Financial Essentials for Non-Profits at 2015 Volunteer Leaders' Summit

1. VOLUNTEER LEADERS’ SUMMIT 2015NOVEMBER 19-21, 2015 | WASHINGTON, DC Megan Smith, CPA SHRM Controller Co-facilitated by Tammy Finnell, CMP Shelly Trent, SHRM-SCP, CAE SHRM Member Relations Staff WEBCAST – MARCH 20, 2015 SHOW ME THE MONEY! Financial Fundamentals for Non-Profits November 20, 2015 2:15 p.m. - 3:30 p.m. 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

2. Agenda • Financial side of a non-profit and regulatory requirements • Making wise investments • Increasing non-dues revenue • Income through sponsorships • Financial support from SHRM • Chapter Guide to Financial Management What else do you want to learn? 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

3. Financial Essentials • Regulatory Filings • Financial Management • Fiduciary Responsibility • Making Wise Investments 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

4. Financial Essentials The Power of the Charter • Charter provisions overview • Signed by chapter/council and SHRM several years ago • Autonomous • Self-controlled, not SHRM (headquarters) controlled • Independent • Responsible for own information and tax returns • Responsible for accounting, banking, etc. 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

5. Financial Essentials Non-Profit / Not-for-Profit Status • Organized under and according to the provisions of state statutes • Primarily operated to serve the needs of the members • May make a profit • Profit dedicated to the chapter/council’s non-profit purpose • Profit not distributed to members • Phrase coined because it best characterizes intent 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

6. Financial Essentials Tax-Exempt Status • IRS classification • Exempt from federal income tax under certain code provisions • Non-profit not automatically tax-exempt • Must apply for tax-exempt status • May still have to pay state and local taxes 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

7. 501(c)(3) Educational, charitable, and religious organizations Form 1023 Charitable contributions may be tax deductible Financial Essentials Tax-Exempt Status • 501(c)(6) • Trade associations, professional societies, business leagues • Form 1024 • Charitable contributions are not tax deductible 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

8. 501(c)(3) Permitted to lobby – do not devote substantial part to lobbying activities Less than 5% of activities to lobbying Safe harbor – 501(h) election Financial Essentials Tax-Exempt Status/Lobbying • 501(c)(6) • No restriction on amount of lobbying activities • Business expense deduction for dues except that portion used to support lobbying activities • Amount of dues spent on lobbying must be disclosed to members 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

9. Tax-Exempt Status • NOT exempt from other taxes such as • UBI – Unrelated Business Income: Most states will require a business license • Federal Payroll (Social Security, Medicare and Unemployment) • Reportable Income • State Taxes • Sales Tax: A chapter must collect sales tax when they make a sale in a state where they have a presence, which for most chapters will be only the state where they reside. • State Real Estate and Personal Property Tax • State Gross Receipt Tax • State Unemployment Tax • Be cognizant of State regulations • May need to register to solicit charitable contributions • May need to file unclaimed property reports Go to https://www.irs.gov/Charities-&-Non-Profits to check status 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

10. Financial Essentials Tax-Exempt Status • Chapters/State Councils are responsible for filing for their own status; may not use SHRM’s status or federal Taxpayer Identification Number • IRS classifications based on nature of chapter’s/council’s activities • IRS makes final determination • Letter of Determination • File original in a safe place • A scan can be sent to SHRM Member Relations Department as a back up 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

11. Federal Tax Identification Number • Nine-digit number • Needed to open a bank account • Needed to file tax returns • Form SS-4 • Quick and easy to file online • Confirmation letter from IRS 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

12. Federal Tax Reporting • Form 990 • Gross receipts > $200,000 or total assets > $500,000 • Form 990EZ • Gross receipts < $200,000 and total assets < $500,000 • Form 990-N • Gross receipts of $50,000 or less • 15th day of the 5th month after the end of the chapter’s/council’s fiscal year with extension provisions up to 6 months • Penalties for late filings • Open to Public Inspection 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

13. Federal Tax Reporting - Unrelated Business Income • a.k.a. UBI • 990-T • UBI > $1,000 • Typically includes • Income from sale of merchandise • Income from advertising sales • Typically excludes • Conferences and trade shows • Sales of books • Affinity programs • Qualified sponsorship payments • Potential for state tax filing 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

14. Federal Tax Reporting - Employee or Independent Contractor • W-2 • Employee • 1099-MISC • W9 - Used to obtain name, address, taxpayer ID/SS# • Independent Contractor paid $600 or more • Program speakers • Web designer • Professional services • Chapter or Council paid staff (CMPs) 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

15. Policies • Expenditure Policy • What will you pay for • Records Retention/Disposal Policy • Requirements may vary by state • Reserve Policy • Standard is 50% to 200% of annual operating expenses • Spending Policy • How much of your investment income can you spend • Investments Policy • How money can be invested 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

16. Handling Funds • Bank Accounts • Open a separate bank account • Someone other than a check signer should receive the bank statement • Reconcile it every month • Cash Receipts • Direct deposit of Chapter/State Council Financial Support Payments • Need to send acknowledgement if a contribution is greater than $250 • Cash Disbursements • Have a reasonable number of check signers • Set dollar amount limits for check signers • Use a positive pay service • Written policies and procedures on expenditures • Formal documentation for reimbursement • No checks made out to “Cash” 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

17. Financial Reporting • Needed for both regulatory filings and management of operations • Cash vs. Accrual • Cash is the checkbook approach • Accrual recognizes transactions when they occur • Statement of Financial Position (Balance Sheet) • Statement of Activities (Income and Expenses) • Statement of Cash Flows 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

