The IRS recently issued Notice 2021-53, providing guidance on reporting qualified leave and sick wages to employees. Qualified sick and leave wages are those that are defined by the Families First Coronavirus Response Act (FFCRA), which was amended by the COVID-Related Tax Relief Act of 2020 and the American Rescue Plan Act of 2021

How are wages reported?

According to the notice, the wages must be reported to employees with their W-2. Employers can choose to place the wages either on Form W-2, Box 14, or by providing documentation delivered with the Form W-2. The notice provides sample language employers may use if providing a separate statement.

The IRS also noted that self-employed individuals can determine what, if any, sick and family leave wages are qualified for tax credits. This is a follow-up to Notice 2020-54 released in 2020 regarding reporting of qualified sick and family leave wages paid in 2020.

What are qualified wages?

The FFCRA defines qualified wages as those paid for sick or family leave related to COVID-19.

Qualified wages can be paid to employees who are:

1. Subject to state, local, or federal quarantine.
2. Advised by a healthcare provider to self-quarantine.
3. Experiencing COVID-19 symptoms and seeking a medical diagnosis.
4. Caring for someone who is self-quarantining in accordance to bullets 1 and 2 above.
5. Experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
6. Caring for a child or dependent whose school or place of care is closed or unavailable related to COVID-19.

What are the limits on wages paid?

The FFCRA allows for full-time employees to be paid up to 80 hours (two weeks) worth of paid leave for the reasons mentioned above and for part-time employees to receive paid wages for up to two weeks equal to their normal weekly scheduled hours.

The paid leave is extended to equal up to 12 weeks of leave at their normally scheduled work period hours for those providing care because of COVID-related childcare and school closures.

Read more on the FFCRA requirements here, or contact our team of experts to discuss how to determine which leave hours are qualified and how to track them for Form W-2 reporting purposes.

When disaster strikes a region, it often flips a switch in humanity, triggering their need to help in ways that everyday struggles don’t. We saw it with Hurricane Katrina years ago and again with Hurricane Ida this year. While nonprofits, businesses, and individuals alike wish to do something to help those affected, it’s important to be informed on how to best contribute, so they don’t fall victim to scams or tax problems down the road.

Temporarily shifting the nonprofit’s focus

If you’ve wondered whether you can temporarily shift your nonprofit’s focus to help with disaster relief, the answer is yes, but there are some limitations. When originally filing for tax-exempt status with the IRS, your organization provided the purpose or focus of your nonprofit.

Disaster relief efforts allow for some leeway in that purpose. However, you’ll want to protect your organization against accusations of violating the prohibition for private benefit in the tax code and disclose any change in focus on the annual Form 990 filing. Keep very thorough records that include:

• Dates of assistance
• Assistance provided
• Purpose of the assistance
• Name and address of recipients
• How recipient(s) was selected for assistance
• Who is selecting the individuals receiving assistance
• Any personal relationships between members of your nonprofit and recipients.

If you take these precautions and consult with your trusted tax advisor beforehand, providing disaster relief instead of your core organizational focus can be achieved.

Struggling nonprofits and partners

Nonprofits and their partners are not immune to hard times and could be struggling through a natural disaster while they’re trying to provide assistance. If your nonprofit finds some of your partnership organizations have been affected, there is still a way to help.

For example, there are often preapproved grants at the local level that help charitable nonprofits provide disaster relief. As part of your disaster recovery planning, make sure to review what grant options are available in your area. Doing so will allow you to apply for assistance more quickly if disaster strikes.

Other considerations nonprofits should be aware of

When nonprofits and individuals jump into action, they can hit several roadblocks along the way. While collecting and donating food, clothing, and supplies seems like an easy way to help, it can be met with logistical problems. First, collections take time. Second, transportation of these items is often expensive and often waylaid by restrictions accessing affected areas until it’s safe to do so.

