LEGAL & FINANCIAL GUIDELINES

Transcription

1 LEGAL & FINANCIAL GUIDELINES I. Introduction 1. National League for Nursing (NLN) must be aware of the activities carried on by Constituent Leagues (CLs) in its name. A court could deem an act by a CL to be an act by the NLN. 2. For protection and preservation, NLN not only needs to be aware of the CL activities, but also needs to help educate and direct CLs in proper financial and legal management. II. CL Fiduciary Responsibility 1. Maintain accurate and reliable financial records. 2. Preparing accurate and meaningful financial statements on a timely basis. 3. Budgeting and anticipating financial challenges. 4. Safeguarding and managing the CL s financial assets. 5. Complying with federal, state, and local reporting requirements. 6. Other: a. Primary Responsibility of Board of Directors = serves as a steward of CL finances. b. Board of Directors must effectively oversee CL operations. c. CL Treasurer = charged with stewardship of the CL s funds and with monitoring and reporting the CL s financial position. Treasurer should have basic accounting knowledge. d. Conflict of Interest Policy = Protects CL from ethical dilemmas that may arise as Board members fulfill their fiduciary responsibilities. Policy may protect CL from the perception that private individuals are benefiting from CL assets a strict prohibition of 501 ( c ) ( 3 ) tax-exempt status. III. Financial and Legal Status of CLs 1. A CL with sufficient resources to carry out its objectives has no need to make a profit or have an excess of income over expenses. However, a surplus is recommended. IRS does not focus on a tax-exempt organization s reserves as long as the purpose of the reserves is to ultimately carry out the objectives for which the organizations was granted tax-exempt status. Note: 6 months reserves is the goal for many organizations. 2. Nonprofit = an entity organized under and according to the provisions of state nonprofit statutes. 3. Tax-exempt = means the IRS has classified the entity as exempt from federal income taxes 4. Not-for-profit = often used to describe organizations that are primarily operated to serve the needs of the community or the organizations members rather than to show a profit. 5. NLN = nonprofit, tax-exempt, not-for-profit organization. 6. For a CL to obtain corporate status in its state, its Board must file articles of incorporation with the secretary of state in which the CL is located. All CLs are incorporated. 1

2 7. The bylaws of a CL serve as a blueprint for the CL s working structure. All CLs have bylaws. IV. Handling CL Funds 1. Regardless of the bookkeeping system used, those in charge of the CL s finances need to understand the interrelationship of the following items: cash receipts journal, cash disbursement journal, general journal, general ledger, trial balance. 2. State and local governmental agencies require financial documents be kept for at least 7 years. V. Financial Statements and Reporting 1. Three financial statements are required for review by the Board of Directors on a periodic basis: Statement of Financial Position (Balance Sheet), State of Activities (Income and Expense Statement or Receipts and Expenditure Report), Cash Flow Statement (Statement of Changes in Financial Position). 2. Year-End Audit. Some CLs may ask the finance committee or a former treasurer to do an informal, internal audit. Others may engage the services of an independent certified public accountant (CPA) to perform a more formal, audit, depending on the wishes of the CL Board. NLN may require a CPA audit. VI. The Budget Process: From Strategic Plan to Financial Plan 1. The CL Board establishes policies to achieve the mission of the CL by procuring necessary resources, overseeing operations, and planning future directions. At least annually, the directors must create or update a master plan of yearly activities that reflect the chapter s short-range and long-term goals. The CL Bylaws provide for the appointment of a Strategic Planning Committee. 2. CL must know its goals before it can prepare its annual budget. 3. Prepare a list of objectives or goals for the upcoming year. 4. Estimate the cost of each objective or goal. 5. Estimate the expected income of the CL. 6. Compare total expected income to the expenses of achieving the CL s objectives and goals. 7. Submit the proposed budget to the entire Board for ratification. 8. The budget should be compared to actual financial statement figures every month to monitor CL financial activities throughout the year. 9. Comparing the CL s budget to actual operating results each month also can be an effective internal control. 10. It is permissible to revise the annual budget, if necessary. 11. CLs should analyze its cash needs on a monthly basis. VII. Internal Control 1. The Board is expected to exercise reasonable diligence, care, and good judgment in safeguarding the CL s assets. 2. Every CL needs a bank account. 2

