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Working Capital Blog

Posted on: May 16th, 2017

ESOPs 101: What is an ESOP and Is It Right for Your Business Succession Plan?

ESOPs 101: What is an ESOP and Is It Right for Your Business Succession Plan?There are more than 6,700 employee stock ownership plans (ESOPs) across the country, which cover 14 million participants and hold assets of more than $1.3 trillion, according to the U.S. Department of Labor’s most recently available data.

Despite these statistics, however, many family owned or privately held business owners have no direct experience with an ESOP and only a basic understanding of how one could benefit their companies. Given this limited awareness of ESOPs, we rounded up some of the most common questions about the structure, details and advantages of this business transition and employee benefit tool.

What is an ESOP?

An Employee Stock Ownership Plan or ESOP is a qualified defined contribution employee benefit plan authorized under the Employee Retirement Income Security Act (ERISA).

An ESOP is similar to a profit-sharing plan, but a key difference is that the ESOP is designed to invest primarily in the stock of the sponsoring employer. It can be a beneficial transition strategy to help exiting owners achieve their retirement goals and give back to loyal employees.

What kind of company fits the ESOP model?

ESOPs are used across a variety of industries and business types, but there are some overarching characteristics of companies that implement them. While there is no minimum size or annual revenue requirement to set up an ESOP, companies with approximately 20 or more employees and annual revenues of at least $10 million generally fare best with this model. The key is spreading out the formation and annual administration costs over a broad employee base. Reasonably consistent profitability, the ability to leverage the business with debt and a strong management team are other important factors.

What role can an ESOP play in the exit of a business owner or shareholder?

An ESOP can provide a ready market for the shares of an exiting owner of a privately held company. While limited by adequate consideration rules (the ESOP can pay no more than fair market value), ESOPs have tax advantages that benefit the selling shareholder and the corporation. For instance, the owner of a C Corporation can defer capital gains taxes on the sale indefinitely provided that they elect and meet the provisions of section 1042 of the Internal Revenue Code. While S Corporations do not have this benefit, they can essentially operate income tax free if the ESOP owns 100 percent of the stock. Consult your tax advisor for guidance related to your particular tax situation.

How much stock can an ESOP own?

An ESOP may own a portion or all of the stock in a company. Partial ownership by an ESOP is a great option for family owned businesses that wish to retain family control but also want to reward and build additional incentives for an employee base considered to be part of the family.

Do the employees actually own the company?

No, the ESOP is structured as a trust, which has governance requirements. The employees are beneficiaries of that trust. A trustee administers the plan and makes the majority of shareholder decisions; however, major corporate actions have pass-through voting rights to participants.

Are there other benefits of using an ESOP?

Beyond the financial advantages an ESOP offers, there are also cultural and motivational benefits. Forming an ESOP allows the company’s ownership to reward or invest in its employees. Giving employees an ownership stake ties them directly to the company’s overall performance, which is often a motivating factor to improve their personal job performance. ESOPs also provide stability to the other stakeholders of a company by limiting the transition disruption to customers, suppliers and the community in which the business is located.

For more information on ESOPs or to decipher if it is the right tool for your family owned or privately held business, contact me at or 610.376.1595.

Ryan P. Hurst, ASA, Manager in RKL's Business Consulting Services GroupContributed by Ryan P. Hurst, ASA, Manager in RKL’s Business Consulting Services Group. Ryan serves the valuation, investment banking and consulting needs of clients in a wide variety of industries. His expertise includes performing valuations for gifting, estate planning and administration, employee stock ownership plans (ESOPs), buying or selling a business, buy/sell agreements, fair value accounting and GAAP reporting, litigation support for shareholder disputes and strategic alternatives analyses.Contributed by



Working Capital blog disclaimer

Posted on: May 9th, 2017

The Nonprofit’s Guide to Tax-Smart International Giving

The Nonprofit’s Guide to Tax-Smart International GivingIn the course of philanthropic business or collaborative efforts, nonprofits based in the U.S. may wind up donating funds to a foreign tax-exempt organization. Transnational donations are, by default, subject to a 30 percent withholding in accordance with the Foreign Account Tax Compliance Act (FATCA). Though FATCA was enacted in 2010, the IRS in recent years has increased scrutiny of any foreign transactions. Nonprofits that give grants or donations to foreign charities must follow specific guidelines and maintain thorough documentation in order to avoid the 30 percent levy.

