Financial Viability

Being fine tuned in today’s business Being fine tuned in today’s business worldworld

Understanding what you are

501 c 3…501 c 6…etc501 c 3…501 c 6…etc Non-profit vs. for profitNon-profit vs. for profit

MotivationsMotivationsMoney making vs. Stewardship and ServiceMoney making vs. Stewardship and ServiceProfits are OK—just can’t enrich members, Profits are OK—just can’t enrich members,

directors and staff directors and staff What is your purpose---design your systems to What is your purpose---design your systems to

meet those goalsmeet those goals

TODAY’S POINTS TO REMEMBER >>> Determine your Tax Reporting RequirementsDetermine your Tax Reporting Requirements File Your Tax Returns; Pay all taxesFile Your Tax Returns; Pay all taxes Carry Basic InsuranceCarry Basic Insurance Protect Critical DocumentsProtect Critical Documents Implement/Maintain Internal ControlsImplement/Maintain Internal Controls Have a sound accounting systemHave a sound accounting system Do financial planningDo financial planning

Taxes – Federal

990 Return990 Return Req’d if annual gross receipts > $25KReq’d if annual gross receipts > $25K

Alternative to 990---short form 990EZAlternative to 990---short form 990EZ Receipts < $100K; Assets < $250KReceipts < $100K; Assets < $250K

990T Exempt Org Business Income Return990T Exempt Org Business Income Return Rental or advertising income can make you liableRental or advertising income can make you liable

1120-POL Tax Return (PAC) + other PAC reports1120-POL Tax Return (PAC) + other PAC reports W-2’s and 1099s (W-9--get SSN or FEIN up front)W-2’s and 1099s (W-9--get SSN or FEIN up front) Handy web site: www.irs.govHandy web site: www.irs.gov

Taxes - Payroll

Form 8109 Federal Tax Deposit CouponsForm 8109 Federal Tax Deposit Coupons 941 Employer’s Qtly Federal Tax Return941 Employer’s Qtly Federal Tax Return

Can do electronicallyCan do electronically NEW!—Form 944—report annually if NEW!—Form 944—report annually if

have under $1,000 annual employment have under $1,000 annual employment tax liabilitytax liability

State Income Tax withholdingState Income Tax withholding Workers’ Comp and Other local issuesWorkers’ Comp and Other local issues

Taxes – State and Local

Sales and Use TaxSales and Use Tax Non-profit does not necessarily mean Non-profit does not necessarily mean

exempt from all taxesexempt from all taxesLiability to collect and payLiability to collect and pay

Seek advice if you make any sales to Seek advice if you make any sales to other than those in your home state other than those in your home state

Local sales and property tax requirementsLocal sales and property tax requirements

Insurance Use a reputable agentUse a reputable agent Maintain directors and officers coverageMaintain directors and officers coverage Maintain basic general liability coverageMaintain basic general liability coverage Consider property (bldg, equip, car) insurance Consider property (bldg, equip, car) insurance

depending on what you owndepending on what you own Don’t forget Work Comp--Check local lawsDon’t forget Work Comp--Check local laws

If you use small companies for work---get W/C If you use small companies for work---get W/C certificates for those that work on your propertycertificates for those that work on your property

Fidelity bondsFidelity bonds AARC does NOT provide any coverageAARC does NOT provide any coverage Check out local market and companies that Check out local market and companies that

specialize in non-profitsspecialize in non-profits

Protect Your Critical Documents

Articles of incorporationArticles of incorporation Bylaws and any amendmentsBylaws and any amendments IRS Tax Exemption letterIRS Tax Exemption letter Past Financial reports and tax returnsPast Financial reports and tax returns Board minutesBoard minutes Insurance policiesInsurance policies Major acquisitions (i.e. building)Major acquisitions (i.e. building) Banking Resolution and Check Signer DocsBanking Resolution and Check Signer Docs

ACCOUNTING SYSTEM BASICS Must meet three objectivesMust meet three objectives

Aid in organization managementAid in organization management Accountability to those of interestAccountability to those of interest Tax reportingTax reporting

