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Not-For-Profit Newsletter—Useful Information for Your Organizational Success                                                                          Fall 2010

Can Your Executive Compensation                                                                            Inside this Issue...
Plan Withstand IRS Scrutiny?                                                                               Boost Your Nonprofit’s Income With
By Gilbert J. Weiner, Cherry, Bekaert & Holland, L.L.P. (CB&H)                                             Ideas That Work .................................. 3
                                                                                                           Health Care Reform Timeline .............. 4
Stories of compensation abuse at national           and key employees                                      Pending Lease Accounting Changes
organizations continue to command headline          from both the report-                                  Could Impact Your Balance Sheet ....... 5
news, contributing to increased public scrutiny     ing organization and
of the not-for-profit sector. Even the mere         any related organiza-
                                                                            Gil is the Managing            Unclaimed Property: The
perception of executive over-compensation is        tions. The definition Director of CB&H’s               Road to Compliance ............................ 6
rich fodder for news organizations, especially      of a “key employee” Compensation and
in a recessionary economy, and nonprofits           now includes anyone Benefits Solutions                salary that exceeds $150,000, or is a former
clearly want to avoid that kind of front page       with an annual salary Practice.                       officer or key employee. Schedule J looks at
coverage.                                           of more than $150,000                                 compensation beyond salary, and includes
                                                    who maintains responsibility for 10 percent or        questions about fringe benefits (e.g., first-class
Scrutiny from the government has also in-           more of the organization. And all tax-exempt          travel, spousal travel, and housing), severance
creased significantly. Congress has made plain      organizations, not just 501(c)(3)s, must also         pay, non-qualified deferred compensation, and
that it does not trust the tax-exempt sector        now disclose their Top five employees with            incentive compensation. This detailed breakout
to govern itself. The new Form 990 requires         compensation in excess of $100,000.                   is then compared to the same information for
more disclosures, more detail, and more intri-                                                            prior years.
cate procedures. Compensation and benefits          The policy section of the Form now includes a
reporting is one area targeted by these new         question regarding whether or not the organi-         Intermediate Sanctions and Excess
requirements.                                       zation has a policy that allows for the review        Benefits
                                                    and approval of officers and key employees            IRC Section 4958, enacted in 1996 and fi-
The IRS has expanded the range and number           by independent persons. Such a review would           nalized in 2002, seeks to penalize insiders
of reported salaries, added intermediate sanc-      include comparability data and contempora-            (“disqualified persons”) who attempt to receive
tions, and increased the likelihood and severity    neous substantiation. All nonprofits, not just        excess benefits from nonprofits through certain
of an audit. Tax-exempt organizations will have     501(c)(3) and 501(c)(4) organizations, must           transactions. The purpose here is to penalize
to increase their reporting output, and many will   describe this process. It is likely the IRS intends   the offending individual instead of jeopardizing
be doing so for the first time.                     all organizations to use these procedures as a        the organization’s tax-exempt status. 4958 ap-
                                                    best practice.                                        plies to compensation, loans, and sales, among
The Core 990 Form                                                                                         other transactions.
The core of the new Form 990 requires dis-          Schedule J
closure of all W-2, 1099 and other compensa-        Organizations must also complete a Schedule J         Under Section 4958, a “disqualified person”
tion for current and former officers, directors,    if any person listed on the Form has an annual        can include any person in a position to exercise
                                                                                                          substantial influence over an organization at
                                                                                                          any time in the prior five years. This can include
                                                                                                          officers, directors, key employees, their rela-
                                                                                                          tives, and any entities they control. Although
                                                                                                          Section 4958 only applies to 501(c)(3) and
                                                                                                          501(c)(4) organizations, the recent changes to
                                                                                                          Form 990 make it clear that the federal govern-
                                                                                                          ment would like to apply these same rules to
                                                                                                          all nonprofits.

