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The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.

TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.

The use of “data-driven decision making” for audit selection is one iStock_000010827673_Smallof the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.

The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:

Exemption – issues such as non-exempt purpose activity and private inurement.

Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.

Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.

International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.

Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.

The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.

The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.

Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization

For more information please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England, our blend of accounting expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with state and federal grant requirements, charitable giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura J. Kenney, CPA
Tax Director

View Laura’s Bio Here >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Introducing MassTaxConnect!

123shutterstock_90695362On November 30, 2015, the Massachusetts Department of Revenue (DOR) will replace the existing WebFile for business system with the new MassTaxConnect system. All entities that file and pay taxes to the DOR electronically will now be utilizing the new online system. Tax filings and payments include unrelated business income tax, sales tax, meals tax, withholding tax and more, so this change will impact a wide variety of organizations in the Commonwealth.

Some of the new features that promise to make the tax filing and paying experience more efficient include:

  • Send and receive secure e-messages
  • View errors prior to submission
  • File early and schedule payments online
  • Assign third-party access electronically
  • 24/7 access

Click here for more information and to get an advance look at the new system.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

What have you done for your employee handbook lately?

In November 2014, Massachusetts citizens voted to entitle Massachusetts workers to earn and use paid sick time. In April 2015, the Attorney General released proposed regulations in order to help businesses comply with the new law. All employers are impacted by the law; however, only employers with 11 or more employees (not full-time equivalents (FTE’s)) during the calendar year are required to provide paid sick time to any employee whose primary workplace is located in Massachusetts, including part-time, full-time, seasonal or temporary employees. The new law takes effect on July 1, 2015.

According to a summary and the draft regulations published by the Attorney General’s office, some of the highlights of the new law are as follows:

• Massachusetts workers whose employers have 11 or more employees for at least 20 weeks during either the current or preceding calendar year (whether consecutive or not) can earn and use up to 40 hours of paid sick time per calendar year

• For employers with less than 11 employees for at least 16 weeks during either the current or preceding calendar year, workers can earn and use unpaid sick time

• The use of earned sick time can be used for:

o Caring for a physical or mental illness, injury or medical condition affecting the employee, spouse, child, parent or parent of a spouse

o Attending routine medical appointments for the employee, spouse, child, parent or parent of spouse

o Addressing the effects of domestic violence on the employee or employee’s dependent child

• Employees will earn at least one hour of sick time for every 30 hours worked

• Hours will begin to accrue on the date of hire, or July 1, 2015 (whichever is later) and employees can begin to use the sick time 90 days after that date (July 1, 2015 or date of hire, whichever is later).

• Up to 40 hours of earned sick time can be carried over to the next calendar year, but the employer is not required to provide more than 40 hours of paid sick time in one calendar year

• Earned sick time is not required to be paid out upon termination from employment

• Employers cannot require workers to make up the used sick time

• Other provisions exist within the law regarding requirements to provide notice, certification, documentation, retaliation, confidentiality, breaks in service, exempt employees and other responsibilities on the part of the employer and employee.

The above highlights are just a sample of what is in the draft regulations. All employers should be reviewing their employee handbooks containing human resource and PTO policies to ensure that their policies are up-to-date and compliant with the new law. An experienced employment attorney is recommended to ensure that circumstances specific to each organization are considered when reviewing for compliance.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Best Practices to Keeping Your Board of Directors Engaged

A strong, engaged board of directors is crucial to the success of any non-profit organization, no matter the size, mission or vision of that organization. Ensuring the board is engaged should be a focal point for the leadership of the organization and the board itself. It is not enough to have a full slate of board members. Each of those board members should have a clear role within the organization’s board of directors. Following are best practices in order to keep the board engaged and facilitate the fulfillment of the organization’s mission:

  1. Keep the focus on the organization’s mission. The organization’s culture should assist with all employees and board members in carrying out the mission of the organization. The mission should be at the center of all decisions made by the board and the organization. Board members and potential board members should understand the mission and continually review the activities of the organization to ensure they are in line with the mission of the organization.

