Financial Management for Parent Organizations

1. Klein Independent School District Financial Management for Parent Organizations 2017-2018

2. Tonya Little, CPA, RTSBA Executive Director of Business Services Tara Tims, Activity Funds Manager Janet Temple, Administrative Assistant to Executive Director of Business Services Merle Shefstad, Reimer, McGuinness & Associates – IRS/990 (Section 3) Chris Brown, Texas State Comptroller’s Office – Sales Tax (Section 4)

4. WHY IS THIS STUFF SO IMPORTANT???? Embezzlement/Fraud from parent groups is not limited to any one region. It is an equal-opportunity problem, striking groups from coast to coast. There have been dozens of cases just this year.

5. Facts on Fraud • The average fraud scheme lasts 18 months before it is detected. • The most common method for detecting fraud in the workplace is through tips from employees, customers, vendors, and anonymous sources. The second most common method of discovery is by accident. • The typical fraud perpetrator is a first-time offender. Only 7 percent of fraudsters in a recent survey had prior fraud convictions. • Source: Association of Certified Fraud Examiners

6. January 2017-Houston Chronicle PTO president stole over $100K from Baytown school, police say… A few weeks after the Victoria Walker Elementary School parent-teacher organization held its fall carnival last November, the group’s former treasurer got a call from the bank. The PTO account for the Baytown school was overdrawn. That didn’t make any sense to the former treasurer, who knew there should have been more than $100,000 in the account. She alerted an administrator with the school district, Goose Creek CISD, who called the PTO’s leaders to her office. Two of the three PTO officers were new. Only one person — V, 27 years old— had a debit card and access to the account, according to a sworn statement written by a Baytown police officer. V told the school district official there was $12,000 in cash at a safe inside the school, according to the sworn statement, but when the group went to the safe, it held less than $1,500. V was the only PTO officer with a key. When the organization's leaders met that evening, V arrived an hour late with nearly $3,000 in checks and more than $18,000 in cash that she had kept in her garage, money she said came from a school fundraiser. Prosecutors last week charged V with theft from a nonprofit, a felony. The school district suspects she embezzled more than $100,000, including more than $23,000 in unaccounted debit-card spending and over $20,000 in ATM cash withdrawals.

7. Alvarado police on Tuesday arrested M, treasurer of theAlvarado Band Booster Club, on a charge of theft from a nonprofit $30,000 to $150,000, a second-degree felony. M, 38, allegedly stole about $46,000 from the club’s three accounts over a two-year period, Alvarado Police Chief said. The president and vice president of the booster club contacted Alvarado police on April 28 in reference to the theft, which they believed at the time totaled about $36,000. The club’s vice president became aware of the discrepancies after one of the accounts held by the club at a local bank came up overdrawn. M said she began taking money from the accounts in June 2015 when she was unable to make payments on personal bills, according to reports. M said the amount she took eventually “got bigger than she could handle,” according to reports. M repaid the booster club $22,000 in attempt to compensate the club for the funds taken, police said. The booster club’s vice president went through receipts, however, and determined that about $46,000 had inappropriately been removed from accounts over a two year period. “The main point to remember is that our kids worked really hard to raise this money so the band would be able to do certain things,” Hill said. “We’re just volunteer parents helping to support our kids. Right now all of us and the kids are feeling a little bit betrayed. But our program is strong and the community is going to rally around our kids and I’m confident we’re going to rise up again.”

8. EDINBURG – An Edinburg high school’s booster club is out thousands of dollars. A Robert Vela High School booster club’s president noticed money was missing from their account. They reported it to Edinburg police in January. Edinburg Police Assistant confirmed that 45-year-old E stole $9,900. It was a combination of unauthorized cash and debit card withdrawals. E was arrested on Feb. 16 and charged with theft. HOUSTON - The treasurer of a Spring ISD parent-teacher organization is accused of stealing thousands of dollars in PTO funds. According to court documents, the thefts occurred between August 2013 through August 2014 with funds being taken from the Elementary School PTO fund. Court documents state the PTO president told investigators that over the summer, she began getting collection calls requesting payment for a fundraiser that the PTO sponsored.

