Booster Groups: Benefit, Burden or Both? OSBA School Law for Treasurers Workshop

Size: px

Start display at page:

Download "Booster Groups: Benefit, Burden or Both? OSBA School Law for Treasurers Workshop"

Donald Nash
5 years ago
Views:

October 27, 2016 Booster Groups: Benefit, Burden or Both? OSBA School Law for Treasurers Workshop Presented by: Pamela A. Leist, Esq. pleist@ennisbritton.

1 October 27, 2016 Booster Groups: Benefit, Burden or Both? OSBA School Law for Treasurers Workshop Presented by: Pamela A. Leist, Esq. Discussion Points Booster group organization, compliance, and board recognition Board policy concerning booster groups Board acceptance of benefits Let s get into the weeds on two permissible booster activities 1

2 Booster Group Organization, Compliance, and Board Recognition Organizational Structure In Ohio, an entity usually falls under one of the following categories Corporation Nonprofit corporation Sole proprietorship Partnership LLC Unaffiliated association Why would a group become a nonprofit corporation? If not a 501(c)(3), generally a group must pay taxes (some other exception may apply, but likely not!). Corporations receive significant liability protections for board members in particular. 2

3 Organizational Structure Nonprofits need to be registered with: IRS for 501(c)(3) tax exempt status Ohio Department of Taxation Ohio Secretary of State Ohio Attorney General s Office Required documentation: articles of incorporation, bylaws/governance documents, policies (scholarships, conflict of interest), tax and financial statements, etc. Before a Group Journeys Down this Path When working with government agencies, it is best to get everything in order ahead of time Contact a lawyer review organizational documents, review policies, complete paperwork, serve as contact during process, handle any issues from the past Contact a CPA review financials and assist with presentation of information, audit books (formal and informal audits are available) 3

4 IRS Must submit Form 1023 or 1023 EZ for initial recognition as 501(c)(3) tax exempt public charity Form 1023EZ if expected and past annual income is less than $50k AND assets are worth less than $250k (see 1023EZ Worksheet - Form 1023 More than $50k annually, more than $250k assets There are some other instances in which you must use the EZ form, such as when the group is a successor to a for-profit, was rejected in the past for 501(c)(3). If approved, the effective date of exemption: Will be the day of formation if filed within 27 months Will be the day you file if not IRS Must also file annual informational return Form 990 (due 15th day of the fifth month after end of FY) 990 for large organizations 990EZ gross receipts $200k or less, total assets of less than $500k 990N $50k or less in gross receipts Failure to file or comply with IRS rules could result in revocation of tax exempt status! Failure to file 990 form for 3 years = automatic revocation 4

5 Ohio Secretary of State File initial Articles of Incorporation, as well as notice of any amendments (when applicable) Must submit Statement of Continued Existence every 5 years! Also, update statutory agent information as officers change from year to year. All forms available on the Secretary of State s website: msfeeschedule.aspx?page=251#domnon Ohio Attorney General Booster and parent-teacher organizations had been exempted from this filing requirement for many years because they are often small organizations, Ohio Attorney General Mike DeWine said. But there are significant assets in some of these groups, and all too frequently, we see examples of fraud and theft that hurts the children who are supposed to benefit from the activities of these organizations. 5

6 Ohio Attorney General Ohio Attorney General modified administrative rule for charitable trusts in :1-1-02(B)(2) Booster groups with gross receipts of $25k or more should: File an annual report with the AG s office within 6 months of creation or within 6 months after gross receipts reach $25k, then 15th day of the fifth month after close of FY thereafter (same as IRS deadline) Submit copies of Articles of Incorporation, bylaws, and IRS 501(c)(3) determination letter Notify AG if group dissolves Pay an annual fee Less than $5k: $0 $5k $25k: $50 $25k $50k: $100 More than $50k: $200 Late fee: $200 (yikes!) Ohio Attorney General The AG s office will provide a letter determination of whether a group must register or is exempt. Submit documents and inquiry: Through online registration system (must upload or provide them within one month) to CharitableRegistration@OhioAttorneyGeneral.gov. Through mail (Ohio AG Office, Charitable Law Section, 150 E Gay St., 23 rd Floor, Columbus Ohio 43215) 6

7 Board of Education Approval Formal Recognition Recognized by a formal action taken by board of education. What does the group get as a result? Right to claim it is a school-sponsored organization Approval to use school name, logo, mascot, etc. for fundraising activities. Preferred treatment for use of facilities Informal Gray area: When does the booster group act with the board s approval, and when does it not? Benefits of Formal Recognition for Board Board may monitor whether booster groups are keeping up with their statutory requirements. Filings with the Ohio Secretary of State, IRS, Ohio Attorney General s Office, Ohio Department of Taxation Board should, at a minimum, also request copies of the following from booster organizations: Annual reports with all relevant tax information Annual audit reports Other documents per board policy Board can revoke formal recognition if a booster group breaks the rules per board policy. 7

