Author: Traci Hanson

KT Insights
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Compensated Absences for Government Entities – GASB 101

The Governmental Accounting Standards Board Statement 101 (GASB 101) addresses the accounting and financial reporting requirements for compensated absences. Compensated absences refer to leave benefits that employees earn, such as vacation, paid time off (PTO), and sick leave, which can be used in future periods or cashed out upon separation from employment. The prior standard, GASB 16, provided guidance for specific types of leave and had become outdated.

Main Objective

The purpose of GASB 101 is to improve the clarity, consistency, and comparability of financial reporting related to compensated absences. This standard applies to all state and local governmental entities, ensuring these entities account for compensated absences in a comparable manner.

Upon implementing GASB 101, entities are required to recognize a liability for compensated absences that are attributable to services already rendered, that accumulate, and that are probable of being used for time off or otherwise settled in cash.

Under GASB 16, sick leave was only accrued if paid upon termination and did not include an estimate for sick leave that was likely to be used. Based on this change, the compensated absence liability may increase under GASB 101. Governments will need to use historical information about leave usage and payments upon termination to determine the compensated absence liability.

Exceptions

Under GASB 101, if leave is dependent upon the occurrence of a sporadic event that affects a relatively small proportion of employees in a particular reporting period, such as parental or military leave, the liability should be recognized when the leave commences. Unlimited leave and holiday leave taken on a specific date should be recognized as a liability when used. 

The liability for compensated absences should be measured based on the pay rates in effect at the financial statement date, including any employer-related costs such as payroll taxes and benefits.

Disclosures

Entities must disclose information about compensated absences in their financial statement. The new standard removes the current requirement to disclose both the gross additions and deductions to the liability. Instead, the entity is only required to disclose the net change. The requirement to disclose which funds are typically used to liquidate compensated absence liabilities is also removed. 

GASB 101 is effective for reporting periods beginning after December 15, 2023.

Please reach out to the KT Government team for questions or assistance with implementing GASB 101 at your entity.

March 13, 2025
| Traci Hanson
KT Insights
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Internal Controls for Nonprofits

In the nonprofit sector, maintaining accountability and transparency is vital. Internal controls and separation of duties play pivotal roles in achieving this goal by safeguarding assets, ensuring accuracy in financial reporting, and complying with rules and regulations.

Internal Controls

These are typically written policies establishing procedures for people operating a nonprofit to follow. The goal of internal controls is to create checks and balances for the nonprofit volunteers, staff, management, and board of directors.

Separation of Duties

Separation of duties within a nonprofit ensures more than one person is in charge of essential activities.

General Goals

  • Separating tasks such as authorization, custody, and recording of financial transactions to reduce the opportunity for individuals with access to commit and conceal fraudulent activities.
  • Including more than one individual when recording or processing transactions to increase the likelihood that errors will be detected and corrected promptly.
  • Ensuring that no single person has unchecked control over significant financial activities to promote accountability.

Examples

This can be as simple as requiring authorization of vendor payments, having a second person review the bank statement, reconciling the bank statements, and locking the check stock. For small nonprofit organizations, internal controls and proper separation of duties are difficult due to limited personnel. Smaller nonprofit organizations can apply mitigating controls, or high-level less-frequent oversight.

For example, a bookkeeper signing checks is not ideal for internal controls but may be the most practical for smaller nonprofits. Having someone other than the bookkeeper reviewing the bank statement each month mitigates some of the risk.

Implementation

To implement effective internal controls and separation of duties, it is best to assess processes, document policies and procedures, and provide training. Conducting a thorough assessment of existing processes can find vulnerabilities and identify areas for improvement. Documenting policies and procedures ensures that roles and responsibilities are well defined and understood by all individuals involved. Regular oversight can also help identify any deviations or weaknesses in the system.

Please reach out to a member of KT’s Nonprofit team if you need assistance with your organization’s internal controls.

March 6, 2025
| Traci Hanson
KT Insights
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Document Retention for Nonprofit Organizations

Document retention policies help ensure necessary documents are properly stored and protected. A document retention policy should contain a list of documents or document categories and the length of time nonprofit organizations should retain such documents. The document retention policy should also include electronic documents and digital storage. The development and implementation of a document retention policy helps volunteers, employees, and management adhere to regulations.

Form 990

Although not required by the IRS, the annual tax return filed by nonprofit organizations, Form 990, includes a question on whether a nonprofit has adopted a written record retention policy.

There is no one template on how a document retention policy should be written. Each nonprofit organization has its own state laws, funding regulations, and set of documents. Nonprofit organizations will need to evaluate what is best for its operations. A nonprofit organization’s legal advisor can assist with the development and regular review of a document retention policy.