9. September 10, 2016 GROESBECK, Texas (KWTX) The former treasurer of the Groesbeck ISD Band Booster club has been charged in connection with the theft of an estimated $8,000 from the group, money that would have paid for a band trip to Disney World. XXXXXXX, 47, was arrested Friday and was charged with two counts of theft over $1,500, but less than $20,000/ and with debit/credit card abuse, Groesbeck police Chief said Tuesday. She was released from the Limestone County Jail after posting bonds totaling $25,000. The charges stem from the theft of about $8,000 in January 2014, but the total taken may be far more than that. “We believe the amount taken between January 2014 through August 2016 was in excess of $30, 000,” he said. The investigation is ongoing and additional charges could be filed, he said. Gladden had served as the club’s treasurer since 2012, he said.

10. Grand jury indicts for Coyote Booster Club theft On Friday, Aug. 19, a grand jury indicted XXXXXfor theft over $30,000 under $150,000, a second degree felony after the Alice Coyote Booster Club discovered she had stolen more than $53,000 from the organization. In October 2015, the Coyote Booster representatives reported to police that XXXXX, former treasurer, had stolen money that was intended for scholarships and athletic equipment. XXXXX mishandled a total of $53,067.79 in funds from July 2013 through September 2015. Victoria's Secret, Dillard's, Macy's, Bealls, The Buckle, Finsh Line and Journeys were some of the businesses where purchases were made by XXXXX, officials said in October 2015. Club representatives told police XXXXX had sole access to the club's bank account and could not provide receipts for several transactions made to the account. XXXXX was accused of withdrawing $19,052 (total over a period of time) at an ATM, $3,000 in withdraws for unmatched events, $17,345.23 in illogical payees and $13,670.56 in disbursements that have no explanation with the club activities. An illogical payee is described as a beneficiary of funds that is not logical beneficiary of Booster Club funds in the ordinary course of business. Club officers stated XXXXX had confided in another member that she spent some money for personal use, but could not give an amount, according to the police report.

11. The Fraud Triangle Fraud is as common as a virus and can be just as menacing. Like illness, you can take all the precautions against it and still get sick, but you can substantially reduce your vulnerability. In the 1950s, a sociologist named Donald R. Cressey developed a theory of why people commit fraud. His "fraud triangle" is still the most widely accepted explanation for what motivates seemingly trustworthy people to embezzle. The three points of the triangle are motive, opportunity, and rationalization. First, a person needs to have a motive or need. That could range from trouble making mortgage payments to envy of the PTO president's new Lincoln Navigator. "Statistics show that given the opportunity, a large percentage of American people will take advantage of the opportunity to embezzle, provided they have the motivation," Whall says. "It could be troubles from a divorce or drug or alcohol abuse. Second, the person must have a tempting opportunity. It could be while she is collecting admission fees to the PTO's fall festival, counting the proceeds alone, or balancing the PTO's books with no one looking over her shoulder. Third, the person needs rationalization: a way to make the theft seem excusable or temporary. For example, a person might take money during one financially troubled month so he can pay his mortgage, with every intent to pay the money back next month. However, next month his finances aren't any better, so he takes a little more and tells himself he'll pay it back next month. And so on. Another form of rationalization is to believe that the money won't be missed, such as, "It's only $100, and we're earning so much at this auction.“ The most successful fraud-fighting tactics dismantle one of the legs of the fraud triangle. PTOs can't do anything about members' personal financial needs, but they can remove the temptation to steal by eliminating situations in which any one person will be alone with money and by ensuring that multiple sets of eyes are always watching the books.

12. This Financial Management Handbook for parent organizations is a consolidation of updated guidelines and previously issued documents designed to provide parent organizations, principals, and sponsors with financial procedures that are mandated by state law, the Internal Revenue Service (IRS), Board policy, administrative directives and/or good business practices. Where can I find it online?

