Accountancy includes bookkeeping, auditing and taxation. A lot of economic policies have changed since the origin of this concept and now they are being offered by an Accounting Firm that has experienced and qualified management professionals to facilitate finance and documentation related to it. Such firms are ideal for small business owners as multinational companies and major organizations have dedicated departments for such solutions. Depending on the type and the size of the firm an Accountant or a team is provided by the firms to help in the financial planning and other details related to it. Some firms that have a limited number of employees usually hire a Bookkeeper to do the job. They maintain a record of all the financial transactions and validate them through the necessary authorities to keep the company away from any legal trouble. Many people have realized the benefit of taking the services from an Accounting Firm as their knowledge about the market helps conducting the business with profit oriented strategies.
Business standards and regulations are now designed considering the international market for development to provide top quality services to the consumers. They are designed considering the current market demands which may fluctuate due to various reasons. The Small Business Accounting firm deploys such strategies and helps in developing policies that benefit the owner and the employees. Employee satisfaction is also very important for the growth of a business. The financial analysts also provide Payroll Services and manage the salaries of the employees and make sure that the employees get the right salary on time. Such things are very important for a business considering the number of options available to the consumers. They help in saving time and money which can be used for promotions for developing the business. The Accounting Firm will manage all the finances and produce reports that can be helpful in business planning.
Another important thing that is usually neglected by many companies which later affect a lot is the taxation. Strict tax regulations are applicable to business providers and they have to be adhered to avoid major problems in the future. The firms also provide dedicated Tax Preparation Services which help in paying the right tax on time. The professionals also give investment tips and other suggestions to minimize the tax. They also help in claiming the tax money by showing the proper documents to maximize the profits of the company. The Accounting Firm also makes use of technology and provides real time updates using a client login on their website. The client can also take prints and email the reports. Clients can choose to go with the individual services or take the complete finance management package depending on the budget and the type of business. The best way to look for such firms is through an online search and local firms should be preferred. In case people need additional details they can call on the direct number provided on the website.
Saturday, December 7, 2013
Understanding the Basics Accounting
When an enterprise, whether for profit or non-profit, grows or strategizes expansion, it usually opens additional locations. Banks, coffee shops, supermarkets, department stores, restaurants, beauty salons, airlines, and even government offices may operate in more than one location, domestic or foreign, to cater to the needs of their customers or clientele.
Such additional locations may either be in the form of an agency or a branch.
Branch or Agency?
Depending on its objectives, the enterprise may adopt the form of either a branch or an agency. Both are part of a central organization and while they conduct operations away from their home office, they are not a separate legal entity from the latter.
The key difference between the two lies in their degree of autonomy or independence. For instance, a sales agency typically does not stock inventory, but only displays merchandise, takes orders and arranges for delivery of the merchandise. In other words, the agency merely acts on behalf of the home office (H.O.), with the latter handling the other aspects of operations such as purchase of merchandise, advertising, and granting of credit.
The branch, however, has a greater degree of autonomy and thus operates more independently of the home office than the agency, primarily in the following aspects:
Provision of a wider range of services to customers or clientele
Exercise of greater management decision-making
Handling of more aspects of business operations, such as stocking of inventory, filling of customers' orders, credit and collection
Maintenance of a separate accounting system
Separate Branch Accounting System
Reflecting this greater degree of autonomy, the branch typically maintains its own separate accounting system, while the agency does not. In fact, it is the home office which records all agency transactions in the former's accounting system.
Such maintenance of separate accounting records by the branch and the home office facilitates more effective control over operations and enables top management to better assess branch performance and make strategic business decisions for the company.
Accounting for Branch Operations
The accounting transactions recorded by the branch are generally of the following types:
External transactions or transactions with parties external to the company as a legal entity (e.g. customers, suppliers, creditors, utility companies)
Internal transactions
within the branch
with other branches of the company
with home office
The recording by the branch of its external transactions and those which by nature affect only the branch (i.e. internal transactions within the branch) is done using the regular accounts and journal entries. However, in recording the branch's transactions with the H.O., certain intra-company accounts will have to be created and used. Likewise, inter-branch transactions or transactions of the branch with another branch are usually coursed or cleared through the H.O. using intra-company accounts.
At the end of the accounting period, the branch prepares its own financial statements based on the balances of its accounts, but only for internal reporting purposes. These branch financial statements still have to be combined with those of the H.O. for external reporting purposes, in such a way that the resulting reports reflect the financial condition and results of operations of the company as a single entity.
Intra-company Accounts
At the time of the establishment of the branch, the following typical intra-company accounts are created in the books of accounts or records of the branch and home office:
Branch Books of Accounts
"Home Office" account
Home Office Books of Accounts
"Investment in Branch" account (one account for each branch)
The intra-company accounts "Home Office" and "Investment in Branch" are reciprocal accounts, meaning they are inversely related to or opposite each other. The "Home Office" account has a normal credit balance, while the "Investment in Branch" account has a normal debit balance. Whatever authorized transaction is recorded in one account should also be recorded in the other account. Provided all transactions are recorded, both accounts should have the same or equal balance.
