FINANCIAL PROCEDURES FOR LOCALS & REGIONS

Safeguard and Manage Your Organization’s Resources

SAFEGUARD AND…. WHAT??• Make sure your members’ funds are not:

▫Stolen or misplaced▫Lost due to failure to collect them in the 1st place▫Wasted/Used inappropriately/illegally▫Spent on fines, fees and penalties

• And manage your funds so they are used effectively:▫Budget▫Financial reports▫Banking arrangements▫Etc.

THAT’S THE TREASURER’S JOB, RIGHT?• The Treasurer may do most of the work, but…• Your governing body and officers have the

fiduciary duty to:▫See that proper systems and procedures are in

place▫Monitor for compliance▫ Insist on transparent, ethical activity by everyone▫Make sure things get done in the Treasurer’s

absence• If you are a local leader, all of this material

pertains to you, but your responsibility will vary depending on your role

TODAY’S AGENDA

•“Top 5” safeguarding/management tools▫1. Verify your dues income▫2. Comply with IRS rules▫3. Internal controls/Fraud prevention▫4. Budgeting▫5. IPACE funds

•Other important stuff•Resources available to you

BEFORE WE START…

•Your “FPLR” book is an important resource

•Out of necessity, this presentation is an overview. There is much more detail on all of these topics in the FPLR book

•The book addresses topics that we don’t even have time to mention today

“FPLR” HANDBOOK

Administration & Fiduciary Oversight

Regulatory Requirements

Technical Tasks

Appendices (Some of the previous Appendices have been moved to the IEA website)

Try to be familiar with contents!

1. VERIFY YOUR DUES INCOME: LOCALS

•You need to invest whatever effort is needed in order to make sure that:▫Your employer collects the correct amount

of dues from all of your members/feepayers▫All of this money is turned over to you per

your contract’s terms▫All dues paid by your employer are

deposited intact▫Your IEA-NEA dues are paid in full, on

schedule

WHY IS THIS IMPORTANT?

•Your local dues are probably all that you have to fund your local programs

•Your local is responsible for paying 100% of your members’ IEA-NEA dues, even if you don’t collect them

•If you don’t collect enough to cover the IEA-NEA obligation, the difference has to be made up out of local funds

•It’s your members’ money; they deserve to have it used appropriately

WHAT COULD POSSIBLY GO WORNG?

•Local forgets to update the dues-per-member provided to the employer at the beginning of the year

•District reduces the number of pay periods for withholding; local forgets to raise the dues-per-pay-period accordingly

•Local pays dues for too many leaders and runs out of money

WORNG (Continued)

•Treasurer deducts (and pockets) cash when depositing district’s checks

•Amount withheld per pay period is wrong and it’s not discovered until May

•Treasurer and Membership Contact not on the same page at year-end=late payment penalties

RESOURCES

•FPLR manual•Website

▫Video▫Spreadsheets

•Other local treasurers•IEA office

VERIFY YOUR DUES INCOME: REGIONS

•Understand the rebate process•Test the IEA FTE figures and calculations

for reasonableness•Verify the IEA payment history•Verify the carryover amounts•Understand the “Adjustments”:

▫“Bylaw Amendment”▫Computer deduction

2. IRS RULES

•Tax exemption ramifications•Documentation requirements•Annual information return•Income reporting requirements•Audits/Notices•Other

TAX EXEMPTION

•You are a tax exempt labor union (IRS 501(c)(5)▫Locals: Separate subsidiary of IEA▫Regions: Technically part of IEA

•Your income and expenses should be “related” to your tax-exempt purpose (serving your members)

•You must be able to document this

DOCUMENTATION

•All financial transactions must be properly documented:▫Dollar amount▫Business purpose▫Date/Place

•“Properly” in most cases means an original document from an outside party- not a handwritten note

