by Pete McAllister | Accounting News, Audit and Accounting, IRS, NonProfit, Tax Consulting, Tax Planning - Individual
Understanding the Educational Institution and Nonprofit Audit Landscape
June 30, the day on which many educational institutions and nonprofits end their fiscal year, is fast approaching. This brings “joy” to many internal accountants because they know that an annual visit from the auditors is just around the corner.
While it is our experience that auditors are not always greeted with open arms by an organization’s staff, we have seen an evolution in these relationships over the past few years. In previous years, auditors were frequently seen as a necessary evil, but now the disdain has diminished. Audits and auditors are now viewed less and less as a commodity or a frustrating interruption to the regular work schedule. Instead, we are more often than not viewed as professionals handling an independent confirmation of the organization’s financials. It has also become a common perception that auditors seek solutions that can help an educational institution or nonprofit improve policies and procedures.
Through the years, accounting and audit technologies have improved, which in turn has bettered audit efficiencies and lowered costs. In an era when enrollment, funding, government grants, and other forms of income are down, hiring an established and proven independent audit firm that provides fair fees (as perceived by the staff and board) is imperative.
Audit Efficiencies
Audit efficiency comes from different areas, such as technologies, documentation, analytical analysis, secondary reviews, and advance preparation. Understanding how to maximize on these efficiencies can cut down significantly on the costs to an organization.
Documentation: A best practice for audit efficiency is documentation. Documenting the whats, whys, and whens associated with accounts or procedures incurs less work for those charged with reviewing the financial data – inevitably reducing the amount of work handled by an auditor. Generally, auditors find that things are done properly but are lacking documentation. It is important to reinforce documentation procedures with your staff because it will save time and money in the long run.
Analytical Analysis: Another preferred practice is to have a member of the auditee perform the analytical work that the audit firm will be doing. This will help in several ways: the analytics will highlight the results that were not expected and/or expected, but had a large variance with a previous period; and the analytics “force” the analyzers to learn more about the organization’s financials.
Issues that arise can be reviewed and discussed internally prior to the auditors’ arrival. Having done the analytical analysis in advance will equip the organization with the answers the auditors will be seeking. This will increase the efficiency connected with the audit, along with providing the staff and other parties with fiduciary duties to the organization more knowledge about its financials.
Secondary Review: Another step that can be taken is to have someone in the organization look at the final financial analysis schedules that were internally prepared. As we know, mistakes happen. A second set of eyes to review the final work product prior to sending it off to the auditors limits mistakes found in schedules, enhances efficiency, and decreases the time an auditor spends at your office.
Advance Preparation: All organizations know when their audits are coming and dread the audit request list. Rather than responding reactively, take a proactive attitude by preparing in advance. Then, respond to the audit request list as completely as possible – keeping the information in the same chronological order as requested.
Leaving a few unanswered requests can really slow down the auditors’ work. Not only does efficiency go out the window, but the final report date gets later and later. The quicker the auditors receive the information, the quicker they will get started. The more time an organization spends on preparing a “tight” package for the auditors, the less time the auditors need to spend on the audit. This equates to lower auditing fees and earlier delivery dates.
Everybody wins when the organization incorporates efficiency into its audit preparation.
Full Article: http://www.accountingweb.com/topic/accounting-auditing/educational-institution-and-nonprofit-audits-fast-approaching-june-30-fisc
Click here to read more on MKR CPAs & Advisors nonprofit accounting services.
by Pete McAllister | Accounting News, IRS, Tax, Uncategorized
Last year was a violent year across the country due of a flurry of hurricanes, floods, earthquakes, and other natural disasters. If insurance proceeds didn’t make your clients whole, they may be entitled to a modicum of tax relief on their 2011 returns. And homeowners who suffered damage in a government-designated disaster area may be in line for a quick tax refund.
The basic premise is that you can deduct unreimbursed casualty and theft losses in excess of 10 percent of adjusted gross income (AGI) after subtracting $100 per event. For simplicity, let’s use the example of a couple with an AGI of $100,000 in 2011. Suppose that a storm caused extensive damage to their house costing them $9,000 after insurance reimbursements. Also, the couple paid $2,000 out-of-pocket for repairs due to a car accident. Due to the limits, they can deduct $800 ? not that much, but better than nothing.
Under a unique tax rule, a loss in a federal disaster area this year can be deducted on the 2011 tax return you’re about to file for the client, instead of waiting to file the 2012 return next year. If you’ve already filed the 2011 return, file an amended return claiming the loss.
Note that damage caused by a taxpayer’s own negligence may be deductible as well as losses that occur, even though they could have been foreseen or prevented. Furthermore, losses aren’t necessarily limited to damages to the home. However, clients aren’t entitled to any tax relief for damage occurring over a long period of time, such as withered landscaping caused by a severe drought.
Theft losses are grouped with casualty losses for this purpose. Again, each event must be reduced by $100 before the 10-percent-of-AGI limit is applied.
Under a unique tax rule, a taxpayer may claim a loss suffered in a federal disaster area on the tax return for the year preceding the year in which the casualty actually occurred. This can provide some much-needed relief in a pinch. For example, suppose a client’s vacation home was destroyed in a wildfire in a federal disaster area earlier this year. The loss can be deducted on the 2011 tax return you’re about to file for the client instead of waiting to file the 2012 return next year. If you’ve already filed the 2011 return, file an amended return claiming the loss.
