Chapter President's ManualFinancial IssuesA successful Chapter will operate in the same fashion as your client. In other words, like a business. This is especially true in regards to the financial aspect of the Chapter. Chapters are asked to provide educational programs and social networking opportunities for local members. The expenses for these services must be properly accounted for and summarized once a year in a financial report to the Washington office. Chapters may earn revenue from a number of sources, including rebates from ACC, program registration fees, grants, and sponsorships. Like Chapter expenses, Chapter income should be well monitored, properly accounted for and used to the advantage of Chapter’s members. Overseeing these financial issues is the responsibility of the Treasurer, however the President and Board should be completely informed on every aspect of the Chapter’s financial standings. The following is a discussion of the financial responsibilities of the Chapter and the Chapter’s Treasurer. CHAPTER BUDGETAn annual operating budget is the best tool a chapter can use in measuring its success. If constructed properly, it will also serve as the annual workplan for the Chapter and will help guide decisions throughout the course of the year. Not only will a chapter be able to gauge its current year operations against expectations, it will be able to compare the current year to prior year operations. To create a meaningful and realistic budget, each Chapter officer with authority to spend/obligate funds should be asked to submit a budget proposal to the Treasurer approximately 3-5 months prior to the start of the fiscal year. Ideally, written notes that detail the projected income/expense will accompany each budget request. The Treasurer will review each request for reasonableness and will ensure it is consistent with the Chapter’s mission and/or strategic goals. Furthermore, the Treasurer will balance the expense requests against the projected income. Often expenses will exceed your income, necessitating some prioritization of activities and expenses. Now that you have a preliminary budget, prior to the start of the fiscal year, which is October 1, the Treasurer should submit the balanced budget to the Board for its approval. Once approved, the budget should be incorporated into the financial statement cycle and should be used as a tool to make sure that proposed activities are completed according to the Chapter’s workplan. RESERVESAmong non-profit associations, it is usually prudent to maintain 3-6 months of operating expenses as reserves. Certainly it is not necessary to keep more than three to six months in reserves and it is recommended that chapters in excess avoid undue scrutiny by the IRS and consider devoting resources to additional programming and activities that will benefit ACC members, and increase the visibility of the chapter and the association. You should also note that your reserve amounts might affect how members and ACC Headquarters perceive the chapter’s fiscal responsibility and management. For example, members may not support an increase in dues if their chapter is not meeting current member needs, has no specific plans to invest the funds in future service to members, or is merely holding excessive funds in reserve. Chapters should avoid this scenario by pumping excess funds (beyond the recommended 3-6 reserves) into enhancing chapter services. Some specific suggestions for spending excess income are listed below.
RESERVE LIMITSChapters often wonder if the IRS places limits on the amount of reserves a chapter is allowed to hold. In fact, the IRS does not focus on a tax-exempt organization’s reserves as long as the use of the reserves is to ultimately carry out the objectives for which the organization was granted tax-exempt status and there is not a consistent gross excess of funds that are not being spent on chapter services. (A large reserve fund may be justified, for example, if the chapter plans to set up a scholarship program, produce a directory, or host a large Annual event). Note, however, that reserves in severe and consistent excess of the recommended 3–6 months operating expenses, could cause undue scrutiny by the IRS and chapters should therefore endeavor to continually use excess funds to enhance chapters services and operations. Online and print ad income computationSeveral ACC chapters provide online and/or print ad space to sponsors as part of their sponsorship packages. If any of those ads are corporate identity ads of the sponsors (see attached definition of UBIT), they have generated taxable income to the chapter and must be reported on your Annual Financial Report as such. The IRS does not allow entities to shield taxable income (in our case, advertising) in a non-taxable source of income (in our case sponsorships). If advertising opportunities are provided to sponsors as part of a single priced sponsorship package, advertising income must be computed and be reported separately. Online Advertising IncomeUsing ACC’s own market rate for online homepage advertising as a basis, the following formula can be used for computing your chapter’s online advertising income. Actual Monthly price of ACC Banner Ad: $2150 This formula has to be adjusted a