Tag Archives: Non-profit accounting

Questions to “Check” Yourself about Check Tampering

Zemanta Related Posts ThumbnailThere are many different fraud tampering schemes.  One area that is easy to tamper with is checks.  When considering your organization’s vulnerability to fraud, here are a few questions to keep in mind to help mitigate the risk from tampering of checks.

  • Are unused checks stored in a secure container with limited access?

Blank checks, which can be used for forgery, should be stored in a secure area such as a safe or vault.  Security to this area should be restricted to authorized personnel.  Keep in mind, a locked cabinet is no good if the key is easily accessible!  In addition, it is important that people who have access to blank check stock do not have signing authority. Safekeeping and authorizing should be kept separate.

  • Are bank reconciliations completed immediately after bank statements are received?

Companies should complete bank reconciliations immediately after bank statements are received.  The Uniform Commercial Code states that discrepancies must be presented to the bank within 30 days of receipt of the bank statement in order to hold the bank liable. Also, it will be easier to spot a discrepancy while the information of recent events is still fresh in your mind and it’s always better to catch a fraud scheme sooner rather than later.

  • Are two signatures required for check issuance?

Requiring multiple people to review and sign checks reduces the risk of check fraud. Generally, a threshold is recommended whereby larger checks require more people involved. The amount of the threshold depends on the risk level you have assessed for your organization. $2,500 may not be practical if you habitually write large checks but to a smaller organization, that may be the level where things get risky and a separate set of eyes acts as a good control.

  • Are hand written checks prohibited?

Handwritten checks are especially vulnerable to check fraud and should be prohibited. The problem here is that they can be written without entering anything into the accounting system which means an extra close eye needs to be paid to that bank reconciliation!

  • With the exception of payroll, are checks issued to employees reviewed for irregularities?

Checks payable to employees, with the exception of regular payroll checks, should be closely scrutinized for schemes such as conflicts of interest, fictitious vendors, or duplicate expense reimbursements. Nobody likes chasing people down for their expense receipts, so make it a standard part of the control environment that submitting receipts before reimbursement is expected of everyone.

For more information on business matters affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.

 

Proposed Changes in Nonprofit GAAP

Zemanta Related Posts ThumbnailThomson Reuters reports that the FASB expects to issue their proposals of changes to nonprofit GAAP by late March 2015. These proposals would represent the first major changes to nonprofit accounting in over 20 years.

The key proposals are expected to address the following aspects of nonprofit GAAP:

  • Clarified reporting related to the restriction of funds relative to the total amount of funds available.
  • Improved performance reporting by altering the statement of activities to include an operating measure showing expenditures related to the organization’s mission as well as donated funds available to be spent.
  • Significant changes to the statement of cash flows which would propose changing from the indirect cash flow method of reporting to requiring the direct cash flow method which separates the reporting of cash receipts and payments tied to operating activities.
  • Expanded disclosures on endowments.
  • New disclosures on the organization’s access to immediate cash.

The objective of the proposals would be to increase transparency in nonprofit financial statements by providing more information to donors, creditors, and watchdogs about how funds are spent and invested. The FASB is planning to weigh the cost benefit of the proposals during the first quarter of 2015. If an agreement is reached that the benefit outweighs the costs then the proposals will be released for public comment.

Read more about it here.

How to Account for Website Development – Part 6

So far in this series, we have covered general guidance and general information relating to the costs associated with website development in part 1, discussed costs related to website planning activities in part 2, discussed costs related to development of website applications and infrastructure in part 3, graphical development in part 4 and content development in part 5. Typically after the content has been developed and placed into the website the only step left is to “publish” the website or in other words, make it public. Once the website “goes public” the main expenditures that your Organization will make in relation to the website are the operating costs. Let’s discuss the costs related to the operation of the website after implementation.

planningapplicationgraphicscontentoperating

 

This stage often involves incurring costs in order to operate the website. Such costs often include training, maintenance, and even administration.

