But you know it is looming. Out there, in the not too distant future. Waiting.

Here’s the truth – your end of year audit isn’t going to disappear anytime soon. Taking the right steps now in getting prepared will not only save you time and money, but also a great deal of frustration.

And whether or not you think of it as merely a necessary (or unnecessary) evil, be assured that the annual audit does in fact have its benefits.

You see, an audit is a great opportunity for taking stock of your nonprofit organization; to come face to face with its true financial condition, and to gain a better understanding of how well it’s using its resources.

Inquiries will come from your auditor regarding your accounting processes and internal controls. It may not be the easiest of conversations to have, but it is a terrific opportunity to improve upon those processes and controls.

The discussion with your auditor will also help your organization better protect itself against fraud and theft, while your board and your donors will gain confidence in the reliability of your financial reports.

Take Action Now

Here’s a few suggestions that should make this year-end process go more smoothly.

• Have a sit down meeting with your auditor in advance of your fiscal year end. Let’s face it, sometimes there is no replacement for a face to face conversation. This is the ideal time to address any problems that were encountered in the prior year and talk about how they can be avoided during the audit coming up. Also, it’s the time to give your auditor a heads up for any changes or new developments that might have an impact on the audit process.
• Read the engagement letter that you receive from your auditor. That letter will outline what the audit is and isn’t about, and define your responsibilities, as well as those of the auditor.
• Request that your auditor send you, in advance of the start of fieldwork, a list of the documents and information that you will need to assemble for their use and review. Also ask them to specify the items they will need before fieldwork starts to do their pre-audit planning.
• Organize the requested documents for their use and review. Typically the auditors will want to see the following documentation:
  • Bank statements and monthly reconciliations;
  • Investment summary showing year end balances, annual investment activity, and income;
  • Documentation in support of donor pledges, donated securities and property, and grant funds received;
  • Fixed asset and depreciation schedules;
  • Accounts payable and receivable aging statements at year-end; and
  • Copies of lease and debt agreements.

Coordination Is Key

To make sure the audit goes ahead with the least amount of disruption to your nonprofit, coordinate the auditors schedule with yours and that of your staff.

It’s best to schedule the audit fieldwork for a time when it will be the least disturbing to your office routine, and when you and your staff can devote the necessary attention to the audit.

What’s more, it’s crucial that the year end closing of your books has been done properly, and that all cash and balance sheet accounts have been reconciled, fixed asset and depreciation schedules have been updated, and that adjusting entries have been booked to give effect to any required
accruals and deferrals.

And it’s important to remember the more efficient and organized you are in preparing for the audit and assisting with the auditors, the less time they will spend in your office. Since many firms bill on an hourly basis when performing audit services, the less time they spend on the audit, the less they will bill your organization upon its completion.

So keep this simple equation in mind:

Greater preparedness = Greater Efficiency = Reduced Fees.

We’re Here to Help

If you’re feeling a bit overwhelmed with the organization and preparation of your records prior to the end of year audit, we can help.

Simply contact us today to speak with one of our friendly advisers.

The post Year End Audit Preparation for Nonprofit Organizations appeared first on Checkbox Accounting.

In the case of non-profit organizations one of those exceptions to the general rule of tax exemption is something called “Unrelated Business Taxable Income”. Nonprofit boards and management should be aware that it is out there and that it might be applicable to their organization depending on the kind of activities it carries out.

First, let’s get clear on a couple of acronyms that might otherwise be confusing:

UBTI = Unrelated Business Taxable Income
UBIT = Unrelated Business Income Tax

What is Unrelated Business Taxable Income?

If your non-profit is carrying on activities that are not related to the tax-exempt purpose of your organization, any income from that activity might be deemed to be UBTI and subject to income tax.

Unrelated Business Income Tax (UBIT) is applied to any income generated by commercial activities that don’t fall within the scope of your non-profit’s exempt purpose (remember, that purpose you declared you were dedicated to when you applied for your exempt status with the IRS). So if you’re bringing in revenues that don’t directly benefit your charitable cause, it’s likely that you’ll have to pay UBIT on this income.

How UBTI can impact your organization

If your non-profit hasn’t considered the potential impact of UBI, it can come as quite a shock when the IRS comes knocking and you are required to pay over an unbudgeted amount to cover tax costs and possibly penalties and interest.

How does an organization guard against this rude surprise? By finding an advisor who understands not only the exceptions to the exceptions but the exceptions to the exceptions to the exceptions.

With proper planning UBTI can be avoided or at least properly planned for. For instance:

• By restructuring an activity so that at least 85% of the labor involved in the activity was provided by unpaid volunteers, we were able to allow a client to avoid UBTI characterization even though the activity was otherwise unrelated.
• Another client involved in a profit splitting agreement with an insurance company had been reporting UBTI and paying tax for number of years. As the revenue grew, so did the tax. We assisted the client in structuring their contractual relationship with a new insurance company so that the majority of income was in the nature of royalty income, a kind of income that under most circumstances is excluded from UBTI. The result has been a tax savings of thousands of dollars.

Talk to us about your UBTI concerns

If you’re running a non-profit organization and are concerned about the potential impact of UBTI, we can help you to review your activities for UBTI potential and discuss the possible ways you can restructure the activities to place them outside the scope of UBTI or reduce any tax liability.

Contact us at Checkbox and arrange for a chat.

The post The impact of Unrelated Business Taxable Income on your nonprofit appeared first on Checkbox Accounting.

CORE CONCEPTS

-Each organization should have a confidential process for addressing all complaints or reports of supposed illegal or unethical activities.
-Staff and volunteers need to feel safe to report unacceptable acts.
-Retaliation against whistleblowers can be a criminal act that applies to all organizations.
-Appropriate internal controls can help alleviate the occurrence of unacceptable acts.

LEGAL AND COMPLIANCE ISSUES

-The Sarbanes- Oxley Act (SOX), Section 1107, makes it a federal crime to retaliate against whistleblowers in certain circumstances.
-IRS Form 990 asks whether the organization has a written whistleblower policy.

Look for correlating Principles 6.

The post Principle 4: “Whistle-blower” Policy appeared first on Checkbox Accounting.