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The Government Audit Quality Center (GAQC) Updates

This is from the GAQC, Alert No. 404:

The purpose of this GAQC Alert is to provide you with important governmental auditing updates relating to the Novel Coronavirus (COVID-19) as follows:

·   A definitive answer has been provided by the Small Business Administration (SBA) regarding the applicability of single audit requirements to Payment Protection Program (PPP) loans and Economic Injury Disaster loans (EIDL) obtained by not-for-profit entities (NFPs);

·   Statement on Auditing Standard (SAS) 141, Amendment to the Effective Date of SAS Nos. 134 Through 140, has been issued by the Auditing Standards Board (ASB).

·   The U.S. Department of Housing and Urban Development (HUD) has further extended certain submission deadlines for multifamily housing entities and public housing agencies (PHAs), as well as updated other COVID-19 guidance.

·   The Department of Energy (DOE) has extended audit submission deadlines for certain for-profit entities;

·   There are several COVID-19-related developments at the Federal Audit Clearinghouse (FAC); and

·   Registration information for an upcoming AICPA Webcast that will cover general audit-related implications of the COVID-19 pandemic.

SBA Loan Programs

In response to the COVID-19 pandemic, SBA PPP loans, administered under the 7(a) guaranty loan program, are being provided through local financial institutions. While these loans have been made primarily to for-profit entities, some NFPs have also received PPP loans. One of the most common questions we have received is whether SBA PPP loans obtained by NFPs are subject to the Uniform Guidance single audit requirements. The good news is that we have recently received an answer to this question. Based on recent discussions with SBA staff, we have been informed that PPP loans made to NFPs will not be subject to single audit.

On the other hand, SBA informed us that loans made to NFPs under the EIDL program are considered a direct loan program disbursed from SBA to loan recipients. Therefore, these loans are considered federal financial assistance and are subject to the Uniform Guidance single audit requirements.

SAS 141 Delays Auditing Standards

SAS 141 was issued in May 2020 and provides a one year delay for implementing SAS Nos. 134-140 to provide relief to auditors amid the challenges created by the COVID-19 pandemic. This suite of standards will, among other things, result in significant changes to the auditor’s reporting. The standards will now be effective for audits of financial statements for periods ending on or after December 15, 2021 (previously they would have been effective for periods ending on or after December 15, 2020). While early implementation was not permitted for these standards as originally issued, SAS 141 does permit early implementation. Additionally, because they are so interrelated, the ASB recommends that the suite of SASs be implemented concurrently.

HUD COVID-19 Extensions

Multifamily Housing Entities. As reported in GAQC Alert #399, HUD’s Real Estate Assessment Center (REAC) had previously provided a 30-day extension for multifamily audit submissions having due dates of 3/31/20 and 4/30/20 (requiring them to be submitted by April 30th and May 31st respectively). We have just heard from HUD staff that they have further extended these submission deadlines to June 30, 2020. A new user alert has been posted for those logging into the Financial Assessment Subsystem – Multifamily Housing site as follows:

“Global Extension Till June 30th REAC is extending due dates on all submissions that are due April 30th and May 31st. The new due dates for these submissions will be June 30th. This applies to all submissions due within this time frame.”

Further, as noted in GAQC Alert #399, HUD issued a question and answer (Q&A) document, Questions and Answers for Office of Multifamily Housing Stakeholders, which has now been updated through May, 1, 2020, Some of the more recent questions added to the document address forbearance provisions described in Mortgagee Letter 2020-09, Implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act Forbearance, which are relevant to multifamily borrowers, servicers, and lenders. Note that Q7 in this Q&A document addresses the audit extension but has not yet been updated to reflect the latest June 30th extension provided by REAC. We assume the next version of the Q&A will reflect this latest change.

PHA Unaudited Submissions. On April 22, 2020, HUD issued an updated version of COVID-19 FAQs for Public Housing Agencies. QC14 of the FAQs extends the submission deadline for unaudited submissions required to be made by PHAs with 12/31/19 and 3/31/20 year-ends to 8/31/20 and 11/30/20 respectively. PHAs are not required to seek HUD approval for these extensions.

