Chapter Financial Responsibilities
Major Financial Responsibilities
Keeping financial records
Preparing accurate and meaningful financial statements
Budgeting and anticipating financial challenges
Safeguarding and managing the chapter’s financial assets
Complying with federal, state and local reporting requirements
Chart of Accounts
• Categorize operations
• Be clear
• Find a balance
• Use it for everything
Bookkeeping
• Use accounting software to maintain “books”
• Journals• Cash receipts journal • Cash disbursements journal• General journal
• General ledger
• Trial balance
Financial Statements
• Prepared monthly and carefully reviewed
• Three primary financial statements • Statement of Financial Position (Balance Sheet) • Statement of Activities • Cash Flow Statement
Dashboards
• An effective method to track financial and non-financial metrics is through a dashboard.
• The measures tracked on a dashboard may include:• Net assets• Cash flow• Program revenue and expenses• Investment performance (if applicable)• Membership trends (revenue and numbers)• Sponsorship/fundraising revenue
Budgets
• A budget is a plan of action
• Create separate budgets for large programs
• Compare budget to actual every month
• Resist the temptation to revise a budget during the year
• Cash Flow Projections
Bank Accounts
• Maintain a checking and savings account
• General Guidelines for Cash Accounts• Don’t co-mingle funds • Separate access and reconciliation responsibility• Don’t allow cash withdrawals • Update the signature cards
Reserves
• The IRS does not focus on reserves as long as:
• the purpose is to ultimately carry out the mission • generated from activities related to mission
• Best practice suggests that chapters should strive to maintain reserves equal to at least 50% of operating expenses
Investments
• Consider three key factors: • Risk• Yield• Liquidity of funds
• Have a board approved investment policy
• Before investing, ensure the chapter has enough funds to meet its ongoing cash obligations
IRS Requirements
• SIM and its chapters are 501(c)(6) organizations
• Membership dues and contributions (including sponsorships) are not deductible as charitable donations
• Can be deducted as a business expense
• Must disclose that contributions are not charitable deductibles
IRS Requirements
• SIM has a group exemption
• Chapters still have Form 990 filing requirements on an annual basis
• Annual returns must be filed with the IRS by the fifteenth day of the fifth month after the end of the chapter’s fiscal year (May 15)
• The tax-exempt status of an organization that fails to file a required annual return for 3 consecutive years is automatically revoked
Chapters in Good Standing with the IRS
• Arizona• Atlanta• Boston• Capital Area• Central Connecticut• Central Florida• Central Texas• Charlotte• Colorado• Dallas Fort Worth• Detroit• Houston• Memphis
• Minnesota• New Jersey• Northeast Ohio• Research Triangle Park• Philadelphia• Portland• San Diego• Seattle• South Florida (Miami)• Southern California• St. Louis• Toronto (N/A)
IRS Requirements
Public Inspection
• The most recent three Form 990 and 990EZ returns filed with the IRS must be available for review
• All supporting schedules and documents filed with the return must be disclosed.
• Only the names and addresses of donors may be withheld.
IRS RequirementsUnrelated Business Income Tax (UBIT)
• Income derived from a trade or business activity that is regularly carried on and is not related to its exempt purpose
• Unrelated business activities are permissible as long as they are insubstantial when compared with exempt activities.
• All chapters with gross income of $1,000 or more from unrelated business activities are required to file Form 990-T
IRS Requirements
IRS Form 1099 and Form W-9
• Form 1099 are required for interest, rent, prizes, awards and services performed by non-employees in the amount of ≥ $600• Examples – accountants, attorneys, speakers, printers, mail house, web
site designers, graphic designers• Also required for reimbursement of expenses that do not require receipts
• Form W-9 should be completed by the vendor and returned to you before any payments are made
Employee or Independent Contractor?
