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

2. Agenda
Legislative Developments
IRS Form 990
Cost Allocation

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

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. Legislative Status

11. 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

12. 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

13. Functional Expenses Requirements
Voluntary Health and Welfare Organizations
Cost Allocation

14. 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

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

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

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

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

19. Contact Information
Goodman & Company, L.L.P.
4510 Cox Road, Suite 200
Glen Allen, Virginia 23060