Accounting and Auditing Update Janet Brocklehurst, Partner Angela Cain, Senior Manager

Agenda Legislative Developments IRS Form 990 Cost Allocation

Environment Corporate Scandals Charitable Scandals Sarbanes-Oxley Act United Way American University

Issues Identified by IRS and Presented to Senate Finance Committee Misuse of charitable entities to benefit the donor rather than the public good Overstated charitable deductions by taxpayers most often involving non-cash contributions Widely varying methods for determining the compensation of executives Inconsistent and limited disclosure of governance practices

Congressional Intent vs. Charitable Community Self Regulation Panel on Non-Profit Sector Over 120 specific recommendations Fall in three major categories Governance Transparency Accountability

Overview of Panel’s Recommendations The governing boards of charitable organizations must be more active Audit Procedures Conflict of Interest Policies Travel Policies Whistleblower Policies

Overview of Panel’s Recommendations Greater transparency is needed to help the public make informed choices and to assist with government oversight and enforcement Improve design of Form 990 Mandated financial statement audits for organizations with revenues over $1,000,000 Mandated financial statement reviews for organizations with revenues between $250,000 - $1,000,000

Overview of Panel’s Recommendations Congress should strengthen laws to address abuse and clarify standards and penalties Donor advised funds Supporting organizations Abusive tax shelters Executive and Board compensation All to protect against personal benefits to donors

Overview of Panel’s Recommendations Enforcement of laws and regulations governing charitable organizations be strengthened IRS is understaffed Do away with laws that limit IRS sharing information with state Attorney Generals and other state charity officials

Legislative Status

IRS Form 990 Discussion E-Filing Require highest ranking officer to sign 990 Organizations exempt from filing would be required to file basic contact and financial information Revision of Form 990

Revision of Form 990 Separate sections and schedules More disclosure required on potential abusive items Donor advised funds, financial awards, grants More disclosure of executive compensation and benefits Require same accounting method used to prepare audited financial statements

Functional Expenses Requirements Voluntary Health and Welfare Organizations Cost Allocation

Cost Allocation Functional expense reporting Required in financial statements and IRS Form 990 Program Services Management and General Fund-Raising Reporting allocated indirect costs OMB, Federal, State or Local agency requirements Grant reimbursement Unrelated business income

Cost Allocation – Indirect Costs Salary and benefit cost General and administrative Human Resources department Accounting department IT department Executive officers Program directors and staff

Cost Allocation – Indirect Costs Cost of operating and maintaining facilities Utilities Insurance Repairs and maintenance Building and equipment depreciation Equipment leases

Cost Allocation Criteria In decreasing order of preference: Cause and effect Benefits received Equitable or reasonable Ability to bear

Cost Allocation Common Allocation Bases Office support – Direct labor dollars or hours Occupancy – Square footage Data processing – Computer time

Contact Information Goodman & Company, L.L.P. 4510 Cox Road, Suite 200 Glen Allen, Virginia 23060 804-282-7636 jbrocklehurst@goodmanco.com acain@goodmanco.com