Monetary donations to nonprofit organizations with their boots already on the ground can be implemented more quickly, and they’re often more aware of exactly what the community they’re serving needs. Reach out to nonprofits in the area to discuss how your organization can help them help the community.

There may be times when those who are impacted cannot communicate with your nonprofit team due to language barriers. Having team members who speak secondary languages can help overcome those barriers to provide assistance for those community members. Another option would be contracting with a translating service that offers remote capabilities.

In addition, the IRS often announces disaster relief for individuals and businesses who may be impacted in the form of extending deadlines for tax filings. Keep an eye out for those announcements, should you need them.

How to advise individuals looking to help

There are several resources available to consumers and businesses alike to help them determine if the organization they’re donating to is legitimate. Typically, nonprofits working on disaster relief efforts are registered on the Center for Disaster Philanthropy. In addition, they can use the IRS Tax-Exempt Organization Search tool to confirm their donations are going to a registered nonprofit.

Our team of professionals is here to help you navigate how to shift to disaster relief efforts. Give us a call with any questions you have.

Back to school!! Even though the Pandemic is not fully behind us the future is still ahead and we must all respond accordingly. For our children and those working to educate them it means a tenuous return to the classroom. For the past several months we have learned much of what the schools have been doing to ready their buildings and staff for being back in the classroom full time. With the increased need to add physical barriers, intense cleaning, and additional technology, our school clients have been working tirelessly to be as prepared as possible. Much of the funding for these necessities has been with Federal dollars, posing additional challenges to requirements for how the money should be spent. We have been helping our government, school, and nonprofit clients navigate the complexities of accounting for Federal funding. We are now entering the time when audits will determine compliance in accordance with the most up to date regulations. In preparation for the fiscal year 20-21 audit cycles, we once again held our annual school conference. Our Partners met virtually with our clients and shared important accounting and auditing updates to ensure there would be no “surprises” when audit season arrived. In a period of time when change is the normal and fear of the unknown is more prevalent than ever, we take seriously our role in making sure our clients are up to date. Our Partners have also been very busy over the past few months expanding their reach to other groups. Jeff Kowalczyk and Edmund Fosu-Laryea were both featured speakers at the PICPA annual school conference. Jeff also presented at PASBO and for the PICPA local government/nonprofit conferences. Our Partner Steve Kutsuflakis has been working closely with a Delaware private school where he serves on the Investment committee – helping the organization make critical decisions regarding funding and investment of funds while ensuring the school remains on track to meet the needs of their student population. I have been serving on the Covid grants review committee in conjunction with the Delaware Community Foundation. It is encouraging to witness all of the work being accomplished through mission driven individuals and organizations. It serves as a continued reminder that we will collectively move beyond the pandemic. We are busy planning two important events for this fall. Our 4th annual nonprofit story telling event is scheduled for November 2nd. We have a tremendous line-up for this popular event. We will be virtual once again this year but are hopeful that we will return in person in 2022. We have a diverse group of professionals lined up including representatives from Your Part-time Controller, Young, Conaway, Stargatt & Taylor, WSFS, AB Bernstein and Delaware Business Times. Our second event will be a webinar for the benefit of the local government community. We are working to put together an agenda that will bring current important information to this all-important sector of our communities. We are also excited to announce that after more than 40 years in the same location our offices are moving! We are scheduled to be in our new offices by the end of the year and we are looking forward to our new open space designed to be state of the art and welcoming. As we work on the design and amenities, we have our staff as well as our clients in mind. We will be sharing more as our move gets closer. In the meantime, we encourage our clients – existing and potential – to reach out to us. We are excited to be your trusted advisors and to do all that we can to assist as you navigate your financial obstacles.

In many parts of the country, nonprofit organizations are resuming normal operations and bringing staff back into the office. The logistical hurdles of making this happen aren’t the only thing nonprofits should focus on. Shifting how your organization operates is the best time to review potential risks for your organization. Below, we’ll discuss what this could look like for your nonprofit.

Why is reviewing policies and procedures important?

