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The mobile app labyrinth: Seven questions higher education institutions should ask

03.07.18

As a leader in a higher education institution, you'll be familiar with this paradox: Every solution can lead to more problems, and every answer can lead to more questions. It’s like navigating an endless maze. When it comes to mobile apps, the same holds true. So, the question: Should your institution have a mobile app? The Answer? Absolutely.

Devices, not computers, are how millenials communicate, gather, inform, and engage. Millennials, on average, spend 90 hours per month on mobile apps, not including web searches and website visits.

Students are no exception. A 2016 Nielsen study showed that 98% of millennials aged 18 – 24, and 97% of millennials aged 25 – 34, owned a smartphone, while a 2017 comScore report stated that one out of five millennials no longer use desktop devices, including laptops. Mobile apps have quickly filled the desktop void, and as students grow more reliant on mobile technology, colleges and universities are in the mix, creating apps to bolster student engagement.

So should you create an app? Here are some questions you should answer before creating a mobile app. Welcome to the labyrinth! But don’t be frustrated—answer these questions to help you avoid dead ends and overspending.

1. Is a mobile app part of your IT Strategy? Including a mobile app in your IT strategy minimizes confusion at all levels about the objectives of mobile app implementation. It also helps dictate whether an institution needs multiple mobile apps for various functions, or a primary app that connects users with other functionality. If an institution has multiple campuses, should you align all campuses with a single app, or if will each campus develop their own?

2. What will the app do? Mobile apps can perform a multitude of functions, but for the initial implementation, select a few key functions in one main area, such as academics or student life. Institutions can then add functionality in the future as mobile adoption grows, and demand for more functions increases.

3. Who will use the app? Mobile apps certainly improve engagement throughout the student life cycle—from prospect to student to alumni—but they also present opportunities for increased faculty, staff, and community engagement. And while institutions should identify the immediate audience of the app, they should also identify future users, based upon functionality.

4. Who will manage the app? Institutions should determine who is going to manage the mobile app, and how. The discussion should focus on access, content, and functionality. Is the institution going to manage everything in house, from development to release to support, or will a mobile app vendor provide this support under contract? Depending on your institution, these discussions will vary.

5. What data will the app use? Like any new software system, an app is only as good as its supporting data. It’s important to assess the systems to integrate with the mobile app, and determine if the systems’ data is up-to-date and ready for integration. Consider the use of application program interfaces, or APIs. APIs allow apps and platforms to interact with one another. They can enable social media, news, weather, and entertainment apps to connect with your institution’s app, enhancing the user experience with more content for users.

6. How much data security does your app need? Depending on the functionality of the app you create, you will need varying degrees of security, including user authentication safeguards and other protections to keep information safe.

7. How much can you spend for the app? Your institution should decide how much you will spend on initial app development, with an eye toward including maintenance and development costs for future functionality. Complexity increases costs, so you will need to  budget accordingly. Include budget planning for updates and functionality improvements after launch.

You will also need to establish a timeline for the project and roll out. And note that apps deployed toward the end of the academic year experience less adoption than apps deployed at the beginning of the academic year.

Once your institution answers these questions, you will be off to a good start. And as I stated earlier, every answer to a question can lead to more questions. If your institution needs help navigating the mobile app labyrinth, please reach out to me

Related Industries

Read this if you work for a not-for-profit organization. 

Our annual not-for-profit Recharge event provides attendees with an opportunity to hear about hot button issues in the not-for-profit industry. We polled registrants from across the country to see where they are focusing their attention in the current landscape. 

Employee retention

Overwhelmingly, employee retention is a number one concern for organizations, with 78% of respondents saying they were strongly focused on it in 2022. Not surprisingly, financial stability (67%), cybersecurity (50%) and concerns about access to government funding (43%) were of common concern among respondents.


 
Remarkably, employee retention in 2022 weighed more heavily on respondents than concerns around the remote workplace in 2021. While over 57% of respondents were concerned about the remote workforce in 2021, employee retention did not even make it into the top four concerns for organizations. This shift is consistent with what we are seeing in our client base, as organizations embraced hybrid and remote working arrangements and are well into codification of and adherence to the policies in place. Organizations reported taking significant efforts toward employee retention, most commonly looking at increasing salaries and allowing hybrid and flexible work arrangements as methods to help retain employees.

Financial stability

The concern around financial stability is slowly starting to decline. While financial stability was a top concern for 83% of organizations in 2021, that percentage dropped to 67% of respondents listing it as a top concern in 2022, While multiple factors certainly contribute to these results (availability of COVID relief funds, for example), the decline is significant, especially in this time of inflationary growth and demands on the labor market. This decline may be reflective of the continued transition away from short-term emergency response and toward a more future-oriented mindset. 

