Nonprofit Newsletter - February 2013

February 2013

NONPROFIT HOT TOPICS____________________________________________________________

Effect of New Tax Act on Charities

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Benchmark Your Organization Against Your Peers

From Our Partners

NEW CHANGES PROPOSED BY OMB FOR THE SINGLE AUDIT ACT

NONPROFIT NEWSLETTER

ContentsFebruary 2013

1 | SingerLewak February 2013

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FROM OUR PARTNERS2 NE W CHANGES PROPOSED BY OMB FOR THE

SINGLE AUDIT ACTMany of our nonprofit clients here at SingerLewak receive Federal grants and awards, which in addition to fundraising and program revenues, assist those nonprofits in funding vital programs for their customers. Currently, the requirement is that if an entity expends $500K or more of Federal funds, they are subject to an audit under A-133 guidelines, which typically is done in conjunction with a client’s financial statement audit.

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NONPROFIT HOT TOPICS4 EFFECT OF NE W TA X ACT ON CHARIT IES

The President signed into law the “American Taxpayer Relief Act of 2012” (“Act’) on January 3, 2013. In the months leading up to the Act, there had been a lot of discussion and anticipation in the charitable community about how charities will be affected by any changes in the law.

5 BENCHMARK YOUR ORGANIZ AT ION AGAINST YOUR PEERSMost nonprofit organizations are interested in how their organization compares to their peers whom operate in the same space. While there are some generic benchmarking tools out there, none typically provide a complete analysis of your organization compared to organizations of similar size and mission.

F R O M O U R PA R T N E R S

NEW CHANGES PROPOSED BY OMB FOR THE SINGLE AUDIT ACTBY JEFF HOLT | [email protected]

Many of our nonprofit clients here at SingerLewak receive Federal grants and awards, which in addition to fundraising and program revenues, assist those nonprofits in funding vital programs for their customers. Currently, the requirement is that if an entity expends $500K or more of Federal funds, they are subject to an audit under A-133 guidelines, which typically is done in conjunction with a client’s financial statement audit. The OMB, the Office of Management and Budget, the federal agency that enforces the Single Audit, recently issued proposed new guidance that would, if finalized, change the A-133 guidelines significantly. The proposed changes are summarized briefly here, as follows:

• SingleAuditThresholdforAuditProposedtoIncreaseto$750,000 – this is an in-crease from the current $500K threshold. Entities expending amounts under $750K would not be subject to an A-133 audit.

• ChangestoMajorProgramDeterminationProcess – Type A/B Threshold – the OMB is expected to alter this threshold, possibly from the current $300K to $500K.

• ChangestotheMajorProgramDeterminationProcess– High Risk Type A Programs – the criteria for a Type A program to be deemed high risk would be changed to – 1) If the program had, in the most recent audit period, failed to receive an unqualified opinion, 2) Had a material weakness in internal control, OR 3) Had questioned costs exceeding 5% of the program’s expenditures.

• ChangestotheMajorPro-gramDeterminationPro-cess – Type B Programs – the proposed guidance would re-

duce the number of high risk Type B programs that must be tested as major from at least one-half to at least one-fourth of the number of low-risk Type A programs. In addition, small Type B programs would be considered those that are 25% of the Type A/B program threshold.

• PercentageofCoverageChanges – these are proposed to be reduced from 50% (normal) and 25% (low-risk auditee) to 40% (normal) and 20% (low-risk auditee).

• CriteriaforLow-RiskAudi-teeStatus – would be revised to include additional criteria to make the low vs. high risk determination. These are 1) Failure to submit a data col-lection form on a timely basis,

February 2013 SingerLewak | 2

The OMB recently issued proposed new guidance that would, if finalized,

change the A-133 guidelines significantly


and 2) The auditor does not report a substantial doubt about the auditee’s ability to continue as a going concern. It also removes the previous options for waivers for these areas.

• ReductioninTypesofComplianceRequirementstobeTested – The number of compliance requirements tested would be reduced from the current 14 to 6 types of compliance requirements. They are: 1)Activities Allowed/Unallowed and Allowable Costs, 2)Cash Management, 3) Eligibility, 4) Reporting, 5) Subrecipient Monitoring, and 6) Special Tests & Provisions. However, a Federal agency could request that testing un-

der deleted requirement could be added to Special Tests & Provisions.

• Findings – additional detail would be required in findings write-up. However, the ques-tioned cost threshold would be raised from $10K to $25K.

• StreamliningofRelatedCircularsandGuidance – the 8 existing OMB circulars, including A-133, would be consolidated into one docu-ment. The proposed guidance would supersede A-21, A-87, A-89, A-102, A-110, A-122, and A-133.

• IndirectCostsandTimeandEffortReporting/Admin-istrativeRequirements – a number of proposed changes are made in this area.

At this time, the effective date of these changes is not known, as the OMB is still evaluating the proposed changes and taking into account comments submitted by affected entities. We will keep you updated on the latest developments regarding these proposed changes and how they can potentially affect the A-133 audit going forward.