TRAVEL EXPENSES

•For many locals this is their biggest expense

•Documentation is especially important due to IRS issues

•Your local/region can set guidelines, but these need to be based on IRS rules (your rules can be more restrictive, but not less)

•Above all, travel expenses must be reasonable and necessary

TRAVEL

•NORMALLY YES: Hotel, mileage, airfare, meals at meeting location, parking, tolls, taxi, car rental

•NORMALLY NO: Expenses for family members, gasoline (unless with car rental), gifts/clothing, entertainment, contributions to NEA FCPE

•MAYBE: Tips, alcohol

TRAVEL REPORT

ANNUAL INFORMATION RETURN

•All IEA locals must file ONE of these forms every year, based on the size of their “average annual gross receipts”

•“Gross receipts”= All $$ collected, EXCEPT for IEA-NEA dues▫Over $200,000= Form 990▫$50,000 to $200,000= Form 990-EZ▫Under $50,000= Form 990-N (“E-

Postcard”)

ANNUAL INFORMATION RETURN

•All but about 30 IEA locals file the E-Postcard

•All except about 2 of these have authorized the IEA to file the E-Postcard for them

•The other 30 file the 990 or the 990-EZ•We strongly recommend that if you file

the 990 or the 990-EZ, you hire a CPA to do it for you

•Regions do NOT file a return

990/990-EZ•Public document

▫Posted on the Internet▫You must provide copies if asked

•Sensitive information- compensation, etc.•Description of your activities•Could be used as screening tool for an

audit•Forms are complicated and the rules

change frequently•So a CPA is a good investment

UNRELATED BUSINESS INCOME

•Income not related to union business• Rarely occurs, examples:

Rental income Newsletter ads (not sponsorships) Merchandise sales

•Need $1,000 in UBI to incur a tax liability

INCOME REPORTING REQUIREMENTS

Must report payments to INDIVIDUALS to the IRS, IF:

Over $600 in total for a calendar year

For Services: Not for products, supplies or expense reimbursements

1099-MISC

•Stipends: officers(W-2 vs. 1099)

•Stipends: non-officers

•Payment of dues for officers/others

•Undocumented expenses: report even if under $600

1099 ISSUES

•Copy to recipient by 1/31•Copy to IRS by 2/28•Form is carbonized- can’t download•Also need “1096”

1099-MISC

1096

IRS NOTICES

•DO NOT IGNORE!

•Seek help

•Check TIN

•Keep copies/proof of delivery

IRS AUDIT

•Not likely, but . . .• Random audits• Reported by disgruntled members

WHAT DO THEY ASK FOR?

•Articles of incorporation, bylaws, IRS determination letter

•Board/Committee meeting minutes•Conflict of interest policy•Copy of expense reimbursement plan•General ledger, cash receipts journal,

cash disbursements journal

AND…

•List of all bank accounts•Copies of bank statements and cancelled

checks•Credit card statements and receipts•Invoices and receipts•Schedule of donors to the organization•All expense reimbursement requests,

including documentation

AND…

•Copy of any contract of $5,000 or more•Documentation of process to determine

compensation of officers, including committee minutes

•Copies of Forms 941, W-2 and 1099-MISC•List of officers•Breakdown of dues received: IEA-NEA vs.

local•Copy of two newsletters

AND…

•Copy of union handbook•All workpapers used to prepare the

annual tax return (990-EZ)•Charter•Document retention policy

AND…

•Are regular Board meetings held? Describe.

•How often are dues paid to IEA-NEA?•What portion of the dues are for political

activities?•How are members notified that part of

their dues are used for lobbying activities?

•What geographic area do you cover?

AND…

•Describe your history and activities.•Describe your internal controls over your

financial transactions.•Do you have a budget?•Is your 990-EZ shared with your

governing body?•How large is your governing body?

AND…

•Do you have an annual general meeting of the membership?

•Do you have an audit? If so, provide copies of reports.

•Who maintains the books?•Do you provide monthly financial reports?