The "Home Office" account appears in the equity section of the branch balance sheet, while the "Investment in Branch" account is shown in the asset section of the H.O. balance sheet. However, in the preparation of the financial statements of the company as a whole, these intra-company accounts are eliminated since they pertain to internal activities which do not concern the external users of the reports.
Common Intra-company Transactions
The following are the most common transactions between the branch and H.O. which are recorded by both, using the intra-company accounts mentioned above:
Transfer of assets from H.O. to the branch and vice versa (e.g. cash, fixed assets, merchandise inventory)
Recognition of branch income or loss (after closing of revenue and expense accounts by the branch to its "Income Summary" account)
Recording of expenses incurred by the branch but billed to and paid by the H.O. (e.g. purchase of office supplies by the H.O. for the branch)
Allocation of expenses by the H.O. which are chargeable to the branch (e.g. branch's share of the cost of advertising undertaken by H.O. for the company)
Inter-branch transactions (e.g. personal accounts of branch employees for collection, transfers of fixed assets, authorized expenses incurred by a branch employee in another branch)
Reconciliation of Investment in Branch and Home Office Accounts
As discussed above, the balances of the "Home Office" and "Investment in Branch" accounts should be equal or the same. In reality, however, because of timing differences and recording errors, these two accounts rarely balance. There is therefore a need to periodically prepare a reconciliation of these two accounts to determine the reconciling items and record the necessary adjustments through appropriate journal entries in either or both of the books of the branch and H.O.
Branch Accounting and Company Growth
New branches not only indicate that there is company growth, but can also propel further growth. For this growth to be sustained, the information provided by the branch's accounting system must be complete, accurate and timely so that top management can make the right business decisions at the right time. After all, "Many would say the information provided by an entity's accounting system is the most important single source of information for financial decision makers" (Chalmers, Keryn, et al. "Accounting in Action." Principles of Financial Accounting. 2nd ed. Queensland: John Wiley & Sons Australia, Ltd., 2010. 5. Print).
Such additional locations may either be in the form of an agency or a branch.
Branch or Agency?
Depending on its objectives, the enterprise may adopt the form of either a branch or an agency. Both are part of a central organization and while they conduct operations away from their home office, they are not a separate legal entity from the latter.
The key difference between the two lies in their degree of autonomy or independence. For instance, a sales agency typically does not stock inventory, but only displays merchandise, takes orders and arranges for delivery of the merchandise. In other words, the agency merely acts on behalf of the home office (H.O.), with the latter handling the other aspects of operations such as purchase of merchandise, advertising, and granting of credit.
The branch, however, has a greater degree of autonomy and thus operates more independently of the home office than the agency, primarily in the following aspects:
Provision of a wider range of services to customers or clientele
Exercise of greater management decision-making
Handling of more aspects of business operations, such as stocking of inventory, filling of customers' orders, credit and collection
Maintenance of a separate accounting system
Separate Branch Accounting System
Reflecting this greater degree of autonomy, the branch typically maintains its own separate accounting system, while the agency does not. In fact, it is the home office which records all agency transactions in the former's accounting system.
Such maintenance of separate accounting records by the branch and the home office facilitates more effective control over operations and enables top management to better assess branch performance and make strategic business decisions for the company.
Accounting for Branch Operations
The accounting transactions recorded by the branch are generally of the following types:
External transactions or transactions with parties external to the company as a legal entity (e.g. customers, suppliers, creditors, utility companies)
Internal transactions
within the branch
with other branches of the company
with home office
The recording by the branch of its external transactions and those which by nature affect only the branch (i.e. internal transactions within the branch) is done using the regular accounts and journal entries. However, in recording the branch's transactions with the H.O., certain intra-company accounts will have to be created and used. Likewise, inter-branch transactions or transactions of the branch with another branch are usually coursed or cleared through the H.O. using intra-company accounts.
At the end of the accounting period, the branch prepares its own financial statements based on the balances of its accounts, but only for internal reporting purposes. These branch financial statements still have to be combined with those of the H.O. for external reporting purposes, in such a way that the resulting reports reflect the financial condition and results of operations of the company as a single entity.
Intra-company Accounts
At the time of the establishment of the branch, the following typical intra-company accounts are created in the books of accounts or records of the branch and home office:
Branch Books of Accounts
"Home Office" account
Home Office Books of Accounts
"Investment in Branch" account (one account for each branch)
The intra-company accounts "Home Office" and "Investment in Branch" are reciprocal accounts, meaning they are inversely related to or opposite each other. The "Home Office" account has a normal credit balance, while the "Investment in Branch" account has a normal debit balance. Whatever authorized transaction is recorded in one account should also be recorded in the other account. Provided all transactions are recorded, both accounts should have the same or equal balance.
The "Home Office" account appears in the equity section of the branch balance sheet, while the "Investment in Branch" account is shown in the asset section of the H.O. balance sheet. However, in the preparation of the financial statements of the company as a whole, these intra-company accounts are eliminated since they pertain to internal activities which do not concern the external users of the reports.