Operating the website

According to FASB Section 350-50-55-9, the activities that characteristically are included in the operations of the website include (examples are taken directly from FASB Section 350-50-55-9):

  • Train employees involved in support of the  website.
  • Register the  website with Internet search engines.
  • Perform user administration activities.
  • Update site graphics (for updates of graphics related to major enhancements, see also addition of additional functionalities or features).
  • Perform regular backups.
  • Create new links.
  • Verify that links are functioning properly and update existing links (that is, link management or maintenance).
  • Add additional functionalities or features.
  • Perform routine security reviews of the  website and, if applicable, of the third-party host.
  • Perform usage analysis.

Accounting treatment:  Costs incurred in operating the website should be expensed as incurred (see exceptions explained next).

If the costs incurred provide for additional features and/or functionality of the website – the expenditures will be expensed or capitalized. The determining factor is whether it is probable that the upgrade or enhancement will actually result in additional functionality to the website.

If the upgrades and enhancements DO NOT result in added functionality – the costs are expensed as incurred. On the other hand, if the upgrades and enhancements DO result in added functionality – the costs are capitalized. Costs for maintenance are an example of an expenditure that does not result in added functionality and therefore is expensed as incurred.

Internal costs that cannot be separated between maintenance and upgrades/enhancements in a reasonably cost-effective manner should be expensed as incurred.

Any costs incurred to register an entity’s website with a search engine such as Google or Bing should be treated as advertising costs and should be expensed as incurred.

If you feel you have a unique scenario and need help deciding how to account for your website please feel free to contact us.  Part of our job is to help you help yourself. This concludes part 6 of the series; stay tuned for more in this series.

Avoiding Management Letter Comments – Inventory

what are we looking atCommon issues related to accounting for inventory include: incorrect valuation, too small or no allowances for slow moving inventory, not disposing of obsolete inventory and not having a regular count of inventory on hand.

Inventory should be valued at the lower of cost or market. The value of all items should be compared to market at least annually to ensure that market prices have not fallen below cost. If the market price has declined to less than the cost of the item in inventory an adjustment should be booked to reduce the recorded value. A key indicator would be if your organization has placed an item on sale for lower than the purchase price.

Determining original cost can be difficult if the items were produced in house and not purchased.  If the inventory is produced in house, the original costs is based on direct materials, direct labor, and a proportionate share of indirect costs. All costs used to determine the price of the inventory need to have supporting documentation.

The value recorded for inventory should also be adjusted depending on what method the organization is using to record sales; first in first out (FIFO), last in first out (LIFO), or weighted average.  LIFO and FIFO are the easiest to compute.  See below for how each method would affect the value of inventory and cost of goods sold (COGS).

FIFO is based on recording inventory so that the first widgets sold were the first ones purchased.  This would be used by grocery

stores or other businesses that have perishable goods. A schedule calculating inventory using the FIFO method is as follows:

Action Date Quantity Cost per unit Addition to inventory COGS Ending Value price per unit
Purchase 1/1/2001 100 1.00 100.00 0 100.00 1.00
Sale 4/1/2001 (60) 0 0 (60.00) 40.00 1.00
Purchase 7/1/2001 50 1.20 60.00 100.00 1.11
Sale 10/1/2001 (60) 0 0 (64.00) 36.00 1.20
Ending 12/31/2001 30 0 0 0 36.00 1.20
Purchase 2/1/2002 50 1.40 70.00 0 106.00 1.33
Sale 6/1/2002 (60) 0 0 (78.00) 28.00 1.40
Ending 6/30/2002 20 0 0 0 28.00 1.40

 

As you can see with FIFO the value at the end inventory is based on the most recent purchase as all older inventories has been sold. The COGS for the sale on 10/1/01 is based on 40 of the items purchased on 1/1/01 and 10 purchased on 7/1/01.  The COGS for the 6/1/02 sale is based on a similar calculation.
LIFO is based on the ending value of the inventory consisting of the oldest items in inventory.  This would be used in an industry where costs are rising and the business wants to match costs to rising revenues. A schedule calculating inventory using the LIFO method is as follows:

Action Date Quantity Cost per unit Addition to inventory COGS Ending Value price per unit
Purchase 1/1/2001 100 1.00 100.00 0 100.00 1.00
Sale 4/1/2001 (60) 0 0 (60.00) 40.00 1.00
Purchase 7/1/2001 50 1.20 60.00 0 100.00 1.11
Sale 10/1/2001 (60) 0 0 (70.00) 30.00 1.00
Ending 12/31/2001 30 0 0 0 30.00 1.00
Purchase 2/1/2002 50 1.40 70.00 0 100.00 1.25
Sale 6/1/2002 (60) 0 0 (80.00) 20.00 1.00
Ending 6/30/2002 20 0 0 0 20.00 1.00

 

LIFO looks remarkably similar to FIFO except the ending value is based on the oldest items. The COGS for the 10/1/01 sale is based on 50 from the 7/1/01 purchase and 10 from the 1/1 purchase.  The 6/1/02 sale is calculated similarly.