Must be organizedMust be organized Checkbook; C/Rec, A/Rec and A/Pay books of entryCheckbook; C/Rec, A/Rec and A/Pay books of entry

Double entry systemDouble entry system Do it yourself or get competent aid who knowsDo it yourself or get competent aid who knows

NFP conceptsNFP concepts Cash vs. accrual (accrual preferred)--Cash basis is Cash vs. accrual (accrual preferred)--Cash basis is

OK unless you OK unless you • Want to analyze financial statementsWant to analyze financial statements• Have a lender to report toHave a lender to report to• Have an auditHave an audit

Basic Internal Control

Segregation of Duties—checks & balancesSegregation of Duties—checks & balances It all revolves around CASH>>examples:It all revolves around CASH>>examples:

Check signer and check preparer differentCheck signer and check preparer different Person depositing receipts does not Person depositing receipts does not

handle receivable recordshandle receivable records Check preparer & receipt depositor do Check preparer & receipt depositor do

not reconcile bank accountnot reconcile bank account SOX – Sarbanes – Oxley RequirementsSOX – Sarbanes – Oxley Requirements

Basic Control Processes Two check signers; Copy contribution checksTwo check signers; Copy contribution checks Petty cash activity—small & emergency use onlyPetty cash activity—small & emergency use only Document all expenditures of moneyDocument all expenditures of money

Receipts, invoices esp. for T & E, large amts +Receipts, invoices esp. for T & E, large amts + Payroll—Reviews all inputs and salary changesPayroll—Reviews all inputs and salary changes Supervisor reviews approves all AR write-offsSupervisor reviews approves all AR write-offs Implement and compare actual activity to a annual Implement and compare actual activity to a annual

budget. Board should approve annuallybudget. Board should approve annually Understand financial reports—get help, if neededUnderstand financial reports—get help, if needed Monitor financial fluctuationsMonitor financial fluctuations BE ALERT AND ASK QUESTIONSBE ALERT AND ASK QUESTIONS

Audits

If Revenue > $500,000, Get an AuditIf Revenue > $500,000, Get an Audit If Revenue > $100,000, Strongly ConsiderIf Revenue > $100,000, Strongly Consider An audit can be costly—if needed, get An audit can be costly—if needed, get

several bids from reputable local firmsseveral bids from reputable local firms Create an audit committeeCreate an audit committee

Financial Viability

Cash ManagementCash Management Look at receipt & spending patternsLook at receipt & spending patterns Project needs over 3, 6, 9, 12 monthsProject needs over 3, 6, 9, 12 months

Use the Budget as a tool to monitor performanceUse the Budget as a tool to monitor performance Budget is guideline NOT a mandate to spendBudget is guideline NOT a mandate to spend

Don’t be an ostrich---if there’s a problem, analyze Don’t be an ostrich---if there’s a problem, analyze it and take action. It won’t go away.it and take action. It won’t go away.

DON’T DELAY-PLAN ADON’T DELAY-PLAN Ahheeaadd

Most common NFP errors >>

Failing to report changes in operation to Failing to report changes in operation to IRSIRS

Failing to handle Independent contractors Failing to handle Independent contractors correctlycorrectly

Filing incomplete / inaccurate tax returnsFiling incomplete / inaccurate tax returns Inadequate recordsInadequate records Not following public disclosure rules (i.e. Not following public disclosure rules (i.e.

990 availability)990 availability)

PRESENTATION SUMMARYIT ALL COMES DOWN TO

STEWARDSHIP

TAXESTAXES--Determine tax requirements; file timely --Determine tax requirements; file timely returns and pay all taxesreturns and pay all taxes

INSURANCEINSURANCE---Carry adequate liability and ---Carry adequate liability and property coverage property coverage

RECORDKEEPINGRECORDKEEPING—Protect all documents—Protect all documents FINANCIAL REPORTINGFINANCIAL REPORTING——

Sound financial practicesSound financial practices Strong Internal ControlsStrong Internal Controls Good budgeting and financial planningGood budgeting and financial planning