Hard-hit small businesses received more than $16 billion in much-needed COVID-19 relief through the Small Business Administration’s (SBA) Shuttered Venue Operators Grant (SVOG) program. Many organizations that received this funding may not have experience with federal awards or the complex rules associated with them. Given that the SVOG program is a federal grant program, recipients will be subject to Single Audit requirements, which includes compliance with the SVOG’s rules as well as general federal guidelines, regardless of their for-profit or nonprofit status.

The following best practices for administering SVOG funds can help make your organization audit-ready:

1. Thorough Documentation – SBA requires recipients to obtain complete documentation for all expenses claimed and to retain records for at least three years post-closeout (four years for employment records). This can include receipts, invoices, payroll records, timesheets, contracts and more. Recipients may choose not to claim low-cost expenses where the documentation is harder to track down or will be difficult to maintain for the required years. For example, receipts may not have been kept for a $10 business lunch.
2. Leverage Accounting System Capabilities – Recipients should set up the proper accounts and expense codes within their accounting system to reduce manual inputs and risk of error when tracking SVOG expenses. This will also make it easier to pull budgets versus actual reports, which are required upon closeout of the award.
3. Clear Allocation to Funding Sources – If your organization received Payroll Protection Program (PPP) funds or other COVID-19 relief funding, it is important to clearly denote which expenses will be applied to each funding source to ensure there is no duplication of funds. Tracking within the accounting system can help keep records organized for this purpose. Although mixing groups of expenses across funding sources is allowed, we recommend keeping them separate, if possible. For instance, it would be simpler to have the payroll for one full month claimed to PPP and another month to SVOG rather than trying to mix and match funding sources in the same payroll period. Establishing distinct groups of expenses per funding source reduces the burden of complex calculations for the organization and makes reviews easier for the auditor.
4. Stay Apprised of Latest Frequently Asked Questions (FAQ) Guidance – Has your organization seen the latest FAQ (2/16 at the time this post was written and not currently posted on the SBA website)? If not, it provided clarity on “incurred cost” timing, application of federal procurement rules prior to award, reasonableness standards for owner payouts and compensation, required tracking of inventory, equipment purchases and more. It’s important to stay abreast of the most recent guidance in order to ensure audit-readiness.
5. Strategically Align Audit Periods – Organizations may strategically allocate SVOG funds to expenses in certain fiscal years in consideration of Single Audit triggers. Each fiscal year during which $750,000 of federal award funds is expended is subject to a Single Audit. If possible, organizations should consider aligning expense claims to a particular year to avoid audits in multiple years. This primarily applies to organizations that received supplemental funding and can incur costs going into 2022. As a reminder, a fiscal year would not be subject to audit if the award was not officially received yet. Therefore, most organizations’ FY2020 would not be subject to audit, and an audit for SVOG funds received in FY2021 would cover expense claims from previous years (i.e., 2020).
6. Secure Approval on Transfers of SVOG Funds – Organizations should set up proper controls to help ensure the transfer of SVOG funds out of their original account is reviewed and approved by an appropriate person within the finance department or leadership.
7. Understand Flexibility on Debt Repayments – Although not explicitly stated in the FAQ, SBA provided guidance during its webinars on the allowance of refinanced debt repayments for debts which existed prior to Feb. 15th, 2020, but were refinanced during the eligible period. Recipients should consider whether or not they have eligible debt repayments which can be claimed under SVOG.
8. Consider a Program-Specific Audit – If the SVOG grant is the only federal award an organization received, it may elect to perform a program-specific audit instead of a full Single Audit. The difference is that a program-specific audit does not require a financial statement audit. Each organization should discuss this option with their auditor to protect the company’s financial information, when possible, and reduce the overall reporting and compliance burden.
9. Draft an Expenditure Memorandum – It’s beneficial for organizations to draft a high-level memorandum to describe the different types of costs they will be claiming under SVOG. A written record will help ensure compliance with rules for cost allowability and be valuable for the auditor as a primer before they dive into the detailed claims. A summary of SVOG claims will also likely be required by SBA upon closeout.

The Single Audit can be intimidating, but proper preparation can help make the experience seamless. No matter where your organization is in the process, working with the right partner can help set your organization up for success.