Other concerns

Both cybersecurity and government funding concerns held relatively steady in 2022 compared to 2021, with 45% of respondents concerned with cybersecurity and government funding in 2021, compared to 50% and 43% in 2022, respectively. 

Participants also reflected on the perceived top concerns for their board members, with employee retention and recruitment and overall financial stability leading in top importance. These mirrored concerns are of no surprise, but speak to the continued need for regular and reliable reporting to boards to allow for continued rapid response by those charged with governance.

If you have any questions about your specific concerns or situation, please don’t hesitate to contact our not-for-profit team. We’re here to help.

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Employee retention and other concerns: NFP outlook for the year ahead

Editor's note: read this if you are a CFO, controller, accountant, or business manager.

We auditors can be annoying, especially when we send multiple follow-up emails after being in the field for consecutive days. Over the years, we have worked with our clients to create best practices you can use to prepare for our arrival on site for year-end work. Time and time again these have proven to reduce follow-up requests and can help you and your organization get back to your day-to-day operations quickly. 

  1. Reconcile early and often to save time.
    Performing reconciliations to the general ledger for an entire year's worth of activity is a very time consuming process. Reconciling accounts on a monthly or quarterly basis will help identify potential variances or issues that need to be investigated; these potential variances and issues could be an underlying problem within the general ledger or control system that, if not addressed early, will require more time and resources at year-end. Accounts with significant activity (cash, accounts receivable, investments, fixed assets, accounts payable and accrued expenses and debt), should be reconciled on a monthly basis. Accounts with less activity (prepaids, other assets, accrued expenses, other liabilities and equity) can be reconciled on a different schedule.
  2. Scan the trial balance to avoid surprises.
    As auditors, one of the first procedures we perform is to scan the trial balance for year-over-year anomalies. This allows us to identify any significant irregularities that require immediate follow up. Does the year-over-year change make sense? Should this account be a debit balance or a credit balance? Are there any accounts with exactly the same balance as the prior year and should they have the same balance? By performing this task and answering these questions prior to year-end fieldwork, you will be able to reduce our follow up by providing explanations ahead of time or by making correcting entries in advance, if necessary. 
  3. Provide support to be proactive.
    On an annual basis, your organization may go through changes that will require you to provide us documented contractual support.  Such events may include new or a refinancing of debt, large fixed asset additions, new construction, renovations, or changes in ownership structure.  Gathering and providing the documentation for these events prior to fieldwork will help reduce auditor inquiries and will allow us to gain an understanding of the details of the transaction in advance of performing substantive audit procedures. 
  4. Utilize the schedule request to stay organized.
    Each member of your team should have a clear understanding of their role in preparing for year-end. Creating columns on the schedule request for responsibility, completion date and reviewer assigned will help maintain organization and help ensure all items are addressed and available prior to arrival of the audit team. 
  5. Be available to maximize efficiency. 
    It is important for key members of the team to be available during the scheduled time of the engagement.  Minimizing commitments outside of the audit engagement during on site fieldwork and having all year-end schedules prepared prior to our arrival will allow us to work more efficiently and effectively and help reduce follow up after fieldwork has been completed. 

Careful consideration and performance of these tasks will help your organization better prepare for the year-end audit engagement, reduce lingering auditor inquiries, and ultimately reduce the time your internal resources spend on the annual audit process. See you soon. 

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Save time and effort—our list of tips to prepare for year-end reporting

Read this if you are interested in GASB updates. 

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 99, Omnibus 2022 on May 9, 2022. The statement enhances comparability in accounting and financial reporting and improves the consistency of authoritative literature by addressing (1) practice issues that have been identified in previous GASB Statements, and (2) adding guidance on accounting and financial reporting for financial guarantees.

We’ve reviewed the statement in its entirety, and broken down key components for you to know. Here are the highlights.  

Accounting and financial reporting for exchange or exchange-like financial guarantees

Financial guarantees is a guarantee of an obligation of a legally separate entity or individual, including a blended or discretely presented component unit, that requires the guarantor to indemnify a third-part obligation holder under specified conditions, in an exchange or exchange-like transactions. 

An entity that extends an exchange or exchange-like financial guarantee should recognize a liability and expense related to the guarantee when qualitative factors and historical data indicate that is it more than likely not a government will be required to make a payment related to the guarantee.

Statement 99 excludes guarantees related to special assessment debt, financial guarantee contracts within the scope of Statement 53, or guarantees related to conduit debt obligations. 

