Category

Audit

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.

May 05
0

Top Issues for Nonprofits in 2022

By | Accounting, Audit, COVID-19, Nonprofit | No Comments

These issues are top of mind for most accounting professionals, but especially for those leading the accounting function at nonprofits. This year appears to bring with it the continuing challenges resulting from the global pandemic as well as updates from FASB accountants need to know.

COVID-19 Issues Impacting Nonprofits

The economic impact of the government’s actions during the global pandemic are still not entirely understood. In March 2020, the government passed the $2 trillion CARES Act, and a year later in March 2021, the $1.9 trillion American Rescue Plan Act. If you’ll recall from previous articles, the CARES Act provided funds for the Paycheck Protection Program which used the Small Business Administration’s lending program to provide forgivable loans of up to $10 million per borrower. Qualifying businesses could spend this money on mortgage payments, payroll, or other business debts to continue operations.

Additionally, the CARES Act benefitted nonprofits directly by raising the limits on charitable deductions for both those who itemize deductions and those who do not. The government also raised the cap on charitable contributions for corporations. These actions were intended to increase cash gifts to nonprofits, strained by sudden increased demand for their services during the pandemic.

The response to the COVID-19 pandemic remains fluid as the situation continues to change. Many nonprofit accountants, however, still have questions about how to account for CARES Act funds, Payroll Protect Action loans, and more.

We’ve put together a list of resources to help you navigate any remaining questions from the pandemic response as they impact your nonprofit accounting.

Remote Auditing

Many nonprofits may still choose remote audits. To facilitate remote audits, incorporate the following best practices into your organization.

  • Utilize all available technology to share files with your auditors. This may include secure portals for sharing documents or videoconference. If your accounting and finance system allows for guest logins, you may be able to set up a secure login for your auditors.
  • Schedule additional video conferences to confirm supporting documentation. You may also wish to schedule video conferences in advance so that check-in dates are on everyone’s calendars.
  • Provide multiple contact methods to keep communication lines open. A secure instant messenger platform may be set up for the audit.
  • Build additional time into the auditing schedule to anticipate and accommodate potential delays in communication. Remote workers may be logging into their email at various times, which can lead to longer response times.
  • Be vigilant about cybersecurity, especially when sharing financial data.

Other Nonprofit Accounting Concerns

Nonprofits may also have concerns about other aspects of COVID-related accounting.

Cash management issues are at the top of many nonprofit accountants’ minds. Continue to build up operating reserves. Seek cost containment strategies that make sense for your organization.

If internal controls were relaxed during the pandemic, reinstate them when workers return to the office, even if only a handful are back. It’s important to ensure security and good internal controls even during challenging times.

This is also a good time to develop policies around remote work if your organization doesn’t already have them. Many organizations are finding that remote work policies are helping them attract more and better qualified candidates for open positions. A telecommuting alternative is an attractive benefit for many job applicants.

Lastly, be sure to keep your board and other advisors updated on your organization’s financial challenges, opportunities, and threats. Good communication is always essential.

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 Welter Consulting at 206-605-3113 for more information.

Dec 07
0

Changes Coming to the Audit Opinion

By | Audit, Nonprofit | No Comments

Many nonprofits are gearing up for their annual audit. Expect a “facelift” in your annual audit this year thanks to new AICPA rules. AICPA’s Auditing Standards Board (ASB) has issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, which will become effective for periods ending on or after December 15, 2021.

What this means is that the auditor’s opinion section of your annual audit will be different this year. Here’s what to expect from this “audit opinion makeover.”

Auditor’s Opinion

The revised ASB Auditing Standards calls for new ways to organize the audit report. First, the auditor’s opinion will now come first in the document. The initial wording remains the same, but the opinion itself will be at the front of the document. This makes it easy for readers to find.

New Ethics Statements

New statements must be included in the report. This includes an ethics statement that clearly indicates that the auditor is required to be independent of the auditee. Additionally, the auditor must include a statement specifying they will meet all ethical standards of the profession.

Responsibilities of Management

Another new section and statement must include the responsibilities of management in respect to evaluating ongoing concerns.

Auditor’s Responsibilities

The auditor’s responsibilities section is still included, but it has been revised to include additional information. The auditor’s responsibilities will be included and described in a bulleted list to make them easier to find and read.

Another change is the inclusion of a paragraph that describes in detail the auditor’s responsiblities to communicate certain matters with those charged with governance. These matters include the scope and timing of the audit, significant findings, and internal control related matters.

