Welcome. Derrick Strosnider, CPA Partner, Calibre CPA Group

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2 Welcome Derrick Strosnider, CPA Partner, Calibre CPA Group 25+ years in public accounting focused on not-for-profit entities concentrating in labor unions and their related benefit plans and political action committees. Lead Partner for several relationships providing value added audit and consulting services including financial statement audits, dues objector audits, operational reviews, internal control analysis and compliance and reporting consulting. Member of the firm s Management Committee and oversees the efforts of Calibre CPA Group s Marketing Team.

3 About Calibre CPA Group, PLLC Focused on the needs of the tax-exempt community concentrating on Labor Organizations Offices in metropolitan Washington, DC, Chicago, IL and most recently, New York, NY with clients across the United States Serve the majority of National and International Labor Unions and a leading provider to a significant number of Locals, Lodges, District Councils and other affiliates and organizations Providing audit, accounting, tax, and advisory services for 80+ years Specialized knowledge of compliance and reporting requirements with the Department of Labor and Internal Revenue Service

4 Educating and Communicating with Clients Blogs, s and other posts We routinely hold informational seminars, webinars, and CPE sessions on a variety of topics: Annual National Labor Union Conference Annual Chicago Labor Union Conference (and soon New York) Annual Employee Benefit Plan Conference Other periodic seminars and webinars. Recent topics include: Changes to Federal Forms 990 & 5500 Implementation of the Risk-Based Auditing Standards Not-for-Profit Complex and Emerging Accounting Issues Dashboard Reporting Internal Controls and Fraud Deterrence

5 Agenda Navigating the Labor Union Landscape A Best Practices Approach John Lund, Founder & Principal, Pacific Northwest Labor Research Calibre CPA Group Annual Labor Union Report - Findings Derrick Strosnider, Partner, Calibre CPA Group Art Budich, Partner, Calibre CPA Group Fifteen Minute Break How are You Navigating the Labor Union Landscape? Interactive session Hot Topics GAAP & Tax Updates Mary Margaret Prange, Partner, Calibre CPA Group Scott Hallberg, Senior Director, Calibre CPA Group About Direct Pay: What We ve Learned & Its Impact to Labor Kyle Bazzy, Director of Growth, Billhighway Tish Olshefski, Assistant to the Secretary Treasurer, AFT

6 Navigating the Labor Union Landscape Relevancy of Today s Theme: Legal Issues Increase in Right to Work States Janus v. AFSCME (Illinois) and Yohn V. California Teachers Association - likely to head to Supreme Court Proposed Presidential budget increases OLMS spending by 20% Other observations Continue to see a need for budget planning for various scenarios Potential increase in I-CAP and CAP audits Conference is Designed to Help You: Identify potential areas of risk Learn and assess best practice approaches for tightening controls and operating more efficiently Network and share with others who have faced similar challenges

7 National Labor Union Conference 2017 National Labor Report Findings

8 National Labor Union Report Derrick Strosnider, CPA Partner, Calibre CPA Group 26+ years in public accounting focused on not-forprofit entities including labor unions, single, multiple and multiemployer benefit plans, trade associations, educational and charitable organizations and political action committees. Arthur E. Budich, CPA, CFE Partner, Calibre CPA Group An Audit partner and member of the Forensic & Risk Advisory team, Art has been in public accounting since Art has significant audit experience with tax-exempt organizations including trade and professional associations, charitable foundations, advocacy groups, employee benefit plans and labor unions.

