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Planned Parenthood Finance Directors. Risk Assessment Standards and Changes to the 990 Presented by: Gelman, Rosenberg & Freedman Certified Public Accountants Terri McKnight, CPA, Director, Audit Department Richard J. Locastro, CPA, JD. March 26, 2008. Eight New Auditing Standards.

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Planned Parenthood Finance Directors

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Planned parenthood finance directors

Planned Parenthood Finance Directors

Risk Assessment Standards and Changes to the 990

Presented by:

Gelman, Rosenberg & Freedman

Certified Public Accountants

Terri McKnight, CPA, Director, Audit Department

Richard J. Locastro, CPA, JD

March 26, 2008


Eight new auditing standards

Eight New Auditing Standards

  • Collectively referred to as the “Risk Assessment SAS’s” # 104 - #111

    • Effective for all audits of financial statements for fiscal years beginning on or after January 1, 2007

    • Requires changes in the audit process

    • Increased effort by your organization and CPA firm

Gelman, Rosenberg & Freedman, CPAs


What is risk assessment

What is Risk Assessment?

  • More focused audit approach using the COSO internal framework:

    • Control Environment

    • Risk Assessments

    • Control Activities

    • Communication and Information

    • Monitoring

Gelman, Rosenberg & Freedman, CPAs


What are the requirements

What are the Requirements?

  • Obtain a more in-depth understanding of the organization and its operating environment

  • Identify specific risks of material errors or fraud occurring and remain undetected by you along with the actions you are taking to mitigate those risks

  • Perform a rigorous assessment of the risks of material misstatements of your financial statements based on that understanding

  • Link the assessment with the resulting audit procedures

  • Meet new documentation requirements

Gelman, Rosenberg & Freedman, CPAs


What will cpa firms do differently

What will CPA firms do differently?

  • Perform more up-front time planning the audit

    • Perform new, required planning procedures

    • Evaluate internal control in more depth

    • Reevaluate materiality levels

    • Test some accounts differently

    • Communicate more internal control deficiencies

Gelman, Rosenberg & Freedman, CPAs


Perform new required planning procedures

Perform new, required planning procedures

  • Ask more questions about your business risks, responses, and –performance measures

  • Formally discuss the risk of material errors

  • Observe more of your procedure and controls

  • Inspect more documents and records

Gelman, Rosenberg & Freedman, CPAs


Perform new required planning procedures cont d

Perform new, required planning procedures (cont’d)

  • Consider what can go wrong at a more detailed level to identify specific risk of error or fraud

  • Assess the identified risks

  • Link the risks to our audit procedures

Gelman, Rosenberg & Freedman, CPAs


How will the risk assessment standards impact you

How will the Risk Assessment Standards Impact you?

  • Request more information and documentation

  • The demands on your personnel will increase

Gelman, Rosenberg & Freedman, CPAs


Key internal control elements

Key Internal Control Elements

  • Control environment – everyone’s roles and responsibilities are clearly defined

  • Accounting System

    • Methods and records established to identify, assemble, analyze, classify, record and report on transactions

    • Maintains accountability for the related assets and liabilities

    • Accounting Principles

Gelman, Rosenberg & Freedman, CPAs


Key internal control elements1

Key Internal Control Elements

Document accounting policies and procedures, including:

  • Cash management

  • Procurement policies

  • Disbursement policies

  • Budgeting and monitoring

  • Reporting

  • Payroll

  • Chart of accounts

  • Investment policies

Gelman, Rosenberg & Freedman, CPAs


Key internal control elements2

Key Internal Control Elements

Document accounting policies and procedures, including:

  • Financial statement presentation and

    disclosures

  • OMB Circular A-133, A-122 requirements

  • Grant requirements

  • Revenue recognition

  • Account reconciliations

  • Fraud and fraud indicators

  • Conflict of interest

  • Allowable and unallowable costs associated

    with grants

  • Credit card policies

Gelman, Rosenberg & Freedman, CPAs


New form 990

New Form 990

  • Still in “draft” status

  • New Form 990 and background information available on IRS website:

    www.irs.gov/charities/article/0,,id=176637,00.html

  • Effective Date

    • Years beginning on or after 1/1/08

    • Transition period if gross receipts < than $1MM and assets <$2.5MM

    • Bond reporting on Schedule K delayed for 1 year (limited reporting in 2008)

Gelman, Rosenberg & Freedman, CPAs


New form 9901

New Form 990

  • Much more detailed reporting

  • GRF estimate of time (both client and GRF) to prepare 990 will increase 50%-100% in first year

Gelman, Rosenberg & Freedman, CPAs


New form 9902

New Form 990

  • “Transparency”

  • Emphasis on Governance and Compensation

  • 11 page Core form

  • 16 “schedules” that are filed, if applicable

Gelman, Rosenberg & Freedman, CPAs


New form 9903

New Form 990

  • Changes from first “draft”

    • Eliminates ratios, percentages from Summary page

    • Moves Program Service description to Page 2 (from Page 10)

    • Checklist (Page 3) of Required Schedules

Gelman, Rosenberg & Freedman, CPAs


New form 9904

New Form 990

  • Changes from first “draft” (cont’.)

