IRS proposes new audit guidelines for colleges and universities.

• Author: Buehler, Janet M.

In Ann. 93-2, the IRS released very lengthy and comprehensive proposed examination guidelines that open the door to exhaustive university and college audits. Under the proposed guidelines, agents would review documentation of all university activities. Specifically, agents are directed to review Office of Management and Budget (OMB) Circular A-21, Indirect Cost Proposal and Audits; financial statements; compensation packages of faculty, coaches and athletic directors; Sec. 501(c)(3) bond proposals and documents; research grants and contracts; bookstores; sharecrop leases; and the use of campus buildings and facilities.

Agents are instructed to review various publications and documents for an overview of a university's operations and consistency in its policies. Included are board and committee meetings minutes; school bulletins; course catalogues; publication lists; faculty and student handbooks; requisition and purchase order files; disclosure reports to Federal agencies sponsoring research; chart of accounts; audited financial statements; state and local real property tax exemptions; as well as reports prepared for accreditation audits.

Agents are instructed to break down income source by types, e.g., educational services, grant and athletic income. In addition, they will review an institution's investment portfolio and identify all joint ventures and ancillary activities, such as rental of facilities. All contracts for corporate sponsorship will be analyzed for terms or conditions that could result in unrelated trade or business income. Expenses also will be sorted by type, with expenses for each school, department or program reviewed for irregularities. In particular, the Service will focus on "unrestricted" accounts designated for a particular official's use, such as a "President's Reserve," "Official Entertainment Account" or "Athletic Director's Account." Other statements to be reviewed include the balance sheet and statement of cash flow.

The IRS will continue its current focus on employee versus independent contractor classification. It will also focus on payments from booster clubs to members of the athletic staff, and such employee fringe benefits as automobiles; air flights; awards and prizes; tickets to athletic, entertainment or cultural events; subsidized faculty dining rooms; meals; insurance; scholarships; and housing and tuition assistance. Agents will also examine the school's qualified pension plans, Sec. 403(b)...