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Podcast: E-filing Now Mandatory for Municipal Authority and Authority Nonprofit Reports

The Pennsylvania Department of Community and Economic Development (DCED) now requires municipal authorities and authority nonprofits to file their annual reports online. Karen O’Neill, local government policy specialist with the DCED, provides more details on the entities this impacts and e-file instructions.
Listen as Pam Baker, CPA, managing partner of Barbacane, Thornton & Company, provides further perspective on this big change, and highlights the benefits and challenges for CPAs who work with these authorities. Click here for the podcast.
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What Tax Change Proposals Could Mean for Annual Giving

What Tax Change Proposals Could Mean for Annual Giving
Whatby Jeffrey A. Kowalczyk, CPA, CFE, CGAP

Since its debut nearly a century ago, the charitable deduction has fluctuated with ever-changing tax plans. Now, in the year of its 100th anniversary, the deduction is facing yet another change. An analysis by the nonpartisan Tax Policy Center estimates that one proposed tax plan will reduce charitable giving by as much as nine percent, or $17 billion dollars. While these are just projections, nonprofits should consider how changes in the tax law may impact charitable giving and their organizations. Here are two major threats charitable deductions might face under such a plan.

1. Income Tax Changes

While the proposed plan does not eliminate charitable deductions, it will limit the tax incentive for charitable contributions. Simply put, the proposed plan will reduce the tax bracket. The table below displays what a $100 donation looks like under the current plan versus the proposed plan.

 
Donation
Amount
Actual
Donation
Amount
Proposed Plan
33 percent bracket
$100 $67
Current Plan
39 percent bracket
$100 $61

Currently, 25 percent of people who file an income tax return make charitable deductions. Should the new plan pass, less than five percent of people who file an income tax return will be able to make charitable deductions. With the elimination of the 39 percent tax bracket, nonprofits fear that the reduction in after-tax benefits will make donating less appealing.

2. Estate Tax Repeal

Under the current plan, there is a 40 percent tax on everything you own upon death. However, if your net worth is under $11 million dollars you are exempt from the 40 percent tax. High net worth individuals often make a charitable bequest, as these are not subject to estate tax. The elimination of the estate tax under the proposed plan has many organizations concerned that charitable bequests may significantly decrease.

The Flip Side

While there are many studies that have found no correlation between tax law and the motivation to donate, a U.S. Trust Study of High Net Worth Philanthropy found that just 34 percent of participants cited tax benefits as the reason for making charitable gifts. In a separate poll, 73 percent of participants indicated personal satisfaction and making a difference as the main motivation for giving. One could also argue that should the tax plan be approved, the “Tax-Rate Effect” will be offset by the “Income Effect.” By reducing taxes, more disposable income will be available for charitable contributions and ultimately be invested back into the economy.

Under one proposed plan, the business tax rate will be lowered from 35 percent to 15 percent. This could give large corporations more incentive to give to nonprofits. Many corporations leave a substantial amount of money overseas to avoid U.S. tax – if the rate is reduced, corporations will be more inclined to bring their money home. This homecoming means nonprofits could see more activity from large corporations.

Your Position

It is important for nonprofits to remember projections are just projections. No one can say for certain if the proposed plan will pass, and if so, how donors will react to the changes. Either way, nonprofits should be proactive. Below are several tips for positioning your organization for the future.

o Review Financial Statements and Form 990

Most tax-exempt organizations are required to file Form 990, but how many know that this form can be used for much more than IRS compliance and maintaining a tax-exempt status? Nonprofits should recognize that Form 990 is more than just a financial reporting mechanism; it presents the opportunity to engage potential stakeholders by providing a snapshot of an organization’s financial health, governance, and operations – all in one convenient place. Donors will often refer to Form 990 to learn more about your organization and to see if your values align with theirs. Taking advantage of the narrative sections on these forms is an opportunity to tell your story.

o Determine what works

Multiple studies have found that when organizations match donations, giving increased by as much as 20 percent. The amount of the match did not matter!

o …and what doesn’t

When an organization receives funding from other sources, such as government grants, donors are not as motivated to contribute. They are under the impression that the organization can thrive without them.

If passed, the proposed tax law changes will disrupt the current marketplace. The best thing nonprofits can do to prepare include:

o Thinking about their donors – how will the tax law changes affect them?
o Being prepared to make changes to their budgets.
o Making lawmakers aware of how these law changes would impact their ability to fulfill their mission.
o Evolving their fundraising efforts.