8 Board Policy Concerning Booster Groups Board Policy Supervision of Activities Board s authority to manage the schools includes supervision and control of both curricular and extracurricular activities, use of premises, etc. Board should have controls in place to ensure boosters are working for and not against them! Safe and appropriate use of school property and premises Protection of school community Maintenance of school s good name and reputation Alignment of booster goals and fundraising plans 8

9 Board Policy Supervision of Activities How would you address the following (and can you?): Sale of alcohol on school premises Gambling to raise money Raffles for big ticket items such as cars, or controversial items such as guns Scenario A booster group would like to hold a fundraising event with silent auctions and a raffle. Two nights before the event, the group informs the superintendent that the main raffle prize is a hunting rifle. The group informs you that it has already raised $10k in ticket sales. Should the Board let the group continue? 9

10 Scenario You are driving down a very busy road when you see several high school students standing between the lanes of traffic. They are holding up signs about a school booster group car wash. The fundraiser will help students to raise funds for a band trip to Disney. Any issues? Supervision of Booster Activities Upon request and payment of a reasonable fee, the board shall permit use of school buildings and property under its control, when not in actual use for school purposes, to hold an educational, religious, civic, social, or recreational meeting and entertainments. Restrictions Must be nonexclusive and open to the public Must follow policy adopted by Board for use of such school facilities Board may require organization to pay for damages above ordinary wear and tear and actual expenses for janitor service, light, heat. Lease agreement: Specify location, date, time and duration Specify intended use of premises Indemnify and hold harmless agreement Insurance coverage 10

11 Board Policy Formal Accounting Practices General Practices How expenditures and receipts are recorded How group values noncash donations Whether it conducts external audits How it maintains income statement, balance sheet, etc. Board Policy Formal Accounting Practices Non-commingling of funds Should be separate accounts for funds raised for the benefit of the school and funds for the use of the booster group. Since school is beneficiary of funds, it has an interest that funds are properly accounted for. 11

12 Board Policy Formal Accounting Practices Board-implemented administrative controls: What members of the group may cash checks or withdraw funds? Who may authorize contracts for the purchase of goods and services? Require booster group to adopt formal regulations and bylaws. Board Policy Collection and Use of Funds Board policy to review booster group books to ensure funds are maintained, documented, and spent appropriately. Question do you really want to know??? 12

13 Handling Cash As you well know, cash is an easy thing to misplace if not properly documented and controlled. Good questions to ask: Who may handle cash? What procedures do you use for tracking the source of cash? How much is collected? Where does the money go? Individual Fundraising Accounts Individual Fundraising Accounts (IFAs) are created for fundraising activities where students receive credit towards fees by participating in certain fundraisers IFAs are prohibited in charitable organizations because charitable organizations are permitted only to be organized and operated exclusively for charitable or educational purposes, and all activities need to be in furtherance of those purposes. IFAs give benefits to private individuals (individual inurement) in return and in direct relationship to their fundraising activities, and therefore IFAs thwart the public, charitable purpose of the entire organization. 13

14 Individual Fundraising Accounts When IFAs are used by tax-exempt, charitable organizations, negative consequences from the IRS may result in the loss of tax-exempt status of the organization (or rejection of application), large monetary fines, payment of back taxes, and penalties. Has the IRS taken action against booster groups? Bryan Station baseball team boosters $61,000 Perspective annual budget $44,000 Henry Clay band boosters $30,000 Lafayette band boosters $9,000 Individual Fundraising Accounts What about cooperative fundraising? Cooperative fundraising is providing credit to volunteers who participate in fundraising activities. How does this look any different than IFAs? Some analysts have said that an insubstantial private benefit is permitted when the majority of the actions of the 501(c)(3) organization are focused on the charitable or educational purpose. This is a slippery slope! NOT recommended. 14

Individual Fundraising Accounts All fundraising should be voluntary on the part of the students May not be required to participate in the fundraising or have to pay a fee.

15 Individual Fundraising Accounts All fundraising should be voluntary on the part of the students May not be required to participate in the fundraising or have to pay a fee. May be required to participate in the fundraising as a condition of participation. Students should not be prohibited from participating or receiving a distribution of the total funds raised because they pay the nonparticipation fee, are excused from the fundraiser, or do not raise the necessary amount for the particular fundraiser. If the board or booster wants to sponsor fundraising activities or receives a donation, the funds must benefit the entire group and not an individual. Individual Fundraising Accounts What about volunteer hours to earn discounts on fees? We have team nights at the Reds/Bengals/ Indians/Cavaliers games to work the concession stands for certain amounts off of fees owed. What about Kroger cards linked to a student s pay-toplay fees? What about trip fundraising? 15

Individual Fundraising Accounts May we distribute funds based on need? May we offer a prize based on participation that is not cash? What if it is a commission-based prize?

