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UHY Not-for-Profit Newsletter - August 2013
UHY Not-for-Profit Newsletter - August 2013
Nonprofit Insider
Revenue Recognition
fied Fraud Examiners (ACFE) of 508 fraud cases, 58 of which were in the nonprofit sector. Some of their findings are discussed below and may give you reason to pause when considering fraud in your workplace. By Lynn Rodriguez, Senior Staff Accountant
n April 2013, the Financial Accounting Standards Board (FASB) issued an amendment to the guidance on not-for-profit revenue recognition policies, specifically relating to services received from personnel of an affiliate. Effective for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter, a not-forprofit entity (recipient) is required to recognize all services received directly from personnel of an affiliate that directly benefit the recipient and for which the affiliate does not charge the recipient. These costs not being charged by the affiliate must be measured by the recipient at the cost recognized by the affiliate for the services provided. If the cost to be recognized will significantly overstate or understate the value of the services received, the recipient may elect to recognize the services at either the cost recognized by the affiliate
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propriated. Half of cash misappropriations occur through fraudulent billing, such as sending payments to fake vendors. Payroll fraud, expense reimbursements fraud, and check tampering are other methods used.
Consider adopting a formal, safe whistleblower policy. Require accounting personnel and officers to take a minimum of five days of vacation. When hiring, consider performing background checks for prospective employees who are applying for cash-handling positions. Have an external annual audit. Get insurance coverage or bonding for employees who handle or have access to cash. I hope this has given you some points to consider, and perhaps next time you will take some time to consider the potential for fraud occurring at your organization. Whether prompted by your auditor, or not, remember the who, what and how of fraud. Disclosures of this amended policy in the financial statements can be presented in one of two ways: 1) prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter and 2) using a modified retrospective approach in which all prior periods presented upon the date of adoption shall be adjusted, but no adjustment shall be made to the beginning balance of net assets of the earliest period presented. Early adoption of this amended policy is allowed by FASB.
How is it discovered?
More than 40 percent of the time fraud is discovered from tips provided by employees; a quarter of the time internal auditors catch it. Surprisingly, only 12 percent of fraud activities are caught by external audits, while 23 percent are caught by accident!
What to do?
Policies and procedures should be in place to monitor every employee, no matter how trusted they are. There is no way to completely safeguard your
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