Monthly Archives

August 2024

Employee Retention Credit Compliance for Nonprofits: Are You at Risk of an Audit?

By | Accounting, Audit, Nonprofit, Tax | No Comments
folders and notepad, employee retention tax credit

Enacted in 2020 as part of the Coronavirus Aid Relief and Economic Security (CARES) Act and now codified at IRC section 3134 (after various amendments), the Employee Retention Credit (ERC) is a refundable tax credit available for certain employment tax quarters in 2020 and 2021. And while it may have helped some organizations and people financially, over the past two years, the IRS has warned that many who claimed the tax credit were ineligible to receive it.

The IRS is increasing its enforcement campaign in 2024 and targeted for potential audits are those who benefited from this tax credit. The IRS is looking for those who received this benefit in error. Some ERC promoters, for example, charged fees to help organizations apply for and receive the credit. Many of these companies charged fees commensurate with the funds they were able to secure, a recipe for problems. Now, the IRS is increasing enforcement of the requirements around the ERC, and organizations may find themselves on the receiving end of an inquiry or audit.

Nonprofits May Be at Risk for Noncompliance

Unfortunately, these ERC promoters heavily targeted certain nonprofit organizations, including religious organizations and healthcare nonprofits. Those who realize that they made a mistake and perhaps should not have received funds will face some penalties.

Many organizations who applied for ERCs will find they did not fully comply with the requirements simply because they didn’t fully shut down during the pandemic. A good example is a house of worship that moved its services online during the pandemic. Yes, the building’s doors were closed, and congregations could not gather in person, but services were held online. This is akin to a business shutting its office doors but asking employees to work from home; it is not a full shut down, and therefore did not comply with all the rules around receipt of the tax credit.

Next Steps to Get Back into Compliance

If the IRS determined that you received ERC tax credits and did not comply with the rules around them, your organization may face penalties like those for erroneous refunds. These may include:

  • Bills for previously unreported taxes
  • Penalties
  • Interest or penalties extending back in time to the date when the mistake occurred.

Take Action Now

If you’re afraid that your organization made a mistake and incorrectly received an Employee Retention Credit, it is vital that you consult with a tax and accounting professional immediately for specific guidance. Professionals can help you get back into compliance with the law and assess any potential fees. Working together, you can ensure that, moving forward, your organization will comply with the law and pay any penalties owed.

The pandemic upended many things and caused a great deal of disruption for all businesses, both for-profit and nonprofit. The ERC was intended to help individuals during a time of national crisis. Unfortunately, some companies targeted nonprofits aggressively to rake in fees on their own for the ERCs and may have steered organizations into accepting erroneous refunds. It’s important to act quickly if you think your organization may be at risk. Mistakes can happen to anyone, but it’s how you address them that counts.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Is AI Useful to the CFO Role? A Few Thoughts on the Role of Artificial Intelligence

By | Accounting, Nonprofit | No Comments
woman at desk using phone and laptop

Since generative AI rolled out to the public in November 2023, there has been much debate about its usefulness in business. Although some form of artificial intelligence has been available through technology platforms for many years, like spellcheck in word processing applications or design assistance in presentation creation software, AI can now be found in everything from nonprofit accounting platforms to government accounting. Is it hype? Is it helpful? Let’s examine the use of artificial intelligence in accounting and how it may be helpful to CFOs.

What Is Artificial Intelligence?

Artificial intelligence uses machine learning and large language models to generate responses to inquiries. The new generative AI models can ingest images as well as text and produce what appear to be innovative responses. However, for the most part, AI generates a synthesis or amalgamation of what it has learned. It cannot create fresh information on its own but must rely upon previous input to form seemingly new thoughts.

Potential Uses of AI in Accounting

All AI-based systems are great at taking in vast amounts of data and analyzing it faster than humans can perform the same task. While people are better at creating something new, AI is better at spotting patterns and detecting anomalies within patterns—and that’s where it can become the CFO’s best friend.

Several possible uses for AI in accounting include:

  1. Fraud detection: Because AI is good at understanding rules and applying rules to large amounts of data, it can apply accounting rules to data and help detect possible fraud. Although an AI detection system shouldn’t be used solely to determine fraud, such a system could potentially flag possible fraud for a human accountant to review and investigate.
  2. Audit testing: Certain types of audits include testing random samples of things such as contracts. Because neither the contract form nor the language is standard, random samples are taken for review. Improved optical character recognition (OCR), a type of artificial intelligence, could scan all forms and input them for an accountant to review.
  3. Outlines and drafts of documents: While AI cannot create new text, it can take existing text and build an outline or even a rough draft of a new document.

