Disclaimer: This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Your college years are full of moments-some that you wish could re-live and some that you hope that others forget. Now that you’ve graduated to the next level, you may have gotten involved in the local chapter of your college or university’s alumni association. Here are some considerations to help your chapter maintain control of its finances. By protecting its assets, your alumni association will have more to contribute to your alma mater and will be able to make a difference in the lives of alumni, current students, and future students.
If your alumni association chapter is a 501(c)(3) tax-exempt organization, your alumni association chapter is more than a place to mix and mingle with new faces and reconnect with old friends, it is a formal entity with accounting requirements and government regulations.
It is important to manage the risk to your organization to make sure that it has the money that it needs to meet its mission and give back to your college or university. Lawsuits, fines, and penalties can take away money that could otherwise go towards scholarships for deserving students, promoting the good reputation of your alma mater, or donating to your college or university’s athletic program or other initiatives.
Some threats to the organization may include:
non-compliance with laws and regulations
fines and penalties
In order to reduce these threats, it is important to take actions to manage risk and to establish internal controls.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as:
“a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.”
COSO has established three types of objectives for internal controls: operations objectives, reporting objectives, and compliance objectives.
Operations objectives focus on the effectiveness and efficiency of the organization’s operations, operational and financial performance goals, and safeguarding assets against the risk of loss. There are many operational considerations for a local alumni association chapter. The chapter may have set targets for contributions, or for giving to the college or university. The chapter may have opened investment accounts and may have certain financial performance goals for those investments. In addition, as with any entity that collects and manages money, the alumni association chapter must safeguard its assets against the risk of loss.
Some things to consider in order to meet the alumni chapter’s operational objectives:
Consider getting liability insurance to protect the alumni association chapter against financial loss due to legal claims.
Insurance is available to cover events, medical claims, and other types of claims. Seek out an insurance agent who can help find the best insurance product to meet your alumni association chapter’s needs.
Consider reviewing the alumni association chapter’s bylaws to determine whether there is adequate segregation of duties for chapter officers.
It is best practice for certain duties to be performed by different individuals so that no one person is responsible for initiating, authorizing, recording, and reporting transactions, in addition to having custody of assets. If one person is responsible for the entire accounting lifecycle, this increases the risk that they would be able to commit fraud and conceal the fraud.
Consider developing a written investment policy for the alumni association chapter.
It is best practice to monitor the performance of the alumni association chapter’s investments on an ongoing basis.
Consider performing a risk assessment to considered other risks that may apply to your alumni association chapter.
In general, an alumni association chapter that has received a determination letter from the Internal Revenue Service (IRS) recognizing the organization as a 501(c)(3) tax-exempt organization is required to file an annual return, which is due by the 15th day of the fifth month after the organization’s fiscal year-end.
Your organization will need to be aware of all of the IRS forms that apply to your organization, your organization’s fiscal year-end, and the due date for the returns. Your organization may be required to file more than one type of return.
An exempt organization must make its exemption application available for public inspection and must make its annual report available for public inspection and copying.
A non-profit organization’s financial statements are different from a for-profit business. According to the Financial Accounting Standards Board (FASB), a complete set of external financial statements for a not-for-profit entity includes:
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Consider recruiting an alumna or alumnus who is a lawyer to be your General Counsel.
Just like any other legal entity, there are risks to the organization. A lawyer who is admitted to practice before the bar in your area can advise the alumni association chapter and help protect the chapter from legal liability.
Evaluate whether your organization is registered properly to solicit contributions in the jurisdiction in which your alumni association chapter conducts its activities.
Determine whether your organization has received an IRS determination recognizing the organization as a 501(c)(3) tax-exempt organization.
Although a 501(c)(3) organization is tax-exempt, if the organization fails to file a complete return by the required deadline, the IRS will impose penalties.
If the organization has gross receipts less than $1,000,000, fails to file within the required timeframe and does not provide reasonable cause for filing late, the IRS will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000 or 5 percent of the organization's gross receipts, whichever is less.
If the organization’s gross receipts are more than $1,000,000 the penalty for failing to file a complete return by the deadline increases to $100 per day, up to a maximum of $50,000.
According to the IRS, a tax-exempt organization that fails to file the required return for three consecutive tax years will automatically lose its tax-exempt status.
Your great college experience doesn’t have to come to an end. If your alumni association chapter implements best practices to manage its finances and complies with reporting requirements and laws and regulations, your organization can continue to make memories that last a lifetime.