Fringe Benefit Testing
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©2010 LarsonAllen LLP
ACUIA
Austin, Texas
June 15th, 2011
Speaker’s Biography – Greg Schwartz
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©2010 LarsonAllen LLP
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Greg Schwartz, CPA, CMA, is a principal in the Financial Institution Credit Union
Group of LarsonAllen. Greg has been auditing credit unions for 25 years and his
areas of expertise include audit and supervisory committee agreed-upon procedure
engagements, GAAP and GAAS issues related to credit unions, supervisory
committee issues, and review and evaluation of internal audit functions.
Greg has worked with hundreds of credit unions all over the country and is considered
an expert on credit union audit and accounting issues. He has made numerous
presentations to credit union boards, supervisory committees and management on a
variety of accounting and credit union issues.
Greg graduated from Minnesota State University, Mankato, with a Bachelor of
Science in Accounting and a minor in Computer Science. He is a CPA and a member
of the American Institute of Certified Public Accountants (AICPA) and the AICPA
credit union conference planning committee.
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Fringe Benefit - Definition
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• A fringe benefit is a form of pay (including
property, services, cash or cash equivalent) in
addition to stated pay for performance of
services.
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Fringe Benefit Audit - Benefits
Better control over credit union activities
Develop better internal policies
More equitable employee plans
More accurate financial reporting
Minimize tax consequences
Better employee moral
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Auditing Fringe Benefits
How to identify
Are the expenses within policy/ Is it clear
Are they recorded correctly
Are the tax effects reported
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How to identify
Interview management
Miscellaneous or other expense
Expense reports
Corporate credit cards
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Are the expenses within policy
Clearly defined policy
Defined business purpose
Documentation requirements
Clearly defined eligibility
Clearly defined terms
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Recorded Correctly
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• If discovered through policy – probably ok
• If discovered from management inquiries – possibly ok
• If discovered any other way – probably redo
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Are the tax effects reported
• Accountable plan
1. Must be a business connection
2. Must be adequate accounting/reasonable period of time
3. Excess must be returned
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• Nonaccountable plan
1. Taxable wages
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Tax Consequences
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• Accountable to Nonaccountable
1. Withholding of social security, medicare and
income taxes
2. Employer matching of social security and
medicare
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Tax Resource
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• The IRS Taxable Fringe Benefit Guide
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Working Condition Fringe Benefits (slide)
De Minimis Fringe Benefit (slide)
No Additional Cost Fringe Benefits (slide)
Qualified Employee Discounts
Qualified Transportation Fringe Benefits
Health and Medical Benefits
Travel and Transportation Expenses
Moving Expenses
Meals and Lodging
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Identification – the List
Identification – the List (Cont)
Use of Employee-Owned Vehicle
Employer – Provided Vehicle
Equipment and Allowances
Other types of Compensation
Awards and Prizes
Professional Licenses and Dues
Educational Reimbursments
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Working Condition Fringe Benefits
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• Property of services that, if the employee had paid for, he
or she could have deducted as a business expense
• Uniform
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De Minimis Fringe Benefit
• Small and infrequent
Personal use of photocopier
Group meals
Theater or sporting event tickets
Coffee, donuts, or soft drinks
Flowers for special circumstances
Local phone calls
Birthday or holiday gifts (not cash) with a low FMV
Commuting use of employer’s car < 1 day per month
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De Minimis Fringe Benefit
• Not De Minimus
Cash
Cash equivalent
Transportation passes
Use of employer’s apartment, vacation home, boat
Commuting use of employer’s car > 1 day per month
Membership in a country club or athletic facility
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De Minimis Fringe Benefit
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• An employer gives employees snacks each day valued at
75 cents. Even though small in amount, the benefit is
provided on a regular basis and is, therefore, taxable as
wages.
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No Additional Cost Fringe Benefits
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• A service provided to employees the does not impose any
substantial additional cost.
• Use of the credit union meeting facilities after hours
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Qualified Employee Discounts
• Excludable if:
– Merchandise – less than the employers gross profit percentage
time the price charged the member
– Services – less than 20% of the price charged the member
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• Difficult to find
• Policy may or may not be clear
• Accounting is usually ok
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Qualified Transportation Fringe Benefits
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Commuter transportation in a commuter highway vehicle
Transit passes
Qualified Parking
Qualified bicycle commuting expenses
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• Difficult to find
• Policy may or may not be clear
• Accounting is usually ok
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Moving Expenses
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• Often buried in “other”
• Often no clear policy
• Tax effect is often wrong
1. Time test – 39 weeks full time
2. New job is +50 miles further from the former home than
the old job was from the former home
3. Moving of household goods and travel costs only
4. Must actually incur the expenses
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Use of Employee-Owned Vehicle
Not difficult to find
Policy may or may not be clear
Accounting is usually ok
Taxes – federal standard mileage rate
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Employer Provided Vehicle
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• Not difficult to find
• Policy may or may not be clear
• Accounting is usually ok
• Taxes –
1. If records are provided then personal use is wages to the
employee
2. If records are not provided then all use is wages to the
employee
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Listed Property - Cell phones, Computers
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• Usually not hard to fine
• Usually mentioned in policy
• Accounting usually ok
• Tax effects1. Business use is not taxable
2. Personal use is wages
3. If records are not kept – all personal
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Other Types of Compensation
Performance bonuses
Signing, recruiting or relocation bonuses
Awards for outstanding service or performance
Back Pay
Severance pay
Administrative pay
Legal settlements/damages related to performance
Grossed-up wages to pay for taxes
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Employee awards
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• Easy to find
• Probably not in policy
• Accounting probably ok
• Tax effect –
1. Must be length of service or safety only
2. Cannot be cash, cash equivalent, vacation, meal, lodging,
theater or sports ticket, stocks or bonds.
3. Other special rules – no more than 10% can receive, etc
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Employee Awards
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• Employee of the month, outstanding member service,
highest productivity – always taxable
• Dollar limitations – Qualified plan vs nonqualified plan
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Club Membership
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• Can be difficult to find
• Policy may not be clear
• Probably recorded in “other”
• Tax effect –
1. Taxable to the employee
2. Employee may deduct business use
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Education Reimbursements
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• Not hard to find
• Policy probably fairly clear
• Accounting probably ok
• Tax effect –
1. Must not be minimum requirements of current job
2. Must not qualify employee for a new job
3. Subject to verification requirements
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Corporate Credit Cards
Hard to find
Policy not clear
Accounting usually wrong
Tax effect – can be a problem
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Actual situation
Missing receipts
No business purpose documented
Shared cards
Tuition reimbursements to terminated employees not
followed up
• Spouse travel
• Other mysterious expenses
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Actual Situation
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• Rolex watches
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Actual Situation
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• 1000 Golf balls
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Actual Situation
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• A CEO attended a conference in Hawaii - a “Supervisory
Committee” conference
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Actual Situation
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• Property improvement – moving expenses
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Actual Situation
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• No documented compensation package for the CEO
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Actual Situation
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• Over 200 corporate credit union cards
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Actual Situation
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• Over a three year period, 9 people left without tuition
reimbursement follow-u.p
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Actual Situation
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• $10,000 contribution to the University the CEO attended
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Actual Situation
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• CEO used a golf club 3 times in one year. Family used it
daily.
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Thank You
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©2010 LarsonAllen LLP
Greg Schwartz, CPA
gschwartz@larsonallen.com
(612)376-4684 or (972)-644-3167