What to Include

The document retention policy may include documents that will be kept permanently. These documents may include:

Even with a document retention policy, a nonprofit organization may want to keep certain documents for the sake of history or institutional memory.

Please reach out to a member of KT’s Nonprofit team if you or your organization have any questions on document retention.

February 27, 2025
| Traci Hanson
KT Insights
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Covid-19 Grant Funds

Many for-profit, nonprofit, and governmental organizations have received and will continue to receive new federal and state grants funds, because of Covid-19.  The information regarding how and when to use such grant funds has been limited, vague or not provided until months after funding is received or awarded.  Guidance is also continuously changing and being updated. 

Entities expending more than $750,000 of federal grant funding in a year are required to have a financial statement and compliance audit referred to as a Single Audit.  Organizations without prior audit requirements may now have an audit requirement due to federal funding received/spent during 2020.  As these federal funds are new and have limited or changing guidance, receiving organizations should work with their accounting firms and granting agencies to ensure compliance.  Proper documentation is also key in the future when granting agencies or auditors have questions.

Single Audits are conducted under Subpart F of the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).  OMB annually issues a Compliance Supplement, which identifies compliance requirements and suggests audit procedures for numerous federal grant programs.  The 2020 Compliance Supplement was provided in two parts.  The first part, issued in August 2020, was primarily developed prior to the Covid-19 pandemic, and the second part, or 2020 Compliance Supplement Addendum, was issued in December 2021 and addressed Covid-19 funding. 

Federal funding related to Covid-19 came in the form of new federal grant programs or increases in existing federal grant programs.  Existing federal grant programs have provided additional funding with increased award amounts, reduced matching requirements, and elimination or reduction of eligibility requirements.  Organizations report federal funding on the Schedule of Expenditure of Federal Awards (SEFA).  Covid related funding for new or existing programs needs to be identified separately from other federal grant programs on the SEFA.

Provider Relief Funds (PRF) were given to organizations providing healthcare services.  In addition to being used for Covid related expenditures, PRF may be used for lost revenues.  The calculation for lost revenue for Provider Relief Funds has changed several times over the past year.  The Department of Health and Human Services established a portal for recipients of PRF to register and provide additional information on the use of the funds.  Registration is allowed on the portal, but reporting requirements have been delayed. 

Other federal grants, such as the Coronavirus Relief Funds (CRF), have been provided to cities, schools, and nonprofits.  Each of the receiving organizations may have different requirements.  For some, specific expenditures must be identified and submitted to receive funding.  For other organizations, funding was based on a per unit allocation, and these subrecipient organizations were provided funds with no requirement to track expenditures.  CRF funds were provided to other organizations as the beneficiary and not as a subrecipient.  The Single Audit requirements do not apply to beneficiaries.

Numerous federal laws have been enacted to create new and additional Covid-19 related federal grant funding.  The most recent was the American Rescue Plan Act (ARPA) issued on March 11, 2021.  Some of the grant programs under ARPA may be used to cover costs incurred through December 31, 2024.  Thus, organizations may be expending Covid-19 related for several more years. 

The compliance professionals at Ketel Thorstenson, LLP can help you navigate the Uniform Guidance requirements.  Please contact us to answer questions and for additional guidance.

June 7, 2021
| Traci Hanson
KT Insights
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New Federal Grant Funds

Many for-profit, nonprofit, and governmental organizations are receiving new federal and state grants funds during the pandemic.  In some instances, organizations receive the funds in their bank account with limited information on how to use such funds.  In addition to limited or vague information on how and when to use these federal and state funds, the guidance that is provided changes on a consistent basis. 

Throughout history, most federal grants required funds to be spent on specific programs or items, which is referred to as allowable costs.  New concepts are included in the pandemic related funding, including a concept of lost revenue. The calculation for lost revenue for Provider Relief Funds has changed several times in the past few months.

Other federal grants, such as the Coronavirus Relief Funds (CRF), have been provided to cities, schools, and nonprofits.  Each of the receiving organizations may have different requirements.  For some, specific expenditures must be identified and submitted to receive funding.  For other organizations, funding was based on a per unit allocation, and these subrecipient organizations were provided funds with no requirement to track expenditures.  CRF funds were provided to other organizations as the beneficiary and not as a subrecipient. 

Organizations without prior audit requirements may now have an audit requirement due to federal funding received/spent during 2020.  As these federal funds are new and have limited or changing guidance, receiving organizations should work with their accounting firms and granting agencies to ensure compliance.  Proper documentation is also key in the future when granting agencies or auditors have questions.

