THE GOVERNING BOARD:Financial Responsibilities

Presented to: Arts and Business CouncilTuesday, September 28, 2010

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Who are You?

• Who is a current board member?• Who is a current staff member?• Who has been in the not for profit industry for

more than 5 years? (either as a staff or serving on boards)

• Who has been in the not for profit industry for less than 5 years?

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What type of Organization?

• Who represents a 501(c)3 organization?• Who represents an organization with gross

receipts < $200,000• Who represents an organization with gross

receipts < $1,000,000• Who represents and organization with gross

receipts > $1,000,000

Agenda

1. What is the role of the board of directors?2. What significant areas of the financial

statements should we be familiar with?3. What are the filing requirements for our

organization?4. What do we need to know about audits?

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What is the Role of the Board?

• Fundraising• Strategic planning• Oversight of programs

The IRS believes that a well-governed organization is more likely to be compliant.

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Oversight of Programs

General Oversight• Be aware of how the

organization is run• Be aware of processes

potential areas of fraud• Have an active role in

helping to mitigate risks

Fiduciary Oversight• Help set financial policies• Be familiar with the

financial statements• Be able to review and

understand the form 990

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Policies of a Not For Profit

• Conflict of interest policy• Policy regarding reimbursement of travel and

entertainment expenses• Executive compensation policy• Investment policy

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Assimilation of New Board Members

• What should you do when you joint a board?• How does fiscal oversight work?• What is the value of analyzing historical

financial information?• What are the benefits of board committees?• What are strategies for effective board

communication?• What can staff do to support board members?

Agenda

1. What is the role of the board of directors?2. What significant areas of the financial

statements should we be familiar with?3. What are the filing requirements for our

organization?4. What do we need to know about audits?

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Importance of the Financial Position

• Enhancement of organization• Supports future plans for the organization• Deeper understanding of key information• Activities of the organization

Financial Differences

• Financial statements– Statement of Financial Position– Statement of Activities– Statement of Functional Expenses

• Endowments

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Statement of Financial Position• Short-term investments• Long-term investments• Accrued income taxes• Net assets– Unrestricted

• Board Designated• Undesignated

– Temporarily Restricted– Permanently Restricted

Statement of Activities

• Allocations into restricted classes

• Realized and unrealized gains/losses on investments

• Assets released from restrictions

• Expenses

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Statement of Functional Expenses

• Classification• Actual vs. allocation

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Endowments

• Protecting the original contribution• Contributions and expenditures• Investment income• Requirements• Policies and standards

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Agenda

1. What is the role of the board of directors?2. What significant areas of the financial

statements should we be familiar with?3. What are the filing requirements for our

organization?4. What do we need to know about audits?

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What is Required to be Filed?

• Internal Revenue Service• Illinois Attorney General• Other states

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The Form 990

• Full 990 or 990-EZ

• 12-page core form & 16 schedules• Additional questions on governance, policies,

and procedures• Navigating the changes

May file 990-EZ for: If gross receipts are: AND if total assets are:2008 Form < $1,000,000 < $2,500,0002009 Form < $500,000 < $1,250,0002010 and later < $200,000 < $500,000

AG-990-IL

• Any 501(c)(3) organization that collects contributions from anyone in Illinois

• Audited financial statements required if gross receipts is greater than $300,000

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Unrelated Business Income Tax

• Certain activities by not for profits may be subject to taxes– Advertising in publications– Rental income– Sales of merchandise not directly related to

program activities

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Agenda

1. What is the role of the board of directors?2. What significant areas of the financial

statements should we be familiar with?3. What are the filing requirements for our

organization?4. What do we need to know about audits?

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What Occurs During an Audit?

• Understanding of entity controls• Examination and testing of statement of

financial position and statement of activities• Fraud inquiries• Communication with board of directors

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Communication with the Auditor

• Review financial statements and footnotes and inquire if additional understanding is necessary

• Discuss the audit process• Ask about areas of possible improvement

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Preparing for an Audit

• Know your financial statements– Be prepared to explain deviations from budgets or

significant changes from the prior year• Find out what the auditor will need• Make accounting staff aware of auditors and

need for documents

Specializing in Financial Statement Audits, Reviews and CompilationsIncome Tax Planning, Research and Preparation

Pension and Profit Sharing PlansMonthly Accounting, QuickBooks and Accounting Software Setup and

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