  2. Continuously monitor the organization’s strategic plan, including the goals set by the strategic plan. The organization’s strategic plan is not something to file drawer or put on a bookshelf. At least twice a year a significant portion of the board meeting should be devoted to the review of the strategic plan. In addition, the strategic plan should be updated periodically, especially if significant events take place, such as staffing changes or program changes.

  3. Review the needs of the board continuously. How often does someone say to their fellow board members during a meeting, “I wish we had someone who could do that for us.” I’m sure every board has had this conversation. The board should continuously review the skills of the existing board members and identify the holes they may need to fill. For example, if the organization’s social media presence is not quite up to par, the board should seek out a potential board member that can help with social media, or someone who can guide the organization’s staff members, depending on the size of the organization.

  4. Create a clear committee structure. Committees are particularly important to small organizations that rely on board participation and volunteers. Committees are equally important to large organizations that require governance over several different programs and activities. The board should ensure all board members are part of a committee and that each committee has clear marching orders and tasks to complete. This helps board members understand their roles within the organization and keeps them engaged.

  5. Plan for the future. Succession planning for non-profit boards is important. Current leadership must work with their fellow board members to identify the future leadership of the board. This is extremely important in small organizations that are managed by the board of directors or volunteer organizations where the board members take on staff responsibilities. The current leadership should look for opportunities for those future leaders to take on responsibilities within the organization to allow them to grow their skills. They also need to keep an open dialogue with fellow board members regarding the future of the board’s leadership.

  6. Communicate. Keeping the board engaged requires a lot of communication. It is not enough anymore to fill a seat at a monthly board meeting and vote on the issues put forth by the chairperson. Decisions constantly need to be made, and committees and subcommittees are constantly working to accomplish the goals of the organization. The leadership of the organization, the board and the committees must continuously communicate with each other in order to make timely, informed decisions.

There is a lot of responsibility that comes with participating on the board of directors for an organization. The easier the organization and the current board leadership makes getting involved in the organization, the more talented future board leaders they will attract. Also, the clearer and more structured the board is, through use of committees and communications from leadership, the more engaged the board members will be. This will result in a more productive and effective board for the organization, allowing for the organization’s success in fulfilling their mission.

Jessie Kanter, CPA, is a manager in the firm’s Accounting and Auditing Department with 15 years of public accounting experience. She has provided audit services to a variety of clients, including non-profit organizations. Jessie’s focus is in quality control of financial statement audits in which she provides consulting on complex technical accounting matters and internal support and review for the firm.

Communication Between the Business Office and The Board

As a member of the business or finance office, you hold some of the most sensitive and important information regarding the operation of your non-profit.  Budgets, cash flows, obligations, covenants, financials, audit, internal controls, legal and regulatory matters….all of these can have a tremendous impact on how the individuals running the program activities accomplish their goals. Matters surrounding finance can provide stepping stones or significantly hinder the progress of the organization’s mission.

The finance office is charged with providing the most useful and pertinent information to the Board, which will enable them to fulfill their responsibilities of providing guidance and decision-making, most importantly surrounding fiscal matters.

Nonprofit Board meetingAs the CFO, Controller or Business Manager, have you thought about what you should be providing to the Board and in what format? Boards typically meet for an hour or two once a month or quarter. Given the limited time frame, this should be the time that they discuss critical matters, review accurate and timely financial reports and vote on high-level governance matters. Providing a great deal of extraneous data can muddle the waters and prevent them from understanding the true issues and being able to make timely resolutions. Here are a few areas to focus on which will help to ensure the Board has the tools to be most effective in fulfilling their responsibilities.

Organizational, legal and regulatory matters: 

First and foremost, the Board should be well informed of any and all potential risks that arise in these areas. Has the organization consulted an attorney for any claims or potential litigation? Are there new financial, reporting or other regulatory matters that are coming down the pike that may affect the organization? Significant accounting or audit standards, personnel matters, 990 reporting, communications from regulators, filing complications, due dates, donor matters, etc. can all have an impact on the organization and its ability to continue with its mission.

