Charity Overstated Revenue by $222-Million and You Thought Your Restatement Was Bad

A Christian relief charity, World Help, grew rapidly in recent years but not as rapidly as originally reported. The organization’s Form 990 reported $239-million in revenue for 2011. The audited figure came in at $17-million. That’s 1400% off-base for those of you punching your 5-key along.

Once again, we have an issue of claiming value for donated medicine which is an ongoing blight in the nonprofit community, but in this case, the donors say they never gave any donation. The finger-pointing is heated and people are no longer cooperating with the press.

A significant impact is to the recipients of the donated medicine. The restatement has caused organizations that received goods from World Help to go scrambling to ensure their valuation is accurate and supportable.

Restatements are never fun but just think of World Help to help you keep perspective when you feel scandalized by one. Read more about the story here.

Ace Your School’s Annual Audit!

All public charter schools, and many private schools and parochial institutions, undergo an annual audit. While best practice is to structure work throughout each year to ensure a clean audit, now is a good time to assess where you are and address potential deficiencies. A little preparation goes a long way in ensuring a smooth and painless audit.

 Join Craig Stevens and Rob Eby of Aronson LLC for a free webinar led by Brad Olander, CEO of GoldStar, on May 16th at 11am.  During this convenient 30-minute session, we will address common questions including:

•  What does working throughout the year with the audit in mind look like?
• How do you assess potential deficiencies now?
• Who should be involved in the audit planning process?
• What are typical key audit tasks, processes, and deliverables?

 Executive directors, controllers, CFOs, principals and other school professionals serving in an administrative or finance role should register today for this important webinar!

 If you missed April’s webinar: “Financial Reporting-Support your board so they can support you,” be sure to visit our resources page to download the webinar!

Basic Nonprofit Accounting and Operations Boot Camp!

Join Maryland Nonprofits and Aronson LLC Partner Rob Eby on February 21^st for an informative seminar that will answer many of the most commonly asked questions regarding nonprofit accounting and operations:

• What are some indicators of fraud? 
• Why is the 990 so important? 
• How come these nonprofit statements look so different from for-profit statements I’m used to reading? 
• Is my nonprofit required to have an A-133 audit? 
• How do I implement internal controls with limited resources? 
• What are contributions, exchange transactions and agency transactions, and how are they recorded as revenue? 
• Is there anyone who can help decipher nonprofit accounting, reporting and best practices? 

This interactive discussion will address each of these questions and many more.  Click HERE to register today and reserve your spot!

Tax Tip: Proof of Gross Income

During the course of a tax audit, the agent will add up all bank deposits, back out identifiable non-tax items (such as account transfers) and compare that total to the gross income reported on the tax return. The excess of deposits over reported income is deemed to be unreported taxable income unless proven otherwise. Frequently, taxpayers find themselves trying to explain undocumented deposits. A loan from a friend, a gift from a relative, and other clearly nontaxable deposits will be included in the taxpayer’s income unless proof of Continue reading »

Transfer Pricing – General Principles, Penalties and Contemporaneous Documentation

General Principles – Transfer pricing is relevant for U.S. companies with foreign subsidiaries or foreign parent companies that engage in certain intercompany transactions.  U.S. transfer pricing rules require that intercompany pricing between a U.S. company and a foreign affiliate must be based on an ‘arm’s length’ price that would be charged in a similar transaction with an unrelated third party.  The arm’s length principle is typically applied to intercompany transactions in which goods, services or property are sold between a U.S. company and a foreign affiliate.  The transfer pricing rules also can apply to Continue reading »

Exec Director of 21 Years Files Plea Agreement for $1.35Mil in Embezzlement Case

Thomas Nelson was, until recently, the Executive Director of a York County, Maine nonprofit that provides services to low-income residents. It was a position he held for 21 years. He’s now awaiting sentencing after copping a plea arrangement in federal court, agreeing to pay restitution of $1.2Mil to the nonprofit and $150,000 to the IRS for tax evasion. He stands to receive up to 10 years for embezzlement, 5 years for conspiracy, 5 years for tax evasion, and 3 years for signing false tax returns.

How’d he do it? He arranged over-payments to a consulting company that gave him kickbacks and he also diverted money to a defunct nonprofit where he had served as treasurer. He used the money to pay his mortgage and cover gambling debts. There was only one invoice from the consulting company over the time of the collusion but it was for $8,700, not the $413,000 they were paid.

He claimed he avoided diverting federal money because he knew government funds are subjected to greater scrutiny.

The board has been reviewing its financial oversight practices and is “very disappointed.”

