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Transcript

Episode 3: Fake Charities: How to Protect Your Vendor Master File from Fraud · Putting the AP in hAPpy

• 0:03
  Speaker 1: [inaudible].
• 0:09
  Speaker 2: Hello everyone.
• 0:10
  Speaker 2: This is Debra Richardson and today I am putting the AP and happy where accounts payable teams are empowered to protect the vendor master file from fraud.
• 0:20
  Speaker 2: This podcast will give a voice to accounts payable team members by talking about the growing reality of cyber attacks in their world and which vendor set up and vendor management techniques they can apply to protect the vendor master file from fraud.
• 0:36
  Speaker 2: Stay tuned.
• 0:37
  Speaker 2: Today I am talking about fake charities and what you and your team members can do to protect the vendor master file from[inaudible]
• 0:45
  Speaker 1: fraud.
• 0:58
  Speaker 1: [inaudible].
• 1:00
  Speaker 2: Welcome to episode three where the topic is fake charities, how to protect your vendor master file from fraud.
• 1:09
  Speaker 2: So let's first look at contributing factors, increasing the risks that your company will receive, a request to set up a fake charity as a vendor in your vendor master file.
• 1:20
  Speaker 2: So there are four contributing factors that I have listed.
• 1:24
  Speaker 2: The first one is a natural disasters per the internal revenue service or the IRS criminals look to take advantage of generosity by impersonating charities to get money or private information from well-meaning tax payers.
• 1:41
  Speaker 2: Last year, hurricane Harvey caused billions of dollars of damage in the state of Texas alone.
• 1:48
  Speaker 2: The IRS issued a warning about possible fake charity scams emerging due to hurricane Harvey and encouraged taxpayers to seek out recognized charitable groups for their donation.
• 2:02
  Speaker 2: This year we had hurricane Michael.
• 2:05
  Speaker 2: There were California of wildfires.
• 2:08
  Speaker 2: Back in September.
• 2:09
  Speaker 2: There was the Indonesia earthquake and tsunami.
• 2:13
  Speaker 2: There was also hurricane Florence and the after effects of tropical storm lane and those are just a few of the worldwide natural disasters that occurred in 2018 the second contributing factor is giving Tuesday.
• 2:31
  Speaker 2: That refers to the Tuesday after the U S Thanksgiving holiday in the United States.
• 2:38
  Speaker 2: It's a movement to create an international day of giving at the beginning of the Christmas and holiday season.
• 2:45
  Speaker 2: This year, it is going to be on November 27th, 2018 the third contributing factor is the IRS dirty dozen list, so the IRS has published a dirty dozen of tax scams annually since 2014 the 2018 dirty dozen list was published March 21st of this year and in addition to fishing and phone scams, it also included on the list fake charities.
• 3:18
  Speaker 2: The last and fourth contributing factor is the year end rush.
• 3:22
  Speaker 2: So scammers know that during year end accounts payable teams receive a high volume of invoices and our rush to get them processed.
• 3:32
  Speaker 2: Even though companies have automated their invoice submission process such as with Ian voicing or EDI, many companies still have a manual way to submit an invoice and therefore may receive invoices from fake charities.
• 3:50
  Speaker 2: The four contributing factors.
• 3:53
  Speaker 2: One, the recent number of natural disasters to giving Tuesday coming up on Tuesday, November 27th three the IRS identifying fake charities as a tax scam on their 2018 dirty dozen list and for the year end rush where scammers may try to send in a fake invoice all lead to an increased probability that you or your team members will receive a request to set up a fake charity in your vendor master file.
• 4:28
  Speaker 2: Now, I am not a tax representative and definitely not qualify to give legal or tax advice on the treatment of charitable deductions on your company's tax returns, but what I can do is provide information on the tools that the IRS provides so that you and your team are not adding fraudulent vendors to the vendor master file.
• 4:54
  Speaker 2: All information is available on the IRS website@irsdotgovseetheshownotesatdebraarerichardson.com for IRS links to all the pages and the tools identified in this podcast.
• 5:11
  Speaker 2: Now let's talk about how you and your team members can protect the vendor master file from fraud.
• 5:18
  Speaker 2: You or your team member have received a request to set up a vendor that is a charitable organization.