Finances: 
The Business Office should be preparing timely, summarized financial reports that are relevant to the Board’s responsibilities. Reports should be formatted in a way that does not confuse, overwhelm or complicate discussions surrounding finance.  Discuss with the Treasurer of the Board the most effective method of providing these reports. Have the Treasurer review the reports, and other more detailed information prior to submission to the Board, which may help to identify any questions or concerns ahead of time. It is probably helpful if the Board can review current month/quarter budget vs. actual reports as well as year-to-date compared to budget and prior years. A concise analysis of the significant activities of that period, such as large new contributions, significant past due balances or write offs and reserves, unanticipated expenses or capital purchases as well as high level departmental budget to actual comparison. Most importantly, having the most relevant and timely reporting available will enable the Board to make decisions on a timely basis, and avoid surprises at the end of the year.

Conflict of Interest and Related Party Activity: 
All Board members should be reading and signing a conflict of interest (COI) policy each year. All possible related parties and transactions should be disclosed in full, and any interested person should be excused from those discussions and determinations.  One misconception is that it is undesirable to have any related party activity, such as a Board Member who can provide professional services to an organization. Often times, a Board member can give back to an organization by providing expertise that the Organization would otherwise have to incur significant expenses for. This is ok, as long as regulation allows for it (for example, a financial statement audit must be conducted by an Independent Auditor), and provided that the Organization follows its COI policies surrounding disclosing, understanding and voting on these relationships and the transactions.  The Business Office liaison is often times the individual who ensures that the Board has all of the relevant information, that these matters get on the agenda and that the process adheres to approved policy.

Form 990: 
The Business Office is typically the department that ensures that the Form 990 is prepared timely and accurately. One section of the 990 includes several questions surrounding governance and policy. It goes without saying that the Board should be well aware of these policies at the time that they sign on to be a Board member. However, one question asks whether the Board has received a full copy of the 990 (as filed), and what the process is for the review of the 990. These questions are really aimed at shining a light on the Organization’s responsibility for ensuring that the 990 contains accurate information. Typically, the auditor/CPA is preparing the form, however there is so much more than quantitative data on the 990 as compared to any other IRS tax form. The qualitative data must come from the leadership of the Organization.  Each Board member should be aware of what is contained in the filing, and be expected to understand the questions and implications of the Organization’s responses.

Timeliness:
As the key financial officer of a non-profit, the CFO or Business Manager should aim to provide the financial reports to the Board members in advance of their meeting dates. Having the appropriate amount of time to carefully review reports, budgets, forecasts and analysis will enable the Board members to prepare thoughtful questions and commentary on the information given.  This will set the stage for a more meaningful discussion and proposed responses, ultimately benefitting the mission of the Organization.

 

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Using Form 990 for Organizational Improvements

While many non-profit organizations may be exempt from income taxes, they are not exempt from the federal government’s recordkeeping requirements. Among those requirements are tracking revenues and expenses and reporting those items to the Internal Revenue Service (IRS) by way of Form 990. The requirement applies to organizations as small as the local Little League affiliate or as large as a major hospital.

While organizations file Form 990 because it is a requirement to maintain their exempt status, many may not realize that there are many other ways the Form 990 can be used to benefit your non-profit organization.

The Form 990 not only serves public purposes, it can serve organizational purposes as well, allowing board members, donors and others access to information about an organization’s financial management, operations and governance. It is a tool—a research document—for understanding your organization, its strengths and its weaknesses.

Read the full article to learn more >>

5 Areas to Consider When Planning a Fundraising Event

Planning a fundraising event such as a gala or golf tournament can be a daunting task, but with a little direction and planning, your event is sure to not only be financially rewarding for your non-profit but also a memorable experience for the organization and the donors. As you begin thinking about what your event will entail, consider these five steps:

Mission – Identify what the primary purpose of the event is. Is it to raise much needed funds for a new building, to fund a new and exciting program or maybe just for general operating support?  Ensure that all of your materials for the event are consistent and concise with what the message and theme of the event is meant to be.  The clearer your message, the clearer the reporting and accounting treatment will be.

Timeline – Work backwards from the time of the event, to determine the proper timing for all of the planning that goes into an event. It generally takes several months, up to a year, to properly plan for an event, depending on how elaborate it is.