Certain derivative instruments that are neither hedging derivative instruments nor investment derivative instruments

Derivative instruments that are within the scope of Statement 53, but do not meet the definition of an investment derivative instrument or the definition of a hedging derivative instrument are considered other derivative instruments. These “other derivative instruments” should now be accounted for as follows:

  1. Changes in fair value should be reported on the “resource flows statement” separately from the investment revenue classification.
  2. Information should be disclosed in the notes to financial statements separately from hedging instruments and investment derivative instruments.
  3. Governments should disclose the fair values of derivative instruments that were reclassified from hedging derivative instruments to other derivative instruments. 

Leases

If your entity has leases please review the following as Statement 99 clarifies numerous issues from Statement 87, specifically:

  • Lease terms as it relates to options to terminate and option to purchase the underlying assets, in paragraph 12 of Statement 87 has been clarified;
  • Short-term leases in paragraph 12 of Statement 87 has been clarified as it relates to an option to terminate the lease;
  • Lessee and lessor recognition and measurement for leases other than short-term leases that transfer ownership has been clarified, and
  • Lease incentives in paragraph 61 of Statement 87 has been further defined.

Public Private and Public-Public Partnerships (PPPs)

If your entity has PPPs, Statement 99 clarifies the following: 

  • PPP terms
  • Receivable for installment payments (transferor recognition)
  • Receivable for the underlying PP Asset (transferor recognition)
  • Liability for installment payments (operator recognition)
  • Deferred outflow of resources (operator recognition)

Subscription-Based Information Technology Arrangements (SBITAs)

Subscription terms and definitions have been clarified, specifically as it relates with options to terminate, short-term SBITAs, and measurement of subscription liabilities.

If your entity has SBITAs, review the provisions of each SBITA to ensure compliance with Statement 99 paragraphs 23–25.

Replacement of LIBOR

Check with your banking institutions to confirm when they have phased out of LIBOR. Confirm with your banking institutions what specifically has replaced LIBOR and update Financial Statement disclosures as needed. 

SNAP

State governments should recognize distributions of benefits from Supplemental Nutrition Assistance Program (SNAP) as a nonexchange transaction. Review Financial Statement disclosure and determine if a disclosure is needed. 

Disclosure of Nonmonetary Transactions

If you engage in one or more nonmonetary transactions during the fiscal year, you will need to disclose those transactions in the notes to the financial statements the measurement of attribute(s) applied to the assets transferred, rather than basis of accounting for those assets.

Pledges of future revenues when resources are not received by the pledging government

When blending the financial statement of a debt-issuing component unit into the financial statements of a primary government pledging revenue for the component unit’s debt, the primary government should reclassify an amount due to the component as an interfund payable and an interfund transfer out simultaneously with the recognition of the revenues that are pledged.

Focus of the government-wide financial statement

Statement 99 reiterates that there should be a total overall government-wide column within the MD&A, Statement of Net Position, and Statement of Activities. This column should exclude all fiduciary activities, including custodial funds. 

Terminology updates

No action is needed. Terminology has been updated in previous pronouncements, for terminology as it relates to Statements 63 and 53. 


Effective dates

The requirements related to the extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34 and terminology updates related to GASB 53 and 63 are effective upon issuance.

The requirements related to leases, PPPs, and SBITAs, are effective for fiscal years beginning after June 15, 2022.

The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023.

Earlier application is encouraged and permitted for all.

If you would like more information regarding Statement 99, please contact our Audits of Governmental Component Units team. We’re here to help.

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Key considerations from GASB Statement No. 99 

Read this if you are a not-for-profit organization.

With springtime upon us, it may be difficult to start thinking about this upcoming fall, but that is exactly what many folks in the nonprofit sector are starting to do. The reason for this? It’s because 2022 brings with it the mid-term election cycle. While technically an off-year election, many congressional and gubernatorial races are being contested, in addition to a myriad of questions that will appear on ballots across the country. It is around this time of year we start to see many questions from clients in the nonprofit sector in the area of political campaign activities, lobbying (both direct and grassroots), and education/advocacy.

This article will discuss the three major types of activities nonprofit organizations may or may not undertake in this arena and will offer guidance to give organizations the vote of confidence they need to not run afoul of the potential pitfalls when it comes to undertaking these activities.

Political campaign activity

Political campaign activities include participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for elective public office, be it at the federal, state, or local level. Examples of such activities include contributions to political campaigns as well as making public statements in favor of or in opposition to any candidate. The IRS explicitly prohibits section 501(c)(3) organizations from conducting political campaign activities, the consequence of doing so being loss of exempt status. However, other types of exempt organizations (such as 501(c)(4) organizations) are allowed to engage in such activities, so long as those activities are not the organization’s primary activity. Only Section 527 organizations may engage in political campaign activities as their primary purpose. 

