Plan Ahead for Upcoming Audits
Sessions in this track surveyed current issues and best practices in the core business office functions of accounting and tax.
IRS Employment Audits Coming
Worker classification, compensation, fringe benefits, and reimbursed expenses are the four main areas that the Internal Revenue Service is focusing on as part of its National Research Project (NRP). The effort will reportedly target approximately 500 exempt organizations for audit, including colleges and universities, in each of the upcoming three years of the project.
The session "Preparing for Upcoming IRS Employment Tax Audits" highlighted areas that the IRS is likely to examine closely during the NRP exams. It was led by Rachel Spurlock, senior tax manager, Crowe Horwath, and Susan Tate, vice president, business and finance, and treasurer, Capital University, Columbus, Ohio (and a veteran of IRS audits at previous posts).
The two said IRS examiners will look for misclassified workers-independent contractors who should properly be classified as employees. In the compensation area, they will look into compliance with deferred compensation plan rules under Code sections 409A, 457, and the rules related to 403(b) retirement plans, as well as any loans to employees. In the area of fringe benefits, the IRS will be interested in identifying the conferring of tax-free benefits that may be taxable to some degree, such as campus housing, meals, first-class or charter travel, and automobile allowances.
The audits will also target compliance with accountable plan rules, which govern the reimbursement to employees for business expenses. The business benefit of such expenses and substantiation of them in keeping with IRS rules are essential to compliance.
Audit Learning Curve
The good news is that reporting for the 2010 plan year of your institution's retirement plans should be less painful than for the 2009 plan year. Presenters of the session "Your Plan's Year-Two Audit: Be Informed and Prepared" shared suggestions for making the reporting process go more smoothly the second time around. In addition to providing definitions for scope limitations and opinion types, presenters covered some of the basics for increasing your institution's odds for a clean audit.
For starters, begin early, said Debbie Smith, employee benefits practice partner at Grant Thornton. "Meet with your finance and HR departments to determine early in the plan year how the audit will be staffed and supported, and identify a project manager to own the process from end to end," she said.
Next, set a timeline to prepare needed financial statements, schedules, and reconciliations to spread the work around. Look for an auditor who has the right qualifications for the types of plans that need auditing. Finally, seek clarity regarding audit documentation so that you have critical documents available, including plan documents and amendments, and appropriate committee minutes.
Limited Resources, No Problem
How can institutions get the most from their internal audit functions in light of resource constraints? That was the focus of the session titled "Successfully Leverage Internal Audits with Limited Resources." Cathy Wood, vice president for finance and treasurer, the Catholic University of America, Washington, D.C, and Raina Rose Tagle, partner with Baker Tilly Virchow Krause, discussed how the university teamed with the accounting and advisory firm.
Catholic University faces the challenges of a small school with a relatively small staff. The institution had had a one-person internal audit office (with student assistance) focused on financial transactions, policies, and procedures—then the internal auditor gave notice. After thoroughly examining expectations for the position, university leaders and the board concluded that they wanted a more robust internal audit, a more collaborative approach, and someone who would report to the board in an advisory position. The internal auditor needed to be independent and credible.
After investigating options, the board decided that outsourcing best fit the university's needs and budget. Wood said that outsourcing with Baker Tilly has enabled the university to greatly improve the quality and depth of its audits, while staying within budget.
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