ESG

Read this if you are a manager, executive director, or CFO at a private foundation. 

Private foundations are vital players in the philanthropic landscape, channeling resources toward charitable, educational, and scientific causes. However, to maintain their tax-exempt status and avoid excise taxes, these organizations must comply with strict IRS rules—particularly those governing qualifying distributions. In the second installment of our trilogy, we will follow the McQueen Family Foundation to determine their qualifying distributions. As a non-operating foundation, this is a crucial step in their annual compliance requirements. 

What are qualifying distributions? 

A qualifying distribution is a payment or expenditure made by a private foundation that directly furthers its charitable mission. These distributions are essential to meet the foundation’s annual payout requirement, which is generally 5% of the fair market value of its non-charitable-use assets from the preceding year. 

The IRS mandates these distributions under Internal Revenue Code (IRC) Section 4942, which aims to ensure that foundations actively use their resources for public benefit rather than accumulating wealth. To that end, qualifying distributions must be paid out in cash and cannot be accrued to be paid out later. 

Calculating the distributable amount 

In the first installment of our trilogy, we explored calculating the McQueen Family Foundation’s minimum investment return. Based on the average fair market value of their assets not used directly for charitable purposes, the Foundation’s minimum investment return is $526,975. The next step is to calculate the distributable amount that must be paid by the end of the following taxable year. 

Example: 
The McQueen Family Foundation has used their minimum investment return of $526,975, reduced by the current year excise tax on net investment income of $5,000 and income tax on Unrelated Business Income of $0, to determine their distributable amount.  There is also an adjustment on line 6 for income required to be accumulated by judicial proceeding pursuant to IRC section 508(e). Based on the calculation below, the Foundation is required to distribute $521,975 by the end of the following taxable year. 

Types of qualifying distributions 

• Grants to public charities: Grants to organizations recognized as public charities under Section 501(c)(3) of the Internal Revenue Code are generally countable as qualifying distributions. 

• Grants to private foundations: Foundations can make grants to other private foundations, but certain conditions must be met for these payments to qualify. There may be prerequisite requirements or required expenditure responsibility, which will be explored in future articles. It is recommended to work with tax advisors when considering granting to other private foundations.  

• Direct charitable activities: Expenditures for charitable programs operated directly by the foundation, such as scholarships, direct services, or disaster relief. 

• Administrative expenses: Reasonable and necessary administrative costs incurred in making qualifying distributions may be included, such as staff salaries, office supplies, and consulting fees related to grantmaking activities. 

• Program-related investments (PRIs): In certain circumstances, loans or investments made to further charitable purposes count toward the distribution requirement. 

• Purchases of fixed assets: When fixed assets are purchased ito support the Foundation’s charitable purpose, the cost of the assets counts toward the total qualifying distributions. 

Non-qualifying expenditures 

Not every expenditure meets the definition of a qualifying distribution. For example, grants to individuals (unless made via a procedure approved in advance by the IRS), grants to non-charitable organizations, or funds used for lobbying or political activity do not qualify. Similarly, investment management expenses or costs related to fundraising are typically excluded. 

Timing and carryforward 

The IRS allows for some flexibility with timing. If a foundation distributes more than the required minimum in a given year, the excess amount can generally be carried forward for up to five years. Conversely, if the foundation fails to meet the distribution requirement in any given year, it must make up for the shortfall promptly, or risk excise tax penalties. 

Documentation and reporting 

All qualifying distributions must be meticulously documented. Foundations file an annual IRS Form 990-PF, which details assets, distributions, and activities. Accurate reporting is vital to maintaining compliance and public trust.

Proactively managing qualifying distributions 

For foundation managers, mastering the rules around qualifying distributions is not just about compliance—it is about stewardship. By proactively managing distributions, maintaining rigorous documentation, and staying informed on IRS updates, you ensure your foundation fulfills its mission and maintains its good standing. 

Our nonprofit tax team has deep expertise in private foundation compliance and strategy and understands the unique challenges that come with tax planning, governance, and financial sustainability. We provide specialized guidance on IRS regulations, minimum distribution requirements, excise taxes, and complex accounting matters, ensuring foundations remain compliant while optimizing their financial strategies. Learn more about our team and services and stay tuned for the final installment in our series, where we will dive into the McQueen Family Foundation’s charitable expenditures. 