FAC Update

Although the FAC is accepting single audit submissions, FAC staff has informed us that the COVID-19 pandemic has impacted normal processing times and that telephone support is limited. It is currently not unusual for a month to pass between the receipt of a submission and for the submission to be processed by the FAC. However, this delay will not impact the recorded acceptance date which will still be based on the actual date of submission.

On another note, the FAC posted information about the 6-month single audit submission extension on the FAC home page under the heading “Important Announcements.” See GAQC Alert #401 for more information on this extension that was established by OMB Memorandum M-20-17, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations (OMB Memo M-20-17). In its announcement, the FAC added the following language that does not appear in the OMB memo: “Individual recipients and subrecipients…are requested to include a reference to the [OMB] memorandum in their audit reporting packages so that Federal agencies and pass-through entities are informed.” We understand this addition was made based on a request from OMB and believe the intent is for the auditee to add a statement in the reporting package when it has taken advantage of the 6-month extension due to the COVID-19 pandemic. We have an inquiry into OMB for confirmation on this, as well as a question about where in the reporting package this notification should be placed. We will follow-up in a future GAQC Alert once we get a response.

DOE For-Profit Audit Extension

In the DOE National Nuclear Security Administration’s implementation of OMB Memo M-20-17, DOE extended the audit submission deadline for for-profit entities subject to a compliance audit under DOE rules. The extension is consistent with the extension language provided by OMB for single audits (i.e., a 6-month extension). See the DOE announcement, section 13, titled “Extension of Single Audit Submission,” for more information.

 

If you have additional questions, please feel free to contact our office.

 

Upcoming Single Audit Submission Highlights

The U.S. Office of Management and Budget (OMB) issued the following memorandum, dated March 9, 2020, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19).

In response to that alert, the Governmental Audit Quality Center (GAQC) of the AICPA followed up with OMB to clarify certain points made in the memo and issued their own alert No. 398 as follows:

  • The OMB memo discusses a potential extension of the single audit submission deadline by 12 months. OMB clarified that this extension cannot be applied to ALL recipients as of right now. The memo is intended to provide guidance to federal agencies relating to areas where relief may be provided to certain
  • The guidance in the OMB memo primarily relates to recipients receiving funds for coronavirus preparation and response (H.R. 6074). There could be cases where agencies may decide to apply the guidance to existing awards that are deemed by the agency to be for continued research and services necessary to carry out the emergency response relating to COVID-19.
  • Federal agencies are expected to issue their own guidance.
  • OMB is working on additional guidance to address situations where recipients may have operations that have been adversely impacted by COVID-19 but are not recipients of H.R.6074 funds.
  • The GAQC recommends that entities and auditors contact the National Single Audit Coordinator at the cognizant or oversight agency if there are concerns about meeting the upcoming March 31, 2020 deadline (for June 30, 2019 single audit submissions).

If you have any questions, or would like more clarification on this issue, please contact our office.

3 keys to a successful accounting system upgrade

Technology is tricky. Much of today’s software is engineered so well that it will perform adequately for years. But new and better features are being created all the time. And if you’re not getting as much out of your financial data as your competitors are, you could be at a disadvantage.

For these reasons, it can be hard to decide when to upgrade your company’s accounting software. Here are three keys to consider:

1. Your users are ready. When making a major change to your accounting software, the sophistication of the system needs to align with the technological savvy of its primary users. Sometimes companies buy expensive software only to have many of its features gather virtual dust because the employees who use it are resistant to change.

But if your users are well trained and adaptable, they may be able to extract added value from a more sophisticated accounting system. For instance, they could track key performance indicators to generate more meaningful financial reports.

2. The price is right. You’ll of course need to consider the costs involved. As holds true for any technology purchase, project leaders must set a budget and focus the search on products and vendors offering only the functions your company needs.

But don’t stop there. Explore add-on services such as free trials, initial training and ongoing support. You want to get the most value from the software, which goes beyond the new and improved features themselves.

3. You need to integrate. This is the concept of networking your accounting system with your other mission-critical systems such as sales, inventory and production.

For most companies today, integration is essential to maximizing the return on investment in accounting software. So, if you haven’t yet implemented this functionality, an upgrade may be highly advisable. Just be aware that a successful companywide integration will call for buy-in from every nook and cranny of your business.

Typically, if a company doesn’t need any major accounting process changes, it probably doesn’t need a major accounting software change either. But if upgrading both will help grow your business, it’s absolutely a step worth considering. We can provide further guidance and info. Contact our team today!

