FINANCIAL PROCEDURES FOR LOCALS & REGIONS Safeguard and Manage Your Organization’s Resources 2017

BEFORE WE START… Your “FPLR” book is an important resource Out of necessity, this presentation is an overview. There is much more detail on all of these topics in the FPLR book The book addresses topics that we don’t have time to mention today

TODAY’S AGENDA “Top 5” safeguarding/management tools 1. Verify your dues income 2. Comply with IRS rules 3. Internal controls/Fraud prevention 4. Budgeting 5. IPACE funds Other important stuff Resources available to you

SAFEGUARD AND…. MANAGE Make sure your members’ funds are not: Stolen or misplaced Lost due to failure to collect them in the 1st place Wasted/Used inappropriately/illegally Spent on fines, fees and penalties And manage your funds so they are used effectively: Budget Financial reports Banking arrangements Etc.

THAT’S THE TREASURER’S JOB, RIGHT? The Treasurer may do most of the work, but… Your governing body and officers have the fiduciary duty to: See that proper systems and procedures are in place Monitor for compliance Insist on transparent, ethical activity by everyone Make sure things get done in the Treasurer’s absence If you are a local leader, all of this material pertains to you, but your responsibility will vary depending on your role

1. VERIFY YOUR DUES INCOME: LOCALS You need to invest whatever effort is needed in order to make sure that: Your employer collects the correct amount of dues from all of your members/feepayers All of this money is turned over to you per your contract’s terms All dues paid by your employer are deposited intact and in a timely fashion (within a couple of days) Your IEA-NEA dues are paid in full, on schedule

WHY IS THIS IMPORTANT? Your local dues are probably all that you have to fund your local programs Your local is responsible for paying 100% of your members’ IEA-NEA dues, even if you don’t collect them If you don’t collect enough to cover the IEA-NEA obligation, the difference has to be made up out of local funds! It’s your members’ money; they deserve to have it used appropriately

POSSIBLE PROBLEMS Local forgets to update the dues-per-member provided to the employer (school district) at the beginning of the year District reduces the number of pay periods for withholding and local forgets to raise the dues- per-pay-period accordingly Local pays dues for too many leaders and runs out of money

PROBLEMS (Continued) Treasurer deducts (and pockets) cash when depositing district’s checks Amount withheld per pay period is wrong and it’s not discovered until May Treasurer and Membership Contact not on the same page then dues payments to the IEA are not made on time resulting in penalties.

A. IEA-NEA DUES PAYMENT Be aware of schedule Make sure you get the monthly IEA statement from your Membership Contact Pay the amount on the statement Pay by the due date (avoid late payment penalties!) Have employer pay IEA direct? See Appendix 10- How to read the statement

PAYMENT SCHEDULE November 1 10% of obligation December 1 January 1 30% of obligation February 1 40% of obligation March 1 50% of obligation April 1 60% of obligation May 1 70% of obligation June 1 80% of obligation July 1 90% of obligation August 1 100% of obligation

REGIONS: REGION REBATE Understand the rebate process Test the IEA FTE figures and calculations for reasonableness Verify the carryover amounts Understand the “Adjustments”: “Bylaw Amendment” Computer deduction In-Region is different than Region Rebate

2. IRS RULES Tax exemption ramifications Documentation requirements Income reporting requirements Annual information return Audits/Notices Other

TAX EXEMPTION You are a tax exempt labor union (IRS 501(c)5) Locals: Separate subsidiary of IEA Regions: Technically part of IEA Your income and expenses should be “related” to your tax-exempt purpose (serving your members) You must be able to document this

DOCUMENTATION All financial transactions must be properly documented: Dollar amount Business purpose Date/Place “Properly” in most cases means an original document from an outside party- not a handwritten note (electronic receipts are acceptable but originals are better)

TRAVEL EXPENSES For many locals this is their biggest expense Documentation is especially important due to IRS and DOL issues Your local/region can set guidelines, but these need to be based on IRS rules (your rules can be more restrictive, but not less) Above all, travel expenses must be reasonable and necessary Reimbursement Policy – Appendix #5