Weighted average is more complicated as it is based on the average price for the items remaining in inventory. This helps smooth the costs of rising prices over the period. Using the same data for purchases and sales as shown above in the FIFO and LIFO examples see how weighted average affects the ending balances. Weighted average is typically used by companies that produce mass amounts of the same item such as manufacturers, farmers, and fuel companies. A schedule using the weighted average method is as follows:

Action Date Quantity Cost per unit Addition to inventory COGS Ending Value price per unit
Purchase 1/1/2001 100 1.00 100.00 0 100.00 1.00
Sale 4/1/2001 (60) 0 0 (60.00) 40.00 1.00
Purchase 7/1/2001 50 1.20 60.00 0 100.00 1.11
Sale 10/1/2001 (60) 0 0 (66.67) 33.33 1.11
Ending 12/31/2001 30 0 0 0 33.33 1.11
Purchase 2/1/2002 50 1.40 70.00 0 103.33 1.29
Sale 6/1/2002 (60) 0 0 (77.50) 25.83 1.29
Ending 6/30/2002 20 0 0 0 25.83 1.29

 

In this example the COGS for the 10/1/01 sale is based on the average cost of the remaining 40 items at $1/unit and the additional 50 purchased at $1.20/unit for an average price per unit of $1.11. The 6/1/02 sale is similar, with it based on the average price of the remaining 30 units at end of the prior year plus the purchased items of 50 at $1.40/unit.

If the inventory become slow moving, selling only a few to none a year then an allowance should be booked for those items.  The allowance should be set up be debiting COGS and crediting an allowance account.  The longer the item is considered slow moving the larger the allowance should be until the item is considered obsolete.

When inventory is no longer selling due to it becoming obsolete (i.e. VHS, laser disc, etc) the items need to be written off.  To do this you would make an entry to inventory and COGS unless a previous allowance had been created then you would remove the allowance before writing off any additional remaining inventory to COGS. Carrying obsolete inventory on your books incorrectly overstates the value of the inventory.

Other inventory issues arise due to an organization not performing annual counts.  Inventory should be counted at least annually to insure that the quantity per the books agrees to the actual quantity on hand.  This discourages theft of items.  If they are never counted, items could slowly disappear from where they are kept. Annual counting also helps to spot items that maybe damaged or have become obsolete.

If you have any questions on how to value the inventory or how to determine an allowance feel free to contact us.

 

How to Account for Website Development – Part 5

So far in this series, we have covered general guidance and general information relating to the costs associated with website development in part 1, discussed costs related to website planning activities in part 2, discussed costs related to development of website applications and infrastructure in part 3 and graphical development in part 4. The next stage to be examined is development of the website content.

planningapplicationgraphicscontentoperating

 

This stage often involves incurring costs in order to input the content that was premeditated for during the planning stage.

Developing the content of the website

Typically, content includes such items as contact information, photos/images, articles, maps/directions, Church worship service times, Foundation grant information, and other textual or graphical information to be included on the website. It is important to note that content does not have to be internally developed and therefore may be externally obtained or provided by a third party. The content will reside in either the website code itself or on a separate database that is assimilated with the website by using software.

Accounting treatment:  US GAAP does not provide for unique accounting in regards to website content development. On the other hand, the costs related to the initial input of the content into the website is capitalized but ongoing regular inputs are expensed as incurred as that is considered maintenance.

As mentioned in part 3 of this series, data conversion should be also be expensed as incurred (there are exceptions so please see part 3 for details).

The software used by the Organization to assimilate or integrate external databases into the website should be capitalized.

If you feel you have a unique scenario and need help deciding how to account for your website please feel free to contact us.  Part of our job is to help you help yourself. This concludes part 5 of the series; stay tuned for more in this series.

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