Proof needed for exemption

Through proper documentation, nonprofits can avoid FATCA’s withholding penalty via IRS Form W-8BEN-E by demonstrating that the foreign organization qualifies to be supported by a domestic nonprofit. Here are some important points to keep in mind about completing this form.

  • The foreign organization receiving the funds completes Form W-8BEN-E and provides it to the donating U.S. nonprofit, which keeps it on file.
  • Much like the Forms W-4 employers retain for each employee, Form W-8BEN-E is not filed with the IRS.
  • Once completed, the Form W-8BEN-E is valued for three years.
  • The IRS requires that organizations include the following with the signed Form W-8BEN-E:
    • IRS determination letter of 501(c)3 status if the foreign group was based in the U.S., or
    • A copy of an opinion from U.S. counsel certifying that the recipient of the donation is a section 501(c)3 organization (without regard to whether the payee is a foreign private foundation).
      • Tip: Providing copies of bylaws, articles of incorporation, copy of the country’s exemption status/law to support the confirmations listed above will help form an opinion to accompany the form.

Assistance Completing Form W-8BEN-E

Substantiating donations to fellow tax exempt organizations is always important for nonprofits, but with recent IRS focus on foreign transactions, it is particularly important that the proper forms are completed and documentation maintained. RKL has a team of tax professionals focused exclusively on the needs of nonprofits, and they are ready to answer questions about the process or help organizations complete Form W-8BEN-E and gather the correct documentation. Contact one of our local offices for guidance or assistance.


Stephanie E. Kane, CPAContributed by Stephanie E. Kane, CPA, Supervisor in RKL’s Tax Services Group. Her client responsibilities include serving clients in a wide variety of industries with a focus on not-for-profit entities.





Working Capital blog disclaimer

Posted on: May 2nd, 2017

4 Money Musts for Recent College Grads

RKL Wealth Management offers four tips you can share with the recent college graduates in your life to help them start off on the right financial foot. It’s college graduation season, which means a new crop of young adults will transition from the dorm room to the conference room. This new phase of life offers many exciting opportunities, but it also brings new financial responsibilities like student loan repayment, taxes and more. As new grads navigate the uncharted waters of adulthood, here are some tips to start off on the right foot and pave the way for a successful financial future.

Build a budget and track expenses

As students, most young adults lived pretty frugally. As recent grads, keeping that frugal mindset is a huge advantage. This doesn’t mean sticking to the ramen noodle diet, but it does mean creating a budget and tracking expenses. Those new paychecks may be tempting to spend, but living within your means and spending money intentionally sets the financial foundation for young adults to tackle other financial challenges, like student debt. There are a number of budgeting and expense tracking apps that can help with this process.

Start saving for retirement

For recent grads who consider making weekend plans a long-term commitment, retirement can definitely seem like a remote and distant concept. Thanks to the power of compounding interest, however, saving early and often pays off exponentially down the line. Many employers auto-enroll their employees in a retirement plan, but if yours does not, make sure to sign up on your own. When setting a contribution amount, try to reach any employer match limits. Otherwise, you’re leaving free money on the table, so it is definitely worth skipping a few dinners with friends to find room in your budget. Most importantly, avoid taking this money out early and use caution if you are considering it, because it could have major tax implications and can hurt future investment potential.

Set up an emergency fund

Despite the best budgeting intentions, unexpected or emergency expenses do happen. Young adults can prepare to absorb these financial blows by setting up an emergency fund. This should be a dedicated item in your budget, and be sure to keep this money separate from other savings or checking accounts so it is not spent until absolutely necessary. The ideal emergency fund should be approximately six times your monthly income, but for now, starting small can save your bank account or credit card from the aftermath of car troubles or unexpectedly high medical bills.

