Beyond the Budget


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Beyond the Budget

  1. 1. Finance 101 This presentation is not to be construed as, or a substitute for, professional legal and/or financial advice. Gerald Brock, CPA, CIA ▪ Manager, Internal Audit Services and Sandy L. Boost, SPHR, CAE ▪ Member Services Division Business Manager
  2. 2. <ul><li>Chapters and State Councils </li></ul><ul><li>Charter provisions overview </li></ul><ul><ul><li>Signed within last several years </li></ul></ul><ul><ul><li>Autonomous </li></ul></ul><ul><ul><ul><li>Self-controlled, not SHRM (headquarters) controlled </li></ul></ul></ul><ul><ul><li>Independent </li></ul></ul><ul><ul><ul><li>Responsible for own information and tax returns </li></ul></ul></ul><ul><ul><ul><li>Responsible for accounting, banking, etc. </li></ul></ul></ul>Beyond the Budget The Power of the Charter
  3. 3. Fiduciary Responsibility <ul><li>What does this term mean? </li></ul><ul><li>And, what does it mean to your chapter/council? </li></ul>Beyond the Budget
  4. 4. Beyond the Budget <ul><li>Organized under and according to the provisions of state statutes </li></ul><ul><li>May make a profit </li></ul><ul><li>Profit dedicated to the chapter/council’s non-profit purpose </li></ul><ul><li>Profit not distributed to members </li></ul>Non-Profit Status
  5. 5. Beyond the Budget <ul><li>Primarily operated to serve the needs of the members </li></ul><ul><li>Phrase coined because it best characterizes intent </li></ul><ul><li>No legislative or regulatory significance </li></ul>Not-for-Profit Status
  6. 6. Beyond the Budget <ul><li>IRS classification </li></ul><ul><li>Exempt from federal income tax under certain code provisions </li></ul><ul><li>Non-profit not automatically tax-exempt </li></ul><ul><li>May still have to pay state and local taxes </li></ul>Tax-exempt Status
  7. 7. <ul><li>NOT exempt from other taxes such as </li></ul><ul><ul><li>UBI – Unrelated Business Income </li></ul></ul><ul><ul><ul><li>Most states will require a business license </li></ul></ul></ul><ul><ul><li>Federal Payroll (Social Security, Medicare and unemployment) </li></ul></ul><ul><ul><ul><li>Reportable Income </li></ul></ul></ul><ul><ul><li>State Taxes </li></ul></ul><ul><ul><ul><li>Sales Tax </li></ul></ul></ul><ul><ul><ul><ul><li>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. </li></ul></ul></ul></ul><ul><ul><ul><li>State Real Estate and Personal Property Tax </li></ul></ul></ul><ul><ul><ul><li>State Unemployment Tax </li></ul></ul></ul><ul><li>Be cognizant of State regulations </li></ul><ul><ul><li>May need to register to solicit charitable contributions </li></ul></ul>Tax-Exempt Status Beyond the Budget
  8. 8. Beyond the Budget <ul><li>501(c)(6) </li></ul><ul><li>Trade associations, professional societies, business leagues </li></ul><ul><li>Form 1024 </li></ul><ul><li>Form 8718 </li></ul><ul><li>Charitable contributions are not tax deductible </li></ul><ul><li>501(c)(3) </li></ul><ul><li>Educational, charitable, and religious organizations </li></ul><ul><li>Form 1023 </li></ul><ul><li>Form 8718 </li></ul><ul><li>Charitable contributions may be tax deductible </li></ul>Tax-Exempt Status
  9. 9. Beyond the Budget <ul><li>501 (c) (6) </li></ul><ul><li>No restriction on amount of lobbying activities </li></ul><ul><li>Business expense deduction for dues except that portion used to support lobbying activities </li></ul><ul><li>Amount of dues spent reportable to members </li></ul><ul><li>501(c)(3) </li></ul><ul><li>Permitted to lobby – do not devote substantial part to lobbying activities </li></ul><ul><li>Less than 5% of activities to lobbying </li></ul><ul><li>Safe harbor – 501(h) election </li></ul>Tax-Exempt Status/Lobbying
