1. Financial Fundamentals for Non-Profits
Show Me the Money:
Financial Fundamentals for Non-Profits
Megan Smith, CPA
Controller
SHRM
Dan Griffiths, SHRM–CP
Field Services Director

2. Agenda Financial side of a non-profit and regulatory requirements
Making wise investments
Increasing non-dues revenue
Income through sponsorships
Financial support from SHRM
Chapter Guide to Financial Management

3. Financial Essentials Regulatory Filings Financial Management
Fiduciary Responsibility
Making Wise Investments

4. Financial Essentials Charter provisions overview
Signed by chapter/council and SHRM several years ago
Autonomous
Self-controlled, not SHRM (headquarters) controlled
Independent
Responsible for own information and tax returns
Responsible for accounting, banking, etc.

5. Financial Essentials
Organized under and according to the provisions of state statutes
Primarily operated to serve the needs of the members
May make a profit
Profit dedicated to the chapter’s/council’s non-profit purpose
Profit not distributed to members
Phrase coined because it best characterizes intent

6. Financial Essentials IRS classification
Exempt from federal income tax under certain code provisions
Non-profit not automatically tax-exempt
Must apply for tax-exempt status
May still have to pay state and local taxes

7. Financial Essentials 501(c)(6)
Trade associations, professional societies, business leagues
Form 1024
Charitable contributions are not tax deductible
501(c)(3)
Educational, charitable, and religious organizations
Form 1023
Charitable contributions may be tax deductible

8. Financial Essentials 501(c)(6)
No restriction on amount of lobbying activities
Business expense deduction for dues except that portion used to support lobbying activities
Amount of dues spent on lobbying must be disclosed to members
501(c)(3)
Permitted to lobby – do not devote substantial part to lobbying activities
Less than 5% of activities to lobbying
Safe harbor – 501(h) election

9. Financial Essentials
Chapters/State Councils are responsible for filing for their own status; may not use SHRM’s status or federal Taxpayer Identification Number
IRS classifications based on nature of chapter’s/council’s activities
IRS makes final determination
Letter of Determination
File original in a safe place
A scan can be sent to SHRM Member Relations Department as a back up

10. Tax-Exempt Status NOT exempt from other taxes such as
UBI – Unrelated Business Income: Most states will require a business license
Federal Payroll (Social Security, Medicare and Unemployment)
Reportable Income
State Taxes
Sales Tax: A chapter must collect sales tax when they make a sale in a state where they have a presence, which for most chapters will be only the state where they reside
State Real Estate and Personal Property Tax
State Gross Receipt Tax
State Unemployment Tax
Be cognizant of State regulations
May need to register to solicit charitable contributions
May need to file unclaimed property reports
Go to to check status

11. Federal Tax Identification Number
Nine-digit number
Needed to open a bank account
Needed to file tax returns
Form SS-4
Quick and easy to file online
Confirmation letter from IRS

12. Federal Tax Reporting Form 990
Gross receipts > $200,000 or total assets > $500,000
Form 990EZ
Gross receipts < $200,000 and total assets < $500,000
Form 990-N
Gross receipts of $50,000 or less
15th day of the 5th month after the end of the chapter’s/council’s fiscal year with extension provisions up to 6 months
Penalties for late filings
Open to Public Inspection

13. Federal Tax Reporting - Unrelated Business Income
a.k.a. UBI
990-T
UBI > $1,000
Typically includes
Income from sale of merchandise
Income from advertising sales
Typically excludes
Conferences and trade shows
Sales of books
Affinity programs
Qualified sponsorship payments
Potential for state tax filing

14. Federal Tax Reporting - Employee or Independent Contractor
W-2
Employee
1099-MISC
W9 - Used to obtain name, address, taxpayer ID/SS#
Independent Contractor paid $600 or more
Program speakers
Web designer
Professional services
Chapter or Council paid staff (CMPs)

15. Policies Expenditure Policy What will you pay for
Records Retention/Disposal Policy
Requirements may vary by state
Reserve Policy
Standard is 50% to 200% of annual operating expenses
Spending Policy
How much of your investment income can you spend
Investments Policy
How money can be invested

16. Fraud Awareness Check Fraud Individuals can alter checks
With online banking, individual can deposit through online banking and then deposit at another bank
Counterfeit checks
ACH Fraud
Steal bank password through malware or phishing
Reverse ACH debiting funds from your bank account
Wire Fraud
Fraudulent coming from authorized individual requesting wire payment to an individual or vendor

17. Handling Funds Bank Accounts Open a separate bank account
Someone other than a check signer should receive the bank statement
Reconcile it every month
Cash Receipts
Direct deposit of Chapter/State Council Financial Support Payments
Need to send acknowledgement if a contribution is greater than $250
Cash Disbursements
Have a reasonable number of check signers
Set dollar amount limits for check signers
Use a positive pay service
Written policies and procedures on expenditures
Formal documentation for reimbursement
No checks made out to “Cash”