Common Intra-company Transactions
The following are the most common transactions between the branch and H.O. which are recorded by both, using the intra-company accounts mentioned above:
Transfer of assets from H.O. to the branch and vice versa (e.g. cash, fixed assets, merchandise inventory)
Recognition of branch income or loss (after closing of revenue and expense accounts by the branch to its "Income Summary" account)
Recording of expenses incurred by the branch but billed to and paid by the H.O. (e.g. purchase of office supplies by the H.O. for the branch)
Allocation of expenses by the H.O. which are chargeable to the branch (e.g. branch's share of the cost of advertising undertaken by H.O. for the company)
Inter-branch transactions (e.g. personal accounts of branch employees for collection, transfers of fixed assets, authorized expenses incurred by a branch employee in another branch)
Reconciliation of Investment in Branch and Home Office Accounts
As discussed above, the balances of the "Home Office" and "Investment in Branch" accounts should be equal or the same. In reality, however, because of timing differences and recording errors, these two accounts rarely balance. There is therefore a need to periodically prepare a reconciliation of these two accounts to determine the reconciling items and record the necessary adjustments through appropriate journal entries in either or both of the books of the branch and H.O.
Branch Accounting and Company Growth
New branches not only indicate that there is company growth, but can also propel further growth. For this growth to be sustained, the information provided by the branch's accounting system must be complete, accurate and timely so that top management can make the right business decisions at the right time. After all, "Many would say the information provided by an entity's accounting system is the most important single source of information for financial decision makers" (Chalmers, Keryn, et al. "Accounting in Action." Principles of Financial Accounting. 2nd ed. Queensland: John Wiley & Sons Australia, Ltd., 2010. 5. Print).
Thursday, November 21, 2013
Adopting a Whistleblowing Policy for Your Non-Profit
by Megan Lausten, CPA, Senior Associate
Further information and sample whistleblower policies are available from the American Institute of Certified Public Accountants (www.aicpa.org), the National Council of Nonprofits (www.councilofnonprofits.org), and Public Counsel (www.publiccounsel.org). However nonprofit organizations should also be sure to seek legal advice specific to their organization prior to adopting a whistleblower policy.
If there were fraud occurring in your organization, how would it be discovered? It is common to assume that the best way to discover fraud is through an independent audit. Surprisingly, only 3% of workplace fraud is detected during an independent audit, according to the Association of Certified Fraud Examiners’ (ACFE) 2012 Report to the Nations. Instead, most instances of fraud (34%) are exposed by tips from employees, directors, members and volunteers.
This statistic emphasizes the importance of having a policy that encourages people to report their concerns without fear of retaliation. Such a policy is referred to as a whistleblower policy. Adoption of a whistleblower policy is a good governance practice which can be reported on Form 990. There are several factors to consider in the adoption of a whistleblower policy for your organization.
Implement a fraud hotline.
According to the ACFE’s 2012 Report to the Nations, organizations that had an anonymous fraud hotline suffered significantly less losses from fraud than those who did not. Employees and volunteers are more likely to report a concern in a timely manner if it is easy to report. Organizations can create an anonymous submission form on their website or outsource the hotline services.
Develop a chain of command.
A whistle-blower policy should designate responsible individuals within the organization to receive and respond to tips. Response to fraud tips should involve both members of management and the governing body. A common practice is to designate a compliance officer, such as the Executive Director or Human Resources Director. The compliance officer would be responsible for receiving fraud tips and reporting them in a timely manner to the appropriate members of the governing board. If the organization has an audit committee, the chair of the committee would be an appropriate governing board designee.
Investigate tips.
Have a plan of action for how to respond to tips. The compliance officer and governing board designee should be tasked with investigating tips in a timely manner. The investigation should ensure the fair treatment and anonymity of the whistleblower during the investigation. If necessary, hire an external investigator such as a Certified Fraud Examiner or any other resource deemed necessary to conduct a full and complete investigation of the allegations.
Respond to fraud.
If a fraud tip is verified via an investigation, the organization should take timely action. Put the responsible individual(s) on leave or terminate them, based on consultation with your attorney. File a report with the local law enforcement agency. Inform oversight agencies for funding sources affected by the fraud.
Protect the whistleblower.
Federal law prohibits all corporations, including nonprofits, from retaliating against employees who "blow the whistle" on their employer’s accounting practices. Additionally, over 45 different states have enacted laws to protect whistleblowers from retaliation at the workplace. Have a policy that clearly communicates that retaliation taken against a whistleblower is not acceptable. The policy should include actions that will be taken in case of retaliatory action against a whistleblower, including termination of the offending employee.
Require tips to be in good faith.
The whistleblower policy should discourage false reporting. A whistleblower policy should require that tips are made in good faith and have reasonable grounds for the accusation. The act of making allegations that prove to be unsubstantiated or are made maliciously should result in disciplinary action up to and including termination of employment.
Inform stakeholders of the policy.
Because the policy is intended to encourage whistleblowing by anyone who may have relevant information, the policy should include and be disseminated to all affected stakeholders such as employees, directors, members and volunteers. While the employee manual is an appropriate method to communicate the policy to employees, ensure other stakeholders are made aware of the policy as well.