                                                                                                          Rebuttable Presumption of
                                                                                                          In determining what is “reasonable” under
                                                                                                          excess benefit rules, a fact and circumstances
                                                                                                          test generally places the burden of proof on the
                                                                                                          organization. However, Section 4958 establish-
                                                                                                          es a Rebuttable Presumption of Reasonable-

                                                                                                          IRS is continued on page 2

Cherry, Bekaert & Holland, L.L.P.                                           1                                                 
     NFP News

IRS is continued from page 1                          Comparability Data. The data analyzed             that is higher or lower than the comparability
                                                      must be sufficient to determine that the entire   data.
ness that, if followed, places the burden of proof    compensation package is reasonable. This
for reasonable compensation back on the IRS.          includes:                                         Deferral of Compensation
This can offer nonprofits a powerful advantage                                                          The Internal Revenue Code provides nonprofit
in an examination, and organizations should           •   levels paid by similar organizations, both    employees a number of opportunities for tax
move to adopt these procedures.                           taxable and tax-exempt, for functionally      deferral on income or salary. These opportuni-
                                                          comparable positions;                         ties vary by IRC section. Generally, 401(a) and
To establish a rebuttable presumption of              •   the availability of similar services in the   401(k) plans are qualified. 403(b) sections may
reasonableness, compensation terms are                    geographic area;                              or may not be qualified. Individual accounts
approved in advance by an authorized body             •   current data compiled by independent          (219 or 408) along with key employee 457(a)
composed of individuals who are totally inde-             firms; and                                    or 457(f) sections must exercise caution in com-
pendent from the organization. The authorized         •   actual written offers from similar institu-   pensation deferral. While deferred compensa-
body must rely upon appropriate comparability             tions.                                        tion can be useful to an organization, the details
data prior to making a final decision, and must                                                         of these plans vary widely from organization
also adequately and concurrently document the         Small organizations are exempt from this re-      to organization, and will be scrutinized in the
basis for compensation determination.                 quirement if their gross revenue is less than     event of an audit.
                                                      $1 million and they collected compensation
Anyone not on the authorized body must                information from three comparable organiza-       The IRS is attempting to view compensation in
recuse themselves from any compensation               tions either in that community or in similar      holistic terms, not just in terms of salary. This
discussions except to answer direct questions.        communities.                                      initiative will continue to be a hot topic and,
Those persons must specifically not be                                                                  no doubt, more disclosures are on the way.
present for any debate or voting regarding            Documentation. Proper documentation begins        The IRS clearly sees excess benefit rules as
compensation. Some conflicts of interest that         with an approved and dated terms of arrange-      good guidance for reasonable compensation,
would preclude an individual from participating       ment. Members of the authorized body must         considering it a best practice.
as a part of the authorized body include:             be present during all debates and voting. All
                                                      documentation regarding comparability data        Tax-exempt organizations of every kind put
•   benefiting from a compensation agree-             (i.e., how it was obtained and relied upon) is    themselves in the best position for success
    ment;                                             required.                                         by familiarizing themselves with Section 4958
•   receiving compensation from a person                                                                regulations. We strongly recommend establish-
    who is subject to the agreement; and              Should a person have recused themselves           ing a rebuttable presumption of reasonableness
•   any family or business relations of the           from the body due to a conflict, the body         when setting executive compensation and
    subject of the agreement.                         must present documentation regarding such         taking advantage of all appropriate deferral
                                                      circumstances. Finally, the body must provide a   arrangements. Through preparedness and
                                                      rationale for any approved compensation           keen strategy, nonprofits can thrive, even under

                                                              We’re on the case.
                                        Here are this month’s most popular NFP Blog posts:
    • New Law Brings Cell Phone Relief               • IRS Outlines Hot Topics for
      to Nonprofits                                    Tax-Exempt Organizations to
    • Beginning in 2011, FSA                           Watch in 2010
      Reimbursement Will Require                     • IRS Considering Simplifying the
      Prescriptions for OTC Meds                       Substantiation Requirements for
    • IRS Suspends Updates to Cell                     Cell Phones
      Phone Tax Rules                                • Increased IRS Scrutiny Reaches
    • IRS Extends Filing Deadline for                  to Small Nonprofits
      990-N and 990-EZ Filers                        • DOL Issues FAQ Guidance for
    • R.I.P. – The Pooling of Interests                Form 5500 Electronic Filing
      Method of Accounting                           • IRS Postpones Requirement
    • Form 990, Schedule K – Don’t                     to Disclose Health Care Costs
      Procrastinate About Tax-Exempt                   on W-2

