Transcript FINANCIAL PROCEDURES FOR - Illinois Education Association

FINANCIAL PROCEDURES FOR
LOCALS & REGIONS
Safeguard and Manage Your
Organization’s Resources
SAFEGUARD AND…. WHAT??
• Make sure your members’ funds are not:
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Stolen or misplaced
Lost due to failure to collect them in the 1st place
Wasted/Used inappropriately/illegally
Spent on fines, fees and penalties
• And manage your funds so they are used effectively:
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Budget
Financial reports
Banking arrangements
Etc.
THAT’S THE TREASURER’S JOB, RIGHT?
• The Treasurer may do most of the work, but…
• Your governing body and officers have the fiduciary
duty to:
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See that proper systems and procedures are in place
Monitor for compliance
Insist on transparent, ethical activity by everyone
Make sure things get done in the Treasurer’s absence
• If you are a local leader, all of this material pertains
to you, but your responsibility will vary depending
on your role
TODAY’S AGENDA
• “Top 5” safeguarding/management tools
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1. Verify your dues income
2. Comply with IRS rules
3. Internal controls/Fraud prevention
4. Budgeting
5. IPACE funds
• Other important stuff
• Resources available to you
BEFORE WE START…
• Your “FPLR” book is an important resource
• Out of necessity, this presentation is an
overview. There is much more detail on all of
these topics in the FPLR book
• The book addresses topics that we don’t even
have time to mention today
“FPLR” HANDBOOK
Administration & Fiduciary Oversight
Regulatory Requirements
Technical Tasks
Appendices (Some of the previous Appendices
have been moved to the IEA website)
Try to be familiar with contents!
1. VERIFY YOUR DUES INCOME: LOCALS
• You need to invest whatever effort is needed in
order to make sure that:
▫ Your employer collects the correct amount of dues
from all of your members/feepayers
▫ All of this money is turned over to you per your
contract’s terms
▫ All dues paid by your employer are deposited
intact
▫ Your IEA-NEA dues are paid in full, on schedule
WHY IS THIS IMPORTANT?
• Your local dues are probably all that you have to
fund your local programs
• Your local is responsible for paying 100% of your
members’ IEA-NEA dues, even if you don’t
collect them
• If you don’t collect enough to cover the IEA-NEA
obligation, the difference has to be made up out
of local funds
• It’s your members’ money; they deserve to have
it used appropriately
WHAT COULD POSSIBLY GO WORNG?
• Local forgets to update the dues-per-member
provided to the employer at the beginning of the
year
• District reduces the number of pay periods for
withholding; local forgets to raise the dues-perpay-period accordingly
• Local pays dues for too many leaders and runs
out of money
WORNG (Continued)
• Treasurer deducts (and pockets) cash when
depositing district’s checks
• Amount withheld per pay period is wrong and
it’s not discovered until May
• Treasurer and Membership Contact not on the
same page at year-end=late payment penalties
RESOURCES
• FPLR manual
• Website
▫ Video
▫ Spreadsheets
• Other local treasurers
• IEA office
VERIFY YOUR DUES INCOME: REGIONS
• Understand the rebate process
• Test the IEA FTE figures and calculations for
reasonableness
• Verify the IEA payment history
• Verify the carryover amounts
• Understand the “Adjustments”:
▫ “Bylaw Amendment”
▫ Computer deduction
2. IRS RULES
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Tax exemption ramifications
Documentation requirements
Annual information return
Income reporting requirements
Audits/Notices
Other
TAX EXEMPTION
• You are a tax exempt labor union (IRS 501(c)(5)
▫ Locals: Separate subsidiary of IEA
▫ Regions: Technically part of IEA
• Your income and expenses should be “related” to
your tax-exempt purpose (serving your
members)
• You must be able to document this
DOCUMENTATION
• All financial transactions must be properly
documented:
▫ Dollar amount
▫ Business purpose
▫ Date/Place
• “Properly” in most cases means an original
document from an outside party- not a
handwritten note
TRAVEL EXPENSES
• 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
• 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 REPORT
ANNUAL INFORMATION RETURN
• All IEA locals must file ONE of these forms every
year, based on the size of their “average annual
gross receipts”
• “Gross receipts”= All $$ collected, EXCEPT for
IEA-NEA dues
▫ Over $200,000= Form 990
▫ $50,000 to $200,000= Form 990-EZ
▫ Under $50,000= Form 990-N (“E-Postcard”)
ANNUAL INFORMATION RETURN
• All but about 30 IEA locals file the E-Postcard
• All except about 2 of these have authorized the
IEA to file the E-Postcard for them
• The other 30 file the 990 or the 990-EZ
• We strongly recommend that if you file the 990
or the 990-EZ, you hire a CPA to do it for you
• Regions do NOT file a return
990/990-EZ
• Public document
▫ Posted on the Internet
▫ You must provide copies if asked
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Sensitive information- compensation, etc.
