Financial Responsibilities of a Chapter Board - Slides Handout · of a Chapter Board Michael M....
Transcript of Financial Responsibilities of a Chapter Board - Slides Handout · of a Chapter Board Michael M....
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Financial Responsibilities of a Chapter Board
Michael M. Tryon, CPATate & Tryon, CPAs & ConsultantsWashington, DC
All content © 2015, Tate & Tryon
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Financial Responsibilities of a Chapter Board
• StewardshipInternal controls
• Financial Oversight
Financial and Tax Reporting
• Strategic Management
Budgeting and Reserves
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Stewardship
Internal Control - key principles
Cash receipts cycle (revenue)
Cash disbursements cycle (expense)
More good control practices
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Internal Controls - Key Principles• Segregate cash receipt and disbursement duties – a “dual
keys” concept; when possible
• WRITE DOWN standard policies and procedures for processing transactions AND have the Board review and approve them
• This is especially important when oversight changes frequently – you want continuity
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Cash Receipts . . . Recommended procedures:
• Endorse all checks “For Deposit Only” upon receipt
• Keep checks in a locked area until deposited in the bank
• Get checks into the bank ASAP
• Anytime actual cash is received, TWO people should be present to collect and count it
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Cash Receipts . . .• Apply analytic procedures to financial statement revenue
items - example:
• 200 people bought our brochures at $5.00 each. Why do we show only $850.00 of brochure sales on our income statement?
200 x $5.00 $850.00
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Cash Disbursements . . . Recommended procedures:
• Always require supporting
documentation, such as a receipt or
• vendor invoice, before issuing a check
• Process all payments through one individual – don’t have different people writing checks from different accounts
• Document who has the authority to approve what types (and amounts) of expenses for payment
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Cash Disbursements . . .• On an annual basis, update your bank account signature
cards – you may be surprised at who is on them!
• Use an outside payroll service, it should make your life easier
• Review the payroll and tax filing reports for accuracy
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Cash Disbursements . . .• Set up a policy: checks over “X” amount require at least two
signatures – and let your bank know about the policy
• Compare actual expenses to the budget and prior year & investigate significant differences
• Don’t issue too many credit cards
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More Good Control Practices . . .• Have a Board member review and initial the unopened bank
and investment statements or provide on-line access
• Issue complete financial statements to the Chapter Board on a monthly basis
• Reconcile your bank and investment accounts to the general ledger on a monthly basis
• Back-up all accounting files regularly
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Financial Oversight
Financial Reporting
Financial Statements
Tax Reporting (Form 990)
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Financial Reporting• A good recordkeeping system is THE key to keeping track of
all of your financial relationships
• Your Chapter’s recordkeeping system should be uncomplicated,reliable, accurate, and should easilygenerate understandable reports
• If it’s not . . . consider changing systems
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Financial Reporting“But,” you say, “we hire that stuff out to a bookkeeper.”
• Good records are YOUR business!
Your financial decisions are only as good
as your records
• Cash is usually THE most vulnerable
aspect of your Chapter’s operations
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Financial ReportingWhat’s involved? Usually . . .
Monthly financial statements distributed to Chapter management
Assisting chapter management with the interpretation of the financial statements
Preparing “Ad Hoc” reports when needed
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Financial Statements• Financial statements can be. . .
• Cash Basis
• Accrual Basis
• Some combination of the two
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Cash Basis• Simplest basis of accounting
• Revenues and expenses are recorded ONLY when CASH is received or disbursed by the organization
• Although simple to use, cash presents an incomplete financial picture . . .why? No accounts receivable or
No accounts payable
are recorded.
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Accrual Basis• More difficult basis of accounting
• Revenues and expenses are recorded when they are earned or incurred REGARDLESS of when CASH is received or disbursed
• Although more difficult to implement, presents a complete financial picture - detailing all assets and liabilities
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Financial Statements• Two main financial statements:
• Balance Sheet, or “Statement of Financial Position” – your assets and liabilities at a single point in time.
• Income Statement, or “Statement of Activities” – what you took in and what you spent, during a given period of time.
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Balance Sheet• The Balance Sheet is a SNAPSHOT of one moment in time – it does
not tell how an organization arrived at that moment
• Important balance sheet items:• Assets
• Liabilities
• Net Assets (“net worth”)
• For Chapter’s, focus is most likely:– Cash on hand
– Payroll liabilities
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Income Statement• Presents a record of the Chapter’s
revenue and expense for a specified period of time.
• Shows what happened during a certain period – where did our resources (revenues) come from and where did we use them (expenses)?
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Stay on Top of Things!• Monthly: prepare a balance sheet and an
income statement
• Monthly: prepare a written analysis of significant financial events
• Periodically: ask the Board what financial information it needs (but is not receiving)
• Non-preparers: read your Chapter’s financial statements at least every quarter . . . but preferably every month
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What to File?2014 Tax Year and later(Filed in 2015 and later) Form to File
Gross receipts normally ≤ $50,000Note: organizations eligible to file the e-Postcard may choose to file a full return
990-N
Gross receipts < $200,000, andTotal assets < $500,000
990-EZor 990
Gross receipts ≥ $200,000, orTotal assets ≥ $500,000 990
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What’s With This Form 990?