13. Go to www.kleinisd.net Click on Family & Students Click on Parent Support Organizations

15. Summary of Important Dates and Information Requirements October 2– The “Parent, Employee and Other Klein ISD Related Organizations Information Sheet” (GASB 39) is due to central office-Should be emailed to Parent Organization by campus principal. (copy in the handbook) October 15 – Requests for fundraisers must be submitted to the principal on the appropriate form no later than October 15 of the current school year. (These can be turned in sooner, this is just the deadline.) November 15 - Form 990, 990EZ and 990N are due on the 15th day of the fifth month after the end of the fiscal year of the parent organization. For parent organizations that are part of the group exemption, the due date is November 15th each year. (June 30 year-end) January 20– Annual sales tax reports are due January 20th each year. Quarterly and monthly sales tax reports are due on the 20th of the month immediately following the end of the quarter or month, respectively. Calendar Year – (January – December) Parent Organizations are allowed two one-day tax-free days per calendar year by the Sate if they have obtained exempt status from the IRS and exemption from sales and use taxes from the State. School Year – (September – August) There is a limit of three (3) fund-raisers for each organization per school year and the school principal must grant advance approval. Financial Year – (July - June) The revenue and expenditure (fundraiser income/expense) reporting year is July 1 – June 30, (if you are part of the group exemption, if not these dates may vary slightly). Ex. Although the School Year has not started, the parent organization may decide to conduct fundraising in July and August.

16. Summary of Important Dates and Information Requirements A copy of the completed items listed below must be forwarded to both the principal of your organization’s campus and the Central Office at the following address: Klein Independent School District Fax to: Email to: Attn: Business Office, Exec. Director OR 832-249-4034 OR tlittle1@kleinisd.net 7200 Spring-Cypress Road Klein, TX 77379-3215 1) Completed Bylaws (if changes have been made) 2) Copy of completed 990/990EZ/990N 3) Completed Sales Tax Return 4) Completed Parent, Employee and Other Klein ISD Related Organizations Information Sheet (GASB 39) A copy of the parent organization’s Annual Financial Report and the Audit Report MUST be provided to the campus principal as soon as they are completed or by August 1.

17. Parent Organization Checklist

18. Section 1 – General Information • A PTO is formed to promote the general welfare of the entire student body at a particular school. • A booster club is formed to enrich the school’s participation in extracurricular activities and normally involves an individual student group (band, football, after prom, etc.) • The principal must approve the formation of all parent organizations. • Parent Organizations operate autonomously of the school district as separate parent organizations even though they generally exist solely to support school activities. • The responsibility for accounting, safeguarding, and disbursement of funds rests with the parent organization officers. The principal/sponsor may act in an advisory capacity only.

19. Section 1 – General Information • A parent organization may not represent the District nor bind the District or any of its employees to a third party with which the organization may conduct business. • All meetings of parent organizations must be public meetings. • Minutes of all parent organization meetings should be kept in writing in the permanent records of the organization. • Must operate under Bylaws. • Must obtain a unique Tax Identification Number. • Parent organizations are NOT permitted to use the District’s EIN or its Texas Sales Tax Permit Number.

20. GROUP IDENTIFICATION NUMBER: 71-0895575 DO NOT USE THIS NUMBER, Please.

21. Section 2 – Tax-Exempt Non-Profit Organization • All parent organizations shall obtain federal tax-exempt status as a public 501(c)(3) charitable organization by applying for and obtaining a Letter of Determination from the Internal Revenue Service (IRS) that states the organization is tax-exempt. • A parent organization may request through the business office at the central office to be a part of the group exemption obtained for parent organizations of the District versus filing for individual tax-exempt status. • A parent organization may only request to become part of the group exemption once. If exemption is lost, the parent organization may not submit another request using a similar name. The organization must file the appropriate forms and complete the re-instatement process through the IRS. • If an organization loses its public 501(c)(3) tax-exempt status or if it expires, the organization shall take the necessary steps to regain the tax-exempt status within one year from the date of notification from the IRS of the loss of exemption or within one year from the expiration date.

22. Section 2 – Tax-Exempt Non-Profit Organization • To Open a Bank Account • Once an EIN has been received, use it to open a bank account. Each parent organization must have a separate bank account at a facility in proximity to the school. • A member’s social security number should not be used as the organization’s EIN for banking and/or other business purposes. • *Note* Some banks are requiring the organization’s state charter in addition • to the tax id number. • Debit card/credit card use is prohibited.