            Please reach out to the compliance professionals at Ketel Thorstenson, LLP to answer questions and for additional guidance.

January 21, 2021
| Traci Hanson
KT Insights
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Updates to Uniform Guidance

The Office of Management and Budget (OMB) has updated the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Audit (Uniform Guidance) originally effective in 2014.  The revisions are intended to reduce burden of grant recipients, provide guidance and clarification on requirements, and improve overall federal grant management. Most of the revisions are effective for new awards issued on or after November 12, 2020.   

The changes primarily impact the entities expending federal grants.  The following are the significant changes to Uniform Guidance.

  • Definitions are combined into the new Section 200.1.  The revision includes new definitions and updated definitions.  Noteworthy changes include:
    • The definition of Catalog for Federal Domestic Assistance (CFDA) number has been replaced with the new term Assistance Listings number.
    • Other definitions updated include revisions to improper payment, questioned costs, and period of performance.
  • Clarification of must versus may related to Uniform Guidance requirements. (Section 200.101)
  • Procurement standards have been changed for the following:
    • Procurement methods are grouped into three categories of informal (micro-purchase/small purchase), formal (sealed bids/proposals) and noncompetitive (sole source), Section 200.320.  The new informal procurement method may be used when the federal award purchase is under the simplified acquisition threshold. 
    • To match other guidance, the micro-purchase threshold was increased to $10,000 and the simplified acquisition threshold was increased to $250,000.
    • Recipients may increase their micro-purchase threshold if certain requirements are met (Section 200.320).  The recipient may self-certify annually a threshold up to $50,000.  The self-certification must include a justification, clear identification of the threshold, and other supporting documents.  A formal approval process by the Federal government is required for thresholds above $50,000.
    • Adding the domestic preferences for procurement requirements encouraging use of goods and products produced in the United States (Section 200.322).
    • The time for direct awards closeout reports increased from 90 to 120 days (Section 200.344).
  • The revised guidance clarifies that any recipient without a current negotiated indirect cost rate may use the 10 percent de minimis rate.  Previously, the de minimis rate could only be used for recipients that have never received a negotiated indirect cost rate.

The two changes that are effective upon issuance of the Uniform Guidance revisions on August 13, 2020 are changes with Section 200.216 related to prohibitions for certain telecommunication and video surveillance services/equipment and Section 200.340 regarding a federal agency’s ability to terminate an award.

What should organizations expending federal grants do related to the Uniform Guidance revisions?  Here are some suggestions for recipients:

  • Determine the person within the organization who will review and evaluate the changes.
  • Identify the timing for applying the changes by determining grants awarded after the effective date.
  • Review the organization’s written federal grant policies and procedures for potential updates.

The Uniform Guidance revisions can be accessed at the following link, Guidance for Grants and Agreements.  Please contact the experts at KT with questions regarding the Uniform Guidance revisions.

December 7, 2020
| Traci Hanson
KT Insights
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Are Your Records Missing?

Many nonprofit organizations that have been around for a while do not have a formal record filing system for their important IRS and organization documents.  This is especially true for smaller nonprofits that have frequent board of directorship turnover and basically operate out of someone’s house as a formal “office”!  There are certain “permanent file” type documents that should be maintained by all nonprofit organizations, large or small.  In fact, these records are required to be made available to the IRS or to the general public if requested.  So as a due diligence reminder, next time you go to a board meeting for a nonprofit organization, ask if anyone has seen the following records:

  1. Articles of Incorporation
  2. Bylaws
  3. Employer Identification number
  4. South Dakota Sales tax number (if applicable), or sales tax exemption letter if applicable
  5. IRS tax exemption letter
  6. IRS Form 1023 or 1024 “application for tax exemption”
  7. Conflict of Interest Policy for Board Members/officers

If some or all of these are missing, you could contact prior representatives from your organization to see if they can locate them.  If not, please contact us and we can guide you on how to proceed.

 

June 1, 2017
| Traci Hanson
KT Insights
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‘Tis the Season of Giving: Charitable Contributions

2015 Traci HansonThe holiday season is a time when many people donate to various charitable organizations.  Individuals typically provide donations in the form of monetary or donated property.  These contributions benefit the charitable organization and also provide a tax deduction to the donor.  In order for this tax deduction to be allowed, the IRS has specific requirements for the charitable organization to follow.  Do you know what all of the requirements are?  Acknowledging donations is not only required by the IRS, but also provides a means for an organization to say ‘thank you.’

There are many ways in which an individual can donate to a charitable organization.  We will focus our discussion on two main ways: monetary and property.