 Manage debt wisely

Few students make it through higher education without student debt, and those bills come due not long after graduation. Income-based repayment, which links monthly loan payments to income, not total debt, is one way to manage debt payments. Young adults with numerous loans should explore consolidation for convenience and potentially lower payments. With student loan obligations hanging over them, recent grads should proceed with caution when it comes to taking on other consumer debt. It’s all too easy to rack up credit card debt furnishing a new apartment or adding to your debt load with a loan for a new car. Stick to your budget and develop a plan to set aside the funds for these purchases.

The transition from college to the working world can be daunting, but following these steps can help recent grads form good financial habits that will pay dividends throughout their lifetimes.

Visit to learn about all the ways the financial planning team at RKL Wealth Management helps individuals and families invest achieve their unique goals.


Thomas D. Reardon, CFP®, Wealth Advisor for RKL Wealth ManagementContributed by Thomas D. Reardon, CFP®, Wealth Advisor with RKL Wealth Management. Tom is responsible for creating and implementing customized financial plans for clients and their families. He specializes in helping clients identify and prioritize their goals for retirement, educational funding and estate planning.




Working Capital blog disclaimer

Posted on: April 18th, 2017

Can PA Tax Amnesty Program Benefit You or Your Business?

Can PA Tax Amnesty Program Benefit You or Your Business? Pennsylvania’s budget for Fiscal Year 2016-17 included the chance for delinquent or non-filers to come into state tax compliance through a 60-day amnesty period. Last fall, the Pennsylvania Department of Revenue (DOR) set the official dates and guidelines for the 2017 Tax Amnesty Program, which begins Friday, April 21 and concludes Monday, June 19.

As the start date for the Commonwealth’s 2017 Tax Amnesty Program nears, we rounded up some key questions taxpayers may have about the process and highlight important points to keep in mind.

How will the PA Tax Amnesty Program work?

Starting on April 21, businesses and individuals that have delinquent tax liabilities as of December 31, 2015, may come into compliance with DOR until June 19. Eligible program participants can file back taxes with penalties waived and pay only half of the interest that has accrued over time. This could represent a significant reduction in interest charges for certain taxpayers.

What tax types are eligible for amnesty?

According to program guidelines, all taxes owed to the Commonwealth administered by DOR – whether it is gross receipts, corporate net income or sales and use – are eligible for the Amnesty Program. DOR notes that taxes, interest and penalties collected under the International Fuel Tax Agreement owed to other states or provinces are not eligible for the Amnesty Program. The program fact sheet issued last year by DOR provides a full listing of eligible tax types.

Who can participate?

Business and individual taxpayers that have not paid or underpaid state taxes as of December 31, 2015, are eligible for amnesty during this time period. This also includes taxpayers that recognize an error in reporting or payment on a previously filed return and want to correct it. For taxpayers currently appealing a tax liability, this amount may be included in the 2017 Tax Amnesty Program, but keep in mind that the administrative or judicial appeal will be withdrawn before amnesty is granted by DOR.

Keep in mind, if delinquent or unpaid taxes after December 31, 2015, exist, they must be filed before admittance to the 2017 Amnesty Program is granted, even though these delinquencies are not eligible for the preferential treatment.

Who cannot participate?

Individual and business taxpayers who participated in the previous 2010 tax amnesty program are not eligible to take part in the 2017 program. Taxpayers that are currently under investigation, currently being prosecuted or have been convicted for violating any tax law (local, state or federal) are also excluded from participation. Other exclusions include taxpayers in bankruptcy (unless permission is granted by the Bankruptcy Court) and those with an existing voluntary disclosure agreement with DOR already covering tax liability during the eligibility period.

What happens to eligible taxpayers that do not enroll?

This program is a limited time opportunity created by the General Assembly and offered through DOR with the intent of increasing compliance with and payment of a wide variety of state taxes. At the conclusion of this tax amnesty period, DOR will impose an additional five percent penalty on eligible taxpayers that did not enter the program.

