Fundamentals of Chapter Management: Section 3 - Chapter Finances

Ensuring Fiscal Responsibility

INTRODUCTION

Chapter finances must be among the chief concerns of chapter officers and executives. Chapter members entrust their leaders with the management and administration of the chapter dues they pay. They want to see a return on their investments in the form of chapter activity and to know that chapter funds are spent and managed wisely. Directors and managers may assume personal liability for actions taken on behalf of the Chapter – it is important that you have an understanding of the role you are undertaking regarding Chapter finances.

This section contains basic financial guidelines for ACEP chapters – it does not cover all the legal or accounting requirements the chapter may need to meet.

To ensure the chapter is in compliance with all federal and state regulations, it is advisable to consult a local attorney or accountant who is knowledgeable in such rules and regulations. The offices of the Secretary of State, State Comptroller, and State Treasurer are also valuable sources of information. These Internal Revenue Service (IRS) publications will also offer helpful guidance:

Publication 557 (Tax-Exempt Status for your Organization)
Publication 525 (Taxable & Non-taxable Income)
Publication 598 (Tax on Unrelated Income of Exempt Organizations)
Publication 1771 (Charitable Contributions – Substantiation and Disclosure Requirements)

CHAPTER RECORDS, FINANCIAL GUIDELINES AND TAXES

Chapter leaders must focus on accurately tracking revenues and expenses. This requires maintaining important chapter records, filing requirements, bookkeeping procedures, and compliance with tax laws.

If there is no chapter office or other permanent location for chapter files, these records should be transferred smoothly from current officers to new officers when elected. (See Chapter Officer Checklist ).  The transfer of records can occur at the annual meeting when elections are held or in special meetings scheduled between incoming and outgoing officers. The chapter may want to consider renting storage space from year to year for older (over three years old) files. New officers would receive current files from the outgoing officers plus keys to the storage facility. All chapter records, including copies of the charter, bylaws, and articles of incorporation, should be reasonably accessible to all chapter members. It may be advisable to scan important documents into an electronic file to expedite both access and transfer of these records. You will need to insure there are multiple copies to protect against loss.

If there are extensive records, the chapter may choose to set up a formal filing system and record retention plan. A set of guidelines for record retention developed by the Electronic Wastebasket Corporation is available on the Internet or contact ACEP’s office services department.

CHAPTER RECORDS

Permanent records and other important records must be stored in a safe place and kept current.

Permanent Records Include

  • chapter articles of incorporation and related documents
  • articles of incorporation for any related organizations – such as a foundation
  • articles of association for any chapter political action committee (PAC)
  • record of Taxpayer Identification Number (TIN) or Employer Identification Number (EIN)
  • chapter bylaws (current)
  • ACEP Bylaws
  • chapter charter issued by ACEP
  • minutes of previous board and member meetings
  • all federal and state tax and information returns (including PAC reports)
  • all payroll tax returns (if chapter employs staff); and
  • all audit reports, if any (including both CPA reports and IRS audits)

Other Important Records Include

  • financial ledger books/records
  • financial statements
  • property rental/ownership records
  • significant contracts and agreements, including insurance policies

These items should be kept/destroyed according to your retention/deletion policy:

  • pertinent correspondence
  • bank statements, canceled checks, and reconciliations
  • records of paid bills
  • chapter account statements

SETTING FINANCIAL GUIDELINES

Chapter treasurers and other officers serve two roles in dealing with chapter finances: a fiduciary role and a custodial role.

  • Their fiduciary responsibility assures the safekeeping of chapter assets – making sure funds are invested wisely and spent only on productive activities that support the chapter’s exempt purposes.
  • The leaders' custodial duties require oversight of the chapter’s financial transactions. These custodial duties also include maintenance of the chapter's important records, establishing financial policies and guidelines,  communication of the chapter's financial condition and insuring all required state and federal filings are made timely. (See Chapter Officer Action Items and Potential Policies).