• Form 990 is your Chapter’s report to the IRS – both financial and non-financial information
• The 2014 990 is a 13 page, 12-part CORE form with 16 Schedules
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Form 990 – What’s Important?• Two sections warrant your close attention:
• Part VI – Governance, Management & Disclosure
• Part VII – Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors
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Governance . . .• IRS wants to know about these policies:
• Conflict of interest policy• Whistle-blower policy (Sarbanes-Oxley)• Document retention and destruction
policy (Sarbanes-Oxley)• Investment and/or joint venture policy• Gift acceptance policy • Compensation policies: salary and
benefits
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Governance . . .• IRS also suggests these procedures:
• Contemporaneous documentation of board and committee meetings
• Full board review of Form 990 prior to submission to IRS
• Board composition reflecting broad public interest, and minimizing potential for misuse
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Compensation Questions . . .Schedule J asks questions that apply to persons listed in Part VII:
• List and explain “perks” - first class or charter travel, discretionary spending account, etc.
• Explain how CEO’s compensation is determined
• Explain severance payments, equity-based compensation arrangements
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Form 990-EZ . . .• Much easier than the full 990…why?
• 4 pages (2014) instead of 13
• Compensation section requires much less than the full 990 does
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Form 990-N . . .• What information do you need to file?
• EIN, tax year end, legal name and mailing address
• Any “DBA” names used
• Name and address of a principal officer
• Web site (if there is one)
• Termination/liquidation information (if applicable)
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Form 990-N . . .• Due date is May 15th of each ear
• Fiscals: due by the 15th day of the fifth month after year end
• No penalty if filed late, BUT if you do not file one for 3 years running, you will lose your Federal tax exemption
• IRS has begun revoking exemptions
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Strategic Management
Budgeting
Reserves
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Budgeting• Budgets are extremely important --
they serve two primary purposes:
• They are tools for assessing an organization’s performance
• They provide a “map” for an organization to follow to achieve its strategic goals
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Budgeting• Budgets can be prepared based on prior historical data . . . or
“zero-based” (start from scratch)
• Historically-based budgets are easier to prepare but may be less accurate
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Budgeting• Budgets should be realistic.
• Pragmatism rules: most budgets start by looking at the past with an eye towards the future
• But! Don’t allow the past to become automatically self-replicating
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Budgeting• Prepare your budget as early in the fiscal
year as possible AND get it reviewed and approved by either the Board or the Finance Committee
• Budgets are not effective unless they’re followed . . . so . . .
• Review “budget vs. actual” performance on a monthly basis
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Budgeting• Investing during financial uncertainty
• You should have an investment policy!
• If you do not, formulate one ASAP!
• If you have an investment policy, follow it!
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Budgeting• Investing during a financial crisis –
• If your board wishes to deviate from the policy, obtain independent expert advice
• Keep your Board continually informed of investment performance, so it can make timely decisions
• Take advantage of FDIC coverage for your cash wherever you can
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Reserves – Why ?
Volatility of operations
Economics of industry or profession
Legislative/regulatory environment
How much is too much?
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Reserves - Defined Does the organization have formal reserve policy or objective?
Yes = 70% No = 30%
If yes, are reserves defined as total net assets (assets less liabilities)?
Yes = 54% No = 46%
What is the reserve target as a percentage of annual operating budget?
50%
Source: ASAE Operating ratio Report (14th edition © 2012)
Yes
No
Yes
No
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10 Year Trend Revenue and Expense
14,745 15,441
17,063
18,343
18,464
16,549 17,207
18,822 19,567
21,270
15,944
17,605
19,842
18,537
18,024 16,900
18,881
18,367
21,870
23,738
$14,000
$15,000
$16,000
$17,000
$18,000
$19,000
$20,000
$21,000
$22,000
$23,000
$24,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expense Revenue
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10 Year Net Income Trend
($500)
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$1,469 $2,164 $2,779 $194 ($440) $351 $1,674 ($455) $2,303 $2,468
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10 Year Net Asset Trend
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
6,28
8
8,45
2
11,2
31
11,4
25
10,9
85
11,3
36
13,0
10
12,5
55
14,8
58
17,3
26
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Adequacy of Net Assets(Net Assets as a % of Annual Expense)
20%
30%
40%
50%
60%
70%
80%
90%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
37
%
37
%
53
%
53
%
53
%
53
%
53
%
53
%
53
%
53
%
42
%
54
%
66
%
62
%
48
%
65
%
75
%
67
%
76
% 79
%
ASAE ORR ABC Assn
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Adequacy of Net Assets(Net Assets as a % of Annual Expense)
0%10%20%30%40%50%60%70%80%90%
100%110%120%130%
ABC #1($14M)
ABC #2($13M)
ABC Assn($22M)
ABC #3($10M)
ABC #4($4M)
42%52%
67%80%
123%
58%
71% 76% 85%
112%
2012 2013
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Questions???
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A Word or Two About Insurance:• Two words: have it
• Seven words: If you don’t have it, get it
• Don’t be penny-wise and pound-foolish
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Insurance:• General liability insurance
• Products
• Premise
• Operations
• “Directors and Officers” (D&O) insurance
• Wrongful termination
• Discrimination
• Sexual harassment
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