18. Financial Reporting • Chart of accounts • Include descriptions • Annual budget • Compare to actual • Cash flow projections • Create a regular reporting period 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

19. Making the Job Easier • Association Management Company • Software programs – popular Windows-based programs • Quicken • Cash-basis accounting • Quick Books • Accrual-basis accounting • Microsoft Money, Microsoft Money Plus… • Four products: essentials (personal finance) to small business • Peachtree Complete Accounting • A full accounting package • Local CPA Firm 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

20. Independent Audits and Alternatives • Best interests of chapter/council • Compilation • Review • Agreed-upon Procedures • Member’s Audit • Form 990 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

21. Investing Long- Term Investments • Have a Committee • Shouldn’t be just one person for internal controls and to manage risk • Determine how much you can invest • Hold a percentage of operations in short-term cash & investments • Use a financial advisor • Investment Policy • Outlines roles & responsibilities • Defines operating vs. reserves • Risk levels • Expected rate of return • Acceptable & unacceptable investments • Provides consistency • Monitor results 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

22. Insurance • General Liability • Directors’ and Officers’ Insurance • Exclusions • Event Interruption/Cancellation Insurance • Investigate competitive pricing • Compare “apples to apples” • SHRM does not provide insurance to affiliates • Available from ASAE/AON: www.asae-aon.com/Pages/Directors-and-Officers-Liability-Insurance.aspx 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

23. In conclusion . . . • Your chapter/council is a business • Need to employ sound business practices 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

24. Increasing non-dues revenue • Invest • Make a profit on chapter meetings • Establish relationships with law firms, other associations, universities, etc. • Sponsors and advertisers for meetings • Earn more CFSP through member drives / LMO recruitment / renewals/ SHRM Certifications • Some states offer profit sharing for conference attendance • Wage & benefit surveys • Sell logo items (UBIT!) More info on this topic in the Volunteer Leaders’ Resource Center at www.shrm.org/communities/volunteerresources/resourcesforchapters/pages/chaprfin.aspx 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

25. Income through Sponsorships and Advertisements For a fee, sponsors could receive: • A banner with their logo and the ability to introduce a speaker • Five minutes to discuss their product/service at the meeting (UBI) • A table at the meeting to have materials available for your members (UBI) • Their logo in the newsletter or on the website as a sponsorship • A free registration to the chapter meeting • An email sent to your members about the sponsor (UBI) You could also . . . • Create an HR Service Provider Online Directory (UBI) • Hold an HR Service Provider Fair Some sponsorships a taxable while others are not. More info on this topic in the Volunteer Leaders’ Resource Center at www.shrm.org/communities/volunteerresources/pages/workingwith.aspx 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

26. Qualified Sponsorships • Advertising is generally taxable as UBI • But “Qualified Sponsorships Payments” are exempt from UBI Tax ( a so-called “513(i) sponsorship”) • To qualify as such a sponsorship the payer must receive nothing in return for the sponsorship payment other than: • Acknowledgment of sponsorship • Display of sponsor name and logo with chapter event or activities • Listing of sponsor products and services (but not prices or advertising or comparative statements) • Link to sponsor home page • If additional benefits such as placement of ad are received, value of ad should be identified and is taxable (unless less than 2% of sponsor payment); rest of sponsor payment is still exempt from tax. • The right to “pitch” company services for 5 minutes would be taxable advertising; the right to speak at event on a topic, but not “sell from the podium,” should not be taxable.” 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

27. Financial Support from SHRM The Chapter Financial Support Payment (CFSP) Program returns a portion of each SHRM national member's dues to the chapter via a quarterly payment for 100% chapters or a twice-a-year payment for non-100% chapters. • $6.25 per quarter ($25.00 annually) per member for 100% chapters • $5.00 twice per year ($10.00 annually) per member for non-100% chapters Net Gain Payment • Paid in the first quarter of each calendar year • Calculated by subtracting the 12/31 national membership total for last year from the 12/31 national membership total for the current year and multiplying the difference by $25.00 More at www.shrm.org/communities/volunteerresources/resourcesforchapters/pages/cfsp.aspx 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

28. Financial Support from SHRM • SHRM will provide an annual payment of $20 to each chapter for every primary chapter member who holds a SHRM certification at the conclusion of 2015 and 2016, and $10 to state councils for all SHRM members in the state who do so. • This payment will be made for individuals who obtain the SHRM-CP or SHRM-SCP through the Pathway process or who earn the SHRM certification by passing the exam.  2015 SHRM VOLUNTEER LEADERS’ SUMMIT

29. SHRM’s Online Guide to Financial Management • This comprehensive guide is available online in the Volunteer Leaders’ Resource Center at www.shrm.org/Communities/VolunteerResources/ResourcesforChapters/Documents/Financial_Mgmt_Guide.doc and includes sections covering: • Investments • Tax Filings • Unrelated Business Income Taxes • Lobbying Activities • Travel and Meal Reimbursement • Record Retention Guidelines • Operating Considerations • Methods of Accounting and Financial Reporting • Checklist of Internal Controls Over a Chapter’s Cash Transactions • Auditing • Financial Maintenance Questionnaire Also, see articles on D&O insurance at www.shrm.org/communities/volunteerresources/resourcesforchapters/pages/chaprfin.aspx 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

30. Open discussion | Q & A 2015 SHRM VOLUNTEER LEADERS’ SUMMIT

31. THANKS! 2015 SHRM VOLUNTEER LEADERS’ SUMMIT