We will continue to monitor the proposed tax law changes. The professionals in our office can help you prepare for the uncertain future, call us today.

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Prepare for a Successful Audit Experience

Prepare for a Successful Audit Experience
by Edmund Fosu-Laryea, CPA

Audits may at times be time consuming, intrusive and stressful as you often have auditors come in for a week or two and disrupt your regular flow of work. However, there are a few things you can do to have a successful audit and help eliminate the stress that comes with having your audit done.

The genesis of a successful audit starts with learning from the past. Take a retrospective look at prior year audits to see if there were any major issues or problem areas encountered, and work on resolving them before the start of the audit. Review prior year audits for any audit findings or internal control recommendations and make sure these conditions are corrected. Also, make sure any recurring journal entries from prior year audits are posted to your general ledger prior to the start of the audit, as this will save both you and your auditor time and energy.

Communication is also always key to having a successful audit. Keep an open line of communication with your auditor during the year and seek guidance on any new standards or unusual transactions encountered. Your auditor will generally be receptive to answering your questions as they would rather you use the correct accounting treatment for these transactions the first time around instead of correcting it during the audit.

As the saying goes, “By failing to prepare, you are preparing to fail.” Preparation is one of the keys to having a successful audit. Audit preparation can be time consuming but, if done right, allows you to reap the benefits of having a stress-free audit. As part of preparing for the audit, you may want to do the following: i) Designate a point person for the audit. ii) Make sure your records are accurate, organized and up-to-date. iii) Make sure all year-end reconciliations are completed. iv) Make sure all documents requested in the planning memo are completed and ready by the start of the audit. Reach out to your auditor if you have any questions on the items requested. v) Make sure all schedules and work papers to be provided to the auditor agree to your general ledger and trial balances. vi) Make sure the draft financial statements is available on or before the start of fieldwork.

It is important to ensure that all key staff are available during the audit. Although most of the schedules and work papers may have been requested by your auditor prior to the start of the audit, they will always ask for additional information, including supporting documents and explanations. The availability of key staff will allow the audit to be conducted more efficiently and effectively.

Finally, try to occasionally get an open items listing and a status update from your auditor to track the progress of the audit and to consider any additional help you can provide in getting the audit completed successfully.

It is to everyone’s benefit that your staff is ready in advance. If you need advice, we have professionals who can help with your questions or concerns, especially before your audit begins. Please contact us for more details.

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Nonprofits Should Focus on Building Volunteerism as U.S. Volunteer Rates Continue to Decline

Nonprofits Should Focus on Building Volunteerism as
U.S. Volunteer Rates Continue to Decline
By Pamela W. Baker, CPA, CGFM

Each year the Corporation for National and Community Service (CNCS) teams up with the National
Conference on Citizenship to conduct a Current Population Survey (CPS) that collects information on
the frequency of volunteering and the characteristics of volunteers in the United States. Recent survey
data confirms that the volunteer rate continues to decline among American adults. Between 2012
and 2015, the number of residents who volunteer dropped by 3.4%.

For nonprofits that depend on volunteers for projects, events, and fund-raising, these statistics can be
particularly alarming. It is crucial that nonprofits keep this data at the top of their minds and adjust
their volunteerism-building strategies so that they align with shifting volunteer demographics. This
article will highlight the key findings found in the Volunteering and Civic Life in America: 2016 study.

According to the CNCS, the research shows that 62.6 million adults volunteered in 2015, down from
62.8 million in 2014 and 64.5 million in 2012. Also declining are the number of service hours. In 2015,
an estimated 7.8 billion hours of service were logged, a decline from the 7.96 hours recorded in 2014.
The data paints a clear picture of decreased volunteer activity in the U.S.  The research also
demonstrates that volunteer rates vary by generation. Below is an overview of key statistics by
generation. A more complete list of statistics by demographic is available to you at
nationalservice.gov/vcla/research.

Millennials

In 2015, 16.9 million millennials contributed 1.6 billion hours of service. It is notable that young adults
attending college are volunteering at twice the rate of their non-college-attending peers.

Generation X

In 2015, 19.9 million Americans aged 35-44 contributed 2.3 billion hours of service. Generation X has
the highest volunteer rate among generations.

Baby Boomers

In 2015, 19.2 million baby boomers contributed 2.7 billion hours of service. Baby boomers and Generation X tend to volunteer more hours compared to other generations.

