Archive for the ‘Ohio’ Category

How To Prepare For A Federal Tax Return Headache

Tuesday, January 20th, 2015

Planning to buy a new big-screen television? Airline tickets for that Caribbean vacation you’ve been looking forward to?  A new car? You might want to wait a little longer.

IRS Commissioner John Koskinen recently warned American taxpayers that some federal refunds could be delayed for a week or more because of recent budget cuts. So, if you file your tax return on paper, before you start spending that income tax refund check, you might want to wait for the cash to actually find its way into your bank account. Expect to feel a little discomfort during this tax season.

Refund Delays

Historically, refunds for electronically filed federal returns were processed within 21 days of the e-filing acceptance date. Paper returns were typically processed within six to eight weeks from the date they were received. Amended tax return refunds take even longer – the turnaround for these returns were typically 12 weeks.

“People who paper file tax returns could wait an extra week – or possibly longer – to see their refund,” said Koskinen in a memo sent to IRS staff. “Taxpayers with errors or questions on their returns that require additional manual review will also face delays.”

In his memo, Koskinen didn’t explicitly address electronically filed returns, but it wouldn’t be a surprise for these refunds to be delayed (at least a little bit) as well.

Phone Jams

Nearly eight out of ten taxpayers receive an average tax refund totaling $2,800, which prompts many taxpayers to check in on the status of their refunds by calling the IRS. The agency is predicting an abysmal connection rate of these calls this year – 43 percent connection rate with a hold time of 30 minutes or more.

Instead, if you would like to track the status of your refund, hang up the phone and log onto the IRS’s website to use its Where’s My Refund feature.

Time will only tell how these budget cuts will impact next year’s tax return process, as well as other services provided by the IRS. In the meantime, start preparing to file your tax return as early as possible to avoid additional delays. Email Rea & Associates to learn more.

By Meredith Mullet, CPA (Wooster office)

 

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File Faster With This Tax Prep Checklist

Tuesday, January 20th, 2015

It’s that time of year again – time to gather your information and prepare to file your tax return. If you want the process to go smoothly, make sure to gather and organize your information before sitting down with your tax preparer. You may be surprised how fast the entire filing process goes if you spend a little time preparing!

Here’s a list of some items to compile before you get started.

Personal Information

Hopefully you know YOUR social security number and date of birth by heart. But do you know your spouse’s SSN? Your kids? Make sure you remember to bring the social security numbers and birth dates of everybody who will be claimed on your tax return.

Income Info

While your W-2 is important, there are many other pieces of information you will need to collect before you will be able to get started. Gather the following pieces of relevant information:

  • W-2s for you and your spouse.
  • Investment income: This type of income will be listed on various 1099 forms including –INT, -DIV, -B, etc). You may also have K-1s and stock option information to provide to your tax preparer.
  • Income received from state and local income tax refunds and/or unemployment. This income can be found on the Form 1099-G.
  • Gather information about any alimony you may have received.
  • If you are a business owner or farmer, don’t forget to provide a profit/loss statement and capital equipment information.  And if you use your home for business, your tax preparer will need to know the size of your house, the size of your office and what you have paid to maintain your home and office.
  • You will need to provide your IRA/pension distributions as well. This information will be provided to you on Forms 1099-R or 8606.
  • If you rent a home or other type of property, be sure to gather that information that proves the profit or losses you realized as a result of the rental.
  • Be sure to claim any Social Security benefits you may have received. This information is found on Form SSA-1099.
  • If you sold your house in 2014, you must provide your tax provider with Form 1099-C, which will include the income you received from the sale of the property. Your preparer will also take the home’s original cost and cost of improvements, the escrow closing statement and cancelled debt information into consideration.
  • Some other information you will need to pass along to your tax preparer includes items such as jury duty, gambling winnings, scholarships, etc.

Adjustments To Your Income

Now that you have collected all the information you can to adequately identify your income in 2014, some adjustments may need to be made. Making the following adjustments to your income may help increase your tax refund or lower the amount you owe to the government. If you have documentation of any of the following information, be sure to bring them to your appointment.

