Category

Audit

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.

Dec 20
0

The Benefits of Data-Driven Audits

By | Accounting, Audit, Nonprofit | No Comments
person at laptop doing audit, interacting with virtual data file screen

The annual audit offers nonprofits an unbiased third-party analysis of their finances. It also assures the public, based on the auditor’s report, that funds are being accounted for correctly.

But many audits are conducted on a routine basis. Auditors often perform the same analysis year after year. Others may focus on areas that have little impact on the overall audit but are easier to see, or things they deem vital, but which may not have a significant impact on the organization.

A data-driven audit, on the other hand, focuses on data from the trial balance and general ledger to conduct a robust risk assessment. From this risk assessment, the auditors then tailor their approach and methodology to identify and assess risk areas. The resulting audit leverages data from both prior years and the current year to present a clear, robust picture of an organization’s financial health and risk areas.

Data-Driven Audits Require the Right Tools

If data-driven audits are so helpful, why aren’t more auditors performing them?

Organizations and auditors need the right tools to perform data-driven audits. This includes financial and accounting software that can provide ready access to current and prior year finances, as well as software to perform complex analysis of the data. This type of analysis cannot be completed easily using a calculator or spreadsheet; auditors who offer data-driven audits typically work with nonprofit software and databases to crunch the numbers they analyze later.

The Benefits of Data-Driven Audits

Data-driven audits provide many benefits. These include:

  • Enhances efficiency: Leveraging software and tools to perform data analysis reduces the auditors’ hands-on time with the finances. They can use their time more efficiently to focus on risk identification and assessment.
  • Improves outcomes: Risk identification enables nonprofits to take remediation steps for improved outcomes. Auditors can review 100% of the information because the initial analysis is completed using technology.
  • Reduces risk: Auditors who do not leverage data-driven audits may miss crucial information because they rely upon sampling techniques rather than a deep-dive into the entire database. Data-driven audits analyze everything, thus reducing the risk of missing something important in the audit.

Supports Remote Audits

Another benefit of using data-driven audits is that most of the technology used to gather and analyze data is cloud-based. Cloud systems enable remote access, meaning that the auditors do not have to spend as many days onsite with you as in the past. They can pull data remotely, analyze it, and focus on findings. This provides a more efficient and cost-effective audit, giving both nonprofits better results and saving auditors time.

With the current accounting employment shortage, in which fewer people seem to be entering the accounting profession, there will likely be a shortage of experienced auditors soon. However, by using technology, auditing firms can increase the amount of work they do, while providing better service and more detailed analysis to nonprofits. This can offset some of the accounting labor shortage.

No Need for a Big IT Department to Benefit from Data

Another benefit to using cloud-based accounting and finance software is the ease with which organizations can add it to their tech stack. Unlike site-based systems, which may require special hardware and personnel to maintain and manage them, cloud-based systems are accessed through the internet. The software provider takes care of maintenance, updates, and security. No special hardware or software is needed to use them either, thus enabling you to continue using the hardware that you have.

Added Value with Few Drawbacks

Data-driven audits add so much value and have few, if any, drawbacks. Not only can they cover more transactions than a traditional audit, but they also help auditors more easily focus on possible risk areas. With the right technology in place, nonprofits can reap the benefits of big data even with limited budgets.

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.

Jan 18
0

Tips for 2023 Affordable Care Act Compliance

By | Accounting, Audit, Insurance | No Comments

One of the more controversial aspects of recent legislation was the increase of funding for the Internal Revenue Services’ enforcement team. Many expect that the IRS will turn their attention to previously neglected areas of enforcement, including the Affordable Care Act (ACA).

Affordable Care Act: Compliance Basics

If it’s been a while since you reviewed ACA compliance, here is a brief refresher. Large employers with 50 or more full-time employees are required to provide adequate and affordable medical coverage to their employees. If they fail to do so, the penalties include a fine of $229.17 a month or $2,750 for 2022, multiplied by the total number of full-time employees in excess of 30. The 49080H(b) penalty amount of $343.33 a month or $4,120 for 2022 is assessed on a per-employee basis for every full-time employee who receives a premium tax credit after not being offered adequate or affordable coverage.

Compliant Companies May Still Face Audits

Let’s assume that your company meets the ACA coverage requirements and fully complies with the Affordable Care Act. You may feel you’re in the clear. However, just because your company is complying does not mean it is exempt from an ACA assessment. Failing to complete forms 1094 and 1095-C can raise red flags especially if you report health insurance amounts on forms W2 filed with the IRS. This kind of discrepancy can lead to questions from the IRS and/or employees when trying to file their taxes which could lead to fines and assessments being charged to you for non-compliance. This failure can also flag other governmental agencies leading to other non-compliance fines and penalties.

Up until 2021, the IRS held a policy of “good faith,” meaning that if employers can demonstrate they were trying to comply with the requirements in good faith by showing their due diligence, they were given grace to rectify any incomplete or incorrect reports. That grace period, however, ended in 2022, and many are seeing an uptick in IRS inquiries over incomplete or incorrect ACA reporting.

Common ACA Reporting Mistakes

Employers make many ACA reporting mistakes, but these are the most common. Check to ensure you’re not making these common errors on forms 1094 and 1095-C which can lead to unnecessary penalties and requests from the IRS for further information.