                                     Stay on top of the issues affecting your organization:

Cherry, Bekaert & Holland, L.L.P.                                            2                                          
                                                                                                                                        NFP News

Boost Your Nonprofit’s Income With                                                                         Remember to think green
Ideas That Work                                                                                             Some of the same actions that help
                                                                                                            the environment may also help your
Donor contributions continue to decline for         but they may be more likely to publicize the            organization save money. Consider these
many nonprofits, and this means that it may         organizations to which they belong.                     cost-saving and environmentally friendly
be time to seriously review some supplemental                                                               measures:
revenue options. There are a number of time-        Collaborate
tested ways nonprofits can generate revenue         Working together with other organizations               • Purchase newer, Energy Star-rated
and keep your nonprofit economically viable.        can help you earn – and save – money. For                 machinery. Donated equipment is great,
However, many alternative revenue streams           instance, you can rent or share office space              but energy-efficient equipment can
often involve unrelated business income, so         with a nonprofit that has a similar or related            greatly reduce your electric bill.
be sure to discuss any potential new income         mission. It also can be beneficial to exchange or       • Weatherproof your office space. You’ll
strategies with your accountant.                    share staff or service providers – or to organize         likely recoup the initial cost with lower
                                                    a joint event, which will bring new patrons to            energy bills.
What’s Your Mission?                                both organizations.                                     • Install a programmable thermostat to
A tried-and-true way to generate income is                                                                    minimize energy use during nights and
to offer services and programs for a nominal        Partnering with another nonprofit brings ad-              weekends. Also, set the thermostat a
fee. For example, you might host speakers,          ditional skills and experiences to the table that         degree or two cooler in the winter and
classes or exhibits that are related to your        may help each organization generate new                   warmer in the summer.
organization’s tax-exempt purpose. You can          ideas and resolve issues.                               • Buy compact fluorescent light bulbs
raise additional funds by having a program                                                                    that use less energy. They cost more
guide with advertising or by selling souvenirs,     Special Events                                            initially, but last longer than standard
or perhaps items exhibited at the events. Or, if    Even in an economic downturn, a creative and              incandescent bulbs.
you’re an expert in your field, you may be able     well-organized special event can be successful,         • Install motion detectors in break and
to sell your expertise as a consultant to other     particularly from a fundraising point of view,            conference rooms, so that lights
similar organizations.                              because it can draw your faithful donors as               automatically switch off when the room
                                                    well as prospects.                                        isn’t in use. Post signs by light switches
Sometimes selling products related to your                                                                    and electrical appliances that remind
mission becomes a lucrative sideline activity.      Plus, special events, such as walks, tourna-              employees to turn them off.
For example, Minnesota Public Radio grew a          ments, dinners, auctions and cook-offs, can
business selling T-shirts for Garrison Keillor’s    be memorable and help potential donors and
“Prairie Home Companion” radio show, and            the media learn about your organization’s             in mind that all investments have some risk
many metro area museums have created large          “softer” side.                                        involved. It is essential to monitor your risk and
direct merchandising and product licensing en-                                                            diversification along with any tax consequences
terprises based on items in their collections.      Investment Income                                     from earnings.
                                                    Even in today’s economy, there are many
Also, evaluate those revenue-generating pro-        options when it comes to investing your non-          Seeing It Through
grams you currently offer. Are they as success-     profit’s money. But you’ll want to keep an eye        Once you decide on what it is you want to do
ful as they could be? Could they be modified        on factors such as requirements for risk toler-       to bring in more money, how you go about
to attract more people? Are you publicizing         ance, liquidity and possible conflicts of interest.   it becomes crucial. From planning a budget
them well?                                          And be mindful of existing investment policy          for any new program or service to effectively
                                                    restrictions.                                         promoting the event within your community,
Memberships                                                                                               your team’s organizational abilities and market-
Some organizations may charge membership            For short-term investments, a money market            ing know-how will come into play. Give your
fees. Memberships typically work well for non-      or short-term bond mutual fund can offer              staff the creative room to pursue new ideas
profits that provide a service. In return for the   higher returns than a savings account while           as you keep an eye on the risks of any new
fee, members get privileges they wouldn’t have      still providing a fair amount of liquidity. Keep      endeavors.
received if they were simply donors, such as:

•   Discounts on programs, services or
•   Invitations to special events, and
•   Special opportunities, such as members-
    only Web site access, facility access or

In addition to providing income, memberships
can benefit your nonprofit in other important
ways. For example, people don’t always
discuss the organizations to which they donate,                                                             3                                   Cherry, Bekaert & Holland, L.L.P.
    NFP News

Health Care Reform Timeline
The recent enactment of the Patient Protection       you informed and up-to-date regarding how                The Act also encourages employers to provide
and Affordable Care Act of 2010, in combina-         the Health Care Act will affect you and your             qualifying coverage by both penalizing large
tion with the Health Care and Education Tax          organization.                                            employers that lack qualifying coverage and
Credits Reconciliation Act of 2010 (collectively                                                              promoting contributions from small employers
known as the “Health Care Act” or the “Act”),        The Health Care Act requires all individuals             to employee premiums. Employers that cur-
significantly changes the nation’s health care       not covered by Medicaid or Medicare to obtain            rently offer qualified coverage can continue to
landscape, and many of these changes will be         minimum essential coverage or pay a penalty              offer that same coverage under a grandfather
carried out through substantial additions and        (unless they are exempt from the individual re-          provision.
alterations to the U.S. tax code.                    sponsibility mandate). Low-income individuals
                                                     and some middle-income families are eligible             For more information about how health care
Given the scope of this landmark legislation, we     for credits or vouchers to aid in the cost of            reform legislation affects your business, visit
have prepared a short summary of the new law.        obtaining coverage.
                                                                                                     or contact your local CB&H
As your tax professionals at CB&H continue to
study the legislation, we will continue to keep                                                               tax professional.

                                Provision                                                                 Notes
                     Tax Credit for Investments in         • A two-year temporary credit available for investments in new therapeutic discovery projects in
                     New Health Care Therapies               2009 and 2010

    2010             Tax Credits for Offering Health
                                                           • Up to 25% of the employer contributions for qualifying nonprofits

                     Adoption Credit Extended              • Credit for child adoption increased to $13,170 in 2010, indexed for inflation in 2011 (refundable in
                                                             2010 and 2011)

                     Medical Expense Definition            • Definitions for qualified medical expenses altered as they relate to FSAs, HSAs, and Archer

                     Changes                                 MSAs (certain medications exempt)

                     Nonqualified HSA & MSA                • Penalty increases from 10% to 20% for HSAs
                     Distributions Penalty Increases       • Penalty Increases from 15% to 20% for MSAs

                     Employers Must Report Health          • Employers must disclose the aggregate cost of each employee’s health care benefits on his or

                     Care Plan Values on W-2                 her W-2 form

                     Corporate Information Reporting       • Organizations paying $600 or more annually for property and services must report payments to
                                                             the IRS

                     Medicare Tax for High-Income          • 0.9% increase in earned income tax
                     Individuals Increases                 • Applied to earned income over $200,000 for individuals, $250,000 for families

                     Medicare Contribution Surtax for      • 3.8% contribution on unearned income
                     High-Income Individuals               • Applies to MAGI over $200,000 for individuals, $250,000 for families (excludes retirement ac-

