normally be treated as indirect costs (some exceptions)
Employees charged as indirect costs — no additional documentation is needed outside the normal payroll distribution system reports
Employees who work 100% on a federal grant: Semi-annual certifications that the employee worked solely
on the program for the period covered by the certification Must be signed by the employee or a responsible supervisory
official
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Salaries
Employees who work on multiple programs/activities: Timesheets indicating the number of hours worked on
the grant or Budget estimates as long as they are subsequently
reconciled to actual through an after-the-fact certification The certification should occur no later than every 12 months
OMB is exploring alternatives to
time-and-effort reporting requirements
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Other Direct Costs
Family leave and dependent care Clarification of allowability to the extent they are reasonable and consistent with written
institution-wide policy and practice
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Indirect Cost Rate
Option of extending prior approved Indirect Cost Rate for up to 4 years subject to approval of the indirect cost cognizant agency. Only approved if there have been no major changes in
indirect costs. If granted the entity would not be allowed to request a
rate review until the extension period ends.
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Indirect Cost Rate
No negotiated indirect cost rate? Flat rate of 10% of total direct costs for entities without the
capacity for a full negotiation for no more than four years while they develop the capacity to engage in full negotiations
The catch: Must extend the indirect cost rate to subrecipients, use the 10% flat rate, or negotiate a rate in accordance w/ federal guidelines
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Subtitle G: Audit Requirements
Audit Threshold changed to from $500,000 to $750,000 of federal expenditures
Timing of single audit report submission is unchanged: Within 30 days of report issuance No later than 9 months after fiscal year end (ongoing
discussion to change this to 6 months)
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Audit Report Changes
Report questioned costs over $25,000 (previously $10,000)
Report known or likely fraud affecting the Federal Award
Changes to required components of a finding
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Required Elements of Auditor Findings
1. Federal program, CFFA no., year, grant number 2. Criteria on which the finding is based 3. Condition found including facts supporting the
deficiency 4. Cause explaining how the condition occurred 5. Effect or potential effect or potential impact 6. Identification of questioned costs, if any 7. Information to provide proper perspective 8. Documentation of how the statistical sample was drawn
to support that the sample size utilized was appropriate and proportional to any findings or conclusions
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Required Elements of Auditor Findings (Continued)
9. Identification of whether or not it is a repeat finding 10.The possible asserted effect to permit granting
agency to determine the cause of affect 11.Recommendation to prevent further occurrences 12.Views of responsible officials 13.Reference number
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Major Program Determination Auditors must go through a rigorous process to
determine which federal grants to test.
Changes to OMB Circular A-133
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Type A threshold is $500,000 (previously $300,000)
Type A and Type B programs must be evaluated and categorized as high risk or low risk
Major Program Determination
Changes to OMB Circular A-133
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Program has not been audited as a major program within the last two years
Program had findings reported in the last year (previous look back was two years)
New program to the entity Identified by federal government as having higher risk: ARRA
Complexity of program requirements: Section 8 eligibility requirements
Changes to OMB Circular A-133
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Auditor must test: All High Risk Type A programs
All High Risk Type B programs, but limited to 1/4th the number of low risk Type A programs
Must meet coverage rule: 20% of total for low risk auditee (previously 25%) 40% of total for high risk auditee (previously 50%)
Changes to OMB Circular A-133
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Compliance Requirements to be Audited Previously included 14 different compliance requirements
A. Activities Allowed or Unallowed
B. Allowable Costs/Cost Principles
C. Cash Management
D. Davis Bacon
E. Eligibility
F. Equipment and Real Property
Management
G. Matching, Level of Effort and
Earmarking
H. Period of Availability
I. Procurement, Suspension and
Debarment
J. Program Income
K. Real Property Acquisition and
Relocation Assistance
L. Reporting
M. Subrecipient Monitoring
N. Special Tests and Provision
Changes to OMB Circular A-133
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7 Compliance Requirements
A. Activities Allowed or Unallowed
B. Allowable Costs/Cost Principles
C. Cash Management
D. Davis Bacon
E. Eligibility
F. Equipment and Real Property
Management
G. Matching, Level of Effort and
Earmarking
H. Period of Availability
I. Procurement, Suspension and
Debarment
J. Program Income
K. Real Property Acquisition and
Relocation Assistance
L. Reporting
M. Subrecipient Monitoring
N. Special Tests and Provision
Changes to OMB Circular A-133
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Data Collection Form Changes For 2013 audits: Auditors must report their EIN Audit findings much follow a standard format:
2003-001, 2003-002, etc. Instead of indicating the type of finding for each major
program, each finding will be listed separately Added a question for number of findings PDF submissions of audit reports must be unlocked,
unencrypted, and at least 85% text-searchable (a scan of a paper copy will likely not comply)
Changes to OMB Circular A-133
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Resource group is evaluating NFP financial reporting
Evaluating operating measures – one statement vs. two statement approach
Considering changing net asset classification – more aligned with operations vs. donor restrictions?
Considering changes to the statement of cash flows
The FASB NFP Financial Reporting Initiative
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Required statement of functional expenses?
Considering the addition of an MD&A section to the annual financials
Disclosure framework – perhaps condense the currently overwhelming disclosures?
Many potential changes ahead, nothing is final at this point
The FASB NFP Financial Reporting Initiative
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Regulatory and Other Developments
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IRS Colleges and University Project – final results, generally applicable to all NFP’s as it indicates what the IRS is looking at
IRS 2013 work plan New York Nonprofit Revitalization Act Compensation The Economy Charity Watchdog Agencies Message is there are various regulators looking at the
NFP sector – lots to keep on top of
Regulatory and Other Developments
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400 organizations were sent questionnaires. Process resulted in 34 examinations.