Description of your activities
Could be used as screening tool for an audit
Forms are complicated and the rules change
frequently
• So a CPA is a good investment
UNRELATED BUSINESS INCOME
• Income not related to union business
• Rarely occurs, examples:
 Rental income
 Newsletter ads (not sponsorships)
 Merchandise sales
• Need $1,000 in UBI to incur a tax
liability
INCOME REPORTING REQUIREMENTS
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
1099-MISC
• Stipends: officers
(W-2 vs. 1099)
• Stipends: non-officers
• Payment of dues for officers/others
• Undocumented expenses: report even if under
$600
1099 ISSUES
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Copy to recipient by 1/31
Copy to IRS by 2/28
Form is carbonized- can’t download
Also need “1096”
1099-MISC
1096
IRS NOTICES
• DO NOT IGNORE!
• Seek help
• Check TIN
• Keep copies/proof of delivery
IRS AUDIT
• Not likely, but . . .
• Random audits
• Reported by disgruntled members
WHAT DO THEY ASK FOR?
• Articles of incorporation, bylaws, IRS
determination letter
• Board/Committee meeting minutes
• Conflict of interest policy
• Copy of expense reimbursement plan
• General ledger, cash receipts journal, cash
disbursements journal
AND…
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List of all bank accounts
Copies of bank statements and cancelled checks
Credit card statements and receipts
Invoices and receipts
Schedule of donors to the organization
All expense reimbursement requests, including
documentation
AND…
• Copy of any contract of $5,000 or more
• Documentation of process to determine
compensation of officers, including committee
minutes
• Copies of Forms 941, W-2 and 1099-MISC
• List of officers
• Breakdown of dues received: IEA-NEA vs. local
• Copy of two newsletters
AND…
• Copy of union handbook
• All workpapers used to prepare the annual tax
return (990-EZ)
• Charter
• Document retention policy
AND…
• Are regular Board meetings held? Describe.
• How often are dues paid to IEA-NEA?
• What portion of the dues are for political
activities?
• How are members notified that part of their
dues are used for lobbying activities?
• What geographic area do you cover?
AND…
• Describe your history and activities.
• Describe your internal controls over your
financial transactions.
• Do you have a budget?
• Is your 990-EZ shared with your governing
body?
• How large is your governing body?
AND…
• Do you have an annual general meeting of the
membership?
• Do you have an audit? If so, provide copies of
reports.
• Who maintains the books?
• Do you provide monthly financial reports? What
is in them?
• How are your officer stipends computed?
AND…
• How do you report stipends (W-2, 1099-MISC,
etc.)?
• What are your sources of income?
• How are your convention delegates chosen?
• How many delegates do you have? What do they
do? How long do they serve?
AND…
• Do you have special events, if so, describe.
• Do you give gifts? Describe.
• What is the length of your contract with your
employer?
• Do you track your valuable assets, e.g.
computers? Provide list.
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IRS AUDIT
• Sleep well: Keep your books and other
documentation in order, and follow the rules
• Seek help
• Let us know
OTHER IRS ISSUES
• You CAN make a profit!
• You MUST pay state sales tax
• To the IRS, almost all gift cards are TAXABLE
COMPENSATION
▫ Employees: Add to W-2 income
▫ Others: They “count” toward the $600 1099
threshold
▫ So try to avoid using them, but if you must, make
sure you keep good records (name, date, amount,
purpose)
TAXPAYER IDENTIFICATION NUMBER
• “Social Security Number” for associations and
corporations:
9 digits (xx-xxxxxxx)
• Need when opening a bank account
• Need when filing IRS forms
• IEA has your number on file
• IEA will apply for numbers when needed
3. INTERNAL CONTROLS/FRAUD
PREVENTION
• Most fraud consists of theft or misuse of funds
• In many cases, fraud is actually easier to get
away with in nonprofit organizations
▫ Everyone knows and trusts each other
▫ Leaders aren’t trained in detection and prevention
• Don’t think “It can’t happen here;” history says
otherwise
• Solution: Don’t be paranoid, just have good
controls
WHY DOES FRAUD OCCUR?