  • IRA contributions
  • Student loan interest
  • Medical Savings Account contributions
  • Moving expenses
  • Self-employed health insurance payments
  • Pension plans such as SEP and SIMPLE
  • Alimony you paid
  • Educator expenses

Itemized tax deductions and credits

This is another way to increase your refund or reduce what you owe. The following deductions and credits help lower the tax burden on individuals. Be sure to collect this information before filing your return.

  • Child care costs – child care provider’s name, address, tax ID number and amount paid
  • Education costs – these can be found on Form 1098-T
  • Adoption costs – the SSN of the child as well as legal, medical and transportation costs associated with the adoption
  • Home mortgage interest and points you paid, which can be found on Form 1098
  • Investment interest expense
  • Charitable donations that were made to not-for-profit organizations. Make sure you have the amounts and value of the donated property, and any out-of-pocket expenses you may have accrued in your effort to make the donation, including transportation costs. Include receipts for any contribution over $250

o   Losses you realized as a result of casualty and loss (the cost of the damage and insurance reimbursements

  • Medical and dental expenses
  • Energy credits
  • Other deductions include items such as union dues, unreimbursed employee expenses, such as unreimbursed employee expenses

New for 2014 returns

For the first time, you will need to provide information about your health insurance coverage to your tax preparer. Be prepared to answer questions such as these:

  • Was everyone claimed on your tax return covered by health insurance?

o   If not, why?

  • Did you or anyone on your return obtain health insurance coverage through Healthcare.gov or through a state run exchange in 2014?

o   If yes, did any of those individuals receive a premium tax subsidy, cost reduction, or premium tax credit? If yes, provide Form 1095-A.

It’s likely that you have already started receiving tax forms in the mail from various places. It’s easy to misplace these documents if you’re not careful. If you haven’t already, set aside a place for these items until you have collected them all. Once you have everything you need, you can set an appointment to file your taxes with your financial advisor or tax preparer. For additional tax information, or to speak with a tax expert, email Rea & Associates.

By Lesley Mast, CPA (Wooster office)

 

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Theft Safeguards To Cause Tax Return Delays In Ohio

Tuesday, January 20th, 2015

If time is money then the new security measures to protect Ohio taxpayer’s returns and prevent identity theft comes at a price. The Ohio Department of Taxation (ODT) said that in an effort to boost security and prevent tax-fraud in the state, Ohio will implement an “up-front filter to all tax-refund requests to analyze the demographic information reported on the return.”

According to Joe Testa, the state’s tax commissioner, the ramped up security is in response to increased fraud attempts. The Columbus Dispatch reports that the state foiled $250 million in attempted tax fraud during the 2014 tax season, which is a significant increase over the foiled tax fraud average of $10 million in previous years. Figures of how much fraud went undetected last year or in previous years are not available.

The Tax-Fraud Quiz

If your tax return is flagged as a result of anomalies in reported demographic information then you will have to complete an Identification Confirmation Quiz, according to Testa. If you are selected to take the quiz, you should expect a delay as to when your funds will be dispersed. Traditionally, it takes up to 15 days to process refunds that will be distributed to the taxpayer via electronic deposit. Those who opt to receive their refunds in check form could wait 30 days to receive their money. This year, those who must take the quiz to validate their identities, may have to wait longer than they have in previous years to receive their refunds.

Which Returns Will Be Flagged?

On its website, the ODT says that tax returns will be analyzed for certain inconsistent data points against public and commercial data sources. For example, in the Dispatch article, taxation spokesman Gary Gudmundson said that “names and Social Security numbers that show up in a different part of the state, or in another state, after being located for years in a specific area of Ohio” may be flagged. This means that if you moved this year, your return may flagged as one that has a higher probability of fraud. The next step is to take the quiz to verify your identity. If the return is flagged, the taxpayer will be required to complete the quiz or prove their identity through documentation before the tax return will be processed.

How To Know If Your Return Was Flagged?

The ODT will send a letter to taxpayers who are required to take the identification quiz. Those who don’t receive a letter will not be able to complete the quiz. Those who are selected will have 60 days to complete the multiple choice quiz. The quiz will be timed and it must be completed online. The state agency has provided answers to Frequently Asked Questions about the quiz on its website. You can also view a video tutorial on the Ohio Department of Taxation’s YouTube channel to learn more about the quiz and what to expect if you are selected to participate in this identity theft safeguard.

Contact your financial advisor or seek out a tax professional to help guide you through these security measures. Email Rea & Associates for more information about this and other tax-related concerns.

