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Chapter Finance Guidelines 2-08 Use SHIFT ENTER to open the ...Document Transcript
Chapter Finance Guidelines
Chapter Finance Guidelines
This section on chapter finance is designed B. Treasurer
to offer clear guidelines to chapter officers in The treasurer manages the chapter’s
the key area of chapter finance. The financial affairs in accordance with the
information included here is designed to chapter’s established financial policies
outline essential financial decision-making and procedures.
as well as to offer detail of special 1. Assumes responsibility in conjunction
significance to the development and with the Finance Committee for budget
management of financial systems. All preparation.
officers will benefit from a review of this 2. Manages the chapter’s financial
document. The chapter president, treasurer records and financial information
and committees with fiscal responsibility – systems and recommends system
the finance, audit and investment changes when indicated.
committees – will find their areas of function 3. Recommends financial policy and
addressed. The treasurer will benefit further procedure to the board.
from the Chapter Treasurer’s Manual 4. Presents a written financial report to
designed to serve as a handbook detailing the board at least quarterly and to the
“how-to” information. It is available from membership annually.
headquarters. 5. Works closely with the external
auditor and/or an internal audit
FINANCIAL RESPONSIBILITY, ROLES committee in the examination of the
AND SYSTEMS chapter’s financial policies,
procedures, records and status.
I. Chapter Board of Directors, Officers 6. Initiates and prepares all chapter
and Committees financial reports required by
A. Chapter Board of Directors headquarters.
The board of directors is ultimately 7. Prepares and submits all tax forms
responsible for the wise and effective required by the state and federal
management of the chapter’s financial governments. As of 15 November
resources. To meet these 2008, this includes the IRS Form 990,
responsibilities, the board performs the 990N, or 990EZ.
following functions: 8. Serves as an ex-officio member of the
1. Adopts an annual budget consistent Finance Committee.
with the chapter’s goals and its
financial resources. C. The Finance Committee
2. Establishes written financial policies The Finance Committee advises the
and procedures and reviews them at treasurer and the board of directors in
least once a year. financial matters and is responsible for
3. Monitors the income and budgeting and monitoring the chapter’s
disbursement of funds on a regular financial procedures and status.
schedule. 1. Plans the budget in conjunction with
4. Makes investment decisions. the chapter treasurer based on
5. Assures an annual audit/review with chapter financial resources and
an external audit commissioned at chapter goals.
least biennially. 2. Recommends the proposed budget
to the board for action.
6. Provides for annual financial reports
to chapter members. 3. Monitors budget performance on a
regular basis and analyzes
variances in expense and revenue All bank deposits should be correctly
from expected performance. and promptly recorded. The ledger
4. Reviews chapter investment policy must agree with (i.e., be reconciled
on an annual basis and with) the bank account statement
recommends desired changes in each month. Having a chapter officer
policy and procedure. or Finance Committee member, in
5. Participates in the selection of an addition to the treasurer, check the
auditor, reviews the audit report and reconciliation and sign to that effect
recommends any corrective action provides a double check of the
required. accounts and is a safeguard for
6. May function as an internal audit officers and the Finance Committee.
committee at the discretion of the 4. General Ledger
board. A general ledger lists all the chapter
7. Provides direct assistance to the accounts – checking, savings, all
chapter treasurer in financial investment accounts, review and
management functions when disbursements – by sources and
needed. account number. It provides an
organized way to record all receipts,
II. Financial Management disbursements and transfer of funds,
A. Financial Management and which should be entered in a timely
Information System fashion, in chronological order, and
The chapter’s financial management itemized by each individual
and information system provides a transaction. Ledgers should be
means of identifying sources of income summarized monthly and all bank
and justifying and tracking expenditures investment balances must be
in accordance with the approved reconciled (agree) with bank and
budget. It permits reporting of the investment statements.
current financial state of the chapter, 5. Financial Management System
supports economic decisions, facilitates There is no specific format required
budget projections and provides for a chapter’s financial
evidence of responsible financial management system. Formats for
management. All records of income and recording and summarizing income
expense and support documents and expense by category are
comprise this system. available in business supply shops
1. Deposits and Deposit Receipts along with forms for supporting
Deposits should be made promptly documents like vouchers and
to protect funds and take advantage receipts. Headquarters recommends
of interest accrual. Bank deposit the use of an automated accounting
records should be filed, retained and system. A growing number of
checked against monthly bank chapters currently have an
statements. automated financial system
2. Disbursements providing them with a budget format;
All disbursements, except those a tracking system for checking,
from petty cash, should be made by savings and money market
check. Supporting vouchers for each accounts; quarterly and year-end
disbursement indicating the payee, actual versus budgeted expense and
the check number and the date of income statements; a year-end
reimbursement should be issued balance sheet; and a year-end
and retained. performance report of investments.