Written by Sly Atayee. This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” Blog (March 21, 2022). Copyright © 2022 BDO USA, LLP. All rights reserved. www.bdo.com

Organizations that gather reliable data and use it to inform their decisions are better positioned for success. In a recent article for Financial Management, author Luke O’Neill discusses the key role that CFOs play in ensuring that data is used effectively to inform decisions.

Good data practices can help organizations gain revenue and function more efficiently while simultaneously reducing both costs and risk. Striving to ensure accurate metrics and seeking to establish the daily habit of monitoring key metrics will help CFOs achieve these goals. “Executives must carefully think through what they want to accomplish with analytics, the organizational culture must allow decision-makers to ask the right questions, and processes must be in place to generate predictive insights from data,” explains O’Neill.

In order to make the most of data and integrate it into their decision-making process, the author suggest that CFOs consider the following strategies:

1. Clearly define all goals and processes for data use within the organization.
2. Test out new data concepts in a single area before integrating them across the organization.
3. Quickly identify when a process is not working well and stop employing it.
4. Keep the end users—customers—always top of mind when developing new processes or capabilities.
5. Encourage buy-in from both teams and customers by getting the word out about new solutions.
6. Create a holistic plan for incorporating new processes that takes into account all areas of the organization’s operating model.

For more details, click here to read the article in full at Financial Management.

Many nonprofit organizations were forced to shutter or temporarily close their operations under a governmental order as a result of the coronavirus pandemic, while others were forced to severely limit their offerings. One way to continue to pursue your organization’s objectives is to ensure that you are still able to function, even if only in a limited capacity. The government has supported nonprofits and the continuation of their services with the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, which includes the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). Under the CARES Act, organizations could take advantage of either the PPP or the ERC, but not both. In welcome news for nonprofit organizations, the Consolidated Appropriations Act, 2021 (Relief Act, signed by former President Trump on December 27, 2020) retroactively eliminates this limitation and extends and enhances the ERC through the first two quarters of 2021.

The ERC is one of the most beneficial provisions of the Relief Act relevant to nonprofit organizations. If you did not consider the ERC in 2020, or were not eligible to consider the ERC because you took a PPP loan, the retroactive ability to benefit from both PPP loans and the ERC is a powerful reason to consider the ERC for 2020. Looking ahead to 2021, the enhanced amount of the credit for wages paid during the first two quarters of 2021 provides another compelling reason to consider the ERC.

Can nonprofit organizations take advantage of the ERC?

Yes! Tax-exempt organizations are eligible for the ERC because they are deemed to be engaged in a trade or business regarding the entirety of their operations. Examples of nonprofit organizations that have already taken advantage of the credit are hospitals, schools, museums, performing arts centers and churches.

What is the ERC?

The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts. The ERC can be claimed quarterly to help offset the cost of retaining employees. Employers may use ERCs to offset federal payroll tax deposits, including the employee FICA and income tax withholding components of the employer’s federal payroll tax deposits. Unlike the PPP, which was on a first-come first-serve basis, the ERC can be claimed up to three years from the date in which your quarterly payroll return was filed.

Who is eligible for the ERC? 

To claim the ERC in any given calendar quarter, nonprofit organizations must meet one of the following criteria during that quarter:

• Operations were fully or partially suspended as a result of orders from a governmental authority limiting commerce, travel or group meetings due to COVID-19; or
• The organization experienced a significant decline in gross receipts during the calendar quarter compared to 2019. Specifically, for 2020, gross receipts for the 2020 quarter decline more than 50% when compared to the same 2019 quarter. Eligibility for the credit continues through the 2020 quarter in which gross receipts are greater than 80% of gross receipts in the same 2019 quarter.
• For 2021, the gross receipts eligibility threshold for employers is reduced from a 50% decline to a 20% decline in gross receipts for the same calendar quarter in 2019, and a safe harbor is provided allowing employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility.
• Employers not in existence in 2019 may compare 2021 quarterly gross receipts to 2020 quarters to determine eligibility.

Can you claim the ERC if you receive a PPP loan? 