Form 1099 vs. Form W-2
• Individuals providing services to a chapter are not considered employees if:
• The work does not constitute their chief source of income
• They work under minimal direction from the chapter
• 19 questions developed by the IRS to determine employment status
Federal Employer Identification Number (EIN)
• Every non-profit, regardless of whether they are under a group exemption, is required to have an EIN
• An EIN establishes a unique identity for an organization• Chapters should only have one EIN
• There is no fee to establish an EIN and it can be done online
State and Local Taxes & Filings
• In general, chapters incorporated under a state’s nonprofit statute are exempt from state income tax liability
• 501(c)(6)s are rarely exempt from paying sales tax on items they purchase
• Most states require the filing of an Annual Report to keep incorporation status in good standing
To Audit or Not to Audit?
• There is no absolute answer
• Expected benefits should exceed cost (time and money)
• There are alternatives
• When engaging an auditor, finalize selection at least 3 months before the close of the fiscal year
• Audit Committee – stand alone or a function of the Finance Committee?
Financial Record Retention• Every nonprofit should have a document retention policy
• How long financial records should be retained depends on tax and legal considerations
Corp Organization Records PERM Contracts
Accounting Records Leases (after term) 7 years
General Ledger & Journal PERM Client contracts & grant agmts
10 years
Cash Receipts Journal 10 years Tax Returns
Cash Disbursements Jrnl, Bank
stmts & canc. checks7 years
Form 990, working papers, state info returns
PERM
Billings, Expense Reports, Petty cash records, Bills
4 years Payroll tax returns 5 years
Financial stmts – annual PERM Witholding tax stmts 7 years
Financial stmts – mo/qtrly 7 years Personnel Records PERM
General Correspondence 5 years
Insurance• SIM has secured the following insurance coverage for chapters:
• Directors & Officers (D&O) & Employment Practices Liability (EPL)• Commercial General Liability & Property
• Manage the risk of alcohol at events
• Volunteers are also protected by:• Indemnification clause in bylaws• State law• Federal Volunteer Protection Act of 1997
Create a Treasurer’s Guide
• It should be approved by the board
• Sends a message that the chapter is organized and operates effectively, efficiently and responsibly
• Valuable when changes occur in chapter leadership and in day-to-day chapter operations
• Include basic financial information and financial policies
Internal Controls
• The board holds the ultimate fiduciary responsibility for the organization
• Expected to exercise reasonable diligence, care and good judgment in safeguarding the chapter’s assets
• To fulfill its fiduciary obligations, and to avoid potential liability for misconduct, the board must establish sound internal controls
Internal Controls – Banking Issues
Best if one person writes and signs checks and another person is authorized to approve invoices
Two signatures on all checks and transfers out of savings (especially those over a certain amount)
The second signer should also examine the invoices
Never pre-sign blank checks for future use
Don’t allow cash withdrawals
Someone who does not record cash receipts and disbursements should perform the bank reconciliation
Safeguarding Cash & Property policies
Separate financial responsibilities
Issue pre-numbered receipts for all payments when they are received & keep a duplicate copy
Record all payments received in a cash receipts journal - note the date & activity
Checks should be promptly and restrictively endorsed “for deposit only”
Deposit all payments received in the bank, on a timely basis
Only those authorized should have access to the accounting software
Authorization of General Disbursement policies
All invoices should be approved and checks should only be signed when accompanied by an approved invoice
The invoice should be marked “Paid” with the date & check number
Use only pre-numbered checks and store unused checks in a secure place
Keep all cancelled checks including voided checks
Always require original invoices and receipts
Authorization of General Disbursement policies
Always require original invoices and receipts
Require two signatures on all checks exceeding a certain threshold and make sure the bank is aware of this requirement
Require that unbudgeted expenses get board approval
Avoid paying cash for expenses out of any cash proceeds
Require expense reimbursement forms
Hand Off to New Officers
When new officers are appointed or elected, ensure thecontinuity of chapter operations by doing the following:
Change signature cards at financial institutions by removing former officers and adding new ones
If required by state law, update corporate resolution papers to reflect the names of new officers (many states allow you to do this online)
Ensure the outgoing treasurer reconciles the chapter’s checkbook balance to the most current bank statements
Hand over financial records
Questions?