The Latest News | Auditing & Assurance
Audit and assurance services are essential for an organization to improve its operations and stay on top of the changes it is facing both internally and externally.
An audit is the highest level of assurance service and will often fulfill the requirements of outside third parties. In addition to the work performed in a compilation and review, audits also include transaction testing, understanding internal controls, and assessing fraud risk.
Not-for-profit organizations, in particular, face unique challenges when it comes to assurance. Insight and expertise is necessary to enable these organizations to meet reporting requirements so that they can instead focus on accomplishing the organization’s mission.
Be sure to bookmark this page to stay up-to-date with the latest legislative changes and financial advice in the auditing and not-for-profit arenas.
Update to IRS 20 Point Employee or Independent Contractor Test
For many years the IRS has used a twenty point test to determine if a worker should be classified as an employee or an independent contractor with respect to their employer. IRS Publication 15-A condensed the twenty points into eleven factors. In substance, these factors still evaluate a worker’s status the same way as before. The evaluation is now concisely grouped into three categories: Behavioral Control, Financial Control, and the Type of Relationship Between the Parties.
The importance of determining an employer’s workers as either Employees or Independent Contractors is that for employees, an employer must generally withhold:
- Federal Income Taxes
- Social Security Taxes
- Medicare Taxes
- Unemployment Taxes
- Additionally, during 2012, Senate Bill 459 increased the penalty for employers who willfully misclassify employees as independent contractors. These penalties range between $5,000 to $15,000 for each violation.
If a worker is classified as an Independent Contractor, the employer does not generally have to withhold or pay the above mentioned taxes.
OMB's Uniform Guidance and Single Audit Threshold Changes
The Office of Budget and Management's new "Uniform Guidance" streamlines and supersedes all previous eight OMB Circulars and applies to all nonprofits receiving federal fund, not just those nonprofits qualifying for a Single Audit.
The main provisions likely to affect small to medium-sized nonprofit organizations are:
- The triggering threshold of federal expenditures by recipient during the fiscal for a Single Audit requirement will be raised from $500,000 to $750,000.
- The percentage coverage rules will be decreased for high and low risk auditees.
- The criteria used to evaluate the organization's low-risk auditee status will change as well as the criteria related to high-risk Type A program determination.
- The number of high-risk Type B programs that are required to be tested as major programs will be reduced, and the Type B small program floor will be revised.
- When questioned costs are present, the threshold of reporting findings will be raised to $25,000 in questioned cost, and more detail will be required to be reported.
To whom and when should our organization issue an IRS Form 1099-MISC? Simply stated, in most cases, a nonprofit will be required to issue an IRS Form 1099-MISC when payments are made to a non-employee person totaling $600 or more per year in exchange for services, not goods, in the normal course of your organization’s trade or business.
The IRS defines more specific rules on filing an IRS Form 1099 to be; for each person to whom your organization has paid during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- At least $600 in rents, services (including parts and materials, but not goods), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- Any fishing boat proceeds,
- Gross proceeds of $600, or more paid to an attorney during the year, or
- Withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Also, use the IRS Form 1099-MISC to report that your organization made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
The New COSO
One of the most useful tools for a nonprofit organization's internal control function is The Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control - Integrated Framework, which was updated in May of 2013 and officially superseded the original framework on December 15, 2014.
In order for COSO's guidance to remain relevant in the context of today's business environment, the framework needed to be enhanced to reflect major changes in increased complexity of business, technology and globalization. The framework was also updated to capture and address changes in the business environment related to the following topics:
- Use of, and reliance on, evolving technologies
- Expectations for governance and insight
- Changes and greater complexities of business
- Demands and complexities in laws, rules, regulations, and standards
- Expectations for competencies and accountabilities
- Globalization of markets and operations
- Expectations relating to preventing and detecting fraud