FINANCIAL PROCEDURES

For Locals & Regions

Administration & Fiduciary Oversight

Regulatory Requirements Technical Tasks

2

HANDBOOK SECTIONS

All local/region leaders need to be aware of financial concepts• Oversight• Emergency coverage

Treasurer needs to know in detail

Following these guidelines helps you to avoid problems and be more accountable

Note FPLR handbook page references at bottom of slides

(centered and green)3

WHY ARE YOU HERE?

DUES IPACE OTHER

FILING

CASHRECEIVED DOCUMENTATION BUDGET

BANK ISSUESHOW TO CHOOSETIN BOOKKEEPING FINANCIAL BOARDHOW MANY SYSTEM REPORTSHOW TO OPENIPACE

AUDIT

CASHSPENT OUTSIDE

AGENCIES

DUES TRAVEL IPACE OTHER

OVERSIGHT

LOCAL LEADERS REGULATORY AGENCIES PUBLIC MEMBERSINTERNAL CONTROLS IRSSIGNS OF FRAUD STATE BD OF ELECTIONS ONLINE REPORTS FINANCIAL REPORTSAUDIT DOLMONITORING OF DEADLINES, ETC. OTHER

IEA RESOURCESQUESTIONSONLINE RESOURCESLOCAL TRAINING

WHAT ARE “FINANCIAL PROCEDURES”??

DUES IPACE OTHER

CASHRECEIVED

BANK ISSUESHOW TO CHOOSETINHOW MANYHOW TO OPENIPACE

CASHSPENT

DUES TRAVEL IPACE OTHER

BASIC FINANCIAL TRANSACTIONS

How to choose a bank◦ Financial◦ Service◦ Location◦ Auditability

BANK ISSUES

44-45

Banks are required by regulation to collect various information

Every bank interprets these regulations in their own way: CALL FIRST!

You will definitely need: ◦ Drivers license for all signers◦ Taxpayer identification number of your localDO NOT OPEN AN ACCOUNT WITH SOMEONE’S SOCIAL SECURITY NUMBER, YOUR SCHOOL’S TIN, ETC.

OPENING A BANK ACCOUNT

9-Digit number assigned by the IRS Unless you are a new local, you already

have a number If you don’t know your number, contact IEA

Accounting If you are a new local, contact IEA

Accounting; they will apply for one Do NOT apply for a number yourself!

TAXPAYER ID NUMBER

27

We recommend that all bank accounts require two signatures

So you will want at least three and perhaps four-five people with the ability to sign

SIGNATURES

45, 76

You are an unincorporated, not for profit labor union

If the bank wants your articles of incorporation, you don’t have them

If they want your “IRS Determination Letter,” you don’t have one

If they want proof of your tax exempt status, IEA Accounting can provide this

OTHER NEW ACCOUNT ISSUES

See info in the book- pages 43-44 If you have IPACE funds, this requires a

separate bank account

HOW MANY ACCOUNTS DO YOU NEED?

43-44

Must be separate from regular checking account

Only deposits- From IPACE Only disbursements- For local political

expenses

IPACE ACCOUNT

35, 82

DUES IPACE OTHER

CASHRECEIVED

DEPOSITS

Make sure all checks are received Maintain supporting detail, e.g. dues

deduction registers and check stubs Deposit as soon as received! Someone needs to verify amounts

(Treasurer or Membership Contact)

DUES FROM EMPLOYER

51-52

Deposit into (separate) IPACE bank account Deposit as soon as received Keep documentation on file (copy of check,

check stub, etc.)

IPACE REBATES

35-36, Appendix 9, 16

IPACE is funded by member contributions

Locals can receive up to $15 per contributing member each year

Must be used for specific political purposes

16

IPACE REBATES

22-23, 35-36, Appendix 9, 16

Must be kept in a separate bank account May be state reporting requirements Members’ contributions are not tax-

deductible Unused funds can be returned to

IPACE, at the local’s discretion

17

IPACE REBATES

22-23, 35-36, Appendix 9, 13 &16

Deposit as soon as received Keep documentation on file (copy of check,

check stub, etc.) Five years from now, must be able to

demonstrate what each deposit was for (payee, reason for payment, etc.)

