Avoid Costly Disclosure Mistakes

August 29, 2011
By Steven Goldstein CPA, PFS, Partner, Grassi & Co.

Every union has to disclose their financial activities both to the public and to the U.S. Department of Labor. Once a year, it’s the duty of union officers to make sure these reports are filled out correctly. Failure can mean fines, civil prosecution and even criminal prosecution for perjury. The point of this reporting is to make unions more transparent.

No taxes or fees are triggered by the disclosures in the Department of Labor’s LM-2 form, which must be submitted by every labor organization subject to the Labor and Management

Reporting and Disclosure Act, which doesn’t include union pension or benefit funds — they report to other government agencies.The LM-2s are due 90 days after the end of the union’s fiscal year and can range for 15 to 150 pages of in-depth financial information.

There are a few mistakes that unions and their financial advisers should be aware of and take steps to avoid when filling out the forms. For example, don’t fail to report transactions: Unions must report all individual payments or a company that is paid more than a total of $5,000 over the year. It sounds like a simple rule, though many unions run into trouble with it.

A vendor who receives $3,000 at the beginning of the fiscal year and $3,000 at the end of the year must have these expenses reported. A vendor who receives $100 a week from a union will also break through the $5,000 threshold and should include in expenditures as well.

Although the rule says all payments to credit card companies should not be included. Instead, unions should report credit card transactions with individual vendors like travel companies, hotels and catering companies. This is an important point because many individual expenses that appear on a credit card bill, such as taxis and meals, or even hotels and airline tickets, won’t be large enough to break the $5,000 threshold.

This is especially true since auditors count different locations of a store or service provider as different vendors. For example, a union that spent $6,000 at hotel stays at the same chain of hotels in six cities would not break the $5,000 threshold, because each hotel would count as a separate vendor.

Each expense must also be categorized, using the set of categories.  Your financial adviser can go over these categories with you to ensure proper classification. Expenses that fit under more than one category are split up by percentage. For example, 20 percent overhead, 40 percent representation, etc.

If the Department Labor finds false information on an LM-2 form, the union could face civil prosecution and fines. Unions could even face criminal prosecution for perjury. Most unions and their financial advisers take careful measures to report their financial activities correctly.

Grassi & Co. has been recognized as one of the nation's elite accounting firms. Ranked by Crain's New York Business as one of the 25 largest accounting firms in New York and by Long Island Business News as one of the top 10 on Long Island (#6), we are a full-service tax, accounting and business advisory firm. We are headquartered in Jericho (Long Island), with offices in Manhattan, North Carolina, and worldwide through Moore Stephens International Limited.


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