Yes! As described above, one of the most favorable provisions in the new law allows taxpayers to receive PPP loans and claim the ERC. This overlap was not permitted when the CARES Act was originally enacted, and organizations in need of cash infusions during 2020 more frequently turned to PPP loans as a source of funds rather than the ERC. Importantly, the Relief Act makes the ability to claim the ERC and receive PPP loans retroactive to March 12, 2020. As a result, organizations that received PPP loans in 2020 (and/or will receive new loans in 2021) can now explore potential ERC credits for 2020 and 2021.

Which wages qualify for the ERC? 

The answer depends on an organization’s employee count. Eligible organizations that are considered “Large Employers” can only claim the ERC for wages paid to employees for the time the employees are not providing services. This aligns with the purpose of the ERC, which is to encourage employers to retain and compensate employees during periods in which businesses are not fully operational.

Smaller eligible organizations may claim a credit for all wages paid to employees. The Relief Act increases the threshold used to determine Large Employer status for 2021 claims to an employee count of more than 500 (for 2020, it is more than 100). This favorable change broadens the number of eligible nonprofit organizations that can claim the ERC for all wages paid to employees, including wages paid to employees who are providing services. Importantly, qualified healthcare expenses count as wages.

How is the determination of Large Employer status made?

Large Employer status is determined by counting the average number of full-time employees employed during 2019.

For this purpose, “full-time employee” means an employee who, with respect to any calendar month in 2019, worked an average of at least 30 hours per week or 130 hours in the month. This is the same definition used for purposes of the Affordable Care Act. Importantly, aggregation rules apply when determining the number of full-time employees. In general, all entities are considered a single employer if they are a controlled group of corporations, are under common control or are aggregated for benefit plan purposes.

Organizations that operated for the entire 2019 year compute the average number of full-time employees employed during 2019 by following the steps below:

Step 1: Count the number of full-time employees in each calendar month in 2019. Include only those employees that worked an average of at least 30 hours per week or 130 hours in the month.

Step 2: Add up each month’s employee count from Step 1 and divide by 12.

Can the same wages be used for the computation of both the ERC and the amount of PPP loan forgiveness?

No. Simply put, there is no double dipping. Wages used to claim the ERC cannot also be counted as “payroll costs” for purposes of determining the amount of PPP loan forgiveness, and organizations that want to benefit from the ERC and have their PPP loans fully forgiven will need to have sufficient wages to cover both. To the extent an organization does not have sufficient wages, strategic planning will be needed to generate maximum benefits.

BDO Insight:

For additional information, register for BDO’s upcoming ERC webinar.

This article was used with permission from BDO US. Click here for original article.

Note: The Office of Management and Budget (OMB) is expected to release a compliance supplement addendum before the end of the year, which will outline audit requirements for many new programs. We’ll be updating this FAQ with additional information after its release.

2020 presented organizations with a wide range of challenges that threaten their survival, from COVID-19 to the ensuing economic recession. While financial challenges have been particularly difficult for many entities, increases in government funding have helped organizations weather this particular storm. However, federal aid comes with challenges of its own—this year, many organizations, including both nonprofits and for-profits, will find themselves subject to a Single Audit for the first time.

Whether it’s your first time preparing for a Single Audit or you’ve had extensive experience, the process can appear overwhelming and confusing. To help you find your feet, we’ve put together a FAQ that will put you on the road to understanding your Single Audit requirements and what you need to do to prepare.

What is the Single Audit?

The Single Audit is a strict and comprehensive financial statement and federal awards audit which must be completed by any entity or organization that expends $750,000 or more in federal funds in one year. The Single Audit, typically performed annually, is intended to ensure an organization is using its federal funds correctly and is in compliance with all applicable compliance requirements and regulations.

A Single Audit covers the operations of the entire entity. There are two parts to a Single Audit: the financial statement audit and the compliance audit. The financial statement audit goes beyond the standard audit (which is performed in accordance with only generally accepted accounting standards (GAAS)) and is performed in accordance with Government Auditing Standards (GAS) as well. These standards include a requirement to report on internal controls over financial reporting and on compliance with provisions of laws, regulations, contracts and grant agreements.