23. Section 3 – Sample Financials & Tax Forms Presented by: Merle Shefstad Filing Requirements for IRS 501(c)(3) Organizations Returns are due by the 15th day of the fifth month after organization’s year end. For example, if the year-end is June 30, 2017, return due by November 15, 2017. (Group Exemption Date) Form 990N – Gross receipts normally less than $50,001 must file online with IRS . There is no paper form. http://epostcard.form990.org Form 990EZ – Gross receipts less than $200,000 and total assets less than $500,000. Form 990 – Gross receipts greater than $199,999 and total assets greater than or equal to $500,000.

24. Section 3 – Sample Financials & Tax Forms Presented by: Merle Shefstad FAILURE TO FILE FORM 990-N, 990-EZ OR 990 FOR THREE CONSECUTIVE YEARS… THE ORGANIZATION’S STATUS AS AN EXEMPT ORGANIZATION WILL BE AUTOMATICALLY REVOKED !!

25. Section 4 – Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Presented by Chris Brown, Texas State Comptroller’s Office • All purchases made for the exclusive use (necessary to the organization’s exempt function) of a parent organization should be made tax-exempt. • All items purchased to resell during a fund-raising event such as T-shirts, spirit items, etc. should be made as tax-free purchases from the vendor. • Sales taxes are due to the State and must be collected when taxable items (i.e. – caps and t-shirts) are sold to others. • There is a requirement to file at least one sales tax report per calendar year (January – December) with the State Comptroller's office. • Annual sales tax reports are due January 20th each year.

26. Section 4 –Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Presented by Chris Brown, Texas State Comptroller’s Office • All KISD locations except Mueller Elementary are currently located in a 8¼% sales tax rate area.

27. Section 4 – Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Presented by Chris Brown, Texas State Comptroller’s Office • One-day Tax-free Sales • Parent organizations are allowed two one-day tax-free days per calendar year by the State if they have obtained exempt status from the IRS and exemption from sales and use taxes from the State. • A one-day tax-free day is a day (24 consecutive hours) a parent organization can sell taxable items and not have to collect and consequently remit the normal sales taxes due to the State. The criteria for a one-day tax-free sale have to do with when possession goes from the parent organization (which is tax exempt) to the buyer (which is not tax exempt). Orders and/or collections could be taken over an extended period before delivery is made. The delivery just has to be advertised as one day (the tax-free day).

28. Section 4 – Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives • List of Common Taxable Items List of Common Non-taxable Items • Athletic equipment and uniforms • Balloons • Band equipment and supplies - reeds, recorders • Books, workbooks, etc. • Candles • Catered dinners/banquet, if not part of fund-raiser • Clothing - T-shirts, all other clothing items • Concessions, if not part of a fund-raiser • Copies - collections from coin or manual copiers • Cups - glass, plastic, paper, etc. • Directories - student • Drafting supplies • Flower sales • Garage sales • Gift-wrap paper • Handicrafts • Horticulture items • Magazine subscriptions (< 6 months) • Musical supplies • Pennants • Pictures/photographs • Plant sales • Publications – yearbooks, football programs, memory books • Programs - athletic, music, etc. • Recorders - musical • Retirement plaque • Rings - school • School Store - all items sold by school stores • Silent Auctions (if not part of one-day tax-free day and is for items such as free golf round, membership to a health club, other recreational-type items, etc.) • Spirit Items – ribbons, banners, pom poms, pennants, cups, bracelets, etc. • Stationery • T-Shirts, all other clothing items • Uniforms - PE, cheerleader (when student property) • Vending - pencils and other non-edible supplies • Yearbooks, if not part of one-day tax-free day • Advertisements sold for school newspapers, athletic & booster club programs, etc. • Bake/food sales • Car wash • Catalog sales (organization is acting as agent of seller & receives a commission-see 6.0 below) • Concessions, if part of a fund-raiser • Dinners – when prepared by parents or catered as part of a fund-raiser of a parent organization and not in direct competition of local vendors • Discount cards • Dues • Gold-C and Entertainment coupon books • Golf tournament entry fees • Fees – clinics and workshops • Jog-a-thon • Magazine subscriptions (6 months or more) • Raffle tickets • Silent auctions (all if part of one-day tax-free day; if not part of one-day tax-free day and is for items such as gift certificates for dinner, manicure, facials, haircuts, stay at a hotel, etc.) • Tickets for admission to athletic events, drama productions, dances, school carnivals and other similar entertainment events (including tickets sold to play a game at a booth for a prize)

