Too many associations get in trouble because the board of directors does not recognize good policy and procedure. I recall one association that had an audit three years in a row but still lost $1.1 million to embezzlement. The board had not established solid financial policies.
Financial integrity is built upon solid financial policies. Policies are a subset of the organization's governing documents (bylaws, articles of incorporation).
Policies guide volunteer leaders — in this case especially, the elected treasurer and a finance or budget committee. While every organization will have unique policies based on their situation and concerns, there a few common policies and rationale for their adoption.
Travel reimbursement: Guidelines for volunteer leadership and association staff will be established for travel, food and beverage, registrations, advances, reservations and reimbursements.
Financial accounts: The board of directors will authorize all accounts and financial instruments (i.e., checking, savings, investment, etc.) to safeguard funds. Changes to any account must be approved by the board.
Finance committee: The function of the finance committee is to supplement the work of the board of directors with responsibility for: 1) developing an annual budget, 2) monitoring and making budget adjustments during the year, 3) monitoring the performance of investments, and 4) selection and collaboration with a CPA/auditor. The chair of the finance committee shall be the elected treasurer.
Document retention and destruction: The board will adopt a recommended record retention and document destruction schedule, including checks, receipts, tax returns, etc.
Whistleblower: A policy that encourages persons (staff or volunteers) to report perceived or real irregularities in operations is adopted, allowing a "whistleblower" to approach the board without endangering his/her position or job.
Conflicts of interest: Directors and senior staff are expected to disclose potential or existing conflicts of interest at least annually and throughout the year on a regular and consistent basis.
Audits: The board of directors will adhere to a policy for the periodic audit, review or compilation of the organization's finances. An audit committee will be appointed to work with the selected independent auditor and to present the final audit for approval by the board of directors.
IRS Form 990: Prior to submission of Form 990, the Information Return to the IRS, the governing body will have the opportunity to review.
Check-signing authority: The board will set limits to the authority any officer or employee may expend, as well as define the required number of signatures and processes for reimbursements, including the required submission of receipts in a timely manner. Similar authority will apply to the issuance and use of credit or debit cards.
Investments: Organization will adopt an investment schedule to address savings and reserves to best safeguard the funds in a conservative manner. An investment advisor will periodically review investments and report to the board of directors.
Savings reserves: Organization will maintain a savings reserve equal to a percentage of the annual budget (typically anywhere from 50 to 100 percent). Savings over the minimum amount may be used for research and development projects that advance portions of the strategic plan and benefit members.
Chart of accounts: A chart of accounts will be established for consistent structure so that each budget line item is described in detail for complete understanding and comparative analysis.
Budgeting: The board will approve a balanced budget annually, ____ months in advance of the fiscal year. Financial reports based on the budget will be provided and officially accepted at all duly called meetings of the board.
Independent contractor status: Any person working as an independent contractor shall meet the criteria established by the IRS confirming independent versus employee status.
Insurance: The board will maintain vigilance in avoiding risks and protecting assets. Insurance coverages will be considered and acquired, including general liability, director and officers' liability, host liquor liability, publishing, meeting cancellation, and a surety bond.
Be sure to rely on legal, accounting, investment and insurance counsel when adopting or amending policies. This listing is not intended to be all-inclusive but to serve as an example.