Before a budget or an accounting system can be developed, chapter leaders must discuss and adopt a set of financial guidelines and controls that spell out acceptable policies and procedures. Consideration should be given to at least the following areas:

  • Fiscal Year - National ACEP’s fiscal year runs from July 1 to June 30. Since all financial reports the College provides to chapters are based on this period, the chapter may want to adopt the same dates for chapter planning, budgeting, and reporting.
  • Fiscal Policies - Before adopting policies, these questions need  to be answered:
    • Who handles receipts and how?
    • Where is the money deposited?
    • Who approves expenditures and how?
    • What documentation is required for expenditures?
    • Who can sign checks? (Remember to have more than one authorized signer.)
    • Is it clear that chapter monies must be in a separate chapter account and not mixed with a member’s personal or business account?
    • How often should financial reports be prepared, and by whom?
    • Will the chapter use cash or accrual accounting (the accrual method is preferred)?
    • Will the chapter defer dues revenue or recognize it as revenue when received?
    • How often (if at all) should the chapter be audited?
    • How are members reimbursed for travel (airfare, per diem, etc.)?

Cash Accountability and Check Handling Procedures

The chapter can create the proper checks and balances on the spending and accounting of chapter funds with simple procedures. The complexity of these financial control procedures depends in part on the dollar amounts the chapter handles. Chapters whose annual revenue is $500,000 will need more formal controls than chapters with annual revenue of $50,000.

One of the simplest things the chapter can do to monitor expenditures is to require two signatures on checks over a set amount from the chapter account. Although cumbersome, this safeguard will guarantee that payments are reviewed. The amount set will depend on the chapter’s budget, but consider $1000 or $2500 as possible benchmarks. If the chapter requires two signatures, designate a minimum of three authorized signers with the bank in case of emergency, illness, or death.

In larger chapters, and particularly in staffed chapters with executive directors responsible for day-to-day office management, double signatures may be unnecessary. Checks can be written by the chapter staff executive, with a timely review of bank and financial statements by a member of the board or finance committee.

 

Dealing with Banks

The bank will need current signature authorization cards indicating who can sign checks on the chapter account. The account authorization process varies from bank to bank, but usually requires the formal approval of a bank resolution by the chapter board on the bank’s form. If two signatures are required on any chapter checks, designate a minimum of three authorized signers (generally the chapter president, treasurer, chapter staff executive, vice president, or other officer). If only one signature is required on chapter checks, two authorized signers may be sufficient (president, treasurer, chapter staff executive). The chapter may want to consider insurance for all officers and employees who have access to chapter funds.

 

Bookkeeping

Keeping track of chapter receipts and expenditures is necessary. If finances are complex, a formalized accounting system is helpful. Smaller chapters may only need to maintain an accurate checkbook. Whatever method is chosen, keep these records – and make sure they’re transferred appropriately when a new treasurer is elected. Each treasurer must ensure that an effective bookkeeping system is in place. Some important bookkeeping, reporting documents, and accounting issues include:

  • Financial Statement - Accurate, timely, and understandable financial statements are an important tool to safeguard the chapter’s financial stability and integrity. Chapter financial statements indicate how much money the chapter received and spent during the reporting period. The statements should include enough detail to allow accurate review. The complexity of these statements will depend on the accounting system used and on the chapter’s decision to defer dues revenue or recognize it upon receipt.
  • Chapter Account Statement - The monthly chapter account statement that chapters receive from national ACEP is NOT a complete financial statement, UNLESS the chapter’s fiscal year coincides with national ACEP’s (currently July 1 to June 30) AND the chapter has no activity that is NOT recorded at national ACEP. Every month, leaders receive a number of reports that detail the financial activity in the chapter’s account with ACEP:
    • An invoice for services purchased from the College – mailing labels, stationery, newsletters, etc. If the invoice is not questioned or paid within 30 days, payment is automatically transferred from the chapter account to ACEP. This 30 day automatic withdrawal is a common method of payment, though many chapters pay ACEP by check.
    • A list of members who paid dues during the month.
    • A chapter account statement, showing the month’s transactions – dues collected, interest earned, withdrawals – as well as end-of-month and year-to-date balances based on ACEP’s July 1-June 30 fiscal year.

Samples and a detailed explanation of how to read the chapter account statement and attachments are included.