The only situations in which eligible yet nonparticipating taxpayers will be spared the additional DOR penalty are:

  • Currently in bankruptcy protection
  • Have proof of an active deferred payment plan
  • Timely administrative or judicial appeal covers the state tax liability

How can taxpayers apply?

According to the DOR, between April 21 and June 19, 2017, taxpayers must do three things to apply for the program: file an amnesty application, file all necessary returns and pay all back taxes and interest by the close of the amnesty program on June 19.

Need to determine if you are eligible for amnesty? Want to calculate anticipated penalty and interest payments? Seeking assistance to enroll in the program? RKL’s state and local tax team is here to help. Contact me at or 717.525.7447.


Jason C. Skrinak, CPAContributed by Jason C. Skrinak, CPA, State and Local Taxes (SALT) Practice Leader for RKL’s Tax Services Group. Highly regarded throughout the region for his deep knowledge and expertise in SALT consulting, Jason has significant experience representing taxpayers before Pennsylvania’s Board of Appeals and Board of Finance and Revenue.



Working Capital blog disclaimer

Posted on: April 11th, 2017

Ongoing ERISA Requirements for Employers Offering Retirement Plans

Ongoing ERISA Requirements for Employers Offering Retirement PlansWhether it is a defined benefit plan or a 401(k) account, retirement plans are an important part of the benefits package a company uses to attract and retain top talent. Managing a plan that helps employees save for their future is a significant responsibility, so it is important that employers are compliant with the rules that govern the administration of retirement plans.

The Employee Retirement Income Security Act (ERISA) is a key federal provision outlining the minimum standards a retirement plan must meet. To that end, ERISA assigns certain responsibilities to plan managers and administrators (also known as fiduciaries). Failure to comply with these responsibilities could result in penalties and fines against an employer.

Fiduciary Responsibilities Under ERISA

In the interest of protecting employees and their nest eggs, ERISA outlines a number of requirements for fiduciaries, including:

  • Administering the plan solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them;
  • Acting in a prudent manner;
  • Diversifying plan investments to minimize risk;
  • Following plan documents, which must also be ERISA-compliant;
  • Avoiding conflicts of interest; and
  • Paying only reasonable plan expenses.

Drilling down into these responsibilities, fiduciaries may find that compliance requires expertise in certain areas like investing and financial management. Fiduciaries that do not have such expertise in-house are permitted under ERISA to hire an external party to build and manage a diversified investment portfolio. It is important that all actions taken by the fiduciary related to investment management, record-keeping and use of third-party vendors are well-documented and justified to avoid conflicts of interest and demonstrate ERISA compliance.

The document in which these terms and conditions are contained serves as a foundation for retirement plan operations. In order to adhere to ERISA’s requirement to follow the plan document, employers should regularly review and update as needed to keep it current and compliant.

Ways to Reduce Fiduciary Liability

A thorough and updated plan document is not only a responsibility of fiduciaries, it can also be a strong defense against potential liabilities related to investment losses or imprudent actions. There are other ways employers can reduce personal liability to restore any plan losses, like increasing participant control over investment choices or outsourcing complete or selected fiduciary responsibility.

Most common for 401(k)s or profit-sharing plans, setting up a plan to give the participant more control over their personal investment portfolio will limit the fiduciary’s liability for losses resulting from those decisions. Keep in mind, however, that under this model the fiduciary remains responsible for selecting and monitoring the investment options from which plan participants may choose.

When a fiduciary outsources all or certain functions, it is accountable for the hiring decision and selection of the third-party manager. For example, if a fiduciary selects an investment manager, they are only responsible for that choice, not the investment decisions the manager goes on to make. In this case, the ongoing responsibility of the fiduciary after initial selection would be routine monitoring to ensure that the manager is acting in a prudent manner with regard to the plan’s investments. In addition, fiduciaries must ensure that every person who handles funds or other property of an employee benefit plan is bonded as required under ERISA, unless covered under one of the exemptions.  A fidelity bond is a type of insurance to protect the retirement plan and its participants from losses incurred by dishonest or fraudulent activity of those who handle funds on behalf of the plan.

