1. ©2010 LarsonAllen LLP 1 Fringe Benefit Testing ACUIA Austin, Texas June 15th, 2011

2. ©2010 LarsonAllen LLP 2 Speaker’s Biography – Greg Schwartz Greg Schwartz, CPA, CMA, is a principal in the Financial Institution Credit Union Group of LarsonAllen. Greg has been auditing credit unions for 25 years and his areas of expertise include audit and supervisory committee agreed-upon procedure engagements, GAAP and GAAS issues related to credit unions, supervisory committee issues, and review and evaluation of internal audit functions. Greg has worked with hundreds of credit unions all over the country and is considered an expert on credit union audit and accounting issues. He has made numerous presentations to credit union boards, supervisory committees and management on a variety of accounting and credit union issues. Greg graduated from Minnesota State University, Mankato, with a Bachelor of Science in Accounting and a minor in Computer Science. He is a CPA and a member of the American Institute of Certified Public Accountants (AICPA) and the AICPA credit union conference planning committee.

3. ©2010 LarsonAllen LLP 3 Fringe Benefit - Definition A fringe benefit is a form of pay (including property, services, cash or cash equivalent) in addition to stated pay for performance of services. 3

4. ©2010 LarsonAllen LLP 4 Fringe Benefit Audit - Benefits 1.Better control over credit union activities 2.Develop better internal policies 3.More equitable employee plans 4.More accurate financial reporting 5.Minimize tax consequences 6.Better employee moral 4

5. ©2010 LarsonAllen LLP 5 Auditing Fringe Benefits How to identify Are the expenses within policy/ Is it clear Are they recorded correctly Are the tax effects reported

6. ©2010 LarsonAllen LLP 6 How to identify Interview management Miscellaneous or other expense Expense reports Corporate credit cards

7. ©2010 LarsonAllen LLP 7 Are the expenses within policy Clearly defined policy Defined business purpose Documentation requirements Clearly defined eligibility Clearly defined terms 7

8. ©2010 LarsonAllen LLP 8 Recorded Correctly If discovered through policy – probably ok If discovered from management inquiries – possibly ok If discovered any other way – probably redo 8

9. ©2010 LarsonAllen LLP 9 Are the tax effects reported Accountable plan 1.Must be a business connection 2.Must be adequate accounting/reasonable period of time 3.Excess must be returned Nonaccountable plan 1.Taxable wages 9

10. ©2010 LarsonAllen LLP 10 Tax Consequences Accountable to Nonaccountable 1.Withholding of social security, medicare and income taxes 2.Employer matching of social security and medicare 10

11. ©2010 LarsonAllen LLP 11 Tax Resource The IRS Taxable Fringe Benefit Guide 11

12. ©2010 LarsonAllen LLP 12 Identification – the List Working Condition Fringe Benefits (slide) De Minimis Fringe Benefit (slide) No Additional Cost Fringe Benefits (slide) Qualified Employee Discounts Qualified Transportation Fringe Benefits Health and Medical Benefits Travel and Transportation Expenses Moving Expenses Meals and Lodging 12

13. ©2010 LarsonAllen LLP 13 Identification – the List (Cont) Use of Employee-Owned Vehicle Employer – Provided Vehicle Equipment and Allowances Other types of Compensation Awards and Prizes Professional Licenses and Dues Educational Reimbursments 13

14. ©2010 LarsonAllen LLP 14 Working Condition Fringe Benefits Property of services that, if the employee had paid for, he or she could have deducted as a business expense Uniform 14

15. ©2010 LarsonAllen LLP 15 De Minimis Fringe Benefit Small and infrequent 1.Personal use of photocopier 2.Group meals 3.Theater or sporting event tickets 4.Coffee, donuts, or soft drinks 5.Flowers for special circumstances 6.Local phone calls 7.Birthday or holiday gifts (not cash) with a low FMV 8.Commuting use of employer’s car < 1 day per month 15

16. ©2010 LarsonAllen LLP 16 De Minimis Fringe Benefit Not De Minimus 1.Cash 2.Cash equivalent 3.Transportation passes 4.Use of employer’s apartment, vacation home, boat 5.Commuting use of employer’s car > 1 day per month 6.Membership in a country club or athletic facility 16

17. ©2010 LarsonAllen LLP 17 De Minimis Fringe Benefit An employer gives employees snacks each day valued at 75 cents. Even though small in amount, the benefit is provided on a regular basis and is, therefore, taxable as wages. 17