What is in them?•How are your officer stipends computed?

AND…

•How do you report stipends (W-2, 1099-MISC, etc.)?

•What are your sources of income?•How are your convention delegates

chosen?•How many delegates do you have? What

do they do? How long do they serve?

AND…

•Do you have special events, if so, describe.

•Do you give gifts? Describe.•What is the length of your contract with

your employer?•Do you track your valuable assets, e.g.

computers? Provide list.•  

IRS AUDIT

•Sleep well: Keep your books and other documentation in order, and follow the rules

•Seek help

•Let us know

OTHER IRS ISSUES•You CAN make a profit!•You MUST pay state sales tax•To the IRS, almost all gift cards are

TAXABLE COMPENSATION▫Employees: Add to W-2 income▫Others: They “count” toward the $600 1099

threshold▫So try to avoid using them, but if you must,

make sure you keep good records (name, date, amount, purpose)

TAXPAYER IDENTIFICATION NUMBER

•“Social Security Number” for associations and corporations:9 digits (xx-xxxxxxx)

•Need when opening a bank account

•Need when filing IRS forms

•IEA has your number on file

•IEA will apply for numbers when needed

3. INTERNAL CONTROLS/FRAUD PREVENTION

•Most fraud consists of theft or misuse of funds

•In many cases, fraud is actually easier to get away with in nonprofit organizations▫Everyone knows and trusts each other▫Leaders aren’t trained in detection and

prevention•Don’t think “It can’t happen here;” history

says otherwise•Solution: Don’t be paranoid, just have

good controls

WHY DOES FRAUD OCCUR?•Honest people: Financial pressures

▫Medical bills▫Drugs/Gambling▫Investment losses▫Other financial needs

•Less-than-honest people: Perception that no one will find out

PROGRESSION

•$20/month for movie with spouse, then•$50/month for nice dinner, then•$500 for a new TV, then•Monthly house payment or son’s college

tuition

THE “FRAUD TRIANGLE”

YOUR JOB AS A LEADER IS…

•Know the signs of possible fraud, and don’t be afraid to seek help if something makes you uncomfortable

•Make sure there are good controls in place

•Remember, even if today’s leaders are 100% honest, controls must be in place just in case future leaders are not!

SIGNS OF POSSIBLE FRAUD: APPENDIX 4

• If you see the signs…▫DON’T IMMEDIATELY ASSUME THE

WORST!!▫Probably just substandard business practices▫Check with your U.D.▫Don’t ignore the signs… this can end up

reflecting on you•Completely arbitrary “Top 5 Signs of

Potential Fraud” list:

#5

•No “separation of duties” between President, Treasurer, Membership Contact

#4

•Local is consistently behind in paying its IEA-NEA dues, especially at the end of the year▫Leaders need to stay on top of this and not

accept excuses such as “The check is in the mail” or “IEA Membership keeps making mistakes”

#3

•Poor documentation of financial transactions▫No documentation at all▫Documentation is sloppy and poorly

organized▫Documentation is insufficient

Handwritten notes Photocopies of invoices

#2

•Local/Region deals in cash▫Checks payable to Cash▫Cash deducted from deposits▫Cash given to RA delegates as an advance

#1

•No oversight by the governing body▫No audit▫No financial reports▫No dual-signature requirement▫Bank statements sent directly to Treasurer▫No oversight over banking arrangements

AN OUNCE OF PREVENTION: INTERNAL CONTROLS

•Checks/balances and separation of duties

•Helps protect the organization from undetected fraud

•Helps protect officers from potential embarrassment and liability

•Protects the treasurer’s credibility

CONTROLS

•List of controls- Appendix 3 (NOT all-inclusive)

•Read the example on page 16•Completely arbitrary “Top 5 Controls” list:

#5

•Don’t have credit or debit cards for your local or region▫Convenience outweighed by risk▫Remember the future!