3. Checkbook Ledger Advantages of automated systems
are many including ease of record
keeping, ease of transfer to chapter funds. In considering a
incoming treasurers and uniformity fidelity bond, it is generally true that
of the system over time. There are a the greater the assets that the
number of automated accounting chapter holds, the greater the need
systems that have been identified as might be for such insurance. If bond
user-friendly and comprehensive. is desired, all officers with the power
to manage the chapter’s money –
B. Protecting Chapter Assets sign checks, withdraw money, make
Financial trust is a major chapter investments– should be bonded.
leadership responsibility. This trust Fidelity bonds can be obtained from
requires careful attention to policies and insurance agencies and brokers.
procedures designed to protect the Note that costs can vary widely.
chapter’s assets. It requires that board More information is available from
members become conversant with the headquarters if needed.
chapter’s system along with the 3. Financial Reporting and Budgetary
methods for safeguarding funds. Control
Regular reports from the treasurer along The Finance Committee should
with the opportunity to monitor budget review the status of the budget on a
performance are basic to reasonable regular basis, examining actual
understanding. In general, good versus budgeted income and
business practices should guide the expense and analyzing significant
board of directors. variances as well as ensuring that
1. Internal Accounting Safeguards IRS Form 990, 990N, or 990EZ is
Certain financial policies and submitted by the chapter treasurer
procedures must be in place to each year on 15 November. The
ensure that chapter funds are board of directors should also review
secure. Among financial safeguards budget performance on a regular
requiring board direction through schedule, taking into account the
policy and procedure are: signatory Finance Committee analysis and
authority for those persons initiating corrective action when
authorized to accept money; indicated. Quarterly reviews are
approve disbursements and sign recommended as a minimum for
checks; approval of those persons both the Finance Committee and the
authorized to place an order or board of directors. Many chapters
purchase goods and services; how a schedule a financial report at each
petty cash fund is to be handled; board meeting. Appending written
which financial transactions require financial reports to minutes of the
dual signatures; provisions for a board is a wise plan. Further, an
fidelity bond, if desired; and annual financial report to the
acceptable and unacceptable membership is essential in fulfilling
investment instruments. (See Policy the chapter’s financial trust.
Development Section) 4. Record Safekeeping
2. Fidelity Bonds Certificates of deposit, treasury bills
It is recommended, but not required and other official records of
by Sigma Theta Tau International investment documents should be
that the treasurer and other chapter retained in a safe place. All financial
officers be bonded. Fidelity bonds, records must be retained in chapter
however, are designed to protect the files for seven years. In addition to
chapter against unwarranted ledgers and reports, registration
financial loss through the actions of lists, vouchers and receipts must be
a person authorized to handle saved.
D. The Audit
C. Budget Preparation Financial audits are performed primarily
The budget is a financial management to determine if accounting procedures
tool of many uses. It serves as a are fair, complete, objective and
financial plan for carrying out the goals accurate. In addition to the audit trail – a
and programs of the chapter and is the detailed examination of the recording of
basis on which actual financial each financial transaction and support
performance can be measured against documentation like vouchers and
planned performance. Regular review invoices – the auditor looks for clear
over the course of each year provides lines of decision making. The auditor
opportunities to control costs and/or provides a written report of the audit
expand programs. process and renders an opinion about
1. Biennial Budget the soundness of chapter procedures as
It is suggested that chapters well as offering suggestions for
construct a biennial budget. A two- improvements, if indicated.
year budget plan offers greater 1. Audit Frequency
continuity in support of chapter It is recommended that an external
program goals and program audit be performed at the end of
development. Ideally, a chapter each fiscal year. If once every two
budget should begin in the first term years is elected by a chapter, an
of the chapter president’s two-year internal audit (or review) is
term of office. Chapter Bylaws recommended in the alternate year
recommend staggered terms of with the external audit scheduled at
offices and suggests that the the end of the treasurer’s second
treasurer’s term begin the second year in office. In the event of an
year of the president’s term. Such a every-two-year schedule for external
plan allows time for orientation to the audit, the audit should cover the two-
role of treasurer and time for year period.
adequate planning for the next 2. External Audit
biennium. An audit is only performed by a
2. Annual Budget certified public accountant (CPA)
If a biennial budget is not prepared, who is completely independent of
an annual budget should be the chapter. These individuals or
prepared prior to the start of each firms are licensed and qualified to
new fiscal year. If a biennial budget issue official opinions regarding the
is in place, the second year plan fairness of the financial statements.
