Spring is here and summer is quickly approaching. And with summer coming, adults and students are anticipating traveling as part of a school, church or other nonprofit sponsored trip to all parts of our county and the world. These trips help individuals develop a world view. They can be a great resource to those in need. They can also expose individuals to dangers not common in a person’s everyday life. Last June an Arizona jury awarded an individual nearly $6 million in a case involving a mission trip that went terribly wrong when a person working on repairing a roof fell through.
Now that spring is here and trips are still in the planning stages, use this time to meet with your leaders to think through potential risks. Develop a plan for safety. Spend time training the participants on the risks, how they will be managed and how to do task they would not normally perform. Don’t assume everyone knows how to be safe on a construction site. Also, meet with your insurance, risk management professional to discuss the plans for managing the risks. Make sure the sending organization and individuals are adequately covered. Use this time to plan for a safe and life-changing trip!
(read more on the mission trip here)
#ecotourism #riskassessment #nonprofit #taxexempt #precaution
There are four categories of potential management letter comments: material weakness, significant deficiency, control deficiency, and “other comment”. We want to go through some of the common scenarios that occur in each category and go through some suggestions for preventing them. We’ll start with the most common management letter comment we give: the lack of segregation of duties. Depending on severity, this is usually a control weakness. Incompatible tasks include: bank reconciliation and AP approval, cash receipts and authorization to adjust AR, purchasing and inventory receipts, among others. They key factors to keep separate are:
- Custody of assets (cash, inventory, fixed assets)
- Authorization over transactions affecting those assets (approval for payroll, AP, purchasing)
- Recording transactions (General Ledger and subledger entry)
Of course it’s easier for one person to do it. It’s streamlined and efficient. It’s also extremely dangerous for both the organization and the sole person all fingers will point to if something goes wrong. It doesn’t have to be that complicated or time consuming to add some solid layers of separation.
Below are some suggestions on how to avoid a lack of segregation issue. I’ve divided the suggestions up based on the size of the accounting department. Continue reading »
Escheat is defined as a state’s rights to claim the title for unclaimed property. Before you dismiss this as N/A for your organization, take a look at your outstanding check list on your bank reconciliation. How far back does it go? It’s not uncommon for organizations to keep checks as reconciling items that are more than a year old. (The record this auditor has witnessed was 1993). It’s not limited to outstanding checks but can include unclaimed benefits, customer over-payments, gift cards, and refunds due.
It isn’t as simple as reversing the entry or voiding the checks. This is money that doesn’t belong to you anymore. Just because someone else never cashed it, doesn’t make it yours again. It is worth investigating with vendors to determine if they received it, lost it, your account was properly credited, etc. There’s a chance that a check was duplicated in the system – that money is actually yours, unlike the checks that represent actual payments.
Why does this matter? Because states are paying attention to it now. With serious governmental budget slashing, alternative sources of revenue are being sought with few stones left unturned. The state of Delaware listed unclaimed property as its third largest revenue for the year. States are shortening their dormancy periods. Continue reading »
Regulators have been investigating banks that helped set the London Interbank Offered Rate (Libor) since late 2010. The LIBOR is among the most common of benchmark interest rate indexes. Authorities want to determine whether banks colluded in setting overnight rates during the financial crisis and whether traders and their clients used the information for trades.
The British Bankers’ Association, which sponsors Libor, along with many of the banks that help set it, met with officials to start a review process. The review could include everything from a revamp of how Libor rates are set to new regulatory oversight and compliance requirements for participating banks.
Now is the time to review your line of credit terms and contact your financial representative if your interest rate is based on Libor.
Give to the Max Day, put on by Razoo, was a great success and provided an interesting lesson in how the nature of fundraising has changed. The Case Foundation analyzed this new method of fundraising and published a case study.
Razoo complied some important lessons learned from the Give to the Max Day:
- Easy Asks – the event was promoted in advance, giving donors time to get in the mindset and establish brand recognition resulted in better responsiveness;
- Cross Pollination wins – people visited the site to donate to one organization but could easily find more and made additional donations;
- Competition Wins – having grant prizes awarded to the organizations that raise the most money or got the most donors encouraged people to give to that nonprofit and root for their cause;
- Participation as the Goal – people responded better to the participation concept than the older model dollar goal.
- The last three concepts tie together and can be summed up as Hitching a Ride on Bigger Coat-tails. Smaller organizations benefited from larger groups who were more seasoned in fundraising and had more public presence. Razoo did the big work and it became a community-wide effort.
None of us are as strong as all of us put together.
Use these lessons and get ready for the net Give to the Max Day.
To see the full findings from the case study visit http://www.casefoundation.org/case-studies/give-max-dc-case-study.
Undoubtedly your auditor asks you if management regularly performs risk assessments and then takes note of the blank expression on your face. What are they talking about? What do auditors even mean by ‘risk assessment’, anyway?
Ok, first off, there’s a good chance your organization does some form of risk assessment without necessarily calling it that or even realizing that’s what it is, but is it enough? A risk assessment means essentially: where could things go wrong and what are we doing about it?
Another way to think about it – blind optimism that things will always work out and that you can trust everyone, is the opposite of a risk assessment. Management, those with the authority to contract, and anyone who is involved in the chain of financial transactions should at some point look around and think about where the weak spots are. Brainstorm together.