3 3. Every CL needs its own employer identification number (EIN) also known as a Federal Tax Identification Number. Visit for information on obtaining this number. (Form SS-4) 4. It is best if one person writes and signs the checks on behalf of the CL and another person approves the invoices for payment. One person should not do both. 5. Since CLs may have limited personnel resources and the treasurer or check signer may also be the bookkeeper two signatures on all checks is strongly recommended. 6. If the treasurer is not the bookkeeper, it is recommended that two signatures be required on checks exceeding a certain dollar amount. 7. When new officers are elected, ensure the continuity of CL operations by doing the following: (a) change signature cards, (b) if required by state law, update corporate resolution papers to reflect the names of new officers, and (c) ensure the outgoing CL treasurer reconciles the CL s checkbook balance to the most current bank statements. 8. When choosing investment options for CL s excess cash develop a formal investment policy that must be approved by the Board. VIII. Tax Issues 1. CLs incorporated under state nonprofit provisions, and thus recognized as nonprofit corporations, generally are exempt from the state and federal income taxes paid by for-profit corporations. 2. Federal tax-exempt status. Some CLs have their own IRS exemption approval. Most of the CLs use the NLN s exemption approval. 3. If a CL has its own tax exemption, it should have a copy of its IRS Determination Letter in its permanent file, available for public inspection. 4. Tax-exempt CLs may not have to pay federal income taxes, but they are still required to file a return with the IRS an information return, not a tax return. See Appendix A and B. 5. CLs must pay federal income tax on Unrelated Business Income. UBI = any income producing activity that does not substantially contribute to the performance of the CL s exempt purposes. 6. Most states grant CLs franchise, real estate, and sales and use tax exemptions. 7. A CL does not file withholding income tax and FICA for independent contractors. If a CL pays an independent contractor more than $600 during a calendar year, it must report the earnings to the IRS on Form For all employees the CL must withhold income and FICA tax on behalf of the employee, pay the employer s share of FICA tax, federal and state unemployment taxes, and workers compensations insurance, and report the employees earnings annually to the IRS using Form W-2. Some CLs may not have to pay the unemployment tax. IX. Lobbying and Political Activity 1. CLs are permitted to lobby as long as they do not devote a substantial part of their activities to attempting to influence legislation. 2. As a rule, CLs are not considered to be engaging in substantial lobbying if they devote less than 5 percent of their activities to lobbying. 3

4 3. Qualifying CLs may file a special election that allows them to spend a specified dollar amount for lobbying, which may represent an amount greater than 5 percent. This first requires approval from NLN. 4. CLs must not participate or intervene in any political campaign on behalf of, or in opposition to, a candidate for public office. X. Insurance Protection for Legal Liability 1. An incorporated CL generally shelters CL volunteers from personal financial liability. 2. Signed into federal law in 1997, the Volunteer Protection Act provides certain protections from liability abuses related to volunteers serving non-for-profit organizations. The act may protect CL volunteers, but it provides no protection to the CLs themselves. 3. Given its limitations, the Volunteer Protection Act may not significantly reduce a volunteer s need for indemnification protection by the CL or for proper insurance coverage. 4. NLN does not carry Directors & Officers Liability Insurance for its CLs. 5. CL officers should review their activities and operations to determine if they need their own insurance protection. NLN may want to also review these activities and operations to participate in this decision. XI. Issues Unique to 501 (c) (3) Organizations 1. Contributions to the CL are tax deductible. 2. Organizations must demonstrate they benefit the public through charitable, educational, scientific, or religious pursuits. 3. An organization that qualifies is classified either as a public charity or a private foundation. NLN and its CLs are public charities. Definition = must receive more than one-third of its total support from any combination of gifts, grants, and contributions from the governmental entities and the general public; membership dues; and gross receipts from admissions, sales of merchandise, or performance of services. 4. As a general rule, a private foundation is organized, controlled, and supported by a small group of individuals. 5. Tax-exempt status may be removed for the following reasons: rebates to members; dividends to members; executive compensation or benefits in excess of fair market value; transactions with officers, directors, or other insiders that are not conducted at arms length or fair market value. 6. Effective with the Revenue Reconciliation Act of 1993, donors contributing $250 or more to a CL may be denied a deduction unless they have a written acknowledgment of the contribution. 7. Acknowledgment must include: amount of cash and a description of any property other than cash contributed; whether the CL provided any goods or services in consideration for donation. 8. Many states require that organizations register with a regulatory agency before soliciting funds. If a CL is planning fund-raising events or solicitation activities, it must first contact the NLN for approval of the event or activity. Resource used to prepare these guidelines: 4

5 The Complete Guide to Managing Chapter Funds. Susan S. Vowell, CPA, American Society of Association Executives, Washington, DC Revised July