Direct lobbying

Direct lobbing activities attempt to influence legislation by directly communicating with legislative members regarding specific legislation. Examples of direct lobbying include contacting members of Congress and asking them to vote for or against a specific piece of legislation.

Grassroots lobbying

Grassroots lobbying, on the other hand, attempts to influence legislation by affecting the opinions of the general public and include a call to action. Examples of grassroots lobbying include requesting members of the general public to contact their representatives to urge them to vote for or against specific legislation.  

A quick way to remember the difference:
Political = think “P” for People – advocating for or against a specific candidate 
Lobbying = think “L” for Legislation – advocating for or against a specific bill

Education/advocacy

Organizations may engage in activities designed to educate or advocate for a particular cause so long as it does not take a specific position. For example, telling members of Congress how grants helped constituents would be considered an educational activity. However, attempting to get a member of Congress to vote for or against specific piece of legislation that would affect grant funding would be considered lobbying. Another example would be educating or informing the general public about a specific piece of legislation. Organizations need to be mindful here as taking a specific position one way or the other would lend itself to the activity being deemed to be lobbying, and not merely education of the general public. There is no limit on how much education/advocacy activity a nonprofit organization may conduct.

Why does this matter?

As you can see, there is a very fine line between lobbying and education, so it is important to understand the differences so that an organization conducting educational activities does not inadvertently end up conducting lobbying activities.

Organizations exempt under Code Section 501(c)(3) can conduct only lobbying activities that are not substantial to its overall activities. A 501(c)(3) organization may risk losing its exempt status and may face excise taxes on the lobbying expenditures if it is deemed to be conducting excess lobbying, whereas section 501(c)(4), (c)(5), and (c)(6) organizations may engage in an unlimited amount of lobbying activity.

What is substantial?

Unfortunately, there is no bright line test for determining what is considered substantial versus insubstantial. As an industry standard, many practitioners have taken a position that insubstantial means five percent or less of total expenditures, but that position is not codified and could be challenged by the IRS. 

Section 501(c)(3) organizations that intend to conduct lobbying activities on a regular basis may want to consider making an election under Code Section 501(h). This election is only applicable to 501(c)(3) organizations and provides a defined amount of lobbying activity an organization may conduct without jeopardizing its exempt status or becoming subject to excise tax. The 501(h) election limit is based on total organization expenditures with a maximum allowance of $1 million for “large organizations” (defined as an organization with total expenditures over $17,000,000). 

While the 501(h) election provides some clarity as to how much lobbying activity can be conducted, it may be prohibitive for some organizations whose total expenditures greatly exceed the $17,000,000 threshold. Another item to be aware of is that the lobbying threshold applies to all members of an affiliated group combined, which means the entire group shares the maximum threshold allowed. 

Another option for those engaging in lobbying is to create a separate entity (such as a 501(c)(4) organization) which conducts all lobbying activities, insulating the 501(c)(3) organization from these activities. As previously mentioned, organizations exempt under Code Section 501(c)(4) can conduct an unlimited amount of lobbying activities but can only conduct limited political campaign activities.

What about political campaign activities?

Section 527 organizations, known as political action committees, are exempt organizations dedicated specifically to conducting political campaign activities. If a 501(c)(4), (c)(5), or (c)(6) organization makes a contribution to a 527 organization, it may be required to file a Form 1120-POL and be subject to tax at the corporate tax rate (currently a flat 21%) based on the lesser of the political campaign expenditures or the organization’s net investment income. State income taxes may also be applicable. Section 501(c)(3) organizations may not make contributions to 527 organizations. 

If your organization is considering participation in any of the above activities, we would recommend you reach out to your not-for-profit tax team for additional information. We’re here to help!

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Lobbying and politics and education, oh my!

Read this if you have a cybersecurity program.

This week President Joe Biden warned Americans about intelligence that indicated Russia may be preparing to conduct cyberattacks on our private sector businesses and infrastructure as retaliation for sanctions applied to the Russian government (and the oligarchs) as punishment for the invasion of Ukraine. Though there is no specific threat at this time, President Biden’s warning has been an ongoing message since the invasion began. There is no need to panic, but this is a great time to re-visit your current security controls. Focusing on basic IT controls goes can make a big difference in the event of an attack, as hackers tend to go after the easy, low hanging fruit. 

