Financial Best PracticesFinancial Best Practices

2009 Leadership Conference

October 30, 2009

Harrisburg, PA

Financial Best Practices 2008 2

Not-for-Profit vs. Tax Not-for-Profit vs. Tax ExemptExempt

• Not-for-Profit = no net proceeds to individuals in control

• Tax Exempt designation by IRS– Twenty-five possible classifications

• 501(c)(3) – Charities• 501(c)(6) – Business leagues (professional associations)

• May still owe some taxes on unrelated business income

• File IRS Form 1024 to obtain status

Financial Best Practices 2008 3

Incorporate or Not?Incorporate or Not?

• Limited liability

• Incorporation governed by State Law

• Unincorporated professional association

Financial Best Practices 2008 4

Employer Identification Employer Identification Number (EIN)Number (EIN)

• Tax Identification Number for non-persons (associations, corporations, etc.)– 25-1542364

• File Form SS-4 with IRS to obtain

• Form W-9

Financial Best Practices 2008 5

Form W-9Form W-9

Financial Best Practices 2008 6

Liability InsuranceLiability Insurance

• Errors & Omissions (E&O) liability insurance – protects volunteer leaders

• Incorporation is a prerequisite to obtaining E&O insurance

• SHRM endorses

Financial Best Practices 2008 7

Accounting & FinanceAccounting & Finance

• Cash basis or Accrual basis– Cash basis is most common

• Fiscal year = Calendar year?

• Document, Document, Document

Financial Best Practices 2008 8

Financial StatementsFinancial Statements

• Statement of Financial Position (Balance Sheet)

• Statement of Activity (Income Statement)– SFAS 116

• Deals with contributions, particularly restricted funds• Example: Scholarship donations

– SFAS 117• Deals with presentation, particularly for restricted funds• Also requires a functional allocation of expenses

• Budget

Financial Best Practices 2008 9

Accounting SystemsAccounting Systems

• Quicken

• Microsoft Money

• Several on-line systems available for small non-profits

Financial Best Practices 2008 10

ControlsControls

• Approval of disbursements

• One or two signatures on checks?

• Reconcile bank statements regularly

• Audit annually

Financial Best Practices 2008 11

Tax FilingTax Filing

• Federal– Gross Receipts < $25K – not required– $25K <= Gross Receipts <$100K –

Form 990EZ– $100K <= Gross Receipts – Form 990

• Pennsylvania – BCO 10 & BCO 23

Financial Best Practices 2008 12

Tax FilingTax Filing

• www.Efile.form990.org– On line expert system for filing federal and

state forms– Like TaxCut or TurboTax– Free if gross revenue is less than $100,000

• There are many other free, on-line systems for filing Form 990. Look on the IRS website (www.irs.gov) for a list

Financial Best Practices 2008 13

Tax FilingTax Filing

• Form 1099 Misc to individuals if– Paid >= $600, and– A person (not a corporation)

• Payroll (if employees)– FITW– FICA OASDI– FICA HI

– SITW– UI– Local Withholding