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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
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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 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?
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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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Importance of the Financial Position
• Enhancement of organization• Supports future plans for the organization• Deeper understanding of key information• Activities of the organization
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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
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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
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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
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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
Training25