TRAVEL NORMALLY YES: Hotel, mileage, airfare, meals at meeting location, parking, tolls, taxi, car rental NORMALLY NO: Expenses for family members, gasoline (unless with car rental), gifts/clothing, entertainment, contributions to NEA FCPE MAYBE: Tips, alcohol (determined by local policy)

TRAVEL REPORT To download and electronic version go to: https://ieahelpdesk.org/downloads/

INCOME REPORTING REQUIREMENTS Must report payments to INDIVIDUALS to the IRS, IF: $600 or more in total for a calendar year For Services: Not for products, supplies or expense reimbursements

1099-MISC Stipends: officers (W-2 vs. 1099) Stipends: non-officers Payment of dues for officers/others Undocumented expenses: report even if under $600

1099-MISC

1096

1099 ISSUES Copy to recipient by 1/31 Copy to IRS by 1/31 (this is a change from previous years) Form is carbonized- can’t download Also need “1096” (a summary form)

UNRELATED BUSINESS INCOME Income not related to union business and not regularly carried on Rarely occurs, examples: Rental income Newsletter ads (not sponsorships) Merchandise sales Need $1,000 or more in UBI to incur a tax liability

TAXPAYER IDENTIFICATION NUMBER The FEIN or TIN is the organization’s identification number provided by the IRS. 9 digits (xx-xxxxxxx) Need when opening a bank account Need when filing IRS forms IEA has your number on file IEA will apply for numbers when needed

ANNUAL INFORMATION RETURN All IEA locals must file ONE of these forms every year, based on the size of their “average annual gross receipts” “Gross receipts”= All $$ collected, EXCEPT for IEA- NEA dues $200,000 or over = Form 990 $50,001 to $199,999 = Form 990-EZ $50,000 or less = Form 990-N (“E-Postcard”) If your local gross receipts are approaching or is over $50,000, please contact the IEA Business Services Department.

ANNUAL INFORMATION RETURN All but about 30 IEA locals file the E-Postcard All except about 2 of these have authorized the IEA to file the E-Postcard for them The other 30 file the 990 or the 990-EZ We strongly recommend that if you file the 990 or the 990-EZ, you hire a CPA to do it for you We also recommend that you email or mail a copy of your 990 or 990-EZ to the IEA Business Services Department. Regions do NOT file a return

990/990-EZ Public document (GuideStar.org) Posted on the Internet You must provide copies if asked Sensitive information- compensation, etc. Description of your activities Could be used as screening tool for an audit Forms are complicated and the rules change frequently So a CPA is a good investment

IRS NOTICES DO NOT IGNORE! Seek help (Contact IEA Business Services Department) Check FEIN (TIN) Keep copies/proof of delivery

IRS AUDIT Not likely, but . . . Random audits Reported by disgruntled members Under more IRS scrutiny!

WHAT DO THEY ASK FOR? Articles of incorporation, bylaws, IRS determination letter Board/Committee meeting minutes Conflict of interest policy Copy of expense reimbursement plan

AND… List of all bank accounts Copies of bank statements and cancelled checks Invoices and receipts All expense reimbursement requests, including documentation Copies of 1099’s

AND… Charter Document retention policy Describe your history and activities. Describe your internal controls over your financial transactions.

OTHER IRS ISSUES You CAN make a surplus You MUST pay state sales tax on purchases (IL Dept. of Revenue) Generally only charitable 501(c)3 organizations don’t pay sales tax To the IRS, gift cards are TAXABLE COMPENSATION Employees: Add to W-2 income Others: They “count” toward the $600 1099 threshold So try to avoid using them, but if you must, make sure you keep good records (name, date, amount, purpose)

3. INTERNAL CONTROLS/FRAUD PREVENTION Most fraud consists of theft or misuse of funds In many cases, fraud is actually easier to get away with in nonprofit organizations Everyone knows and trusts each other Leaders aren’t trained in detection and prevention Many nonprofits handle a lot of cash, but not necessarily local union organizations. Don’t think “It can’t happen here;” history says otherwise Solution: Don’t be paranoid, just have good controls