By Lisa Beamer, CPA (New Philadelphia office)

 

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Put Your Property Easement Agreement To Work

Tuesday, December 16th, 2014

The shale oil and gas play has spurred a significant amount of pipeline and infrastructure activity throughout certain areas of the United States. As a result, many landowners are now being approached by landmen armed with cash offers and easement agreements in the hopes of acquiring the right to use your property to process and transport oil and gas related products. Before you sign on that dotted line, be sure to seek advice from someone well versed in the complexities of property easements.

Be An Informed Property Owner

You probably want to keep as much money in your bank account as possible. So when it comes to paying your taxes, you probably have no intention of giving the government more than its fair share, right? Did you know that when you enter into certain agreements, such as land easements, you may be able to dictate the type of tax treatment your income receives? The trick is to fully understand the tax consequences of language in the agreement.

The tax treatment of a land easement typically is determined (at least in part) by the easement agreement itself. The easement language will either determine if the agreement is for a permanent (or perpetual) easement period, which is exclusive in nature; or if it’s a temporary easement, which will be effective for a finite period of time.

Understand Your Options

If you enter into a permanent easement agreement, the taxable part of the transaction could qualify for capital gains, which may result in an opportunity to save some money during tax season. If you are able to apply the capital gains tax treatment to the income generated from the land easement contract, as opposed to the ordinary income tax rate, you could stand to see your tax rate that is applied to this income drop by almost half.

  • Capital Gains tax rate = 20 percent
  • Regular Income tax rate = 39.6 percent

On the other hand, if you are looking for another option, which could eliminate current payment of tax all together (defer the tax consequence into the future), you might consider the like-kind exchange tax planning strategy. Like-kind exchange rules require the property that is exchanged and the property that is acquired to be held for productive use or investment purposes.

Agreements that receive like-kind treatment under U.S. Code 1031 may result in the deferral of your taxes being due until well into the future or until you dispose of the property acquired in the like-kind exchange. For this to work, the easement agreement must be considered perpetual or permanent and must also involve real estate that is used as part of your trade or business or that is being held for investment purposes.

Don’t Disqualify Yourself

While the thought of exchanging your land easement for other real estate while deferring your taxes may seem attractive, the process of entering into, and maintaining, a like-kind exchange is very complex and must be strictly adhered to. In other words, you will need to seek out help to navigate the waters. If you would like to see if you qualify for a like-kind exchange, email Rea & Associatesfor more information. And remember to always consult your current financial advisor or another professional well versed in like-kind exchange taxation, before signing any land easement contract. Failure to do so may disqualify you from favorable like-kind exchange treatment.

By Jim Fracker, CPA (Zanesville office)

 

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Nonprofit Service Is Voluntary, Workers Comp Coverage Is Not

Monday, November 3rd, 2014

Did you know that the Ohio Bureau of Workers Compensation (BWC) expects you to provide workers compensation coverage to your nonprofit’s board of directors? And while the bureau hasn’t heavily enforced this guideline in the past, you can expect to see more enforcement of the rule in the future.

We recently caught up with a BWC representative to validate a letter one of our clients received pertaining to this issue. The conversation was valuable because we were able to walk away with some important pieces of information that, over time, had either been forgotten or ignored by many in the nonprofit sector.

Even though your board of directors may not receive a paycheck for the time and resources they have put in to your organization, they are likely on the front lines when it comes to managing the organization’s volunteers, finances, events and other initiatives. In other words – they are “working” for you.

“Active executive officers of a corporation, except for an individual incorporated as a corporation or officers of a family farm corporation, are considered employees for workers’ compensation purposes,” the bureau states in its Coverage Information by Employee Types.

Here are four facts nonprofit organizations need to know to avoid issues with the BWC:

  1. An organization’s officers are always considered employees of the organization. Even if an individual receives no pay, officer status indicates that they’re responsible for regular organizational work. Therefore, they are identified as an employee by the BWC, not a volunteer.
  2. Individuals who perform volunteer, non-emergency services for private employers (including nonprofits) are not covered under the BWC’s compensation policy.
  3. Since the BWC identifies those who hold an office with nonprofit organizations as employees, the nonprofit organization is responsible for reporting all wages paid to officers to the BWC, as well as to the IRS.
  4. You must pay the minimum reportable amount even if you have an “all-volunteer board.” However, non-officer board members are not subject to these rules.