• Honest people: Financial pressures
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Medical bills
Drugs/Gambling
Investment losses
Other financial needs
• Less-than-honest people: Perception that no one
will find out
PROGRESSION
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$20/month for movie with spouse, then
$50/month for nice dinner, then
$500 for a new TV, then
Monthly house payment or son’s college tuition
THE “FRAUD TRIANGLE”
YOUR JOB AS A LEADER IS…
• Know the signs of possible fraud, and don’t be
afraid to seek help if something makes you
uncomfortable
• Make sure there are good controls in place
• Remember, even if today’s leaders are 100%
honest, controls must be in place just in case
future leaders are not!
SIGNS OF POSSIBLE FRAUD: APPENDIX 4
• If you see the signs…
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DON’T IMMEDIATELY ASSUME THE WORST!!
Probably just substandard business practices
Check with your U.D.
Don’t ignore the signs… this can end up reflecting
on you
• Completely arbitrary “Top 5 Signs of Potential
Fraud” list:
#5
• No “separation of duties” between President,
Treasurer, Membership Contact
#4
• Local is consistently behind in paying its IEANEA dues, especially at the end of the year
▫ Leaders need to stay on top of this and not accept
excuses such as “The check is in the mail” or “IEA
Membership keeps making mistakes”
#3
• Poor documentation of financial transactions
▫ No documentation at all
▫ Documentation is sloppy and poorly organized
▫ Documentation is insufficient
 Handwritten notes
 Photocopies of invoices
#2
• Local/Region deals in cash
▫ Checks payable to Cash
▫ Cash deducted from deposits
▫ Cash given to RA delegates as an advance
#1
• No oversight by the governing body
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No audit
No financial reports
No dual-signature requirement
Bank statements sent directly to Treasurer
No oversight over banking arrangements
AN OUNCE OF PREVENTION: INTERNAL
CONTROLS
• 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
CONTROLS
• List of controls- Appendix 3 (NOT all-inclusive)
• Read the example on page 16
• Completely arbitrary “Top 5 Controls” list:
#5
• Don’t have credit or debit cards for your local or
region
▫ Convenience outweighed by risk
▫ Remember the future!
#4
• Have “Two Signatures Required” and two
signature lines on your checks
▫ Instruct the bank to require two signatures
▫ Don’t allow checks to be signed before they are
completely filled out
#3
• Have an independent audit
▫ Large locals- CPA
▫ Smaller locals, and regions: Audit committee
 No “insiders”
 Consider nearby local Treasurer, bookkeeping
teacher, etc.
 Give them a list of procedures
 Have them file a short report
#2
• Do not deal in Cash
▫ No checks written to Cash
▫ No cash deducted from deposits
▫ No cash given for travel
• Possible exception: SMALL petty cash fund
#1
• Have the bank mail all statements to someone
besides the Treasurer
▫ Other person reviews statement and cancelled
checks, initials the statement, sends to Treasurer
▫ Best way to prevent fraud involving checks or
other withdrawals
▫ However, it’s 90% worthless unless your bank
provides check copies
4. BUDGETING
• Regions: Annual budget required in order to
receive annual rebate
• Locals: No specific requirement, but there are at
least five good reasons to have one:
#5
• Argument prevention
▫ Expense items are discussed and approved long
before the expense is actually incurred
▫ Gives you a reason to deny requests for off-thewall spending requests (“It’s not in the budget”)
#4
• Makes members happy
▫ Gives them input on how you spend their money
▫ Shows you are carefully considering how their
money is spent
#3
• Helps you plan for future needs
▫ Manage your annual profit/loss
▫ Control the size of your “reserve funds”
▫ Set long-term financial goals
#2
• Avert financial disaster
▫ Overspend dues income so that there’s nothing
left to pay IEA-NEA
▫ Plan for “non-cash” expenses such as paying
leaders’ dues
#1
• IEA financial assistance: Mediation, Factfinding,
Arbitration
• Requirements:
▫ Local dues at least $15
▫ BUDGET containing at least $3/member for the
above items
5. IPACE FUNDS
• IPACE is funded by member contributions
• Your local (not region) can receive up to $15 per
contributing member as a “rebate” each year, to
be used for local political purposes
• Your obligations when requesting IPACE funds:
▫ Know the rules regarding use of the funds
▫ Keep them in a separate non-interest bearing bank
account
▫ Understand and comply with State disclosure
requirements
STATE POLITICAL REPORTS
• DO YOU HAVE TO FILE?
