Sample Procedures Manual
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Sample Procedures Manual Sample Procedures Manual Document Transcript

  • Procedures Manual A Procedures Manual for the financial and membership processes of the Association should be developed by the Local officers and updated annually. The manual should include, but not be limited to, the titles of authorized check signers, chart of accounts, location of checking and/or savings accounts, policy for approving fund disbursement, components of the accounting system, etc. The manual should include enough detail to allow any officer of the Association to conduct the financial affairs of the Association. Development of Procedures Manual….. 1. Begin the manual with the following items modified to your local a. Fiduciary duties of Officers b. President’s Financial and Membership Processing Timeline c. Essential Local Financial and Membership Processes 2. Review the “checking account” section and modify to your local 3. Review the “budget” section and modify to your local the following: a. Budget calendar b. Budget process c. Authorization of funds policy d. Budget documents 4. Review the “member expenditure” section and modify to your local the following: a. Expense Voucher b. Expenditure Guideline Policy & Credit Card Policy (if applicable) 5. Review the “financial statements” section and include a sample copy of your financial statement. 6. Review the audit section and modify according to if your local has a formal audit or uses an audit committee. 7. Be sure you local is complying with the document retention policy 8. If you local has scholarship funds, be sure this section reflects your process IRS reporting needs to be defined including where the records are kept. This will be unique to your local. 9. Review the IRS section. I recommend keeping most pieces as this is good general information for any local officer who may review these procedures. 10. Add any additional policies of your local such as retirement gifts, flowers for family deaths, etc. Please note – this manual should reflect YOUR LOCAL policies and practices. This Procedures Manual is intended as a GUIDE only….. 5/13/2010 1
  • (Local Name) Procedures Manual Contents: 1. Fiduciary Duties a. Treasurer b. Executive Committee c. Budget Committee d. Audit Committee 2. President’s Financial and Membership Processing Timeline (to be used in coordination with Timeline for Action) 3. Essential Local Financial and Membership Processes 4. Checking Account a. Petty Cash Fund 5. Budget a. Calendar b. Process c. Authorization of Funds Policy d. Budget documents 6. Member Expenditures a. Expense Voucher b. Expenditure Guideline Policy i. Includes Credit Card Policy 7. Financial Statements 8. Audit 9. Document Retention Policy 10. Scholarship Funds 11. Employer Identification Number (EIN) 12. IRS Reporting 5/13/2010 2
  • Fiduciary Duties • Safeguard the assets of the Association. • Insure the resources of the Association are utilized to the maximum benefit of the members. Treasurer • Oversee all Association funds and be responsible for their safekeeping • Record and report all financial transactions o On a monthly basis, present complete and meaningful financial reports to the Executive Committee for their review and approval. o On an annual basis, present complete and meaningful financial reports to the membership for their review. It is best to do this in conjunction with the budget approval process. o Compare the actual income and expenses of the Association with the approved budget. Note any variances and recommend budget adjustments as necessary. o Coordinate and assist with an annual financial audit or review of the Association funds o Report the findings of the annual financial audit or review to the executive committee and/or any other designated body. o Monitor the cash flow and cash needs of the Association to maximize investment income and minimize borrowing. • Comply with federal, state and local reporting requirements including tax filings and political expenditure reports. • Ensure accurate dues and timely transmittal to MNEA by working with the membership chair • Serve on the governing board and/or executive committee • Serve as chairperson of the budget committee • Work with membership chair to verify membership numbers Executive Committee • Manage the Association • Approve disbursements • Assist with budget development • Review financial information monthly • Appoint audit committee or hire independent audit firm • Recommend membership dues to general membership • Review preliminary budget and recommend changes to the budget Budget Committee • Develop and prepare the budget. Audit Committee or Audit Firm • Review the Association’s financial records. 5/13/2010 3
  • President’s Financial and Membership Processing Timeline By July 1 1. Ensure all officers and membership chairs are trained in Association finances and understand their individual responsibilities. By August 31 2. Executive committee meeting to discuss following action items and develop timeline. 3. Review governance documents and existing language. 4. Begin development of procedures manual 5. Review budget process. If necessary, develop a budget. 6. Review financial process (should be outlined in procedures manual): a) Reporting requirements b) Checking account c) Expenditures i) Develop and implement expenditure guidelines ii) Ensure local members with state committee or delegate assignments understand state and/or local expense reimbursement process. d) Audit process identified e) Software packages or accounting system identified f) Employer Identification Number identified and documented g) Determine filing requirements for form 990, 990EZ or 990N h) Determine filing requirements for forms 1099 and 1096 6. Review membership chair and treasurer process as it relates to coordination of membership records, billing statements and PAC. 7. Review PAC process. ***IMPORTANT*** 8. Implement PAC payroll deduction with school district. 9. Review membership incentive programs MIP and NEIP. By September 30 10. Review, sign and return to MNEA headquarters the “Standard Schedule” document in the “Membership Processing Guide.” 11. Ensure the continuous roster is updated and returned to your regional office. By November 30 12. Meet with the treasurer and membership chair and review the coordination of efforts between membership records, billing statements and PAC. By April 30 13. Ensure all review items from #2 have occurred. 14. Request 5x7 cards for Fall Membership Processing (see Leader’s Update) Contacts at MNEA: • Membership – Sigrid Enloe (headquarters), regional office secretaries • Financial – Karen Struemph (headquarters) • PAC – Leila Medley (headquarters) Email addresses at MNEA: Firstname.Lastname@MNEA.org (i.e. Karen.Struemph@MNEA.org) 5/13/2010 4