Older Adults

In 2015, 11.0 million Americans age 65+ contributed 1.9 billion hours of service. This generation has
both the inclination and the means to make larger charitable contributions. In 2015, this generation
had the highest median hours with ages 65-74 at 88 hours and 75+ with 100 hours.

The most common volunteer activities across all generations include:

• Collecting, preparing and distributing food (24.2 percent)
• Fundraising (23.9 percent)
• Providing general labor (18.8 percent)
• Tutoring/teaching (17.9 percent)
• Mentoring youth (17.4 percent)
• Providing professional services (14.6 percent)
• Collecting, making and distributing clothing (13.5 percent)
• Being an usher, greeter or minister (11.4 percent)
• Providing office/administrative services (11.2 percent
• Engaging in music or another form of performance (9 percent)
• Coaching, supervising sports teams (7.8 percent)
• Providing medical care and fire/EMS services (6.1 percent)

The CNCS reports that Americans volunteered 113 billion hours over the past 14 years, with an
estimated worth of about 2.3 trillion dollars. Nonprofits should focus on building volunteerism in key
age brackets to ensure success in their mission, even with volunteer rates dipping.

It is clear that volunteer rates in the U.S. are declining, and nonprofits need more effective strategies for
building volunteerism in key age brackets to ensure success.

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Low-Cost Steps to Strengthen Internal Controls

Low-Cost Steps to Strengthen Internal Controls By Robert M. Barbacane, CPA, CGMA

In small organizations, internal controls are often sacrificed for the sake of delivering quality services.
This is especially true for cost-conscious nonprofit organizations. Ignoring internal controls is risky. In a
recent report, the Association of Certified Fraud Examiners (ACFE) found that organizations with less than
100 employees are more vulnerable to occupational fraud. The median annual fraud loss for nonprofit
organizations was $82,000. This number does not take into consideration the financial repercussions of
a damaged reputation. For nonprofits that depend on the public for support, the occurrence or
allegation of fraud can also severely impact fundraising capabilities.

While there are many ways to manage risk, the Committee of Sponsoring Organizations (COSO) internal
control framework is a popular method because of its ability to be widely adopted. The COSO
framework recognizes that internal controls should be designed with the entity’s unique environment
and risk tolerance in mind. Rather than identifying specific activities, the COSO framework emphasizes
that risk-based, informed decisions work best.

Applying internal controls is a best practice for all organizations, but is particularly important for
nonprofits because donors often assess an organization’s ability to use funds responsibly before
contributing. Adopting the five COSO framework steps below can help protect your organization by
strengthening governance, improving the reliability of financial reporting and deterring fraud.

Setting the tone internally

It is important for the board and leadership team to set a strong tone as internal controls are impacted
by employees and their actions. The ACFE study found that only 6.4 percent of fraud is discovered by
external auditors. A powerful tone will lay the foundation for successful internal controls.

Providing a formal system to report concerns

The ACFE study reports that 29.6 percent of fraud cases are discovered from internal tips. To encourage
employees to report concerns without fear of retaliation, create a formal reporting mechanism.
Incorporate this policy into employee handbooks and new-hire training programs.

Staying aware as to what is happening within the organization

Leaders should be aware of pressures, tensions, conflicts or incentives that could negatively affect the
entity’s financial reporting. For instance, a poorly designed incentive-based compensation structure or
unbalanced workload can put employees under pressure and tempt them to take advantage of control
weaknesses.

Focusing on building relationships and open communication

Adopting an open-book management style can simultaneously build relationships and open communication. One way of doing this is by explaining the business rationale behind particular processes. First, identify the observed behavior; then give the employee a chance to offer their perspective. After acknowledging the employee’s point of view, explain the business reason for any changes. This type of transparency can enable employees to make better business decisions

Upholding fairness by enforcing and upholding policies

The following policies can help avoid internal conflicts:
 Have periodic one-on-one discussions with employees about policies.
 Train new employees on what is and is not acceptable use of the organization’s property.
 Check references and perform background checks on employees with access to the
organization’s financial information.
 Review IT system logs.
 Separate duties so that one person does not have complete control of a transaction.
 Separate authorization and record keeping duties.

Management cannot prevent all problems; however, setting the right tone and policies internally will
signify to employees what activities are unacceptable. Contact us today to discuss how we can help you with internal controls.

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