Category

Audit

Mar 12
0

Tips to Choose the Right Auditor for Your Organization

By | Accounting, Audit, CPA, Nonprofit | No Comments
auditor working at desk with spreadsheets, computers, and calculator

The right auditor is much more than a CPA. Auditors provide valuable guidance and ensure donors, members, and constituents trust that your organization is a good steward of their finances. These tips will help you find the right auditor for your needs who is both well-versed in nonprofits and a good cultural fit for your organization.

Find Potential CPA Firms

The first step is to find potential CPA firms who provide auditing services. You can look online for local firms or ask other nonprofits who they use and like. Your employees may also suggest companies or individuals with whom they have worked in the past.

It is vitally important to find an auditor who specializes in nonprofits. Nonprofit accounting has unique requirements and regulations, such as fund accounting and compliance with IRS Form 990. A CPA familiar with these aspects can ensure accurate financial reporting and adherence to relevant laws.

CPAs with nonprofit experience can also provide valuable insights and recommendations tailored to the organization’s unique financial situation. This can include guidance on improving internal controls, financial management, and strategic planning.

Lastly, because nonprofits are subject to various regulations and compliance requirements. A knowledgeable CPA can help navigate these complexities, reduce non-compliance risk, and identify potential issues before they become significant problems.

Develop Questions

To ensure that you have an apples-to-apples comparison of CPA firms after you’ve completed your research, develop a set of questions to ask each firm. This approach is similar to a request for proposal (RFP) process. Consider your organization’s needs. Some potential questions may include:

  • Can you provide references? May I contact them?
  • Who will I be working with?
  • Do you work on site, or do you need remote access to materials?
  • What is the typical audit process your firm uses?
  • What can I expect during the audit?
  • What do you provide me with afterwards? How long will it take?
  • How much does it cost?

Depending on your needs, you may also have other questions to add to this list.

Consider a Formal Request for Proposal

A request for proposal (RFP) is a formal document issued to multiple possible vendors. It outlines your organization’s background, the project you have available, and the scope of work. It also includes a due date for the project and response requirements, such as references or case studies demonstrating experience with previous projects.

Responses are written following the outline given to vendors in the scope of work. The resulting documents help compare the relevant credentials of all potential CPA firms. Because the RFP requires all responses to be written in the same format, following identical guidelines, the results provide an apples-to-apples comparison among respondents, allowing you to sift through what makes one stand out above the others.

Gather all the responses, whether through a formal RFP process or a sit-down meeting with questions. Then, meet with your team and consider the answers. Your final selection should weigh all factors, including the firm’s relevant experience, assessing its approach, and comparing prices.

Consider Cultural Fit

Lastly, consider the cultural fit of the CPA with your organization. The best credentialed expert will not be effective if you feel intimidated or rushed when you work with them. Look for someone with whom you feel good rapport, a CPA who communicates clearly, who listens patiently, and who isn’t afraid to answer questions.

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.

Sep 17
0

Evaluating Changes in 2024 Compliance – Where Do You Stand?

By | Accounting, Audit, Nonprofit | No Comments
person moving blocks with people icons and justice scales

We are rapidly heading into the final calendar months of 2024. Many changes this year have impacted the nonprofit landscape. Audits, changing regulations, and the economic environment have each created its own set of challenges. The following 2024 accounting changes all merit evaluations at this point in the calendar year to see what, if any, changes our organizations should make for compliance and adherence to best practices, laws, and regulations.

The following highlights several areas of nonprofit accounting compliance that have changed this year. These changes impact auditing, leases, and much more. To stay abreast of nonprofit changes, check out our blogs and speak with the experts at Welter Consulting for specific audit preparation and support.

Lease Standard Implementation

Changes affecting lease standard implementation went into effect two years ago. Organizations should evaluate their previous estimates on leases to ensure the estimates are reasonable and supportable.

Organizations who have leases under common control should also take a second look at FASB Accounting Standards Update (ASU) No. 2023-01, Leases (Topic 842): Common Control Arrangements. Changes in the determination of whether related party arrangements fall under the scope of FASB Accounting Standards Codification (ASC) Topic 842 and how the amortization term for leasehold improvements is determined should be re-evaluated.

Current Expected Credit Loss

FASB ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replaces the current method of recognizing expected credit loss (CECL) with the requirement to estimate losses expected over the contractual life of a financial asset. It went into effect for fiscal years starting December 15, 2022. Under this new model, moving forward, the expected losses must be based on one of three things: historical experience, current conditions, and reasonable/supportable forecasts.

Financial assets nonprofits should consider complying with this guideline include trade receivables, promissory notes receivable, loans receivable, grants receivable following the exchange transaction model and off-balance sheet credit exposures. There is flexibility in the estimation models if the approach is supported by evidence and is deemed reasonable.