  • Essential Local Financial and Membership Processes BUDGET • If the Association collects local dues you must have an annual budget (irregardless of local size or amount of local dues collected). The budget formulation and approval process should be defined in your by-laws. The groups that formulate and approve the budget (formulating and approving groups should be different) should also be noted. • The Association budget should be implemented and followed. • The Association should have a process for unbudgeted items. FINANCIAL • The Association should have an employer identification number (EIN). • The Association president and treasurer should know the filing requirements for the IRS forms 990N, 990EZ, 990, 990T, 1096 and 1099. The Association should file these forms by the IRS deadline. • The Association should have a written policy or statement about the financial system and process. This policy should include any pertinent information about the accounting records and/or accounting system and bank accounts. • The Association treasurer should provide financial reports, receipts and disbursements reports and bank statement copies on a regular (at least quarterly) basis. Your governance documents should state the frequency of reporting and to which bodies the information is reported. • Association financial records should be audited by an independent accounting firm or audit committee. The frequency of the audit should be defined in the governance documents. • Checking and savings account o All Association leaders should know the approximate balance in their checking account and any other cash accounts (savings accounts, certificates of deposit, other investments). o All Association leaders should know which bank(s) maintains cash accounts. o The EIN of the Association should be listed on all bank accounts and investments. o The Association should require two signatures on every check. Governance policy should designate which officers can sign checks. • Expenditures o The Association should have a voucher approval form. o The Association should have a voucher approval system that specifies which officers or leaders can authorize expenditure of local money. o The Association should have a policy that details the expenditure approval process and expenditure guidelines. The policy should include local expense reimbursement for members who receive state or national reimbursement for serving on state committee or as state and/or national delegates. o The Association should understand the implication of giving allowances or subsidies to officers or expense advances to members. o If the Association has a credit card, you should have a usage policy that defines authorized users and allowed expenditures. MEMBERSHIP (pages 49-53 of Financial Handbook) • The Association governance documents (officer responsibilities) should define which officer or leader is responsible for maintaining an accurate membership roster and membership records. Your membership chair and treasurer should work together to ensure the membership roster and dues billing statement from MNEA are accurate. 5/13/2010 5
  • • The Association leaders should know how dues deductions are transmitted from the school district to the Association. • The Association should have an agreement with the school district payroll office about members that want to stop payroll deduction without contacting the local. • The Association should have a copy of the “Standard Schedule”, a signed agreement with MNEA. • The Association leaders should understand the MNEA incentive programs MIP and NEIP. Budget and financial information is contained in the Local Association Financial Handbook and membership information is contained in the Membership Processing Guide available online at www.MNEA.org on the members’ only section or by contacting Karen Struemph (Karen.Struemph@mnea.org) or Sigrid Enloe (Sigrid.Enloe@mnea.org). PAC • The Association should request PAC payroll deduction through their school district. If 10 or more members want payroll deduction for PAC, state law requires the district to honor your request. • The Association should remind members annually about the purpose and importance of PAC and have a PAC drive. 50% of these funds are available for use in elections at the local level. • The Association leaders should know the legal implications of intermingling PAC contributions and dues. • The Association should understand how they can use PAC contributions and how to request local PAC money from MNEA. The MNEA handbooks “MNEA PAC Guidelines” and “MNEA PAC Contribution and Transmittal Guidelines” are available by contacting Judy Glover at 800-392-0236 or Judy.Glover@MNEA.org. GOVERNANCE DOCUMENTS • The Association governance documents contain language about the following items: o Officer duties o Budget formulation and budget approval o Checking account & expenditure approval and guidelines o Reporting of financial information & audit • The Association should review and update governance documents at least once every five years. Guidance about governance documents and Association policy is available by contacting Charles Smith at 800-392-0236 or Charles.Smith@mnea.org. COMMUNICATION 1. The Association should have set, timely meetings and keep official minutes of all meetings. 2. The Association should develop an annual calendar that lists all meetings and events of the Association and distribute this to membership. 3. The Association should have an internal communication system in place. 4. Association members should know how to contact local leaders and MNEA staff. 5. The membership chair and treasurer should work together to ensure membership records and dues billing are accurate. Guidance about governance activities is available by contacting Chris Guinther at 800-392-0236 or Chris.Guinther@mnea.org. 5/13/2010 6
  • Checking Account The local association has the following accounts: Name of bank Address of Bank Account Number Type of Account Online access to the accounts is available as follows: ??????? General Account Guidelines • The signers on ALL accounts should be changed when officers change • Officers of the Association including president, vice-president, secretary and treasurer should be authorized to sign checks on behalf of the Association. • Two officers designated as primary signers are the President or Vice-President and Treasurer. • Every check should have two authorized signatures unless dual approval is in place for expenditures. • Checks should be written only after authorized approval. • Never sign a blank check. • Checks should be pre-numbered and used in sequential order. All numbers should be recorded -- voided checks should be mutilated by writing VOID across the check and filed. • The check stub should be completed timely and accuately. • The bill should be marked paid and include the check number, check amount and date. All payments should be made from original invoices only. • The check supply should be kept in a place secure from theft and fire. • The President and Treasurer should receive copies of the bank statement. • The Vice-President should review the monthly bank reconciliation for accuracy. • All bills and expense vouchers should be checked for accuracy and appropriateness of charges. • All banks or other institutions where funds are deposited should be instructed not to accept withdrawals payable to cash. Any electronic fund transfer or automatic debit account arrangement should be established with the authority of at least two officers of the Association. 5/13/2010 7