Email Rea & Associates today to learn more about the BWC’s compliance requirements. The sooner you understand your compliance requirements, the sooner you can get back to focusing on doing more for your communities, families and causes your organization cares about.

By: Maribeth Wright, CPA (Cambridge office)

 

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From Good To Great: 5 Ways You Can Improve Your Manufacturing Business

Friday, October 3rd, 2014

Today, millions of hard-working men and women will celebrate Manufacturing Day across our nation. United in their mission to address common misperceptions about the industry, manufacturers will rally together to take charge of the industry’s public image, address the industry’s skilled labor shortage and promote the ongoing prosperity of manufacturing throughout the U.S.

Manufacturing has always been the backbone of Ohio – and Rea has been proud to support many companies throughout the state. In recognition of Manufacturing Day, here are five ways you, as a manufacturer, can overcome challenges facing your industry.

Be The Leader You Want to Be. 

As a seasoned manufacturer, you know your business inside and out – when there is a problem, you provide a solution; when a ball drops, you pick it up. If this sounds like you, then it’s time to get out of your comfort zone. If you always find yourself in the middle of daily business operations, you’re unlikely to get out in front of opportunities that could maximize your company’s long-term value. Be the leader your company needs. Stop putting out fires. Instead, make waves.

Tell Your Story, Invest In People. 

The manufacturing industry has had its share of problems when it comes to attracting and retaining a talented workforce, but you can alter how people think about a career in manufacturing by simply sharing your own stories and experiences. Unless you take the time to personally promote the manufacturing industry, your would-be employees may incorrectly associate the industry with unprofessional, dead-end jobs in dirty factories. Get out and connect with local vocational schools and other educational entities and community groups to tell your story.

Embrace A Strategy; Minimize Risk. 

Every company should have a strategic plan. From financial objectives to operational goals, your strategic plan should provide your workforce with an overview of the company’s operational and growth initiatives. Formal plans should also address the company’s budget and financial forecast. Proper utilization of these plans will help you reap optimal results by providing you with the information needed to make better decisions. Below are initiatives you can include in your strategy to gain greater insight into the industry and to learn how you can better manage your current financial and operational objectives.

  • Benchmarking is a proactive way to stay in line with, or ahead of, the competition. It’s important for you to understand how your company stacks up against the competition, as well as gain insight into current trends, future opportunities and potential risks.
  • Key performance indicators (KPIs) are critical to the management of your daily operations. In order for you to deliver results, you and your management team must understand the resources you are working with and how you are affected. Key indicators also provide management with insight into production and can alert leaders to potential areas of risk.
  • Get to know your ERP system. Many companies have implemented some type of enterprise resource planning (ERP) system in the hopes of streamlining their accounting, production, benchmarking and KPI efforts. Unfortunately, many are unable to actually use the system in the way they would like. You must take control of your ERP system and insist the vendor meet with your team to set up the ERP system in a way that makes sense to your company. An ERP system that is set up properly will provide your company with the data you need to manage your business more effectively.
  • Understand your cost structure. For example, understanding what it costs to make, distribute and/or sell each unit of each product line, will give you a better grasp of how much you’re spending on material, labor and overhead, which will better equip you to allocate your efforts and resources. Unfortunately, many managers don’t understand the company’s cost structure, which puts the company at risk of losing money in the long run.

Back-Up For Safety. 

Many companies in the manufacturing industry have taken steps to embrace technology and have added hardware and software to help collect data and streamline workflow; however, with the introduction of new programs and equipment comes the introduction of additional risks. Some companies have chosen to back-up their information as a way to avoid losing important data, but if the back-up isn’t tested, there is no guarantee that it will actually work. Unfortunately, some companies lose critical data simply because they fail to test the back-up.

Consider Going Lean. 

The manufacturing industry underwent a significant transformation in the 90s with the wide-spread practice of Lean Six Sigma, which helps companies become more efficient and effective by introducing better processes throughout the organization. Many companies, however, have yet to incorporate Lean Six Sigma into their operations. Much has changed over the course of two decades and new uses for Lean Six Sigma have been discovered and applied to additional departments outside of just the manufacturing floor, the service and transactional functions of businesses have really benefited. You should consider Lean Six Sigma as a way to become more efficient and effective in every aspect of their business. Especially while the industry struggles to attract new talent, Lean Six Sigma may be just your company needs when you need to do more with less.

