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This Week in the iNews:

▲ LUNCH & LEARN SERIES PROGRAM #3 – ESTATE PLANNING: WHAT TO EXPECT AFTER THE ELECTION

▲ MAJOR CHANGE TO FORM 990 COMPENSATION

▲ FOCUS ON FRAUD: 2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE © ACFE – Part 10

▲ Lunch & Learn Series Program #3 – Estate Tax Planning: What to Expect After the Election

“The Laws Today, What They Might Be, and the Tools to Plan for Change.”

Please mark your calendar for Thursday, October 16, 2008 to attend the third installment of our Lunch & Learn Series, from Noon to 1:00p.m.

Complimentary Program, Lunch & Parking provided.

Make your reservations by email at mripley@pmcpa.com or calling (616)774-9004.

Seating is limited.

▲ Major Changes to Form 990 Compensation Reporting Requires Tax Exempts to Ask Many New Questions

The Tax Exempt and Government Entities Division (TE/GE) of the IRS warned tax-exempt organizations and their advisors that major changes to compensation reporting in the new 2008 Form 990 require answers to a whole new set of questions, as well as a fresh understanding of how to translate those answers into compliance with the new reporting requirements.

In addition, the Service will attempt to keep Form 990 unchanged for a year or more, to give organizations time to adjust to the new form.

Compensation

The IRS pointed to the major changes to reporting compensation of officers, directors, trustees and key employees, and independent contractors. Governance, compensation and insider transactions are the “guts” of the new form.

According to the IRS, one of the major changes from the 2007 Form 990 is that the IRS, for compensation reporting purposes, will rely heavily on Form W-2 reporting (box 5 of an employee’s W-2) and Form 1099 (box 7) reporting for independent contractors. What is reported on the Form W-2 or Form 1099 “should go in Column D” of Schedule J. The IRS also suggested asking the following questions when approaching the compensation reporting requirements on the new Form 990:

-First, determine who is required to be listed on Schedule J;

-Next, what compensation is required to be reported, “because not all compensation” must be reported on the Form 990.

-Finally, what compensation amounts need to be reported on Schedule J, for those who have to be listed.

Officers

The IRS added that the new form defines who is an “officer” and that this will always require the CEO to be included within that definition. The IRS warned that organizations cannot claim they do not have officers.

Exempt organizations must use the redesigned Form 990 for tax year 2008.

Another area affecting governance could be an organization’s investment policy. Part VI of the redesigned Form 990 (governance, management, and disclosure), asks whether an organization has a policy regarding joint ventures with a taxable entity, but is otherwise silent on investment policy.

The IRS said that revision of the Form 990-PF (private foundations) is not a current project. With approximately 75,000-85,000 filers, the form is a lower priority.

This study is based on data compiled from 959 cases of occupational fraud that were investigated between January 2006 and February 2008 and published by the Association of Certified Fraud Examiners. All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases.

Executive Summary – Part 10, Victim Organizations: Controls in Place and Effectiveness, and Controls Added in Response

As part of the survey, each respondent was asked to provide demographic information about the organization that was defrauded.

Respondents to the survey were asked to identify which, if any, of 15 common fraud-related controls had been implemented by the victim organization at the time the fraud was committed. External audits of financial statements were the most common anti-fraud control. Seventy percent of victims utilized independent external audits of their financial statements at the time of the fraud.

Over half of the victims also had a formal code of conduct, an internal audit or fraud examination department, one or more employee support programs, as well as two controls mandated by the Sarbanes-Oxley Act: an external audit of the entity’s internal controls over financial reporting and certification of the financial statements by management. In addition, an independent audit committee, also required under Sarbanes-Oxley, was reportedly present in half of all victim organizations.

Three-fourths of the victim organizations in the study altered their existing internal control system in direct response to the discovery of the fraud, which shows that most organizations perceived the fraud to have occurred or succeeded, at least in part, due to a control weakness.

Among the entities that changed their control structure in response to the fraud, the most common change by far was to implement or modify management review of the internal control system. Second most commonly implemented or modified control mechanism was the surprise audit. This finding is quite encouraging, as surprise audits were associated with the greatest reduction in both median loss and median scheme length in the study, but were one of the least commonly implemented controls prior to the fraud.

Next time:

Executive Summary – Part 11 – The Perpetrators