  • Petty Cash Fund On occasion, the treasurer will receive a request for small expenses (less than $5). It is not practical to write a check for each small expense; therefore it should be paid from a petty cash fund. A petty cash fund maintains a minimal cash balance (generally $20 - $50) and is kept to meet small payments. To establish a petty cash fund: • An check is written for the amount of the initial petty cash fund (e.g. $50), payable to “Petty Cash.” • The check for Petty Cash is shown in the Cash Expenditure Journal under the miscellaneous column, with Petty Cash as the explanation. • The petty cash is kept in a safe place (safe, locked drawer). • As expenses (under $5) are received, a petty cash voucher is completed with the receipt attached, if available. The cash is disbursed and the receiver signs the petty cash voucher. Petty cash vouchers are kept with the petty cash. • When the petty cash fund runs low (e.g. under $15), the cash should be replenished for the amount used. In other words, the amount should equal the total of the petty cash vouchers used. Note: At any time, the petty cash plus the petty cash vouchers must total the amount of the petty cash fund (e.g. Cash $15, Vouchers $35 = $50). SAMPLE PETTY CASH VOUCHER ___ Date ________________________________________ ___ Amount ______________________________________ Purpose_______________________________________________________________ Budget Item or Category__________________________________________________ ___ Paid to:_______________________________________ (Signature) Attach receipt if available. 5/13/2010 8
  • Budget Budget Calendar May 1 School Board notification of dues withholding April 30 Membership meeting to adopt budget and dues April 14 Recommended budget distributed and discussed with general membership by Area Representative April 7 Representative council reviews proposed budget and makes recommendations to membership March 4 Proposed budget sent to representative council by budget committee Feb. 24 Deadline for program committees to submit budget recommendations to the budget committee Feb. 20 Survey details given to program committees by budget committee Feb. 15 Surveys due back from Area Representatives Feb. 4 Surveys sent to membership Jan. 29 Membership survey completed by budget committee and prepared for distribution to membership Jan. 8 Budget committee begins work on a new budget Budget Process • Develop a method for identifying members’ requirements and/or requests. This may be accomplished through a general membership meeting, building meeting, a member questionnaire, a small sample questionnaire, informal meetings, etc. • Gather the requests, requirements and surveys if used. Distribute to the appropriate officers and chairpersons of local committees for development of programs that reflect the results. Submit budget requirements to the budget committee within the timetable established. • Compile the results (categorizing by expense and income type) as submitted by the program committees. • Load the information into the Sample Budget Summary and/or Sample Budget worksheet • Submit the compiled results to the officers and executive board for consideration and evaluation. Realistic income projections must be developed as it determines the Association’s ability to finance the proposed program. Since the proposed budget will ultimately be the president-elect’s responsibility to administer, it is advisable that the president-elect chair the budget committee. The executive committee should chair the budget evaluation session. • Present the proposed budget to members, advising them of any changes in local Association dues. • Following approval of the budget, submit it to the treasurer for implementation. 5/13/2010 9
  • Authorization of Funds Policy The items in the Association budget must be approved for expenditure as follows: 1. Budgeted events or functions of the Association – the chair person of the event (if applicable) should determine expenses and get final approval from a member of member(s) of the executive committee of the Association as specified below. If possible, three bids should be received on events or functions costing in excess of $500. 2. The president of the Association may spend budgeted funds up to $500 without the approval of the executive committee. 3. An elected member of the executive committee of the local may spend budgeted funds up to $250 without the approval of the executive committee. 4. The following budgeted items may be spent by an elected member of the executive committee without approval: • Snacks for Association meetings • Postage and supplies for the business of the Association • Telephone calls for the business of the Association 5. All expenditures should be reviewed and discussed at each executive committee meeting. Unbudgeted items less than $250 must be approved by the executive committee. Unbudgeted items exceeding $250 must be approved by the representative assembly. 5/13/2010 10
  • SAMPLE BUDGET SUMMARY September 1, 20 _____ to August 31, 20 _____ INCOME Code No.* Budgeted 310A Local Dues: _______ Members @ $ _______ _________________ 320 Other Income _________________ Total Income _________________ EXPENDITURES (By major accounts) 410 Office Maintenance _________________ 420 Administration Salaries, Expenses & Taxes _________________ 430 Negotiations _________________ 440 Contract Enforcement _________________ 450 Legislative _________________ 460 Public Relations – Membership _________________ 470 Instructional/Professional Development _________________ 480 Conventions—Workshops _________________ 490 Social Activities _________________ 500 Gifts _________________ 510 Contributions _________________ 520 Scholarships _________________ 530 Contingency Fund _________________ Total Expenditures _________________ 5/13/2010 11
  • Sample Budget Worksheet _____________, 20 ______ to _____________, 20 ______ Month Day Year Month Day Year INCOME Actual/Projected Budgeted (Current Year) (Next Year) Dues and Fees Association dues: ___ members _____________________ _____________________ @ $____ _____________________ _____________________ Other Income Interest on Savings Account _____________________ _____________________ Assessments _____________________ _____________________ Donations – Financial Assistance _____________________ _____________________ Fundraisers _____________________ _____________________ Miscellaneous _____________________ _____________________ Total _____________________ _____________________ EXPENDITURES Office Expenses _____________________ _____________________ Salaries & Taxes _____________________ _____________________ Officer Expenses _____________________ _____________________ Negotiations and CB _____________________ _____________________ Legislative _____________________ _____________________ Public Relations/Membership _____________________ _____________________ Instructional/PD _____________________ _____________________ Conventions/Workshops/RA _____________________ _____________________ Social Activities _____________________ _____________________ Gifts _____________________ _____________________ Scholarships _____________________ _____________________ Miscellaneous _____________________ _____________________ Total _____________________ _____________________ 5/13/2010 12
  • Member Expenditures All officers of the Association should be authorized to approve expenditures on behalf of the Association. However, two officers should be designated as primary approvers. The approvers should NOT be the treasurer. The governing body or officers have the right to limit or disallow certain types of expenditures with Association funds. Expense Voucher An expense voucher should include the following: • Voucher number: Vouchers should be pre-numbered and sequential. • Check number: The check number should be noted on the voucher. • Amount: The amount paid and the check amount if different (e.g. paying multiple vouchers or invoices with one check). • Approved for payment: The appropriate approval based on local policy. • Received by: The person receiving the check should sign unless the check is mailed. Mail date should be indicated. • The bottom half of the voucher clearly explains the expense and provides any additional information. 5/13/2010 13