    • More opportunity to provide “supplemental” information

    • Revised governance and compensation sections

    • Less detailed reporting on some schedules

Gelman, Rosenberg & Freedman, CPAs


New form 9905

New Form 990

  • Core form, Part VI - Governance, Management, and Disclosure

    • “Best practices” – not required by Internal Revenue Code

    • Independence issues

    • Oversight – was Form 990 provided to governing body before filing? Describe review process.

Gelman, Rosenberg & Freedman, CPAs


New form 9906

New Form 990

  • Core form, Part VI - Governance, Management, and Disclosure (cont’.)

    • Whistleblower policy?

    • Document retention/destruction policy?

Gelman, Rosenberg & Freedman, CPAs


New form 9907

New Form 990

  • Part VII, Compensation

    • Must use W-2 amounts (calendar year)

    • Detailed reporting on officers, former officers, and independent contractors

Gelman, Rosenberg & Freedman, CPAs


New form 9908

New Form 990

  • Schedule A – Public Charity Status and Public Support (no major changes)

  • Schedule B – Schedule of Contributors (no changes)

  • Schedule C – Political Campaign and Lobbying Activities

Gelman, Rosenberg & Freedman, CPAs


New form 9909

New Form 990

  • Schedule D – Supplemental Financial Statements

    • Donor Advised Funds

    • Conservation Easements

    • Art Collections and Similar Assets

    • Trust, Escrow, and Custodial Arrangements

    • Endowments

Gelman, Rosenberg & Freedman, CPAs


New form 99010

New Form 990

  • Schedule D (cont’.)

    • Investments

    • Other assets

    • Other liabilities

    • Reconciliation to Financial Statements

    • Supplemental information

Gelman, Rosenberg & Freedman, CPAs


New form 99011

New Form 990

  • Schedule E – Schools

  • Schedule F – Statement of Activities outside of U.S.

  • Schedule G- Fundraising and Gaming Activities

  • Schedule H - Hospitals

Gelman, Rosenberg & Freedman, CPAs


New form 99012

New Form 990

  • Schedule I – Grants and other assistance in the U.S.

  • Schedule J – Compensation

    • Policy questions about setting and monitoring compensation

    • Payments for “perks” such as first- class travel, club dues, housing, companion travel

Gelman, Rosenberg & Freedman, CPAs


New form 99013

New form 990

  • Schedule K – Tax Exempt Bonds

    • Issue descriptions

    • Proceeds

    • Private Business Use

    • Arbitrage

Gelman, Rosenberg & Freedman, CPAs


New form 99014

New Form 990

  • Schedule L – Transactions with Interested Persons

    • Excess benefit transactions

    • Loans to/from Interested Persons

    • Grants to/from Interested Persons

    • Business transactions involving Interested Persons

Gelman, Rosenberg & Freedman, CPAs


New form 99015

New Form 990

  • Schedule M – Non-cash contributions (detailed descriptions of types of property)

  • Schedule N – Liquidation, Termination, or Significant Disposition of Assets

  • Schedule O – Supplemental Information (for longer explanations)

Gelman, Rosenberg & Freedman, CPAs


New form 99016

New Form 990

  • Schedule R – Related organizations and unrelated partnerships

    • Disregarded entities

    • Related tax-exempt entities

    • Related partnerships

    • Related corporations

    • Unrelated partnerships

Gelman, Rosenberg & Freedman, CPAs


New form 99017

New Form 990

  • Next Steps

    • Have management try to complete it now to identify:

      • “Challenging” questions

      • New information that will need to be collected for 2008

    • Have Board perform detailed review of management draft so that there are no surprises

Gelman, Rosenberg & Freedman, CPAs


Taxation of benefits

Taxation of Benefits

  • IRS increased scrutiny on benefits

  • Automatic excess benefit transactions

  • Items covered: cell phones, computers, cars

  • Other perks

Gelman, Rosenberg & Freedman, CPAs


Questions

QUESTIONS?

Gelman, Rosenberg & Freedman

Certified Public Accountants

4550 Montgomery Avenue

Suite 650 North

Bethesda, MD 20814

301-951-9090

www.grfcpa.com

Terri McKnight, CPA, Director,

Audit Department

Richard J. Locastro, CPA, JD, Principal,

Nonprofit Tax Department

Gelman, Rosenberg & Freedman, CPAs


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