I took a self-defense class and the instructor gave us homework: next time we were out in public, look around and notice who is most vulnerable if a purse snatcher was to come by. We each came back to the next class and reported the same thing. It was us. Each of us was the one sitting at a cafe, not paying attention, with our purses sitting where they would be easily accessible if someone felt inclined to take it. That’s a risk assessment. Awareness is key. Moving your purse is addressing the risk. It doesn’t have to be complicated but it does take thinking about it.
Where is your organization most vulnerable? Think about it from different perspectives. Here are some questions every organization should ask and they tend to follow the What Would Happen If format. Answers tend to be If That/Then This. Also, it isn’t just management that should ask these questions. Continue reading »
The term debarred refers, in this case, to a person or entity that is no longer allowed to receive governmental funding, either directly or indirectly, federal and/or state. According to Money News, the proposed debarments in 2011 reached the highest levels since 1997.
A contractor can be debarred for poor performance or ethical issues, including fraud or misrepresentation. Delinquent tax payments and violations of the Drug-Free Workplace Act are particularly frowned upon. An indictment of criminal activity will set the process for suspension rolling. Each agency has a debarring official who will determine if debarment is appropriate and the period of suspension.
It isn’t just contractors that can be debarred, however, individuals can also be debarred. A suspended or debarred individual may not bid on or receive any federal funding including: contracts, subcontracts, grants, subgrants, cooperative agreements, scholarships, fellowships, loans, or subsidies.
If an organization knowingly does business with a suspended or debarred person or company, the federal agency may disallow costs or cancel the agreement. If you receive government funding, protect your organization and check your vendors and subgrantees on the Federal Excluded Parties List System (EPLS). D.C. has its own list here. Virginia’s list is here. Maryland’s is here. Don’t assume you would know if any of your vendors were on the list!
Check 21 refers to the Check Clearing for the 21st Century Act, which allows banks to transact based on electronic images of checks, no longer requiring the paper check to be presented. This is not a new act, it was passed in 2003, but as more and more banks eliminate processing paper checks, it is important that organizations be aware of the new risks that come with the process.
Undoubtedly, you’ve noticed you no longer get paper checks back with your bank statement every month. It’s a good step forward in terms of lessening all the paper transported around and speeding the transaction process, but the system has a weak spot. If a vendor processes a check electronically, they still retain a paper check – and while certainly no one we know would ever do this (er…right) – I’m required to remain professionally skeptical – one could present the paper check at a bank branch. The check itself bears no indication of having been previously processed electronically.
According to Fraud magazine, duplicate check processing has bloomed into a $500 million problem, making up about half of all the check fraud in the U.S.
The banks are liable for accepting fraudulent checks and are working to reduce the risks but most only catch it after the duplicate has already p0sted to your account. If the paper check is additionally manipulated it slows the detection process down further. Organizations need to do their part to reduce impact. Things you can do:
- Reconcile your bank statement as soon as feasible. I know you are busy but don’t keep doing it 6 months late – there’s a real risk involved.
- Ask your bank to at least provide images of the checks in your bank statement. Actually review these to check for any alteration or deviation from the original check as processed.
- Ask your bank what system they have in place to prevent duplicates and what the time lag is in catching duplicates posted in error or fraudulently.
- Stay skeptical. This doesn’t just involve your inside people that you know and trust but anyone that might have access to the paper check, authorized or not. Ask your vendors if they are submitting electronic scans, what is their system for taking care of the paper check afterwards? They need to deal with it securely in a way that protects your information.
In an election year, lots of questions come up about what churches and religious organizations can and can’t do in regards to politics. Can pastors outside of their church speak on behalf of a candidate? Is it ok to introduce a candidate during a worship service? Are ministers permitted to preach on hot topics being addressed by candidates? Can houses of worship invite candidates to speak during normal worship services? The IRS provides guidance in its Tax Guide for Churches and Religious Organizations. The section covering political activities begins on page 7. There are many helpful examples. Violations of the IRS rules could put the organization’s 501(c)(3) status at risk!
The PCAOB released a proposal requiring mandatory rotation of audit firms (as opposed to just audit partners) for public companies which is getting a lot of feedback in advance of the public roundtable meeting in March 2012. The PCAOB’s argument is that rotation may increase auditor independence by decreasing reliance on specific client fees. There is no requirement of any rotation for non-profit or private company sectors but many organizations look to the standards set for public companies as guidance for best practices. Many of the requirements of a public company are not feasible for exempt organizations or private companies but in the rush to embrace Sarbannes-Oxley a number of organizations instituted one of the requirements that seemed the easiest to follow: auditor rotation. In actual practice, this could do more harm than good, which is the main point behind the growing opposition to the PCAOB’s proposal.
A number of professional associations have come out in strong opposition to this proposal, including the Institute of Internal Auditors, the AICPA, the New York State Society of CPAs, and the Virginia Society of CPAs, among others. The AICPA has also submitted its opinion of opposition to audit firm rotation to the IRS.
According to WCSCPA, the IRS themselves concluded that the costs and potential problems outweighed the potential benefits for nonprofits which is why the question of audit rotation was withdrawn from the Form 990 governance questions.
The main points in opposition to mandatory audit firm rotation include the following: Continue reading »
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