Dues Deferral

In accordance with generally accepted accounting principles (GAAP), ACEP defers the national portion of the membership dues it collects from new and renewing members, transferring the funds to revenue over the 12 month membership term. The chief purpose of deferral is to match revenue and expense more accurately. Dues collected from a member underwrite service to that member for a specific 12 month period. Deferring the dues and recognizing earned income ratably in those months provides better matching of revenue and expense. However, the chapter dues collected by ACEP from members in the chapter are credited to the chapter account each month as collected. If the chapter budget is complex, dues deferral can be a critical tool to help the chapter chart its financial position more accurately. The information needed to accurately defer chapter revenues is available from ACEP. How this information is presented in the chapter’s financial statements is the chapter’s decision. To obtain deferral information, contact ACEP’s CFO.

Audits

ACEP recommends that large, active chapters consider periodic outside audits or reviews. An outside audit firm reports directly to the chapter’s board of directors on issues determined or requested by the board.

An audit may include:

  • internal control;
  • financial reports; (investments; insurance; compensation; restricted funds; inventories)
  • tax compliance.

Audits can be expensive. The scope of the audit as directed by the board will affect the amount of time required and the cost. The board should discuss its need for an audit, whether annual or periodic, with their advisors on legal and tax matters.  Most small chapters will not need an audit if there are adequate control measures in place.

 

AUDITS/REVIEWS/COMPILATIONS

Audits:

  • Involve the gathering of evidence to support the fair presentation of financial statements and related disclosures for the purpose of expressing a positive opinion.
  • Determine if the statements have been properly prepared within a framework of recognized accounting practices and applicable legislation.
  • Fairly present the financial position and results of the organization.

Reviews:

  • Involve performing inquiries and analytical procedures to support the fairness of financial statements and
    related disclosures for the purpose of expressing a negative opinion (i.e., nothing came to attention.
  • Require a general knowledge of the entity – its business (organization, personnel, basic accounting records, operating characteristics, nature of assets, liabilities, revenues and expenses) and industry.
  • Consist primarily of inquiries of entity’s personnel.

Compilations:

  • Involve the preparation of financial statements without giving any assurances.
  • Are limited to the presentation of financial information that is provided by the entity.

INSURANCE

Depending on the scope of its activities, the chapter may want to consider purchasing business insurance. Common coverage for chapters includes general and professional liability, directors and officers’ liability coverage, as well as property policies – fire and extended liability coverage. Many chapters also invest in dishonesty coverage (replaced fiduciary bonding from years past) for all officers and employees with access to chapter funds.

TAXES

Probably the best source of advice about chapter taxes is a qualified accountant knowledgeable in the affairs of tax-exempt organizations. Leaders should have a basic understanding of the various types of not for profit organizations and know the respective status of the organization they are working with. (See Primer on Not For Profit organizations in this manual.) Even though a qualified accountant is the best source, chapter leaders also need to know the basic compliance requirements of tax-exempt organizations. (See Summary of Annual Returns).

Tax Exempt Status

ACEP is a tax-exempt organization under Section 501(c)(6) of the Internal Revenue Code. ACEP chapters gain the same tax status by authorizing ACEP annually to include them in its group exemption filing. An authorization form is sent to each chapter in February / March for completion and timely return to ACEP.

The chapter may choose to file for its own status, although there is no advantage in filing individually.

To apply for separate recognition of tax-exempt status, the chapter must send (at a minimum):

 

  • A completed Form 1024 [to file as a 501(C)(6)] or Form 1023 [to file as a 501(C)(3)].
  • Form SS-4 – Application for an Employer Identification Number (EIN). Caution: Use this form ONLY if the chapter does not already have an EIN. All ACEP chapters do already have EINs.
  • Form 2848 – Power of Attorney form to authorize the representative completing the application to work with the IRS. This form is only needed if the representative is NOT a chapter officer.
  • A conformed (attested) copy of the organizing document(s). This is usually the articles of incorporation.
  • A copy of the most recently adopted chapter bylaws.

Additional information may be requested by the IRS. In addition to any fees paid to an accountant or attorney who prepares the filing, there are filing fees that must be paid to the IRS with the application.