The compliance audit focuses on whether the entity is following the requirements of federal statutes, regulations and the terms and conditions of their federal awards. Based on the requirements outlined by the Federal agency who awarded the funds and the type of entity you are, you may only be subject to an audit in compliance with GAS, which is less complex than the full compliance audit.

Which entities and organizations need to complete a Single Audit?

The short answer: if you spent $750,000 or more in federal funds in your fiscal year, you’ll need to complete a Single Audit.

The long answer: whether or not you need to complete a Single Audit depends on the requirements established by the Federal agency. The financial assistance listings available on beta.sam.gov can assist in making this determination.

As such, if you received any federal assistance this year, you should get a professional opinion to determine whether or not you are subject to a Single Audit.

Please note that even if you are not subject to a Single Audit, if your entity or organization received federal funding you are still required to comply with all of the federal compliance requirements and maintain relevant documentation. Even if you are not subject to a Single Audit, a federal agency may request documentation or perform an internal review.

What programs are subject to the compliance portion of the Single Audit?

The programs identified as “major programs” utilizing the guidelines in the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) are determined by the independent auditor. This is a complex determination that utilizes the specific requirements in the guidance. Once identified, these programs are the ones that are subject to the compliance portion of the Single Audit.

As a result of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, Congress allocated hundred of billions of dollars or aid through various programs that may be subject to the Single Audit requirement. However, funds distributed through the Paycheck Protection Program (PPP) are not subject to Single Audit requirements, but do have their own compliance guidelines recipients must follow.

When is the Single Audit due?

For nonprofits, typically the Single Audit reporting package must be submitted to the Federal Audit Clearinghouse (FAC) utilizing the Data Collection Form (DCF) either within 30 calendar days after receiving the auditor’s report or nine months after your fiscal year end, whichever comes first.

Currently, for-profit entities only have to supply the results of the audit directly to the federal agency or pass-through entity requiring the Single Audit.

Are the results of the Single Audit made public?

For nonprofit entities, the results are typically made public. The notable exception to this rule is Native American tribal governments, which are not required to release their audit reports publicly.

Currently, for-profit entities that must have a Single Audit are not required to complete the DCF and submit this to the FAC, so their reporting package is not public information. However, this could change.

Who can perform the Single Audit?

Single Audits are performed by independent auditors, usually certified public accountants (CPAs). In effect, you can’t have someone within your organization perform your Single Audit. Independent auditors who perform Single Audits must regularly complete specific continuing education courses as required by GAS, given the specialized nature of this work.

What are the risks if you miss the deadline or mess up your Single Audit?

The consequences of missing your Single Audit deadline or being found noncompliant can be costly and time-consuming. If you are found noncompliant, the federal government may withhold funds until the deficiency is remedied, completely suspend or terminate the award, initiate suspension or debarment proceedings or withhold further federal awards for the program. The government may also pursue other available legal actions.

How do you prepare?  

Single Audits are tricky, composed of extremely strict and specific requirements and cannot be performed in-house. However, there are ways an entity or organization can prepare so that the process is as smooth as possible.

• Understand your requirements. There are plenty of resources available online to help you understand what requirements your entity or organization will need to fulfill for the Single Audit. The OMB’s 2020 Compliance Supplement explains the compliance requirements auditors will be testing and that entities receiving federal funds must comply with even if they are not subject to a Single Audit. The OMB Uniform Guidance gives a comprehensive set of guidance for federal grant management and compliance. The 2018 Government Auditing Standards outlines the requirements that must be followed with regard to performing the financial statement audit. The American Institute of CPAs (AICPA) also has a number of Single Audit tools on its website. Review the information and tools at your disposal carefully to get an idea of your requirements during the Single Audit process.
• Gather all your documentation. You will need to provide financial statements and any documents and information you may have that pertain to the federal assistance, including receipts, grantor number (where applicable), and Catalog of Federal Domestic Assistance (CFDA) number. You should keep your documentation neatly organized and accessible at all times.
• Identify and resolve problems proactively. During the course of your fiscal year, keep an eye out for any problems that may arise regarding your federal assistance and resolve them immediately. Don’t try to conceal problems or difficulties. Proactive problem resolution shows your auditor that you are working to remain in compliance even through challenges. In addition, full understanding of the problems you’ve encountered helps ensure there are no unpleasant surprises in the Single Audit process.
• Train your staff. Targeted training can help your staff understand whether an expenditure is in compliance with the relevant federal aid requirements, allowing you and your team to head off problems before they occur.
• Get professional help. Single Audit preparation should be done by trained professionals with years of experience and the necessary resources to facilitate the process. Consider partnering with a firm that has extensive Single Audit experience.