18. ©2010 LarsonAllen LLP 18 No Additional Cost Fringe Benefits A service provided to employees the does not impose any substantial additional cost. Use of the credit union meeting facilities after hours 18

19. ©2010 LarsonAllen LLP 19 Qualified Employee Discounts Excludable if: –Merchandise – less than the employers gross profit percentage time the price charged the member –Services – less than 20% of the price charged the member Difficult to find Policy may or may not be clear Accounting is usually ok 19

20. ©2010 LarsonAllen LLP 20 Qualified Transportation Fringe Benefits 1.Commuter transportation in a commuter highway vehicle 2. Transit passes 3. Qualified Parking 4. Qualified bicycle commuting expenses Difficult to find Policy may or may not be clear Accounting is usually ok 20

21. ©2010 LarsonAllen LLP 21 Moving Expenses Often buried in “other” Often no clear policy Tax effect is often wrong 1.Time test – 39 weeks full time 2.New job is +50 miles further from the former home than the old job was from the former home 3.Moving of household goods and travel costs only 4.Must actually incur the expenses 21

22. ©2010 LarsonAllen LLP 22 Use of Employee-Owned Vehicle Not difficult to find Policy may or may not be clear Accounting is usually ok Taxes – federal standard mileage rate 22

23. ©2010 LarsonAllen LLP 23 Employer Provided Vehicle Not difficult to find Policy may or may not be clear Accounting is usually ok Taxes – 1.If records are provided then personal use is wages to the employee 2.If records are not provided then all use is wages to the employee 23

24. ©2010 LarsonAllen LLP 24 Listed Property - Cell phones, Computers Usually not hard to fine Usually mentioned in policy Accounting usually ok Tax effects- 1.Business use is not taxable 2.Personal use is wages 3.If records are not kept – all personal 24

25. ©2010 LarsonAllen LLP 25 Other Types of Compensation Performance bonuses Signing, recruiting or relocation bonuses Awards for outstanding service or performance Back Pay Severance pay Administrative pay Legal settlements/damages related to performance Grossed-up wages to pay for taxes 25

26. ©2010 LarsonAllen LLP 26 Employee awards Easy to find Probably not in policy Accounting probably ok Tax effect – 1.Must be length of service or safety only 2.Cannot be cash, cash equivalent, vacation, meal, lodging, theater or sports ticket, stocks or bonds. 3.Other special rules – no more than 10% can receive, etc 26

27. ©2010 LarsonAllen LLP 27 Employee Awards Employee of the month, outstanding member service, highest productivity – always taxable Dollar limitations – Qualified plan vs nonqualified plan 27

28. ©2010 LarsonAllen LLP 28 Club Membership Can be difficult to find Policy may not be clear Probably recorded in “other” Tax effect – 1.Taxable to the employee 2.Employee may deduct business use 28

29. ©2010 LarsonAllen LLP 29 Education Reimbursements Not hard to find Policy probably fairly clear Accounting probably ok Tax effect – 1.Must not be minimum requirements of current job 2.Must not qualify employee for a new job 3.Subject to verification requirements 29

30. ©2010 LarsonAllen LLP 30 Corporate Credit Cards Hard to find Policy not clear Accounting usually wrong Tax effect – can be a problem 30

31. ©2010 LarsonAllen LLP 31 Actual situation Missing receipts No business purpose documented Shared cards Tuition reimbursements to terminated employees not followed up Spouse travel Other mysterious expenses 31

32. ©2010 LarsonAllen LLP 32 Actual Situation Rolex watches 32

33. ©2010 LarsonAllen LLP 33 Actual Situation 1000 Golf balls 33

34. ©2010 LarsonAllen LLP 34 Actual Situation A CEO attended a conference in Hawaii - a “Supervisory Committee” conference 34

35. ©2010 LarsonAllen LLP 35 Actual Situation Property improvement – moving expenses 35

36. ©2010 LarsonAllen LLP 36 Actual Situation No documented compensation package for the CEO 36

37. ©2010 LarsonAllen LLP 37 Actual Situation Over 200 corporate credit union cards 37

38. ©2010 LarsonAllen LLP 38 Actual Situation Over a three year period, 9 people left without tuition reimbursement follow-u.p 38

39. ©2010 LarsonAllen LLP 39 Actual Situation $10,000 contribution to the University the CEO attended 39

40. ©2010 LarsonAllen LLP 40 Actual Situation CEO used a golf club 3 times in one year. Family used it daily. 40

41. ©2010 LarsonAllen LLP 41 Thank You Greg Schwartz, CPA gschwartz@larsonallen.com (612)376-4684 or (972)-644-3167