At the beginning of the pandemic, many businesses were shut down or forced to operate remotely as the world was faced with unprecedented wide-spread health concerns. Because of this, many nonprofits made adjustments on the fly so their employees and volunteers could continue to work, but at a remote location. What may have worked in a pinch may not be what’s best for your organization a year or more later.

In addition, all organizations, nonprofits included, are continuously evolving as new technology is launched or new problems emerge. New employees can find efficiencies that were potentially overlooked before because they’re coming with a fresh view. All of these are why regular review of policies, procedures, operations, and contracts is an important step for nonprofit organizations.

Items to consider during the nonprofit review:

Below are some tasks to get your started on your risk management review of your nonprofit’s operations. Consider this a starting point and add anything else that could be important to your organization.

• Review contracts and agreements. Were they negotiated pre-pandemic or early pandemic? Consider if the contract works for your organizational needs and how you operate. If not, consider renegotiating. Some contracts to consider including fundraising agreements, property or equipment leases, and even insurance policies.
• Check over vendors and partners. Look at donor management software, board management software, and outsourced duties like human resources, payroll, accounting, administration, marketing, and IT. If these are no longer meeting your needs, talk about changing the contract or searching for new partnerships.
• Establish return to work policies with human resources. Have a plan in place whether you’re going to ask team members to work full-time from the office, split time between office and home, or allow more flexibility in either working remote as needed or even 100 percent of the time. Also consider what liabilities you are taking on bringing the team back into the office and what your safety protocols look like.
• Keep an eye on relief funding requirements. If your nonprofit accepted relief funds, like many others have, make sure you are aware of any stipulations attached and whether your nonprofit organization has met those rules or not.
• Inspect internal policies. Has your nonprofit allowed internal policies or organizational bylaws slide during the pandemic? The most common concerns across the industry have been conflicts of interest and segregation of duties. It’s possible the policies need a refresh to work for the organization, or employee training needs to be completed on existing policies. If your Board decides to start enforcing rules you may have been lax about over the last eighteen months, consider giving employees a grace period before they’re expected to fully adhere to the written rules.

Taking a risk management approach to these reviews can help your nonprofit organization by limiting potential fraud, lawsuits, and other risks with a monetary penalty. Our team is available to help you review any financial concerns or to conduct financial audits. Give us a call to discuss your needs today.

Who does not love a snowy day? When we were growing up and in school a snow day meant staying home, sledding, hot cocoa, and no homework. Five years ago, it meant major disruption to our schedules and workflows and the resulting crush to make up for time lost at client offices to ensure that work got completed to meet deadlines. This time last year it meant that staff would be able to work from home with little disruption as long as they had thought ahead in order to obtain information from clients. This year our physical office actually closed on the snow day with everyone – even our administrative staff – working effectively at home. A snow day means little change to the majority of our staff who, since last March, have fine tuned the art of being able to work remotely. We still “see” one another – but in a virtual manner with the use of technology. The only difference today is a pretty scenery outside with no hassle to shovel ourselves out.

Just like snow days – so much has changed for everyone. Over the past nine months we have experienced numerous firsts:

1. A remote work environment
2. Interviewing potential new hires on Zoom
3. On-boarding staff remotely
4. Attending board meetings through technology
5. Establishing work groups via Microsoft teams
6. Implementing electronic signature capabilities
7. Moving administrative functions into a paperless environment
8. Hosting virtual happy hours
9. Our first virtual holiday party
10. Hosting virtual conferences for schools and nonprofits
11. Presenting at conferences via technology

Some of our firsts have been exciting and new. Others were a little more challenging, but we are so fortunate to have a team of dedicated and highly skilled individuals who did not give in or give up. We also need to pause to give a huge shout out to our clients. Everyone knows that for many people during the pandemic there were lost jobs, decreased sales, unemployment. Those are all real issues. For our clients – the nonprofits and schools and governments – there was never a time when they were not needed more. We have been witness to the dedication and hard work of those that needed to step up. The nonprofit sector has experienced lost revenue from cancelled fundraisers while the need for services has significantly increased. Our public schools have struggled to protect faculty and children while continuing to provide learning opportunities. Our governments had to continue to work to provide public safety, utilities, roads, and other vital services. We are more grateful than ever to be a niche-based CPA firm specializing in services to these essential workers.