JEFF HOLT CAN BE REACHED AT

[email protected] OR 310.477.3924

EFFECT OF NEW TAX ACT ON CHARITIESBY NANAZ BENYAMINI | SENIOR [email protected] | 310.477.3924

The President signed into law the “American Taxpayer Relief Act of 2012” (“Act’) on January 3, 2013. In the months leading up to the Act, there had been a lot of discussion and anticipation in the charitable community about how charities will be affected by any changes in the law. The following are two key provisions contained in the Act that could have a direct impact on charitable dona-tions made to charities:

• For taxable years beginning after December 31, 2012, the limitation on itemized deduc-tions has been reinstated for individual taxpayers with a threshold of $300,000 for joint filers and surviving spouses, $275,000 for heads of household, $250,000 for single filers and $150,000 for married taxpayers filing sepa-rately. For taxpayers with tax-able income exceeding these thresholds, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer’s Ad-justed Gross Income exceeds the threshold amount, but the reduction cannot exceed 80% of the otherwise allowable itemized deduction.

What this means for chari-ties – while these reinstated limitations will undoubtedly present some challenges for charities in securing future contributions, the continua-tion of the charitable contribu-tion deduction is a welcomed departure after last year’s dis-cussions about the possibility of eliminating the tax benefit altogether.

• For taxable years 2012 and 2013, individuals 70½ years or older may continue to make tax-free distributions from their Individual Retirement Account (‘IRA”) to public charities in amounts up to $100,000 per taxpayer, per taxable year. The Act contains two elections that enable its

retroactive application to 2012: » A taxpayer may elect to treat a distribution that he or she made in January 2013 as if it was made on December 31, 2012, thereby allowing the deduction to be reported on a 2012 tax return.

» A taxpayer who has already received an IRA distribu-tion in December 2012 may still elect to transfer the IRA distribution that he or she received to a public charity and treat the amount as a tax-free distribution from their IRA as long as the tax-payer transfers the cash to the charity prior to February 1, 2013.

This provision allows charities additional time to solicit chari-table contributions from poten-tial donors who are interested in applying their charitable distribu-tion to their 2012 tax year by way of their IRA account.

N O N P R O F I T H O T T O P I C S


NANAZ BENYAMINI CAN BE REACHED AT



BENCHMARK YOUR ORGANIZATION AGAINST YOUR PEERSBY MIKE BARLOEWEN | SENIOR [email protected]

Most nonprofit organizations are interested in how their organization compares to their peers whom operate in the same space. While there are some generic benchmarking tools out there, none typically provide a complete analysis of your organization compared to organizations of similar size and mission. For example, Charity Navigator will evaluate your public data and provide you with a number of stars as a rating which you can compare to the number of stars obtained by other organizations. While this is helpful, it doesn’t tell the complete story.

SingerLewak is excited to have licensed a tool called ProfitCents which can analyze your financial statements. We are very excited about this program because it can provide a plain-language translation of your financial statements as benchmarked against other similar organizations. It does this by accessing immense public and nonpublic data for nonprofits based upon NTEE codes of the National Center for Charitable Statistics. If your organization fits into any of the 657 distinct nonprofit codes located here,

then a benchmark exists for the comparison of your financial data against those of your peers.

By comparing your financial information against a benchmark determined by analysis of other similar organizations that are of a similar size and have a similar mission, the report highlights the areas of your business which are the strongest, and those which may need improvement, as well as outline some of the ways in which we may help you to define and reach your financial goals.

Here is a sample of what we address in our report:

• Liquidity – can you meet your obligations as they come due?

• Program efficiency -allocation between program, admin and fundraising

• Operating yield trends – are these trends favorable?

• Revenue composition – are they growing and are you satisfied with their levels.

• Operating reliance• Fundraising efficiency

N O N P R O F I T H O T T O P I C S

While there are some generic benchmarking tools out there, none typically provide a

complete analysis of your organization compared to organizations of similar

size and mission


• Assets – are they being used effectively?

• Employees – are you hiring effectively?

We offer this service to help you meet the primary objective of making your business more successful in both impact and sustainability through better management. Having good financial information on a regular and timely basis is an essential part of good management, but that alone

is not enough. It is critical to understand the financials and the trends that they indicate. Now more than ever, it is important to understand your nonprofit business and the impact the current market conditions will have on it. If you are interested in more information, or would like us to benchmark your organization, please give me a call or email me.

Having good financial information on a regular

and timely basis is an essential part of good

management, but that alone is not enough. It is critical to understand the financials and the trends

that they indicate. MIKE BARLOEWEN CAN BE REACHED AT


W W W.SINGERLE WAK .COM | 877.754.4557

LE WIS SHARPSTONE | Partner [email protected] | 310.477.3924

MIKE BARLOE WEN | Senior Manager [email protected] | 818.999.3924

JEFF HOLT | Partner [email protected] | 310.477.3924

NANA Z BENYAMINI | Senior Manager [email protected] | 310.477.3924

L IOR TEMKIN | Partner [email protected] | 310.477.3924

SingerLewak is a leading regional accounting services firm in California with offices in Los Angeles, Orange County, Woodland Hills, Monterey Park, San Diego, Silicon Valley and San Francisco. Serving California since 1959, SingerLewak has established a reputation for excellence as professionals with unparalleled expertise in the Accounting and Management Consulting industry. Providing the services of a large firm with a blended environment of practices, industry specializations and particular attention to hands-on service, SingerLewak continues to demonstrate leadership and industry growth year-over-year. Our client relationship approach and industry excellence is renowned.

We are nationally recognized as active community and professional services partners, working among many sectors of the business world. Our core services deliver results whether it’s auditing, accounting, entrepreneurial business services, tax preparation, business manage-ment, SEC filings, transactions, enterprise risk manage-ment, forensic accounting, business valuation, litigation support, or consulting.

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT.

OUR FIRM

Nonprofit Newsletter - February 2013

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