WHY DOES FRAUD OCCUR? Honest people: Financial pressures Medical bills Drugs/Gambling Investment losses Other financial needs Less-than-honest people: Perception that no one will find out

PROGRESSION $20/month for movie with spouse, then $50/month for nice dinner, then $500 for a new TV, then Monthly house payment or son’s college tuition

THE “FRAUD TRIANGLE”

YOUR JOB AS A LEADER IS… Know the signs of possible fraud, and don’t be afraid to seek help if something makes you uncomfortable Make sure there are good controls in place If you take away Opportunity from the Fraud Triangle, the possibility of fraud is significantly reduced. Remember, even if today’s leaders are 100% honest, controls must be in place just in case future leaders are not!

SIGNS OF POSSIBLE FRAUD: APPENDIX 4 If you see the signs… DON’T IMMEDIATELY ASSUME THE WORST!! Probably just substandard business practices Check with your U.D. Don’t ignore the signs… this can end up reflecting on you “Top 5 Signs of Potential Fraud”

#5 No “separation of duties” between President, Treasurer, Membership Contact (Rita Crundwell)

#4 Local is consistently behind in paying its IEA- NEA dues, especially at the end of the year Local Leaders need to stay on top of this and not accept excuses such as “The check is in the mail” or “IEA Membership keeps making mistakes”

#3 Poor documentation of financial transactions No documentation at all Documentation is sloppy and poorly organized Documentation is insufficient Handwritten notes Photocopies of invoices No receipts

#2 Local/Region deals in cash Checks payable to Cash Cash deducted from deposits Cash given to RA delegates as an advance

#1 No oversight by the governing body No audit No financial reports No dual-signature requirement Bank statements sent directly to Treasurer and not reviewed by anyone else No oversight over banking arrangements

AN OUNCE OF PREVENTION: INTERNAL CONTROLS Checks/balances and separation of duties Helps protect the organization from undetected fraud Helps protect officers from potential embarrassment and liability Protects the treasurer’s credibility

CONTROLS List of controls- Appendix 3 (NOT all-inclusive) Read the list on page 16 “Top 5 Controls” list:

#5 Unless you really, really must, don’t have credit or debit cards for your local or region Convenience outweighed by risk Remember the future!

#4 Have “Two Signatures Required” and two signature lines on your checks Instruct the bank to require two signatures Do not bank at a bank or credit union that will not allow the two signatures requirement Don’t allow checks to be signed before they are completely filled out (do not sign blank checks!)

#3 Have an independent audit Large locals- CPA Smaller locals, and regions: Audit committee No “insiders” Consider nearby local Treasurer, bookkeeping teacher, etc. Give them a list of procedures Have them file a short report Contact IEA Business Services Department

#2 Do not deal in Cash Possible exception: SMALL petty cash fund No checks written to Cash No cash deducted from deposits No cash given for travel Possible exception: SMALL petty cash fund

#1 Have the bank mail all statements to someone other than the Treasurer Other person reviews statement and cancelled checks, initials the statement, sends to Treasurer Best way to prevent fraud involving checks or other withdrawals However, it’s not helpful unless your bank provides check copies (electronic copies are ok)

4. BUDGETING Regions: Annual budget required in order to receive annual rebate Locals: No specific requirement, but it is a very good business practice. There are at least five very good reasons to have one:

#5 Argument prevention Expense items are discussed and approved long before the expense is actually incurred Gives you a reason to deny requests for off-the- wall spending requests (“It’s not in the budget”) Use the budget as a scapegoat

#4 Makes members happy Gives them input on how you spend their money Shows you are carefully considering how their money is spent

#3 Helps you plan for future needs Manage your annual surplus or deficit Control the size of your “reserve funds” Helps set long-term financial goals

#2 Avert financial disaster Overspend dues income so that there’s nothing left to pay IEA-NEA Plan for “non-cash” expenses such as paying leaders’ dues

#1 IEA financial assistance: Mediation, Factfinding, Arbitration Requirements: Local dues at least $15 and BUDGET containing at least $3/member for the above items

