board governance and its relevance to the new form 990

Board Governance and Its Relevance to the New Form 990


Presented by Parent, McLaughlin & Nangle

November 13, 2009


Table of Contents

Page Presentation Slides 1 IRS Conflict of Interest Policy 23 Sample Whistleblower Policy 25 Document Retention/Destruction Policy 28 Gift Acceptance Policy 31 Contact Information 37

Overview – How did we get here?

First complete overhaul of Form 990 since 1979 Private Sector – Enron/Sarbanes-Oxley 2001-

2002 June 2007 – IRS issues draft of new Form 990 December, 2008 – the IRS releases new Form

990 Basic duties of Board members have not

changed.

1

I. Care

II. Loyalty

III. Manage accounts

IV. Obedience to Purpose

Source: PCPS of AICPA

Duties of Board Members

2

I. Duty of Care

The care that “an ordinary prudent person would exercise in a like position and under similar circumstances”Attending Board meetings regularlyShowing independent judgmentBeing informed about organization resourcesDelegating only to responsible individualsFollowing up regularly

3

II. Duty of Loyalty

Give undivided allegiance to organization when making decisions

Personal, family or business interest cannot be put above the organization’s interest

Avoid conflicts of interest in fact and in appearance

4

III. Duty to manage accounts

Ensure financial accountability by: Overseeing the organization’s chief business officer Checking that resources are used prudently Implementing procedures to ensure accurate records Ensuring that no one person has control over finance

Accurate documentation of decision making considerations using Board meeting minutes

5

IV. Duty of Obedience

Ensure that your organization remains obedient to its central purpose

Establish accountabilities Policies Programs Performance Process Outcomes & effectiveness Planning, allocating & managing

6

New Form 990

Increased transparency – gives donors more information to make informative decisions

Provides the IRS with more factual data in areas that the IRS perceives to be indicators of abuse

Administrative burden – significant increase in record keeping and disclosure requirements

There are many questions on policies, and although not required by tax law, non-compliance may pose audit and credibility risks

7

Policies Addressed by the Internal Revenue Service in the New Form 990

Conflict of Interest Whistleblower Document Retention/Destruction Audit Committee/Finance Committee Review of Executive Compensation Gift Acceptance Review and Distribution of Form 990 prior to the

filing Meeting Minutes

8


Conflict of Interest Policy Annual disclosure by all directors, officers and key

employees of possible conflicts Disclosure of any transaction in which director, officer

or key employee has a personal financial interest Recusal of interested director from discussion and

voting Determination by disinterested directors that terms

are fair and as favorable as those available from a third party

9


Whistleblower ProtectionEncourages reporting of improper behavior Identifies persons to whom violations should

be reportedPromises protection from retaliation

10


Whistleblower Policy The Organization should ensure that employees

have a secure means by which to report fraud, accounting irregularities, noncompliance or other misconduct.

The Organization should ensure any reporting of fraud, accounting irregularities, noncompliance with policies or other misconduct can be made without fear of reprisal.

11


Document Retention/Destruction PolicyClear guidelines on retention and destruction

of paper and electronic recordsProhibit destruction of records for purposes of

preventing use in an official proceedingProvide security and confidentiality

12


Audit Committee/Finance Committee Policy Audit Requirements Committee responsible for oversight Understand the different roles of Audit and

Finance Committees

13

Policies Addressed by the Internal Revenue Service in the New Form 990 Audit Committee vs. Finance Committee

Audit Committee Shared Responsibility Finance Committee

The audit committee is authorized to consider matters related to (a) the financial statements of the organization and other financial information provided to the third parties:

(b) The systems of internal controls, including overseeing compliance by management with applicable policies and procedures and risk management; and

(c) The annual independent audit process, including the recommended engagements of, and receiving of, all reports from the independent certified public accounts. The audit committee shall have such other duties as may be designated to it by the board.

The finance committee ensures that budgets and financial statements are prepared; the audit committee has oversight for ensuring that reports are received, monitored and disseminated appropriately.

The finance committee monitors financial transactions; the audit committee makes sure things are done according to policy and with adequate controls.

The finance Committee provides guidance about what can be done; the audit committee ensures that independent oversight occurs.

Source: NonProfit Risk Management Center Websitewww.nonprofitrisk.org

The finance committee shall oversee the preparation of the annual budget and financial statements.

The finance committee shall oversee the administration, collection and disbursement of the financial resources of the organization.

The finance committee shall advise the board with respect to making significant financial decisions.