16 Individual Fundraising Accounts May we distribute funds based on need? May we offer a prize based on participation that is not cash? What if it is a commission-based prize? Board Policy Insurance Board of education may purchase a policy of insurance to cover school support entities, against liability on account of damages or injury to person or property resulting from any act or omission of the organization. Alternatively, the board may require an organization to purchase its own insurance. 16

17 Steps to Take if Boosters Break the Rules Continuation of board recognition? Formal and informal audits Reporting misconduct Police Secretary of State Attorney General IRS Acceptance of Benefits 17

18 Acceptance of Funds from Boosters No gift or donation may be accepted by the board if conditions remove any portion of the public schools from control of the board. R.C (A) Board may adopt resolution directing treasurer to pay proceeds of an unrestricted bequest, gift, or endowment given to the district into the educational foundation fund. R.C (B) Title IX and Donations Boards may run into problems under Title IX if they accept funds from booster groups if group tries to control how the money or resources are used. Money generated by and earmarked for a specific sport that may lead to an imbalance between boys and girls sports in violation of Title IX. When inequity results from gifts given along gender lines, it is the responsibility of the Board to correct this by allocating their own resources. 18

19 Acceptance of Funds from Boosters Daniels v. School Bd. of Brevard County Facts: Booster money was used to give the boys baseball team new bleachers, an announcer s booth, an electronic scoreboard, a batting cage, bathrooms, and lights for night games. The softball field had none of the above. Decision: The court ordered the district to provide comparable facilities for the girls softball team. Acceptance of Funds from Boosters Office for Civil Rights ruled on a Title IX complaint (Michigan) in 2013, finding that a school district was not providing equal athletic opportunities in its interscholastic athletic program at its high school. District agreed to provide the girls lacrosse team with access to a practice facility that is substantially equivalent to that provided to the boys lacrosse team. 19

Acceptance of Funds from Boosters (Michigan case, cont d) District agreed to make modifications to the varsity softball field or the varsity baseball field, or both, with respect to such areas as the

20 Acceptance of Funds from Boosters (Michigan case, cont d) District agreed to make modifications to the varsity softball field or the varsity baseball field, or both, with respect to such areas as the provision of seating and a scoreboard. District dismantled the $15,000 seating deck purchased by the baseball boosters! Involvement of School Staff School staff may participate in activities on their own time. However, best practices can help to avoid major issues: Do not require employees to participate. If on board of directors, they should be nonvoting members. Employees should not maintain or control funds for group your job is on the line! DO NOT, I repeat, DO NOT allow employees to accept or maintain funds for booster groups through personal or board accounts. Employees should NOT make purchases for booster groups with personal money or board funds. 20

21 Ethical Considerations with Employees Who Receive Benefits Ethics laws prohibit a school employee from receiving compensation or anything of value for performance of their job duties from anyone other than their employing board of education. The Ohio Ethics Commission has determined that nominal gifts may be acceptable, but has not defined nominal. Key chains, pens, etc. are nominal However, the Licensure Code of Professional Conduct for Ohio Educators draws the line at $25. Booster Supported Construction Projects If funded 100% by school support organization, board does not have to solicit bids and award contracts mandated by RC However, if board is responsible for $25k or more, then must competitively bid. Board oversight of booster-supported construction project: Verify organization has sufficient funds to complete their fiscal obligations under the project Ensure that they obtained necessary permits, zoning approval, etc. Input and agreement over the design of the facility or building License agreement for access to school premises Liability insurance on the construction project Waivers, releases, indemnification agreements Contract to donate if this is the plan. Contract may require all the necessary items above in one document. 21

acoustics in the theater. Any issues? Some Common Scenarios.

22 Some Common Scenarios... The Music Boosters wants to expand the drama program in the high school. It offers to donate $10,000 to the board, but only if the board agrees in writing to use the funds to improve the acoustics in the theater. Any issues? Some Common Scenarios... The band has been invited to participate in the Rose Bowl parade. The Band Boosters pays for the coach s travel expenses as a reward for her efforts. Is there an issue with this? 22

The Athletic Boosters offers to pay the coach an additional annual stipend of $2,000 as an incentive. May the coach accept the funds? Some common scenarios.