5. IPACE FUNDS IPACE is funded by member contributions Your local (not region) can receive up to $15 per contributing member as a “rebate” each year, to be used for local political purposes Your obligations when requesting IPACE funds: Know the rules regarding use of the funds Keep them in a separate non-interest bearing bank account Understand and comply with the Illinois State Board of Elections disclosure requirements

STATE POLITICAL REPORTS DO YOU HAVE TO FILE? One-time threshold: $5,000 received or spent in any 12-month period in support of or opposition to a candidate for public office. If you exceed the threshold, you must register with the State Board of Elections as a PAC immediately and then file quarterly reports forever (until the PAC is dissolved) Keep up with state due dates and requirements

OTHER IMPORTANT TOPICS A. Banking B. Accounting system C. Financial reports D. Policy- RA delegates E. Treasurer transition issues F. Annual calendar

B. BANKING ISSUES How to choose a bank Financial (interest and fees) Service (online banking ,etc.) Do not select an institution that allows electronic transfer between personal and the local’s accounts. Location (if you will be there a lot) Auditability Detailed monthly statement Copies of all transactions- checks, deposits, etc.

OPENING A BANK ACCOUNT Banks are required by regulation to collect various information Every bank interprets these regulations in their own way: CALL FIRST! You will definitely need: Drivers license for all signers Taxpayer identification number of your local (FEIN) DO NOT OPEN AN ACCOUNT WITH SOMEONE’S SOCIAL SECURITY NUMBER, YOUR SCHOOL’S TIN, ETC.

OTHER NEW ACCOUNT ISSUES You are an unincorporated, not for profit labor union Since you are unincorporated, you do not have articles of incorporation You do not have an IRS Determination Letter since you are a subsidiary of IEA IEA Business Services Department can provide you the IRS Determination Letter

SIGNATURES We recommend that all bank accounts require two signatures So you will want at least three and perhaps four or five people with the ability to sign

C. ACCOUNTING SYSTEM Every dollar that goes in or out of your bank account must be recorded Permanent record Future audits by IRS, etc. Internal questions Financial reporting What system do you use: “It depends”

MY LOCAL HAS 200 MEMBERS, WHAT ACCOUNTING SYSTEM DO I NEED?? One size does not fit all Size/complexity of organization Prior treasurer’s system Current treasurer’s preference

BASIC REQUIREMENTS Your system needs to: Record all transactions in sufficient detail Allow you to produce financial reports efficiently Provide a record that others can follow

WHAT ARE MY CHOICES? Some possibilities Checkbook/check stubs Cash receipts and disbursements journals Excel/Access Specialized accounting software (Quicken, etc.)

D. FINANCIAL REPORTS Your financial report should reflect the following: How much money do we have? How much income have we received? How much has been paid for expenses? How does this compare to the budget? How does this compare to prior years?

FINANCIAL REPORTS Primary audience is probably your governing board (may be shared with general membership) Get in the habit of doing a WRITTEN report every month Include the budget Include explanations of large variations from budget Line items depend on your local’s major activities and your outside reporting requirements

SAMPLE REPORTS

E. POLICY- RA DELEGATES Have a written policy on documentation and reimbursement (See Appendix 5) Overall expectations What is covered/not Repayment of unspent funds Consequences Documentation requirements Donations to FCPE (NO!) Region vs. Local funding

F. TREASURER TRANSITION ISSUES Treasurer candidates should be “qualified” “Full Disclosure” of job requirements There should be an orderly transition of treasurers Demonstration/Instruction Written procedures/Calendar Books/Records in good order More info in FPLR handbook and on the website

G. ANNUAL CALENDAR Don’t incur fines/penalties, or let important things slip through the cracks! Outside reporting deadlines Internal reporting deadlines IEA dues payment deadlines Annual tasks such as Board review of banking arrangements Milestones in the budget process Etc.

RESOURCES FPLR handbook IEA Website www.ieanea.org Annual training sessions IEA Secretary-Treasurer Tom Tully 217/321-2268 IEA Director of Business Services Doug Barringer 217/321-2203 Your local IEA office Other IEA Local Treasurers