bit however because chapter homepages reach a smaller audience and generally there are more than 3 ads rotating at one time which will discount the price further. To apply this formula to a chapter, proceed as follows: Price to reach one ACC member per month: $.09 To illustrate this formula, assume a chapter had 1200 members on 9/30/09, 30 ads that rotated at one time, and all ads appeared for 12 months. Actual Monthly price to reach an ACC member: $.09 Print Advertising IncomeUsing ACC’s own market rate for ACC Docket advertising as a basis, the following formula can be used for computing your chapter’s print advertising income. ACC Docket is an 8x11 publication printed 10 times per year To apply this formula to a chapter, proceed as follows: 9/30/09 membership or circulation of chapter: 367 – if they differ, use the larger of the two. NOTES:
If you have any questions, please contact Anne Bracken at 202.293.4103 ext. 311 or bracken@acc.com for one-on-one assistance. ACCOUNTING SYSTEMAll Chapters should operate on a cash basis. This means that income and expenses are recognized when they occur (receipt of a check or payment of a bill) as opposed to when they are due. ACC recommends that your Chapter’s accounting system be as simple as possible yet still meet the annual reporting requirements of the Washington office. If, however, the Chapter wishes to maintain a more detailed, accrual accounting system, you may do so as long as you submit your annual report on a cash basis. As demonstrated in the attached copy of the annual Chapter Financial Report, the Washington office requires the distribution of income and expenses between logical and common categories. Each Chapter should be able to produce a standard Profit and Loss Statement and Balance Sheet quarterly, if not monthly. Another consideration when selecting and designing an accounting system is that it should be easily transferable at the end of a treasurer's term to the new treasurer. This means a system that is straightforward, well documented, and not overly complicated. Quick Books is common software that meets these criteria and now offers a hosted on-line version that is ideal for a Treasurer’s remote supervision of accounts. For more information on Online Quick Books, email Caroline at sweeney@acc.com. To sign up for a free 30-day trial for Online Quick Books Plus, go to https://qbo.intuit.com/redir/buynow?bc=QBP-BYS&buy=y. Complete the sign up and enter the referral code “VOL-TWF-ACC”. If you do not cancel before the end of the 30-day free trial you will be charged $202.10, the annual fee for ACC chapters, which is 52% off of the advertised price. INTERNAL CONTROLSAfter an accounting system is established, it is important for the Chapter to adopt a set of accounting procedures that incorporate strong internal controls. Good internal controls limit opportunities for fraud and ensure adherence to sound accounting principles. Most every book one reads on the subject suggest the foundation of internal controls is the separation of duties among staff. This is virtually impossible for ACC Chapters given they often employ only a single administrator. With this reality, it is important for the Treasurer to become actively involved to ensure proper management of Chapter funds. If the Treasurer acts as the bookkeeper, then another officer should assume the oversight role suggested here for the Treasurer. What follows is a brief review of key areas of internal controls. Cash, Credit Cards and Investments
Accounts Payable
Accounts Receivable
FINANCIAL STATEMENTSA Treasurer’s Report should be part of each Chapter board meeting. That report should contain at a minimum a Profit and Loss Statement (P&L) and a Balance Sheet. The P&L statement should compare year-to-date income and expenses against the current budget as well as against last year’s income and expenses. A P&L of this nature will allow a Chapter’s board to fully examine the Chapter’s current financial position relative to their budget and the prior year’s actual experience. A sample format for a financial statement is attached. ACC reserves the right to inspect the books of any Chapter at any time.AUDITACC does not require a Chapter to have its books independently audited but as a Chapter’s income/budget approaches $500,000, it is suggested a chapter conduct a financial review (less comprehensive than an audit but also less expensive) every 2-3 years. For these large Chapters, an independent review will help fulfill many of the Board’s financial oversight obligations and governance responsibilities. Chapters may hire local accountants at its own expense or request this service from ACC’s Washington office. ACC will send a member of its financial staff to conduct the review onsite at no cost to the Chapter. An operational review by ACC staff is a comprehensive evaluation of your operations that many chapters have found quite beneficial. Below is an overview of such a review. Overview of a Chapter Operations Review as conducted by staff from the Washington, DC office of ACC Purpose of review: To ensure that the financial affairs of an ACC Chapter are being conducted efficiently and effectively, that funds are properly accounted for, that the Chapter is utilizing solid financial controls, that