Dangers of AI in Accounting

With all new technologies comes possible dangers. Many of the potential dangers of AI in accounting can be offset by clear governance around the use of AI in organizations and monitoring its use for potential problems.

The possible dangers include:

  1. Disclosure of confidential information: Platforms such as Microsoft CoPilot and ChatGPT are open AI systems, meaning they use the data inputted into their platforms to increase the entire bank of knowledge. Inputting anything into their systems means it goes into the public repository of information. If you do not wish confidential information shared, it should not be used in an AI tool that taps into public AI-based systems.
  2. Hallucinations: AI can and does hallucinate. This means it makes up answers. Some of these answers are incorrect or even nonsensical. A famous example is the AI platform that insisted there is no country in Africa beginning with the letter K. When the questioner informed the AI that Kenya begins with K, it returned an absurd answer. Such stories are legion. For accountants, hallucinations or inaccuracies can be dangerous. Accountants using AI-based tools should ensure human review and oversight of AI-generated answers to spot potential hallucinations.
  3. Infringement: The courts have only begun reviewing cases related to AI-generated materials. In certain cases, AI may repeat copyrighted information verbatim. This could lead to potential infringement violations.

Responsible and Ethical AI Use

AI is here to stay. You can’t put the genie back into the bottle. How can you use AI safely and ensure your organization is following best practices and ethics for AI use?

  • Develop a set of governance standards on the acceptable use of AI in your organization. Don’t leave it to chance. Work with cross-department teams to develop guidelines on the appropriate use of AI.
  • Ensure that your team understands that proprietary materials should never be shared with AI.
  • Do not use outputs from AI verbatim. Use them as drafts and rework them. Or use AI to develop summaries and outlines and write your own materials based on these outlines.

Embracing AI

AI has its place in business. It can help with many tasks, but it can never replace people. If AI can help, and you can develop responsible and ethical guidelines for its use, it may be worth incorporating it into your systems.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Three Characteristics of Successful CFOs

By | Accounting, Nonprofit | No Comments
Three business people at desk with laptops.

According to the latest Sage paper, 96% of CFOs feel that their role will change significantly over the next three years. Numerous factors drive this change, but the result is clear: 80% of the survey respondents are worried about their future.

If you’re one of the CFOs feeling overwhelmed by the pace of change, you’re not alone. Throughout the profession, many are wondering if they have the right combination of skills to see them through the next several years. Evolving financial regulations, new technology like AI, and an increasingly competitive business environment continue to put pressure on CFOs.

Fortunately, it is likely that you already have the skills identified in the report that support job success. Let’s examine the skills that successful CFOs have in common.

The Evolving CFO Role

The CFO role has evolved over the past several years. Today, CFOs wear many hats. They lead accounting and finance departments, but they’re also integral to business planning, sales, marketing, and strategic decision-making within their organizations.

In the previously cited Sage report, CFOs who continue to thrive despite the many changes around them are those who lead with empathy. These leaders genuinely value people as well as the organizations they serve. They support their organization’s mission, help them make margin, and ensure that the people they work with have what they need to be successful, too. Additionally, these leaders strive for long-term solutions, sometimes referred to as sustainable. Lastly, they embrace diversity—diverse people, backgrounds, and opinions.

Three Characteristics of Successful CFOs

The Sage report found that successful CFOs share three main characteristics.

Leading Beyond the Finance Role

Successful CFOs step into leadership roles throughout their organizations. They foster cross-department connections and don’t hesitate to work with others to solve problems. Their role moves well beyond budget and financial management into operations, marketing, and other areas as the need arises.

Embracing Technology

The CFOs who thrive amid change take every opportunity to embrace technology. Whether it’s working with IT and other departments to choose a new accounting platform or seeking ways to use their existing platform more efficiently, successful CFOs embrace technology and use it to become more efficient in their work.

Cultivating Work-Life Balance

Success can be defined in many ways. While most people view professional success as the goal, those who thrive embrace work-life balance. These people work hard but know when they need a rest. They make sure they take care of their health, work out, rest, take vacations and personal time and spend time with family. In short, they take a balanced approach to life. Truly successful CFOs most often exhibit good work-life balance and avoid workaholism.

Technological Versatility

A key concept to remember is “technological versatility.” Most of the successful CFOs diversify their tech stack to ensure they do not put all their eggs in one tech basket. Many use cloud computing platforms which offer excellent security and backups; others incorporate new and emerging technologies, often testing them to see what works for their organization and teams. The key is finding the right mix of technologies to improve workflows and results.

Here’s to Your Success!

There is an old saying that change is the only constant in life. Every organization, no matter what its size, is experiencing rapid changes in every aspect of business. Successful CFOs keep their eye on their priorities, embrace a healthy work-life balance, and explore new technologies.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.