Primary areas of focus: Unrelated business income Executive compensation Employment tax
IRS College and University Project
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Unrelated business income Disallowing expenses for lack of profit motive Disallowing expenses for improper expense allocation
Allocations between exempt and non-exempt activities must be reasonable
Reclassifying activities as unrelated IRS reclassified certain activities as unrelated, resulting in $4
million of additional UBI
IRS College and University Project
How does this relate to Accounting? Uncertain Tax Positions (FIN 48)!!
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Compensation Most examinees attempted to meet the rebuttable
presumption standard Broad existence of compensation policies Procedures designed to avoid conflicts of interest Entities by and large documented the basis for setting
compensation
IRS College and University Project
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Compensation About 20% of examinees failed to meet the rebuttable
presumption standard because of problems with their comparability data Institutions not similarly situated were used – i.e. location,
endowment size, revenues, net assets, # of students Comp studies failed to document the selection criteria for schools
included Comp studies failed to specify whether data included just salary or
salary and other forms of compensation
IRS College and University Project
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Employment tax IRS looked at employment tax returns at 11 organizations
All resulted in adjustments to wages:
Failure to include in income the value of personal use of autos, housing, social club memberships and travel
Misclassification of employees as independent contractors Failure to withhold tax for wages paid to non-resident aliens Failure to include in income the value of certain graduate tuition
waivers and reimbursements
Resulted in wage adjustments of $36 million and payroll taxes and penalties of over $7 million
IRS College and University Project
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Employment taxes Charitable spending – focus on organizations with high
fundraising activity but minimal charitable activity – looking at validity of exempt status
International activities Ensure that assets and income of domestic charities are not
diverted to non-charitable purposes when sent abroad Ensuring compliance with recordkeeping and reporting
when NFPs operate or donate funds overseas FBAR reporting
IRS Exempt Organizations 2013 Work plan
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UBTI IRS plans to examine a sample of organizations which
reported substantial gross UBI for three consecutive tax years, but reported no income or tax due
512(b)(13) study – taxes on certain payments from
controlled organizations to their parents
IRS Exempt Organizations 2013 Work plan
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On June 21, 2013, the New York State Legislature passed the Nonprofit Revitalization Act.
Regulating enhancement of NFP oversight governance.
If signed by the governor, most provisions of the act take effect on July 1, 2014.
New York Nonprofit Revitalization Act
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Key provisions: Conflict of interest policies required for all nonprofits Whistleblower policies required for NFPs with twenty or more
employees and annual revenue of over $1 million Annual audit is required if all of the following
Registered to solicit funds in New York Already required to file independent accountant audit reports with the
Attorney General Annual revenue of over $500,000. If it meets all of these criteria
Does not allow an employee of an NFP to serve as chair of the board or hold a position with similar responsibilities.
Permits the board and committee members to participate in meetings by videoconference and allows meeting notices and notice waivers to be sent electronically, as well as electronic signatures on written consents.
New York Nonprofit Revitalization Act
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Hot topic of late at the federal and state level
New York State Governor executive order to limit executive compensation to $199,000 for organizations that receive funding from the state
Other states have similar bills or proposed bills limiting executive compensation.
Compensation
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Important to understand both the general and specific economic conditions facing the industry
Unemployment rate remains at 8% for 2012 conservatively representing over 12 million people
After a few years of slow growth, the U.S. economy is showing signs of recovery
Household spending increasing
Housing sector showing signs of improvement
Federal spending cuts delayed
The Economy: An Overview
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Multi-dimensional Financial strength
Maintaining and enhancing revenue streams Adapting to changing government funding Controlling costs
Leadership
Day-to-day Resource management Succession planning Volunteers
Mission Clarity
Measurable, positive outcomes
The Economy: Organizational Sustainability
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Charity Watchdog Agencies Currently 16 watchdog agencies monitoring NFPs!
Use of quantitative measures (mainly from 990) Program expense/total expense ratio Fundraising revenue/Fundraising expenses
Try to establish governance standards
Try to establish benchmark for financial health
Charity Navigator requests "restating" for some humanitarian organizations
Updates to GuideStar to provide more information (98%of users access the “free” information)
Charity Watchdog Agencies
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Questions?
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Join us for these future webinars 7/30: What’s New in Not-for-Profit Accounting and Auditing
Standards? (repeat of today’s course) 11/7: New and Emerging Business Risks for Not-for-Profit and
Educational Organizations
Read these related MHM Messengers 23-12: Evolving Business Practices Spur Transition from SAS
70 to SOC Reports 12-12: An Update on Not-for-Profit Financial Reporting 9-12: FASB Emerging Issues Task Force Addresses Key Not-
for-Profit Issues
If You Enjoyed This Webinar…
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Laura Krueger Brock, CPA, CFE Shareholder 727.572.1400 | [email protected] Laura is a Shareholder in the Not-For-Profit & Education Audit Practice and has over 30 years experience in public accounting primarily with Not-For-Profit and Government clients. She is head of the public sector attest practice in the Tampa Bay office. She is a past conference chair and speaker at the annual Not-For-Profit conference of the Florida Institute of CPAs. Her subjects have included fraud, internal controls and auditing and accounting.
Today’s Presenters
Patrick Quinn, CPA Shareholder 401.626.3211 | [email protected] Patrick is a Shareholder in the Not-For-Profit & Education Audit Practice. He has more than 17 years of accounting and audit experience working with not-for-profit and education organizations. He performs audits and reviews of financial statements, and assists clients with analyzing and interpreting financial results as well as debt offerings and internal control matters. He is a past conference chair and speaker at the annual Not-For-Profit conference of the Rhode Island Society of CPAs.
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