should receive a thorough review, 3. Internal Audit/Review
updating and board approval prior to An internal audit/review may be
the beginning of the second year. performed by chapter members
3. Revenue Considerations appointed by the board. They may
Addition of new programs requires be members of the Finance
thorough identification of anticipated Committee or a special audit
costs and the income necessary to committee appointed by the Board.
cover these costs. The main source Internal audit procedures are
of chapter income is typically designed to look at the same
provided by membership fees. New variables as an outside reviewer
member and renewing member would examine. They include:
projections are essential in a. Evidence of clear lines of
determining anticipated revenue. responsibility for decision-
making regarding the recording
and monitoring of income and any desired consultation. Transition
expense. information for incoming treasurers
b. A system in place that facilitates should include a joint review of the
the prompt and accurate budget and budget performance, a
classification and recording of review of the financial information
revenue received and expenses system, a review of the latest audit and
distributed. the identification of any outstanding
c. Evidence that all disbursements financial problems.
of money are supported by
documentation such as invoices. F. Consultation
d. Evidence that those persons It is not unusual that treasurers come
receiving and depositing income into their responsibilities with little
and distributing chapter funds preparation for the role and modest
are authorized by chapter policy experience with budgets and financial
to do so. record keeping. The role of treasurer is
e. Evidence that bank account full and time consuming, and experience
balances are reconciled with has shown that the need for expert
bank statements on a regular assistance is felt by the majority. The
and timely basis. financial staff at headquarters is more
f. Evidence that chapter cash is than pleased to offer assistance directly
handled by authorized persons. and through referral to others who can
An internal audit/review group help.
should submit a brief report of
their review and their findings to III. Policy Development
the board along with any The board of directors holds both legal and
recommendations they might ethical responsibility for the chapter’s
have for improving financial financial management. Fulfilling this
systems. responsibility is central to effective
g. Evidence that federally required management of nonprofit organizations. The
Form 990, 990N, or 990EZ is laws of both federal and state governments
completed by chapter each year. speak to many aspects of nonprofit
4. Audit Cost organizations, granting both privileges and
The cost of an external audit is restrictions in the protecting of these
related to the scope of the audit, the organizations committed to the public good.
amount and intensity of financial As guardians of the honor society’s mission,
activity, ease of date retrieval, and the board works to assure the stability and
overall time required. Therefore, growth of the chapter as well as meeting its
audits will vary in cost so it may be a legal responsibilities for controlling and
good idea to shop around. safeguarding the chapter’s assets. The
board’s primary mechanism for fulfilling this
E. Transitions in Office fiduciary trust is through policy development
The chapter finance function is greatly and the monitoring of procedures and
facilitated by a planned transition from practices designed to implement policy.
treasurer to treasurer at the time of
office turn over. Chapters with A. Financial Operations Policy and
successful transition programs include Procedure
such arrangements as a meeting There are several key areas in financial
between incoming and outgoing board operations management in which board
members, individual meetings for policy is recommended. They are in
officers and a commitment from areas that deserve clear direction from
outgoing officers to remain available for the board and, in turn, serve to protect
members of the board and committees usually resides with the president
as they carry out financial functions. and the treasurer of the chapter.
Major recommended policy and/or 5. Reporting Requirements
procedure areas are identified here. Expectations for reporting to the
1. Bank Accounts board of directors by the president or
Bank accounts the chapter requires treasurer should be outlined in terms
to do business should be identified of the content, frequency and format
by type and function. For example, for the reports. Usually it is
the board could state where bank recommended that there be a written
accounts would be established by report provided for each board
safety standards. A policy might meeting.
read “All chapter checking and 6. Chapter Audit Procedures
savings accounts will be established Chapter audits serve a very
only in banks and savings important safeguarding function and
institutions insured by the external audits are recommended by
FDIC/FSLIC.” headquarters at least every two
2. Bank Account Limits years. A policy statement by the
Setting bank account limits helps to chapter makes the commitment
make decisions about when clear and establishes both a
accumulating revenue should be calendar for audits and a
redistributed to additional accounts mechanism.
and, especially to accounts earning 7. Other Areas for Operations Policy
higher than usual checking or Development
savings account interest. Examples The board should address policy
of policies might be “Only the development with the principles of
amount of monies necessary to clarifying and safeguarding the
operate the business of the chapter intention and direction of the board.
for a specified period of time will be There is not an absolute list so that
kept in a checking account. Other board judgment and discretion drive
unrestricted income will be kept in these decisions. Other areas for
savings accounts for redistribution to consideration are controls for:
other accounts as indicated and handling petty cash; bonding and
approved.” bonding levels; and budget
3. Checking and Savings Accounts calendars.
It is important to define who can sign B. Investment Decisions and Policy
checks, who can withdraw and Development
transfer funds from checking and Investing chapter funds is the second
savings accounts, under what major financial responsibility. The board
circumstances dual signatures may of directors holds the accountability for
be required and total amounts sound decision making in this important
permitted to be deposited or aspect of financial development.
