Association Association Financial Financial

ManagementManagementTimothy Krause, CPA FACMPETimothy Krause, CPA FACMPE

OutlineOutline• Sarbannes Oxley

• New Form 990 Requirements

• Accounting & Record Keeping

• Internal Control

• Banking

• Insurance

What is SOX?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

What is Sox (continued)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”

Why Do We Care About SOX?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…..

SOX for NonprofitsSOX for NonprofitsWhistle 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.

SOX Relevance to NonprofitsSOX 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

Practices for Nonprofits to Practices for Nonprofits to ConsiderConsider

• 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

Other SOX RecommendationsOther 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

New Form 990 - Good News!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

New Form 990 - Bad NewsNew 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

Requirements of New Form 990Requirements 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

Questions on the New 990Questions 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?

Accounting & RecordkeepingAccounting & 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

Internal Control - PurposeInternal Control - Purpose

• To:

– Safeguard assets

– Promote accuracy, reliability & timeliness

– Verify information and detect errors

– Provide a needed level of confidence

– Promote efficiency

Internal Control - TypesInternal 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

Internal Control - PoliciesInternal 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

Internal Control – Policies Internal Control – Policies (continued)(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

Internal ControlInternal Control Independent ReviewIndependent Review

• Audits

• Agreed Upon Procedures

Frequency Percent

Count Yes 21 70.0

No 9 30.0

Total 30 100.0

Association Has a Budget

Frequency Percent

Count Yes 20 69.0

No 9 31.0

Total 29 100.0

Missing System 1  

Total 30  

Association Utilizes CPA Services

Frequency Percent

Count Yes 21 72.4

No 8 27.6

Total 29 100.0

Missing System 1  

Total 30  

Association Has Written Guidelines for Financial Internal

Controls

Frequency Percent

Count Monthly 7 38.9

Quarterly 6 33.3

Annually 4 22.2

Other 1 5.6

Total 18 100.0

Missing System 12  

Total 30  

Frequency of Budget Comparisons

Banking – FDIC ProtectionBanking – 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

Banking - SignaturesBanking - 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

Banking - ElectronicBanking - 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

Remote Processing of DepositsRemote 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

Association Uses Electronic Banking for Payment of Bills

Frequency Percent

Count Yes 5 16.7

No 25 83.3

Total 30 100.0

Association Accepts Credit Card Payments

Frequency Percent

Count Yes 25 83.3

No 5 16.7

Total 30 100.0

InsuranceInsurance

• Association Professional Liability

– D & O (Directors and Officers)

– Association

– Staff

– Any person acting on behalf of the association

InsuranceInsurance

• General Liability

– Personal injury

– Damages to premises

– Employment practicess

InsuranceInsurance

• Fidelity Bonding (crime coverage)

– Protects against theft or embezzlement

• Employees

• Directors

• Management personnel

• Others with access to cash

InsuranceInsurance

• 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

Association Has Directors and Officers Insurance

Frequency Percent

Count Yes 27 96.4

No 1 3.6

Total 28 100.0

Missing System 2  

Total 30  

CashCash ReservesReserves

• 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

DOCUMENT AVAILABILITYDOCUMENT 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.

Timothy E. Krause, CPA, FACMPE Gregory E. Pfanstiel, CPA, CFP tkrause@kkb-cpa.com gpfanstiel@kkb-cpa.com

950 S. Cherry St., Suite 200Denver, CO 80246

Phone 303-815-1100Fax 303-815-1101

www.kkb-cpa.com