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

2. 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

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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.

10. 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

11. 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

12. 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

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

14. 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

15. 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)

16. 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

17. 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)

18. TRAVEL REPORT
To download and electronic version go to:

19. 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

20. 1099-MISC Stipends: officers (W-2 vs. 1099) Stipends: non-officers
Payment of dues for officers/others
Undocumented expenses: report even if under $600

21. 1099-MISC

22. 1096

23. 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)

24. 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

25. 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

26. 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.

27. 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 or mail a copy of your 990 or 990-EZ to the IEA Business Services Department.
Regions do NOT file a return

28. 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

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

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

31. 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

32. 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

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

34. 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 $ threshold
So try to avoid using them, but if you must, make sure you keep good records (name, date, amount, purpose)

35. 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

36. 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

37. 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

38. THE “FRAUD TRIANGLE”

39. 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!

40. 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”

41. #5
No “separation of duties” between President, Treasurer, Membership Contact (Rita Crundwell)

42. #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”

43. #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

44. #2 Local/Region deals in cash Checks payable to Cash
Cash deducted from deposits
Cash given to RA delegates as an advance

45. #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

46. 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

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

48. #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!

49. #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!)

50. #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

51. #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

52. #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)

53. 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:

54. #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

55. #4 Makes members happy Gives them input on how you spend their money
Shows you are carefully considering how their money is spent

56. #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

57. #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

58. #1 IEA financial assistance: Mediation, Factfinding, Arbitration
Requirements:
Local dues at least $15 and
BUDGET containing at least $3/member for the above items

59. 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

60. 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

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

62. 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.

63. 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.

64. 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

65. 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

66. 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”

67. 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

68. 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

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

70. 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?

71. 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

72. SAMPLE REPORTS

73. 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

74. 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

75. 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.

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