State and Local Reporting Requirements

State and local tax requirements vary from location to location, and what the chapter and its affiliated organizations owe in federal/state/local taxes depends on the types of organizations involved and the amounts of revenue they generate. The information below outlines the general requirements. Be sure to consult an accountant or attorney that is familiar with local and state requirements.

Individual and Organizational Penalties

If filing and other requirements are not met, the most severe penalty that may be assessed a tax exempt organization is the revocation of its tax-exempt status. Care must be taken to ensure all filings are made accurately and timely. It is important to remember that not only is the organization subject to penalties for late filings and/or failure to file returns, but the individuals responsible for the filing may be subject to penalties. Board members are typically considered responsible parties. Be sure to check the chapter bylaws, job description(s), and chapter financial policies to determine who is a "responsible" individual.

Federal Reporting Requirements

All Chapters must file one of the Forms 990. If the chapter receives a request/notice from the IRS - ACTION IS REQUIRED BY THE CHAPTER.

  Form 990-N - Most small tax-exempt organizations with gross receipts that are normally $25,000 or less must file. This from must be filed electronically – no paper – and is referred to as the e-Postcard.

Form 990 EZ - This is a short version of Form 990 that can be filed if:
• there is less than $100,000 in GROSS receipts, AND
• there is less than $250,000 in assets at year end.

Form 990 (Return for Organization Exempt from Income Tax). Form 990 is an information return required by federal tax code if an exempt organization has "average" (special rules) gross receipts of more than $25,000 per fiscal year. 501(c)(3) organizations must also file a Schedule A to the Form 990. This form has been dramatically revised for fiscal years that began in 2008. Each Chapter should review the new requirements and be sure they are collecting information that will facilitate timely filing of the revised return. The form is available at IRS.gov.

Form 990T (Exempt Organization Business Income Tax Return) Form 990T is a tax return required by federal tax law from exempt organizations that have Unrelated Business Income (UBI). UBI is generated by activities that are not substantially related to accomplishing the purpose for which the exempt status was granted. Examples include mailing label and novelty item sales, and commercial advertising. The first $1,000 of UBI is not taxable. Only net amounts over $1,000 create a tax liability.
 
Form 1120 POL (U.S. Income Tax Return for Certain Political Organizations). Form 1120 POL is required to be filed for certain income on political activities and for certain taxable expenditures. See an accountant to determine if the chapter is required to file this return. This return may be required for BOTH your PAC and your chapter – be sure to check the instructions for this form.

Forms 8871 and 8872 – These are new forms required to be filed with the IRS for all political action committees that (generally) have contributions of $25,000 or more. Form 8871 is filed once and is a "notice of status." Form 8872 is an annual return that discloses contributors and expenditures. These forms are open to public inspection. Only organizations that file with the Federal Election Commission are exempted from filing these reports.

 

Withholding Tax / Reporting Requirements

If the chapter employs staff, check with an attorney and/or accountant to verify compliance with all payroll requirements.

Federal

  • Form W3 (transmittal document for forms W2)
  • Forms W2 (wage and tax statement to IRS and employees)
  • Form 941 (to report social security and federal income tax withholdings and liabilities)
  • Form 940 (to report federal unemployment tax)
  • Forms 5500/5500C/5500R (to report on qualified employee benefit plans)
  • Form 8109 "Federal Tax Deposit Coupon" (Used when paying social security and federal income tax withholding to a federal depository.) You must also check to see if you meet the requirements for electronic payment of tax deposits. If you meet these requirements, the process can be completed on a touch tone phone, but does require an agreement with your bank. There are specific timing requirements for making these deposits after pay dates, based on the total dollar amounts to be deposited. Make sure the chapter meets the applicable deposit deadline.

Non-staff Service Payments

All payments for services in excess of $600 per year to non-employees (i.e., not salary or wages) are subject to an Information Return filing in the l099 series. The chapter should require a Form W9 from the provider prior to making any payments (sample form W9). Form 1096 (transmittal document for Forms 1099) and Forms 1099-Misc (both to IRS and recipient) are required (there are some exceptions). The chapter should identify all payments over $600 (cumulative for year) and ensure required forms are filed timely.