When it comes to revenue, nonprofits need to think like auditors

Auditors examining a not-for-profit’s financial statements spend considerable time on the revenue figures. They look at the accounting methods used to record revenues and perform a detailed income analysis. You can use the same techniques to increase your understanding of your organization’s revenue profile.

In particular, consider:

Individual contributions. Compare the donation dollars raised to past years to pinpoint trends. For example, have individual contributions been increasing over the past five years? What campaigns have you implemented during that period? You might go beyond the totals and determine if the number of major donors has grown.

Also estimate what portion of contributions is restricted. If a large percentage of donations are tied up in restricted funds, you might want to re-evaluate your gift acceptance policy or fundraising materials.

Grants. Grants can vary dramatically in size and purpose ― from covering operational costs, to launching a program, to funding client services. Pay attention to trends here, too. Did one funder supply 50% of total revenue in 2015, 75% in 2016, and 80% last year? A growing reliance on a single funding source is a red flag to auditors and it should be to you, too. In this case, if funding stopped, your organization might be forced to close its doors.

Fees for services. Fees from clients, joint venture partners or other third parties can be similar to fees for-profit organizations earn. They’re generally considered exchange transactions because the client receives a product or service of value in exchange for its payment. Sometimes fees are charged on a sliding scale based on income or ability to pay. In other cases, fees are subject to legal limitations set by government agencies. You’ll need to assess whether these services are paying for themselves.

Membership dues. If your nonprofit is a membership organization and charges dues, determine whether membership has grown or declined in recent years. How does this compare with your peers? Do you suspect that dues income will decline? You might consider dropping dues altogether and restructuring. If so, examine other income sources for growth potential.

Once you’ve gained a deeper understanding of your revenue picture, you can apply that knowledge to various aspects of managing your organization. This includes setting annual goals and preparing your budget. Contact us for help interpreting and applying revenue data.

© 2018

Upcoming Deadline for Wage Statements and Independent Contractor Forms

01_04_18_810117502_ftnp_560x292_2.jpgBusinesses: Don’t forget the upcoming deadline for wage statements and independent contractor forms. Employers are required to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. This deadline also applies to certain Forms 1099-MISC filed with the IRS to report nonemployee payments to independent contractors. An extension of time to file is no longer automatic, and the IRS will only grant extensions for very specific reasons. “Failure to file these forms correctly and timely may result in penalties,” the IRS stated.

If you have any questions on how to file these forms, contact Langdon & Company today!

How long should you retain payroll records?

Employers must exert a certain amount of time and resources to properly retaining their income tax records. But these aren’t the only documents you need to maintain. Retention of your organization’s payroll records is also important.

Rule of thumb

Most employers must withhold federal income, Social Security and Medicare taxes from their employees’ paychecks. As such, you must keep records relating to these taxes for at least four years after the due date of an employee’s personal income tax return (generally, April 15) for the year in which the payment was made. This is often referred to as the “records-in-general rule.”

These records include your Employer Identification Number, as well as your employees’ names, addresses, occupations and Social Security numbers. You should also keep for four years the total amounts and dates of payments of compensation and amounts withheld for taxes or otherwise ― including reported tips and the fair market value of noncash payments.

It’s also important to track and retain the compensation amounts subject to withholding for federal income, Social Security and Medicare taxes, and the corresponding amounts withheld for each tax (and the date withheld if withholding occurred on a day different from the payment date). Where applicable, note the reason(s) why total compensation and taxable amount for each tax rate are different.

Other data and documents

A variety of other data and documents fall under the records-in-general rule. Examples include:

• The pay period covered by each payment of compensation,
• The employee’s Form W-4, “Employee’s Withholding Allowance Certificate,”
• Each employee’s beginning and ending dates of employment,
• Statements provided by employees reporting tips received,
• Fringe benefits provided to employees and any required substantiation,
• Adjustments or settlements of taxes, and
• Amounts and dates of tax deposits.

Follow the rule, too, for records relating to wage continuation payments made to employees by the employer or third party under an accident or health plan. Such records should include the beginning and ending dates of the period of absence, and the amount and weekly rate of each payment (including payments made by third parties). Also keep copies of each employee’s Form W-4S, “Request for Federal Income Tax Withholding From Sick Pay,” and, where applicable, copies of Form 8922, “Third-Party Sick Pay Recap.”