We are hopeful that the year ahead will be a time to put the pandemic in the rear-view mirror. We will be excited to enjoy some of the things that had to be modified because of Covid-19 (like dropping into a client office to say Hi). At the same time, we are energized at what we have learned about each other, our clients, and our firm and we are confident that we will be better for it.

Be on the lookout for more virtual training opportunities, continued great service, and a trusted advisor to be here to meet your needs.

Pamela W. Baker, CPA, CGFM

Exciting News! BTCPA Recently Welcomed A New Partner
Dependability, integrity, honesty, and commitment are a few of the words our team uses to describe Edmund. Though new as a Partner, Edmund has been with BTCPA since 2009 when he joined after graduating from Goldey-Beacom College with a BS in Accounting in 2008. Edmund continued on to gain a Master’s degree in Business Administration, and became CPA licensed in the State of Delaware.

Edmund quickly became an important team member on several audit engagements, but it was his aptitude to understand the complexities of public housing authorities that soon differentiated him. Over the past eleven years, Edmund has been instrumental in our staff training and mentoring programs. His leadership style is very welcoming to others and he demonstrates on a regular basis that he can balance the needs of clients, the firm, and the quality of our work.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.

How Artificial Intelligence (AI) Will Improve The Audit Process 

How artificial intelligence (AI) will improve the audit process was the subject of a recent article in the Journal of Accountancy.  Our team member, Alex Frank, CPA, offers this summary of the article, and what it means for the future of our business and the way we will be able to use AI to positively impact our clients:

Summary of Article

• AI can and will remove the need for audit sampling
• Using Optical character recognition (OCR) the AI can quickly scan large documents (such as contracts, leases, debt agreements) and extract relevant terms or phrases OR the AI can flag an area of the contract that needs further examination
• At first the AI will make many mistakes that the auditor will have to correct manually, but the AI will learn from those mistakes and make them less and less until there are little to no errors made, thereby improving accuracy and efficiency
• The AI can also ask the auditor “what should I look for” and the auditor can set specific parameters to look for
• AI can sort transactions based on the transactions risk based on knowledge obtained from client information and firm risk analysis
  • Allows the auditor to focus professional skepticism on a specific area as opposed to trying to apply it to all areas at an equal level
• The AI can increase interest in auditing samples
  • Sampling will have a reason for why transactions are selected as opposed to haphazard or random sampling that has no real risk included in the sampling process.
  • The AI will select high risk transactions as a sample and will help teach auditors what is considered high risk and allow them to focus more time to apply judgement to analyze the data in front of them
• As the AI continues to learn, it will begin to identify patterns and therefore be able to flag any anomalies in the data to help focus the auditor’s attention to riskier areas
• AI will eventually lead to validation of 100% of client transactions in an almost real time basis
• Auditors will be able to implement their own AI into a client system
  • The AI will analyze every transaction and journal entry and determine if processes are followed and will flag any transactions made erroneously or incorrectly or transactions that are risky in nature.
  • The AI will flag these transactions to alert the auditor as to what transactions need to be review as the transaction happens
  • This will create a shift from auditing as of the balance sheet date (historical data) to a form of continuous assurance that will take place as the transactions occur

How AI can apply to BTCPA

• BTCPA has begun to implement some forms of technology (data analytics) in several of our audit processes.
  • This is a good first step into the world of automating the audit process but is several steps away from AI
• AI has potential to help optimize some of our more uniform clients
  • Single audits (nonprofits and governments)
    • Search for compliance across entire populations of data
  • Delaware Charter Schools all utilize the same chart of accounts and all data is maintained in the same accounting system
  • Pennsylvania School Districts
    • they all share a common chart of accounts, so AI could analyze them all the same way
  • Small government clients
    • Share a common chart of accounts and all have relatively similar operational costs and revenues
  • Challenges to navigate:
    • Finding an AI technology that we can use and is easier to use from a staff perspective
      • Or learning how to create one
    • Finding a best practice for how to implement the technology
    • Training the AI to fit our client base (time consuming)
    • How would the implementation be viewed from a peer review standpoint?