Whether you are facing an audit for the first time or you have been audited for years, making sure that your nonprofit organization is ready might feel overwhelming. Here are a few tips to help you prepare for a first, or just the next, audit.

First, what is an audit (and what is it not)?

The purpose of an audit, as defined by the American Institute of Certified Public Accountants (AICPA), is “to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An auditor’s opinion enhances the degree of confidence that intended users can place on the financial statements.” In the nonprofit industry, the stakeholders are donors, funders and regulators, such as a state charities bureau that approved your organization to solicit funds from donors in that state.

In layman’s terms, an audit provides reasonable assurance—not absolute assurance—that the financial statements are correct (not materially misstated) within a defined threshold. The AICPA provides a set of standards that all audit firms are required to follow to achieve the appropriate level of assurance to issue the opinion. But an audit is not just a generic set of checklists. The auditor creates a tailored set of procedures based on a gained understanding of the organization designed to mitigate the risk of material misstatements within financial statements.

What might cause you to need an audit for the first time?
New funding sources like debt, grants or growth that triggers regulatory requirements in certain states may require an organization to submit financial statements that are audited in accordance with generally accepted accounting principles. Therefore, before any new grant or debt is signed, make sure someone in your accounting department is reviewing the requirements thoroughly. You don’t want to be surprised with a first-time audit!

During the COVID-19 pandemic, your organization may have taken on new debt that requires an audit. In addition, you may have received funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act that may require an audit under the Office of Management and Budget’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). To understand if the funding you received is subject to the Uniform Guidance, you should review the Assistance Listing available at beta.sam.gov, contact the funding source and subscribe to our blog for more information.

So, how can you ensure your organization is prepared for its first audit?

Follow these 10 steps:

1. Gather all your organizational documents and significant contracts into one central location (preferably electronically), including:

• Articles of Incorporation
• Bylaws
• Corporate Operating Agreement
• Internal Revenue Service (IRS) 501(c)(3) determination letter
• IRS Form 1023
• Applicable state tax determination letters
• All significant contracts (customer/grants/leases/vendor/pledge agreements)
• Board minutes from the year(s) under audit
• Commercial insurance policies
• Trust agreements (annuities, life insurance policies, split-interest agreements, etc.)
• All pension and post-retirement plan documents
• Legal titles for real property owned
• Corporate organizational chart
• Staff organizational chart
• Organization’s policies and procedures manuals
• Other organizational documents

2. Document your key financial statement processes and policies. During the documentation process consider if your organization has proper internal controls and if the performance of those controls is adequately documented. Remember to consider your controls and policies over information technology systems that support your accounting records.

• For guidance around internal controls, certain resources are available from the Committee of Sponsoring Organizations of the Treadway Commission at www.coso.org or the Green Book published by the U.S. Government Accountability Office at www.gao.gov.

3. Compile a list of related parties, including related entities, and clearly document the relationship with each related party as well as a listing of any related agreements between the parties.

• Consider consulting with your legal counsel (either internal or external) to ensure all legal relationships are properly documented.

4. Review your accounting records and ensure that reconciliations are available for any balance sheet account as necessary to reconcile sub-ledger data (or any data maintained outside of the ledger) to the trial balance.

5. Ensure that transactional data from the period under audit (e.g., proof of expenses, sales, contributions or payroll records) is organized and available for testing, as requested.

6. Ensure that a full schedule of all property and equipment, and related depreciation and amortization, is available.

7. Obtain sample audited financial statements of similar organizations. Review the financial statements to gain an understanding of what data to have available to produce the required footnote disclosures. Sample financial statements can be found on many peer nonprofits’ websites, www.Guidestar.org or on the Federal Audit Clearinghouse website (if the nonprofit was required to have an audit performed in accordance with Uniform Guidance).

