Category

Audit

Jun 29
0

Preparing for a Retirement Plan Audit (It’s Not as Bad as It Sounds)

By | Accounting, Audit, Nonprofit | No Comments

The word “audit” generally has unpleasant connotations, but frankly, nonprofits should be used to the term by now! Most nonprofits work with independent auditing firms to ensure compliance with accounting and other rules, and third-party audits build trust with donors. Other audits may be conducted, for example, by the state employment commission to ensure compliance with workers’ compensation laws and payments. Each of these audits focuses on a different aspect of your business, and none of them indicate something is wrong – they are just part of doing business as a nonprofit organization.

There’s another type of audit you may not be as familiar with, especially if your organization is small: a 401K or retirement plan audit. The Department of Labor (DOL) requires organizations to file an annual Form 5500, which reports on the plan’s financial condition.

blurred image of keyboard with crowd of people with an overlay of the word audit and symbols to support the idea

Plan sponsors with fewer than 120 employees participating in the program at the start of the year can file a short Form 5500 and generally do not require an audit. However, once your organization has 121 employees participating in the retirement plan at the start of the year, the longer form must be used, and this automatically triggers an audit.

Who Conducts the Audit and When Is It Due??

If your organization must conduct an audit, you are responsible for hiring an independent accountant or accounting firm to complete the retirement plan audit. Form 5500 is due on the last day of the seventh month of the plan year. The plan sponsor may file for an extension if necessary.

Who Participates in the Audit and What Do They Do?

Generally, the plan administrator or sponsor, recordkeeper, and custodian all participate. Each must provide all required records and answer questions. The investment advisor should also attend, as this professional’s guidance directly impacts the fund. Lastly, the auditor will, of course, lead the audit and work with all participants to gather and analyze the necessary plan records.

How Audits Unfold

A thorough audit can take several months, so it’s best to contact the independent accountant several months before the actual audit is due. The auditor provides a list of documents necessary for the audit, and the plan sponsor and other participants gather and send the documents to the auditor. The auditor then reviews the documents. They may have questions or need clarification on certain items. After they complete their review, they prepare financial statements and the final audit report.

Documents Needed

Many documents are needed to successfully complete a retirement plan audit. These include, but are not limited to:

  • Current IRS letter
  • All plan documents
  • 401K administrative meeting minutes
  • Rollover, distribution, and loan reports that detail transactions by participants
  • Participant Account Summaries
  • Statements of Net Assets Available for Benefits and Statement of Changes to Net Assets Available for Benefits 
  • Draft Form 5500
  • IRC Compliance Testing Results
  • An employee census with details of the plan participants

A second set of documents may be requested. This includes a sample of the employee participants and may require Form I-9, detailed payroll and reporting records or stubs, termination records, and requests for transactions.

Once the audit is complete, you will receive the report and documentation needed to complete your filing.

Audits, Just Part of Running a Nonprofit

Audits can require significant time and effort to gather the necessary documents, but they provide a valuable service. Not only will your audit report help ensure compliance with retirement plan requirements, but the detailed findings and report can be a valuable tool for improvement. With the right approach and planning, your retirement plan audit can go smoothly and will become just another annual milestone for your growing nonprofit.

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.

Nov 18
0

Three Ways AI Transforms Accounting

By | Accounting, Audit, Nonprofit, Tax | No Comments

Artificial intelligence (AI) is transforming every aspect of accounting. It’s vital for accountants to embrace this new technology and incorporate it into their daily workflows. And for those of you thinking, “I’ll never use AI,” you probably are already using it. It’s been part of several accounting platforms for years, just in older forms. So, embrace it. Learn how to use it. AI is here to stay and can be an important adjunct to an accountant’s work.

Safe Use of AI

Before we discuss the three ways in which AI is transforming accounting, let’s take a moment to talk about the safe use of AI.

First, never input confidential information into publicly available AI tools, such as the free version of ChatGPT, CoPilot, and others. Although some of these tools promise to keep information confidential, and you can determine confidentiality parameters in your account settings, there is no guarantee that the information will be kept out of the public domain.

In fact, this past August, ChatGPT admitted that it had accidentally released chats from a number of users; they had failed to disclose what happened when users hit the ‘share’ button (many thought it was a private link). Err on the side of caution when using public AI tools or use a paid version with embedded security features.

AI is powerful, but it makes mistakes. One of the first rules of AI use is “trust but verify.” In other words, double-check whatever information you receive from your AI platforms. If using an AI tool that seeks information online, ask it to cite source links and click through to read them to make sure it is accurately quoting the information.

Three Ways Accountants Can Use AI to Enhance Efficiency

Assuming you’re taking appropriate precautions when using AI, it can be a game-changer to your daily workflows. AI is very good at analyzing vast amounts of data quickly and can perform numerous tasks to make an accountant’s life easier.

Improving Audits

The auditing process often relied on sampling rather than analyzing all data due to the volume of material available. As mentioned, AI is very good at analyzing large amounts of data quickly. AI can swiftly analyze data sets to detect abnormal patterns and flag fraud. A skilled CPA or accountant can then review AI findings and determine the next steps. This is definitely a huge time-saver for those preparing for and conducting audits.

Financial Planning and Analysis

Another task that relies on data is financial planning and analysis. AI can quickly review cash flows, receivables, and external data sources to provide baseline financial analysis. From there, it can act like an assistant during the planning process. You can also use AI to model best and worst-case scenarios. After performing the analysis, you can then step in and help your clients interpret and understand the results.

Assist with Tax Preparation and Compliance

Taxes are one of the most complex areas of accounting, and keeping track of tax changes can be a full-time job for some organizations. AI embedded within accounting programs can help accountants monitor, track, and report the appropriate taxes. It can also help you prepare tax returns and flag any inconsistencies or missing information. Both can be a huge help to a busy accountant.

Artificial Intelligence: Like a Smart Entry-Level Employee

For those still hesitant to tap into the power of artificial intelligence, it may help to think of it like an entry-level employee, rather than a computer program. Just as you wouldn’t trust an entry-level accountant to prepare a full audit, you wouldn’t trust an AI program to complete and submit audit findings. You would review the work of a newcomer to the profession, make corrections to their work, and then share it with the client.

While AI will never rise to the level of a CPA, it can provide support just like an entry-level employee and handle tasks quickly. It can improve many areas of your work, including audits, financial planning and analysis, and taxes. Using your skills and experience with AI’s speed can be a game-changer for your team and deliver better outcomes for your clients.

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 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.