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

1 Gelman, Rosenberg & Freedman, CPAs Eight New Auditing Standards Collectively referred to as the “Risk Assessment SAS’s” # #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

2 Gelman, Rosenberg & Freedman, CPAs What is Risk Assessment? More focused audit approach using the COSO internal framework:  Control Environment  Risk Assessments  Control Activities  Communication and Information  Monitoring

3 Gelman, Rosenberg & Freedman, CPAs 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

4 Gelman, Rosenberg & Freedman, CPAs 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

5 Gelman, Rosenberg & Freedman, CPAs 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

6 Gelman, Rosenberg & Freedman, CPAs 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

7 Gelman, Rosenberg & Freedman, CPAs How will the Risk Assessment Standards Impact you? Request more information and documentation The demands on your personnel will increase

8 Gelman, Rosenberg & Freedman, CPAs 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

9 Gelman, Rosenberg & Freedman, CPAs 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

10 Gelman, Rosenberg & Freedman, CPAs 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

11 Gelman, Rosenberg & Freedman, CPAs New Form 990 Still in “draft” status New Form 990 and background information available on IRS website: 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)

12 Gelman, Rosenberg & Freedman, CPAs 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

13 Gelman, Rosenberg & Freedman, CPAs New Form 990 “Transparency” Emphasis on Governance and Compensation 11 page Core form 16 “schedules” that are filed, if applicable

14 Gelman, Rosenberg & Freedman, CPAs 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

15 Gelman, Rosenberg & Freedman, CPAs 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

16 Gelman, Rosenberg & Freedman, CPAs 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.

17 Gelman, Rosenberg & Freedman, CPAs New Form 990 Core form, Part VI - Governance, Management, and Disclosure (cont’.)  Whistleblower policy?  Document retention/destruction policy?

18 Gelman, Rosenberg & Freedman, CPAs New Form 990 Part VII, Compensation  Must use W-2 amounts (calendar year)  Detailed reporting on officers, former officers, and independent contractors

19 Gelman, Rosenberg & Freedman, CPAs 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

20 Gelman, Rosenberg & Freedman, CPAs New Form 990 Schedule D – Supplemental Financial Statements  Donor Advised Funds  Conservation Easements  Art Collections and Similar Assets  Trust, Escrow, and Custodial Arrangements  Endowments

21 Gelman, Rosenberg & Freedman, CPAs New Form 990 Schedule D (cont’.)  Investments  Other assets  Other liabilities  Reconciliation to Financial Statements  Supplemental information

22 Gelman, Rosenberg & Freedman, CPAs New Form 990 Schedule E – Schools Schedule F – Statement of Activities outside of U.S. Schedule G- Fundraising and Gaming Activities Schedule H - Hospitals

23 Gelman, Rosenberg & Freedman, CPAs 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

24 Gelman, Rosenberg & Freedman, CPAs New form 990 Schedule K – Tax Exempt Bonds  Issue descriptions  Proceeds  Private Business Use  Arbitrage

25 Gelman, Rosenberg & Freedman, CPAs 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

26 Gelman, Rosenberg & Freedman, CPAs 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)

27 Gelman, Rosenberg & Freedman, CPAs New Form 990 Schedule R – Related organizations and unrelated partnerships  Disregarded entities  Related tax-exempt entities  Related partnerships  Related corporations  Unrelated partnerships

28 Gelman, Rosenberg & Freedman, CPAs 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

29 Gelman, Rosenberg & Freedman, CPAs Taxation of Benefits IRS increased scrutiny on benefits Automatic excess benefit transactions Items covered: cell phones, computers, cars Other perks

30 Gelman, Rosenberg & Freedman, CPAs QUESTIONS ? Gelman, Rosenberg & Freedman Certified Public Accountants 4550 Montgomery Avenue Suite 650 North Bethesda, MD Terri McKnight, CPA, Director, Audit Department Richard J. Locastro, CPA, JD, Principal, Nonprofit Tax Department