 

Affiliated Organizations

Foundations

The rules and reporting requirements of foundations (which are normally 501(c)(3) organizations) are different from requirements for 501(c)(6) organizations. Some differences for 501(C)(3)s include:

  • testing to determine if the organization is a publicly supported charity or a private foundation;
  • different rules for public versus private charities; and
  • a completed Schedule A is required with the Form 990

Political Action Committees

There are also different rules for political action committees (PACs) and political activities of certain tax-exempt organizations. One such difference is the taxable treatment of interest income on funds used for contributions to candidates for federal offices. Each state establishes its own laws regarding state PACs.  Included is a chart with federal rules for political activities for certain tax-exempt organizations. The state may also provide such a chart for reference. Check with an accountant if the chapter has an affiliated foundation or PAC.

 

DISCLOSURE REQUIREMENTS - DOCUMENTS REQUIRED TO BE MADE AVAILABLE

Since 1988, as explained in IRS Notice 88-120, all exempt organizations have been required to provide for public inspection at their principal office:

  • Copies of Form 990, Form 990N, or Form 990 EZ (information returns) for the three preceding years (Section 501c organizations – except for names and addresses of contributors. Section 527 organizations must disclose contributors).
  • A copy of the Application for Recognition of Exempt Status.
  • Any papers submitted in support of the above returns or application.
  • A copy of the IRS Determination Letter.
  • A copy of Form 8871.
  • A copy of Form 8872 for the three preceding years.
  • Filings with the FEC are considered public information.

Chapters that are included in the Annual Group Exemption filing should note the following:

The Application for Recognition of Exempt Status and the related Determination Letter from the IRS are available from the CFO at ACEP headquarters. Only if your chapter has three or more employees, are you required to maintain this information at your office. If you need a copy of this information, please contact the ACEP CFO.

As part of the 1996 Taxpayer Bill of Rights 2 legislation, and as reflected in IRC Section 6104(e), non-profit organizations (other than private foundations) are required to provide copies upon either an in-person request or a written request. Reasonable fees for copies and mailing may be charged. These requirements became effective June 8, 1999.

The new rules are coupled with an increase in the penalty for willful failure to allow public inspection from $1,000 per day to $5,000 per day.  There are two exceptions to these requirements:

  1. Organizations that have made the requested information widely available (such as on the World Wide Web).
  2. Organizations for which the Internal Revenue Service has determined that the request is part of a "harassment campaign" – you must apply for this determination.

Federal legislation now requires public disclosure to the Internal Revenue Service (IRS) from certain political groups organized under Section 527 of the Internal Revenue Code. The new law also imposes these disclosure requirements on many state and local PACs that are affiliated with trade and professional associations, even if they comply with state and local laws for public reporting of their activities. There is an exception in the law that exempts entities that report to the Federal Election Commission (FEC). If you have a state or local PAC, be sure to consider your requirement to file Forms 8871 and 8872 with the IRS.

No Disclosure Required

The following TAX returns/portions of return are NOT required to be made available for public inspection:

  • Form 990 T (although this may change in the near future)
  • Form 990 – individual contributor name and amounts
  • Form 1120 POL 

Solicitation Disclosures

If soliciting contributions, political organizations and tax-exempt organizations that are NOT eligible to receive tax deductible charitable contributions must disclose in conspicuous and easily recognizable formats statements declaring all fund raising solicitations after January 31, 1988, are non-deductible as charitable contributions. For those items billed through ACEP, disclosures are provided on the chapter’s behalf.

 

Intermediate Sanctions

Also included in the 1996 Taxpayer Bill of Rights 2 was the long-awaited concept of intermediate sanctions for exempt organizations. Prior to this legislation, the only remedial action available to the IRS was the revocation of exempt status. This legislation currently only covers 501(c)(3) non-private foundation charitable organizations and 501(c)(4) social welfare organizations.

The primary focus of this legislation is on "excess benefit transactions." Such transactions are defined as any transaction in which an economic benefit is provided by an applicable tax exempt organization for the benefit of a "disqualified person" if the economic value exceeds the value of the services performed by the disqualified person. Such transactions may include excessive or unreasonable compensation, unreasonable or unfair rental arrangements, provision of services to individuals, certain assumptions of liability, certain sales of assets, certain participation in partnerships, certain revenue sharing arrangements, etc. A disqualified person is defined as any person who was, at any time during the five-year period ending on the date of the excess benefit transaction, in a position to exercise substantial influence over the affairs of the organization. The legislation provides substantial penalties for (1) the disqualified person(s), (2) the organization, and (3) organizational managers who participated in a transaction knowing that it was an excess benefit transaction.