These are just a few examples of challenges facing the manufacturing industry where a trusted advisor can help you navigate through possible solutions. If you own a company in the manufacturing industry or if you want to explore ways to improve your business’s efficiency, effectiveness, profitability and risk management systems, email Rea & Associates. Our team is passionate about helping manufacturers reach new heights, mitigate risks and attract and retain employees.

Author: Kyle Stemple, CPA, Director of Manufacturing Services (New Philadelphia office)

 

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Ohio Prepares For Year Three Of Its Workforce Training Voucher Program

Tuesday, September 23rd, 2014

The State of Ohio announced that it will launch its third round of the Incumbent Workforce Training Voucher Program. As in previous years, the state has upped the ante.

This time around businesses will have a chance to claim a piece of $29.4 million, which will allow Ohio’s employers to enhance the skills of their workforce. That’s the good news. The bad news however, is that you have to be quick if your business has a desire to claim any portion of these funds. We expect all of the training dollars to be claimed within hours of the application going live at 10 a.m. on Sept. 30.

According to the state, the funds are to be made available on a first-come, first-served basis. Employers can apply for a credit that will reimburse them up to 50 percent of eligible training costs – which could mean the business could be reimbursed up to $4,000 per employee. Training performed between Aug. 1, 2014, and Dec. 31, 2015, qualifies for the third round of the Incumbent Workforce Training Voucher Program – meaning that employers have the option to apply vouchers to training that has already taken place.

Similar to round two of the program, a pre-application process is available. The period to complete this process began Sept. 15, and will continue until the application officially goes live on Sept. 30. Pre-application allows employers to enter as much information and specific details as possible. Then, the minute the application goes live; all you need to do is log on to your account and submit it. Because we expect all funds to be accounted for within the first few hours of the application going live, we urge businesses to take time to complete the pre-application process as soon as possible.

What Is Considered Eligible Training?

  • Classes at an accredited education institution
  • Training that leads to an industry recognized certificate
  • Training provided in conjunction with the purchase of a new piece of equipment
  • Upgrading computer skills (e.g. Excel, Access)
  • Training for the ICD-10-CM/PCS diagnostics classification system
  • Training from national, regional or state trade associations that offers certified training
  • Training for improved process efficiency (e.g. ISO-9000, Six Sigma, or Lean Manufacturing)
  • HR Certification – limited to HR staff only

What Companies Can Apply?

For-profit entities located in Ohio and that operate in one of the following industries are eligible to apply for the Incumbent Workforce Training Voucher Program.

  • Advanced Manufacturing
  • Aerospace and Aviation
  • Automotive
  • Bio Health
  • Energy
  • Financial Services
  • Food Processing
  • Information Technology and Services
  • Polymers and Chemical
  • Research and Development
  • Companies with a Corporate Headquarters in Ohio (with limited availability of funds)

The Importance Of Pre-Application:

If your business wants to have a chance at claiming any of these dollars, it is imperative that you complete the pre-application. Your objective should be to simply log on to the page on Sept. 30 to formally submit your application. It is so important to carefully and completely fill out the pre-application form with as many specific details about the proposed training as possible. If you will apply, or think you may qualify and would like to apply, do your homework now.

If you would like help determining if your business is eligible for the program or if you want more information, email Rea & Associates.

Author: Josh Carlisle (New Philadelphia office)

 

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Outright Shale Sales Are Another Option For Landowners

Tuesday, August 26th, 2014

The work to unearth valuable minerals from the Utica and Marcellus shale deposits in Eastern Ohio continues to move forward at full speed. While many of the area’s landowners entered into mineral land leases years ago, some chose to put off the leasing process for later – it is now 2014. Several years have passed and the landowners who chose to wait are now facing a different set of choices and options concerning their land and the minerals found within.

What Has Changed?

If you’re looking to cash in on the shale boom, the traditional land/mineral lease alternative is no longer your only option. Today, some landowners are considering the outright sale of their mineral interests to an acquiring entity. While both options have their merits, this discussion is not intended to weigh the economic consequences when comparing land/mineral leasing versus the outright sale of your mineral interest. You should be aware of a few points surrounding the sale of mineral interests that may help govern your decision.