14


Executive Compensation PoliciesRebuttable presumption/safe harborApplies to

CEO, Executive Director and their equivalents regardless of title

Officers Key employees ($150,000 compensation and

benefits)

15


Executive Compensation Policies Review and approval by board or compensation

committee Recusal of anyone with a conflict of interest, including

anyone who Is related to the key employee Is in an employment relationship subject to the direction or

control of the key employee Receives compensation or payments subject to the approval

of the disqualified person Has a material financial interest affected by the arrangement.

16


Executive Compensation Policies Comparable data

Must be comparable as to type of organization, size of organization, annual revenues, number of people served, geographic area

Independent compensation studies Written offers from competing employers Organizations with gross receipts of less than $1 million can

rely on data from three comparable organizations

17


Executive Compensation PoliciesContemporaneous documentation

Terms Date approved Members of the authorized body who were present

and how they voted Comparable data relied upon Actions by any member of the authorized body

with a conflict of interest

18


Gift Acceptance Policy - Does your organization have a gift acceptance policy that requires the review of any non-standard contributions?

19


Form 990 Review PolicyProvide as-filed copy to Board prior to filingProcess for review of Form 990 by

management or Board

20


Meeting Minutes PolicyContemporaneously prepared within 60 days,

but no later than the next meeting Includes all committees with power to act for

Board

21

How do you as a Board member initiate the Adoption of New “Best Practices?”

Develop an understanding Yourself and Discuss with decision makers

Include an agenda item for a Board meeting Promote a consciousness of “running your

organization like a business” Highlight consequences of not following “best

practices”

22

Policies Addressed by the Internal Revenue Service in the New Form 990 Document Retention – Permanent Actuarial reports Articles of incorporation Audit reports Bylaws Capital stock and bond records: ledgers, transfer registers, stubs showing issues, record of interest coupons, etc. Cash books Chart of accounts Checks (canceled for important payments, i.e. taxes, purchase of property, special contracts, etc. Should be filed with underlying transaction) Contracts, mortgages, notes and leases (still in effect) Copyrights/trademarks Correspondence (legal and important matters only) Deeds, mortgages, bills of sale Depreciation schedules Directives – executive Financial statements (year-end) General/private ledgers, year-end trial balance IRS determination/approval letters

Insurance records, current accident reports, claims, policies, etc. Invoices of property Journals – all types Minute books of directors, stockholders, bylaws and charter Note register Patents and related papers Pension/profit sharing plan/trust documents Procedure records Property appraisals by outside appraisers Property records, including costs, depreciation reserves, year-end trial balances, depreciation schedules, blueprints and plans Retirement and pension records System records Tax returns and worksheets, revenue agents’ reports, and other documents relating to determination of income tax liability Trademark registrations and copyrights Training manuals Union agreements

28

Policies Addressed by the Internal Revenue Service in the New Form 990 Document Retention – 7 Years

Accident reports/Claims (settle cases) Accounts payables/invoices Accounts payables ledgers and schedules Accounts receivable ledgers and schedules Bank statements Checks (canceled – see exceptions above) Contracts, mortgages, notes and leases (expired) Expenses analysis/expense distribution schedules Expense reports Garnishments Inventories of products, materials and supplies Notes receivable ledgers and schedules Option records (expired)

Payroll records (expired) Personnel files (terminated) Plant cost ledgers Purchase invoices Purchasing orders (purchasing department) Sales invoices Sales records Scrap and salvage records (inventories, sales, etc.) Subsidiary ledgers Time books/cards Vouchers for payments to vendors, employees, etc. Withholding tax statements

29

Policies Addressed by the Internal Revenue Service in the New Form 990 Document Retention

Retain for 5 Years Excise tax computations

Retain for 3 Years Bank reconciliations Bills of lading Employee expense records Freight bills Insurance policies (expired) Internal audit reports Internal reports (misc) Petty cash vouchers Sales commission reports

Retain for 2 Years Budgets – projections Duplicate deposit slips Employment applications

Retain for 1 Year Purchase orders (except purchasing department copy) Receiving sheets Requisitions

30

Contact InformationPeter H. Dinsmore, [email protected]

Parent, McLaughlin & Nangle, CPAs160 Federal StreetBoston, MA 02110T: 617.426.9440F: 617.423.3955

100 Cummings Center, Suite 335GBeverly, MA 01915-6106T: 978.921.0005F: 978.927.3428

Barry N. Chait, [email protected]

85 Rangeway RoadForest Ridge Office Park, Bldg #1Billerica, MA 01862-2105T: 978.663.9750F: 978.663.5151

10 Commerce WayRaynham, MA 02767T: 508.880.4955F: 508.823.6976

37

board governance and its relevance to the new form 990

Documents

managing6new form

distribution of form

irs releases new form

irs issues draft of

board governance

complete overhaul of

internal revenue service

board meeting minutes5iv