  10. 10. Beyond the Budget <ul><li>Chapters/State Councils are responsible for filing for their own status; may not use SHRM’s status or federal ID (TIN) </li></ul><ul><li>IRS classifications based on nature of chapter/council’s activities </li></ul><ul><li>IRS makes final determination </li></ul><ul><li>Letter of Determination </li></ul><ul><ul><li>File original in a safe place </li></ul></ul><ul><ul><li>A copy can be sent to SHRM Member Relations Department as a back up </li></ul></ul>Tax-Exempt Status
  11. 11. Federal Tax ID Number <ul><li>a.k.a. TIN </li></ul><ul><li>Nine-digit number </li></ul><ul><li>Needed to open a bank account </li></ul><ul><li>Needed to file tax returns </li></ul><ul><li>Form SS-4 </li></ul><ul><li>Quick and easy to file online </li></ul><ul><li>Confirmation letter from IRS </li></ul>Beyond the Budget
  12. 12. Budget <ul><li>Establish annual budget </li></ul><ul><li>Compare budget to actual performance </li></ul><ul><ul><li>Periodically </li></ul></ul><ul><ul><li>Report it </li></ul></ul><ul><li>Cash flow projections </li></ul>Beyond the Budget
  13. 13. Handling Funds <ul><li>Cash Receipts </li></ul><ul><ul><li>Direct Deposit of Chapter Financial/State Council Financial Support Payments </li></ul></ul><ul><ul><li>May need to register with the state to solicit charitable contributions </li></ul></ul><ul><li>Cash Disbursements </li></ul><ul><li>Cash vs. Accrual Basis Accounting </li></ul><ul><ul><li>Most use Cash (Check Book Style) </li></ul></ul><ul><li>Chart of Accounts </li></ul><ul><ul><li>Spell it out </li></ul></ul><ul><ul><li>Keep it handy </li></ul></ul><ul><li>Reserve Policy and Investments </li></ul><ul><li>Chapter Credit Card </li></ul>Beyond the Budget
  14. 14. Tips on Checks and Balances <ul><li>Duplicate statements </li></ul><ul><li>Statement to secondary leader </li></ul><ul><li>Written policies and procedures on expenditures </li></ul><ul><li>Formal documentation for reimbursement </li></ul><ul><li>Two signatures over specific dollar amount </li></ul><ul><li>Limit number of signors – but have more than one </li></ul><ul><li>No checks made out to “Cash” </li></ul><ul><li>Reconciliation routine and regular </li></ul>Beyond the Budget
  15. 15. Making the Job Easier <ul><li>Association Management Company </li></ul><ul><li>Software programs – popular Windows-based programs </li></ul><ul><ul><li>Quicken </li></ul></ul><ul><ul><ul><li>Cash basis accounting </li></ul></ul></ul><ul><ul><li>Quick Books </li></ul></ul><ul><ul><ul><li>Accrual basis accounting </li></ul></ul></ul><ul><ul><li>Microsoft Money, Microsoft Money Plus… </li></ul></ul><ul><ul><ul><li>Four products: essentials (personal finance) to small business </li></ul></ul></ul><ul><ul><li>Peachtree Complete Accounting </li></ul></ul><ul><ul><ul><li>A full accounting package </li></ul></ul></ul>Beyond the Budget
  16. 16. Financial Reporting <ul><li>Statement of Financial Position (Balance Sheet) </li></ul><ul><ul><li>Required with annual filing of CAP and SCAP </li></ul></ul><ul><li>Statement of Activities (Income and Expenses) </li></ul><ul><li>Cash Flow Statement (Statement of Changes in Financial Position) </li></ul><ul><li>Frequency of Reporting </li></ul><ul><li>Records Retention/Disposal Policy </li></ul>Beyond the Budget
  17. 17. Federal Tax Reporting <ul><li>Form 990 </li></ul><ul><li>Form 990-N </li></ul><ul><ul><li>Refer to related LeadersEdge articles available in the VLRC </li></ul></ul><ul><li>Form 990EZ </li></ul><ul><li>15 th day of the 5 th month after the end of the chapter/council’s fiscal year </li></ul><ul><li>Penalties for late filings </li></ul><ul><li>Extension provisions </li></ul>Beyond the Budget