It is critical that employers understand their fiduciary responsibilities and potential liabilities under ERISA, both to protect themselves from fines and penalties and to preserve the integrity and stability of their company retirement plans. RKL has a team of professionals dedicated to conducting employee benefit plan audits and helping employers maintain compliance and improve plan administration. Contact one of our local offices today for help determining or improving your plan’s ERISA compliance.

Jill E. Gilbert, CPA, CGMA, Partner in RKL's Audit Services GroupContributed by Jill E. Gilbert, CPA, CGMA, Partner in RKL’s Audit Services Group. Jill serves a broad range of industries including governmental agencies and not-for-profit organizations. She also specializes in employee benefit plan audits.




Working Capital blog disclaimer


Posted on: April 4th, 2017

PA ABLE Savings Program Open for Business: What You Need to Know

PA ABLE Savings Program Open for Business: What You Need to KnowPennsylvanians now have a tax-free way to save for the future expenses of loved ones with disabilities or special needs, while preserving the government benefits upon which they rely.

The Pennsylvania Achieving a Better Life Experience (ABLE) Savings Program officially opened for business yesterday, one year after it was unanimously passed by the General Assembly and signed into law by Governor Wolf. Read on to learn how this program, modeled after the federal legislation that authorized states to create their own ABLE plans, allows individuals with disabilities and their families to save for qualified disability-related expenses.

Benefits of a PA ABLE account

The PA ABLE program, which allows families to open and contribute to savings accounts for loved ones who become disabled before age 26, is administered by the Pennsylvania Treasury. Modeled after 529 college savings accounts, the PA ABLE program provides the following tax and federal benefit eligibility advantages:

  • Contribute up to $14,000 each year.
  • Savings grow tax-free.
  • Withdrawals are exempt from federal and state income tax when used for qualified expenses.
  • Accounts are exempt from inheritance tax.
  • Funds in an ABLE account are not counted in eligibility determinations for Supplemental Security Income benefits (savings up to $100,000), Medical Assistance and other means-tested federal programs.

Save Without Jeopardizing Benefits

Previously, additional or supplemental savings would jeopardize or nullify eligibility for much-needed government benefits. This roadblock was a chief complaint of families wanting to help financially support a child with disabilities, and the ABLE savings program was developed at the federal level in response to these concerns.

Pennsylvania’s ABLE program opens a door to financial independence and security previously closed to individuals with disabilities or special needs. It also provides peace of mind for families who can now set aside funds to pay for current and future services including housing, transportation and education.

Other states are in the process of launching their own ABLE programs, some of which accept outside residents. The ABLE National Resource Center tracks the progress of ABLE legislation and programs across the country, and provides a state ABLE program comparison tool.

RKL Wealth Management can help clients set up a PA ABLE account through the state enrollment website. Contact us for assistance or more information.


Lauren R. McNeely, CRPC®, AIF®, of RKL Wealth Management. Contributed by Lauren R. McNeely, CRPC®, AIF®, Wealth Advisor for RKL Wealth Management. Lauren is responsible for managing client relationships in the area of qualified retirement plans. She also specializes in retirement planning, educating plan participants and helping them make informed decisions to strengthen their financial well-being in retirement.



Working Capital blog disclaimer

Posted on: March 28th, 2017

Unrelated Business Income: Two Common Examples for Nonprofits

Unrelated Business Income: Two Common Examples for NonprofitsFor nonprofit organizations heavily involved in fundraising and charitable activities, recognizing unrelated business income (UBI) and reporting it accordingly is critically important to maintaining tax-exempt status. In a previous post, we defined UBI and outlined the key exceptions. Now, we’ll take a look at two of the most common types of UBI and how to calculate them. 

Income from Debt-Financed Property

Debt-finance property is defined by the IRS as “any property which is held to produce income and with respect to which there is acquisition indebtedness at any time during the taxable year.” The same exceptions to general UBI also apply here, meaning property that derives its income from volunteer, convenience, donation, research or mission-driven activities is not considered debt-financed.