• One-time threshold: $5,000 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
OTHER IMPORTANT TOPICS
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A. IEA-NEA dues payment
B. Banking
C. Accounting system
D. Financial reports
E. Policy- RA delegates
F. Treasurer transition issues
G. Annual calendar
A. IEA-NEA DUES PAYMENT
• Be aware of schedule
• Make sure you get the monthly IEA statement
from your Membership Contact
• Pay the amount on the statement
• Pay by the due date (avoid late payment
penalties!)
• Have employer pay IEA direct?
• See Appendix 10- How to read the statement
PAYMENT SCHEDULE
November 1
December 1
January 1
February 1
March 1
April 1
May 1
June 1
July 1
August 1
10% of obligation
20% of obligation
30% of obligation
40% of obligation
50% of obligation
60% of obligation
70% of obligation
80% of obligation
90% of obligation
100% of obligation
B. BANKING ISSUES
• How to choose a bank
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Financial (interest and fees)
Service (online banking ,etc.)
Location (if you will be there a lot)
Auditability
 Detailed monthly statement
 Copies of all transactions- checks, deposits, etc.
OPENING A BANK ACCOUNT
• 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 local
DO NOT OPEN AN ACCOUNT WITH SOMEONE’S
SOCIAL SECURITY NUMBER, YOUR SCHOOL’S
TIN, ETC.
OTHER NEW ACCOUNT ISSUES
• 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
SIGNATURES
• We recommend that all bank accounts require
two signatures
• So you will want at least three and perhaps four
or five people with the ability to sign
C. ACCOUNTING SYSTEM
• 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”
MY LOCAL HAS 200 MEMBERS, WHAT
ACCOUNTING SYSTEM DO I NEED??
•One size does not fit all
• Size/complexity of organization
• Prior treasurer’s system
• Current treasurer’s preference
BASIC REQUIREMENTS
Your system needs to:
• Record all transactions in sufficient
detail
 Allow you to produce financial
reports efficiently
 Provide a record that others can
follow
WHAT ARE MY CHOICES?
Some possibilities
• Checkbook/check stubs
• Cash receipts and disbursements
journals
• Excel/Access
• Specialized accounting software
(Quicken, etc.)
D. FINANCIAL REPORTS
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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
• 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 and your outside reporting
requirements
SAMPLE REPORTS
MIDTOWN EDUCATION ASSOCIATION
STATEMENT OF RECEIPTS AND EXPENDITURES
EIGHT MONTHS ENDED APRIL 30, 2005
ACTUAL
2004
4,870
ACTUAL
2005
5,000
BUDGET
2005
5,000
REMAINING
BUDGET
0
RECEIPTS:
IEA-NEA Dues
Local Dues
Fundraisers
Interest
16,500
1,280
600
370
17,000
1,300
800
400
28,000
2,000
1,000
500
11,000
700
200
100
Total Receipts
18,750
19,500
31,500
12,000
16,500
0
600
240
335
17,000
0
500
400
400
28,000
300
800
500
600
11,000
300
300
100
200
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)
BEGINNING CASH BALANCE SEPTEMBER 1
PAYMENTS:
IEA-NEA Dues
Mediation/Fact-Finding/Arbitration
Meeting Expenses
Newsletter
Office Supplies
Total Expenses
E. POLICY- RA DELEGATES
Have a written policy on documentation and reimbursement
(See Appendix 5)
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Overall expectations
What is covered/not
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Repayment of unspent funds
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Consequences
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Documentation requirements
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Donations to FCPE (NO!)
Region vs. Local funding
F. TREASURER TRANSITION ISSUES
• Treasurer candidates should be “qualified”
• “Full Disclosure” of job requirements
• There should be an orderly transition of
treasurers
• Demonstration/Instruction
• Written procedures/Calendar
• Books/Records in good order
• More info in FPLR handbook and on the
website
G. ANNUAL CALENDAR
• Don’t incur fines/penalties, or let important
things slip through the cracks!
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Outside reporting deadlines
Internal reporting deadlines
IEA dues payment deadlines
Annual tasks such as Board review of banking
arrangements
▫ Milestones in the budget process
▫ Etc.
RESOURCES
• IEA website
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Publications
Videos
FAQs
Tips for new Treasurers
NEA information
RESOURCES
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FPLR handbook
Annual training sessions
IEA Secretary-Treasurer
IEA Director of Business Services
Your local IEA office
Other IEA locals