OTHER DEPOSITS

52

CASHSPENT

DUES TRAVEL IPACE OTHER

CHECKS/DISBURSEMENTS

Locals are billed at the beginning of the month: November-August

Bill is sent to “Membership Contact” Penalties for late payment Need to pay entire amount shown!! See Appendix 15 for “How to Read the Statement”

Some locals arrange for direct payment by employer

20

Dues Billing From IEA

49-52

21

DUES TRANSMITTAL SCHEDULE (Some Exceptions

Apply)November 1 10% of obligationDecember 1 20% of obligationJanuary 1 30% of obligationFebruary 1 40% of obligationMarch 1 50% of obligationApril 1 60% of obligationMay 1 70% of obligationJune 1 80% of obligationJuly 1 90% of obligationAugust 1 100% of obligation

50

Must be for local political purposes: See info from IPACE

Do not spend IPACE funds for local operations

Documentation is especially important

IPACE

Appendix 9, 13 & 16

For many locals this is their biggest expense Documentation is especially important due

to IRS issues Your local/region can set guidelines, but

these need to be based on IRS rules (your rules can be more restrictive, but not less)

Above all, travel expenses must be reasonable and necessary

TRAVEL

53-56, Appendix 8

NORMALLY YES: Hotel, mileage, airfare, meals at meeting location, parking, tolls, taxi, car rental

NORMALLY NO: Expenses for family members, gasoline (unless with car rental), gifts/clothing, entertainment, contributions to NEA FCPE

MAYBE: Tips, alcohol

TRAVEL

53-56, Appendix 8

Must be reasonable and related to your local/region’s status as a not for profit labor union

Beyond that, local rules may apply Again, local rules may be more restrictive,

but not less Documentation!

OTHER PAYMENTS

53-54

FILING

DOCUMENTATION

BOOKKEEPINGSYSTEM

ACCOUNTING/FILING

Every dollar that goes in or out of your bank account must be recorded

Permanent record• Future audits by IRS, etc.

• Internal questions• Financial reporting

What system do you use: “It depends”

27

ACCOUNTING SYSTEM

38-43

One size does not fit all•Size/complexity of organization

•Prior treasurer’s system•Current treasurer’s preference

28

WHAT SYSTEM TO USE

38-43

Your system needs to:•Record all transactions in sufficient detail

•Allow you to produce financial reports efficiently

•Provide a record that others can follow

29

SYSTEM GOALS

`

38-43

Some possibilities• Checkbook/check stubs• Cash receipts and

disbursements journals• Excel/Access• Specialized accounting

software (Quicken, etc.)30

EXAMPLES

38-43

Every dollar that goes in or out of your bank account needs to be documented• Possible audit• Fiduciary duty: “Other People’s Money”

Proof of business purpose Proof of dollar amount Proof of date/place

31

DOCUMENTATION (GENERAL)

52-57

Where fromWhat forDollar amountEmployer checks- Be sure to retain detailed list of dues deducted, etc.

Other Checks: Copy of check with notes/attachments

32

MONEY DEPOSITED

52

IEA dues: Maintain copy of monthly statement

Member reimbursement• Travel: Use travel form with receipts attached

• Other: Need original vendor bill, not a handwritten note

Outside vendors• Detailed bill needed

• No bill (stipends, scholarships, etc.): document in minutes

33

MONEY SPENT

53-57

Forms:• Use some sort of voucher system (p 54)

Attach bills, etc. to vouchers

• For travel expenses: USE A TRAVEL EXPENSE FORM!! Example on page 57 Label receipts and staple them to the forms No stapled envelopes with miscellaneous

random receipts!!

• If travel funding is provided by another body, make sure there is no duplication of reimbursement

34

PRACTICAL ISSUES

53-57

35

Sam

ple

Vou

ch

er “Sample” Expense Voucher

_____________________________ Association _ _ Date Check No. Amount Explanation: ______________________________________________________________________ ______________________________________________________________________

Approved for Payment ______________________ _____________________________ President Signature ______________________ Treasurer

(Attach to Receipt/Invoice)

“Sample” Expense Distribution Acct. No. Expense Classification ________________

410 Office Maintenance ________________

420 Administration Salaries, Expenses & Taxes ________________

430 Negotiations ________________

435 Mediation, Arbitration & Fact-Finding ________________

440 Professional Rights & Responsibilities ________________

450 Legislative ________________

460 Public Relations – Membership ________________

470 Instructional/Prof. Development ________________

490 Miscellaneous ________________

54

36

Sample Travel Form

57

Should be able to look at any item on the bank statement or your accounting system and find the source document easily and quickly.

37

FILING

58

Examples:• Cross reference vendor bills/vouchers with check numbers

• Attach bills to bank statements, or• File vouchers numerically (chronologically)

• No envelopes/sacks with miscellaneous random documents

38

PRACTICAL ISSUES

58

BUDGET

FINANCIAL BOARDREPORTS

AUDIT

OUTSIDEAGENCIES

FINANCIAL REPORTS

How much money do we have? How much income have we received? How much has been paid for expenses? How does this compare to the budget? How does this compare to prior years?

