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Enhancing Accountability and Transparency in Non-Profit Organizations

This session discusses critical updates in accounting and auditing for the non-profit sector, focusing on recent legislative developments, including IRS Form 990 changes, cost allocation, and the implications of corporate scandals. Key recommendations from the panel on the non-profit sector emphasize the need for active governance, transparency improvements, and stronger laws to combat misuse of charitable entities. The presentation also outlines necessary enhancements in audit procedures, conflict of interest policies, and the role of the IRS in overseeing compliance and enforcement.

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Enhancing Accountability and Transparency in Non-Profit Organizations

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Presentation Transcript

  1. Accounting and Auditing Update Janet Brocklehurst, Partner Angela Cain, Senior Manager

  2. Agenda • Legislative Developments • IRS Form 990 • Cost Allocation

  3. Environment • Corporate Scandals • Sarbanes-Oxley Act • Charitable Scandals • United Way • American University

  4. Issues Identified by IRS and Presented to Senate Finance Committee • Misuse of charitable entities to benefit the donor rather than the public good • Overstated charitable deductions by taxpayers most often involving non-cash contributions • Widely varying methods for determining the compensation of executives • Inconsistent and limited disclosure of governance practices

  5. Congressional Intent vs. Charitable Community Self Regulation • Panel on Non-Profit Sector • Over 120 specific recommendations • Fall in three major categories • Governance • Transparency • Accountability

  6. Overview of Panel’s Recommendations • The governing boards of charitable organizations must be more active • Audit Procedures • Conflict of Interest Policies • Travel Policies • Whistleblower Policies

  7. Overview of Panel’s Recommendations • Greater transparency is needed to help the public make informed choices and to assist with government oversight and enforcement • Improve design of Form 990 • Mandated financial statement audits for organizations with revenues over $1,000,000 • Mandated financial statement reviews for organizations with revenues between $250,000 - $1,000,000

  8. Overview of Panel’s Recommendations • Congress should strengthen laws to address abuse and clarify standards and penalties • Donor advised funds • Supporting organizations • Abusive tax shelters • Executive and Board compensation • All to protect against personal benefits to donors

  9. Overview of Panel’s Recommendations • Enforcement of laws and regulations governing charitable organizations be strengthened • IRS is understaffed • Do away with laws that limit IRS sharing information with state Attorney Generals and other state charity officials

  10. Legislative Status

  11. IRS Form 990 Discussion • E-Filing • Require highest ranking officer to sign 990 • Organizations exempt from filing would be required to file basic contact and financial information • Revision of Form 990

  12. Revision of Form 990 • Separate sections and schedules • More disclosure required on potential abusive items • Donor advised funds, financial awards, grants • More disclosure of executive compensation and benefits • Require same accounting method used to prepare audited financial statements

  13. Functional Expenses • Requirements • Voluntary Health and Welfare Organizations • Cost Allocation

  14. Cost Allocation • Functional expense reporting • Required in financial statements and IRS Form 990 • Program Services • Management and General • Fund-Raising • Reporting allocated indirect costs • OMB, Federal, State or Local agency requirements • Grant reimbursement • Unrelated business income

  15. Cost Allocation – Indirect Costs • Salary and benefit cost • General and administrative • Human Resources department • Accounting department • IT department • Executive officers • Program directors and staff

  16. Cost Allocation – Indirect Costs • Cost of operating and maintaining facilities • Utilities • Insurance • Repairs and maintenance • Building and equipment depreciation • Equipment leases

  17. Cost Allocation Criteria In decreasing order of preference: • Cause and effect • Benefits received • Equitable or reasonable • Ability to bear

  18. Cost Allocation Common Allocation Bases • Office support – Direct labor dollars or hours • Occupancy – Square footage • Data processing – Computer time

  19. Contact Information Goodman & Company, L.L.P. 4510 Cox Road, Suite 200 Glen Allen, Virginia 23060 804-282-7636 jbrocklehurst@goodmanco.com acain@goodmanco.com

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