  • SAMPLE EXPENSE VOUCHER _____________________________ Association Voucher No. 1 2 _ 3 _ Date Check No. Amount ______________________________________________________________________Explanation _______________________________ ___________________________________ 4 5 Approved for Payment Received by (Payee) ______________________ _____________________________ President Signature ______________________ Treasurer (Attach to Receipt/Invoice) Expense Distribution Acct. No. Expense Classification ________________ 410 Office Maintenance ________________ 420 Administration Salaries, Expenses & Taxes ________________ 430 Negotiations ________________ 440 Professional Rights & Responsibilities ________________ 450 Legislative ________________ 460 Public Relations – Membership ________________ 470 Instructional/Prof. Development ________________ 480 Contributions ________________ 490 Miscellaneous ________________ 5/13/2010 14
  • Expenditure Guideline Policy General guidelines • Advances or allowances given to members for conventions or other Association business must be substantiated within 60 days of the event or the money returned. • Expense substantiation includes a completed voucher expense form with attached receipts, event itinerary and other documentation noting the business purpose. • Undocumented advances, allowances, or failure to return the money will result in the issuance of a 1099. The member will be subject to income and social security taxes on the advance. • Prior approval from an officer must be received before making an expenditure on behalf of the Association. • Meal expenses will be limited to $X per day and should not include alcohol. • Itemized receipts are required for all meals over $X. • Meals for more than one person must include each person’s name. • Mileage must be documented on an expense voucher. • Members should share a room whenever possible. • Transport service to and from the airport should be least expensive method. Vouchers must be submitted within 30 days of the date of the expense. Expense Policy The local Association will reimburse members for actual expenses while on official Association business. Only expenses related to travel, individual meals and lodging are reimbursable. Personal telephone calls and lounge charges are the responsibility of each individual and should be paid at time of hotel/motel checkout. All air travel shall be coach class. 1. Each traveler should pay or charge for his/her own meals. Meal charges should be reasonable but are limited to $x per day and $x per meal. Meals at an approved hotels/motels may be charged to the room. 2. Receipts are required for meals. If paying for more than one member or individual, list all names. 3. Car mileage must be reported on the Expense Voucher (mileage is determined from home to meeting location to home or school to meeting location to home when applicable). 4. Double occupancy for lodging whenever possible. Reservations are to be made by the local Association on the local Association credit card. To ensure your lodging costs are paid by the local, you must complete the housing request pursuant to local policy. 5. Bus, airport, limousine fares, and other forms of ground transportation as required: • Road, bridge, and tunnel tolls • Parking garage • Reasonable gratuities (15% recommended) 6. Receipts are required for housing and commercial carrier tickets (airline, bus, Amtrak), airport transportation and parking. 7. Vouchers must be signed and submitted within 30 days of trip or meeting. Vouchers should be updated daily. 5/13/2010 15
  • NEA/MNEA Trips • NEA/MNEA expense reimbursement guidelines govern NEA/MNEA vouchers. • An expense denied by NEA/MNEA because the Local NEA member failed to comply with the NEA/MNEA timelines for expense reimbursement, will not be reimbursed by Local NEA. If the denied NEA/MNEA expense is charged on the Local NEA credit card, the expense will be treated as a personal expense to the member and reimbursement to Local NEA required. • If NEA/MNEA expense reimbursement guidelines do not permit an expense (i.e. car rental), the expense may be submitted to Local NEA for payment. However, Local NEA reserves the right to deny reimbursement for any expense not allowed by the NEA/MNEA expense reimbursement guidelines. • A copy of the NEA/MNEA voucher and all documentation must be provided to Local NEA. If these copies are not provided, Local NEA will not reimburse the member for NEA/MNEA expenses and these expenses will be treated as a personal expense to the member and reimbursement to Local NEA required. Out-of-State Travel • All out-of-state travel must be approved by the president. • Attach a meeting or training session agenda to the voucher. This agenda should provide proof of dates and location of trip, as well as meals provided as part of the training session. Meals For any meal expenditure regardless of the amount, the IRS requires the following detail: 1. Name and location of the restaurant 2. Name of each individual(s) (each person’s name should be listed). 3. Date and amount of the expense 4. Necessary business reason for the expense 5/13/2010 16
  • Credit Card Policy The Association credit card may be used by the following officers of the Association: • President • Vice-President • Treasurer • Secretary The Association credit card may only be used for the following expenditures as budgeted by the Association: • Room charges • Airline tickets • Meal charges for Association functions or local delegates at the Representative Assembly if applicable • Gas when applicable (mileage logs must be provided and adjustments may be made for personal mileage) • Rentals if applicable Receipts must be obtained for all credit card charges and given to the treasurer with a completed expense voucher form. The treasurer should attach the expense voucher form to the credit card bill. A copy of the credit card bill and all vouchers should be provided to the executive committee when financial and bank statements are provided. Mileage Members will be reimbursed at the following rate: 50% of the current IRS rate per mile for one person in vehicle 65% of the current IRS rate per mile for two people in vehicle 100% of current IRS rate per mile for three or more people in vehicle Carpooling is encouraged. (2008: Current IRS rate is 58.5 cents per mile.) 5/13/2010 17
  • Record keeping Requirements • You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. If you prepare a record in a computer memory device with the aid of a logging program, it is considered an adequate record. • You should keep the proof you need in an account book, diary, statement of expense, or similar record. You should also keep documentary evidence that, together with your record, will support each element of expense. • You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. • Documentary evidence ordinarily will be considered adequate if it shows the following: a. Amount b. Date c. Place d. Essential character of the expense • Hotel receipt should show the following: a. Name and location of the hotel b. Dates of stay c. Separate amounts for charges such as lodging, meals, and telephone calls. • Restaurant receipt should show the following: a. Name and location of the restaurant b. Number of people served c. Date and amount of the expense 5/13/2010 18