  1. Over reporting employees: You only need to issue 1095-C to full-time employees. There’s no need to issue it to part-time employees.
  2. Not validating safe harbor codes: You must validate, or provide documentation, to claim safe harbor for affordability on 1095-C. Speak with your accounting expert or CPA to determine if your company does indeed meet the safe harbor requirement
  3. Avoid “free” reporting services: If your bookkeeping software comes with “free” ACA reporting features, use with caution, and have someone double check the results that understands ACA 1095/1094 filing requirements, even if it comes out of your payroll/accounting system.
  4. Not responding to marketplace notices: Responding to marketplace notices is the first opportunity to prevent mistaken penalties. When an employee is determined eligible for a premium tax credit to purchase coverage from the Marketplace, they typically receive a notice of eligibility determination. If the employee can prove to the Marketplace that affordable, adequate coverage wasn’t made available by the employer when in fact it was, the employer can and should appeal. Don’t ignore marketplace notices or employee concerns that come up while they try to file their taxes annually.
  5. Get a benefit plan review annually if you are offering health insurance and other benefits to your employees unless you are an expert in ACA compliance and filing requirements. Another option is to outsource ACA processing and associated compliance to a third-party provider like your health insurance plan providers. Paying for a benefit plan review or outsourcing this function to a third party that specializes in this area will be well worth the cost of these services. Increased priority has been given to ACA filing & compliance starting in 2022 from the IRS and is evident with the number of agents they have assigned to this area for 2022.

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 30
0

SEFA: What You Need to Know About Federal Expenditures

By | Audit, Nonprofit | No Comments
woman looking at paperwork in front of a laptop at desk

Is your nonprofit subject to a Schedule of Expenditures of Federal Awards (SEFA)?

Over the past several years, many nonprofits availed themselves of federal grants. These funds may have been related to the pandemic relief programs or separate programs intended to support the work of nonprofits. However, the increase in federal grant programs, and the number of nonprofits tapping into them, may mean that your organization is now subject to the Single Audit. To determine whether you now complete a Single Audit, you should first complete the SEFA.

What Is SEFA?

SEFA is a separate document required as part of an audited financial statement. It may be presented in the accrual or cash-based method of accounting.

If federal grants total more than $75,000 over an organization’s fiscal year, the organization is then subject to the Single Audit. SEFA must be completed as part of the Code of Uniform Guidance.

What should be included in the SEFA? According to the guidelines, federal expenditures to be included should be based on when the federal award is considered “expended.”

Determining which funds should be included is a bit more complex than looking over your awards and determining which came from federal sources. The Uniform Guidelines categorize the following to be included:

  • Grants
  • Cost-based Contracts under Federal Acquisition Regulations (FAR)
  • Cooperative Agreements
  • Direct Appropriations

Loans and Loan Guarantees

Loans and loan guarantees should also be considered under SEFA. The basis of determining them may be found in 2 CFR Part 200.502 as:

  • Value of new loans made or received during the audit period; plus
  • Beginning of the audit period balance of loans from previous years for which the federal government imposes continuing compliance requirements; plus
  • Any interest subsidy, cash, or administrative cost allowance received

Donated Personal Protective Equipment (PPE)

If your organization received a donation of PPE, you must account for its value. Calculate the fair market value at the time of the donation and include it as a footnote on the SEFA.

Note that the amount of the donated PPE should not count towards the determination of a Single Audit.

Donated Property and Donated Food

Donated property and food follow similar guidelines to PPE. The fair market value should be calculated at the time of the donation.

Determining Receipt of Income

The receipt of income date is determined for the SEFA by assessing the date by which the income from a federal source was received or used by the program.

Endowment Funds

Endowment funds from federal sources should be reported on the SEFA at the cumulative year-end balance if the restriction applies.

Medicare and Medicaid

Check with your state’s regulations or consult with a nonprofit accountant. In many cases, Medicare and Medicaid funding is not counted towards SEFA calculations. However, state guidelines may make your state an exception to the rule.

Presenting the SEFA

To ensure clarity and transparency, it is vital to report the information on the SEFA according to the Uniform Guidelines. The Guidelines specify that organizations should list each individual federal program by federal agency, and you can group a cluster of programs together. You must also note the name of any passthrough entities and identifying numbers if the organization received funds through a passthrough entity. The same applies if your organization passes funds through to another entity—you’ll be required to provide the total amounts provided to each subrecipient.

The totals on the SEFA are required for each federal program and Assistance Listing (AL) number (formerly the Catalog of Domestic Assistance, CFDA). If the AL number is not available, organizations can use another identifying number. Each cluster reported on the SEFA must also provide a total.

Lastly, footnotes: yes, they’re required. Nonprofits must disclose the outstanding balance of any loan and loan guarantees reported on the SEFA as of the end of the audit period. Additionally, organizations are required to disclose whether they utilized the de minimis indirect recovery during the year.

AICPA provides a checklist to help guide you through the complexities of SEFA preparation.

Preparing the SEFA properly requires a great deal of time and attention to detail, not to mention nonprofit accounting expertise. We highly recommend contacting us for assistance to ensure full compliance and the best preparation of these important documents.