Non-Profit Finance 101

Staying in the Black

Special Considerations

In general, non-profit organizations may not:

– Generate profit but may hold funds in reserve to reinvest in the organization.

– Provide dividends to individual shareholders.

– Engage in activities deemed anti-competitive.

Special Considerations

In general, non-profit organizations may not:

– Provide any pecuniary gain, incentives or compensation to its officers, directors or members for their service or membership.

– Hold funds under the name or identification number of an individual, or blend funds from an organizational account with those of an individual account.

Non-Profit Directors’ Duties

Care

Loyalty

Obedience

Integrity

Financial Executive’s Responsibilities

Maintain financial accounts with due diligence.

Record financial transactions with appropriate documentation.

Provide regular written/oral reports on the organization’s financial status to the board and membership.

Prepare annual tax filings, if applicable.

Financial Executive’s Responsibilities

Seek expert counsel when needed.

Develop policies and procedures for managing the organization’s finances.

Control organizational bank and other accounts.

Oversee periodic audits of the organization’s finances.

Maintain all organizational financial records.

Important Information the Financial Executive Should Have

Bank account information

Bank statements (past/current)

Annual financial statements (past/current)

Audited financial statements (past/current)

Financial policies and procedures

Financial records and forms

Financial Policies/Procedures

Financial Executives

– Who is generally responsible for handling financial transactions and accounts?

– Who has a support role and what is the extent of each role?

Financial Policies/Procedures

Accounts and Record Maintenance

– Receipts, disbursements and forms

– General ledger and chart of accounts

– Membership roster

– Property, investment and inventory records

– Bank statements and reconciliations

Financial Policies/Procedures

Bank Accounts

– Type(s) of accounts to maintain

– Signatories on account(s)

– Authority to borrow funds

– Insurance/bonding

– Employer Identification Number or other account identifier

Financial Policies/Procedures

Financial Reports

– Who receives reports?

– How often are reports provided?

– What type of verification process or internal audit is done of financial reports?

Financial Policies/Procedures

Investments

– Type(s) of investments

– Person(s) authorized to invest funds

– Investment policies

Financial Policies/Procedures

Transactions

– Membership dues

– Special assessments

– Fees

– Loans/grants

– Interest/dividends

Financial Policies/Procedures

Expense Reimbursement

– What activities are covered?

– What limits apply (e.g., per diem, coach airfare, etc.)?

– What is the authorization process?

– Who authorizes pre- and post-activity?

Budgeting

Pointers

– Identify goals/objectives for coming year.

– Review current year revenue and expenses as baseline.

– Identify revenue/expenses that will not recur.

– Obtain input from organizational leaders.

Budgeting

Pointers

– Estimate income and expense for coming year.

– Review proposed budget with leadership.

– Approve budget.

– Communicate budget to members.

– Monitor budget.

Tax Exemptions Federal (US)

– There are 23 exempt classifications under the Internal Revenue Service code.

– As a “business league,” NADL and its Components can qualify for exemption under Section 501(c)(6) of the IRS code.

– As 501(c)(6) organizations, NADL and its Components may not receive charitable contributions.

Tax Exemptions State (US)

– Federal tax exemptions do not necessarily apply at the state level.

– Some states grant their own exemptions for nonprofit organizations.

– The process for obtaining an exemption varies from state to state.

Tax Exemptions

International

– The laws vary significantly from country to country.

– Component leaders will need to investigate the requirements and process in each country.

Obtaining Exempt Status

Federal (US)

– Individual exemption.

– Group exemption.

– Filing requirements.

Tax Filing Requirements

Federal (US)

– Tax filings.

– Taxes for unrelated business income.

– Taxes related to employees.

State (US)

– Requirements will vary from state to state.