  • Financial Statements Financial Reporting • The treasurer should present monthly financial reports and bank statements to the executive committee or other designated body for review. • The treasurer should present an annual financial report to the general membership of the Association Financial Reporting should include the following: • Statement of Cash on Hand (copies of bank statements should be provided to the Executive Committee) • Revenue and Expenses or Income Statement that compares budget to actual results • Each statement should include comparative numbers from the prior year • Financial Statements should be reported for a fiscal year (September 1 through August 31) BE SURE TO INCLUDE THE EXPECTATIONS OF WHEN, HOW OFTEN AND WHAT INFORMATION WILL BE PROVIDED… For example… 1. A report will be provided by the treasurer at each Executive Committee meeting. This report shall include the following items: a. Copy of all bank accounts that show activity and account balance b. Year-to-date income and expenditures with a comparison to budget 2. A report will be provided by the treasurer annually to the membership that will include the following items: a. Report of cash on hand b. Year-to-date income and expenditures with a comparison to budget. c. New year budget approved by membership. d. An written explanation of any unusual items, unbudgeted items or over-budget items e. Audit report or audit committee report 5/13/2010 19
  • Independent Annual Audit/Review Audit • The financial records of the Association should be examined annually by an independent audit firm or audit committee retained by the Association. • The report shall be provided to the executive committee and/or any other designated body. Selecting an Accounting Firm • Is the firm formally licensed to practice public accounting in your state? • Obtain and review a copy of the firms Peer Review Report. • Is the firm a member of the following organization? -a American Institute of Certified Public Accountants? -b Missouri (or other state) Society of Certified Public Accountants? • Is the firm able to provide the following references? -a Three major Non-Profit Clients? (Assets greater than $10M) -b At least one Union client? • The firm should provide formalized documented responses to the following questions: -a How can the firm demonstrate its familiarity with the accounting and audit issues affecting unions? -b What separates this firm from other audit providers in the area? -c How is the firm able to show its commitment to provide service to the Non-Profit sector? -d How do the firm and its staff stay on top of audit, tax and regulatory issues affecting unions/not-profit? -e By what means will the audit firm add value to the audit process? • Does the firm have expertise with the following pronouncements? -a FAS117 -b FAS116 -c FAS124 -d FAS136 -e FAS93 • Does the firm send their staff to technical Non-Profit conferences? • Does the firm have a niche-based expertise in the Non-Profit area? • Is the firm familiar with the following tax issues? -a Unrelated Business Income -b Intermediate Sanctions -c Contribution Reporting -d Form 990 Reporting Issues 5/13/2010 20
  • Internal Audit Committee The Audit Committee should review all payments made during the year to verify that expenditures were made for properly approved purposes. Each payment should be checked for an authorization signature by an Association officer or designee, and for adequate supporting documentation that clearly indicates what the payment represents. The Audit Committee should also examine bank reconciliations, payroll records, bookkeeping records and procedures, and all other financially records. Upon completion of the internal audit, the Committee should file a written report to be approved by the Association executive committee and included with the permanent records. The Audit Committee can play a critical role in maintaining the integrity of the Association’s financial reporting. Members should be selected from the board or general membership and should exhibit the following qualities: • A familiarity with how Association activities are reflected in financial statements • Some understanding of the auditing process • Lacking the above, at least a natural curiosity and an inquiring mind Consideration should be given to individuals with previous experience in business such as bankers, internal auditors, retired CPAs, corporate officers, etc. The Audit Committee should be concerned with the following things, at a minimum: • The determination of the physical existence of assets • The accuracy of the records and the reports to the executive committee • Ascertaining that payroll taxes, licenses, sales taxes, other taxes and corporate reports are properly filed in a timely manner • The adequacy of internal control • The proper authorization of activities and expenditures • A review of the tax-exempt status and identification of any activities that may endanger the tax-exempt status 5/13/2010 21
  • Audit Committee Report ____________________ President ____________________ Education Association We have performed the procedures enumerated in the checklist for review of quarterly financial records as contained in the Local Association Local Association Financial Handbook. Based upon completion of those procedures we have satisfied ourselves that the Association’s cash basis transactions for the period ending ____________ ____, 20__, as reflected in the accompanying financial statements, are accurately and reasonably recorded in the books and records of the Association. __________________ Audit Committee Chair __________________ Date 5/13/2010 22
  • Checklist for Review of Quarterly Financial Records Done By Date (Initials) 1. Obtain the cash receipts journal and perform the following: a. Scan the entries for the current quarter and look for any unusual receipts. _______ ______ Purpose: To identify and review any atypical/unusual transactions. An unusual transaction differs in nature from the common activities of the organization, or in the amount from the common activities of the organization or any item that based on the judgment of the reader warrants further review. b. Obtain support for entries noted in (a) above. _______ ______ Purpose: To obtain support for items identified in (a) in order to validate the transaction. c. Trace the total of each month’s cash receipts journal to the cash transaction summary prepared by the treasurer. _______ ______ Purpose: To compare the bookkeeping records to an independent internal source to verify that the amounts recorded are accurate. 2. Obtain the cash disbursements journal and perform the following: a. Scan the checks listed for the current quarter and look for any atypical/unusual items or payees as well as high dollar amounts. _______ ______ Purpose: To identify and review any atypical/unusual transactions. An atypical/unusual transaction differs in nature from the common activities of the organization, or in the amount from the common activities of the organization or any item that based on the judgment of the reader warrants further review. b. Obtain supporting invoices for each item noted in (a) above. _______ ______ Purpose: To obtain support for items identified in (a) in order to validate the transaction. c. Examine the check numbers to determine that they were listed in sequence and no check numbers were skipped in each month as well between months. Verify the retention of void checks. _______ ______ Purpose: To account for all pre-numbered checks. d. Examine a few checks at random from each month to determine the appropriate official signed them and that amount, date and payee agree with the disbursement journal. _______ ______ Purpose: To determine that proper procedures were followed in the disbursement of funds. e. Examine unused checks and determine that the next check available is in sequence with the last check entered in the disbursement journal. _______ ______ Purpose: To account for all pre-numbered checks, in association with (c). 5/13/2010 23