  • Outright sale agreements typically state that the landowner will agree to sell their mineral interests, specific to formation or generic, to an acquiring entity.
  • Per the agreement, the seller typically relinquishes all incidents of mineral ownership – and usually all rights to any future income streams based on the future production from the minerals in question.
  • If you choose to sell your mineral interest outright, your decision to do so may trigger tax planning opportunities, such as the “like-kind exchange” tax treatment for real estate transactions also known as the IRC1031 exchange. In other words, this particular transaction could qualify your gain from the sale of mineral interests to be deferred into the acquired “like-kind” real property. The acquired real estate must be held for trade, business or for other investment purposes.

Proceed With Caution

Before jumping the gun and making a decision based on the possibility of triggering the like-kind exchange, understand that the rules governing IRC1031 are very complex. The sale of mineral interest just adds to the complexity. It’s important that you speak with an advisor concerning a “like-kind exchange” before closing on the mineral interest sale, or the replacement property.

The like-kind exchange opportunity is not for everyone. For those who qualify, however, a mineral sale scenario with the right fact pattern coupled with a properly executed 1031 exchange could result in a significant tax planning opportunity for landowners who are seeking ways to minimize the current tax consequences.

While it’s great to have a range of choices when dealing with matters such as these, the larger selection has a tendency of making it harder to zero in on the information needed to make an informed decision. If you’re considering a land/mineral lease or an outright sale alternative, email Rea & Associates to get more information about these options.

Author: Jim Fracker, CPA (Zanesville office)

 

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Fraud Hotlines Deter Occupational Fraud

Monday, August 25th, 2014

When it comes to your business or organization, you are passionate about making sure your staff embodies your mission and objectives. You take care to select only the best candidates; and when you find them, you conduct thorough interviews, background checks and offer extensive training and timely performance reviews. Months later, now that you have invested significant resources into finding, training and polishing your new employee, you can finally rest easy knowing that you created a team dedicated to common goals and objectives – right?

Fraud Happens

In its most recent version of The Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) analyzed 1,483 cases of occupational fraud, which resulted in losses totaling more than $3 billion. Of those cases, the ACFE found that businesses with 100 employees or less are more susceptible to financial losses as a result of the three categories of occupational fraud – corruption, asset misappropriation and financial statement fraud.

Here’s A Tip

Maybe, like so many other business owners, you have already considered these facts and have taken steps to deter fraud in your own offices by establishing and implementing codes of conduct and external audits. While those measures provide a good foundation, you may be surprised to learn that of the nearly 1,500 cases of fraud that were reviewed, auditing only revealed a few instances of fraud. On the other hand, 42 percent of these cases were detected by tips. These tips were frequently reported on fraud hotlines and resulted in a 50 percent quicker response time when it came to detecting and stopping fraud.

The Value of a Fraud Hotline

Be proactive about fraud prevention, instead of reacting when you’re caught in the middle of it. A fraud reporting hotline service, such as Red Flag Reporting, has helped clients stay informed about what’s going on in their businesses. Services like Red Flag provide businesses with an opportunity to focus on building relationships, increasing revenue and improving community outreach instead of chasing down occupational fraud in the workplace.

Fraud hotlines are utilized by small and large businesses alike and can help identify and deter other types of unethical behavior before it grows out of control. Fraud hotlines can result in:

  • Fewer OSHA violations
  • Lower Workers’ Compensation costs
  • A decreased likelihood of employment practices lawsuits
  • Zero-tolerance of discrimination in the workplace

Not all employees are bad and not everybody is looking for an opportunity to financially ruin their employer. In fact, fraud hotlines are great because they prove that you are have a team made up of responsible, honest, hard-working men and women. These professionals are the eyes and ears of your business or organization and you not only depend on them to help identify instances of fraud, you need them to report issues to you before they explode into situations that severely damage your financial well-being, employee morale and reputations. By providing your team with a hotline, they will be even more inclined to provide you with a tip or two without feeling like they are rocking the boat.

Are you concerned about the potential for fraud in your organization? Email Rea & Associates to learn more about how a fraud hotline could work for you.

