One College Student’s Personal Take on the Sequester

Sequestration has been a confusing topic lately with the top questions being: ‘Do I even need to pay attention to this?’ and ‘Is there going to be any real impact to me?’.  With all of the talk of the fiscal cliff fizzling out, people are suggesting this is all political hype and that Congress is shouting ‘Wolf!’ one too many times. However, some of the very real impact of the sequestration is starting to hit home, particularly on state funded education programs. One of our interns, Jasmine Cook, is a student at the University of Maryland and we invited her to write about her personal experience with how the sequestration is affecting her.

Growing up in the Prince George’s County Public School System, the topic of budget cuts is by no means foreign. At the prime age of nine, I attended a school board meeting to defend against the disbandment of the Talented and Gifted Program (TAG), of which I was currently enrolled. My view was limited at the time, but it was only my first of many tense encounters of financial stalemate. In eighth grade, the orchestra was cut and I traded in my violin for a French horn; the façade of any influence over the system disappeared and adaptation became crucial. In high school, two out of the three academic programs stopped allowing students to enroll from neighboring districts, in order to cut transportation costs. Students feared displacement and teachers experienced layoffs; the Russian program was diminished to what was assumed to be eventual termination. However, it was public school. No tuition fees meant little to no say, and the realization both angered and jaded my fellow students. Continue reading »

The Basics of Federal Grants and Single Audit Compliance

Each year, one-sixth of the federal budget is dedicated to grants for non-federal entities, such as schools, local governments and nonprofit organizations.  This $400 billion expenditure is highly scrutinized and requires stringent compliance procedures, including a single audit for many organizations.  Failure to meet compliance requirements could result in your organization having to repay grants and/or losing access to future federal funding.

Join Aronson LLC on January 10th for an informative webinar where our nonprofit accounting experts will help participants better understand the basics of federal grant and single audit compliance.  Topics will include:   

• The Basics of Control Procedures in a Federal Grant Environment, including COSO Internal Controls and the 14 Areas of Compliance
• The Basics of Costs in a Federal Grant, including Allowable/Unallowable and Direct/Indirect Costs

This is a great opportunity to get a free lesson from our professional nonprofit auditors that just might help you protect the future of your mission, so register HERE today! 

Exchange Transaction or Contribution (avoiding management letter comments, part 5)

Organizations receive many different types of revenue including contributions, grants, contracts, and dues.  Some of these revenue types are recorded in a similar manner while others are very different.  It can also be hard to tell the difference between of the types.  For example, grants and contracts usually have a written agreement, but they are recorded differently.

One of the most important questions to consider is who is receiving the benefit.  If the benefit is going to be received by the public or a group not related to the donor, then money is probably a contribution.  If there is some product or service that is going back to the organization that is providing the money, then it is probably an exchange transaction.

The first step is to determine if the revenue is an exchange transaction or a contribution.  Exchange transactions are recorded based on when the revenue is earned and affect revenue, receivables, and deferred revenue.  Contributions are recorded when received or pledged and affect revenue, receivables, and temporarily restricted net assets.

Below are some things to consider when deciding if there is an exchange transaction or a contribution: Continue reading »

Maryland Couple Indicted for $1M Fraud Against USAID

The Washington Business Journal is reporting that two people from Prince George’s County, Maryland were indicted in district court last week with 21 counts of fraud against the US Agency for International Development (USAID) under its Analysis and Information Management (AIM) contract. The charges include money laundering, program and identity theft and fraudulently submitting bogus invoices for more than $1 million from 2005 to 2010 for work that was never performed.

One of the accused parties was working as the Deputy Director and Project Manager of the AIM contract at the time.

How did he allegedly do it? The accusations claim he used other people’s identities without their knowledge, forged signatures on purchase orders, and colluded with others to submit and pay invoices of a fake company. The couple have entered not guilty pleas.

Remember! When it comes to fraud, people in positions of authority can frequently cause the biggest damage if they abuse their position. Generally speaking, the higher up the person is, the greater the potential level of damage. Keep this in mind when planning internal controls and make sure everyone has checks and balances, regardless of position.

Source: Washington Business Journal

#fraud #collusion #USAID

Restricted Revenue (avoiding management letter comments, part 2)

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 »

Proposed Raising of A133 Federal Grant Threshold

The Office of Management and Budget (OMB) has released advance notice of proposed guidance that could raise the threshold for grantees required to have Single Audits in compliance with OMB Circular A-133. The goal is to concentrate audit and oversight resources on higher dollar and higher risk awards. Changing the threshold would enable agencies to focus and follow up in a more efficient and effective manner, targeting improper payments, waste, fraud, and abuse.

The proposal would release entities expending less than $1million from conducting a Single Audit. This would raise the current threshold of $500,000 below which no Single Audit is required.

