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lic is similarly constrained We are at work revising the orm We anticipate that the revised form will have specific questions or even separate schedules that focus on certain problem areas For example, filers should not be surprised to find specific schedules or detailed questions relating to credit counseling activities, supporting organizations, compensation practices, and organizational governance The timing of the revision of the Form 990 is somewhat dependent on our partners, including the states which use the Form 990 as a state filing, and software developers We are also expanding our Form 990 imaging capabilities We already image the returns of public charities and private foundations This month, for the first time, we are imaging the returns of our many categories of exempt organizations that are not section 501(c)(3) organizations This will allow our agents immediate access to these returns, and will allow us to respond quickly to public requests for returns While important at this time, it is our hope that imaging will become a relic of the past as electronic filing becomes the norm White Paper Senate Finance Committee 2004 Hearings Subsequent to the hearings and testimony, a staff discussion paper was released with recommendations for closer regulation of nonprofits Presently, these are simply a series of recommendations by Congressional staff, but the tone and reach of the recommendations should be taken seriously by every nonprofit regardless of size The preface to the document instructs the reader that, The document reflects proposals for reforms and best practices in the area of tax-exempt organizations based on staff investigations and research as well as proposals from practitioners, officers and directors of charities, academia, and other interested parties This document is a work in progress and is meant to encourage and foster additional comments and suggestions as the Finance Committee continues to consider possible legislation (Senate Finance Committee White Paper, p 1, 2004) The White Paper included these proposals: Five-year review of tax-exempt status by the IRS The White Paper recommends that:.

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instant messaging or work suites that include meetings, voice, multimedia, and so on; and internal and external means of information transmission such as XBRL IT will also have to work with the compliance focus as it works with the business processes in certifying compliance with outside standards IT will be a leading force in the integration of financial processes and internal control and their monitoring and reporting By working together with internal controls, IT can provide the technology for control monitoring, testing, evaluation, reporting, and documentation In order to move from a project mentality to a process approach, IT may want to consider developing applications that use analytics and continuous monitoring systems There will be times when the demands of compliance will not fit with the needs of any particular business process E-mail is a good example For business process purposes, a good e-mail system is one that transmits messages reliably and maybe ties in with some collaborative functions such as personal calendars Compliance requires the archiving of e-mail messages This function does not pertain to any business process, yet it is a need that the IT area must address Another example is an electronic archival system that is needed for compliance purposes Although not a requirement for many business processes, once this archiving system has been installed and implemented, it may be found to provide a definite benefit for many of the processes; thus, it becomes a matter of good governance to require that level of control especially if it is done right If IT is considered an enabling tool, it can be used to reduce costs, complexities, and even risk When evaluating the IT area as a closed system for compliance purposes, the IT area may want to consider using standard maturity models such as Capability Maturity Model Integrated (CMMI) This is part of Carnegie Mellon s Software Engineering Institute (SEI) and focuses on process improvements It deals with the various development and delivery life cycles (product life cycles, project life cycles, etc) that many IT groups already use These complement the Sarbanes-Oxley requirements of project management, requirements management, metrics, quality, and configuration management IT needs to work with the isk management focus again for the IT technology and applications used throughout the organization and also for itself Often when a risk is identified, it can be controlled.

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statements is such an important responsibility, a nonprofit organization should form a separate audit committee that can focus on the nonprofit s financial reporting practices, work directly with the external auditor, and develop policies to enhance the organization s internal control system The audit committee can help the board meet its financial oversight financial responsibilities by serving as a liaison among the board, the internal and external auditors, and management Having a well-functioning audit committee can demonstrate the nonprofit s commitment to exercise due diligence regarding the review and evaluation of any financial information that is to be released to the organization s stakeholders and the general public Based on these new responsibilities and requirements, what should a nonprofit audit committee do Who should serve on the audit committee What skills and competencies should the audit committee members have How involved should the audit committee be with the organization s internal accounting system While each nonprofit must answer these questions for itself, the following information provides some direction The nonprofit audit committee should be organized as a standing committee of the board, and should only be comprised of board members, not any members of management Of course, members of management will work and frequently eet with the audit committee, but management should not be a part of the committee itself An audit committee should be large enough to have a sufficient amount of financial expertise in the audit committee, but not too large as to create paralysis As discussed in 12, all of the board members should be financially literate, but at least one member of the audit committee should have a very high level of financial expertise, someone who would qualify as a financial expert To qualify as a financial expert, the individual should have: A clear understanding of GAAP and financial statements Experience in applying GAAP in connection with preparing or auditing financial statements Familiarity with developing and implementing internal financial controls and procedures In addition, no audit committee member may accept any consulting, advisory, or other compensatory fee from the nonprofit, except in his or her capacity as a board or board committee member The value of having an audit committee is also reflected in the number of SOX provisions regarding the composition of the audit committee and its financial oversight duties in public companies An effective audit committee should be responsible for the following tasks: Providing oversight of the internal control system Recommending an independent auditor to the board of directors.

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