Author: Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

 

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How Can Super Circular Reforms Work For Your Non-profit Organization?

Thursday, July 31st, 2014

When it comes to maintaining a high level of transparency and accountability, not-for-profit organizations face a lot of challenges. Not only does the community look to your organization to provide high-quality services and resources, the government expects your organization to utilize federal funding responsibly. The ability of not-for-profit organizations to secure federal assistance is critical, which is why industry leaders are seeking more clarity pertaining to a wide range of recent reforms made to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. These reforms are scheduled to take effect the Dec. 26, 2014. Here’s some insight into what you can expect moving forward.

Super Circular Reforms

Last December, the Office of Management and Budget (OMB) passed sweeping reforms to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, also known as the Super Circular or the Omni Circular. The goal for these reforms is to help the federal government streamline its guidance concerning administrative requirements while strengthening the oversight of federal funds. By ensuring compliance of these reforms, the OMB hopes to reduce financial waste, fraud and abuse.

Whether you’re the director of an organization that seeks federal grants and/or assistance, an accountant who serves such an organization, or a citizen who benefits from the organization’s government funding, the Super Circular is a big deal. The federal government awards more than $500 billion every year, and it is the OMB’s responsibility to ensure that every dollar spent is a good use of taxpayer funds.

What Do Super Circular Reforms Mean For You?

  • This newer guidance effectively consolidates eight federal circulars into one, which makes guidelines, cost principles, and audit requirements easily accessible. Having one “Super Circular” to thumb through – even though it tops 100 pages – is a welcome change to grant seekers, grant recipients and awarding agencies.
  • Now that the grant guidance is easily accessible and transparent, the OMB anticipates increased competition among agencies and organizations that are eligible for monetary assistance.

For example: If you have never applied for aid in the past, but you think your organization or government agency may be eligible for federal assistance, you can now easily find out. More agencies and organizations are expected to take advantage of the fact that these guidelines are easily accessible, which means there will be more people vying for government money.

A comprehensive list of federal assistance programs is available in the programs tab of the Catalog of Federal Domestic Assistance (CFDA) website. This site not only provides a list of programs and grants available, it provides key information about what is required to apply and qualify for federal assistance.

  • New provisions have established a higher threshold for an A-133 audit. The threshold for an A-133 audit is now $750,000 – which is higher from the previous threshold of $500,000. This means that not-for-profit organizations that bring in less than $750,000 annually are not required to complete an A-133 audit, which will provide some relief to about 5,000 non-federal organizations. This doesn’t mean the OMB will stop monitoring the federal aid that is distributed to these organizations, the OMB says 99.7 percent of aid awarded to organizations and agencies will still be subject to single audit oversight.

Please Note: If your fiscal year ends in December, the $750,000 single audit threshold won’t go into effect until your Dec. 15, 2015 audit. And if your fiscal year ends in June, it won’t go into effect until December 30, 2016.

  • The Super Circular significantly reforms how organizations and agencies will maintain their cost principles. Specifically, in its guidance, the OMB places a greater emphasis on internal controls. The Super Circular effectively defines what organizations and agencies can consider indirect costs, administrative salary direct costs, compensation, and costs associated with materials and supplies.

For example: While the salaries of your administrative and clerical staff may have been treated as indirect costs in the past, the OMB says that it may now be more appropriate to consider them as direct costs if the work performed is specifically outlined within the grant-funded project or initiative.

  • The deadline for organizations and government agencies to comply with the OMB’s reforms is Dec. 26, 2014.

Because the reform-laced Super Circular was written with the goal of helping organizations and agencies apply for aid, manage funds and prepare for audits, it is anticipated that the OMB will succeed in its efforts to increase competition among organizations and agencies that are eligible to receive aid. As a result, more insight and accountability will be demonstrated by recipients of federal assistance.

Super Circular Help

The OMB has repeatedly said that these reforms will make the process of obtaining federal funds easier and more transparent. If you have specific questions as to how the Super Circular will affect your organization or government agency, contact Rea & Associates. Our Ohio not-for-profit team can help you make sense of these revised regulations.

Author: Brent Ardit, CPA (Dublin office)

 

Want more not-for-profit business advice? Check these posts out:

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How Effective Is Your Nonprofit Organization?

How Do You Build a Strong Not-for-Profit Board?

 

 

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