Construction companies face distinct challenges that make them uniquely vulnerable to fraud. Multiple job sites, a mobile workforce, complex billing arrangements, and layers of subcontractors all increase the risks of misreporting, theft, or even errors and require specific oversight. The good news? By understanding the three most common risks, owners can take practical steps to protect both their business and their bottom line. 

1. Track every change, protect every dollar 

Change orders are a regular occurrence in any project. However, when they aren’t tracked carefully, they can create opportunities for fraud or financial loss. For example, a subcontractor may bill for extra work that was never approved, or a project manager might push through changes without proper documentation. 

How to protect your business: 

• Require written approval for all change orders before work begins. 
• Keep a central log that ties directly into the job cost system. 
• Review change order activity regularly to make sure what’s billed matches what was approved. 

2. Payroll fraud and “ghost employees” 

With large crews and high turnover, construction payroll can be complex. Unfortunately, this can result in payroll fraud and errors. Examples include employees padding hours, supervisors approving overtime that wasn’t worked, or even “ghost employees” who are fictitious, exist only on paper but still receive a paycheck. 

How to protect your business: 

• Use timekeeping systems that require employees to clock in/out on-site. 
• Separate the duties of those who approve time from those who process payroll. 
• Review payroll change reports.  
• Have project managers compare labor costs to project progress to identify red flags. 

3. Kickbacks and questionable vendor relationships 

In some cases, a project manager or procurement officer might accept personal benefits (like cash or gifts) in exchange for steering contracts to a particular vendor or subcontractor, even if that vendor isn’t the most cost-effective choice. This can eat away at profits and hurt long-term relationships with other partners. 

How to protect your business: 

• Implement a clear policy on gifts and vendor relationships. 
• Rotate suppliers and obtain multiple bids for significant purchases. 
• Encourage a culture where employees feel comfortable reporting concerns. 

While these three types of fraud are common in the construction industry, they are avoidable. By implementing security measures that increase oversight now, you can safeguard your business for the future.  

BerryDunn works closely with professionals in every construction segment, including commercial builders, heavy and highway contractors, general contractors, and specialty subcontractors. We tailor our service to support your needs and share knowledge about best practices to make better business decisions, strengthen internal control, and improve reporting. Learn more about our services and team.  

When utilities launch a Customer Information System (CIS) project, it can feel like game day—high stakes, fast decisions, and a lot riding on the outcome. Just like championship teams, successful CIS projects require vision, leadership, adaptability, and a playbook built for tough calls and last-minute pivots. 

At BerryDunn, we’ve worked with utilities at every stage of the CIS journey, from kickoff to overtime. What separates fumbles from touchdowns? Preparation, teamwork, and the ability to adapt. 

Your CIS playbook: Three key phases 

1. Pre-game: Build a strong foundation 

• Assess your needs 
• Align stakeholders 
• Identify policy gaps 

• Consider integrations to enhance dataflow across systems and processes 

2. Game time: Execute with agility 

• Procurement, implementation, and change management should all have clear owners 
• Plan ahead for staffing needs throughout the game 
• Stay flexible and responsive 

3. Post-game: Focus on continuous improvement 

• Support your staff 
• Track KPIs 
• Refine processes over time 

Highlight reel: What winning teams do right 

Choose software wisely. 

Objective evaluation is critical. A vendor-neutral consultant helps ensure decisions are based on functionality, scalability, and long-term value, not vendor relationships. 

Put people first. 

Technology adoption is about more than systems. Embedding organizational change management (OCM) throughout the project, via clear communication, role-based training, and job aids, empowers staff and drives success. 

Leverage veteran experience.

Just as seasoned players elevate the level of the game, having a team with deep experience can make a decisive difference. Veteran team members bring valuable insights, anticipate challenges, and help guide newer staff through complex project phases, strengthening teamwork and adaptability.

Configure, don’t customize. 

Focus on configuration not customization to ensure long-term sustainability. That means taking time to consider current standard operating procedures (SOPs) and evaluating opportunities to streamline operations and apply data to drive decision-making. 