  • f. Trace the total of each month’s cash disbursement journal to the cash summary prepared by the treasurer. _______ ______ Purpose: To compare the bookkeeping records to an independent source. g. Verify that paid invoices/bills comply with the minutes of the local. _______ ______ Purpose: To determine that proper procedures were followed in the disbursement of funds. Scan the bills paid in the quarter to determine that they were disbursed in accordance with the by-laws and constitution. _______ ______ Purpose: To determine that proper procedures were followed in the disbursement of funds. 3. Obtain the checkbook and verify that the balance for each month agrees to the cash summary prepared by the treasurer. _______ ______ Purpose: To compare the bookkeeping records to an independent source. 4. Obtain a bank reconciliation for each month in the quarter and perform the following: a. Compare the checkbook balance on the bank reconciliation to the checkbook for each month. _______ ______ Purpose: To determine that the amounts used in reconciling the bank statements are accurate. b. Compare the bank balance on the bank reconciliation to the bank statement for each month. _______ ______ Purpose: To determine that the amounts used in reconciling the bank statements are accurate. c. Review every reconciling item for each month. Check the following month’s bank statement and/or cash disbursements to verify that the items were resolved. _______ ______ Purpose: Reconciling items are adjustments to the bank reconciliation. This step is used to determine that reconciling items are accurate, reasonable and valid. Individuals present: _______________________________________________________________ _____________________________________________________________________________ ______________________________________________________________________________ 5/13/2010 24
  • Retention Guidelines U. S. Government Retention Requirements The following retention requirements refer to those issued under the Internal Revenue Code of 1954 and the United States Code of Federal Regulation (CFR). Income Tax – Exempt Organizations In addition to the books and records required by the “Income Tax – General” paragraph with respect to the tax imposed on unrelated business income, every organization exempt from tax under section 501 (c) of the Code, which includes sections 501 (c) (5) and 501 (c) (6), shall keep such permanent books of account or records as are sufficient to show specifically the items of gross income, receipts, and disbursement, and other required information. Tax – Exempt Organizations – General The general “materiality” rule applies to keeping records and books of account pertaining to information including items of gross income, receipt, disbursements, and contributions and gifts received, and to keeping other pertinent information which will enable the district director to inquire into the organization’s exempt status. An organization claiming an exemption from the filing of an information return must maintain adequate records to substantiate such claim. The Internal Revenue, in fear that they might forget something, has imposed a general requirement that has become known as the “Materiality Rule” to cover everything that is not assigned a specific retention period. The general requirement is that records must be kept “so long as the contents thereof may become material in the administration of an internal revenue law. Some books and records of business may be “material” for tax purposes so long as the business remains in existence, and there may be reasons other than the federal tax consequences to the individual taxpayer for retaining certain records for an indefinite period. To be more precise, we can separate records into two categories as follows: 1. Records of property from which a basis must be determined to compute gain or loss upon disposition (and depreciation, amortization, or depletion is made). Thus, if property is given a substitute basis, i.e., the basis it had in the hands of the prior owner adjusted as required by the Code or regulations, all records pertaining to that property must be retained. After a taxable disposition, the specific and/or general record retention rules as listed elsewhere will apply. 2. Records of income, deductions, and credits (including gains and losses) appearing on a return should be kept, at a minimum, until the statue of limitations for the return expires (three years after return was filed for IRS assessment). There is a six year period of limitations for assessment if there has been a substantial omission of income. The period of limitations may be extended by mutual agreement for any length of time, and no statutory period applies if fraud is established or if no return was filed. It should be pointed out the failure to retain records for a sufficient length of time could result in the assessment of additional tax because of determining gain or loss on the disposition of property. Common sense and realism should prevail when defining the retention periods. 5/13/2010 25
  • Document Retention Policy The Document Retention Policy sets forth the rules that are to be followed by officers, employees, and other representatives of the Association with regard to the retention and disposal of documents that are produced or received by the Association in the course of its operations. The existence of the Policy serves several important purposes. The premature or random destruction of certain documents may result in the loss of information that is necessary for the effective maintenance and operation of the Association, or may run afoul of legal requirements. At the same time, the retention of documents that no longer serve an operational or legal purpose can cause logistical and other problems. The Policy has been adopted in order to deal with these and other related concerns. As used in this Policy, the following terms have the meanings indicated: A. The term “documents” means materials kept in any medium by which information can be recorded or presented; B. The term “hard-copy documents” means paper or other hard-copy documents; C. The term “electronic documents” means documents other than hard-copy documents, including computer files of any kind, such as e-mail, website, and internet communications; D. The term “non-essential documents” means documents that are not essential on a continuing and long-range basis to the maintenance or operation of the Association, does not have historical value for the Association, and are not subject to a legal retention requirement; E. The term “institutional documents” means documents that are necessary on a continuing and long-range basis for the maintenance or operation of the Association, and documents that have historical value for the Association; F. The term “legal documents” means contracts, leases, and other documents that create legal rights and obligations, documents that at a particular point in time are subject to a legal retention requirement because they deal with an event or topic that is relevant to litigation or a government investigation, and documents that are subject to a statutory or regulatory retention requirement. 5/13/2010 26