  1. Access controls
    Review and understand how all access to your networks is obtained by on-site employees, remote employees, and vendors and guests. Make sure that users are maintaining strong passwords and that no user is connecting remotely to any of your systems without some form of multi-factor authentication (MFA). MFA can come in the form of a token (in hand or built-in) or as one of those numerical codes you have delivered to your phone or email. Poor access controls are simply the difference between leaving your house unlocked versus locked when you leave to go somewhere. 
  2. Patching
    One of the most common audit findings we have to date and one of the biggest reasons behind successful attacks is related to unpatched systems. Software patches are issued by software providers to address vulnerabilities in systems that act as an unlocked door to a hacker, and allow hackers to leverage the vulnerability as a way to get into your systems. Ensuring your organization has a robust patch management program in place and that systems are up-to-date on needed patches is critical to your security operations. Think of an unpatched system like a car with a broken window—sure the door is locked, but any thief can reach through the broken window and unlock the car. 
  3. Logging 
    Account activity, network traffic, system changes—these are all things that can be easily logged and with the right tools, configured to alert you to suspicious activity. Logging that is done correctly can alert management to suspicious activity occurring on your network and notifies your security team to investigate the issue. Consider logging and alerting like your home’s security camera. It may alert you to the activity outside, but someone still needs to review the footage and react to it to mitigate the threat.  
  4. Test backups and more
    Making sure that your systems are successful backed up and kept separate from your production systems is a control we are all familiar with. Organizations should do more than just make sure their backups are performed nightly and maintained, but need to make sure that those data backups can be restored back to a useable state on a regular basis. More so than backups, we also often hear in the work we do that our client’s test only parts of their disaster recovery and failover plans—but have never tested a full-scale fail-over to their backup systems to determine if the failover would be successful in the event of an event or disaster. Organizations shouldn’t be scared to do a full-scale failover test, because when the time comes, you may not have the option to do a partial failover and just hope that it occurs successfully. Not testing your backups is like not test driving a car before you buy it. Sure it looks nice in the lot, but does it actually run? 
  5. Incident Management Plan 
    We often review Incident Management Plans as part of the work we do, and often note that the plans are outdated and contain incorrect information. This is an ideal time to make sure your plans are current and reflect changes that may have occurred, like your increasingly remote work force, or that systems have changed. An outdated Incident Management Plan is like being sick and trying to call your doctor for help only to find out your doctor has retired. 
  6. Training—phishing attacks
    Hackers’ most common approach to gain access to systems and deploy crippling ransomware attacks is through phishing campaigns via email. Phishing campaigns trick a user into either providing the hacker with credentials to log into systems or to download malware that could turn into ransomware through what appears to be legitimate business correspondence. Training end-users on what to look for in verifying an email’s authenticity is critical and should be seen as an opportunity that benefits the entire organization. Testing users is also critical so management understands the current risk and what is needed for additional training. Security teams should also have other supporting controls to help prevent phishing emails and detection tools in place in case a user does fall for an email. Not training your employees on security is like not coaching your little league team on how to play baseball and then being surprised you didn’t win the game because no one knew what to do. 

In the current environment, information security is an asset to any organization and needs to be supported so that you can protect your organization from cyberattacks of all kinds. While we can never guarantee that having controls in place will prevent an attack from occurring, they make it a lot more challenging for the hacker. One more analogy, and then I’m done, I promise. Basic IT controls are like speedbumps in a neighborhood. While they keep most people from speeding (and if you hit them too fast they do a number on your car), you can still get over them with enough motivation. 

If you have questions about your cybersecurity controls, or would like more information, please contact our IT security experts. We’re here to help.

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Cyberattack preparation: A basics refresher

Read this if you are a plan sponsor of a 401(k) plan.

The trend of US workers leaving their jobs and employers struggling with high levels of employee turnover continues to gain momentum. Another 4.5 million US workers quit their jobs in November alone, according to data from the US Bureau of Labor Statistics. Meanwhile, the number of job openings in the US remains elevated at 10.6 million, as companies across sectors and industries continue to have a hard time recruiting and retaining employees.

How are the issues related to what is now called the “Great Resignation” affecting plan sponsors in particular? The current environment not only makes it hard to build and manage an effective workforce, but plan sponsors also may face problems down the road when departing workers leave their 401(k) balances with their previous employers. These abandoned accounts can lead to penalties, additional administrative fees, and administrative challenges for employers.

How can plan sponsors resolve these issues?

Fortunately, there are some easy ways for plan sponsors to limit the potential burden of abandoned 401(k) accounts. Plan sponsors should start by ensuring that they have up-to-date contact information before an employee’s final day with the organization. Cell phone numbers, email addresses, and mailing addresses are critical data points to gather. Email addresses and other digital contact information are especially important in today’s increasingly digital world.