Further information and sample whistleblower policies are available from the American Institute of Certified Public Accountants (www.aicpa.org), the National Council of Nonprofits (www.councilofnonprofits.org), and Public Counsel (www.publiccounsel.org). However nonprofit organizations should also be sure to seek legal advice specific to their organization prior to adopting a whistleblower policy.
Monday, November 18, 2013
Settle Your Accounts With Accounting Outsourcing
Is accounting a burden for you? Or your accounting department is a mess? Well! Then this could be the most appropriate time to settle your accounts with quality accounting services. However, it is quite understandable that getting a good accounting department is not as easy it seems. First of all, finding qualified accountants is one demanding job and even if you manage to get the assistance of competent accountants, your expenses will soar excessively high with the high demands of these accountants. This kind of scenarios compelled the business industry to come up with a profitable alternative of accounting outsourcing. This provision has not served as an option but has actually taken the position of the most preferred accounting solution in the business fraternity. Nowadays, almost every small, medium or big business organization is affiliated with some or the other accounting outsourcing firm.
These accounting outsourcing firms are well recruited with efficient and experienced accountants who have won the attribute of sincerity and commitment. They are highly qualified in the field of accounts and offer best form of services. Moreover, many a time it happens that an owner has to focus on other departments of his or her business such as marketing and production that may cause negligence towards the accounting department. But if you are associated with a good accounting outsourcing firm , you need not worry for this negligence as the accounting experts will take thorough care of all your accounts and related projects. In addition to this security, you can also avail their guidance and suggestions during any financial hurdle or problem. Hence, it would not be incorrect to estimate a conclusion that assistance from an outsourcing firm for accounting is basically your route to numerous financial benefits. Therefore, if you are also wondering with your complicated accounting management then immediately look out for a decent accounting assistance.
We all know that money is the most important factor in business and hence, it becomes compulsory for us to focus on the expenses attached to the services of accounting outsourcing. Any outsourcing firm charges its client on the basis of the projects offered to them. The total budget is fixed according to the duration and the number of accountants employed for that task. However, every business owner can stay assured with the fact that no matter how long the duration is or how many accountants are recruited, the total expense would be much lesser than the amount paid to the in- house accountants. Moreover, you also get the liberty of not paying any additional allowances of house, medical and conveyance to these outsourcing vendors.
However, you must conduct a mandatory research about the various accounting outsourcing companies to ensure the best facility for your organization. Check out for their certification by a registered institution because accounting management involves great deal of sharing confidential data and documents. Hence, make sure that you get associated with a reliable source. All this research can easily be executed through the medium of Internet and pre-discussions with the firms as well as your friends who are already enjoying the benefits of accounting outsourcing.
These accounting outsourcing firms are well recruited with efficient and experienced accountants who have won the attribute of sincerity and commitment. They are highly qualified in the field of accounts and offer best form of services. Moreover, many a time it happens that an owner has to focus on other departments of his or her business such as marketing and production that may cause negligence towards the accounting department. But if you are associated with a good accounting outsourcing firm , you need not worry for this negligence as the accounting experts will take thorough care of all your accounts and related projects. In addition to this security, you can also avail their guidance and suggestions during any financial hurdle or problem. Hence, it would not be incorrect to estimate a conclusion that assistance from an outsourcing firm for accounting is basically your route to numerous financial benefits. Therefore, if you are also wondering with your complicated accounting management then immediately look out for a decent accounting assistance.
We all know that money is the most important factor in business and hence, it becomes compulsory for us to focus on the expenses attached to the services of accounting outsourcing. Any outsourcing firm charges its client on the basis of the projects offered to them. The total budget is fixed according to the duration and the number of accountants employed for that task. However, every business owner can stay assured with the fact that no matter how long the duration is or how many accountants are recruited, the total expense would be much lesser than the amount paid to the in- house accountants. Moreover, you also get the liberty of not paying any additional allowances of house, medical and conveyance to these outsourcing vendors.
However, you must conduct a mandatory research about the various accounting outsourcing companies to ensure the best facility for your organization. Check out for their certification by a registered institution because accounting management involves great deal of sharing confidential data and documents. Hence, make sure that you get associated with a reliable source. All this research can easily be executed through the medium of Internet and pre-discussions with the firms as well as your friends who are already enjoying the benefits of accounting outsourcing.
Friday, October 11, 2013
FAQ’s on Unrelated Business Income
Unrelated Business Income is a topic that affects many not-for-profit organizations. Below are answers to some frequently asked questions relating to unrelated business income. For more information, please visit the Internal Revenue Service’s website at www.IRS.gov.
What is unrelated business income?
The income generated from an activity that meets three requirements: the activity is a trade or business,
the activity is regularly carried on (conducted in the same frequency and continuity as a for-profit organization would conduct a similar activity), and
the activity is not substantially related to furthering the exempt purpose of the organization.
Is having unrelated business income a bad thing?