9 Background & Methodology Data compiled from 2016 LM-2s filed on DOL website 59 National and International Labor Unions Grouped into 3 categories: Group A:Over $100 million in Dues and Agency Fees/Per Capita Tax (13) Group B: Between $ million in Dues and Agency Fees/Per Capita Tax (23) Group C: Less than $20 million in Dues and Agency Fees/Per Capita Tax (23) Union names have not been disclosed Analyzed and compared data over last four years

10 Background & Methodology Notes and Comments Some Unions may be on cash or modified cash basis of accounting so Statement A Assets and Liabilities may not be comparable for all organizations Impact of Multi-employer plans vs. Single Employer Plans Investments reported at lower of cost or market Total Receipts not Revenue Includes sales of investments, loans obtained, collections on behalf of affiliates and from members Total Disbursements not Expenses Includes purchases of investments, loan repayments, disbursements to affiliates of funds collected on their behalf, and disbursements to individual members

11 Net Assets 250,000, ,000, ,000, ,000,000 50,000, Group A Group B Group C Average

12 Per Capita Tax/Dues 250,000, ,000, ,000, ,000,000 50,000, Group A Group B Group C Average

13 Chart 2 - Responses to Selected Questions Group A Average Group B Average Group C Average Administers a Trust Has a PAC Had an Audit Pledged Assets Contingent Liabilities 100% 92% 100% 69% 38% 87% 87% 100% 43% 26% 70% 61% 96% 22% 9%

14 Chart 2 Bonding Amount Blue = High Red= Low Green= Average

15 Chart 2-Cash and Investments-Group A

16 Chart 2-Cash and Investments-Group B

17 Chart 2-Cash and Investments-Group C

18 Chart 7 Functional Expense Breakdown GROUP A

19 Chart 7 Functional Expense Breakdown GROUP B

20 Chart 7 Functional Expense Breakdown GROUP C

21 Chart 8 Payments to Officers, Employees & Benefits as a Percentage of PCT/Dues Schedules 11,12 & 20 As a % of PCT/Dues Low High Average Group A 29% 76% 50% Group B 26% 123% 63% Group C 33% 220% 76%

22 Chart 8 Payments to Officers, Employees & Benefits as a Percentage of Total Functional Expenses Schedules 11, 12 & 20 As a % of Schedules Low High Average Group A 30% 136% 70% Group B 16% 113% 74% Group C 16% 140% 72%

23 Chart 8 Benefits (Schedule 20) as a Percentage of Payments to Officers & Employees Benefits as a % of Amounts in Schedules 11 and 12 Low High Average Group A 21% 197% 64% Group B 25% 118% 58% Group C 10% 182% 44%

24 Chart 9- Operating Reserves-Number of Months

25 Chart 10-Average Officers Salary > $100,000 NOTE: For those officers with salaries in excess of $100,000

26 Chart 11-Average Employee Disbursement

27 National Labor Union Conference We Want to Hear From You!

28 How are You Navigating the Labor Union Landscape? When asked What are some of the biggest issues or challenges facing labor today? Solving the payroll deduction crisis and getting the right infrastructure in place Potential financial impact from national and state regulatory changes that could result in declining membership Ability for national unions to monitor and provide training and support to their affiliates Agree or Disagree? How are You Addressing?

29 How are You Navigating the Labor Union Landscape? When asked Where do you see room for growth over the next year? More proactivity in building databases and tracking systems to ensure affiliate compliance and controls Better communication and engagement with members to help them understand the value they derive from the union and why they should stay with the union Agree or Disagree? How are You Addressing?

30 National Labor Union Conference GAAP Updates from FASB

31 Hot Topics GAAP & Tax Mary Margaret Prange, CPA Partner, Calibre CPA Group An audit partner with Calibre CPA, Mary Margaret has been in public accounting since She has significant audit experience with labor unions, notfor-profit organizations including trade and professional associations, charitable foundations, advocacy groups, faith-based organizations and employee benefit plans. She heads the firm s Continuing Education Committee and is responsible for a majority of the firm s internal CPE programs. Scott Hallberg, CPA Senor Director, Calibre CPA Group In public accounting since 1976, Scott is considered the firm s main authority in tax matters relating to labor unions, employee benefit plans, and taxexempt organizations. He has had extensive dealings with the DOL and IRS in the examination of various organizations and funds.