New Statements on Auditing Standards

Starting on or after December 15, 2023, Statements on Accounting Standards (SAS) numbers 143-145 will be effective. These cover auditing standards for financial statements. Nonprofits can expect to see changes in audit procedures relating to how estimates found in financial statements are tested, for example, and audit procedures when specialists are used. 

Yellow Book 2024 – Changes to Auditing Procedures

The GAO issued Government Auditing Standards changes on February 1, 2024. These changes add application guidance to Chapter 6, Standards for Financial Audits, and seek to provide clarity as to when the concept of reporting key audit matters. These concepts might apply when organizations receive government financial assistance or to government entities.

Get Help Keeping Up with Changes

As you can see, there are many changes and updates to nonprofit accounting – and that’s just a few of them! To keep up with accounting changes, it’s helpful to have a partner with both an accounting and nonprofit background, like Welter Consulting, who can offer advice and guidance throughout the year.

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.

Aug 20
0

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.

Mar 13
0

Your Nonprofit Audit Checklist

By | Audit, Nonprofit | No Comments
person pointing to computer monitor with two others sitting in front of computer monitors

Audits provide the transparency that donors and members need. An audit builds trust, which leads to developing these relationships. It also ensures to a nonprofit board, directors, and staff that their accounting and finances are being handled professionally.

However, audits can be stressful and time-consuming for all involved. To ensure that your audit goes smoothly, we’ve prepared this audit checklist. You can print it out and use it to get the people, processes, and items ready for your next audit.

Pre-Audit

  • Prepare for the Audit

Ensure that you have set up access to the accounting program for your auditors and that their permissions enable them to do their job. Gather relevant records and update the accounting system. If you have paper-based records, some document scanners and system tools (such as those with MIP Fund Accounting) enable you to scan paper records into the system where they are uploaded.

  • Reconcile Accounts

Reconcile bank, credit card, and other financial accounts. Choose a cutoff date and make sure that everything is in the system by that date.

  • Check Restricted and Unrestricted Net Assets and Activities

Using your accounting system, check restricted and unrestricted net assets and activities.

  • Review Grant Reports

Ensure that all grant information has been entered into the system. Enter activities and costs to the appropriate grant lines and funds.

  • View the Accounting System

Review the entire accounting system. Run reports and check figures to ensure there are no surprise findings in the audit. You may not catch every error, but you can prevent wasted time by fixing simple mistakes before the auditors begin their work.

  • Communicate with Your Team

Alert your team that an audit is coming and share the dates with them so they can prepare. Make sure you have space assigned to the auditors if they are coming on-site and that they have the appropriate access to the systems and files they need. Also, be sure to share the information with the Board or Audit Committee that an audit is forthcoming.

  • Review Variances

If you find any variances in the accounts, sit down with your finance team and discuss them so you have a clear explanation for the auditors.

The Audit

  • Meet with the Auditors

If this is the first time your organization is conducting an audit, plan to sit with the auditors and go through the information with them to familiarize them with your organization, its accounting and finance structure, grants, and so forth.

  • Clarify Any Questions

If you aren’t sure what the auditors are asking for, ask clarifying questions. Minimize back and forth with the auditors by providing them with complete access to the required information.

  • Ensure Full Support

Be sure to let your team know it is fine to reschedule meetings to take time to work with the auditors as needed. They should feel free to set aside other projects to meet with the auditors.

  • Trust the Auditors

You’ve hired an auditing firm for a reason. Presumably, you have done your due diligence and researched the auditing firm thoroughly so you can trust their professionalism and judgment and let them do their work.

Post-Audit

  • Check-In

Check in with your auditors to ensure that everything is underway and that they aren’t waiting for more information. Provide assistance and support, if needed, to help them complete their task. Be sure to let them know of any deadlines, such as upcoming board meetings or publication deadlines, which are waiting for their work.

  • Communicate Updates

Communicate updates on the audit status to your team, the board, finance committees, and anyone else who may be involved in the work. Keep them apprised of the audit progress as well as any requests from your auditors for further information.

  • Present the Results

Present the audit results in a clear, concise, and honest manner. Prepare for the presentation by reviewing the audit findings and discussing any outstanding questions with the auditors. You may wish to have the auditor there while presenting to your board to ensure they can answer questions directly. If so, ask your auditors well in advance of any upcoming meetings so they have time to schedule and prepare too.

  • Review Internal Controls, Policies, and Processes

This is an opportune moment to review internal controls. Do you have adequate internal controls in place, or do they need to be updated? If you do update the internal controls, check and ensure that your Policy Manual is also updated.

And finally, how did the audit process go? Did you feel that the process went smoothly, or does it need adjustment? Make notes and take steps now to prepare for your next audit by adjusting any areas of the process to remove roadblocks.

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.