Once you’ve hired your audit firm of choice (and before any recurring engagement) you should:

8. Facilitate a meeting with the audit team and those individuals you have designated as your financial governance committee (e.g., audit committee, finance committee, board of directors, etc.) to set expectations and discuss specific risks related to your organization.

9. Hold a meeting with the audit team and your management to discuss timing and specific items that you will need to prepare based on the tailored approach prepared by the auditor. Finalize the timeline of all deliverables to ensure that your financial statements will be issued by the date required. Once you have received the specific list of items to be prepared by the organization, hold an internal meeting to assign responsibility for each task and consider how the information will be prepared and reviewed prior to delivery to the auditor.

10. If your organization has inventory, ensure that you invite the audit team to the year-end count or the next scheduled perpetual count.

With careful consideration of these steps and allowing adequate time for your team to pull and organize this information, even a first-year audit should run smoothly.

Recurring Audits

In addition to Tips 8-10, consider:

1. The relationship with your audit firm shouldn’t be confined to just the yearly audit. Keep in touch throughout the year to discuss changes in your strategies, funding, processes, etc. so your auditors can advise if there are any potential accounting or compliance issues you should consider. A nonprofit’s financial statements are often public documents, so checking in on how new events and transactions may impact your audit and financial statement presentation can help mitigate unwanted surprises. Talk to your auditors about any changes in accounting controls or any new funding streams that might impact compliance requirements.

2. Stay informed about any changes to legislation, accounting pronouncements or other compliance updates that will impact your organization’s financial statement presentation or compliance rules. While it is often assumed that it is only the auditor’s job to keep up with changes, management should have a working knowledge of requirements. Keeping up with any changes will also ensure that the accounting system and records are set up to produce the required information the auditors will need to audit your organization’s adoption of new standards.

3. Stay organized! Create a logical electronic filing system to ensure you can easily locate the information that has been requested and any materials your team has prepared. Then, keep the files until at least the following year for reference.

Remote Audits

The COVID-19 pandemic required many organizations to allow office employees to work remotely and many organizations have chosen not to bring the full team back into the office at this time. Thus, it’s likely that a portion, if not all, of your audit in the coming months will be handled remotely. The keys to managing a successful audit under COVID-19 restrictions are communication and flexibility. Here are some additional considerations as you prepare for a remote audit:

1. Review what, if any, changes have occurred in the internal control processes to accommodate remote working. Are there changes in the check writing or depositing process? Are there changes to approval controls? Discuss these changes with your auditor ahead of the scheduled audit.

2. Discuss with your auditor what file repository system will be utilized for the remote sharing of data from your organization to your auditors in a secure manner. Ensure that the filing system will meet the cybersecurity requirements of your organization.

3. Discuss the timeline with your auditor well in advance this year. Consider if additional time may be required for your team to transfer physical files into electronic copies.

4. Consider using video technology to allow for the auditor to observe processes through the digital environment and allow for “in-person” meetings and interviews throughout the audit. An auditor could potentially even use digital methods to conduct a physical inventory count observation.

5. Consider safety protocols that your organization and the auditor’s firm will require if in-person work or meetings are deemed necessary. Ensure that each team understands the legal and organizational requirements for protective equipment and social distancing protocols.

The word “audit” can often be a source of fear and dread. However, following these tips can help your nonprofit organization get audit ready. For well-prepared organizations, the audit process can be a helpful tool for assessing financial health rather than an exhaustive exercise in pulling data. Communicating with your auditors has always been important, but the challenges of the pandemic have made open collaboration and flexibility between nonprofits and their auditors more critical than ever.

This article was used with permission by BDO USA, LLP. Please click here to view the original article.

Due to its mission-driven purpose, a nonprofit organization’s financial and operational sustainability is significantly impacted by its environment. Natural disasters, economic slowdowns and unforeseen events are just a few factors that can adversely affect nonprofit organizations. That is why a strong internal control system has always been a priority for audit committees and management of nonprofit organizations. Successful organizations have established policies to address the primary question: “what could go wrong?” Now nonprofits are facing the many challenges of dealing with the results of the global COVID-19 pandemic, which often include a scattered and remote workforce. Complicating matters further, what was once intended to be temporary work from home conditions are in many locations continuing into the fall, meaning taking a “wait and see” approach may no longer be an option.