Existing rules can help employers resolve smaller abandoned accounts. By law, employers are allowed to cash out small, vested accounts of $1,000 or less. For vested account balances between $1,000 and $5,000, employers are permitted to move these assets to an Individual Retirement Account.

Currently, there is no specific guidance for account balances larger than $5,000. Because of this, employers have relied on Field Assistance Bulletin (FAB) 2014-01, which is meant for participants in terminated defined contribution plans. Under this bulletin, plan sponsors are instructed to send a certified letter to the participant’s last known address; keep records on attempts to reach the missing participant; ask co-workers how to find the missing participant; and call the missing participant’s cell phone, among other instructions.

To help mitigate these issues in the future, some employers are adopting auto-portability benefits. These tools automatically transfer small balances to new employers. Plan sponsors that offer auto-portability benefits should explain how this tool works to departing employees.

Plan document language on forfeitures and cash-outs

For participants who leave before they are fully vested in a 401(k) plan, employer contributions are typically placed in forfeiture accounts. Employers can write this section of the plan document in a variety of ways, so it is crucial to understand how your specific plan establishes the timing and use of the forfeiture account.

For example, forfeitures can be paid at the time of termination or when the participant hits a five-year break in service. Employers wanting to access non-vested amounts more quickly should consider amending the plan document to allow access to non-vested amounts at the time of termination (as opposed to the time of distribution).

While plan documents can set cash-out thresholds (within the minimum and maximum allowable amounts), plans may elect the small balance cash-out option for accounts under $5,000. Rollover balances also can be disregarded when determining the $5,000 threshold, but the plan document must include this caveat.

Opportunity in the next plan restatement cycle

Every six years, the Internal Revenue Service requires employers with qualified, pre-approved plans to re-write or restate their basic plan documents. The current restatement cycle for defined contribution plans will close on July 31, 2022. 

The current restatement cycle provides an opportunity to amend your plan to make it beneficial to employers and employees when team members leave your organization. Your advisor can help review your plan documents and make the most of your plan restatement process in the context of current trends in the labor market and your organization’s objectives. As always, if questions arise, please don’t hesitate to contact our Employee Benefits Audit team.

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Easing the potential burden of abandoned 401(k) accounts 

Read this if you are interested in building a thriving workforce.

As businesses across the country continue to struggle to find and keep employees during the pandemic-influenced Great Resignation, it is time to build a workplace that sends a clear message to employees: “We care about you as a person. We trust you to do great work. Your well-being matters.” 

Many leaders and HR teams will send communications that emphasize the importance of people and the value of well-being. Despite this messaging, many organizations are missing opportunities to make well-being a natural part of day-to-day operations. The resulting disconnect between messaging and reality can result in employee frustration, disengagement, and cynicism. We’ve compiled a list of some of the most common workplace factors that can disrupt an organization’s intentions to build a strong well-being culture. 

Negative influences on building a strong well-being culture

 


Overcoming the challenges to your well-being goals takes time. And while it is natural for organizations to think of employee well-being as the responsibility of human resources and leadership, in reality well-being is a product of every part of the employee experience. In other words, it’s everyone’s job.

Well-being program considerations

Understanding the pain points for employees is an essential element of any successful well-being program, even if those pain points exist outside the domain of traditional well-being and wellness programs. Here are some things to consider:

  • Find out what matters to your employees, as every organization is different. Use surveys, interviews, and focus groups to understand priorities and do something meaningful with what you learn.
  • Make a plan to address operational challenges. Put simply, outdated technology and inefficient business processes stress employees out.
  • Assess your well-being strategy to identify strengths, gaps, and opportunities for improvement.
  • Develop and implement a strategic well-being plan that aligns with your organizational culture and goals. 
  • In the midst of planning a big system implementation of organizational change? Consider ways to integrate well-being as part of high-stress initiatives. 

Does your organization’s messaging about well-being line up with the employee experience? Have questions or need ideas about your specific situation? Contact our well-being consulting team. We’re here to help.

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Workplace well-being: More than words and good intentions

Read this if you are an NFP interested in being a fiscal sponsor. 

Charitable projects or startup charities awaiting their IRS determination may look for an established 501(c)(3) organization to lend their tax-exempt status and certain administrative benefits onto the project or startup so that it can receive grants and tax-deductible contributions that it would otherwise not be able to receive. That’s where you come in. Now that you have agreed to be a fiscal sponsor, what does that actually mean?

