Audits

A running debate in the donor and nonprofit community is whether the ‘overhead ratio’ is a good tool to measure the effectiveness of a charity. There seems to be more discussion of the issue lately. Wounded Warrior Project is the focal point for recent discussion. A few articles of interest along with some background:

(Cross-posted from my other blog, Nonprofit Update, because this issue is likely of interest to many readers of this blog.)

1/27 – New York Times – Wounded Warrior Project Spends Lavishly on Itself, Insiders Say – Tell me your thoughts on the ongoing conversations in the nonprofit community about overhead ratios and I will tell you whether you will think this article is a balanced critique or a hit piece.

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Overhead ratios in charities getting more attention. Wounded Warrior Project is again focus of discussion.Read More »

Previously discussed a sanction of Grant Thornton and two of its partners by the SEC for two problem audits. This post provides some update on the partner on one of the audits.

Francine McKenna gives us much more detail on 12/6 as she explains Best Case Yet For Publishing Audit Partners Names: Grant Thornton’s Koeppel. She points out this illustrates the value of having the name of the audit partner easily available: if that info was readily accessible, it might be possible to get an early warning on a partner that has a long trail of problem audits.

Article points us to the SEC enforcement action. I have only browsed the document. Going Concern article mentioned in my earlier post gives much of the unpleasant error-by-error detail.

Ms. McKenna points out additional highlights from the SEC. If you are still paying attention to my series of posts, you will learn a lot from her full article.

Something I did not know is the national professional standards team at Grant Thornton has a monitoring list of audit partners who have “negative quality indicators.” Based on that, I would guess most of the large firms have such a list. A watchlist for lousy audit partners is actually a thing. I didn’t know that, but then I don’t get out much.

The partner on the ALC audit was on the watchlist. The firm knew there were some quality issues.

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Misbehavin’ clients. Misbehavin’ CPAs. Part 4.Read More »

Previous two posts in this series looked at sanctions applied by the SEC against Grant Thornton and two of its partners and then looked at a lawsuit filed by the California AG against a charity. The AG also named the charity’s auditing firm and lead partner as defendants.

This post continues the discussion of the AG’s case by looking at the charity’s 990.

You can find a copy of the AG’s lawsuit here.

You can find the charity’s 990 for 2014 here.

Introduction to the AG’s suit and background on their complaint is explained in this post. Might want to read that intro before continuing with this discussion about the 990.

Detail in tax return

Take a look at page 10 of the 990 which has the Statement of Functional Expenses. Here are the column totals for the year ended 6/30/14:

• 4,916,785 – program
•    404,959 – general and administrative
•    593,922 – fundraising
• 5,915,666 – total expenses

Whether you classify the $1.7M of advertising as G&A or fundraising, those two categories in total are a few dollars under a million and thus are not large enough to hold all the advertising.

Here are the large expense items with line numbers in parentheses: …

Misbehavin’ clients. Misbehavin’ CPAs. Part 3.Read More »

First post in this series looked at sanctions applied by the SEC against Grant Thornton and two of its partners and looked at a lawsuit filed by the California AG against a charity. The AG also named the charity’s auditing firm and lead partner as defendants.

This post continues explanation of the AG’s case in California by looking at the accounting issue they allege and then looking at the charity’s 990.

You can find a copy of the AG’s lawsuit here.

Accounting issue

I will skip a large portion of the alleged issues where the AG claims to have a problem with the charity. Let’s go to the accounting issue.

Paragraph 24 indicates the organization spent a significant amount of money on advertising.

Paragraph 25 describes the organizations public claims in which they

“… told donors that between 70 and 90 percent of the net proceeds of donated vehicles would go directly to the donor’s chosen charity. This was false.”

I have not looked at the charity’s web site, but if they made such a claim, the numbers disclosed by the charity on the 990 suggest a lower percentage existed in 2014.

Both the program service accomplishments and functional allocation suggest a lower number. My comment is based on disclosed revenue of $5.0M and disclosed grants of $2.1M (page 10 line 1) for 2014. The AG alleges the actual number is even lower than the 990 shows. Based on comments in the following paragraph, the AG asserts and alleges $1.5M of the reported grant amount was not actually grants. If you have a calculator handy and are that interested, you can calculate for yourself the percentages from the 990 and as alleged by the AG.

Paragraph 26 explains the AG’s perception and allegation of accounting impropriety: …

Misbehavin’ clients. Misbehavin’ CPAs. Part 2.Read More »

Wow, yesterday I read of a bunch of CPAs that are in some deep trouble.

First, a couple of partners of Grant Thornton and the firm itself were sanctioned by the SEC for some lousy audits. Second, I read of a local firm in California that was sued by the state Attorney General for allegedly helping their charity client allegedly deceive donors. The first situation is now admitted by the firm and partners, the second situation is merely alleged by the AG.

Wow.

The AG lawsuit was filed this week, on December 1, 2015.

Lesson to be learned by all CPAs is do a good job if you are an auditor. Don’t ignore massive red flags that are waving boldly in the brisk wind.

The caution to California CPAs is that it is actually possible for the AG to sue your firm and you personally. If you still thought that audits of charities are low risk, the mere filing of this case ought to change your mind.

This is a long discussion, so I will break it into three posts over three days.

National firm sanctioned by SEC

Going Concern explains to us that Fake Occupants Caused Some Problems in Grant Thornton’s Audit of Assisted Living Concepts. If you want to know why I won’t be using the “alleged” word in the discussion of their audit problems, you can see the SEC’s press release: Grant Thornton Ignored Red Flags in Audits. I think the red flags were actually 10 foot tall flashing purple neon signs.

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Misbehavin’ clients. Misbehavin’ CPAs. Part 1.Read More »