As a result, nonprofit management teams are asking themselves if the internal controls that were once effective are still operating in a manner to achieve their objectives in this unprecedented time. How can nonprofits adapt to this remote environment, when their employees, resources, technology and documentation may only be accessible through virtual means?

Here are five tips that nonprofit management teams should consider to strengthen their internal control system in response to a remote environment:

1. Reevaluate risks.

Due to the ever-changing environment the pandemic has created, prior to reassessing internal control systems, risks must first be reevaluated. Every nonprofit organization’s circumstances related to COVID-19 will be unique. Additional risks that impact the organization’s financial position may arise. Audit committees and management should ask themselves questions like:

• How has COVID-19 impacted the organization’s liquidity and capital resources?
• Is there now uncertainty about our ability to meet the covenants of our debt agreements?
• Have new cybersecurity and data integrity risks resulted from our digital working environment?
• Does our business continuity plan need to be reassessed?
• Developing plans and strategies to address these questions and others is crucial to help navigate this new reality.

2. Reassess the existing control environment in response to reevaluated risks.

Although a nonprofit organization may periodically reassess and test its internal control system to ensure it is working properly, we have now entered an unprecedented time, where reassessing controls takes on a whole new meaning. What proved successful in the past may now result in control gaps when taking into consideration new risks, such as a remote work environment, digital reviews/approvals and virtual documentation. Internal controls should be reassessed to determine if current existing controls are in fact targeting the specific risks now at hand.

Nonprofit organizations may have to make changes in order to use the information and resources available to them at this time. This could result in changes in both operational and financial policies and implementing new policies. Roles and responsibilities may have to be adjusted. Contingency plans may have to be formulated in response to the new risks that have arisen. For many nonprofit organizations, controls around donor-restricted and government grant funds may need to be enhanced. Current system capabilities may have to be explored to determine if there is the potential to automate controls. The overall implementation of amended controls is essential to thriving in this changing work environment.

3. Strengthen segregation of duties.

Segregation of duties is often a challenge for nonprofit organizations, depending on their size and complexity—the smaller the size, the bigger the challenge. This challenge intensifies even more in the COVID-19 environment, where the separation of duties, which may have been enforced before, now appears less pragmatic when parties are working remotely, and circumstances are constantly changing. Questions such as “who is establishing the controls and who is monitoring them?” need to be revisited.

For instance, in a virtual environment, is management able to clearly distinguish between who holds physical custody of an asset versus who does record keeping for that asset? Furthermore, who has the authorization to approve transactions? Leveraging technology to enhance controls is one way to assist in clearly distinguishing between roles and responsibilities. Technology can provide collaboration tools and additional layers of approval that can help ensure that controls are enforced, and appropriate segregation of duties is maintained.

4. Document key areas.

Key areas of a financial statement, especially those of higher-risk require comprehensive and robust supporting documentation. Management of nonprofit organizations should exercise extreme caution in ensuring areas such as management estimates and expenditure/cost tracking are thoroughly supported by documentation. The expectation of well-documented management estimates has always existed—however, in this rapidly changing environment, reasons and explanations of how an estimate is being recorded are more imperative than ever.

Estimations should include written assessments of the thought process behind the reported amount, as well as reasons for any changes from prior years. This is especially important when considering the impact of COVID-19 on goodwill impairment, growing concern evaluation and any potential additional debt requirements. These represent areas that likely need renewed consideration and reinforcement when documenting underlying rationales behind the estimates.

Additionally, proper expenditure/cost tracking has become increasingly important. Whether nonprofit organizations are incurring expenditures specific to COVID-19-related costs or receiving government relief funds, the methodology behind identifying and tracking these revenues and expenses is vital to a nonprofit organization’s financial position. A nonprofit may consider recording COVID-19-related funds received and expenses incurred in separate cost centers. Detailed supporting documentation needs to be maintained to support these amounts.