    2013             FSA Contributions Limited             • Caps at $2,500, indexed for CPI 2014 and later

                     Executive Compensation                • Health Care Provider executives remuneration deduction caps at $500,000
                     Deduction Limited
                     Deduction for Medicare Part D         • No subsidy expense deductions for qualified employers
                     Individuals Required to Obtain        • Must have minimum essential health coverage or pay penalties based on percentage of yearly
                     Healthcare or Pay Penalty               income (phased-in over 3 years)

                     Employer Penalty for Not              • Employers with more than 50 employees could pay up to $2,000 per employee annually, after the

                     Providing Coverage                      first 30 employees

                     Annual Fee Imposition on Health       • Health care providers pay non-deductible fee of $8b
                     Care Provider Industry                • Apportioned by market share, certain groups exempt

                     Employers Must Report Health          • Must file returns with the IRS including info about employer, waiting period, employees, coverage
                     Coverage Information                    plans, and premiums (penalties for non-compliance)

                     Health Insurer Excise Tax on          • 40% non-deductible excise tax imposed for plans over $10,200 individual, $27,500 family (higher
                     High-Cost Plans                         limits for retirees)

Cherry, Bekaert & Holland, L.L.P.                                            4                                                 
                                                                                                                                         NFP News

Pending Lease Accounting Changes                                                                            evaluated and recorded under the terms of this
                                                                                                            proposed guidance. The proposed guidance
Could Impact Your Balance Sheet                                                                             does provide for a simplified method for leases
                                                                                                            with a maximum term of 12 months (including
By Jeffrey T. Sabetta, Cherry, Bekaert & Holland, L.L.P. (CB&H)                                             all extension options) whereby a right-to-use
Email:                                                                                     asset and liability are still recorded, but only
                                                                                                            at the amount of the payments remaining on
On August, 17, 2010, as part of the continuing        incremental borrowing                                 the lease(s). Under this method, no interest
convergence process, the Financial Accounting         rate at the date of                                   expense would be recorded in the statement
Standards Board (FASB) and International              lease inception.             Jeff is a Senior Audit   of changes in net assets.
Accounting Standards Board (IASB) (collectively                                    Manager with CB&H
the “Boards”) released joint exposure drafts          The asset cost will                                   What Should I Do Now?
                                                                                   and a member of the
that would significantly change the accounting        be amortized using                                    While proposed changes are not expected to
treatment of leasing arrangements of both             straight-line methods Firm’s Not-For-Profit           effective until 2013 there are certain steps that
lessees and lessors.                                  to amortization ex- Industry Group.                   can be taken now.
                                                      pense over the term of
These proposed changes would require                  the lease and interest expense will be recorded       First, analyze the potential impact this new
organizations to record nearly all leases on          as the related liability is paid down (similar to a   guidance may have on you by determining the
their statement of net assets as a right to use       mortgage). Note that under this new guidance,         impact of capitalizing existing (and new leases)
asset with a corresponding lease liability. While     amortization and interest expense would re-           on your financial statements, loan covenants
the proposed guidance is still in exposure            place rent expense in the statement of changes        and financial ratios/EBITDA calculations.
draft form, the Boards expect to issue the final      in net assets.
standards in 2011. An effective date has yet                                                                For potential covenant violations this may be a
to be determined, but could be as early as            The lease term will be defined as the longest         good time to begin discussions with your lend-
2013.                                                 possible term more likely than not to occur. All      ers about modifying existing loan agreements.
                                                      relevant factors need to be considered, includ-       Make sure this discussion includes not only
How Did We Get Here?                                  ing renewal options. Once the lease terms have        existing leases but anticipated future leases as
Current accounting guidance requires leasing          been determined to be more likely than not to         well. Then you can consider evaluating future
arrangements to be recorded as either an op-          occur, the longest of those terms would be the        lease versus buy considerations.
erating or capital lease. Operating leases are        term used to account for the lease.
expensed over the term of the related lease                                                                 Conclusion
with future payments under the terms of these         Reassessment of the lease term or purchase            Due to the potential significant impact of the
leasing agreements disclosed in the footnotes         options is required at each reporting date, with      proposed lease accounting change it is not
to the financial statements. This provides us-        changes based upon the existence of any new           too early to begin analyzing the impact on your
ers of the financial statements with information      facts or circumstances reflected as adjustments       organization not only from the perspective of
regarding how much an entity was committed            to the carrying amount of the right-of-use as-        financial compliance but internal resources
to pay in future years.                               sets.                                                 as well.

