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?