18. Financial Reporting
Needed for both regulatory filings and management of operations
Cash vs. Accrual
Cash is the checkbook approach
Accrual recognizes transactions when they occur
Statement of Financial Position (Balance Sheet)
Statement of Activities (Income and Expenses)
Statement of Cash Flows

19. Financial Reporting Chart of accounts Include descriptions
Annual budget
Compare to actual
Cash flow projections
Create a regular reporting period

20. Making the Job Easier Association Management Company
Software programs – popular Windows-based programs
Quicken
Cash-basis accounting
Quick Books
Accrual-basis accounting
Microsoft Money, Microsoft Money Plus…
Four products: essentials (personal finance) to small business
Peachtree Complete Accounting
A full accounting package
Local CPA Firm

21. Independent Audits and Alternatives
Best interests of chapter/council
Compilation
Review
Agreed-upon Procedures
Member’s Audit
Form 990

22. Investing Have a Committee
Shouldn’t be just one person for internal controls and to manage risk
Determine how much you can invest
Hold a percentage of operations in short-term cash & investments
Use a financial advisor
Investment Policy
Outlines roles & responsibilities
Defines operating vs. reserves
Risk levels
Expected rate of return
Acceptable & unacceptable investments
Provides consistency
Monitor results

23. Insurance General Liability Directors’ and Officers’ Insurance
Exclusions
Event Interruption/Cancellation Insurance
Investigate competitive pricing
Compare “apples to apples”
SHRM does not provide insurance to affiliates
Available from ASAE/AON:

24. Your chapter/council is a business
In conclusion . . .
Your chapter/council is a business
Need to employ sound business practices

25. Increasing non-dues revenue
What are YOUR ideas?
What has worked for YOU?

26. Increasing non-dues revenue
Invest
Make a profit on chapter meetings
Establish relationships with law firms, other associations, universities, etc.
Sponsors and advertisers for meetings
Earn more CFSP through member drives / LMO-to-SHRM recruitment / renewals / at-large-to-chapter recruitment / SHRM Re-certifications
Some states offer profit sharing for conference attendance
Wage & benefit surveys
Sell logo items (UBIT!)

27. Income through Sponsorships
What are YOUR ideas?
What has worked for YOU?

28. Income through Sponsorships and Advertisements
For a fee, sponsors could receive:
A banner with their logo and the ability to introduce a speaker
Five minutes to discuss their product/service at the meeting (UBI)
A table at the meeting to have materials available for your members (UBI)
Their logo in the newsletter or on the website as a sponsorship
A free registration to the chapter meeting
An sent to your members about the sponsor (UBI)
You could also . . .
Create an HR Service Provider Online Directory (UBI)
Hold an HR Service Provider Fair
Some sponsorships are taxable while others are not.

29. Qualified Sponsorships
Advertising is generally taxable as UBI
But “Qualified Sponsorships Payments” are exempt from UBI Tax (a so-called “513(i) sponsorship”)
To qualify as such a sponsorship, the payer must receive nothing in return for the sponsorship payment other than:
Acknowledgement of sponsorship
Display of sponsor name and logo with chapter event or activities
Listing of sponsor products and services (but not prices or advertising or comparative statements)
Link to sponsor home page
If additional benefits such as placement of ad are received, value of ad should be identified and is taxable (unless less than 2% of sponsor payment); rest of sponsor payment is still exempt from tax.
The right to “pitch” company services for 5 minutes would be taxable advertising; the right to speak at event on a topic, but not “sell from the podium,” should not be taxable.

30. Financial Support from SHRM
The Chapter Financial Support Payment (CFSP) Program returns a portion of each SHRM national member's dues to the chapter via a quarterly payment for 100% chapters or a twice-a-year payment for non-100% chapters.
$6.25 per quarter ($25.00 annually) per member for 100% chapters
$5.00 twice per year ($10.00 annually) per member for non-100% chapters
Net Gain Payment
Paid in the first quarter of each calendar year
Calculated by subtracting the 12/31 national membership total for last year from the 12/31 national membership total for the current year and multiplying the difference by $25.00

31. SHRM’s Online Guide to Financial Management
This comprehensive guide is available online in the Volunteer Leaders’ Resource Center at and includes sections covering:
Operating Considerations
Methods of Accounting and Financial Reporting
Checklist of Internal Controls Over a Chapter’s Cash Transactions
Auditing
Financial Maintenance Questionnaire
Investments
Tax Filings
Unrelated Business Income Taxes
Lobbying Activities
Travel and Meal Reimbursement
Record Retention Guidelines

32. Open discussion | Q & A

33. Thank You!