New Risk Assessment Standards-Cost Beneficial?

As discussed in the last post, new audit risk assessment standards provide auditors with additional guidance to enhance understanding of the organization and to assess risk. In our preliminary audit work we have implemented these procedures and while we have not found any major issues, we have found some smaller procedural issues that have enabled us to provide our clients with some practical recommendations.

I cannot yet determine if the value of the recommendations exceeds the additional time on our end and the cost on the client’s end. However, many changes take place that don’t necessarily have a direct and equal economic value to all the participants. Hopefully industry wide the changes will provide value across the board and the long term result will be fewer problems with financial reporting.

New risk assessment standards can provide organizations with additional opportunities

Audit risk assessment standards fully took effect this year. A few new standards were implemented last year. The standards are designed to help auditors increase their knowledge of the organizations they audit and provide additional guidance to improve risk assessment.

Organizations (especially small to midsize nonprofits) noted a change with their financial statements last year. If they outsource the preparation of the financial statements to their auditor, they will need to evidence their ability to take responsibility for the statements. This could be done by completing a disclosure checklist or other steps. While a number of our clients were pretty familiar with the various disclosures and could comfortably discuss their financial statements, they did welcome the opportunity to learn a little bit more about the statements and why the disclosures are there (after an initial hesitation). The more knowledgeable an organization is about their financial picture, even in seemingly insignificant areas, the better overall picture they will have of their operations.

Subcontractor filing

In a previous post I discussed employee vs. subcontractor decisions. If you do have subcontractors, you need to send them IRS Form 1099-Misc by January 31. The form is due to the IRS by February 29. A subcontractor is:

• a person or business that is not incorporated
• that provides you with a service
• that you pay more than $600 to during the calendar year

Common situations where you could have a subcontractor could be your cleaning service, landscape service, the disc jockey for your fundraiser, or people who you bring in to do temporary work.

Appreciative Inquiry

The Association of Fund Raising Professionals in the Philadelphia area is having a half day seminar on using Appreciative Inquiry in Strategic Planning. Since we provide clients with strategic planning two of us from the Bucks County Center for Non Profit Management are signed up to go to the seminar. The past week, I spent some time online reading about Appreciative Inquiry. My first thought was that it is like the SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) except for it is just the SO part. However, it is much more than that. Appreciative Inquiry approaches planning from a different angle. The traditional starting question has been-what are our problems and how do we solve them? Appreciative inquiry starts with questions to uncover what the organization does right and why. It is an intriguing approach and I am looking forward to learning more about it.

Employee vs. Subcontractor

If you are a small non profit with just a few part time employees you may be considering reclassifying the employees as subcontractors to cut down on the payroll filing hassles. Be careful though, the IRS has guidelines as to who is an employee and who is a subcontractor. Generally a subcontractor is someone who you can only direct the results of the work, not the way the work is accomplished. The IRS provides more detail at www.irs.gov in Publication 15A Section 2: Employee or Independent Contractor? There they list ten main criteria to consider when deciding if someone is an employee or a subcontractor. These criteria include where and when the work is performed; if the person uses their own supplies to do the job; or the organization’s supplies; and if the person performs the same work for other organizations. It is important to carefully review the criteria and if you decide that someone is a subcontractor to document the reasons why. If the IRS decides they are actually an employee, the organization could face penalties.