the Chapter board is fulfilling its fiduciary duties, and that the chapter is operating consistent with its non-profit status. Review process: The review takes approximately 1.5 days to complete with the time spent primarily with the individual that manages the books for the Chapter. Sometimes this is an administrator, sometimes an accountant, and sometimes the volunteer treasurer. It is conducted at his or her office, or the location of the financial records. Typically, a vast majority of the time is spent interviewing the administrator/bookkeeper/treasurer about processes, controls, banking operations, contract procedures, and such. This includes a sample review of actual records in each category so it is important that the review be conducted at the location of the records. Review report: Because the written report takes 3-6 weeks to complete, when possible, the ACC reviewer provides an oral report over dinner to the Chapter's president, treasurer, and any other pertinent members of the board. A complete, multi-paged report is provided to the Chapter president and treasurer 3-6 weeks later. The Chapter is asked to provide a response to the report within 3 months of receipt. RECORDS RETENTION POLICYChapters should retain monthly/quarterly financial reports, P&L statements for specific programs, credit card charges, and bank statements for five years from the date of the record or event. For information on retention of other documents, see “Records Policy” in Chapter 3 of the president’s manual. ANNUAL CHAPTER FINANCIAL REPORTEach year all Chapters are required to complete a Chapter Financial Report. A sample of the report format for 2008 is attached. It is critical that all Chapters complete the report. The Washington office files ACC's federal tax returns on behalf of the entire association. This is impossible to do without every Chapter’s cooperation and information. A Chapter’s failure to file a complete and timely financial report may subject the association to IRS penalties and interest as well as additional accountant fees. Quarterly rebates will be withheld from any Chapter who fails to submit proper and accurate financial information. A Chapter can avoid both of these undesirable consequences with a modest amount of effort. EIN NUMBERSAll Chapters are automatically included under ACC's group §501(c) 6 tax exemption, but a Chapter retains its own Employer Identification Number (EIN). Frequently Chapter members or local sponsors will request the Chapter’s EIN for tax purposes before or after making a payment to the Chapter. The request may be verbal, in writing or by virtue of a W-9 form. Chapters should promptly comply with all such requests. In response, please provide the Chapter’s EIN and not the EIN of the entire association. Chapter Employer Identification Numbers are included at the end of this chapter. The Washington office will apply for EIN numbers on behalf of new Chapters. TAXESACC is a §501(c)6 organization, which means as a not-for profit corporation, it is exempt from federal and state income taxes in most cases. Unrelated business income such as advertising sales may produce taxable income and require the approval of the Washington office before such projects are undertaken. If ACC is required to pay unrelated business income taxes on behalf of a Chapter’s activities, the amount may be charged back to the Chapter. For more information on UBIT, see the enclosed article. Status as a non-profit corporation is NOT the same as being tax exempt from state sales and use tax. The Washington office applied for and was denied exemption from District of Columbia sales and use tax on multiple occasions. Depending on state law, a Chapter may have greater success in its application, but typically §501(c)6 organizations are not granted such requests. Please contact your local authorities for additional information. Chapters are not required to file state income tax returns. The Washington office files a single federal tax return on behalf of all Chapters. The Washington office must be informed promptly of any contact with the IRS and will handle the inquiry on behalf of the Chapter. The only tax forms a Chapter may be required to prepare is a 1099-MISC form if it hires an administrator or any other consultant on a consulting basis. Or a W-Z form if the chapter has an employee. See the section below for more information on this requirement. TAX EXEMPT STATUS REVOCATIONChapters should be aware that tax-exempt status would be revoked if any part of an organization’s net earnings benefit a private individual. This benefit is called “inurement.” Examples of inurement include:
To ensure that you don’t find yourself in this situation, a chapter may wish to create a conflict of interest policy. To view a sample, go to http://www.acc.com/vrp/manual/coi.pdf. CHAPTER EMPLOYEES VS. CONSULTANTSMany chapters will find it necessary to hire an administrator to assist with the day-to-day operations of running a chapter. The following questions, established by the IRS, will help you ensure that your consultants are working as independent contractors. In general, answering “no” to questions 1 through 14 and “yes” to questions 15 through 19 indicates that a worker is an independent contractor, not an employee.
