Certifying a Section 1603 Grant Program Application at a Moment’s Notice

solar-panelIn my accounting career, I’ve come across a few clients who truly put my skills to the test. I’m about to describe one for whom I performed a Section 1603 Grant Program certification for specified energy property. It’s safe to say that this client needed my services at least as much as I needed to provide services to his company.

In the Summer of 2011, the Director of a Solar Energy installer in Phoenix, AZ, sent me an e-mail expressing interest in my services concerning the preparation of an Agreed-Upon Procedures (AUP) report for a grant application. He had completed a 500kW Photovoltaic system (PV), involving the installation of solar panels, for a commercial client in New Jersey, and was applying for a U.S. Treasury grant for less than $1 million on the client’s behalf. The eligible cost basis was more than $500,000.

According to the Treasury Department’s 1603 program website, an Agreed-Upon Procedures report was required for that kind of project. It’s a type of attest engagement. For this project, my responsibility was to perform certain required procedures in order to determine whether the project’s eligible cost basis as entered in the accounting records was in accordance with the cost basis for Federal Income Tax purposes.

The alternative form of certification was an examination, which was required if an applicant requested a grant of $1 million or more. An examination involved more extensive
evidence-gathering procedures than an AUP engagement (see the brief list of AU procedures below), and could include testing of the client’s accounting system and receiving confirmations from third parties. The accountant’s opinion on compliance with the Federal income tax cost basis was required in the examination report.

Will a compilation substitute for an audit? If so, it can save you a substantial amount of money. The information below can help you decide.

   Of the financial statement services typically offered by CPAs, an audit offers the highest level of assurance regarding the accuracy of the financial statements, followed by a review, which offers less assurance, followed by a compilation, which offers no assurance.

    To obtain that assurance or higher level of assurance, additional, more extensive procedures are required for an audit or review engagement than for a compilation. Example: testing of account balances for an audit vs. requesting corrected information should information provided by management be incorrect, for a compilation.

For that reason, audits and reviews are often required by funding sources like lenders, investors, donors and grantors when a large amount of financing and credit, or financing and credit at a more complex level, is the objective. They also give a business owner or non-profit organization (NPO) Director more confidence in the organization’s financial statements as a tool to aid in decision-making. They can demonstrate credit-worthiness for a commercial enterprise, and financial responsibility and good stewardship of financial resources by a non-profit organization seeking to gain the confidence of donors and the community.

The objective of a compilation, on the other hand, is to “apply accounting and financial reporting expertise to assist management in the presentation of financial statements”. For organizations not thoroughly familiar with generally accepted accounting principles (US GAAP), this can be a very useful service. It can help the organization present its financial data so that it’s more meaningful to the reader and less misleading, which gives users a better understanding of the organization’s financial condition and operating results. Thus it can be used to obtain financing, although generally in smaller amounts than with an audit or review, or when initial financing is sought. Significant collateral may be required by the funding source.

Naturally, because audits and reviews are more time-consuming to complete than a compilation, audits and reviews are more costly for the client. Conservatively speaking, an audit can cost as much as 500% or more of what a compilation would cost, and a review, 200 – 250% of the cost of a compilation. Saving such amounts as these are one way to demonstrate credit-worthiness or good financial stewardship; the funds saved can be spent by a business in any number of ways beneficial to the business, and by a NPO on programs that benefit the community.

The How and Why of Budgeting, Part II

Hawaiian waterfallIn my first article about budgeting, The How and Why of Budgeting, Part I, I said that people generally avoid preparing budgets because they don’t want to be depressed by knowing the details of their finances, since they don’t have enough – or they don’t believe they have enough – financial resources. This was stated by well-known financial advisor Suze Orman on the Oprah Winfrey show in October 2008.

In fact, adhering to a budget is one of the best ways to ensure that you have a financial cushion to sustain you in difficult times. Putting aside money in a savings account or fund out of what you earn, in an amount you can afford periodically, will accomplish that. In that way a budget can be very similar to a savings plan or a retirement plan like an IRA or 401K plan.

The Importance of Incentives When Budgeting

More people would maintain budgets if their accountants help them do it, such as by notifying them when they exceed their budget spending limits, or receive less than what they anticipated receiving. The client would have to report accurately to the accountant for the accountant’s help to be of any value.

An Enrolled Agent I met recently shared with me her experience performing that service for a client. She said the client became upset when having to account to her for spending too much, and she had to discontinue helping the client. I then discussed this topic with a CPA friend of mine, who is knowledgeable and wise, albeit sometimes irascible. He told me my idea to serve as a budget coach is excellent, but that for many years he tried that with several clients, but was unsuccessful. The reason, he explained, was that those clients lacked discipline. They didn’t want to be told by anyone how they should spend their money, not even by their spouses or accountants.

The How and Why of Budgeting, Part I

gold piggy bank on pixabay.comHere’s my version of why you need a budget, unless you’re independently wealthy and your tastes are inexpensive, and how to prepare and maintain one.

Budget psychology

Maintaining a budget is a very good financial practice to get into. It helps you make sure that your expenditures don’t exceed your income. Yet, according to financial advisor Suze Orman, who appeared on the Oprah Winfrey show on October 13, 2008, organizations and individuals usually don’t prepare or maintain budgets because they don’t want to know the details of their finances. They believe that a budget will reveal to them how little money they have and depress them. A few years ago I offered to prepare a tax return for free for anyone who answered a questionnaire consisting of sixteen straightforward questions. I had hoped to use the answers to help me market my services better. One of the questions was about budgeting:

“Do you actively maintain a budget?” The answer given by almost all of the thirty or so people who responded was “no”.

Why is it so important that you maintain a budget?

A budget helps you control your spending so that you can have the money needed to pay for what you ultimately want, like a new car, a new house or a college education. You wouldn’t simply deposit a sum of money each month into a bank account to have the funds available for your desired item, because first you’d have to know how much you can afford to deposit each month. To know that, you’d have to have a budget, as it would tell you how much you can afford for the desired item.