  18. 18. Federal Tax Reporting - Unrelated Business Income <ul><li>a.k.a. UBI </li></ul><ul><li>990-T </li></ul><ul><li>Typically includes </li></ul><ul><ul><li>Income from sale of merchandise </li></ul></ul><ul><ul><li>Income from advertising sales </li></ul></ul><ul><li>Typically excludes </li></ul><ul><ul><li>Conferences and trade shows </li></ul></ul><ul><ul><li>Sales of books </li></ul></ul><ul><ul><li>Affinity programs </li></ul></ul><ul><ul><li>Qualified sponsorship payments </li></ul></ul>Beyond the Budget
  19. 19. Federal Tax Reporting - Employee or Independent Contractor <ul><li>W-2 </li></ul><ul><ul><li>Employee </li></ul></ul><ul><li>1099-MISC </li></ul><ul><ul><li>Independent Contractor </li></ul></ul><ul><ul><li>Must obtain name, address, taxpayer ID/SS# </li></ul></ul><ul><ul><li>Program speakers </li></ul></ul><ul><ul><li>Web designer </li></ul></ul>Beyond the Budget
  20. 20. Audits <ul><li>Financial Statement Audits </li></ul><ul><li>Fraud Audits </li></ul><ul><li>Operational Audits </li></ul><ul><li>Tax Audits </li></ul>Beyond the Budget
  21. 21. Alternatives to Independent Audits <ul><li>Best interests of chapter/council </li></ul><ul><li>Compilation </li></ul><ul><li>Review </li></ul><ul><li>Agreed-upon Procedures </li></ul><ul><li>Member’s Audit </li></ul><ul><li>Form 990 </li></ul>Beyond the Budget
  22. 22. Financial Strategies <ul><li>Investment Policies </li></ul><ul><ul><li>Securities/Bonds </li></ul></ul><ul><ul><li>CDs </li></ul></ul><ul><ul><li>Money Market Accounts </li></ul></ul><ul><ul><li>Reserves vs. Operating Cash </li></ul></ul><ul><li>Expenditure Policies </li></ul>Beyond the Budget
  23. 23. Incorporation <ul><li>Advantages </li></ul><ul><ul><li>State statutes </li></ul></ul><ul><ul><li>Tax </li></ul></ul><ul><ul><li>Liability </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>State statutes </li></ul></ul><ul><ul><li>Cost </li></ul></ul><ul><ul><li>Time consuming </li></ul></ul><ul><li>Where to begin </li></ul><ul><ul><li>State Attorney General’s Office </li></ul></ul>Beyond the Budget
  24. 24. Insurance <ul><li>General Liability </li></ul><ul><li>Directors and Officers </li></ul><ul><ul><li>Compare “apples to apples” </li></ul></ul><ul><ul><li>Exclusions </li></ul></ul><ul><li>Event Interruption/Cancellation Insurance </li></ul><ul><li>Investigate competitive pricing </li></ul>Beyond the Budget
  25. 25. Volunteer Protection Act o1997 <ul><li>Signed into law June 18, 1997 </li></ul><ul><li>First introduced early in 1987 </li></ul><ul><li>Ten years in the making! </li></ul><ul><li>Legislation that protects volunteers from legal liability </li></ul><ul><li>Recognized as “perfect vehicle” for congress </li></ul>Beyond the Budget
  26. 26. <ul><li>Intended to encourage volunteerism and facilitate volunteer organization recruiting </li></ul><ul><li>Reduces legal liability risks to individuals </li></ul><ul><li>Pre-empts inconsistent state laws </li></ul><ul><li>Standardizes protection that varies from state to state </li></ul><ul><li>States may provide greater protection </li></ul>Beyond the Budget
  27. 27. Coverage <ul><li>All volunteers except those paid or receiving items of value in excess of $500 </li></ul><ul><li>Individual protection not chapter/association </li></ul><ul><li>Acting within the scope of the volunteer activity </li></ul><ul><li>They were properly licensed (if necessary) </li></ul><ul><li>The harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct or a conscious, flagrant indifference to the rights or safety of the claimant </li></ul><ul><li>Harm was not caused by the volunteer operating a vehicle </li></ul>Beyond the Budget