Delegate – A great event has great teams behind them. Ensure that all tasks are divided among the various needs, such as marketing, vendor relationships, expense budget, entertainment and food, staffing, ticket sales, social media communication, cash management and credit card processing, data entry/tracking, etc. This will ensure that all tasks are being addressed timely and by the right people.  Importantly, to reduce the risk to your organization, make sure there is one committee or person assigned to gathering information regarding regulatory items, such as permits for a raffle, police detail, credit card processing or other town regulation.

Communicate – This is likely the most critical item contributing to the success of your event.  Make sure to communicate your mission and financial goal of the event well in advance and in multiple mediums to your membership, donors, stakeholders and community. Using email, social media, mail, phone and maybe even texts all can help reach as many varied prospective attendees as possible.  Also, communicate multiple times to ensure your invitees respond as early as possible to help you with securing a solid headcount for the event in advance.  Also, remember the tip from the first bullet above, be consistent and clear with your message and purpose of the event, to ease the burden later when trying to classify the revenue and expenses from the event.  Don’t forget to report back to supporters of the event regarding how the event measured against the goals and what will be done with the funds raised.

Tracking & Reporting – You should have a database of all of your attendees, with number of tickets sold and price, additional donations given, sponsorships, etc. Also, keep a comprehensive list of all non-cash items donated for auctions or raffles. IRS reporting requires you to break out the fair value of the items donated, then separately state the amount those donated items were “purchased” at auction for. You should also be able to report the type and number of items donated. Finally, if you have different appeals at your event, ensure that you are tracking these separately, as accounting and reporting treatment will vary based on the purpose of the gifts given. When in doubt, call your auditor/990 preparer to find out what information is needed to be tracked separately so you know ahead of time.

 

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Internal Control Checklist for Small Non-Profits: 5 Critical Steps

Frauds in NonprofitsEstablish a strong control environment:  Setting a tone at the top of the organization can go a long way in deterring fraud.  Having an effective control environment will naturally foster strong controls and facilitate employees following protocol.  Ideas:  create written procedures and assign responsibilities/authorization power, use budgets and deadlines and hold employees accountable and, most importantly, involve the Board or other governing body by providing financial reports and expect them to stay engaged and ask questions.

Create and maintain segregation of duties:  This is essential.  History shows that most instances of fraud occur because the person had an opportunity, usually meaning there was no one else involved in certain functions and thus no one would notice, especially in small incremental amounts.  In a small office, this can certainly be a challenge; however there are several things you can do between two or three people that will create those checks and balances.  Ideas:  a) when dealing with cash receipts, have two people count, double check and record cash; b) for purchases, separate individuals should be approving purchases, generating checks, recording expenses in the general ledger and reviewing and signing checks (and avoid using a signature stamp); c) also be sure to consider authorization rights with your online banking and discuss available controls with your bank, such as email notifications or authorization codes for payments made online.

Physical Controls:  Simple things such as keeping offices locked, check stock locked in a file cabinet (one or two people keep the key) and passwords on computers and for software will help keep your assets safe.

Review and reconcile the bank statement:  Ideally, someone other than the person writing checks should receive the unopened bank statement and prepare a reconciliation of bank activity to general ledger activity, in which case discrepancies can be detected timely.  The bank statement should be reviewed by someone outside the cash function.  In a very small office, it may be necessary to have the treasurer or other board member perform this review.  Pay particular attention to cancelled checks and withdrawals, noting payee, amount and frequency for reasonableness.  A person committing fraud may record a payment to a known vendor in the system or on a check stub, while the actual check is made payable to someone else.

Payroll:  Look at weekly payroll reports from the payroll company to make sure employees and pay rates are within your expectations.  It is also important to review year-to-date figures by employee (summarized on one report), which will include all payments, including bonuses, corrections, direct deposits, etc.  Payroll fraud often occurs in separately processed payroll, which can be excluded from your weekly payroll reports, but would be reflected in year-to-date totals.  Try to discuss available controls with the payroll company. Many will offer emails to be sent directly to a designated individual for notification of all processed payroll, pay rate changes, added and terminated employees.  If this were the case, it would be difficult for any erroneous information to go undetected, especially in a small office environment.

 

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.