Beyond Tax Compliance and Consulting: How a CPA Firm Can Help Your Private Foundation

Posted on Sep 9, 2020

Many private foundations are already familiar with the tax assistance CPA firms can offer them. But the range of services available to private foundations extends far beyond just compiling the 990-PF. Some other ways a CPA firm can help your private foundation include:

Financial Statement Assurant Services

Have you ever wondered whether your private foundation should have an audit? Some organizations obtain a financial statement audit to comply with state requirements, while others incorporate a financial statement audit into their governance oversight. Before deciding on whether or not to obtain this service, it is helpful to understand exactly what assurances a financial statement audit provides, and what other options are available that may add tangible value and help your foundation achieve its objectives.

There are four different levels of financial statement assurance:

Compilation

A compilation entails converting financial data into financial statements without auditing the underlying data. A compilation report accompanies the financial statements; however, it does not provide assurance on the balances reported.

Review

A review provides limited assurance that no material adjustments are needed to the financial statements, as presented. Procedures performed by the external accountant include analytical procedures, inquiries, and industry-wide comparisons. An accountant’s report giving limited assurance accompanies the financial statements.

Audit

An audit provides the highest level of assurance that the financial statements are fairly stated in all material respects. Procedures performed include obtaining third-party confirmation of information and testing activities and transactions. An audit also includes evaluating internal controls related to recording and accounting for accounting transactions. Founders or boards who want to know that funds are being managed and spent appropriately, and that internal controls are up to the latest standards, increasingly request an audit.

Agreed-Upon Procedures

During this type of engagement, procedures are performed over certain subject matter, specified by the foundation. This work is typically focused on specific aspects of a financial statement or internal control system, or on a certain type of transaction. A report is issued by the external accountant that details the testing performed and the results of that testing. Agreed-upon procedures are sometimes performed to fulfill the request of a specific user group, bank, or other financing source. Agreed-upon procedures are also performed to test a discrete area that may be of concern to management or the board, such as issuing payments.

Business Health Checkups

While assurance services can be helpful, a Business Health Checkup” may be more beneficial to your foundation. A Business Health Checkup is generally more flexible and collaborative than the other services mentioned above. It is focused on the areas of most concern to you and can be as broad or narrow as needed. This consulting service can be structured in several ways and be performed over any period of time desired, or in phases. The results of a consulting arrangement typically include observations and recommendations for management’s consideration.

The following is a list of Business Health Checkup services that are frequently performed for private and community foundations:

Internal Control Process Reviews

This service evaluates the design of internal controls for adequate segregation of duties and authorization, and it ensures controls are implemented and operating as intended. These reviews can be performed over any of the following activity cycles: grants and expense disbursements, payroll and HR records, investment portfolio accounting, and financial reporting. The goal of an internal control process review is to ensure adequate safeguarding of assets, improve clarity in financial and management reports, and increase the accuracy of information used for tax reporting.

Information Technology Reviews

These reviews look at general IT controls over security, access, data integrity, change management, and operational policies. The goal of information technology reviews is to ensure the foundation’s data is secure and accessible and to help safeguard the foundation’s assets.

Operational Reviews

These engagements can involve a software functional needs assessment, which explores opportunities to implement software that integrates various functions of the foundation, such as financial reporting, HR, and grantee data. The goal of this assessment is to determine if existing systems are operating effectively and efficiently, or whether other system solutions should be explored.

Other operational reviews could include the foundation’s grantee due diligence process. The goal of this review is to ensure the foundation is following IRS requirements and that the process is operating effectively and efficiently.

Tax Related Reviews

These reviews can look at the foundation’s compliance with the IRS rules governing private foundations. Examples include a review of executive compensation and accountable plan reimbursements to look for evidence of self-dealing or noncompliance with the accountable plan. Revenue streams can be reviewed to identify any related tax implications and discover possible under‐ or overpayment of excise taxes for net investment income and unrelated taxable business. Evaluating advocacy, lobbying, and political activities and policies helps ensure that the foundation is not inadvertently engaged in prohibited activities directly or through grantees or contractors. International investments or grants made to foreign grantees can result in required foreign tax filings, and a thorough review of these will help ensure international activities are properly accounted for, documented, and that the required filings are made.

In Conclusion

A wide variety of services beneficial to your foundation can be provided by your CPA firm. Careful consideration and selection of the projects above can give you peace of mind that your foundation’s assets and data are adequately protected, that your practices are efficient and effective, and that you are well poised to achieve your mission in our evolving environment.

If you would like to learn more about these private foundation services, contact a Clark Nuber advisor.

© Clark Nuber PS, 2020. All Rights Reserved

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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