5. Don’t be afraid to seek assistance from outside experts.

In order to perform their oversight function, audit committees, boards of directors and management of nonprofit organizations might need assurance that the new information and data they are processing is of the utmost quality. As new matters arise, outside experts can help the organization better understand best practices as well as help to monitor and assess the effectiveness of internal controls. They can also address complex accounting and auditing questions or assist with reviewing controls related to cybersecurity and privacy risks. External experts can also identify opportunities for nonprofit organizations by helping them understand the eligibility provisions for additional relief funding, including the Main Street Lending program. Templates and tools can be provided to the organization to help them better understand the calculations behind the relief packages available to them.

No matter what stage a nonprofit organization is in with its response to COVID-19, it’s imperative to maintain internal control systems to adapt to the continuously changing environment and sustain its mission critical work.

This article was used with permission by BDO USA. Please click here to access the original article written by Carla Demartini, CPA.

As the coronavirus pandemic swept across the United States, leaders at all levels found themselves faced with the sudden need to make key decisions. Some did so successfully, others did not. According to a recent article from BDO USA, one of the main distinguishers of those who made good leadership decisions during this time was basing decisions upon data analytics, rather than just judgement or gut feelings.

We have access to a wealth of data and utilizing that data can help businesses succeed in making key decisions. Savvy leaders used the data available to them to inform their decisions in the midst of the recent crisis. Here are some lessons about data usage that businesses should learn from the COVID-19 pandemic:

Your insights can only be as good as the data upon which they are based. The coronavirus pandemic has made clear the fact that many businesses have a big “Data Problem.” In order to achieve success with data analytics, you need to refine your data by fixing common issues such as inconsistencies, duplications, and incomplete records. Streamlining your data gathering process will have a huge impact on your ability to harness data analytics.

The culture you establish and cultivate within your organization impacts your ability to adapt to advanced data usage. If your business has a culture that is resistant to trying new things, it will make your attempts at drawing on data for decision making much more difficult. The author offers the following tips for creating a more data-friendly business culture:

1. Promote the idea that data is invaluable.
2. Use technology (e.g., dashboards that link real-time data) to create real-time sharing and insights.
3. Encourage the sharing of data and analysis among your team.
4. Create clear policies and practices for data stewardship and use.
5. Offer data training to your entire team and encourage them to draw on the lessons they learn.
6. Incorporate data know-how as a criterion during the hiring process.
7. Acknowledge and reward employees who handle data well to inspire your whole team to strive for greater understanding.
8. Lead by example in drawing on data to support your decisions and reasoning.
9. Take the time to consider the ethical and privacy implications of data usage.

In times of crisis, you should draw on data analytics to guide your response. That does not mean starting complex new analyses; rather, assuming that you have a reasonably strong data foundation, draw on the key performance indicators (KPIs) that you currently track. Consider adding KPIs for tracking the following into your arsenal: financial health, capital spending, operational health, employee health, and customer health.

The article concludes with a brief look at how to apply data analytics to businesses during the coronavirus pandemic. Specifically, it examines two areas:

1. Data analytics as applied to essential businesses: Use predictive insights based on data to establish the most high-demand products, the times of day or month when certain products are in higher demand, and/or how to optimize customer flow.
2. Data analytics as applied to nonessential businesses: Draw on data to determine how much liquidity to seek, where to cut costs, and how to realign the business model or team to best respond to the crisis.

For further details, click here to read the article in full at BDO USA

• Managing funding disruptions
• Financial reporting considerations
• Supporting workforce needs
• Maximizing financial relief measures

Fundraising is a massive part of any nonprofit organization, and in today’s tech-driven world, many donations rely on an organization’s handling of technology.

This article explains why nonprofits are struggling to use technology such as AI and data analytics, and the importance of automation in the industry.

To view this article, click the following link to access the original content.

http://www.thenonprofittimes.com/news-articles/nonprofits-have-technology-but-arent-using-it-well/

If you are considering working for a nonprofit organization, there are a few challenges you will undoubtedly have to overcome.

This article shares the insights, recommendations, and knowledge of people who have worked in the nonprofit industry for years.

To view this article, click the following link to access the original content.

https://aleteia.org/2018/10/23/want-to-work-for-a-nonprofit-consider-this-first/