Not at all. However, organizations should be careful when it comes to the amount of activities they are involved in that generate unrelated business income, because excessive activities could prompt the IRS to review (and possibly, reconsider) the organization’s tax-exempt status.Unrelated Business Income is a topic that affects many not-for-profit organizations. Below are answers to some frequently asked questions relating to unrelated business income. For more information, please visit the Internal Revenue Service’s website at www.IRS.gov.
What is unrelated business income?
The income generated from an activity that meets three requirements:
- the activity is a trade or business,
- the activity is regularly carried on (conducted in the same frequency and continuity as a for-profit organization would conduct a similar activity), and
- the activity is not substantially related to furthering the exempt purpose of the organization.
Is having unrelated business income a bad thing?
Not at all. However, organizations should be careful when it comes to the amount of activities they are involved in that generate unrelated business income, because excessive activities could prompt the IRS to review (and possibly, reconsider) the organization’s tax-exempt status. Is unrelated business income taxable, and if so, what IRS Form does my organization need to complete?
Income from activities that are unrelated to the organization’s primary mission may be taxable (see list of exceptions/exclusions below). A tax-exempt organization that has $1,000 or more of gross receipts from an unrelated business activity must file Form 990-T. Additionally, if an organization expects its tax for the year to be $500 or more, it must pay quarterly estimated tax on the unrelated business income (can use Form 990-W as a helpful worksheet).
What are the unrelated business income tax exceptions and exclusions, as per the IRS (i.e. what activities are excluded from the definition of unrelated trade or business)?
- Dividends, interest, certain other investment income, royalties, certain rental income, certain income from research activities, and gains/losses from the disposition of property are excluded from the computation of unrelated business income.
Volunteer labor - activities where substantially all of the work is done by volunteers.
Convenience of members - For 501(c)(3) organizations, as well as governmental colleges or universities, activities that are carried on for the convenience of members, students, patients, officers or employees are excluded from UBIT. Examples include a hospital gift shop or school cafeteria.
Selling Donated Merchandise - the sale of merchandise that has been donated to the organization. A typical example of this would be a thrift shop.
Bingo - the IRS does not consider certain bingo games to be unrelated trade or business.
Monday, August 26, 2013
Developing Job Descriptions for Your Volunteers
In this day and age, volunteers are more important to organizations than ever. Volunteers serve in many capacities within non-profits by contributing time, energies or talents that help fulfill the organization’s mission. Volunteers generate enthusiasm and interest and help to create a positive community image. Organizations should spend time considering why they want to work with volunteers and developing a philosophy for the overall engagement of volunteers.
Volunteers should never be considered “free help”. They should be viewed as extensions of professional and paid staff engaged in the fulfillment of the organization’s mission. As high employee retention helps your organization function smoothly, volunteer retention can help achieve your goals by cultivating a group of individuals who are highly knowledgeable about your organization. Your organization should also make strategic decisions on how volunteers can most effectively and efficiently assist with your mission.
Written job descriptions should be prepared for every volunteer position, no matter how big or small. The advantage of a written job description is that the duties, expectations and responsibilities of both the volunteer and the non-profit are outlined clearly and the volunteer knows exactly what is expected of them.
Volunteer job descriptions may vary in format and length but should include certain basic information.
Volunteers should never be considered “free help”. They should be viewed as extensions of professional and paid staff engaged in the fulfillment of the organization’s mission. As high employee retention helps your organization function smoothly, volunteer retention can help achieve your goals by cultivating a group of individuals who are highly knowledgeable about your organization. Your organization should also make strategic decisions on how volunteers can most effectively and efficiently assist with your mission.
Written job descriptions should be prepared for every volunteer position, no matter how big or small. The advantage of a written job description is that the duties, expectations and responsibilities of both the volunteer and the non-profit are outlined clearly and the volunteer knows exactly what is expected of them.
Volunteer job descriptions may vary in format and length but should include certain basic information.
- The specific volunteer job title should be identified, along with the estimated time required and location (such as where the volunteering will occur).
- The general purpose of the volunteer position should be stated broadly, followed by specific responsibilities described in greater detail.
- The qualifications needed by the volunteer should be identified clearly, along with any support to be provided (materials, training, etc.) as part of the volunteer position.
- Finally, and perhaps most importantly, the supervisor to whom the volunteer is responsible should be identified.
Monday, July 22, 2013
Why Good People Do Bad Things
by Michael L. Lauzon, CPA, Audit Manager
Setting organizational policies and procedures and implementing strong internal controls are key to fraud deterrence and prevention. Internal controls help mitigate opportunities for fraud to be committed or the possibility for someone to be wrongly accused of committing fraud. Terms like micromanaging, lack of trust, red tape, and jumping through hoops are used to describe work processes or environments which seem to have an undue amount of oversight over routine activities. While these extra steps may be perceived as inconvenient to employees, they are put in place to protect the organization itself as well each individual within the organization. To help achieve these goals, your organization should also review your internal control processes with an eye to incorporating ethics as an important aspect of the decisions made by your employees every day.