  • Unless otherwise indicated, documents shall be retained for the following periods: Non-Essential Documents shall not be retained for more than three years after their production or receipt. This three year limitation shall apply to both hard-copy Non-Essential Documents (including individual “chronological files”), and electronic Non-Essential Documents. The following retention periods shall apply to the documents indicated: a. Leases, contracts, retainer Six years after Agreements, and other documents that termination of the transaction in question create legal rights and obligations b. Documents relating to the election of officers One year c. Financial documents -- Tax filings and returns Permanently -- Records supporting general tax filings and returns Seven years -- Property records Permanently d. Governance documents -- Governance meetings Permanently -- Constitution and by-laws Permanently -- Membership Information Two years 5/13/2010 27
  • Scholarship Funds Locals can pay scholarships using local dues money. If this is the situation, then the local should do as follows: 1. Report the scholarship paid as expenditure on form 990 (if filed) 2. Retain the following information: a. Scholarship recipient(s) and address(es) b. Amount of scholarship c. Scholarship criteria d. Scholarship applications e. Scholarship contributions greater than $100 If locals pay scholarships from donated money from individuals and the local does NOT utilize the Missouri NEA Charitable Fund, the local should do as follows: 1. Provide a letter to the donor stating the donation is NOT tax deductible if the money is remitted to the local association 2. Retain the following information: a. Scholarship recipient(s) and address(es) b. Amount of scholarship c. Scholarship criteria d. Scholarship applications e. Scholarship contributions greater than $100 If the local pays scholarships from donated money held in the School District Scholarship Fund, the school district is responsible for providing a letter to the donor stating the tax deductibility of the contribution (the contribution is tax deductible if the scholarship fund is run through the school district or school district scholarship fund). The school district is also responsible for reporting to the IRS (if any required). The local should do as follows: 1. Retain the following information but is not required to report it to the IRS: a. Scholarship recipient(s) and address(es) b. Amount of scholarship c. Scholarship criteria d. Scholarship applications e. Scholarship contributions greater than $100 f. Financial activity (so they can verify the balance in the school district scholarship fund) Employer Identification Number (EIN) The local EIN number is _______________________________. For assistance with an EIN contact the MNEA headquarters at 800-392-0236 for assistance. 5/13/2010 28
  • INTERNAL REVENUE SERVICE General A non-profit organization, whether incorporated or not incorporated, is not automatically exempt from Federal Income Tax. In order to be exempt, an Association must be officially recognized by the IRS as a Tax Exempt Non-Profit Organization. The official evidence of your tax-exempt status is a determination letter granted by the IRS. A 501(c)(5) labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. The IRS allows for state associations to include local affiliates under a Group IRS Exemption. MNEA has group exemption number 9312 and all state affiliated associations are exempt from federal income tax under the MNEA exemption. An Association may be in jeopardy of losing its tax-exempt status for non-compliance or other prohibited activities. Private inurement may result when the organization’s assets or earnings are used for the benefit of an insider rather than for the good of the organization. For instance, compensation paid to employees that is disproportionately high compared with their duties could be considered private inurement. Excessive travel or entertainment expenses could also constitute private inurement. Procuring merchandise or services from vendors who are relatives or friends of insiders at higher than market rates or for other inappropriate reasons can also constitute private inurement. Transactions with insiders should be closely scrutinized because of the inherent conflict of interest that may exist. The Association should set and follow very strict standards concerning compensation and benefits, travel, entertainment and other expenses. Not only can the IRS revoke a not-for-profit’s tax-exempt status as a penalty for private inurement, it can now force “disqualified persons” (generally directors, officers, or key employees) benefiting from inappropriate transactions, to pay an excise tax of 25% of the excess benefit received. To maintain exempt status, local Associations must comply, at all times, with the strict guidelines for both tax exemption and not-for-profit status. Following is a summary of some “do’s and don’ts”. Note specifically the restrictions on “candidate elections”. IRS Restrictions on Activities of Tax Exempt Organizations Receive tax-deductible charitable contributions No Receive contributions or fees deductible as a business expense Yes Substantially related income exempt from federal income tax Yes Investment income exempt from federal income tax Yes Engage in legislative advocacy Yes Engage in a candidate election advocacy Limited Engage in public advocacy not related to legislation or election of candidates Yes Does tax exemption mean that the Association is exempt from all taxes? No All 501( c) 5 associations in the state of Missouri are subject to other taxes such as federal payroll, state and local unemployment, real estate, personal property, sales and use, lobbying activities, business license, etc. 5/13/2010 29
  • IRS Forms 990, 990EZ, 990N, 990T Previously filed forms held by local Treasurer. Please refer to what was done the previous year before filing the current year’s forms. Do NOT wait until the last minute to file this return. • Due January 15 Tax-exempt Associations must file an annual information return using IRS Form 990, 990EZ, or 990N “Return of Organization Exempt from Income Tax”, even though a tax liability does not exist. To determine which form you need to file, you need to review the “gross receipts” of your local association. “Gross Receipts” are local dues, interest income, sale of promotional items, etc.) For example, if your local has 1,000 members and charge annual local dues of $25 per member, your local dues are $25,000. If you are a smaller local of 500 members and charge annual local dues of $50 per member, again your local dues are $25,000. The thresholds for filing the form 990’s are as follows: 2008 (form due 1/15/09) gross receipts <$25,000 (990N), gross receipts <$1,000,000 (990EZ)gross receipts $1,000,000 or more (990) 2009 (form due 1/15/10) gross receipts <$25,000 (990N), gross receipts <$500,000 (990EZ) gross receipts $500,000 or more (990) 2010 (form due 1/15/11) gross receipts <$25,000 (990N), gross receipts <$200,000 (990EZ) gross receipts $200,000 or more (990) Filing the 990N (or e-Postcard) – Gross receipts <$25,000 Required Information: 1. Organization’s legal name 2. Any other names the organization uses 3. Organization’s mailing address 4. Organization’s website address (if applicable) 5. Organization’s employer identification number (EIN) 6. Name and address of the local President 7. Organization’s annual tax period (always 9/1/xx through 8/31/xx) 8. Verification that the annual gross receipts are $25,000 or less AND 9. Verification that the organization HAS NOT dissolved The Urban Institute provides online assistance for filing the form 990, 990EZ and 990N at a minimal charge (free for locals with gross receipts <$100,000). Visit their website at http://efile.form990.org or epostcard.form990.org (gross receipts <$25,000) It is VERY important you file the form 990, 990EZ or 990N. Failure to file a timely return could mean a penalty of $100.00 per day, up to $5,000 for the Association and/or its treasurer and a loss of the Association’s tax-exempt status. Tax forms, samples and instructions can be found on the IRS website at www.irs.ustreas.gov. If your local does not retain the services of an accountant or CPA, you should contact Karen Struemph at Karen.Struemph@MNEA.org or 800-392-0236 when receiving IRS correspondence. You should also contact Karen Struemph with questions about completing and filing IRS forms. 5/13/2010 30