32 Topics Accounting Standard Updates 2016 Accounting Standard Updates 2017 Accounting Standard Updates

33 2015 Accounting Standard Updates ASU Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force) ASU Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient

34 ASU (Issued May 2015) Effective Public Business Entities - Effective for fiscal years beginning after 12/15/15 Non-public Business Entities Effective fiscal years beginning after 12/15/16 Application Retrospective application to all periods presented Early adoption permitted General Overview Investments measured at fair value using the NAV practical expedient not be included in the fair value hierarchy Amounts of such investment should be disclosed as a reconciling item between the amounts reported in the fair value hierarchy table and the balance sheet

35 ASU (Issued July 2015) Effective Fiscal years beginning after 12/15/15, only applicable to Employee Benefit Plans Application Early adoption is permitted Plans can early adopt any of the ASU s three parts without early adopting the other parts General Overview FASB issued a 3 part ASU to simplify reporting for benefit plans Part 1: Fully Benefit-Responsive Investment Contracts Part 2: Plan Investment Disclosures Part 3: Measurement Date Practical Expedient

36 2016 Accounting Standard Updates ASU Leases (Topic 842) ASU Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

37 ASU (Issued February 2016) Effective Fiscal years beginning after 12/15/18 for a non-profit entity that has issued, or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the counter market For other non-profit entities, effective for fiscal years beginning after 12/15/19 Application Early adoption is permitted General Overview Targets to improve financial reporting regarding leasing transactions and will effect non-profits that lease assets (property and equipment) Require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by those leases.

38 ASU More Specifics For Lessees Prior to ASU (Current GAAP) Recognition, measurement and presentation of lease expenses and cash flows depended on whether it was a capital or operating lease Only capital leases were required to be recognized on the balance sheet After ASU (Balance Sheet) Recognize right-of-use asset and a lease liability for virtually all leases over 12 months in term Liability equal to the present value of lease payments Asset will be based on the liability, subject to adjustment for initial direct costs.

39 ASU More Specifics For Lessees After ASU (Income Statement) Leases will be required to be classified as either operating or finance Operating Leases - result in straight-line expense (similar to current operating leases) Finance Leases - result in a front-loaded expense pattern (similar to current capital leases). New Disclosure requirements

40 ASU More Specifics For Lessors Similar to current GAAP. Leases still classified as either operating, direct financing, or sales-type (Leveraged lease accounting has been eliminated)

41 Disclosure Requirements Information about the nature of leases (and subleases) General description of leases Basis, and terms and conditions, on which variable lease payments are determined Existence, terms and conditions of options to extend or terminate the lease Existence, terms and conditions of lessee residual value guarantees Restrictions or covenants imposed by leases

42 Disclosure Requirements Information about leases that haven t yet begun, but that create significant rights and obligations for lessees Information about significant judgements and assumptions made in accounting for leases Determination of whether a contract contains a lease Allocation of the consideration in a contract between lease and non-lease components Determination of the discount rate

43 Disclosure Requirements Main terms and conditions of any sale-leaseback transactions Whether an accounting policy election was made for the short-term lease exemption. If so, lessees should disclose if the short-term lease expense doesn t reflect amounts attributable to the lessee s short-term lease commitments and the amount of its short-term lease commitments

44 ASU What do you need to do? Make sure your organization has a process in place to identify and gather information on all leases (office space, office equipment, autos, regional offices, etc) This new standard could potentially have broader implications than just the financial statements and related disclosures: Could impact debt covenants Could trigger a more in depth discovery process on purchase vs. lease transactions

45 Identifying a Lease Flow chart for identifying a lease

46 ASU (Issued August 2016) Effective Calendar year beginning after 12/15/17 and interim periods beginning after 12/15/18 Application Early adoption is permitted. Should be applied retrospectively in the year update is first applied, however certain disclosures can be omitted for prior comparative year General Overview Issued to improve existing standards for financial statement presentation by NFP entities, focusing on: Improving Net Asset classification requirements Increasing information provided in financial statements and notes about liquidity, financial performance and cash flows