When fraud occurs, it is often assumed that the perpetrator will be easily identifiable as an unethical person. Indeed, many organizations’ fraud prevention tactics utilize interviews and background checks during the hiring process, as well as ongoing feedback and interaction from coworkers or supervisors to identify individuals who potentially may commit fraud. However, not all fraud is committed by people with a history of unethical behavior. People who consider themselves ethical (and who may be viewed as good people by their coworkers and supervisors) can commit fraud too.
Think about the examples of fraud that you have heard relayed in seminars and ethics training events. Part of the reason that the stories are so intriguing is the fraudster is often the last person you would suspect - someone’s friend, parent, grandparent or trusted member of the organization. As an organization, we cannot control or necessarily identify an individual’s rationalization or pressure that have motivated fraudulent activity. We can, however, implement procedures to reduce the opportunity for fraud to occur.
When designing and implementing internal controls to help prevent and detect fraud, an important (but often overlooked) element is the establishment of an organizational tone that requires that all decisions include consideration of ethical principles. Psychological studies have shown that the business mind set activates one set of goals - to be competent and successful. On the other hand, the ethical mind set activates another set of goals - to be fair and not hurt others. Therefore, if decisions are presented from a strictly business perspective, employees may not see past the impact of their decision on immediate business results or the achievement of a specific desired outcome. Therefore, individuals are more likely to follow ethical rules when they are asked to consider both business and ethical implications during the decision making process.
The importance of setting an environmental tone that considers ethics in decision making was revealed by a study by a University of Notre Dame psychological researcher, as cited in a story by National Public Radio’s Planet Money. In this study, two groups were presented with a desired outcome (or goal). The instructions for the first group merely indicated that they were to achieve the end result. The second group was instructed to achieve the result but consider the ethical implications of actions taken. When presented with an opportunity to cheat, the second group (who had simply been reminded to consider ethical implications) did not take the bait, but the first group did. This group may not have intentionally intended to make unethical decisions, but nevertheless it occurred in the process of achieving the set goal.
Setting organizational policies and procedures and implementing strong internal controls are key to fraud deterrence and prevention. Internal controls help mitigate opportunities for fraud to be committed or the possibility for someone to be wrongly accused of committing fraud. Terms like micromanaging, lack of trust, red tape, and jumping through hoops are used to describe work processes or environments which seem to have an undue amount of oversight over routine activities. While these extra steps may be perceived as inconvenient to employees, they are put in place to protect the organization itself as well each individual within the organization. To help achieve these goals, your organization should also review your internal control processes with an eye to incorporating ethics as an important aspect of the decisions made by your employees every day.
Friday, June 14, 2013
Tips for Recruiting Volunteers
The selection and recruitment of volunteers is the process of choosing the right volunteer for a specific job as outlined in a written job description. Selection happens after the organization has assessed the need for volunteers and identified specific tasks or jobs to be done by volunteers. Recruitment becomes an ongoing process once the needs have been identified. A manager of volunteers must first determine specific roles or jobs needed before recruitment and selection can take place.
One style of volunteer recruitment is “targeted recruitment.” This method identifies a needed volunteer job and then targets an individual or group(s) of individuals who should have the skills or interests necessary to fulfill the job’s responsibilities. The targeted method can involve several steps.
- Develop a list of all volunteer jobs needed by the organization.
- Identify types of skills/qualities desirable for specific jobs. (For example, if you are looking for a reading tutor for a school, the volunteer needs to be comfortable with children and available during school hours.).
- Identify potential target groups (such as retired teachers, stay at home parents, or older students) and then determine where these target groups can be found (e.g., senior centers, retirement groups, libraries, recreation centers, or high schools).
- Make an appeal to individuals in these target groups. Share what your organization hopes to accomplish and can offer volunteers for their efforts. (For example, the goal is to help students pass examinations and be more successful in school. This volunteer opportunity will benefit the community by advancing students’ skills and increasing their employability.) Indicate what is unique and special about your organization. (For example, volunteers may work with the same students over a 2-year period instead of just one year).
- Decide how you will communicate your recruiting message to these targeted groups. Managers of volunteers may find that personal conversations or presentations to small groups of potential volunteers are very effective ways of recruiting volunteers. Helping an individual realize they have the abilities to do something they want to do is easiest when a two-way conversation occurs. Managers of volunteers may also recruit volunteers from the general community by using new stories, posters, advertisements, radio announcements, or printed messages in papers or newsletters.
It is often helpful to involve other people (especially volunteers) in the recruitment process. Current volunteers may be more effective in talking about their work and the rewards received from their volunteer service. Some organizations create a speakers bureau consisting of volunteers and paid staff who are trained in giving presentations to the public about the organization’s work. If the purpose of the presentation is to share information and recruit volunteers, be certain you invite people to volunteer and be ready for them to begin the volunteering process.
Monday, April 15, 2013
Constructing an Effective Cost Allocation Plan
by Jill A. Shaw, CPA, Partner
Cost allocation is important because, when it’s done accurately and consistently, it can provide a realistic picture of what expense is required to run a program. Another important function is to assist users of your organization’s financial information to make informed decisions.