Lobby Disclosure

Compliance with the Omnibus Budget Reconciliation Act of 1993 requires that your chapter members be notified as to the percentage of their dues that are not deductible for federal income tax purposes as a result of the lobbying activities of your chapter. This requirement became effective January 1, 1994.

The chapter must provide the required written notification upon receipt of the dues payment if the percentage is not reflected on the dues billing. Failure to provide the required notification may incur penalties for the chapter. Please consult your tax advisor for details that relate to your specific chapter.

National ACEP will be happy to assist your chapter in fulfilling the member notification aspect of this requirement by printing the percentage of non-deductibility on the member renewal notice. This will alleviate the need for you to notify your members after the payment has been made. If your chapter wishes to use this method, please submit the Chapter Lobbying Estimate form (see Lobby Form in Appendix Section 1) to the ACEP Member Services Department. National ACEP provides a form for your Chapter to return no later than September 15 to be placed on the dues statements for the following calendar year.

ISSUES FOR WEB SITES

Questions to be addressed that need procedures established to report appropriate actions:

  • Does the activity support the exempt purpose of the organization (as defined in the organizational documents)?
  • Does the activity generate UBIT- unrelated business income tax (advertising versus corporate sponsorship; providing ISP services)?
  • Does the activity generate a sales and/or use tax liability?
  • Copyrighted property? Does the Web site insure that copyrighted materials of others are protected and used only with permission?
  • Does the activity provide links to other organizations or commercial sites that may be problematic for the organization (implied endorsements, site not related to organization’s purposes)?
  • Does the activity improve the public image of the organization?
  • Does the content constitute lobbying activity (potential for links to public office holder or government Web sites)?
  • Does the content constitute political activity (links to campaign Web sites)?
  • Does the activity generated by other’s Web sites that have links to your site create any tax or other issues for the organization?
  • Does the content of the Web site violate any grant or funding requirements?
  • Does the activity create any international tax issues? (Not all countries recognize "tax¬-exempt" status).
  • Does the content meet all public disclosure rules (soliciting for dues, contributions, etc.)? 

EQUITY / RESERVE POLICIES

  • Equity reserve - the net amount of income in excess of expense over the life of the organization. For the organization to be viable and have an expectation of continuing, this number must be positive over time.
  • Cash reserve - the amount of cash or near cash funds available to the organization in excess of funds required for current operations.

It is important to remember that a large members' equity balance is not the same as a large cash balance as these may have been invested in fixed assets or other assets that are not cash. Also, a large cash balance may not be sufficient to meet unexpected needs if all available funds will be required for current operations.

Why should the chaper have an equity policy?

  • Unexpected events - a major shortfall in an activity that is expected to provide a high positive net revenue over expense in a fiscal year can severely impact the organization's ability to meet its current objectives. To the extent feasible, you can insure major events (such as an annual meeting) to replace such losses, and effective management of expenses related to anticipated shortfalls in revenue can help offset or reduce (but not remove) the need to build a reserve for potential shortfall areas. Consider – if the shortfall is experienced in the area of member dues, would the organization have additional time to deal with the related causes and to reduce expense? This additional time may be provided by receiving dues in advance of the period(s) that you incur the expense; however, these funds must be maintained in cash or near cash to be considered such a reserve. Determine what the organization needs to do to maintain a sufficient reserve to fund current operations.
  • Expected future events - a second area to consider is the provision for future events and/or activities. Some of these can be anticipated and planned several years ahead (additional facility, computer upgrades) while some cannot be specifically anticipated but are required in order to serve your membership (new legislation, regulation, or law suit that requires immediate and significant expenditure).  To the extent that needed cash outlays can be anticipated, an annual targeted provision should build adequate reserves to ensure these funds are available when required. As depreciable assets are placed into service, they become part of future periods' operating expense (as depreciation) and are appropriately considered in the budgeting process. In effect, they are "funded" in the operating cycle which they benefit.
  • Unexpected future events - a more difficult area is in non-specific future events that may require significant cash outlays. A policy is needed to, at a minimum, provide funds to initiate required immediate actions while allowing a structured look at the potential need for obtaining contributions and/or member assessments in extremely pressing matters. Again this minimum reserve should be available in cash (or near cash).