The amount included in UBI is proportionate to the debt associated with the property, and is calculated by this formula:

Gross receipts x Average Acquisition Indebtedness ÷ Average Adjusted Basis = Taxable Amount

“Average Acquisition Indebtedness” is the average amount of principal indebtedness on the property during the portion of the year the property is held. “Average Adjusted Basis” is the average of the adjusted basis of the debt-financed property on the first and last day of the year. Keep in mind, a proportionate amount of expenses associated with the rental may be claimed.

Here is a fictional example to demonstrate how the taxable amount of debt-financed income is calculated. Let’s say a not-for-profit organization owns a building, half of which is rented to a clothing store, which is unrelated to the nonprofit’s mission. The not-for-profit has debt of $100,000 on the property. The adjusted basis of the property is $200,000 and the rental income from the store is $20,000. Using the formula above, we calculate: $20,000 x ($100,000  $200,000) = $10,000 taxable income. Since it is over the $1,000 IRS threshold, this amount must be reported as UBI using Form 990-T.

Income from Controlled Entities

Normally, passive income is exempt from UBI. According to the IRS, however, interest, annuities, rents or royalties received from a controlled organization may constitute UBI. Dividends received from controlled entities are not considered UBI. The threshold for determining control is “more than 50 percent,” which means the tax-exempt organization owns more than 50 percent of the stock, profits or capital interest. Here are two examples to illustrate this concept:

  • Example #1: A §501(c)(3) educational organization licenses the right to use its name and logo to a taxable subsidiary that produces a television show. The subsidiary pays the organization $100,000 annually in royalties. The subsidiary had taxable income for the year of $900,000. The $100,000 royalty is considered UBI and must be reported as such.
  • Example #2: A not-for-profit organization owns a for-profit corporation to which it loans money. The for-profit corporation takes a deduction for interest expense on the loan, but the interest income to the not-for-profit is subject to UBI.

As with all taxation issues, specific circumstances and situations can impact the categorization or calculation of income as UBI. RKL’s Not-for-Profit Industry Group is here to help nonprofit leaders and financial executives determine UBI and file the necessary paperwork to preserve tax-exempt status. Contact one of our local offices today for assistance. 

Ruthann J. Woll, CPAContributed by Ruthann J. Woll, CPA, Principal in RKL’s Tax Services Group and member of the firm’s Not-for-Profit Industry Group. Ruthann has significant experience in tax planning and compliance and specializes in serving individual and not-for-profit clients.




Working Capital blog disclaimer

Posted on: March 15th, 2017

Expenses Reporting Changes in Store for Nonprofits under FASB ASU 2016-14

RKL’s Not-for-Profit experts take a closer look at one of the ways recent accounting standard changes will impact investment returns and expense reporting. Last summer, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which significantly alters the financial statements of nonprofits. As part of FASB’s comprehensive review of not-for-profit statement presentation, ASU 2016-14 is intended to increase reporting consistency by adjusting current requirements across a number of categories.

With an effective date of fiscal years beginning after December 15, 2017, now is the time for not-for-profits to familiarize themselves with each category of changes and what they mean for their organizations. In this post, we take a look at one of the components of this ASU: improved consistency related to investment returns and expense reporting.

Comparable measurement of investment returns

ASU 2016-14 requires that returns from investments (other than programmatic investments) be reported net of external and direct internal investment expenses. Not-for-profits are permitted, but no longer required, to disclose these netted expenses in the financial statement notes.

Programmatic investments are those directed at carrying out the not-for-profit’s mission, as opposed to investments in the general production of income or appreciation of an asset. An example of a programmatic investment is a loan made to lower-income individuals to promote home ownership.

Direct internal investment expenses are defined as costs of the direct conduct or supervision of strategic and tactical activities involved in generating investment returns. Examples include, but are not limited to, costs associated with the staff responsible for developing and executing investment strategy (salary, travel, etc.) and allocable costs associated with internal investment management or the supervision, selection and monitoring of an external investment management firm. These expenses do not include costs that are not associated with generating investment return, such as unitization and other such aspects of endowment management.