Monetary

The IRS requires a donor to maintain a record of their contribution or a written communication from the charity in order for the amount to be deducted on their individual tax return.  A record of their contribution could be in the form of cancelled check or, for payroll deductions, a pay stub or other employer-furnished document showing the amount withheld.  If a donor makes a single contribution greater than $250, written communication from the charity is required.

Donated Property

Individuals who donate property are allowed to deduct the fair market value of such property as of the date of the donation.  Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.  Donated property can range from clothing and toys to vehicles, artwork or land.  The value of the property is the responsibility of the donor for purposes of determining the amount of the deduction.  The charitable organization should always provide acknowledgements; however, the acknowledgement should never include an estimated fair market value.  Special rules apply to donated vehicles.

Requirements

The following items are required to be included in the written communication from the charity:

  1. Name of the organization, including a statement that the organization is a charity recognized as tax-exempt by the IRS under Section 501(c)(3).
  2. Date of the donation.
  3. Acknowledge the amount.
    1. If cash, include the amount received.
    2. If donated property, include a description (but not the value) of the non-cash contribution. The value of the non-cash contribution is the donor’s responsibility.  For example:

Thank you for the 200 shares of IBM stock donated on December 31, 2016. 

  1. Statement that no goods or services were provided by the organization in return for the contribution, if that was the case.
    1. If any goods or services were provided (referred to as a quid pro quo contribution), include a description and good faith estimate of the value of the goods or services. For example, an individual paid $100 to attend an annual gala event, to include dinner.  (See exceptions to this rule outlined below.)  The acknowledgement could state:

For federal income tax purposes, you can deduct as a charitable contribution the price of this ticket less its fair market value. We estimate the fair market value of this ticket to be $40 (i.e. the cost of the dinner provided), so your charitable contribution is $60.

A penalty is imposed on a charity that does not make the required disclosure in connection with a quid pro quo contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-raising event or mailing.

Other Comments

The following summarizes some of the other nuances of these requirements:

  • Acknowledgement is required for each donation greater than $250. In lieu of this, the charity can provide an annual statement of all giving.
  • Acknowledgements are typically sent to donors no later than January 31st of the year following the donation. A donor must receive acknowledgement by the earlier of:  the date the donor files his/her tax return or the due date of the extended tax return in order for the individual to deduct the contribution.
  • Although no financial penalty to the charitable organization exists for not providing the written acknowledgement, there could be a financial or public relations impact if the donor was unable to deduct the donation on their tax return and then, consequently, decides not to donate again.
  • Acknowledgements can be provided in written format, such as letters, postcards or computer-generated forms, or they can be provided electronically.
  • What are the requirements if a donor requests not to be reimbursed for an expense? Is that considered a charitable contribution?    The rules are the same as above.  For example, a committee member elects to pay his/her own way to a conference for the benefit of the charitable organization.  The donor should receive a written acknowledgement of this donation.  As it was a noncash donation, only a description would be provided in the acknowledgement.
  • There are a few exceptions to providing the fair value of goods or services received. See those exceptions outlined below:

A. Token Exception – Insubstantial goods or services provided by a charitable organization in exchange for contributions do not need to be reported. The amount considered insubstantial is adjusted for inflation each year.  For 2016, to qualify as token goods or services, they must cost the organization no more than $10.60, and the contribution received must have been at least $53.

 For example, if a charitable organization gives a water bottle with its logo and that cost is less than $10.60, the organization does not need to provide a statement with the fair value of the goods or services received for donors who contributed more than $53.  The individual would receive the full $53 deduction on their tax return.

B. Membership Benefits Exception – An annual membership benefit is also considered insubstantial when provided in exchange for an annual payment of $75 or less and consisting of annual rights and privileges, such as allowing free admission to workshops.

If your organization has any specific questions regarding acknowledgements to donors, please contact one of our non-profit specialists.

December 12, 2016
| Traci Hanson
KT Insights
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Auditee Responsibilities Under Uniform Guidance

Ketel Thorstenson, LLP will be hosting a lunch and learn series presentation of a webinar regarding auditee responsibilities under Uniform Guidance on August 17, 2016. The webinar will assist auditees in the very important role they play in the Single Audit process under Uniform Guidance.