Final score: It’s about more than software 

CIS success isn’t just about choosing the right technology, it’s about building a resilient team, strong processes, and a clear vision. Whether you're gearing up for kickoff or heading into overtime, the right playbook sets you up for long-term success. 

Ready to build your CIS playbook? 

BerryDunn’s vendor-neutral guidance can help your utility achieve CIS success. Learn more about our team and services. 

About BerryDunn 

BerryDunn has a proven methodology for CIS system selection and implementation—one grounded in public sector experience and tailored to each client’s unique needs. Our independence from vendors ensures that every recommendation serves the best interest of our clients. From early assessment to go-live support, we guide local governments and utilities through transformative CIS projects with clarity, rigor, and collaboration. 

Focused on inspiring organizations to transform and innovate, our Local Government Practice Group partners with municipal, county, regional, and quasi-governmental entities throughout the US to help them meet their biggest challenges.

Read this article if you are a CFO, controller, finance director, or accounting manager at a governmental entity or nonprofit. 

No one likes to be caught off guard, especially when it comes to an audit. Being “audit ready” isn’t about checking a box; it’s about building confidence, protecting your reputation, and making sure your team can carry out its daily responsibilities with minimal disruption.  

What is audit readiness? 

At its core, audit readiness means you’re prepared for someone to take a close look at your financial reports, processes, and controls. This doesn't mean having binders of documents sitting on a shelf. It’s about being able to quickly and confidently show how your nonprofit or governmental entity operates. This involves understanding the standards that apply to you—GASB, FASB, or Uniform Guidance—and maintaining strong internal controls such as segregation of duties, reconciliations, and clear documentation. It also means keeping financial reports up to date, transparent, and thoroughly reviewed so you can respond to auditor requests without panic. 

When your organization is prepared, audits run smoother, issues are caught early, and your team can stay focused on serving your mission rather than scrambling for paperwork. 

For organizations under Uniform Guidance or GASB standards, such as local and state government entities and nonprofits, the stakes are even higher. Errors can lead to loss of funding, compliance challenges, or harm to public trust.  Conversely, being audit-ready reassures stakeholders that your organization operates with transparency, accountability, and reliability.  

Why audit readiness matters more than ever 

Funding for nonprofits and governmental entities often depends on compliance. Public trust is tied to transparency. Mistakes can create ripple effects that last far beyond the audit itself. Here’s what’s on the line when organizations are not audit-ready: 

• Loss of funding if grant or program requirements aren’t met 

• Delays in issuing financial statements, which can affect credit ratings or bond issuances 

• Audit findings that require costly remediation 

• Damage to public trust, which can be even harder to repair than financial issues 

Strong audit readiness provides tangible benefits, including smoother audits, fewer findings, reduced stress for staff, and stronger confidence from your community, board, or funding agencies. 

How consultants can help 

Sometimes, even the strongest teams need an outside perspective. That’s where consultants come in. They bring a fresh set of eyes to identify gaps or risks that might be overlooked internally, along with deep knowledge of accounting standards, such as GASB 87, 96, or 101, and the ability to translate them into practical steps.  

Consultants share proven best practices from across the industry, saving you time and effort, and provide support after the audit to help address findings and build stronger systems for the future. 

Consultants often serve as both coaches and teammates. Rather than simply pointing out areas for improvement, they help design solutions, train staff, and implement processes that pave the way for a smoother audit experience. 

When should you seek outside help? 

It might be time to seek outside support if your organization is:  

• Preparing for its first audit 

• Navigating a new type of audit (i.e., Uniform Guidance) 

• Addressing findings from previous audits 

• Implementing new accounting standards (e.g., GASB 87, 96, 101, 102, 103, 104) 

• Experiencing limited time or staffing resources to manage audit requirements 

• Falling behind on audit schedules and needing to get back on track 

Every organization is unique; your audit readiness plan should be too. Some entities need help with policies and controls, while others benefit most from training, process redesign, or technology improvements. The goal is always the same—to help you feel confident, not overwhelmed, when the auditors walk through the door. 

Developing an audit readiness strategy 

Audit readiness isn’t just about surviving the audit. It’s about building stronger systems, protecting your mission, and earning the trust of the people who depend on you. With the right preparation, and the right partners, an audit can go from being a headache to an opportunity to shine. 