By requiring returns from investments to be reported net of external and direct internal investment expenses, ASU 2016-14 aims to provide a more comparable measure of investment returns across all not-for-profit entities, regardless of how investment activities are managed.

Additional expense allocation disclosure

Previously, only voluntary health and welfare entities were required to present a statement of expenses by both functional and natural classifications. ASU 2016-14 has removed that requirement for those organizations and now requires disclosure of an expense analysis by function and nature for all not-for-profit entities to be presented in one location, either on the face of the statement of activities, as a separate statement or in the notes to the financial statements. In addition to this analysis, all not-for-profits will be required to disclose the methods used to allocate expenses to the functional categories.

Expenses should be allocated to one of two functional categories: program services and supporting activities. Program services are those activities that result in goods or services being distributed to beneficiaries, customers or members that fulfill the organization’s purpose or mission. Supporting activities represent all activities outside these program services, such as management and general activities, fundraising activities and membership development activities.

Requiring additional disclosures related to the allocation of expenses improves the usefulness of information for users of the financial statements, helping them better understand the methods used for allocating costs among functional categories and the types of resources used in carrying out an organization’s activities.

Effective dates and next steps

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The amendments in this ASU should be applied on a retrospective basis; however, if presenting comparative financial statements, a not-for-profit has the option to omit the analysis of expenses by both natural and functional classifications (the separate presentation of expenses by functional classification and expenses by natural classification is still required). Organizations that have previously been required to present a statement of functional expenses do not have the option to omit this analysis and may present the comparative period information in any of the formats permitted in the ASU.

These are significant changes with considerable impact to the financial reporting practices of not-for-profits. Prior to the fiscal year in which ASU 2016-14 takes effect, organizations should review and digest these changes fully with their internal finance teams and external practitioners and develop a basis, or multiple bases, for the expense allocation and investment return changes.

For more information and questions on how to prepare for these reporting changes, please contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader.


Andrew D. Kehl, CPA, Manager in RKL's Audit Services GroupContributed by Andrew D. Kehl, CPA, Manager in RKL’s Audit Services Group. Andrew has accounting and auditing experience serving clients in a wide variety of industries including nonprofit, healthcare and government.




Working Capital blog disclaimer

Posted on: March 7th, 2017

Here’s How Your Company Can Fight Alternative Payment Fraud

Here’s How Your Company Can Fight Alternative Payment FraudAlternative payment methods – like Square, PayPal, Stripe and Payoneer – represent a convenient and flexible way for businesses to accept payments from customers. On the flip side, however, allowing your employees to pay vendors through these methods can be a risky proposition.

Because these payment methods are still relatively new, there is often confusion around the unique risks associated with them. However, once you understand these risks and common fraud schemes, you can institute a few best practices to prevent your company from falling victim to alternate payment fraud.

Know who is receiving your payment

One of the most concerning aspects of alternative payment methods is the anonymity that these methods provide to the fraudster. While most companies have strong policies for cutting checks or making ACH payments, few have updated these policies to expand controls related to alternative payment methods. Fraudsters know this and are happy to exploit this weakness.

For instance, a standard component of credit card or ACH electronic transactions is the identification of the payee on the credit card or bank statement. Alternative payment methods usually mask these payment details. Instead, the processor name, such as “Square” or “PayPal,” will first appear on your bank statement. In some cases, however, the payee name will only appear on the statement if the vendor has set up their account to do so. In alternate payment schemes, the fraudster vendor will omit their name or use a misleading company name to hide the true payee identity.

To avoid falling prey to a crafty fraudster, companies should institute a policy of tracking down the supporting documentation relating to any payment that has been processed through an alternative payment method. The goal is to verify that the payment was properly approved and is being made to a legitimate vendor. Supporting documentation can include purchase orders or original invoices.

Restrict access to company accounts and cards

Another best practice concerning alternative payment methods includes restricting the number of employees that have direct access to company bank accounts and credit card numbers. Alternative payment method fraud relies upon the fraudster having access to the company accounts; otherwise, he’ll need to devise a different scheme. Restricting employee use of company accounts is also important in investigating any suspicious activity. With limited users, it is much easier to quickly uncover the fraudster and stop them in their tracks.

