Transcript Essential Form 990 Considerations For Auditors Presentation

Essential Form 990
Considerations For Auditors
GAQC Member Conference Call
Presented by
Jane M. Searing and Vincent J. Stevens of
Clark Nuber P.S.
December 10, 2009
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Overview
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Intended for auditors
Essential matters to be aware of
Ways to gain efficiency through overlap with tax work
First major redesign in nearly 30 years
FAQ on Governance, Executive Compensation,
Foreign Activities, Related Organizations &
Attachments
 Sample Case Study Form 990, Sch A and O
 Draft of 2009 Form 990 – Now 12 pages!
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Three Guiding Principles
Transparency
Compliance
Burden Minimization
Accountability
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Revised Form 990
 Core Form
• 11 Pages (12 for 2009)
• Applies to all organizations filing the form
 16 Schedules
• A through O and R
• Only file if the organization meets certain
criteria
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Core Form 990 Structure
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Page 1 – Summary Schedule & Signature blocks
Page 2 – Description of Activities
Pages 3 & 4 – Questions for Add’l Sch
Page 5 – Compliance Questions
Page 6 – Governance/Policy/Disclosure
Page 7 & 8 – Compensation
Page 9 & 10 – Detail Rev & Exp
Page 11 – Balance Sheet
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Schedules
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A – Public Charities
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I – Domestic Grants
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B – Donations
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J – Compensation
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C – Political and Lobbying
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K – Bonds
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D – Financial
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L – Interested Persons
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E – Schools
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M – Non-cash
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F – Foreign
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N – Discontinued
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G – Events & Gaming
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O – Other
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H – Hospitals
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R – Related Orgs
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Fundamentals
 Materiality is an audit concept – Thresholds are for tax
• Gross receipts and asset thresholds determine which form is
filed (990/990EZ/990N)
• Each schedule has a threshold
• Questions within the form or schedule may have a threshold
 Three “flavors” of Form 990
• Public Charities – Form 990 (or variation above)
• Private Foundations – Form 990PF
• Both if UBTI – 990T
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Transition Relief (May File EZ)
Year
Gross Receipts
Total Assets
2008
(File in 2009)
>$25,000 &
< $1 Million
< $2.5 Million
2009
(File in 2010)
>$25,000 &
< $500,000
< $1.25 Million
2010 & Later
(File in 2011 &
Later)
> $50,000
< $200,000
< $500,000
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Fundamentals
 Generally no “consolidated” Form 990
• Affiliated organizations under a group exemption may file
consolidated
• Must deconsolidate financial information
• Deconsolidating entries inform Schedule R disclosures
• Part IV Q 12 Audit Question – Separate vs. Consolidated
 “Board Questionnaires”
• Reasonable efforts standard beginning in 2008
• May be helpful to auditor with related party transaction
disclosures
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Do Not Prepare In Order
1.
Page 1 header except Line G (gross revenue)
2.
Schedule R – Need to identify related orgs
3.
Identify T/D/O/KE for Part VII – Names only
4.
VIII – Revenue, IX – Expense, X Balance Sheet
5.
Back to page 1 Line G – we now have gross revenue
6.
Part III – program with revenue, expense and grants; Part V –
Compliance checklist; Part VII – Compensation; Part XI –
Financial statement reporting
7.
Schedule L – Transactions with interested persons (if required)
Needed to answer Part VI, line 1b – independent board
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Do Not Prepare In Order –
(continued)
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Complete Part VI – Governance, Policies, Disclosure
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Carry information forward to Part I
10.
Part IV – Determine additional schedules
11.
Complete applicable schedules based upon Part IV
12.
Complete additional disclosures/explanations on
Schedule O
13.
Complete Part II – Signature Block
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Form 990 In Preparation Order
 Header
• Form is for the year the tax year began
• Everything except Line G complete first
• Type of entity
• Year of formation
• State of legal domicile
 Line 6 Volunteers – Don’t forget Sch O
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Schedule R – Entities
 Identification of Disregarded entities, Taxable and Exempt
“Related Organizations” & Related and Unrelated Partnerships
 Threshold reduced to 5% of the organization’s activities in a joint
venture (Part VI)
 No threshold for reporting to 512(b)(13) transactions (interest,
rent, royalty, etc)
 Added check the box section to disclose type of transactions
 Part V >$50K Threshold (organization or transaction type?)
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Part VII – Compensation
 All current trustee, officer, director, and key employee
• For 990 purposes, top management official and top financial official
are officers
 5 Highest paid employees >$100K (including related
org)
• W-2 box 5, 1099 box 7, or actual amt paid
 Former T/D/O/KE/HCE > $100K comp (including related org)
 Former T/D > $10K as a former T/D (including related org)
 All on a calendar year basis even if fiscal year
organization
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Who is a Key Employee?