withdrawn. This authority usually Chapters experience a wide range of
resides with the president and the financial opportunity to build a financial
treasurer of the chapter. base beyond the promise of chapter
4. Purchase Authority membership fees as the major source of
It is important to define who holds income. Size of the chapter,
the authority to make or commit the membership fee level, program and
purchase of goods or services on fundraising activity, gifts and grants all
behalf of the chapter. This authority play a role. For chapters fortunate
enough to accumulate cash surpluses
from their operating budgets and gifts or d. For dedicated funds restricted
grants of money for general or to interest use alone, expert
dedicated purposes, it is essential to consultation in investment
develop clear policies to guide the strategy is required.
investment function. Because this area 3. Acceptable Investment Instruments
is often less familiar than the operating This policy should specifically state
area, it is frequently wise to seek which investment instruments are
consultation from persons with acceptable to the board of directors.
specialized knowledge. Headquarters Acceptable instruments might
staff can serve as a first line of contact include:
for general assistance and referral. The a. Certificates of deposit offered
information that follows is presented as by banks and savings and
an aid in investment policy loans insured by FDIC/FSLIC.
development. b. Government-backed issues
1. Authority to Invest (treasury bills, bonds, GNMAs)
Generally, the board of directors is c. Money market funds offered
assigned the overall authority to by banks
invest the funds of the chapter, with d. High interest money market
delegation of authority for funds
depositing, withdrawing and e. Commercial papers A-1 rated
transferring specific fund amounts to 4. Unacceptable Investment
the treasurer, president or Instruments
combination thereof. A policy should This policy should indicate which
clarify who holds this authority and investments are not to be used.
be written in specific terms. It should This will depend on the chapter’s
include such safeguards as when investment strategy. Generally,
single or dual signatures are stocks and/or utilities, real estate,
required, total amounts to be junk bonds, instruments not
invested in any one investment backed by the government, or
instrument, and proof of signature rated “A” by Moody’s are excluded.
procedures. 5. Investment Strategies
2. Purchase and Review In developing investment strategies,
Where investments may be the major focus should be on what is
purchased and place at what in the best interest of the chapter.
automatic review procedures are to There is not one formula that would
be used should be guided by policy. answer this question for all chapters.
Sample policies might be: There are, however, some principles
a. Investment instruments may that generally
be purchased through local serve well.
banks or insured certificate of a. Putting Surplus Cash to Work
deposit pools. Surplus cash results from revenue
b. Each $5,000 that accumulates exceeding expense. This results
in a money market fund is to from a variety of reasons – good
be reassessed for investment management of financial
in a higher interest yielding resources, program and
instrument. fundraising revenue exceeding
c. Any investment coming to projection, and gifts of
maturity should be reassessed discretionary funds to the chapter,
for potential investment in a among others. It is wise to put this
higher yielding instrument. money to work.
b. Liquidity and Risk
For surplus cash, high liquidity treasury bonds (30-year maturity),
(immediate maturity) and very low GNMA, A-1 Rated Commercial
risk accounts (NOW accounts and Paper.
money market funds purchased e. Using Investment Consultants
from insured banks) are It is recommended that chapters
recommended. The Board might seek expert consultation and
choose to have part of this cash assistance when considering any
placed in a fund restricted for use investment beyond low risk, highly
at its discretion only. In addition, liquid investments through worthy
some organizations elect to and insured banks. Chapter
provide a reserve fund equal to six financial goals and policies guide
months of operating expense the investment function.
invested with the same safeguards
discussed above. Chapters have
generally not determined a need
for such a fund. Discretionary
funds, just discussed, would serve
the need for emergent financial
c. Less Liquidity and Higher Interest
Beyond the need for discretionary
funds that can be retrieved
immediately, funds might be
invested in instruments yielding
higher interest, but with longer
maturity rates. If this is elected, it
is wise to stagger maturity dates.
Relatively short-term instruments
mature in 30, 60 or 90 days.
Examples of these instruments
are: repurchase agreements,
certificates of deposit, treasury
bills and commercial paper.
d. Acceptable Instruments, Higher
Interest, Longer Maturity
For funds not needed for
discretionary use on a rapid
turnaround schedule, investment
instruments yielding higher interest
than shorter-term securities are
available but with substantially
longer maturity rates. These
should be evaluated for the level of
risk verses benefit. Safeguards
exist like rating scales by Standard
and Poor as well as Moody’s,
which are guides to determine the
investment quality of bonds,
commercial paper, municipal notes
and stocks. Examples of these
instruments are treasury notes,