First, Consider the Users of the Plan
A cost allocation performed for grant reporting or program evaluation purposes may or may not be appropriate for external (GAAP) financial reporting. For example, a cost allocation to determine program viability may include all costs as program costs, even though some costs by nature should be classified as supporting services (such as administrative salaries and audit fees). In addition, government grant allocation may allow the organization to pool all indirect costs and charge them to the program based on a computed indirect cost rate. However, such methods might not result in a reasonable allocation of indirect costs from a GAAP standpoint. In all cases, nonprofit organizations must take steps to ensure they are billing only allowable costs and building accurate overhead costs into contracts and grants.
Direct vs. Indirect Costs
In developing a cost allocation plan, you must first identify their direct and indirect costs.
Indirect costs are those costs that are not easily identifiable with a specific program, but frequently benefit more than one program. Common examples of indirect costs include the Executive Director’s salary, facility rent, and administrative supplies. For example, if an organization houses all three of its programs in one leased facility, the cost of rent is an indirect cost, meaning that since there are not three separate leases, they will have to find a way to estimate the relative benefit each program receives from being housed in that location.
Direct costs are those that can be specifically identified with a particular program. The salary of an employee whose efforts can be directly identified with a particular program is a prime example of a direct cost.
Selecting An Allocation Base
Once indirect costs are identified, you must then determine the basis of allocation. A cost allocation base is the element that best measures the relative benefits received by a particular program. When selecting a base, consider one that is accurate, yet will not require too much time to implement. If your organization provides specific client services such as drug recovery counseling, you can consider selecting a more general cost allocation basis (e.g., number of patients).
A couple of the most common allocation bases are:
Payroll.
Allocations are based on a percentage of the total payroll dollars charged by employees to each program.
Square footage.
Allocations are based on the proportionate space occupied by each program in your office or worksite. This method is useful for allocating rent and utilities.
Necessary Elements of a Plan
You might have to pick and choose which method works best for your organization. Whatever method you decide to use, you should use it consistently, put it in writing, and have it approved by management and/or the proper grant officials. The organization should also have a process to update the plan periodically.Allocation can look complicated at first glance, and it can be challenging to set up a reliable, consistent and simple system. Nevertheless, with proper planning you can develop a method that works for you and that reflects the reality of what happens in your organization from day to day.
Need help with your Cost Allocation Plan? Contact Scott W. Kies, CPA, CFE, at (602) 277-9449, ext 308 or scottk@heinfeldmeech.com or Cherie R. Wright, CPA at (602) 277-9449, ext 376 or cheriew@heinfeldmeech.com.
Tuesday, March 5, 2013
Essential Cash Internal Controls for Small Nonprofit Organizations
by Jill A. Shaw, CPA, Partner
If your nonprofit organization has just a handful of employees (or maybe only one!), developing
appropriate internal controls for cash and bank accounts are critical for maintaining the security of
your organization’s funds. Below are some recommended processes to help reduce opportunity for fraud or other losses.
transactions are properly authorized and recorded. In even the smallest organization, there can be
another person who looks over things periodically to detect questionable transactions. Fortunately,
establishing good internal controls requires more of an investment of attention than money. Thus, very small nonprofits or even all-volunteer groups can create appropriate controls and reap the benefits.
Need Help with Your Internal Controls?
Contact Scott W. Kies, CPA, CFE at (602) 277-9449, ext 308 or scottk@heinfeldmeech.com.
If your nonprofit organization has just a handful of employees (or maybe only one!), developing
appropriate internal controls for cash and bank accounts are critical for maintaining the security of
your organization’s funds. Below are some recommended processes to help reduce opportunity for fraud or other losses.
- Reconcile the bank statement monthly. This control is essential to early detection of fraud and minimizing losses to the organization. Ideally, the bank statement should be reconciled by someone who is not an account signor and someone who does not make deposits. If that is not possible due to limited employees, consider hiring a bookkeeper to perform the reconciliation or require that a Board member performs this function. Another mitigating control would be to have an independent person (such as a Board member) review and sign off on the bank statement reconciliation each month.
- Monitor who opens the bank statement. In some cases, fraud is discovered simply because a different person opens the mail. Someone other than the person writing and mailing the checks should receive the unopened bank statement and review the contents before it is reconciled. If the organization only has one employee or utilizes an outside bookkeeper to reconcile the account, consider giving a Board member read-only online access to the bank statements, so that (s)he has access to the bank statements directly from the website in order to review them for propriety.
- Keep all unused checks in a locked cabinet or closet. In addition, unused check stock should
not be maintained by the person authorized to sign checks. If that is not be possible in your organization, one of the other controls mentioned here will be necessary. - Require two signatures on checks above a set threshold. Identify in the policy manual whether certain checks can be excluded from the requirement. For example, if a set amount is paid for rent each month based upon a signed lease, then as long as the rent is for the amount noted in the lease, a second signature would not be required.
- Cross-train staff. Require that employees take vacations and train other employees to perform their duties (such as making bank deposits and other essential accounting duties) during their absences.