47 ASU More Specifics Net Asset Classification & Disclosures Temporarily and permanently restricted classes of net assets will be combined into net assets with donor restrictions Unrestricted net assets would be renamed net assets without donor restrictions Expanded disclosures about nature and amount of donor restrictions and amounts and purposes of board-designated net assets Expenses Disclosure of expenses by both natural & functional classification (excluding investment expenses that have been netted with investment return). Investment expenses should be included in net investment return on the Statement of Activities. Disclosure of the amount netted in the return is no longer required. Enhanced disclosures regarding cost allocation among program and support functions.

48 ASU More Specifics Liquidity and availability of resources Disclosure of how the Organization manages its liquid resources to meet general expenditures over the next year. Quantitative disclosures to indicate the availability of financial assets (excluding property, plant and equipment, prepaid expenses and inventory) to meet cash needs within one year There are illustrations of these disclosures in the final ASU Statement of Cash Flows: Methods of presenting operating cash flows Indirect or Direct Method Allowed Reconciliation of operating items no longer required when using the direct method.

49 2017 Accounting Standard Updates ASU Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting ASU Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

50 ASU (Issued February 2017) Effective Fiscal years beginning after December 15, Application Early adoption is permitted. Should be applied retrospectively in the year update is first applied General Overview Issued to improve consistency in reporting of master trusts between all types of employee benefit plans Update requires a plan s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively.

51 ASU (Issued March 2017) Effective Calendar year beginning after 12/15/18 and interim periods beginning after 12/15/19 Application Early adoption is permitted. Should be applied retrospectively in the year update is first applied General Overview Changes in presentation, not calculation. Requires bifurcation of net benefit cost. The service cost component should be presented with other employee compensation costs in operating income. The other components will be reported separately outside of operations.

52 National Labor Union Conference Tax Update

53 Tax Update Form Changes Form 990 No changes to form or schedules Extension changes only need one for 6 months Form 5500 Administration Penalties Now $2,063 per day for failure or refusal to file a complete / accurate Form 5500 Now adjusted annually for inflation Schedule H & I - Line 5c If covered by PBGC then enter my PAA generated confirmation number for the PBGC premium IRS compliance questions on Schedule H & I, lines 40 and 6a-6d not required Same for preparer information on page 1 Same for Schedule R Part VII

54 Tax Update Form Changes Form FinCEN Report 114 (FBAR) Due date now April 15 v. June 30 Extensions Automatic for 6 months No extension form currently required Individual with signature authority, but no financial interest not required to report. FinCEN Notice extended non-filing until April 15, 2018

55 Tax Update Due Date Changes Form 5500, 1040 Remain the same Form 1120 (1120-POL) Calendar Y/E Was March 15 now April 15 Extension: Same September 15 Form W-2 & 1099 s Was due to IRS/SSA February 28 or March 31 if e-filing, now due January 31 for W-2 & 1099-Misc Other 1099 due February 28 or March 31 if e-filing Form 990 Was May 15, still May 15 Extension was 2 for National 3 months Labor Union each Conference now 2017only 1 for 6 months each

56 Tax Update Due Date Changes Form 1065 Was April 15, now March 15 Extension same - September 15 Form 1041 Was April 15, still April 15 Extension was to September 15, now September 30 Form FinCEN Report 114 Was June 30, now April 15 Extension/ was none now automatic to October 15

57 Tax Update DOL EBSA Concern for assets whose value was neither readily determinable or on an established market DOL sending out letters to plan on this issue Proposed changes to Form 5500: Would be effective for 2019 filing year Comment period extended to December 3, 2016 OLMS Potential for reinstatement of I-Cap audits

58 Thank You! 7501 Wisconsin Avenue, Suite 1200 West Bethesda, MD phone fax toll-free calibrecpa.com