  • Tax Return Requests If you receive a request from an external organization for a copy of your form 990, immediately contact Karen Struemph at 800-392-0236 or Karen.struemph@mnea.org. Be prepared to send a copy of the request to Karen for review. Non-NEA friendly groups such as the Heritage Foundation periodically make such requests and MNEA will ensure you comply with the law in responding to such request. Taxable Income Federal tax-exempt status is granted to unions and professional associations under IRS Code Section 501(c)(5) or 501(c)(6). MNEA is a 501(c)(5) association. The 501(c) label means that associations are exempt from paying corporate federal income tax on income generated from activities that are substantially related to the purposes for which the association was organized (i.e. the purposes for which the association was granted tax-exempt status in the first place). However, the association may be required to pay federal and state income tax on income that is unrelated to its tax-exempt purposes (called unrelated business income tax– UBIT). This activity must be filed on the form 990-T. Tax Return Form 990-T (due January 15) If a local’s unrelated business income exceeds $1,000, they must file an annual tax return Form 990-T, “Exempt Organization Business Income Tax Return”. Not-for-profit organizations often conduct activities that generate income that is unrelated to their tax-exempt purpose. The IRS imposes an unrelated business income tax (UBIT) on income generated from these activities. Although the definition of unrelated business income is sometimes subject to interpretation, it generally means income from activity unrelated to an Association’s exempt purpose. Rental income from debt financed property and advertising income from advertisements in newsletters are examples of unrelated business income. Interest income from checking and/or savings accounts and other investments, if not a significant part of total Association income, is not considered unrelated business income and is not taxable. 5/13/2010 31
  • IRS Forms 1096 and 1099 The IRS forms 1096 and 1099 are due to the individual on January 31 and to the IRS on February 28. The Association is required to file forms 1096 and 1099 under the following circumstances: 1. Payment of $600 or more to any unincorporated person or organization in a calendar year for services or labor (i.e. janitorial services, painting services, consultants, and accounting firms) for which no withholding of social security taxes and income tax was made. 2. Payment of $600 or more in subsidies to a member who is not an employee of the Association. This could include officer subsidies. 3. Payment of $600 or more to a member for an allowance or advance that is not appropriately documented as a business expense (i.e. national or state delegate advances, cell phone allowances, mileage allowances, etc.) 4. The IRS specifies allowances or advances must be adequately substantiated and/or returned within a reasonable period. A reasonable period is defined by the IRS as 120 days from the end of the event. Please contact Karen Struemph at MNEA headquarters for more specific details. Form 1096 Annual Summary and Transmittal of U.S. Information Returns The summary form must be forwarded to IRS along with a copy of all 1099 forms issued by the Association. File on or before February 28. Form 1099 MISC Statement for Recipients of Non-employee Compensation Used to report remuneration of $600 or more paid to those persons during the calendar year, for which no withholding of social security taxes and income tax was made over the year. A 1099 form must be issued to each person receiving such remuneration on or before January 31. These forms are generally used for accounting services, legal services, consultants etc. 5/13/2010 32
  • Internal Revenue Service Audit The main reasons for an audit by the Internal Revenue Service are to determine: • Whether the organization is operating in accordance with its exempt purpose. • Whether any income generated by an organization may be subject to the unrelated business income tax (UBIT). • Whether disbursements were made for prohibited political expenditures. (Refer to Form 1120- POL for political expenditures.) • Whether the organization is complying with Federal regulations related to employee payroll (withholding tax, social security tax, unemployment taxes, W-4’s). In this area, the IRS also looks for employers that circumvent employment tax laws by classifying an employee as an independent contractor/consultant. According to guidelines issued by the U.S. Supreme Court and the Equal Employment Opportunity Commission, a host of factors determine whether a worker is a full-fledged employee or an independent contractor, mostly having to do with who controls the employee’s workplace, hours, performance, and job security. Usually, if the Association has a great degree of control over the worker’s work and how and when it is performed, the Association would be considered the worker’s common law employer. • Whether all compensation to Association officers or staff has been reported to the IRS. In addition to salary, the IRS considers certain travel reimbursements and allowances (including meals) and some fringe benefits as reportable compensation subject to Federal Income Tax. If travel expenses are undocumented (e.g. missing backup receipts, not included in an expense voucher describing business purpose of expense) or are non-business related (e.g. spousal travel expenses), they should be treated as compensation and reported to the IRS. During the course of the audit, any or all of the following records for the year(s) covered by the audit may be examined: • Organizing instruments (articles or incorporation, tax exempt determination letter) • By-laws • Minutes of all meetings of the Association, including executive committee meetings • All books and records of the Association’s assets, liabilities, receipts, and disbursements • Payroll records • Check register, cancelled checks and bank statements • Copies of any federal tax or information returns filed • Correspondence files The need to keep adequate records to support an audit is obvious. Where the record keeping or accounting is deficient, or where the supporting documentation is lacking, the IRS will arrive at his or her own conclusions. It is unlikely that the IRS will give Associations the benefit of doubt in situations that cannot be supported by appropriate records and documentation. The consequences of a negative audit could be taxes, fines and penalties to an Association and/or payment of individual income tax (possibly retroactive) by Association officers or employees. At worst, the IRS could revoke the Association’s status as a tax-exempt organization. Your local should establish a Document Retention Policy in accordance with local, state and federal regulations (see Section VI). 5/13/2010 33