Fiscal sponsorship definition

Fiscal sponsorship is an arrangement between a 501(c)(3) public charity, the “Sponsor” and a “Project” (an organization or a group of individuals not recognized as a 501(c)(3)).

How does fiscal sponsorship work?

Fiscal sponsorship allows the Sponsor to accept funds restricted to the Project on the Project’s behalf. The Sponsor accepts the responsibility to make sure the funds are spent to achieve the Project’s goals. The Sponsor has full control and discretion of the donated funds. All revenue collected and expenses paid out are reported on the Statement of Operations of the Sponsor. The activity of the Project must be consistent and in furtherance of the Sponsor’s tax-exempt purpose. A Sponsor cannot have this type of arrangement with any Project—it must be consistent with the Sponsor’s exempt mission. 

Arrangement types

There are two common types of Fiscal Sponsorship arrangements, the Direct Model and the Grant Model

In the Direct Model the Project becomes an integrated part of the Sponsor. The Project does not have a legal identity separate from the Sponsor. Donations and grants for the Project are directly received by the Sponsor, and the use of the funds is reported on the Sponsor’s tax filings. An employer-employee relationship is formed between the Sponsor and the Project so that staff and volunteers of the Project become employees and volunteers of the Sponsor. Due to this relationship, the Sponsor is both fiscally and legally liable for all actions of the Project and thus must exercise significant control over the Project’s actions and funding to protect its tax-exempt status. 

In the Grant Model the Sponsor and the Project have a grantor-grantee relationship. The Project submits a grant request to the Sponsor detailing the project and its activities. The Sponsor approves the request and then receives funds on behalf of the Project and disperses them accordingly. The Sponsor may receive a one-time grant on behalf of the Project, or the relationship may be continual. In this model, the Sponsor is not legally liable for all actions of the Project, but is still fiscally liable for the Project’s actions. The Sponsor must still exercise enough control over the Project’s funds to ensure they are used in accordance with the grant agreement. Also, unlike the direct model, the Project is still required to comply with any tax reporting requirements required by the legal status of the Project. 

What are some advantages of Fiscal Sponsorship?

  • Projects are able to “test the waters” before deciding to be a separate independent entity.
  • Donors are able to make tax deductible charitable contributions now to a cause that is not yet recognized as a tax-exempt entity.
  • By working with an established 501(c)(3) entity the Project will have access to a larger network of donors and experience in fundraising.
  • The Project is not required to incorporate or file for their own tax-exempt status right away, saving start-up fees.
  • Fiscal Sponsors provide additional services to the Project such as administrative support, accounting, office space, grant writing and technical support which the Project may not be able to afford.

What are some disadvantages of fiscal sponsorship?

  • Depending on the model used, legal and fiscal control of the Project is held by the Sponsor creating a loss of control for the Project.
  • A Fiscal Sponsor may charge an administrative fee for use of their facilities, services, and staff.
  • Credit for the Project may fall onto the Sponsor as donations are received and controlled by the Sponsor.

Fiscal Sponsorship vs. Fiscal Agency

Fiscal Agency is an arrangement with an established charity to act as the legal Agent for a Project, but the Agent doesn’t retain discretion and control of the donated funds. The Agent is acting on behalf of the Project who ultimately has the right to control the Agent’s activities. Funds contributed to a Project with a fiscal Agent are not tax deductible to the donor. Typically the collections and disbursements made by the Sponsor are not reported on the Sponsor’s Statement of Operations, but instead are recorded through their balance sheet.

IRS criteria for a Fiscal Sponsorship

  • Grants/donations are given to a 501(c)(3) tax-exempt organization (the Sponsor) that acts as a guardian of the funds for a project that does not have 501(c)(3) status.
  • The Sponsor must use funds received for specific charitable projects that further the Sponsor’s own tax-exempt purpose.
  • The Sponsor must retain discretion and control as to the use of the funds.
  • The Sponsor must maintain records that substantiate the use of funds for appropriate 501(c)(3) purposes.
  • Typically, the Project will be short-term or the sponsored group is seeking tax-exempt status.

If criteria are not met, the IRS can deem donations as not tax-deductible.

Other items of note

  • There must be a written agreement in place.
  • The 501(c)(3) Sponsor should periodically review activities of the Project to ensure they remain consistent with their own tax-exempt mission (including internal audits of financial reports and any bank accounts of the Project).
  • The Sponsor must ensure the Project does not engage in prohibited activities (i.e. political campaign activities or conducting excessive amounts of unrelated business income activities).
  • The Sponsor must be able to clearly communicate to donors that funds earmarked for the Project are subject to their discretion and control, and cannot guarantee funds will be automatically advanced to the Project.
  • The Sponsor can also provide general and administrative support services to the Project and charge a fee (generally 5-15%) of donations made to the Project.