What should the chapter consider in an equity/reserve policy?

Establishing policy(ies) regarding the use of accumulated equity and the accumulation of equity should be undertaken in conjunction with a focused look at the status and long-term objectives of the organization. The primary issues to be addressed in such a review are:

  1. how to weigh the benefits of serving current member needs versus building a reserve to serve future and potentially different members' needs;
  2. how to maintain an adequate cash reserve to provide for current operations in order to soundly run the business; and
  3. how to determine to what extent investment income is desired to contribute to the operating budget each fiscal year.

Generally, the smaller an organization and the more subject the organization is to large swings in activity and/or income, the larger the desired reserve.

Set Policies

Setting policies can be accomplished with various methods including establishing different targets or requirements regarding:

  • equity balance
  • annual contributions to equity, and
  • negative budget limitations (spending more than you bring in for the year)

Some of the options available include:

  • a desired target of providing an equity reserve of XX% of annual operating expense in members' equity (usually by X date);
  • required minimum annual contribution to equity;
  • a requirement that a balanced budget be presented to the finance committee/board;
  • specific processes (restrictions) for large expenditures; and
  • budget modification limitations based on equity reserve requirements.

Keep This In Mind

  • Required annual contribution – should be a guideline that controls NOT the budget, but the process that requires specific consideration in light of all other objectives and activities during the budgeting process. Don't establish a policy that prohibits the organization from using the reserves they have worked so hard to create.
  • Investment income – the investment of reserve funds may contribute (significantly) to your annual operating revenue. Some organizations require that earnings from invested funds be added to the funds being invested rather than allowing these funds to be used in the annual operating budget. This policy might be appropriate if the organization is at or below a minimum equity requirement or should it fall below the required minimum.

BUDGETING

All chapter officers have a fiduciary role in developing a budget. The budget should be a planning and control tool that helps measure actual results against projections. It assists in developing affordable chapter activities within the limits of revenues, and helps in understanding how to use revenues to develop programs to meet member needs and achieve chapter goals.

Budget Type

The chapter's choice of accounting methods will determine whether the budget is developed according to:

  1. a revenue and expense plan (sometimes called line items or natural accounts);
  2. a per-project basis (sometimes called functional reporting); or
  3. both.

A chapter's budget doesn’t have to be complicated. It must only reflect the degree of complexity that is expected to be reported for actual results. Spending money where it will have the greatest effect is one way for the chapter to protect the future of emergency medicine. The budgeting process helps identify these areas of opportunity and it should always reflect the chapter’s priorities in accordance with its exempt purposes.

The budget process can be outlined as follows:

  • Where are we now?
  • Where do we want to be one year from now, and beyond?
  • How can we reach our goals? Short-term/Long-term?

Assess Income

Begin the budgeting process with a realistic assessment of chapter income at the present dues and non-dues revenue levels. For most chapters there are two major sources of revenues: dues and educational meetings. Evaluate the membership base. Is the chapter membership stable – are there trends that may reduce or increase dues revenue? Some options of increasing revenue include grants and sponsorships from corporations, increasing charges for educational sessions or chapter services, and selling advertising.

Compare Income With Costs

Do member dues provide a sufficient working base to support these core activities?  If the present revenue level cannot support planned projects and activities, explore ways of increasing revenue or reducing planned expenditures. Possibly the chapter can reduce cost by:

  1. coordinating efforts with other chapters or organizations for joint ventures or
  2. cutting some services or activities.

With a well thought out revenue projection (including proposals for increasing revenue) coupled with a projection for the year’s expenses (including proposals for cost reductions) the chapter can develop an effective, realistic budget.

 

SUMMARY

Effective financial management is one of the biggest challenges for a chapter leader. For any questions not covered in this overview, call the ACEP Finance or Chapter and State Relations Department.

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