U.S. District Court Judge Donovan Frank has shot down Wells Fargo’s request for dismissal of the civil trial following the 2010 verdict of fraud and breach of fiduciary duty by the bank. Blue Cross and Blue Shield of Minnesota, along with two other health care organizations, several pension funds, a college endowment fund, and a charitable foundation, sued Wells Fargo for misrepresenting the level of risk of their investment. The nonprofits stand to win $41 million at the civil trial in January 2013, not including punitive damages which could skyrocket into the hundreds of millions range.
The bank presented an investment program claiming it was safely conservative and could earn extra returns by lending the securities to brokers for short sale transactions. The lawsuit claims that the bank concealed the reality of the complex, long/short, structured investment which tanked along with the rest of the market in 2008.
The bank, now owned by Citigroup Inc., defends its investment vehicle, saying that the program was in accordance with investment guidelines and the investments were suitable at the time of purchase.
A word of caution: Investment brokers are ultimately selling a product. Unless they have certification as a financial planner (CFP), they owe professional due care, but not fiduciary responsibility, meaning, protecting your financial interest isn’t the top item on their list. Many brokers are also CFPs and it makes good financial sense to make sure your broker is one.
News Source: Star Tribune
#wellsfargo #lawsuit #nonprofit
Not having a written accounting policy manual can be detrimental to your controls, so it shows up often as a management letter comment. This is usually considered a control deficiency. Below are some suggestions on what to include in an accounting manual and what should be included in each area so you can avoid the management letter comment.
- Maintenance of the chart of accounts –which number sequences are used for assets, liabilities, net assets, revenues, and expenses. Don’t over-complicate it, but make it work for your needs.
- Capitalization and depreciation policy – what is the cutoff for a purchase to be capitalized or expensed, what is the expected useful life that will be used to depreciate the item.
- Petty cash policy – how much is kept on hand, how regularly is it refilled, what can it be used for, and who has access to it.
- Credit card usage and receipt retention policy – who in the organization is allowed to have a credit card, what are the credit cards to be used for, and what purchases require advance approval.
- Equipment lease policy – what is the basis to determine if the lease will be considered a capital or operating lease.
- Processing of cash receipts – who will do what, and when processes should occur. See Part 1 of this series for help on planning the process.
- Processing of cash disbursements and payables – who will do what, and when processes should occur. See Part 1 of this series for help on planning the process.
- Processing of payroll– who will do what and when processes should occur.
- Bank reconciliation procedures – who will do what and when processes should occur. See Part 1 of this series for help on planning the process. Continue reading »
Discounting pledges and accounts receivable can be a confusing topic, so it shows up often as a management letter comment. Depending on the amount requiring adjustment, this can be either a significant deficiency or a material weakness if it gets too big. Below are some suggestions on how to record pledges and discounts, and avoid getting a management letter comment.
- Pledges should be recorded as revenue when there is substantive proof of intent, a signed pledge card or email.
- Pledges not expected to be paid for more than one year should be discounted for time value.
There are two ways to determine the rate used for discounting:
- Use a rate equivalent to the rate you would receive if you were borrowing the funds from a bank; or
- Determine the risk free rate at the date of the pledge and the length closest to the term of the pledge by using this website http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2011. If you choose this route the rate will need to be adjusted for your organization’s personal level of risk by increasing the risk-free rate an additional amount as deemed appropriate by management. Increases from 0.5% to 1.0% are common. When interest rates increase, these risk-adjustments will also increase. The longer the term of the pledge the higher the additional rate of risk should be. Continue reading »
That depends on who you ask. If you ask an employer that takes their fiduciary obligations seriously, or one that has had problems with their plan in the past, then the audit is very valuable. However, if you ask an employer that is not so in-tune with their fiduciary obligations and views the audit as a commodity that goes to the lowest bidder, then the audit is a hassle and of little or no value.