FINANCIAL REPORTS

47-48

Primary audience is probably your governing board (may be shared with general membership)

Get in the habit of doing a WRITTEN report every month

Include the budget Include explanations of large variations

from budget Line items depend on your local’s major

activities

FINANCIAL REPORT

47-48

MIDTOWN EDUCATION ASSOCIATION STATEMENT OF RECEIPTS AND EXPENDITURES

EIGHT MONTHS ENDED APRIL 30, 2005

ACTUAL 2004

ACTUAL 2005

BUDGET 2005

REMAINING BUDGET

BEGINNING CASH BALANCE SEPTEMBER 1 4,870 5,000 5,000 0 RECEIPTS: IEA-NEA Dues 16,500 17,000 28,000 11,000 Local Dues 1,280 1,300 2,000 700 Fundraisers 600 800 1,000 200 Interest 370 400 500 100 Total Receipts 18,750 19,500 31,500 12,000 PAYMENTS: IEA-NEA Dues 16,500 17,000 28,000 11,000 Mediation/Fact-Finding/Arbitration 0 0 300 300 Meeting Expenses 600 500 800 300 Newsletter 240 400 500 100 Office Supplies 335 400 600 200 Total Expenses 17,675 18,300 30,200 11,900 NET INCREASE (DECREASE) TO CASH 1,075 1,200 1,300 (100) ENDING CASH BALANCE APRIL 30 5,945 6,200 6,300 (100)

SAMPLE REPORT

47-48

Your budget should be included in your financial statements

Of course, this means that you should have a budget!

BUDGET

12-15, Appendix 2, 3, 4, 5

Why have a budget?◦ Ensures proper financial planning◦ Discussion of how to use members’ resources◦ Qualification for financial assistance

BUDGET

12-15, Appendix 2, 3, 4, 5

IEA policy provides for significant financial assistance, IF:◦ Local dues at least $15◦ Your budget includes a line item for Mediation,

etc. with at least $3/member budgeted This can mean thousands of dollars of

potential assistance

FINANCIAL ASSISTANCE FOR MEDIATION, ARBITRATION, ETC.

14-15

Check constitution/bylaws for requirements

Get Member InputSee Budget Training Video on IEA Website

46

BUDGET PROCESS: LOCALS

12-15, Appendix 2, 3, 4, 5

All but the smallest of locals should consider an annual audit

The audit should address the accuracy of your financial reports, among other things

More details under “Oversight”

AUDIT

9-11

990/990-EZ (IRS)◦ ~30 Large locals

LM-3 (Dept. of Labor)◦ Small number of higher ed locals

For these reports, your accounting system must report your transactions in the same line items as shown on the reports

OUTSIDE AGENCIES

Appendix 13

IRS Form 990-N (“E-Postcard”)• “Gross Receipts” under $50,000

“Gross Receipts” do NOT include IEA-NEA dues!

All except around 30 IEA locals file this form!

49

IRS ANNUAL REPORTING

28, Appendix 13

“Gross Receipts”$50,000-$200,000: IRS Form 990 EZ

“Gross Receipts”Over $200,000: IRS Form 990

Most locals pay a CPA to file these forms (complexity/public disclosure requirements)

50

IRS ANNUAL REPORTING

28, Appendix 13

If you tell us that you are filing the 990/990-EZ but fail to do so, after a period of time the IRS will take away your tax exemption!

◦ Serious financial consequences for your local◦ Significant time, effort and expense to get it back

51

IRS ANNUAL REPORTING

28, Appendix 13

Must report payments to INDIVIDUALS to the IRS, IF:

Over $600 in total for a calendar year

For Services: Not for products, supplies or expense reimbursements

Gifts and awards don’t count

52

FORM 1099-MISC

29-31, Appendix 13

Stipends: officers(W-2 vs. 1099)

Stipends: non-officersPayment of dues for officersUndocumented expenses: report even if under $600

53

FORM 1099

29-31, Appendix 13

54

Form

1099—

Mis

c

30

55

Form

1096

31

D-2 (State Board of Elections)◦ ~30 large locals registered with the State◦ More may be required to file due to increase in

the IPACE rebate amounts! Your financial system must produce reports

showing receipts and payments needed to complete the D-2

STATE BOARD OF ELECTIONS

Appendix 13

DO YOU HAVE TO FILE?• One-time threshold: $3,000 spent in any 12-month period

• Only certain expenses “count”• If you exceed the threshold, you must register as a PAC immediately and then file quarterly reports forever

Keep up with state due dates and requirements

57

STATE POLITICAL REPORTS

22-23, 35-36, Appendix 9, 16

Local leaders Regulatory agencies General public Members

OVERSIGHT

Internal controls Signs of fraud Audit Policies Monitor deadlines

LOCAL LEADERS

Checks/balances and separation of duties

Helps protect the organization from undetected fraud

Helps protect officers from potential embarrassment and liability

Protects the treasurer’s credibility

60

INTERNAL CONTROLS

17-18

List of controls, Appendix 6Please read the example on page 18!