Simple rule, complex info

As you can see, the records-in-general rule is fairly simple, but the various forms and types of information involved are complex. Please contact our firm for assistance in managing the financial aspects of your role as an employer.

“Innocent Spouse Relief”

01_04_18_462235785_ftnp_560x292_1.jpgAn ex-wife gets no tax relief. In general, married taxpayers who file a joint tax return are “jointly and severally liable” for the tax due on the return. However, spouses may be eligible for “innocent spouse” relief if they can prove they didn’t know about an understatement of tax. In one case, a married couple filed a joint return and later divorced. The U.S. Tax Court ruled the ex-wife wasn’t entitled to innocent spouse relief with respect to two sources of income earned by the ex-husband because she was aware he had received 1099 forms. (TC Summ. Op. 2017-95)

When are education expenses deductible?

Education expenses may be deductible, but not if the education is needed as a minimum requirement of the taxpayer’s current job, or if it qualifies him or her for a new profession. In one case, a taxpayer was hired as a speech pathologist, but she didn’t have the required master’s degree. After obtaining that degree, she deducted the costs on her tax return, but the IRS disallowed the deductions. The U.S. Tax Court agreed, because the degree was needed to meet the minimum requirements of her job and also qualified her for a new profession. (TC Summary Op 2017-93)

Withholding guidance for Employers

Employers: Withholding guidance coming soon. With the new tax law now in place, Form W-4 will need to be substantially revised. On Dec. 26, the IRS announced it is working on withholding guidance and anticipates issuing it this month. Employers and payroll companies will be encouraged to implement the changes in Feb. The IRS stated the information will be designed to work with W-4 forms already filed. Use of the new withholding tables will allow employees to see changes in their paychecks as early as Feb. Until then, employers should continue using 2017 tables.

IRS REVISES FORM 990 EXTENSION PROCEDURES FOR TAX EXEMPT ORGANIZATIONS

by Tony Pandiscia

In guidance released in January, 2017, the Internal Revenue Service [“IRS”] announced a new extension procedure for organizations required to file Form 990, “Return of Organization Exempt from Income Tax”.  Tax Exempt Organizations seeking an extension will now file a “single” Form 8868 to request an automatic 6 month maximum extension of time to file the annual tax return.  Previously Tax Exempt Organizations intending to avail themselves of the full statutory extension period would be required to file 2 consecutive 3 month extensions, provide a valid reason for the extension request and sign the extension “under penalty of perjury”.  The new Form 8868 filing procedure will also apply to filers of other annual returns such as Form 990EZ [“Short Form Return of Organization Exempt from Income Tax”], Form 990PF [“Return of Private Foundation”], and Form 5227 [“Split Interest Trust Information Return” used by Charitable Trusts].  Note that Form 990-T [“Exempt Organization Business Income Tax Return”] that is required for Tax Exempt Organizations who generate Unrelated Business Income Tax [“UBIT”] has always been subject to a 6 month extension and will continue to do so under the new Form 8868 process.

The new extension form will apply commencing with the filing of “2016 tax returns” during calendar year 2017 [i.e. fiscal years with a “beginning date” in 2016] and must be filed prior to the due date for filing of the respective tax return.  As a reminder, a Form 990 is initially due 4 ½ months following the organization’s fiscal year end.  For “control or affiliate groups,” a separate extension form must be filed for each respective organization or affiliate that has an annual filing requirement.  Payments required (i.e. such as for “UBIT”) should accompany the extension form.  The Form 8868 may at the discretion of the filer be submitted via regular mail to the Ogden, UT IRS Service Center or electronically filed using any approved “EFILE” processing system.  Finally, note that this revised extension procedure applies to annual Federal Form 990 (and similar) filings for a Tax Exempt Organization and does not directly affect any State-mandated annual filing requirements.

We will be discussing with our respective clients the new extension procedures during the next few months, however anyone may contact Langdon & Company LLP should you have any questions.

Tony (tpandiscia@langdoncpa.com) is the Tax Partner with Langdon & Company LLP.  He is a CPA and also an attorney, advocating for clients on many levels-including with the State and the IRS.