For many, a benefit plan audit is not an option:
Once a retirement plan falls into the large plan category, an audited financial statement is Continue reading »
- Changes to the Auditor’s Standard Opinion
- EITF Issue No. 12-A: Classification of Gifts of Securities in the Statement of Cash Flows
- EITF Issue No 12-B: Services Received from Employees of an Affiliated Entity
- SSAE No. 16: Reporting on Controls at a Service Organization
- NAC Projects
- COSO Internal Control – Integrated Framework
|Date:||April 23, 2012|
|Time:||11:00 AM – 12:00 PM|
An organization seeking exemption under section 501(c)(3) of the Code is required to apply for recognition of exemption on Form 1023. However, churches, their integrated auxiliaries, and conventions or associations of churches seeking section 501(c)(3) status are exempted from this application requirement. Churches that meet the requirements of section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS. However, it is noted that some Churches choose to obtain the tax-exempt status from the IRS to assure their members that any contributions made are indeed tax-exempt. In addition, this exemption is only for types of organizations listed above. Religious organizations, that wish to be tax-exempt and whose gross receipts exceed $5,000, must still apply to the IRS for the coveted status.
It is important to note what rules all 501(c)(3)’s (including churches ) must abide by to maintain their status:
- Their net earnings may not be given to a private individual or shareholder.
- Their substantial benefit cannot be to private interests.
- The majority of their time cannot be devoted to attempting to influence legislations.
- They cannot participate or intervene in any political campaign.
- Their purpose and activities must be legal and not violate fundamental public policy.
In conclusion, if you are unsure if you need to obtain an IRS determination letter, err on the side of caution and get one!
#nonprofit #determinationletter #taxexempt #irsfiling
As previously discussed here, the job market is opening up which means people who had been in lock-down mode now have more flexibility to look for better fitting work. The turnover rate in fundraising is particularly high, primarily due to dissatisfaction with low salary rates. The latest research from the Association of Fundraising Professionals suggests that offering a better salary may be cheaper than the average direct and indirect costs of finding a replacement. The study shows that the cost to replace a fundraiser is close to $127,000, more than two times the level of salary increase it would take to keep them.
Read more about it here.
Recording restricted contributions can be a confusing topic, so it shows up often as a management letter comment. Depending on the extent of the matter this could range from a significant deficiency to a material weakness. Below are some suggestions on how identify and record restricted contributions and avoid getting a management letter comment from your auditors.
First, what is a restricted contribution and what isn’t?
- When a pledge is received and will be paid in future year(s), it is temporarily restricted for time. If it is for a specific program it may also be purpose restricted. These would be recognized as temporarily restricted revenue in the year pledged.
- A contribution received in the current year that is intended for specific purposes is temporarily restricted. If it is for core or general operations, it is unrestricted.
- Payments received relating to future memberships or conference revenue are not temporarily restricted as they are not contributions. These would be deferred revenue.
- Payments received for contract services not yet rendered would be deferred revenue, not temporarily restricted.
- Advances on exchange transactions when the expenses have not yet been incurred, are deferred revenues.
An important concept to note is that you can’t defer a receivable and vice versa. Deferring is a way of not recognizing the revenue yet. You defer things received but not yet earned. A receivable is revenue you’ve earned and rightly recognized, but not yet received. A temporary restriction is to identify funds received and recognized as revenue, but not yet expended in accordance with donor intent. It’s easy to forget all of that in the face of a confusing revenue event. Continue reading »
The fourth annual State of the Plate research results compiled by Maximum Generosity, in collaboration with Christianity Today International and ECFA has been released. The State of the Plate is a valuable resource for churches. It documents trend, demographic information and draws conclusions from its survey of thousands of churches.
#church #ECFA #stateoftheplate #nonprofit #taxexempt
Nonprofit HR Solutions has published results of a poll of 450 nonprofits that indicate a stronger job market for nonprofit workers in 2012. Over 40% of nonprofits reported that they are looking to add staff. Lisa Brown Morton, Chief Executive of Nonprofit HR Solutions, told the Chronicle of Philanthropy that organizations need to show caution however, and be aware that an improving job market means turnovers are going to be higher as more get job offers.
Ms. Brown Morton cites lack of money and promotions, along with workload and an perhaps most importantly work meaningfulness are the key components in an employee deciding to stay or go. When the market was in a downturn, employees locked down and held on to the positions they had. People postponed retirement. Those people may have more flexibility now. Organizations need to think about what they need to do to keep their best people and attract the best new staff.
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