Conversely, if a lease met one of the four criteria   The proposed guidance does not provide for            The FASB will accept public comments on this
of a capital lease, a leased asset and related        any grandfathering of existing leases, therefore      proposed change through December 15, 2010
liability were recorded on the statement of net       both existing and new leases will need to be          at the following link:
assets with the asset and liability depreciated/
amortized over the estimated economic useful
life of the lease.

The proposed guidance, in essence, does
away with operating leases. All leases (unless
immaterial) would be capitalized using the
present value of the minimum lease payments.
Therefore, entities that in the past had off-bal-
ance sheet lease obligations, would now record
these obligations on their balance sheet.

Where Are We Going?
The proposed guidance will result in nearly
all leasing arrangement being reported on
the statement of net assets. For all qualifying
leases, both existing and new, lessees will
be required to record a right to use asset and
corresponding liability as calculated using
an effective interest method over the term of
the lease, as determined using the lessee’s                                                               5                                   Cherry, Bekaert & Holland, L.L.P.
     NFP News

Unclaimed Property: The Road to                                                                           controls and attention to ensuring unclaimed
                                                                                                          property compliance. Second, it will legitimately
Compliance                                                                                                minimize your organization’s unclaimed prop-
                                                                                                          erty reporting obligations. And finally, it will earn
By Debbie L. Zumoff, The Keane Organization                                                               your organization goodwill.
CB&H offers expanded unclaimed property services through an alliance
with The Keane Organization.                                                                              Best Practices
                                                                                                          You can use the guidelines discussed in the last
In our last issue of NFP News, we discussed           One major decision                                  issue to establish a solid set of internal controls
many of the misperceptions associated with            facing organizations is As Firm Director of         and follow the best practices outlined below.
unclaimed property obligations and outlined           whether to outsource State and Local Tax
many of the risks associated with the current         the management of                                   Define the Liabilities Impacting Your Com-
                                                                                Services, Cathie
surge in compliance efforts happening at the          risk or use dedicated                               pany. Begin by assessing and analyzing the
state level. As a follow-up to that initial discus-   in-house resources. Stanton coordinates             various property sources in your organization
sion, we’d like to now examine what options           Making the right deci- unclaimed property           contributing to unclaimed property. Take a big
you should consider when developing a best            sion depends upon services through The              picture, global view of your entire enterprise
practices approach to achieving compliance.           the availability of time, Keane Organization        to engage all possible contributors to potential
                                                      resources, and staff. for CB&H clients. She         liability. Typically, 80 percent of your unclaimed
Implementing a best practices approach to             For some, the demand can be reached at              property exposure value lies in only 20 percent
managing unclaimed property risk can be a             to embrace such a                                   of the outstanding obligations. Identify and
challenge. If you are a first-time unclaimed          program is driven by                                focus on resolving those to reduce your total
property reporting entity not under state audit,      the volume of outstanding obligations, their        liability.
and you find your organization in an initial          complexity, and the overall cost to the orga-
compliance situation, you should initiate an          nization.                                           Try to understand why unclaimed property is
immediate outreach program. Make an effort                                                                being generated at your organization or why
to connect with property owners as soon as            Consider your experience conducting and man-        individuals or businesses have failed to take
you identify and quantify your past-due obli-         aging outbound phone and/or mail campaigns.         action with regard to the sums you owe them.
gations.                                              Do you have the research tools and resources        Customers often relocate, get acquired, or their
                                                      required to follow up on your undeliverable         businesses simply fail. Recipients of health
Consider the timeframes necessary to do so            population of individuals and businesses? Are       benefit checks can easily become confused.
while working with the states to get your vol-        you capable of adjusting your policies to keep      Duplicate or alternate modes of payment can
untary disclosure and reporting arrangements          up with evolving unclaimed property laws?           go unidentified if not properly reconciled.
in order. Organizations should systematically
perform owner outreach to manage outstand-            The value of an active best practices approach      Do you have miscellaneous income entries
ing general ledger obligations spanning the           to your organization’s unclaimed property liabil-   without adequate explanation? Are accounting
duration of the dormancy periods.                     ity will serve several valuable purposes. First,    policies and practices implemented consistently
                                                      it will allow you to demonstrate strong internal    across your entire organization? Do you have