• 5:25
  Speaker 2: The IRS recommendation is to verify before you give, so vendors set up is the perfect time to verify since the payment has not been made yet, the IRS provides a tool to verify the tax exemption status of any charitable organization and it's called the tax exempt organization search tool, formerly known as select check.
• 5:53
  Speaker 2: A couple of things to keep in mind if your company, a vendor self registration portal for a vendor set up and maintenance, verify that the portal checks the vendors tax exempt status against the tax exempt organization search tool.
• 6:12
  Speaker 2: If the portal does check against the tool, that's great if not added as a manual step for team member to do prior to the vendor being set up.
• 6:24
  Speaker 2: If you're a company does not have a vendor self-registration portal but you use a third party sites such as 10 check dotcom for your IRS 10 match and other validations that tax exempt status check is included in the validation set.
• 6:41
  Speaker 2: It performs with the IRS 10 match.
• 6:45
  Speaker 2: If you don't have either of these or any other method that will automatically search the tool.
• 6:51
  Speaker 2: Using the tool will be a manual process that needs to be done individually for each vendor set up request received for charitable organization.
• 7:03
  Speaker 2: Let's talk about using the IRS tax exempt organization search tool.
• 7:09
  Speaker 2: So you will need the w nine from the vendor so that you can get the legal name and the EIN.
• 7:16
  Speaker 2: So now you can go to the tool you are ready to search.
• 7:21
  Speaker 2: Again, I did provide a link to the tool in these show notes located@debrarrichardson.com but you can also go into uh, irs.gov and do a search on the tax exempt organization search tool and find it that way as well.
• 7:43
  Speaker 2: Once you are there, you are ready to search.
• 7:46
  Speaker 2: The IRS does provide some search tips such as use the legal name, don't use the DBA.
• 7:55
  Speaker 2: Also that you can search both by the full name and also by a part of the name in quotation Mark.
• 8:02
  Speaker 2: Now I'm not going to list them all here.
• 8:04
  Speaker 2: I will have a link again in my show notes@debrarrichardson.com to the full IRS search tips.
• 8:14
  Speaker 2: On the search screen at, there are six fields that you can enter.
• 8:19
  Speaker 2: The first field is the select database field.
• 8:22
  Speaker 2: Now it defaults to search all and that would be my recommendation.
• 8:28
  Speaker 2: But if you want to limit to one, I would limit to the first option, which is the pub 78 data.
• 8:34
  Speaker 2: And that is a search of the list of organizations that are eligible to receive tax deductible charitable contributions.
• 8:43
  Speaker 2: The next field you can choose whether or not you are going to search by the EIN or the company name.
• 8:50
  Speaker 2: And then the next field is where you actually enter in the EIN or the company name based on what you selected.
• 8:58
  Speaker 2: The next three fields are the city, state, and the country and the country defaults to the United States.
• 9:06
  Speaker 2: So if you do want to check an international, a vendor or a charitable organization, you can update that to the applicable uh, country.
• 9:16
  Speaker 2: For a wider search.
• 9:18
  Speaker 2: You can leave the city and state blank and also change the country from United States to all countries.
• 9:28
  Speaker 2: So once you have keyed in the applicable fields, you will get your results back.
• 9:33
  Speaker 2: Valid results will return IRST, the legal name, the EIN, and the city, state and country.
• 9:42
  Speaker 2: Next it will tell you the tax exempt status, whether it is on the publication 78 data list.
• 9:51
  Speaker 2: And again, if the charitable organization is on the pub 78 data list, that means they are eligible to receive tax deductible charitable contributions.
• 10:03
  Speaker 2: So under that you'll see a deductability status deductibility status, returns of code, and that code will tell you the deductibility limitation for that organization.
• 10:18
  Speaker 2: For example, if you did a search on the American national red cross, it will return a deductability code of PC, which means that their deductibility limitation is 50% or 60% for cash contributions.
• 10:35
  Speaker 2: And if you are able to capture this on the vendor record, it will be additional information that your tax team could use when they do your corporate annual tax returns.
• 10:46
  Speaker 2: With these valid results, we know that the charitable organization is not fraudulent and can be set up in the vendor master file, take a screenshot of the results and attach it to the vendor wrecker for supporting documentation in case of an audit.