  28. 28. Exempts from coverage <ul><li>Any misconduct that constitutes a crime, sexual offense, a violation of civil rights or where the volunteer was under the influence of alcohol </li></ul>Beyond the Budget
  29. 29. FAQs <ul><li>Does this mean the chapter/association can’t be sued? NO </li></ul><ul><li>Does this eliminate the need for general liability or directors & officers insurance? NO </li></ul><ul><li>Are you covered under your homeowners policy? NO </li></ul><ul><li>Does this mean you can’t be sued as a volunteer? NO </li></ul>Beyond the Budget
  30. 30. What could happen? <ul><li>Embezzlement </li></ul><ul><li>Discrimination </li></ul><ul><li>Harassment </li></ul><ul><li>Inefficient administration or supervision </li></ul><ul><li>Waste of assets </li></ul><ul><li>Misleading reports or other misrepresentations </li></ul><ul><li>Libel, slander, invasion of privacy </li></ul><ul><li>Failure to deliver services </li></ul><ul><li>Acts beyond granted authority </li></ul><ul><li>Wrongful termination of employees </li></ul><ul><li>Damage to reputation of HR profession and/or the Society </li></ul>Beyond the Budget In many cases, a court will deem an act by a chapter to be an act of the national organization, regardless of whether the latter knew of the act or has formal authority over the chapter’s activities. (ASAE, 2000, Managing Chapter Funds , Jeffrey S. Tenenbaum)
  31. 31. Sound Risk Management <ul><li>Several layers of protection </li></ul><ul><li>Volunteer Protection Act of 1997 </li></ul><ul><li>Training and education of employees and volunteers </li></ul><ul><li>Indemnification of individuals by the association </li></ul><ul><li>Association liability insurance </li></ul><ul><li>Association D&O insurance </li></ul><ul><li>Added protection through incorporation of association </li></ul>Beyond the Budget
  32. 32. Professional Assistance <ul><li>Legal Counsel </li></ul><ul><ul><li>Specializing in Not-for-Profits </li></ul></ul><ul><li>CPA </li></ul><ul><ul><li>Specializing in Not-for-Profits </li></ul></ul><ul><li>Association Management Company </li></ul><ul><ul><li>Directory of current CMPs available in the Volunteer Leaders’ Resource Center (VLRC) under “Resources for Chapter Management Professionals </li></ul></ul>Beyond the Budget
  33. 33. In brief… <ul><li>Your chapter/council is a business </li></ul><ul><li>Need to employ sound business practices </li></ul>Beyond the Budget
  34. 34. Additional Resources <ul><li>SHRM Guide to Chapter Financial Management, SHRM, 2004 (available online in the Volunteer Leaders Resource Center ( ) </li></ul><ul><li>The Complete Guide to Managing Chapter Funds , Susan S. Vowell, CPA, 2000, ASAE </li></ul><ul><li>Association Law Handbook , Third Edition, Jerald A. Jacobs, 1996, ASAE </li></ul><ul><li>Association Audits from A to Z: A Guide for Volunteer Leaders , Andrew S. Lang, CPA, 2000, ASAE </li></ul><ul><li>Director’s and Officer’s Insurance White Paper in the VLRC </li></ul><ul><li>Archived webcast “Running Your Chapter Like a Business” with Karen Verrico, CAE </li></ul><ul><li>Tax Compliance Guide, Jeffrey S. Tenenbaum, 2000, ASAE </li></ul>Beyond the Budget
  35. 35. Additional Resources <ul><li>Supplement from today’s session: </li></ul><ul><li>SHRM LeadersEdge article – 990N Reporting </li></ul><ul><li>Record Retention Guideline </li></ul><ul><li>Reserve Policy Development Guideline </li></ul><ul><li>Incorporation </li></ul><ul><li>Financial Maintenance Questionnaire </li></ul>Beyond the Budget
  36. 36. Questions? Thank you for your participation!