Chapter Financial Responsibilities

1. Chapter Financial Responsibilities

2. Major Financial Responsibilities Keeping financialrecords Preparing accurate and meaningfulfinancial statements Budgeting and anticipating financial challenges Safeguarding and managingthe chapter’s financial assets Complying with federal, state and local reporting requirements Committee or Board?

3. Chart of Accounts • Categorize operations • Be clear • Find a balance • Use it for everything

4. Bookkeeping • Use accounting software to maintain “books” • Journals • Cash receipts journal • Cash disbursements journal • General journal • General ledger • Trial balance

5. Financial Statements • Prepared monthly and carefully reviewed • Three primary financial statements • Statement of Financial Position (Balance Sheet) • Statement of Activities • Cash Flow Statement

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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) Chapters in Good Standing with the IRS

14. 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.

15. IRS Requirements Unrelated 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

16. 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

17. 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

18. 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

19. 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

20. 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?

21. Financial Record Retention • Every nonprofit should have a document retention policy • How long financial records should be retained depends on tax and legal considerations

22. 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

23. 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 Create a Treasurer’s Guide

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. Questions?