As you can see it is not as easy as just agreeing to be a Fiscal Sponsor. There are reporting requirements and decisions to be made to ensure that the arrangement qualifies as intended with the IRS so that neither the Project nor the Sponsor receive any unintended consequences.

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So you want to be a fiscal sponsor. Now what?

Read this if you are at a not-for-profit organization.

There is no question the investment landscape is forever changing. Even before COVID-19 placed a vice grip on all aspects of society, many not-for-profit organizations were looking for ways to maximize the value of their current investment holdings. One such way of accomplishing this is through the use of alternative investments, defined for our purposes as investments outside of standard assets such as traditional stocks and bonds. Alternative investments have become increasingly specialized and are often seen in the form of foreign corporations or partnerships (often times domiciled in locales such as the Cayman Islands where tax laws are more favorable to investors) and are much more commonplace than ever before.

While promises of higher rates of return are received warmly by not-for-profit organizations, alternative investments often carry with them the potential for additional compliance costs in the form of tax filing obligations and substantial penalties should those filings be overlooked.

This article will highlight some of those potential foreign filings, as well as highlight potential consequences they carry and what you need to know in order to avoid the pitfalls. 

Potential foreign filings related to investment activities

Not-for profit organizations should be aware of the potential filings/disclosures required in regards to their ownership of investments located outside of the United States. The federal government uses a variety of forms to track transfers of property, ownership, and account balances related to foreign activity/investments. A list of some of the potential foreign filings are detailed below (not an all-inclusive list):

Form 926 – Return by a US Transferor of Property to a Foreign Corporation

This form is generally required when a US investor transfers more than $100,000 in a 12-month period, or any other contribution when the investor owns 10% or more of a foreign corporation. The requirement to file this form can be via a direct investment in the foreign corporation, or indirectly through another entity (such as a partnership interest). The penalty for failure to file is equal to 10 percent of the transfer amount, up to $100,000 per missed filing.

Form 8865 – Return of US Persons with Respect to Certain Foreign Partnerships

Similar to Form 926, this filing arises when a US person (which includes not-for-profit organizations) transfers $100,000 or more in a given year, or if they own 10% or more of the foreign partnership. There are different levels of disclosure required for different categories of filers. Filings are also triggered by both direct and indirect investments. The penalty for failure to file varies by category type, ranging from $10,000 to up to $100,000 per missed filing.

FinCEN Form 114 – Report of Foreign Bank and Financial Accounts

Commonly referred to as the FBAR, this form tracks assets that US taxpayers hold in offshore accounts, whether they be foreign bank accounts, brokerage accounts, or mutual funds. This form is required when the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. Further, any individual or entity that owns more than 50 percent of the account directly or indirectly must file the form. Lastly, individuals who have signature authority over accounts held by the organization are also required to file the FinCEN Form 114 with their individual income tax return. The penalty for failure to file can vary, but can be as high as 50 percent of the account’s value.

Please note: there is a specific definition of the term “foreign financial account” which excludes certain items from the definition. Organizations are encouraged to consult their tax advisors for more information.

Form 5471 – Information Return of US Persons with Respect to Certain Foreign Corporations

Form 5471 is required to be filed when ownership is at least 10% in a foreign corporation. There are different disclosures required for different categories of ownership. Organizations required to file Form 5471 are typically operating internationally and have ownership of a foreign corporation which triggers the filing, but this form would also apply to investments in foreign corporations if ownership is at least 10%. The penalty for failure to file is typically $10,000 per missed filing.

Recommendations to avoid the pitfalls of alternative investments

In order to avoid missed filing requirements, exempt organizations should ask their investment advisors if any investment will involve organizations outside of the United States. If the answer is “yes,” then your organization needs to understand any additional filing requirements up front in order to take into consideration any additional compliance costs related to foreign filings. You should review and share all relevant investment documentation and subsequent information (e.g., prospectus and any other offering materials) with your finance/accounting department, as well as your tax advisors—prior to investment.

We also recommend you engage in open and frequent communication with your investment managers and advisors (both within and outside the organization). Those who manage the entity’s investments should also stay in close contact with fund managers who can help communicate when assets are invested in a way that might trigger a foreign filing obligation.

As investment practices and strategies become increasingly complex, organizations need to stay vigilant and aware in this forever changing landscape. We’re here to help. If you have any questions or concerns about current investment holdings and potential foreign filings, please do not hesitate to reach out to a member of our not-for-profit tax team.

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Alternative investments: Potential pitfalls not-for-profit organizations need to know