- Make deposits daily or at least weekly if possible. Also remember to keep cash and checks on hand locked up in between deposits. In addition, immediately place restrictive endorsements on checks.
- Don’t permit organization checks to be made out to “Cash.” Furthermore, do not allow the use of ATM/debit cards.
transactions are properly authorized and recorded. In even the smallest organization, there can be
another person who looks over things periodically to detect questionable transactions. Fortunately,
establishing good internal controls requires more of an investment of attention than money. Thus, very small nonprofits or even all-volunteer groups can create appropriate controls and reap the benefits.
Need Help with Your Internal Controls?
Contact Scott W. Kies, CPA, CFE at (602) 277-9449, ext 308 or scottk@heinfeldmeech.com.
Tuesday, January 22, 2013
Mandatory Auditor Rotation - Is a Change Really Necessary?
By Corey Arvizu, CPA, Managing Partner
The idea of mandatory auditor rotation has been receiving a lot of attention in the past year. Many articles have been written on the topic, standard setters are debating the issue, and of course key stakeholders are weighing in on the matter, including auditors themselves. Much of the discussion centers on the belief that after a period of time auditors lose their objectivity and therefore may overlook internal control matters or financial statement misstatements that a new auditor would be able to identify.
The concept of auditor rotation is not entirely new. The issue received a great deal of attention during the development of the Sarbanes-Oxley Act in 2002. Some involved with the reform believed mandatory auditor rotation was necessary to ensure objectivity, while others believed the costs would significantly outweigh the benefits.
In response, Congress requested that the Government Accountability Office (GAO) research the matter. While conducting the research, GAO surveyed hundreds of parties from both management of companies as well as auditors. Although their research was limited to audits of publicly-traded companies, the GAO ultimately did not provide a recommendation on mandatory auditor rotation. However the general conclusion from the respondents was that mandatory auditor rotation would increase the costs of audits while having little, if any, effect on audit quality.
Ten years later the issue is once again receiving attention due to the Public Company Accounting Oversight Board’s (PCAOB) concept paper (http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf) on mandatory audit firm rotation. Although once again the discussion is limited to that of publicly-traded companies, the “trickle down” effect is impacting audits of all types of organizations, including governments and nonprofit organizations. Many organizations are now evaluating the term of their auditors and considering a change in auditors for a “fresh look” at their operations.
Clearly the objectivity and independence of the auditor is critical to ensuring a quality audit and protecting the interests of the users of the financial statements; however simply changing auditors may not achieve this purpose.
The following are some items that should be considered:
· Auditors have a number of standards which require them to evaluate and assess independence and objectivity for every audit performed. This process is also “audited” every three years during the audit firm’s peer review.
· All auditors are required to perform and document their audit in accordance with audit standards. Although professional judgment is used during an audit, every auditor must meet the requirements of the profession, regardless if it is the first year performing the audit or the 20th year performing the audit.
· As noted above, there has been no evidence to date that auditor rotation would improve auditor objectivity or enhance audit quality. In addition, there is no evidence that audit failures of the past had any relationship with auditor tenure.
· Currently no standard setter or regulatory body requires auditor rotation. This includes the Sarbanes-Oxley Act, the Single Audit Act, IRS regulations, and Government Auditing Standards. The Arizona legislature recently approved a bill to repeal a statute that was going to require Arizona charter schools to rotate auditors every six years.
· The procurement process is an excellent method for organizations to address any concerns regarding auditor objectivity. As a matter of practice, any organization should periodically bid audit services as it provides the ideal opportunity to evaluate auditor performance and objectivity. Many governments and nonprofits have procurement practices which require such periodic procurement of services.
· Have your auditors meet directly with your governing board and/or audit committee. Although auditors work closely with management, they ultimately work for the governing board. Providing the auditors opportunities to meet with the board not only allows the auditors to communicate audit matters directly with them but it also provides opportunities for the board to ask the auditors tough questions regarding objectivity, the audit process, and the responsibilities of all parties.
· Lastly, should there be an interest in obtaining a different perspective during the audit many firms can provide a different engagement team to perform the audit. Changing the engagement team would ultimately achieve the same result of getting a “fresh look” while retaining the audit firm’s expertise, industry knowledge, and service level.
Mandatory auditor rotation is a challenging issue due to the limited amount of measurable research and the false perceptions of what auditors are required to do when performing an audit. Assessment of this issue can also be clouded by other variables affecting audit quality which having nothing to do with auditor tenure.
While there may be other perspectives on this issue not presented here, all parties, including the audit profession, agree that auditor objectivity is paramount to protecting the public interest and maintaining the high level of credibility of the audit profession. To ensure achievement of this key principle it is important that your organizations decision makers are fully informed on the matter, any audit service concerns are discussed with the auditors, and that the quality, service level, and expertise of your auditors are held to the highest standard.
Corey Arvizu is a current member of the American Institute of Certified Public Accountants (AICPA) Professional Ethics Executive Committee and past Chair of the AICPA's Governmental Audit Quality Center (2008-2011). He is also a frequent speaker on auditing issues for organizations such as the AICPA, GFOAz, AASBO, and state societies.
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