What the Future looks like – and Why we remain committed to learning more

• Allows for 100% transaction review of clients
• Can eliminate the “routine-ness” of the annual audit process and allow for increased risk analysis
  • The annual audit approach would be able to tailor an approach on a per client basis and create a more meaningful analysis of the client data. Therefore, giving the client a more meaningful report more tailored to their activity during the year.
• AI will eliminate the need to scan through checks or GL detail for samples or transaction details.
  • Instead AI will be able to tell you exactly what transactions we are testing or need to be examined more closely without the monotony.
  • The samples will have MEANING now
  • No more haphazard or random sampling
• Since AI will automate the sampling process we can spend more time examining data and applying professional skepticism to the most important areas of the engagement.
• AI will be able to compile client data into a uniform “structure” which will allow us to easily drill down into data and easily determine:
  • Transaction amounts
    • Exact accounts effected by a JE with out having to scan through a GL
  • Quickly determine if the client has a lease we do not have documented
  • Determine if the client has incorrectly coded a revenue or expense
  • Determine where issues exist that would cause the clients equity to not agree to the PY FS
    • No more comparing the CY with the PY and figuring out the difference manually. The AI would be able to compare information it already has on the client, find any discrepancies on its own and notify the auditor what needs to be fixed
  • If AI is implemented at the client and operates in the background, we would essentially eliminate “traditional audits”
    • Audits would not be done after year end examining “old” data
    • Instead, audits would be conducted by the AI on a continuous basis
      • Whenever there is a transaction that the AI identifies as an issue, it will notify the auditors and they would be able to test the transactions as they occur
    • With the impending implementation of Blockchain, AI will become a reality sooner rather than later.
      • AI is already prevalent in our everyday live whether it be Siri, Alexa, or a YouTube recommended video, AI is ever growing and evolving.
    • AI will seem scary at first, but once implemented the AI will streamline almost every step of the audit process
    • The future of Auditing looks different than anything we have ever seen, but it also looks much more efficient, and will allow for a more tailored audit experience for our clients.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.

IRS issues guidance on payroll tax deferral from presidential executive order

The IRS issues guidance on payroll tax deferral from presidential executive order, Employers can now defer payroll tax withholding on employee compensation for the last four months of 2020 and then withhold the deferred amounts in the first four months of 2021, confirms a recent update from the IRS. President Trump’s memorandum on Aug. 8 gave employers the ability to defer payroll taxes for employees affected by the COVID-19 pandemic to provide financial relief.

The guidance directs that employers can defer the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3102(a) and Railroad Retirement Act Tier 1 under Sec. 3201 from employee wages from Sept. 1 to Dec. 31, 2020.

Employers must then withhold and pay the deferred taxes from wages and compensation during the period from Jan. 1, 2021, and April 30, 2021, with interest, penalties, and additions to tax to begin accruing starting May 1, 2021. Included in the notice is a line that indicates, if necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee,” such as if an employee leaves the company before the end of April 2021, but does not provide details on what that entails.

Employees with pretax wages or compensation during any biweekly pay period totaling less than $4,000 qualify for the deferral. Amounts normally excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included in calculating the applicable wages. The determination of applicable wages should be made on a period-by-period basis.

Organizations may choose whether to enact the payroll tax deferral. We are closely monitoring updates related this and other presidential executive orders and will communicate if more information becomes available. For questions or assistance with this payroll tax deferral, contact us.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.