29. Section 4 – Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Incentives for Money-Raising Activities Per Klein Policy…… No coercion should be exercised in fund-raising activities and no student or teacher is required to raise any particular minimum of money or to sell any minimum number of tickets, etc. Under no circumstances should pressure be brought to bear on pupils through competition or by special recognition for sales with individual prizes. • Benefits given by a parent organization cannot be distributed based on participation in a fund-raiser or based on revenues individually generated in a fund-raiser.

30. Section 4 –Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Food and Fundraisers The District’s nutrition guidelines for reimbursable school meals and all other foods and beverages sold or marketed to students during the school day shall be designed to promote student health and reduce childhood obesity and shall be at least as restrictive as federal regulations and guidance, except when the District allows an exemption for fundraising activities as authorized by state and federal rules.

31. Section 4 –Fundraising…. Sales Tax Rules and Reporting, Food Guidelines, Incentives Food and Fundraisers, cont. Fundraisers: The sale of food to students, as a fundraiser, during the school day must meet USDA Smart Snack guidelines or must be approved by the campus principal for up to six exemption days per school year. What does this mean? If fundraising involves food and/or beverages that do not meet the Competitive Foods Nutritional Standards, each campus gets 6 days for the entire year that it can sell this type of food and/or beverage. The campuses MUST know your fundraisers in advance in order to coordinate these days and remain in compliance with the law.

32. Section 5 – Officer Responsibilities & Duties • The responsibility for the proper collection, disbursement, and safeguarding of all money and all other parent organization assets and the proper reporting of each parent organization's activities to the Internal Revenue Service, State Comptroller, and to the Klein ISD rests solely with each parent organization's officers, jointly and severally, not the school district or any of its employees. • The commingling of parent organization money with school money is not permitted. • Each parent organization must complete the “Parent, Employee and Other Klein ISD Related Organizations Information Sheet” when requested by the business office at the central office. (GASB 39 Form, in front of handbook) • Payment from parent organization funds may not be made to employees for any services rendered to that organization unless the transaction is processed through the KISD business office. • There is a limit of three (3) fund-raisers for each organization per school year and the school principal must grant advance approval.

33. Section 5 – Officer Responsibilities & Duties According to the IRS, revenues generated from fund-raising by tax-exempt organizations should benefit the organization as a whole, not individuals. • Booster Clubs shall not maintain individual accounts. • Booster Clubs cannot require a member to participate in a fundraising activity. • Nor can members be required to raise or sell certain amounts. • An individual cannot be denied the opportunity to receive a benefit because of lack of participation in a fund-raiser or because a specified amount of revenue was not raised. • These practices jeopardize the organization’s tax exempt status with the IRS.

34. Section 5 – Officer Responsibilities & Duties Parent Organization Donations • Parent organization funds and/or assets that are donated to a school must be coordinated with the school’s principal. • Property purchased with parent organization funds becomes the property of the school district. • Special district guidelines apply to computer hardware/software purchases and must be coordinated with the Klein ISD technology department prior to purchase to ensure compatibility with the District’s infrastructure. • Special guidelines apply when donations involve construction (including playground equipment and/or fall surface or any other permanently installed item) on District property, and must be approved by the principal and the appropriate level of District administration prior to committing or incurring any costs. • Parent Organizations may donate funds or property to the campus, HOWEVER, they should not purchase on behalf of the school and then seek reimbursement. This circumvents district procedures.