23 Some Common Scenarios... The varsity football coach has just retired, and the district has initiated a search. An individual who is considered a coaching legend in the state has expressed interest, but wants more money than the board can afford. The Athletic Boosters offers to pay the coach an additional annual stipend of $2,000 as an incentive. May the coach accept the funds? Some common scenarios... The district s soccer team has just won its third consecutive state championship. The athletic boosters offers to purchase jackets for each of the team members, and replace the scoreboard on the soccer field. What should the board consider before it accepts this offer? 23

Let s Get Into the Weeds on Two Permissible Booster Activities... Booster Activities Gambling Fundraisers Unless permitted by statute, gambling for profit in Ohio is illegal.

24 Let s Get Into the Weeds on Two Permissible Booster Activities... Booster Activities Gambling Fundraisers Unless permitted by statute, gambling for profit in Ohio is illegal. Ohio law divides gambling into either a scheme of chance or a game of chance. Scheme of chance includes slot machine, lottery, numbers game, pools or other scheme in which participant provides valuable consideration to win a prize. Does not include bingo. Game of chance includes poker, craps, roulette, or any other game in which participant gives valuable consideration in the hope of gain, the outcome of which is determined largely by chance. Does not include bingo. 24

Booster Activities Additional restrictions on gambling fundraisers conducted by charitable organization: Game of chance cannot be conducted during or within 10 hours of any bingo game.

For example, may not have a softball tournament where each team pays an entry fee and the winner collects a prize. Booster Activities (Additional restrictions, cont d.

25 Booster Activities Additional restrictions on gambling fundraisers conducted by charitable organization: Game of chance cannot be conducted during or within 10 hours of any bingo game. Gambling activities must be restricted to games of chance or schemes of chance. Fundraising activity cannot be a skill-based activity. For example, may not have a softball tournament where each team pays an entry fee and the winner collects a prize. Booster Activities (Additional restrictions, cont d.) Craps and roulette are prohibited from charitable fundraising activities. Games of chance can only be conducted during festivals that do not exceed 4 days and not more than twice a year, or for festivals that last 5 consecutive days, not more than once per year. 25

Booster Activities Games of chance may be held only on property owned by the charitable organization or property leased to them by a governmental entity.

26 Booster Activities Games of chance may be held only on property owned by the charitable organization or property leased to them by a governmental entity. Charitable organizations must obtain a license from the office of the Attorney General to conduct a bingo game. Conducting an unlicensed bingo game is a felony. Individuals helping with the gambling fundraiser may not be paid, either directly or indirectly. This includes tips, or other forms of nonmonetary compensation. After prizes are paid out, all money must be given to the school or retained by the 501(c)(3) organization for use in charitable purposes. Booster Activities Sale of Alcohol: Nonprofit entities operated for charitable, cultural, fraternal, or educational purposes may obtain a temporary F-2 permit to sell beer or intoxicating liquor for special events. Restrictions: Sale by individual drink Event held on premises located in political subdivision Premises where event held must be clearly defined and sufficiently restricted to allow proper supervision by law enforcement F-2 permit effective for up to 48 hours Organization can only receive two F-2 permits within a single year 26

27 Booster Activities Permit F may be issued to an association of 10 or more persons, a labor union, a charitable organization, or to an employer of 10 or more persons sponsoring a function for the employer s employees to sell beer. Restrictions: Permit good for up to 5 days No more than two such permits may be issued to the same applicant in any 30-day period Special events include social, recreational, benevolent, charitable, fraternal, political, patriotic, or athletic purpose Event must be not-for-profit Booster Activities Sale of alcohol F-2 or F permit will not be issued until applicant has notified the chief peace officer of the political subdivision of the date, place, time, and duration of the event. Except for F-2 permits, if the event is held within 500 feet of land containing a school, church, library, public playground or township park, the applicant must notify the appropriate entity by certified mail or personal service that it is applying for an alcohol permit and that the entity has an opportunity for a hearing prior to the issuance of the permit. 27

28 Questions? Pamela A. Leist Cincinnati Office: 1714 West Galbraith Road Cincinnati, Ohio P: Columbus Office: 300 Marconi Boulevard, Suite 205 Columbus, Ohio P: Cleveland Office: 6000 Lombardo Center, Suite 120 Cleveland, Ohio P: The information in this handout and presentation was prepared by Ennis Britton Co., L.P.A. It is intended to be used for general information only and is not to be considered specific legal advice. If specific legal advice is sought, please consult an attorney. Cincinnati Office: 1714 West Galbraith Road Cincinnati, Ohio P: Columbus Office: 300 Marconi Boulevard, Suite 205 Columbus, Ohio P: Cleveland Office: 6000 Lombardo Center, Suite 120 Cleveland, Ohio P:

Effective Booster Practices

Effective Booster Practices Megan E. Greulich Staff Attorney Ohio School OSBA leads the way to educational excellence by serving Ohio s public school board members and the diverse districts they represent