#smh

Read more about it in the Portland Press Herald

File Under: Don’t Do This

The Disabled Veterans National Foundation (DVNF) is currently being investigated by the Senate Finance Committee based on allegations of improper spending and charges that not much of the funding raised actually went to veteran aid. The investigation began after reports by Charity Watch and CNN that the charity received almost $56mil in donations from 2008 through 2010 but “little if any direct cash” went to veteran support.

For the record, the DVNF’s official defense is that $16.1mil of cash and donated goods went to veterans and that having only started in 2007, they need to focus on building their donor base. That’s defending that only 28% of contributions are actually going to their intended purposes. Some veteran groups reported receiving cough drops and 11,000 bags of coconut M&Ms. Others reported receiving chef’s coats, hats and aprons that the DVNF claimed as donated goods worth $800K.

Form 990s are publicly available as a way of forcing transparency in organizations that solicit funds from individuals. Individuals are encouraged to look but not that many may be able to interpret quickly what they are seeing. Taking a look at DVNFs 990 filing for 2010 shows over $24.7mil in contributions received and over $10.7mil spent on fundraising. That’s 43.5% of every dollar raised going to raise the next dollar.

Generally people want to give their money to charities they know will actually put that money towards the program mission. This is why groups like United Way and Combined Federal Campaign require that organizations registered and receiving funds through them met certain ratios of program to fundraising.

This is also why your auditor will look at your functional expense ratios and look for any signs of fundraising expenses that have been inappropriately allocated to program in an effort to make the organization look more effective. I have had clients that struggled with ways to efficiently fundraise and asked me how to keep their ratios better. Ways of reaching your target audience fall outside of the scope of my expertise, but I can tell you that the ratio won’t get better without spending less on fundraising and more on programs. If you are spending too much on fundraising – you need to assess how effective your organization really is.

Donors need to learn to look at ratios to decipher where their funding stands the best chance of being used for programs. It’s important, however, to recognize that all organizations require funding to operate and overhead is inevitable and necessary so make a distinction between management vs. fundraising when making this assessment.

All organizations that get involved with direct-mail campaigns should educated themselves about joint costs as making mistakes with those can put your fundraising ratios at risk.

Read more from CNN’s report on DVNF and check out Charity Watch’s Hot Topic on DVNF. Read DVNF’s response here.

Look at Guidestar for public access to Form 990s.

More Pushback on PCAOB Auditor Rotation Issue

According to the Virginia Society of CPAs, several public businesses have banded together and submitted a group letter to the PCAOB in opposition to their stance on the auditor rotation issue. Viacom, Safeway, United Healthcare, FedEx, and even the SEC themselves were among those signing the letter.

The letter points to that there has been no compelling proof presented by the PCAOB of a benefit of mandatory auditor rotation.

For more on the debate, see previous posts The House Gives PCAOB a Smackdown and AICPA Opposed to Mandatory Audit Firm Rotation.

Source: VSCPA

#auditorrotation #pcaob

Clarity Project Calls for Change in Auditor’s Opinion

When I was but a wee lass in the spring of my accounting career, I thought the auditor’s opinion was very clumsily worded and that I could clean that sucker up and make it two paragraphs tops. I learned very quickly that the wording of that report is extremely exact. The placement of each line has been predetermined. The nature of any changes to the report has already been mapped out in an if this/then that outline. You can select what width your margins are, but that’s about it as far as creative license goes.

That is why it is a newsworthy event to report that the opinion letter will be undergoing a make-over. Effective for periods ending after December 15, 2012, the letter will look noticeably different. Some of the changes are subtle – including the footnotes when listing the statements that have been audited. Others have more fireworks to them – for instance there will now be headers for each paragraph. The words “due to fraud or error” are introduced.

The concept behind the Clarity Project, undertaken by the Auditing Standards Board (ASB), is to make the standards easier to understand. This monster of a project is the first complete recodification of the audit standards since 1972. The Clarity Project began in 2004 and has just now been completed.

#asb #audit #auditopinion #clarityproject

What are your chances of being selected for an IRS tax audit?

The 2011 IRS Data Book, a compilation of statistical data and IRS activities, is out.  You can read the whole book here: http://www.irs.gov/pub/irs-soi/11databk.pdf or just skip to page 22 of the publication for the important stuff.

In summary, the average audit rate for individual tax returns is 1.1%.  But what’s in your return can push you above the average.  At the high end, those making more than $1 million have an audit instance of 12.5%.  At the other end, returns for those making under $200,000 and without any business or rental activities have Continue reading »