The tax law limits only apply to personal losses claimed by a taxpayer on Schedule A of an individual return. There is no AGI limit or $100-per-event reduction for losses to business property.
Full Article: http://www.accountingweb.com/topic/tax/tax-tip-how-do-you-spell-tax-relief-c-s-u-l-t-y-loss
by Pete McAllister | Accounting News, IRS, Tax, Uncategorized
The IRS has eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns, prompting relief from small business owners.
The new process, which was set to go into effect next year, would have mandated that companies explain the differences between numbers on 1099-K forms and their internal records. This rule was termed an “onerous and unnecessary extra step” by the National Federation of Independent Business (NFIB).
The NFIB explained the situation this way: “Section 6050W of the Internal Revenue Code, added by Section 3091 of the Housing and Economic Recovery Act of 2008, requires information returns (Form 1099-K) to be made regarding annual gross receipts reimbursements to settle merchant card transactions. Recently, the IRS added a Line 1a-e on business tax returns requiring business taxpayers to reconcile their actual gross receipts with the aggregate gross receipts amounts from Form 1099-K.”
The IRS announced it would not go forward with Line1a-e on business tax returns. The NFIB had protested the rule, saying that a company’s internal record of gross receipts would “rarely match” the amount payments processors report on 1099-K forms. That figure on the forms could include cash refunds, sales tax, tips, and other fees that merchants would not consider part of gross receipts, CFO magazine reported.
The IRS said in its letter to the NFIB, “There will be no reconciliation required on the 2012 form, nor do we intend to require reconciliation in future years.” The reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms.
“The many complications in our country’s tax code often put the small business owner at a disadvantage with government compliance,” NFIB CEO Dan Danner said in a statement. “For this reason, NFIB fought so hard to have this provision eliminated and we count this as a small, but important, step in the direction of simplifying the tax code overall.” Small businesses spend more than $74 per hour on meeting their tax compliance obligations, the NFIB says.
Lewis Taub, tax director at McGladrey & Pullen LLP, told CFO magazine that business groups might want to change their record keeping. Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant’s tax returns could trigger an audit.
Full Article: http://www.accountingweb.com/topic/tax/irs-ends-tax-rule-unpopular-small-businesses
by Pete McAllister | Accounting News, IRS, Tax, Uncategorized
Is the economy getting better or worse? Well, it depends on who you ask. Two recent polls show that Americans are beginning to feel a bit better about the economy, while CEOs are feeling gloomy.
For the first time in almost a year, more Americans are saying the economy is better (28 percent) than those who say it’s getting worse (23 percent), according to a CBS News/New York Times poll of 1,154 adults. Since October, the percentage of Americans who say the economy is getting better has increased 14 percentage points. Poll analysts say the increase in optimism may be related to the drop in the unemployment rate, combined with recent positive economic news. For example, jobless claims dropped, inflation has been trending lower, and global stocks have been gaining ground over the last few weeks.
Before this poll, the last time Americans had a net positive outlook on the economy was last February. They’re not exactly upbeat as a whole, however. Four out of five American say the economy is bad.
CEOs aren’t too pleased either. According to a new annual survey by PricewaterhouseCoopers, nearly half of 1,258 CEOs polled think the global economy will sink in the next year. Only 15 percent think it will improve.
The poll shows that while the global economy as a whole may not be inspiring confidence, CEOs are saying their own businesses should grow. In fact, CEOs are nearly three times more confident in their own company’s growth prospects than they are in the growth of the global economy.
“The optimism that had been building cautiously since 2008 has begun to recede,” said Dennis Nally, Chairman of PwC International Ltd., in a statement. “The ongoing debt crisis in the European Union, along with other lingering economic uncertainties, has deflated confidence in business growth around the world.” The biggest decline in confidence was in Western Europe. In the United States, CEOs are showing “measured optimism,” the survey says, with 60 percent planning to hire this year.
Full Article: http://www.accountingweb.com/topic/cfo/economy-americans-feeling-better-ceos-feeling-gloomy
by Pete McAllister | Accounting News, IRS, QuickBooks, Tax, Uncategorized
The Federal government once again is giving a FUTA Credit reduction for the following 20 states due to the individual states unpaid federal loan.
|
State
|
Credit Reduction
|
| Arkansas |
0.3%
|
| California |
0.3%
|
| Connecticut |
0.3%
|
| Florida |
0.3%
|
| Georgia |
0.3%
|
| Illinois |
0.3%
|
| Indiana |
0.6%
|
| Kentucky |
0.3%
|
| Michigan |
0.9%
|
| Minnesota |
0.3%
|
| Missouri |
0.3%
|
| North Carolina |
0.3%
|
| New Jersey |
0.3%
|
| Nevada |
0.3%
|
| New York |
0.3%
|
| Ohio |
0.3%
|
| Pennsylvania |
0.3%
|
| Rhode Island |
0.3%
|
| Virginia |
0.3%
|
| Wisconsin |
0.3%
|
This reduction means an overall increase in the FUTA taxes, retroactive to January 1, 2011. This tax will be due on the federal IRS form 940 by January 31, 2012.
