Internal Controls for Your Form 990: What to Know Christa Divis, - PowerPoint PPT Presentation

Internal Controls for Your Form 990: What to Know Christa Divis, CPA, MBA, CGMA VP of Finance and Chief Financial Officer Coastal Community Foundation

Agenda 1. Introductions 2. Internal Controls 3. Form 990 Overview 4. Putting It Together!

Introductions: Me • CPA, CGMA, MBA • CFO of CCF, previously CFO of Trident United Way • 20+ years of finance experience

Introductions: You Accountants? Org leadership? Just can’t resist learning about 990s?!

Internal Controls Why have internal controls? • Reasonable assurance of achieving goals • Timely & accurate financials – prevent errors & fraud • Safeguarding of assets – prevent theft • Efficient Operations – good use of resources What are errors and fraud? • Errors are unintentional misstatements or omissions • Fraud is the intentional perversion of truth in order to induce someone else to part with something of value

Fraud: Is it really a problem? Recent examples: • St. Paul Fire Dept, 2017, falsified federal grant requests • Berkeley County Schools CFO, 2017, $382k stolen • 1,100 organizations+ over 7 years according to 990 filings Long term effects: United Way Worldwide, 2002, $1.5 million stolen • Donations in 2001: $90 million • Donations in 2011: $35 million

Do I have enough people? You just need 4! • A Executive Director or senior-level manager • B Bookkeeper / Accountant • C Treasurer • D Administrative Assistant

Example Process: Cash Receipts Cash Receipt Process Bank Reconciliation Process Monitoring Process Checks/Cash Bank statement Reviews bank Receives Deposits funds, Reviews bank A reconciliation deposit receives receipt statement, ticket & makesa copy checks Reconciles Enter into Copy of Receives log Accounting Accounting B statement System, deposit & check System, match received tickets & bank copies to receipt statement Randomly requests copiesof deposits and C completed bank reconciliations to review Creates Deposit ticket Opens& D Sorts Mail Creates Check or receives Log and copies in‐house Checks A: Executive Director or senior‐level manager B: Bookkeeper C: Treasurer D: Administrative Assistant

Let’s Practice! • See handout • Work as a team of 3 – 5 • 5 minutes to design • Select a representative to walk through your group’s design

Who, What & How of the 990 Who uses the data? • The IRS • South Carolina Secretary of State • Watchdog Groups • Donors What is expected? • Timely Compliance • Reasonable Effort • Transparent Reporting Why do we care? • Public / donor perception • IRS excise taxes and/or penalties • Excise taxes: See Form 4720 • Penalties: See instructions

Form 990 Overview Page Form Section Key Points 1 Part I Snapshot; Volunteers; Tax year 2 Part III Major programs: Look for good detail 3 ‐ 4 Part IV Are schedules attached for "Yes" answers? 5 ‐ 6 Part V & VI Board member independence. Significant asset diversion? Are all policies "Yes" that can be? 7 ‐ 8 Part VII Different from the rest of form; Is Exec. Director listed? Key employees > $150k; Top 5 Highly Comped > $100k Independent contractors > $100k 9 Part VIII Line 1 vs line 2; Related vs Unrelated vs Excluded Fundraising events; Advertising 10 Part IX Are fundraising expenses listed? Is Management reasonable? Expense percentages 11 Part X Related party receivables/payables Temporarily restricted net assets 12 Part XII Professional review; Accounting basis

Form 990 Overview Form Section Key Points Schedule A Public charity test. Is the public support okay? Schedule B Major contributors. Not public! Include pledges and non‐cash Schedule C Political prohited for c (3); Lobbying limited for c (3) Schedule D Dumping ground: Donor advised funds, easements, endowments, audit reconciliation Schedule E Schools. Questions 1 ‐ 4: Yes, question 5: No? Schedule F Foreign over $10k. If Grants: Part II or Part III. Consider Form 926. Schedule G The 3 G's of Schedule G: Go‐Getters, Good Times and Gambling Schedule I What's a grant? Report if total greater than 5k Schedule J Executive Compensation. Creates rebuttable presumption. Be care of Questions 5 ‐ 6 Schedule K Tax Exempt Bonds Interested Persons & Reportable Transactions: Excess benefits, loans, grants & business Schedule L transactions Schedule M Non‐Cash Goods, including stock > $25k. Schedule R Related groups. Know what activity is reportable by section. Schedule O Overflow: The words to go with the brief spaces in the form. 990‐T The tax form. Reports Unrelated Business Income (UBI)

Putting It Together! Q: What does it take to create a 990 that demonstrates good internal controls? A: Have good internal controls!

Putting It Together! Controls to focus on for the 990: • ���� � �� � ���� � ��� ��� � � � �� � � ��� � � ��� � � � ���� �� � � ��� � ��� • �� � ���� � ���� ����� • � �� �� ���� • � �� �� � �� � ��� ������� ���� ���� � �� � • �� � �� �� � �� � � ��� � � � ���� � ��� ���� � � � � � ��� � ��� � � � � ��� �� �� � � ��� � � ���� � • �� � �� � ���� � � � ��� � ��� ���� ���� �� � � • ���� � �� � ��� � �� � � �� � � ���� ��� ��� ��� � � �� ��� � ���� • ��� � �� �� � �� �� ������ �� � � ����� ��� �� � ��� � ���� ���� � � � ���� ���� � ��� �� � ��� � �� � • ����� � � � • � �� �� � �� � ��� �� ��� � ��� ��� � ��� � � �� � ����� �� ����� ���� � � � ������ �� • � ��� � � �� �� � � �� �� � �� � �� • �� � ��� � ����� � � �� � ��� � ��� ��� � ��� � • � ��� � �� � ��� � ������ � �� � ��� � � � � �� ��� � �� �� ��� � � ��� ���� • ���� � ����� � �� ������ ��� � ��� � �

Putting It Together! Good internal controls will help prevent having to report: • Diversion of assets • Required filings not completed • Inaccurate financial or program outcomes • Insufficient relationship information or conflicts

Putting It Together! Good controls are evident in the 990 with: • Timely and accurate 990 filings • All indicated schedules are included • Adequate records are kept to complete the return • The 990 (with adjustments) agreeing to financial statements • Filed timely • Key policies in place • Independent review or audit • Independent board

QUESTIONS?

Resources Internal Controls: COSO http://info.knowledgeleader.com/bid/161685/what-are-the-five-components-of-the-coso-framework Fraud: Association of Certified Fraud Examiners 2016 Global Fraud Study http://www.acfe.com/rttn2016/docs/2016-report-to-the-nations.pdf Internal Controls for the Very Small Nonprofit: Blue Avocado http://www.blueavocado.org/content/five-internal-controls-very-small-nonprofit 990 Common Errors: Internal Revenue Service https://www.irs.gov/charities-non-profits/common-errors-made-by-exempt-organizations-filing-tips-for- form-990-pf

THANK YOU! christa@coastalcommunityfoundation.org (843) 793-6034