Key Audit Matters

Lastly, the ASB (SAS) 134 also introduces new ways to report on Key Audit Matters. This new framework means that entities must specifically hire an auditor to report on this matter. For example, if it is required by a third-party, you may wish to add this, but for most audits, it is not part of required reporting.

The changes also require enhanced reporting in regard to ongoing concerns, including a separate section in the auditor’s report where substantial doubt exists.

Is Your Organization Affected by the Changes?

All nonprofits are affected by the initial changes, but whether or not you need additional reporting on Key Audit Matters does depend upon the nature and scope of your organization and its responsiblities. This is where a good accounting professional or consultant is of great help. They can assist you through the audit process and help you determine how and where these changes impact your organization.

Preparing for Your Audit

Even if you feel that the audit is weeks or months away, it is a good idea to begin preparing for your audit now. Many nonprofits have discovered the benefit of cloud-based fund accounting programs, software that enables auditors to log in and view financial records without the need for time-consuming onsite visits. Such software makes it simple for auditors to log in from their offices and begin their auditing process. If you have such software, you may wish to take advantage of this feature and make it easier for auditors to spend any in-person time with you effectively.

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 Welter Consulting at 206-605-3113 for more information.

May 04
0

Auditing Challenges: No Clear Answers for an Unusual Year

By | Audit, Nonprofit | No Comments

The typical auditing process is both an art and a science. Auditors must use their judgment but base their judgments upon generally accepted accounting practices (GAAP), nonprofit accounting rules, IRS requirements, and so on.

But this year, the typical nonprofit audit is anything but typical. Nonprofits in a variety of fields are wrestling with key questions, and auditors are finding their skills taxed to the max.

If your nonprofit is also struggling with its audit this year, here are a few tips to keep in mind to deal with auditing challenges.

Communicate Clearly With Auditors

Few nonprofits had warning that 2020 would be anything but business as usual. With the sudden disruption in everything from fundraising to delivery of their programs, nonprofits experienced anything but the typical year.

Your auditors know that the past year was challenging. What they don’t know is how you coped with it. Your job is to communicate clearly with the auditors working with your organization. They should be apprised of all decisions that impacted finances, from canceling the annual charity gala to hosting a silent auction online.

The board charged with oversight and governance of your organization should meet and review changes to financial plans from the past year. Then, they may need to meet with the auditors to discuss all the ramifications of these changed plans.

Remote Audits Pose Additional Challenges

Many auditors are conducting remote audits this year, either a full remote audit or a portion of the audit. Be sure to organize your documents to save time for the auditors. Ask your staff to set aside time as needed for the audit. They should be as ready to answer an auditor’s questions by phone, text, or instant message as they would be if the auditors were on site and able to drop into their office to ask a quick question.

Risks of Mis-Categorization Increase

Because so much of the work environment has changed in the past year, there is an increased risk of material misstatement. Revenues, services, programs, and fundraising activities may have changed due to the pandemic.

Speak with your auditors and discuss any changes that may be impacting your organization. For example, if a negative income statement will impact your ability to receive grant funds, tell the auditors. Your auditors can guide you through the ramifications of each decision so that you understand the potential outcome of the audit.

Use Technology to Your Advantage

Nonprofit accounting software can be of great help with remote audits. Whole ledger analysis (if available) in your software can help your auditor identify potential risks. Such technology may be able to spot various abnormalities, including transactions that occur outside of normal working hours, a pattern of transactions just under the threshold of management approval, and so on. Using technology as an additional set of eyes on the general ledger can be a huge help to nonprofits.

Review Internal Controls

Another ramification of an unusual business year is, unfortunately, an increased risk of fraud and theft. This is a good time to revisit your nonprofit’s internal controls. Many organizations adapted their internal controls to accommodate telecommuting, but with such adaptations comes increased risk. For example, approvals that used to require a physical signature may now be allowed through the accounting system.

Work with your auditors to review how and when internal controls changed. They may advise you to return to stricter controls or at least return some to pre-pandemic levels. They can also review transactions and ensure that any abnormalities are investigated promptly.

Here’s to a Successful Audit!

Nonprofits adjusted rapidly to the restrictions placed on their activities during the pandemic. Such adjustments, however, do carry consequences and risks. Working together with your auditors, your board and management team can continue to adapt and adjust so that your audited financials tell the complete story of just how your organization weathered the unusual pandemic 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 Welter Consulting at 206-605-3113 for more information.