Monitor your vendor approval process

While alternative payment fraud is still relatively new, it has quickly gained popularity with enterprising fraudsters due to the ease of the scheme and the high dollars involved. RKL’s fraud and forensic accounting team recently investigated a significant fraud where an employee created a fake vendor and used both Square and PayPal accounts to divert company funds to his bank account. In that case, the fraudster was successful because he was able to circumvent the company’s process for approval of new of vendors, had access to the company credit card and was a “trusted” employee.

Time is on your side

Perhaps the best thing to remember is that sometimes it pays to not be on the cutting edge.  While these new payment technologies are exciting and can be great ways for smaller businesses to get paid, there is no need for most companies to pay their vendors through these methods. It is much safer to continue to use traditional payment methods (check, ACH or credit card) until you are comfortable that your policies and procedures are ready. In other words, don’t be afraid to take it slow.

It is also important to remember that as the customer, you hold all the cards during the vendor evaluation process. Specifically outlining accepted payment methods in your company’s vendor approval policy will help eliminate the possibility that a vendor will try and seek payment through an alternative processor, like Square.

Finally, it is important to remember how fast technology can change. For that reason, you will need to continually revisit your policies and procedures to ensure that you have controls in place over new payment methods as they are developed.

Whether it’s crafting stronger payment and vendor policies, strengthening internal controls or investigating suspicious payments, RKL’s team of fraud consultants and forensic accountants can help you protect your business against alternative payment method fraud. Contact your RKL professional or one of our local offices today for more information.


Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services GroupContributed by Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services Group. He provides forensic accounting, litigation support and business valuation services to companies and organizations across a number of industries. Jeremy’s expertise includes reconstruction of financial records, employee theft investigation, damage calculations for litigation purposes, and valuation of stock for gifting, buyouts and marital settlement. 


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 Working Capital blog disclaimer

Posted on: February 23rd, 2017

Tax Tip: Gather W-9 and W-4 Info in Real-Time to Streamline Year-End Reporting

Tax Tip: Gather W-9 and W-4 Info in Real-Time to Streamline Year-End ReportingWith so many deadlines demanding attention, business owners will often meet one and then put it in the rearview mirror as they move onto the next. While it is certainly satisfying to scratch a filing off the to-do list, putting some compliance requirements out of mind until the next year-end can actually compound the work and stress the next time they come due.

A perfect example of this phenomenon is Form 1099 reporting of certain payments made in trade or business. Even though this year’s January 31 deadline has come and gone, companies that stay on top of collecting the necessary information from vendors throughout the year via IRS Form W-9 can considerably reduce the headache of tracking it all down at once at the end of the year.

Request W-9s in real time

Whether you do business as an individual or sole proprietor or your company is classified as a partnership, corporation or LLC, the IRS requires the reporting of vendor and other types of payments via Form 1099 each calendar year. Taxpayers must use Form W-9 to gather information about each vendor. Staying on top of the W-9 requirement becomes much easier when collected in real time.

Requesting a W-9 from each vendor as soon as the business relationship begins is a best practice for tax record keeping and also prevents a year-end rush to track down vendors with whom you may no longer be working. Now that 1099s are due to the IRS one month earlier (January 31 instead of the February 28 due date in previous years), businesses have even less time to gather information and prepare this filling.

Stay on top of W-4s

In order to file accurate payroll information with the IRS, companies need updated Form W-4s on file for every employee. This employee withholding allowance certification instructs employers on how much federal income tax to take out of each paycheck. While most companies do not require new W-4s to be filed each year, it is a good idea to consistently remind employees to review and update should their personal or financial situation changes.

RKL has a team of professionals dedicated to helping businesses prepare for and comply with payroll and 1099 reporting requirements. Contact one of our local offices with any questions or for assistance.


Contributed by Susan L. Smith, Advanced Tax Paraprofessional in RKL’s Tax Services Group. Sue has more than 30 years’ experience conducting payroll services and preparing individual tax returns for clients. 

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