Non-Profit Finance 101 Staying in the Black
Special Considerations • In general, non-profit organizations may not: • Generate profit but may hold funds in reserve to reinvest in the organization. • Provide dividends to individual shareholders. • Engage in activities deemed anti-competitive.
Special Considerations • In general, non-profit organizations may not: • Provide any pecuniary gain, incentives or compensation to its officers, directors or members for their service or membership. • Hold funds under the name or identification number of an individual, or blend funds from an organizational account with those of an individual account.
Non-Profit Directors’ Duties • Care • Loyalty • Obedience • Integrity
Financial Executive’s Responsibilities • Maintain financial accounts with due diligence. • Record financial transactions with appropriate documentation. • Provide regular written/oral reports on the organization’s financial status to the board and membership. • Prepare annual tax filings, if applicable.
Financial Executive’s Responsibilities • Seek expert counsel when needed. • Develop policies and procedures for managing the organization’s finances. • Control organizational bank and other accounts. • Oversee periodic audits of the organization’s finances. • Maintain all organizational financial records.
Bank account information Bank statements (past/current) Annual financial statements (past/current) Audited financial statements (past/current) Financial policies and procedures Financial records and forms Important Information the Financial Executive Should Have
Financial Policies/Procedures • Financial Executives • Who is generally responsible for handling financial transactions and accounts? • Who has a support role and what is the extent of each role?
Accounts and Record Maintenance Receipts, disbursements and forms General ledger and chart of accounts Membership roster Property, investment and inventory records Bank statements and reconciliations Financial Policies/Procedures
Bank Accounts Type(s) of accounts to maintain Signatories on account(s) Authority to borrow funds Insurance/bonding Employer Identification Number or other account identifier Financial Policies/Procedures
Financial Reports Who receives reports? How often are reports provided? What type of verification process or internal audit is done of financial reports? Financial Policies/Procedures
Investments Type(s) of investments Person(s) authorized to invest funds Investment policies Financial Policies/Procedures
Transactions Membership dues Special assessments Fees Loans/grants Interest/dividends Financial Policies/Procedures
Expense Reimbursement What activities are covered? What limits apply (e.g., per diem, coach airfare, etc.)? What is the authorization process? Who authorizes pre- and post-activity? Financial Policies/Procedures
Pointers Identify goals/objectives for coming year. Review current year revenue and expenses as baseline. Identify revenue/expenses that will not recur. Obtain input from organizational leaders. Budgeting
Pointers Estimate income and expense for coming year. Review proposed budget with leadership. Approve budget. Communicate budget to members. Monitor budget. Budgeting
Federal (US) There are 23 exempt classifications under the Internal Revenue Service code. As a “business league,” NADL and its Components can qualify for exemption under Section 501(c)(6) of the IRS code. As 501(c)(6) organizations, NADL and its Components may not receive charitable contributions. Tax Exemptions
State (US) Federal tax exemptions do not necessarily apply at the state level. Some states grant their own exemptions for nonprofit organizations. The process for obtaining an exemption varies from state to state. Tax Exemptions
International The laws vary significantly from country to country. Component leaders will need to investigate the requirements and process in each country. Tax Exemptions
Federal (US) Individual exemption. Group exemption. Filing requirements. Obtaining Exempt Status
Federal (US) Tax filings. Taxes for unrelated business income. Taxes related to employees. State (US) Requirements will vary from state to state. Tax Filing Requirements