61

CONTROLS, continued

17-18, Appendix 6

Don’t think “It can’t happen here”• Numerous cases at IEA locals in past few

years• Usually involves people in positions of

trust

Pressures/Opportunities• Many factors can induce someone to

commit fraud• Lack of good controls presents an

opportunity62

FRAUD/MALFEASANCE

18-21, Appendix 7

63

The “FRAUD TRIANGLE”

18-21, Appendix 7

If you see the signs . . .• DON’T ASSUME THE WORST!!!• They could just signify substandard practices

• Check with your UniServ director• Don’t ignore the signs; doing so can end up reflecting on you

64

SIGNS OF POSSIBLE FRAUD

18-21, Appendix 7

Having an “independent” person or group examine the financial records is a good internal control◦ Deters shenanigans◦ Catches honest mistakes ◦ Shows your members you are concerned about

safeguarding their money\ Don’t create a false sense of security!

AUDIT

9-11, Appendix 1

Large Organizations: Outside CPA• “Audit” vs. “Review”

Smaller Organizations: Audit Committee• Independent of Governance• Start with a Checklist(Sample on page 62)

• Final Report to the Board

Share Report with Members

66

ANNUAL AUDIT

9-11, Appendix 1

Have a written policy on documentation and reimbursement• Overall expectations• What is covered/not

All expenses must be documented (detail on 53-56)

Donations to FCPE are not reimbursable

Region vs. Local funding67

R.A. DELEGATES

21-22, 55-57, Appendix 8

Having a calendar with all significant deadlines, and having this monitored by your governing body, ensures;◦ Reporting deadlines, with possible financial

penalties for noncompliance, are not missed◦ Promotes awareness of what goes on at the local◦ Everything gets done!

MONITOR DEADLINES

REGULATORY AGENCIESIRSSTATE BD OF ELECTIONSDOLOTHER

REGULATORY AGENCIES

If you are required to file reports, ◦ They will be reviewed and followed up on ◦ If you miss a filing date it may be costly◦ The reports may be audited

These agencies can also audit other areas within your operation, for compliance with laws

They may send you “Notices” requesting information

Solution: KNOW THE RULES; GOOD RECORDKEEPING!

REGULATORY AGENCIES

DO NOT IGNORE!Seek helpCheck TINKeep copies/proof of delivery

71

IRS NOTICES

32-33

Federal/State/Local Income Tax-EXEMPT

Sales Tax - NOT EXEMPT Exemption requires that your funds are spent for your “Exempt Purpose”

You must be able to demonstrate this if audited, hence the importance of documentation!

72

TAX EXEMPTION

26-27

You can, AND SHOULD, make a “profit”• Only way to build up funds

• Must be used for exempt purpose

73

NOT FOR PROFIT?

26-27

990s, 990-EZs, LM-3s, and virtually all info filed with the State Board of Elections are available online to anyone

Anyone can walk in and demand a copy of your 990 or 990-EZ, and you are legally required to provide it

Anything you post on the Web is fair game

GENERAL PUBLIC

Financial reports Budget They are part of the “General Public”

MEMBERS

Failure to remit IEA-NEA dues will result in scrutiny and possible audit

Regions must follow protocol in submitting budgets and other documentation

Random audits of regions

IEA

Questions Online resources On-Site training

IEA RESOURCES

Randy Welchrandy.welch@ieanea.org

Al Llorensal.llorens@ieanea.org

Annual training sessions78

RESOURCES

IEA Website www.ieanea.orgFinancial Procedures for Locals

and Regions handbookFinancial procedures videoMembership processing videoBudget video

NEA online treasurer trainingTips for new Treasurers

79

RESOURCES

80

IEA WEBSITE

CLICK “RESOURCES

”

81

IEA WEBSITE

CLICK “FINANCIAL

PROCEDURES”

82

IEA WEBSITE

CLICK here for the handbooks

CLICK here for workshops &

webinars