 Reportable compensation exceeds $150,000
and
 Manages a discrete segment or activity, or has
authority to control 10% or more of activities,
assets, income or expenses of the organization
 Within group of top 20 highest paid employees
Note: Even though not a Key Employee may still be a High 5
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Part IX – Functional Expenses
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Columns (B) thru (D): (c)(3) & (c)(4) only
Q3: separate reporting of foreign grants
Q11a – g: non-employee services
Q12 – 15, 18 & 23: Added common “other”
• Advertising/promotion
• Information technology
• Insurance
- Office exp
- Royalties
- Gov’t emp. travel
 UBI tax must be listed on line 24
 5% “misc” limit moved to face of form
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Part VIII – Statement of Revenue
 All revenue including contributions on one page
 Elimination of UBI and exempt codes
 Business code for exempt revenue
 Q8 & 9 $15K threshold for Sch G filing
 Memberships split by type
 Track certain revenue streams (Part III)
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Public Support
 Schedule A
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Splits two types of public support exempt organizations
Moves to normal method of accounting
Now on a 5 year (including current year) basis
Facts and circumstances on face of the form
Revenue from activity on face of the form
Added prior year support % to make “normally”
relevant
• Directs to try other method before PF status
determination
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Facts and Circumstances
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10% minimum public support
Continuous bona fide fundraising program
Diverse sources of support
Public board
Ongoing provision of services or facilities to the public
Member organizations have dues rates that make the
organization accessible to the public
 Activities of the organization have broad public appeal
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Part X – Balance Sheet
 Separates PRI from Program bldg, land,
equip, etc.
 Structured attachments/schedules
• Sch D provides detail in the aggregate
• Sch L for related party receivables and liabilities
 Pay attention to thresholds for Schedule D
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Schedule D
 Details previously only in footnotes to audited
financial statements
• Collections of art, historical treasures, etc.
• Endowments
• Book to tax reconciliation of net assets,
revenue and expenses
• Fin 48 Disclosures
• 2008 below Part X
• 2009 added as a separate line 2
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What is an Uncertain Tax Position?
 Whether the organization is still exempt from tax
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Revenue from related sources
Only “insubstantial” UBI
No political activity
No repeated violations of lobbying rules, or pattern of abusive
private inurement or private benefit transactions
• Aggressive allocation of expenses to offset UBI
 Organization’s public support is in facts and
circumstances
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FAS 109 Tax Accrual and Disclosure
 Review Form 990T from prior years
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NOL carry forwards
Passive investments creating federal or state UBTI
 Quick Calculation
1. Materiality level for the audit ($1M total $10K per)
2. This would be the amount of tax ($10K)
3. Working backwards to taxable income ( Approx.
$28K)
4. Assess if there is likely this amount of UBTI from all
sources
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Part III – Programs
 Activity change – Sch O
 Codes (do not use for 2008)
 3 Largest by expenses
 Report direct revenue from programs
 Exempt purpose achievements
 Still recommend illustrating with data
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Part V – Compliance
List of Yes/No questions: Highlights
 Q1 & 2: Reporting related to Form 1096,
Forms W-2G, Form W-3
 Q5b: Notified party to prohibited tax shelter
(Form 8886 Careful Review of Investment
K-1’s)
 Q7a – h: Expanded quid pro quo, non-cash
and potential donor abuse questions
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Part VII – Compensation
 Fiscal year organizations report compensation
based on calendar year that ends during the
reporting year
• e.g. FYE 6/30/09 org reports 2008 comp
 “Current” means served in that role at any
time during the reporting year
 “Former” means (5-year look-back)
• 1) not a current employee, 2) received $100K+, 3)
would be in current top 5
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Part XI – Financial Statements & Reporting
 Method of accounting moved from
header
 Compilation/review or audit? Changed
for 2009
 Audit (review/comp) committee?
 A-133 audit for federal funds
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Schedule L “Interested Persons”
 Transactions with “interested persons”
• Definitions varies by Part
 Replaces free-form attachments
• Schedule O for supplemental explanations
 Also includes non-loan transactions
• Excess benefit (listed property risk area)
• Grants
• Business transactions: reporting threshold of greater of
$10K or 1% of revenue
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Part VI – Governance - Independence
 Voting members on governing board on the
last day of the tax year
 Number of independent members (Also on
Part I Summary)
• Not an employee
• Independent contractor under $10K
• No reportable Schedule L transactions
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Part VI – Governance Relationships
 Clarification on family & business relationships
• Family member
• Business relationship
• Employee/Employer (direct or indirect)
• > $10K Business transaction – not ordinary course of business
• Common director, trustee, officer or 10% ownership of business or
investment (NOT NFP board positions)
• Note: Excludes privileged relationships.
• Describe in Schedule O (FAQ differs from instructions)
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Part VI – Auditor Considerations
 Q5 – Material diversion of assets
• Material = Amount exceeds lesser of
• $250K or
• 5% of gross receipts for the tax year or
• 5% of total year end assets
 Policies which may be addressed in management letter
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Whistleblower
Compensation review
Document retention
Public disclosure
Form 990 review process
Conflict of interest policy
Joint venture policy
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Other Policies to Consider
 Part XI – Audit Committee
 Sch D – Conservation easement policies and
procedures
 Sch F – Foreign grant monitoring and oversight
 Sch H – Hospitals
• Charity care policy
• Community benefit
• Debt collection policy
 Sch I – Domestic grant monitoring and oversight
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Other Policies to Consider
 Sch J – Payment or reimbursement of
specific expenses for individuals listed
on Part VII
 Sch K – Tax exempt bond policies and
procedures to ensure post issuance
compliance
 Sch M – Gift acceptance policy
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Summary
 Be aware of the which form is applicable
 Evaluate benefits of EZ in transition
 Track what is new information required
 Pay attention to increased thresholds
 Reasonable Efforts Standard
 Coordinate related party disclosures
 Action Items – policies and procedures
 Board education a MUST
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Thank You
Jane M. Searing, CPA
Clark Nuber P.S.
10900 NE 4th Street, Suite 1700
Bellevue, WA 98004
[email protected]
Vincent J. Stevens, CPA
Clark Nuber P.S.
10900 NE 4th Street, Suite 1700
Bellevue, WA 98004
[email protected]
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Questions ?????
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