35. Section 5 – Officer Responsibilities & Duties • Incoming officers should never accept financial records without having them audited. • President: • Make year-end financial report to principal no later than June 15th. • Responsible for financial affairs and reporting, including delegated duties. • Submission of fund-raiser requests. • Preside at all meetings of the Directors. • Coordinate the work of the Directors and/or committees in order that the organization’s objectives may be promoted. • Coordinate the work so reports are timely to State and Federal agencies. • Co-sign checks along with Treasurer. • Ensure annual audit is performed. • Vice President: • Assume the duties of President if needed. • Chair organization committees. • Maintain a roll of all members.

36. Section 5 – Officer Responsibilities & Duties • Secretary: • Record the minutes of all meetings. • Coordinate all correspondence. • Catalogue and supervise the property. • Publish all notices of meetings. • Treasurer: • (CAN NOT BE DISTRICT EMPLOYEE) • Maintain financial records. • Keep accurate record of receipts and expenditures. • Prepare the budget. • Provide financial reports. • Receive and deposit all funds. • Pay out funds with proper vouchers. • Co-sign checks with President. • Prepare all required tax returns. • Establish good accounting procedures. • Establish permanent file for financial related records. • Turn over all records to new treasurer. • (Copy of QuickBooks, login to online QuickBooks)

37. Section 6 – Accounting Procedures • Accounting records should be limited at all times to only those persons whose duties require access. • The parent organization’s books should be reconciled to the bank statement monthly, preferably by someone other than the treasurer. • There should be adequate separation of duties. • Funds should always be raised for the approved purpose and spent for that purpose. • ATM/Debit cards for the organization’s checking account and organization credit cards are not permitted.

38. Section 6 – Accounting Procedures • Cash Receipts • The cashing of checks out of cash receipts or petty cash is prohibited. • Incoming checks should be restrictively endorsed immediately upon receipt. • Funds must always be deposited into the authorized bank account for the organization and never commingled with personal or school funds. • All monies should be immediately receipted. • All monies should be counted and receipted in the presence of the individual turning in the money. In other words, two people should always be involved in the counting of money.

39. Section 6 – Accounting Procedures • Cash Disbursements • Unused checks should be kept safe and secure at all times. • Checks should never be pre-signed. • "Blank" checks should never be issued. • A Purchase Authorization/Check Requestshould be required to authorize purchases, checks and/or to receive reimbursement. • Each check or petty cash disbursement must be supported by an original invoice or sales slip/register tape. • Two officers must sign each disbursement/check. Both signers must be parents and may not be school district employees. • Issuing checks to the order of “Cash” is prohibited.

40. Section 7 – Annual Audit • Each parent organization should select a qualified individual or group to conduct an annual audit, which must be permanently maintained in the organization's records with a copy provided to the school principal. • An audit is an examination of the financial records of the parent organization. • The audit is to protect the parent organization officers and the organization. • A CPA or accountant may perform the audit at the organization’s expense. • A parent organization may instead establish a review committee to perform the audit. • Guidelines are in handbook. • Audit Checklist is provided in the handbook.

41. Section 8 – UIL Guidelines for Booster Clubs It is the responsibility of the parent organization officers to ensure that they operate within the guidelines of University Interscholastic League (UIL). *Funds are to be used to support school activities. To provide such funding for non-school activities could violate UIL rules and the public trust through which funds are earned. The organization officers should get with the coach, sponsor or principal if they have questions related to the UIL. The UIL guidelines provided are for your reference and are not meant to be all-inclusive.

42. Section 9 – Raffles It is the responsibility of the parent organization officers to ensure that they operate within the guidelines of the Attorney General of Texas. If a raffle is conducted, it will count as one of the three (3) money-raising activities allowed for an organization. Students may not assist in the sale of raffle tickets. The item(s) to be raffled must be approved by the Campus Safety and Security Department at the Central Office. The organization is restricted to selling raffle tickets at one school activity/event. In addition, the sale may be conducted only at an event in which the student group it represents is performing or participating. The Attorney General of Texas raffle guidelines provided are for your reference and are not meant to be all-inclusive.

43. Section 10 – Tax Exempt Status – Lost, Reinstatement Section 10 is information taken from the IRS website to assist parent organizations in tax-related matters associated with nonprofit organizations and loss of tax exempt status. The information provided is not meant to be all-inclusive.