   Want to learn more about
   Unclaimed Property?

                               Download our Unclaimed Property webinar at
Cherry, Bekaert & Holland, L.L.P.                                            6                                             
                                                                                                                                                      NFP News

comprehensive and written unclaimed property         eliminate duplicate payments and other costly
policies and procedures in place? Are they           accounting errors. For instance, it is important        8 steps you can take to best
being followed consistently throughout your          to reach out to vendors to reconcile apparent           manage your company’s
organization?                                        outstanding balances. It is common when
                                                     scrutinizing uncashed check files to find vendor        unclaimed property risk
Preemptively Resolve Outstanding                     obligations that appear to be unpaid, which              1. Define the Liabilities Impacting Your
Liabilities. Obviously, the primary threat           were in fact paid in full via an alternate account          Company.
presented by past-due obligations is that of a       or means (e.g., wire, EFT). Reducing these               2. Preemptively Resolve Outstanding
state (or multistate) audit. Often it’s the most     accounting oversights creates instant savings               Liabilities.
well-intentioned companies that unwittingly          by preventing an unnecessary cash outlay.                3. Develop a Corporate Philosophy
overlook or misinterpret their obligations.                                                                      Regarding Due Diligence.
The complex and dynamic laws of unclaimed            Document an Annual Compliance Road-                      4. Reconcile Accounts to Prevent
property reporting leave such organizations          map. Formalize all compliance goals and                     Overpayment.
noncompliant, facing financial fines and             expectations of all individuals who play a role          5. Document an Annual Compliance
penalties, as well as undeserved reputational        in the system. In today’s environment it is                 Roadmap.
risk.                                                critical to establish compliant behaviors and be         6. Eliminate Audit Red Flags.
                                                     committed to and encourage an atmosphere                 7. Perform Sound Recordkeeping and
It is best to conduct a rigorous self audit or       of openness.                                                Accounting.
holder advocate evaluation to test the sound-                                                                 8. Encourage Continuous Learning and
ness of historical practices and reporting. If       Create clear timelines of events and milestones             Review.
holes in compliance are identified, you will         to ensure that semi-annual report cycles run
need to take action as soon as possible. There       smoothly. Critical to the plan is a methodology
are still opportunities in most states to take ad-   to stay up-to-date on the latest changes to un-       all unclaimed property liabilities on financial
vantage of amnesty and voluntary compliance          claimed property laws. For large organizations,       statements as required.
programs which provide leniency with respect         a range of unclaimed property software sys-
to delinquent reporting.                             tems and outsourcing options exist to help with       Encourage Continuous Learning and
                                                     planning and execution. If efforts are instead        Review. Conduct regular training to discuss
Develop an Organizational Philosophy                 coordinated in-house, carefully document the          legal changes and reinforce policies and pro-
Regarding Due Diligence. As heavyweight              workflow, staff responsibilities, and information     cedures. Training, at some level, should be
champion Jack Dempsey was fond of saying,            needs at each step in the process.                    delivered to all relevant departments to ensure
“the best defense is a good offense.” In the                                                               organizational consistency. Regularly review
unclaimed property world, due diligence is           Eliminate Audit Red Flags. While the “A-list”         performance and modify reference materials to
the practice of mitigating unclaimed property        for state audits consists of entities that have       ensure valid “living documents” that staff can
liability at its source—by finding missing people    never filed reports, the second tier is filled with   use to manage the operation.
and helping them take action to reconcile their      organizations that call attention to themselves
accounts.                                            by the manner in which they report. Incomplete        Debbie Zumoff is Chief Compliance Officer with
                                                     reports are certain to raise suspicion, as are        The Keane Organization, the premier provider
By law in most states, due diligence is only         reports which don’t match the typical profile for     of comprehensive unclaimed property reporting
required once—typically within 120 days of           other similar organizations.                          and compliance solutions. CB&H’s strategic al-
when the property must be remitted. At this                                                                liance with the Keane Organization enables the
point, the property has been unresolved for          Other obvious signs include failure to report all     Firm to provide a streamlined suite of escheat-
potentially many years and the likelihood of         relevant property types and inconsistent report       ment solutions to help CB&H clients of all sizes
locating the property owner at the original          filings from year to year. In addition, organiza-     address this area of growing concern.
address is minimal. The best approach is to          tions that are undergoing or have undergone
conduct a due diligence effort within 90 days        restructurings should consider themselves high
                                                                                                            The information in this newsletter has been provided by Cherry,
of the original payment transaction.                 on the list for audit consideration since many         Bekaert & Holland, L.L.P., and its affiliates (“CB&H”) for general
                                                     accounting details—such as old boxes of bank           information purposes. It does not constitute legal, accounting, tax
                                                                                                            or other professional advice or services and is presented without
Address the undeliverable mail population in         records—can easily get set aside, forgotten or         any representation or warranty as to the accuracy or completeness
your outreach strategy. Undeliverable mail can       destroyed.                                             of the information.