INCORPORATIONIn order to further protect ACC’s Chapter directors and officers and after careful review of the benefits, ACC incorporated all of its Chapters. ACC handles annual reporting requirements and since Chapter bylaws must contain certain provisions, it is important to have any amendments or revisions reviewed by ACC staff prior to approving the proposed changes. Forward any proposed bylaws amendments to Jim Merklinger, associate general counsel at merklinger@acc.com or 202.293.4103, ext. 326. Some of the benefits of incorporation are list below:
1099 FORMSBy February 28 of each year, Chapters must issue a 1099-MISC to all independent contractors that earned more than $600 in fees during the preceding tax year (1/1-12/31). This usually includes chapter administrators, executive directors and interns. A 1099-MISC is in lieu of a W-2 and is required by law. Include on the 1099-MISC only fees paid to the contractor and not expenses reimbursed. Chapters will also need to complete a 1096 form, which is a cover, transmittal form (required even if you only issue one 1099-MISC). Both forms are due to the IRS by February 28th. To order these forms online, visit http://www.irs.gov/businesses/page/0,,id=23108,00.html. To use a service designed especially for small business to file the 1099s, visit https://onlinepayroll.intuit.com/external/business/1099.jsp?name=1099_form_offer. More information can be found at www.irs.gov. If the 1099 is prepared by the Chapter administrator, it should be reviewed by the Treasurer or other appropriate board member. REBATE CHECKS FROM ACCEvery quarter, ACC forwards to the Chapter Treasurer (or a designee) a rebate check in the amount of $30 for each new and renewing member paid during that quarter. In addition to membership rebate funds, this check may include other small miscellaneous amounts that will be detailed in the cover letter. The check may also contain deductions for that quarter’s expenses. Expenses charged back to Chapters include items such as broadcast fax fees, conference call charges, quarterly newsletters, and overnight mail fees. Rebate checks will be withheld if a Chapter does not file its annual financial report or Chapter activity report with the Washington office on time. Furthermore, Chapters will be notified if a rebate check remains outstanding or uncashed by the next quarter. Checks that remain outstanding for six months will be canceled and may not be reissued. Checks that are being held for failure to submit required forms will become void three months after the deadline of the specific report. INSURANCEGeneral Liability for U.S. and Canadian ChaptersACC maintains a general liability insurance policy for all U.S. and Canadian Chapters. The primary policy provides protection for incidents such as slip and falls and host liquor liability insurance with limits of $1,000,000 per policy year. ACC also maintains an umbrella policy for U.S. and Canadian chapters in the amount of $9,000,000. In the past, when certain U.S. Chapters have held events at the third party locations, the third party (hotel, member’s company, museum, etc.) has requested a certificate of insurance. Requests for certificates of insurance should be send directly to the Washington office. The Washington office should also be alerted to all potential claims ASAP. The policy information is listed below:
General Liability for Chapters in Europe and IsraelACC maintains a special general liability insurance policy for all non-U.S. / Canadian Chapters. The policy provides protection for incidents such as slip and falls and host liquor liability insurance with limits of $1,000,000 per policy year. In addition, the policy includes employer liability coverage, property in-transit coverage, EDP coverage and more. ACC also maintains an umbrella policy for non-U.S./Canadian Chapters in the amount of $9,000,000. As above, if a third party requests a certificate of insurance from the Chapter, please contact the ACC Washington, DC office. The Washington office should also be alerted to all potential claims ASAP. The policy information is listed below:
Directors and Officers’ Liability Policy for all ACC Volunteer LeadersACC maintains $5,000,000 Directors and Officers’ liability insurance. This policy extends to all ACC volunteer leaders. It does not extend to Chapter administrators or executive directors who are hired as consultants or employees. ACC may reimburse covered individuals for the deductible of the liability policy when the chapter lacks the necessary resources to do so on its own. Below is the policy information and some FAQ’s about the policy. For more specific questions, please contact the Washington office.
Director and Officers’ Liability Policy FAQ’s
A wrongful act is an: Examples of wrongful acts: Examples of what is not covered Optional Malpractice Insurance
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