Uniform Guidance impacts states, local governments, Indian tribes, and nonprofit organizations that expend federal grant funds. Eight separate grant circulars were combined into one location with Uniform Guidance.  Uniform Guidance consists of three main categories:

  • Section A: Subparts A-D: Reforms to Administrative Requirements
  • Section B: Subpart E: Reforms to Cost Principles
  • Section C: Subpart F: Reforms to Audit Requirements

Under Uniform Guidance, entities that expend more than $750,000 in a fiscal year are required to have a Single Audit. A Single Audit is an audit of the financial statements and federal grant compliance. Single Audits are complex engagements with a number of unusual audit requirements.  The Single Audit process always runs more smoothly when auditees have an understanding of the audit process and are prepared for it.  The webinar will include the following:

  • What compliance requirements are, how auditees can identify them, and what auditors are required to test, including a high-level overview of the audit requirements in  Subpart F of the Uniform Guidance;
  • Auditee responsibilities for internal control over compliance and auditor responsibilities for understanding and testing internal control over compliance;
  • The various reporting requirements for auditees and auditors; and
  • Tips for auditees to get ready for Single Audits and steps that can be taken to help ensure a quality audit is obtained.

Plan to attend the webinar on August 17. RSVP by August 12 to [email protected] or call 605-716-3284. Seating is limited. Cost is $5, lunch will be provided.

July 25, 2016
| Traci Hanson
KT Insights
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Uniform Grant Guidance Part III

2015 Traci HansonIt is hard to believe that December is here.  With the new Uniform Grant Guidance (the Guidance) becoming effective on December 26, 2014, we wanted to remind Organizations of impacts of the Guidance and certain actions that Organizations will need to take to ensure compliance with the new Guidance.  Any organization expending federal money (even if it is just $1) is subject to the Guidance.  We will also review the final section of the new Guidance relating to the audit requirements.

The new Guidance consists of three main categories:

Section A: Subparts A-D: Reforms to Administrative Requirements

Section B:  Subpart E:  Reforms to Cost Principles

Section C:  Subpart F:  Reforms to Audit Requirements

Section A, subparts A-D and Section B, subpart E were reviewed in previous newsletters.  Please see those articles for additional information on the respective sections of the Guidance.  As a reminder, for organizations receiving any federal grants, the Guidance is requiring written policies for grant compliance.  We would suggest that organizations develop general written grant compliance policies for each of the 14 compliance requirements (see previous newsletters articles) and more detailed written grant compliance policies for specific grant requirements, as needed.

The Cost Principles portion of the Guidance includes general requirements for costs charged to federal grant programs to be reasonable and properly documented.  A new de minimis indirect cost rate of 10 percent of modified total direct costs is included in the Guidance.  Documentation for personal services (salaries and wages) charged to a federal grant program was modified to be less prescriptive under the Guidance, but the documentation must still be based on records that accurately reflect the work performed.  Numerous individual costs are also included in the Cost Principles section of the Guidance.  Organizations will want to review these details to ensure compliance.

The Reforms to Audit Requirements in Section C, subpart F are not effective until years beginning on or after December 26, 2014, or December 31, 2015 year-ends.  This section of the Guidance replaces OMB Circular A-133.  One of the changes with the Audit Requirements is that the compliance audit threshold changed from $500,000 to $750,000.  The increase in the compliance audit threshold eliminates a compliance audit requirement for approximately 5,000 organizations, but still covers 99.7 percent of federal grant funds currently audited.

During a compliance audit, the auditor will select certain federal grant programs to test in detail based on a prescribed risk assessment.  Under the Guidance, several changes were made to the risk assessment process, which may result in fewer federal grant programs being audited in detail.  With fewer organizations and federal grant programs being audited, monitoring of subrecipients may need to be expanded.

Auditors are required to report findings related to a lack of adequate internal controls over federal grants and noncompliance with federal grant requirements.  Overall, finding requirements have not substantially changed under the Guidance with continued emphasis on identification of prior findings, including updates and details as to why a finding is not corrected.  The threshold for reporting known or likely questioned costs increased from $10,000 to $25,000 under the Guidance.  Questioned costs are costs questioned by an auditor because of an audit finding resulting from violating a federal requirement, inadequate supporting documentation for costs, or unreasonable costs charged to a federal grant program.

As a part of the compliance audit process, the audited financial statements and results of the compliance audit, including findings, is summarized on a data collection form.  The data collection form has historically been available to the public.  Under the Guidance, the data collection form and the entire reporting package, consisting of the financial statements, auditor’s reports, audit findings, and summary schedule of prior audit findings, will be available to the public on the Federal Audit Clearinghouse website.

This is a summary of the changes to the Audit Requirements within the Guidance.  The full Guidance is available at the following link:Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Two Frequently Asked Questions documents were issued to assist with implementation of the Guidance, which can be found athttps://cfo.gov/cofar/.  Please contact Traci Hanson, Shelley Goodrich, or Sandra Weaver with specific questions related to the Guidance.

December 8, 2014
| Traci Hanson