Association Financial Management

1. Association Financial Management Timothy Krause, CPA FACMPE

2. Outline • Sarbannes Oxley • New Form 990 Requirements • Accounting & Record Keeping • Internal Control • Banking • Insurance

3. What is SOX? Compliance legislation passed in 2002 to prevent financial malpractice and accounting scandals (e.g. Enron, Quest, Worldcom) Named after Senators Paul Sarbannes and Michael Oxley

4. What is Sox (continued) • Also referred to as “The American Competitiveness and Corporate Accountability Act of 2002” or the “Public Company Accounting Reform and Investor Protective Act”

5. Why Do We Care About SOX? • SOX affects American Publicly traded companies and regulates what boards must do to ensure audit independence • Only two provisions of SOX directly affect nonprofits…..

6. SOX for Nonprofits Whistle Blower • It is a federal crime for anyone to “knowingly, with the intent to retaliate, take any action harmful to any person…for providing to a law enforcement officer any truthful information relating to the commission of a federal offense.” Record Retention • It is a federal crime to alter, cover up, falsify, or destroy any document or make a false entry in accounting records with the intent of obstructing a federal investigation.

7. SOX Relevance to Nonprofits • Nonprofits should consider implementing certain practices established by SOX • These practices can improve a nonprofit’s internal controls, financial management, and provide needed transparency for financial activities

8. Practices for Nonprofits to Consider • Increase number of board members • Implement a code of ethics policy • Ensure that internal control is adequate • Evaluate financial savvy of board – conduct training if necessary • Develop written policy for records retention • Have access to at least one financial expert on the board • Implement a conflict of interest policy, and a whistleblower policy

9. Other SOX Recommendations • Add independent members to the board • Include on the board: • Attorney • Banker • CPA • Insurance expert • Could be non-voting members • Could be part of an advisory board

10. New Form 990 - Good News! • New filing requirements will not apply to most state MGMAs • Every association here will be required to file a Form 990 – EZ in 2009 • Very little change to Form 990 - EZ

11. New Form 990 - Bad News • Many state MGMA associations will have to file Form 990 in 2010 and later years • Gross receipts > $500,000 – file in 2010 • Gross receipts > $200,000 – file in 2011 • 8 out of 30 survey respondents reported revenue of $200,000 or greater

12. Requirements of New Form 990 • Additional disclosures are required and many new questions must be answered • A “Governance Section” was added to promote transparency and encourage compliance and accountability

13. Questions on the New 990 • Was a copy of the Form 990 provided to the organization’s governing body before it was filed? All organizations must describe in Schedule O the process the organization uses to review the Form 990. • Does the organization have a written conflict of interest policy? • Does the organization have a written whistleblower policy? • Does the organization have a written document retention and destruction policy?

14. Accounting & Recordkeeping • Financial statements should be prepared, reviewed, and understood by the board • Budget should be prepared and compared with financial statements • Financial reports should include income and expense by event or activity

15. Internal Control - Purpose • To: • Safeguard assets • Promote accuracy, reliability & timeliness • Verify information and detect errors • Provide a needed level of confidence • Promote efficiency

16. Internal Control - Types • Authorization and Approval • Documentation and Recording • Deterrents and Detection • Segregation of Duties • Control of third-party documents • The person who prepares or signs checks should not open the bank statement

17. Internal Control - Policies • The person who prepares the checks should not also sign • The person who approves payments should not prepare checks • A board member cannot approve payment to him/her self • The person who prepares checks should not prepare the bank reconciliation

18. Internal Control – Policies (continued) • A board member always reviews the bank statements • A budget should be prepared and compared periodically with financial statements • All bills and expense reimbursement vouchers should be approved by a member of the board • Policies should be in writing • Your CPA can assist you with sound policies

19. Internal ControlIndependent Review • Audits • Agreed Upon Procedures

20. Association Has a Budget

21. Association Utilizes CPA Services

22. Association Has Written Guidelines for Financial Internal Controls

23. Frequency of Budget Comparisons

24. Banking – FDIC Protection • Parking your extra cash • Money market accounts • Make sure you maximize interest earned • During 2009 $250,000 is protected • Non-interest bearing accounts during 2009 • Unlimited protection as long as bank participates in FDIC’s temporary Liquidity Guarantee Program

25. Banking - Signatures • Forgery – in general • A bank will reimburse the account if…. • You report the forgery within 30 days of receiving the bank statement • You file a police report • Signatures – in general • Signatures are not reviewed by the bank • Banks do honor do honor dual signature requirement

26. Banking - Electronic • Online banking • Very efficient way to pay bills • Easy for board members to review bank statements • Easy for board members to review and release payments • One problem – Internal Control

27. Remote Processing of Deposits • Checks are scanned and transmitted to the bank • Check are still “live” and must be safe-guarded • Checks can be shredded once your know your account has been credited

28. Association Uses Electronic Banking for Payment of Bills

29. Association Accepts Credit Card Payments

30. Insurance • Association Professional Liability • D & O (Directors and Officers) • Association • Staff • Any person acting on behalf of the association

31. Insurance • General Liability • Personal injury • Damages to premises • Employment practicess

32. Insurance • Fidelity Bonding (crime coverage) • Protects against theft or embezzlement • Employees • Directors • Management personnel • Others with access to cash

33. Insurance • Cyber Insurance • Protects against the loss of electronic data • Viruses • Hack Attack • Intellectual property theft • Protects against the loss of personal data • Identity theft • Confidential information • Credit Card Information

34. Association Has Directors and Officers Insurance

35. CashReserves • Equal to one year’s expenses 10 • Whatever is left over 5 • Discretionary – up to the Board 4 • Equal to future conference costs 3 • AMC Best Practices 1 • No response 7

36. DOCUMENT AVAILABILITY All copies of handouts provided at today’s presentation will be available on our website at www.kkb-cpa.com. They will be available on the main page after Monday. The complete association survey results will also be available on the same page.

37. Timothy E. Krause, CPA, FACMPE Gregory E. Pfanstiel, CPA, CFP tkrause@kkb-cpa.com gpfanstiel@kkb-cpa.com 950 S. Cherry St., Suite 200 Denver, CO 80246 Phone 303-815-1100 Fax 303-815-1101 www.kkb-cpa.com