be a significant problem, stalling many efforts                                                             While CB&H has made every attempt to ensure that the informa-
                                                     Perform Sound Recordkeeping and Ac-                    tion contained herein has been obtained from reliable sources,
to reunify owners with their financial property.                                                            CB&H is not responsible for any errors or omissions, or for the
Ideally you should research new addresses            counting. Maintain electronic and hard copy            results obtained from the use of this information. In no event will
                                                                                                            CB&H, or CB&H’s partners, agents or employees be liable to you
and re-mail, telephone or email those vendors,       documentation of all previous unclaimed                or anyone else for any decision made or action taken in reliance
employees or customers where appropriate.            property reports for at least 10 years so that         on the information contained herein or for any consequential,
                                                                                                            special or similar damages, even if advised of the possibility of
But locating businesses can be daunting since        you can quickly and easily demonstrate your            such damages.
there are few available databases designed to        compliance. This practice will help to facilitate
                                                                                                            U.S. Treasury Department Circular 230 Disclosure: In accordance
locate commercial entities. And the IRS and          internal audits, contribute to long-term compli-       with applicable professional regulations, please understand that,
SSA won’t help you.                                  ance efforts, and serve as a strong exhibit of         unless specifically stated otherwise, any written advice contained in,
                                                                                                            forwarded with, or attached to this communication is not a tax opin-
                                                     your controls in the event you are audited. Make       ion and is not intended or written to be used, and cannot be used,
Reconcile Accounts to Prevent Overpayment.           sure that internal departments or divisions are        by any person for the purpose of (i) avoiding any penalties that may
                                                                                                            be imposed under the Internal Revenue code or applicable state or
Part of the due diligence process should include     communicating effectively to properly disclose         local law provisions or (ii) promoting, marketing or recommending to
a reconciliation of all accounts to identify and                                                            another party any tax-related matters addressed herein.                                                              7                                     Cherry, Bekaert & Holland, L.L.P.
           Marketing Department
           1700 Bayberry Court – Suite 300
           Richmond, Virginia 23226

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                                                                     NFP News
                                                                       Fall 2010 Edition
                                                          Useful Information for Your Organizational Success

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