#4

•Have “Two Signatures Required” and two signature lines on your checks▫Instruct the bank to require two signatures▫Don’t allow checks to be signed before they

are completely filled out

#3•Have an independent audit

▫Large locals- CPA▫Smaller locals, and regions: Audit

committee No “insiders” Consider nearby local Treasurer,

bookkeeping teacher, etc. Give them a list of procedures Have them file a short report

#2

•Do not deal in Cash▫No checks written to Cash▫No cash deducted from deposits▫No cash given for travel

•Possible exception: SMALL petty cash fund

#1

•Have the bank mail all statements to someone besides the Treasurer▫Other person reviews statement and

cancelled checks, initials the statement, sends to Treasurer

▫Best way to prevent fraud involving checks or other withdrawals

▫However, it’s 90% worthless unless your bank provides check copies

4. BUDGETING

•Regions: Annual budget required in order to receive annual rebate

•Locals: No specific requirement, but there are at least five good reasons to have one:

#5

•Argument prevention▫Expense items are discussed and approved

long before the expense is actually incurred▫Gives you a reason to deny requests for off-

the-wall spending requests (“It’s not in the budget”)

#4

•Makes members happy▫Gives them input on how you spend their

money▫Shows you are carefully considering how

their money is spent

#3

•Helps you plan for future needs▫Manage your annual profit/loss▫Control the size of your “reserve funds”▫Set long-term financial goals

#2

•Avert financial disaster▫Overspend dues income so that there’s

nothing left to pay IEA-NEA▫Plan for “non-cash” expenses such as

paying leaders’ dues

#1•IEA financial assistance: Mediation,

Factfinding, Arbitration•Requirements:

▫Local dues at least $15▫BUDGET containing at least $3/member for

the above items

5. IPACE FUNDS• IPACE is funded by member contributions•Your local (not region) can receive up to $15

per contributing member as a “rebate” each year, to be used for local political purposes

•Your obligations when requesting IPACE funds:▫Know the rules regarding use of the funds▫Keep them in a separate non-interest bearing

bank account▫Understand and comply with State disclosure

requirements

STATE POLITICAL REPORTS•DO YOU HAVE TO FILE?

• One-time threshold: $5,000 spent in any 12-month period

• Only certain expenses “count”• If you exceed the threshold, you must register as a PAC immediately and then file quarterly reports forever

•Keep up with state due dates and requirements

OTHER IMPORTANT TOPICS

•A. IEA-NEA dues payment•B. Banking•C. Accounting system•D. Financial reports•E. Policy- RA delegates•F. Treasurer transition issues•G. Annual calendar

A. IEA-NEA DUES PAYMENT•Be aware of schedule•Make sure you get the monthly IEA

statement from your Membership Contact•Pay the amount on the statement•Pay by the due date (avoid late payment

penalties!)•Have employer pay IEA direct?•See Appendix 10- How to read the

statement

PAYMENT SCHEDULENovember 1 10% of obligationDecember 1 20% of obligationJanuary 1 30% of obligationFebruary 1 40% of obligationMarch 1 50% of obligationApril 1 60% of obligationMay 1 70% of obligationJune 1 80% of obligationJuly 1 90% of obligationAugust 1 100% of obligation

B. BANKING ISSUES

•How to choose a bank▫Financial (interest and fees)▫Service (online banking ,etc.)▫Location (if you will be there a lot)▫Auditability

Detailed monthly statement Copies of all transactions- checks, deposits,

etc.

OPENING A BANK ACCOUNT

•Banks are required by regulation to collect various information

•Every bank interprets these regulations in their own way: CALL FIRST!

•You will definitely need: ▫Drivers license for all signers▫Taxpayer identification number of your localDO NOT OPEN AN ACCOUNT WITH SOMEONE’S SOCIAL SECURITY NUMBER, YOUR SCHOOL’S TIN, ETC.