If you’d like to discuss what working with a consultant could look like for your organization, reach out to our Governmental Accounting team. We’ll walk with you through the process, help ease the burden, and set you up for long-term success.

As BerryDunn’s Healthcare Practice Group lead, Lisa Trundy-Whitten is closely attuned to the healthcare industry. From challenges faced by healthcare organizations to the solutions BerryDunn’s experts can provide, Lisa shares thoughtful insights for healthcare leaders.  

Today’s healthcare leaders are navigating a perfect storm. Workforce shortages, financial strain, regulatory uncertainty, technology integration challenges, cybersecurity risks, and persistent inequities converge to create unprecedented pressure across the industry. Meanwhile, leaders are being asked to innovate, improve operational efficiencies, and deliver exceptional care—all while remaining compliant and financially viable. 

In this shifting climate, thinking strategically about the key challenges you face is essential, including for: 

• Financial pressures and reimbursement: Identifying ways to navigate cuts to the Physician Fee Schedule, constrained reimbursement growth, and shifting payer mix 

• Revenue cycle management: Reviewing the full life cycle of your revenue—from patient access to final payment—and determining where to optimize reimbursement and minimize inefficiencies 

• Federal and state policy changes: Monitoring the latest developments, such as the impacts of the Inflation Reduction Act, the One Big Beautiful Bill Act (OBBBA), and new payment models 

• Compliance and credentialing: Staying compliant with evolving standards is a constant challenge, especially for organizations expanding into new markets or service lines for financial sustainability 

• Reducing costs and improving efficiency: Seeking creative approaches to service delivery, leveraging teams, and adopting digital solutions to streamline operations 

• AI adoption: Employing AI for operational efficiency, predictive analytics, and member advocacy while balancing concerns about cost, governance, and compliance 

As healthcare leaders, you grapple with these concerns daily. And even though the issues are familiar, the urgency is new. The key to staying viable is investing in innovation and collaboration and placing a strategic focus on operational efficiency, workforce well-being, and patient-centered care, all while remaining adaptable. 

Considering these pressures, what sets successful organizations apart? 

Recommendations for healthcare leaders 

There are common threads among healthcare organizations that are finding operational success and remaining compliant in today’s fickle environment. These include: 

• Adaptability 

• Willingness to explore new ideas 

• Ability to anticipate change 

• Commitment to data-driven decision-making 

• Collaboration across finance, operations, and clinical teams 

Consider assessing how your organization is performing in each of these areas. Can you find ways to pivot by applying innovations and strategic thinking? Are your teams working seamlessly to carry out your strategic vision and drive meaningful results? What guides your operational decisions? Are there areas where seeking external help may benefit your organization? 

For guidance on the latest related to the OBBBA, executive orders, and other federal and judicial actions impacting the healthcare industry in both the short- and long-term, we encourage you to download this full summary created by BerryDunn’s industry experts. The summary outlines topics, including key provisions, potential impacts, and important dates.  

You can count on us to keep you abreast of the latest changes through updates to our summary and timely communications, as with the recent shift in application deadline for the Rural Health Transformation Program from December 31 to November 5 announced in September. Look to our healthcare team to provide educational opportunities and key industry insights to empower you to uncover actionable strategies for improving operational efficiencies. 

Our dedicated team of experts meets regularly to track the latest developments affecting healthcare. We recommend routinely visiting the BerryDunn website for the latest insights from our industry thought leaders. 

We’re here for you 

BerryDunn’s Healthcare Practice Group has unmatched depth and breadth of services that truly span the healthcare continuum. Our areas of expertise are focused on helping organizations by providing financial, health IT, revenue cycle, and compliance consulting, as well as offering research and data analytics, coding and OASIS services, and home health training and education. 

Our expert advisors deliver practical, up-to-date advice to improve your performance and can help with issues like high taxes, financial and regulatory compliance, cash flow constraints, leadership transitions, evolving technology needs, and workforce development gaps.    

I encourage you to learn more about our services and team and reach out to us to start a conversation on how BerryDunn can support and guide you toward sustainability and compliance. Let’s work together to create a strategy that fits your unique needs. 

We're here for you. 

Best,  

Lisa Trundy-Whitten