• 11:03
  Speaker 2: Ensure that you apply the applicable tax code org type, et cetera based on your accounting system or ERP to capture that the vendor is a valid tax exempt organization.
• 11:18
  Speaker 2: And if there is no field for the deductibility code, consider adding it to the comments.
• 11:24
  Speaker 2: A quick note here, the IRS will list in the results the historical activity of the vendor if they failed to continue their tax exempt status by filing the applicable form.
• 11:39
  Speaker 2: If they don't file the applicable forms for three consecutive years, the IRS will automatically revoke on their tax exempt status.
• 11:50
  Speaker 2: So that historical information will be listed.
• 11:54
  Speaker 2: But it does not mean that they were not re-instated at some point.
• 11:58
  Speaker 2: It just lists there that historical activity.
• 12:02
  Speaker 2: So if you do find that a vendor, um, shows that they had their tax exempt status revoked by the IRS, as long as the results show that the vendor is on the pub 78 data list, you can go ahead and set the vendor up.
• 12:19
  Speaker 2: If the only results for the vendor was the rev vocation, um, activity, I would stop not set that vendor up and either contact the vendor or your internal team member that submitted the request, uh, to see if that vendor has been reinstated.
• 12:36
  Speaker 2: But probably not because otherwise they would have come up as being tax exempt and being found on that pub 78 data list.
• 12:46
  Speaker 2: If there were no results returned for that vendor.
• 12:49
  Speaker 2: Additional research and due diligence is required for potential fraudulent vendor.
• 12:55
  Speaker 2: The first step would be to either perform or look at the IRS 10 match to verify whether or not the legal name and tax ID matched IRS records.
• 13:08
  Speaker 2: If the vendor's legal name and tax ID matches IRS records, this means that the vendor is not a fraudulent vendor but also is not a tax exempt charitable organization.
• 13:23
  Speaker 2: Set the vendor up in the vendor master file as a regular vendor.
• 13:29
  Speaker 2: If the vendor's legal name and tax ID does not match, IRS records.
• 13:35
  Speaker 2: Do not set up the vendor in the vendor master file.
• 13:38
  Speaker 2: Notify the internal requester and or your leadership for further instruction since this may be a fraudulent vendor.
• 13:48
  Speaker 2: Now if you would like to download the list of tax exempt charitable organizations, you can download it on the irs.gov site and again I will have the link to that list in the show notes@debrarrichardson.com the list is updated monthly and as of the date of this podcast, the latest listing was dated ten eight 2018 there's also another list that can be downloaded.
• 14:16
  Speaker 2: It's called the exempt organization business master file extract and it includes cumulative information on exempt organizations and it's by state and it's by region and it is also updated muffled, so that was the tax exempt organization search tool that the IRS provides to verify that an organization is a valid tax exempt, a charitable organization.
• 14:45
  Speaker 2: I hope you found that information useful.
• 14:48
  Speaker 2: One other thing I would recommend is that you do an annual validation to determine if any of those charitable organizations that were exempt last year are still exempt.
• 15:02
  Speaker 2: Since companies may give a contribution to the same organization annually as an extra precaution, especially for those charitable organizations that were set up in the wake of a specific natural disaster, you could set up the vendor record as a one time vendor so the vendor can be an activated after the initial payment, so this way it will force the revalidation of the tax exempt status before another payment was made the following year.
• 15:36
  Speaker 2: So forcing the vendor to go through the setup process again will not make your company's internal team members happy, but it does protect your company from claiming a tax deduction for payment to an organization that has lost his tax exemption status.
• 15:54
  Speaker 2: Thanks everyone.
• 15:55
  Speaker 2: I hope you enjoyed the third episode of putting the AP and happy podcast where accounts payable team members are empowered to protect the vendor master file from fraud.
• 16:06
  Speaker 2: Don't forget to check the show notes@deborahrrichardson.com or IRS links to all pages in tools identified in this podcast.
• 16:16
  Speaker 2: And if you add like additional training for you or your team, check out while you're there, the e-courses, webinars, and onsite training available to protect the vendor master file from fraud and keep it clean.
• 16:30
  Speaker 2: Stay happy.
• 16:43
  Speaker 1: [inaudible].