OTHER NEW ACCOUNT ISSUES

•You are an unincorporated, not for profit labor union

•If the bank wants your articles of incorporation, you don’t have them

•If they want your “IRS Determination Letter,” you don’t have one

•If they want proof of your tax exempt status, IEA Accounting can provide this

SIGNATURES

•We recommend that all bank accounts require two signatures

•So you will want at least three and perhaps four or five people with the ability to sign

C. ACCOUNTING SYSTEM

•Every dollar that goes in or out of your bank account must be recorded

•Permanent record• Future audits by IRS, etc.

• Internal questions• Financial reporting

•What system do you use: “It depends”

MY LOCAL HAS 200 MEMBERS, WHAT ACCOUNTING SYSTEM DO I NEED??

•One size does not fit all•Size/complexity of organization

•Prior treasurer’s system•Current treasurer’s preference

BASIC REQUIREMENTS

Your system needs to:• Record all transactions in sufficient detail Allow you to produce financial reports efficiently

Provide a record that others can follow

WHAT ARE MY CHOICES?

Some possibilities• Checkbook/check stubs• Cash receipts and disbursements

journals• Excel/Access• Specialized accounting software

(Quicken, etc.)

D. FINANCIAL REPORTS

•How much money do we have?•How much income have we received?•How much has been paid for expenses?•How does this compare to the budget?•How does this compare to prior years?

FINANCIAL REPORTS•Primary audience is probably your governing

board (may be shared with general membership)

•Get in the habit of doing a WRITTEN report every month

• Include the budget• Include explanations of large variations from

budget•Line items depend on your local’s major

activities and your outside reporting requirements

SAMPLE REPORTSMIDTOWN EDUCATION ASSOCIATION

STATEMENT OF RECEIPTS AND EXPENDITURES EIGHT MONTHS ENDED APRIL 30, 2005

ACTUAL

2004 ACTUAL

2005 BUDGET

2005 REMAINING

BUDGET BEGINNING CASH BALANCE SEPTEMBER 1 4,870 5,000 5,000 0 RECEIPTS: IEA-NEA Dues 16,500 17,000 28,000 11,000 Local Dues 1,280 1,300 2,000 700 Fundraisers 600 800 1,000 200 Interest 370 400 500 100 Total Receipts 18,750 19,500 31,500 12,000 PAYMENTS: IEA-NEA Dues 16,500 17,000 28,000 11,000 Mediation/Fact-Finding/Arbitration 0 0 300 300 Meeting Expenses 600 500 800 300 Newsletter 240 400 500 100 Office Supplies 335 400 600 200 Total Expenses 17,675 18,300 30,200 11,900 NET INCREASE (DECREASE) TO CASH 1,075 1,200 1,300 (100) ENDING CASH BALANCE APRIL 30 5,945 6,200 6,300 (100)

E. POLICY- RA DELEGATESHave a written policy on documentation and reimbursement (See Appendix 5)

• Overall expectations• What is covered/not

• Repayment of unspent funds

• Consequences

• Documentation requirements

• Donations to FCPE (NO!)

Region vs. Local funding

F. TREASURER TRANSITION ISSUES

•Treasurer candidates should be “qualified”

•“Full Disclosure” of job requirements

•There should be an orderly transition of treasurers• Demonstration/Instruction• Written procedures/Calendar• Books/Records in good order

•More info in FPLR handbook and on the website

G. ANNUAL CALENDAR•Don’t incur fines/penalties, or let

important things slip through the cracks!▫Outside reporting deadlines▫Internal reporting deadlines▫IEA dues payment deadlines▫Annual tasks such as Board review of

banking arrangements▫Milestones in the budget process▫Etc.

RESOURCES

•IEA website▫Publications▫Videos▫FAQs▫Tips for new Treasurers▫NEA information

RESOURCES•FPLR handbook•Annual training sessions•IEA Secretary-Treasurer•IEA Director of Business Services•Your local IEA office•Other IEA locals