Compliance And Governance For Not For Profit Board Members

Compliance and Governance Responsibilities of Not-for-

Profit Board MembersInstructors:John E. Adams CPA, Partner, Adams & Co.Certified Public Accountants and Consultants

Topics

• Fiscal Oversight

• Accounting Systems and Controls

• Financial Statements

• The Audit

• Compliance with Regulations for Not-for-Profit Organizations

Financial Responsibilities for Not-for-Profit Board Members

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Fiscal Oversight

A Not-for-Profit Board Member’s Fiduciary Responsibilities

• Be Active (Duty of Care)• Receive no material profit (Duty of Loyalty)• Avoid conflicts of interest (Duty of Loyalty)• Exercise judgment in overseeing the

organizations affairs (Duty of Care)• Comply with applicable governmental

regulations (Duty of Obedience)Financial Responsibilities for Not-

for-Profit Board Members3

Fiscal OversightDuty of Care

• “Reasonable and prudent person” standard.

• Exercise reasonable diligence and due care in conducting corporate business.

• Directors and officers must be informed about the activities and finances of the organization and govern in a reasonable manner.


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Fiscal OversightDuty of Loyalty

• Prohibits directors and officers from using their position of trust for personal advantage at the expense of the organization.


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Fiscal OversightConflict of Interest Policy

The purpose is to protect the organization’s interests and its tax-exempt status when it is contemplating entering into a transaction or arrangement that might unfairly benefit an individual’s private interest. This policy is intended to supplement, but not replace, any applicable state laws governing conflicts of interest applicable to nonprofit and charitable corporations.


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Fiscal OversightDuty of Obedience

• Directors have a duty to follow the organization’s global governing documents (such as Articles of Incorporation and Bylaws) to carry out the organization’s mission and to ensure that funds are used for lawful purposes.

• Directors must also comply with state and federal laws relating to the organization.


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Fiscal Oversight

• Typical Committee Structures

• Role of the Treasurer

• Role of Staff


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Fiscal Oversight – Current Developments

In the current economy, board members should review the following on a regular basis:

• Revenue/Expense Management

• Strategic Flexibility

• Compliance with Debt Covenants

Accounting Systems and ControlsAccounting Cycles

• Cash Receipts

• Cash Disbursements

• Payroll

• Other


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Accounting Systems and ControlsInternal Controls

Internal controls are procedures designed to provide reasonable assurance that transactions are properly authorized, that assets are safeguarded against unauthorized and improper use and that transactions are properly recorded and reported.


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Accounting Systems and ControlsInternal Controls

Questions to Ask:

• Do we have internal controls in place over all significant accounting cycles?

• Are they written?

• Are they being followed?

• Are they being reviewed?


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Financial Statements

• Snapshot of the different not-for-profit financial statements – the basics and how they are linked to one another

• What to expect from your organization with financial reports


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Financial Statements - What to expect from your organization

• Periodic financial reports

• Internal/interim statements

• Annual budgets

• Variance analysis – actual to budget


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The Audit

Audit Requirement:• Charitable organizations with $300,000 or

more in cash receipts are required by the Illinois Attorney General’s Office to have an audit annually.

• Some smaller organizations are required to have an audit by their funding agency. For example, many foundations have audit requirements.


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The Board Oversees the Audit

• Relationship of the auditor is with the Board -- Board members have oversight of the management team and the external auditors.

• The Board members, staff management team, and auditors work together to make sure the not-for-profit organization is fulfilling its mission, following best practices, and meeting their reporting requirements.


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The Audit – Board and Staff Roles

While every organization works differently:

• Board’s role (or Audit/Finance Committee) – Hires the auditor, evaluate their performance, and meets at the beginning and the end of the audit with the auditor.

• Staff role – Make sure financial records are complete and properly maintained and that all accounts are reconciled. They should prepare the analyses the auditors ask for, be available to meet with the auditors as needed, and provide whatever information is requested to the auditor.

The Audit

When the Board receives the audited financial

statements, board members should:

• Read and understand the financial statements, including footnotes

• Meet with auditors• Ask questions of management or the auditors about

things you don’t understand• Good practice for the Board to have an executive

session with the auditors and without staff present


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Compliance with Regulations for Not-for-Profit Organizations

Document RetentionSarbanes-Oxley Act includes provisions which make it a crime to alter, conceal, cover up, falsify or make a false entry in any record, document, or tangible object with the intent to impede, obstruct or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or in any Chapter 11 bankruptcy. Violations are subject to fines and prison terms of up to 20 years.


Whistleblower

Sarbanes-Oxley Act protects whistleblowers. This section makes it a crime to knowingly, with the intent to retaliate, take any action harmful to any person, including interference with the employment or livelihood of such person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense.


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Other Governance PoliciesOther governance policies and procedures now

being asked for on Form 990 include:• Board Composition• Compensation Determination and Review• Expense and Travel Reimbursement• Board Minutes• Form 990 Review• Grant Making• Joint Venture Agreements• Relationships With or Between Key Individuals


Tax and Reporting Responsibilities

• Form 990

• Form AG990-IL

• Payroll Taxes

• See CPAs for the Public Interest Tax and Reporting Guide for Illinois Not-for Profit Charitable Organizations


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Resources

• CPAs for the Public Interest - www.icpas.org/CPAsPI.htm

• Board Source - www.boardsource.org

• Donors Forum - www.donorsforum.org

• Illinois Attorney General- www.illinoisattorneygeneral.gov/charities/volunteers.html

• IRS – www.irs.gov/charities/index.html

http://www.icpas.org/CPAsPI.htm

http://www.boardsource.org/

http://www.donorsforum.org/

http://www.illinoisattorneygeneral.gov/charities/volunteers.html

http://www.illinoisattorneygeneral.gov/charities/volunteers.html

http://www.boardsource.org/

Documents

Compliance And Governance For Not For Profit Board Members