Entities that expend between $1million and $3million would be required to undergo a proposed new version of a Single Audit that would be a more focused audit. As opposed to auditing the 14 areas of compliance, auditors would review only 2 compliance requirements. Allowable/Unallowable costs would always be required to be included and the awarding agencies would have the discretion to select the second compliance requirement to be audited. Agencies would be directed to select requirements at a program level (not grantee level) that would best target the risk of improper payments or waste, fraud, and abuse.

Entities expending more than $3million would undergo a full Single Audit. The full audit procedures would be modified to give agencies stronger tools to reduce improper payments and eliminate waste, fraud, and abuse.

The proposal is open for comments and questions. Any questions or feedback should be submitted no later than 5pm EST on March 29, 2012 electronically through http://www.regulations.gov. These comments will assist OMB in its development in the coming months of a further Federal Register notice to be published for comment later this year. Federal Fund Management is having a webinar on the topic March 22, 2012 from 2pm-3:30pm EST. Click here to find out more.

For more detailed information see the Federal Register, Vol.77, No.39 section 11778

Record Level Debarments: What’s the impact on government grantees?

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!

For more on debarment technicalities go here and for ultra-technical go here. See the Money News article here.

HOT OFF THE PRESS!!!

The book that Aronson’s Nonprofit group has been hard at work on has finally hit the (virtual) shelves! The Financial Management Handbook for Associations and Nonprofits (2nd ed.), written by Craig Stevens, Carol Barnard, Dawn Brown, Kathy Cuddapah, Laila Mitchell, and Rob Eby, is now available for purchase through ASAE, the Center for Association Leadership.

The book covers the following topics in detail and provides real-life examples and solutions:

• GAAP for Nonprofits – All the quirks and oddities that make us special
• Accounting Systems – How to set up your accounting to provide useful information
• Budgeting – Including what not to forget and how to plan
• Financial Reporting – Including current (as of press time) requirements, examples of disclosures and sample A-133 compliance reports
• Internal Control – Including fraud scams and how to develop controls to counter-act each threat
• Relationship with Auditors – Sometimes it is confusing what is our responsibility and what is yours and what you can do to help an audit go smoother
• Tax Reporting – What all the schedules are really for and how to translate IRS speak into English

Click HERE to get your copy!

$14 Million in Innovation Grants Awarded

The NonProfit Times has reported in a recent article that the second round of Social Innovation Fund (SIF) awards have been handed out totaling almost $14 million in grants.  The funding will last for a period of 2 years and the recipient organization is responsible for providing a matching contribution.  The following five recipients will use their funding to help address affordable housing, homelessness, obesity, early education and literacy; the United Way for Southeastern Michigan, Mile High United Way, Corporation for Supportive Housing, NCB Capital Impact, and U.S. Soccer Foundation.

“World’s Largest Global Hack Ever” of Nonprofits and Governmental Entities

The Nonprofit Quarterly is reporting that “the computer security company McAfee has issued a 14-page report describing what is being called the world’s largest ‘global hack’ ever.” Bloomberg is calling it a “Hacker Armageddon” that will force security software companies to revamp.

The revealing of this 5 year long series of attacks on governmental and nonprofits has caused many to step forward to claim that while there were attacks sustained, their networks are secure, such as the World Anti-Doping Agency reported to the Associated Press in the Washington Post. 

McAfee is calling the hacking campaign “Operation Shady RAT” (an apt acronym for “remote access tool”) and has traced activity back to 2006 across 72 global organizations across 14 countries that appear as widespread as the United Nations, the International Olympic Committee, two unnamed think tanks, one political nonprofit, Lockheed and RSA Security, among others. The details show that the hackers had access for months in some cases.

The director of malware research for Dell SecureWorks, Joe Stewart, traced the activity to networks in Beijing and Shanghai according to PCWorld. The Chinese government is denying involvement and saying it is not responsible for the accessing of hundreds of Gmail accounts. Google announcedin June that it had disrupted a targeted phishing campaign designed to hijack Gmail accounts belonging to governmental, military, and activist individuals.

McAfee has made a distinction between the RAT group and the recent wave of less sophisticated attacks from cyber activist groups such as Anonymous and LulzSec in its report. The report continues to note, “what we have witnessed over the past five to six years has been nothing short of a historically unprecedented transfer of wealth – closely guarded national secrets (including from classified government networks), source code, bug databases, email archives, negotiation plans and exploration details for new oil and gas field auctions, document stores, legal contracts, SCADA configurations, design schematics and much more…” A few pages later the report continues, “After painstaking analysis of the logs, even we were surprised by the enormous diversity of the victim organizations and were taken aback by the audacity of the perpetrators.”

McAffee states that its goal in releasing this report, including specific names of entities that were targeted, is to raise the level of public awareness – especially since voluntary disclosures from victims is unlikely. Written by Dmitri Alperovitch, McAfee’s VP of Threat Research, the report ends with the quote “This is a problem of massive scale that affects nearly every industry and sector of the economies of numerous countries, and the only organizations that are exempt from this threat are those that don’t have anything valuable or interesting worth stealing.”