Internal Controls

The board should ensure policies are in place to protect the organization from fraud or theft. These policies are often referred to as internal controls. An important aspect of internal controls is segregation of duties. For the most part people are honest and respect their duty of loyalty to an organization, however it only takes one dishonest person to de-fraud an organization.  Therefore, boards must create policies to safeguard against fraud.

The following outlines specific duties with regard to division of duties and financial oversight for an organization:

  1. Sets the annual amount for membership dues, event registrations, program fees, etc.
  2. Provides oversight for the registration system for both membership and associated events and programs.
  3. Reviews and approves the annual budget.
  4. Reviews annual and periodic financial statements and information.
  5. Approves Two members of the board must be appointed by the board to be authorized signers on the bank account(s).
  6. Reviews and approves all contracts and non-budgeted expenses over an agreed upon amount (for example $5000 +or -).
  7. Approves associated charity partners and contribution amounts to each charity partner. 
  8. Determines whether the organization should have an audit and, if so, chooses and contracts with the auditor.

For most clubs, a volunteer treasurer will be responsible for many day-to-day functions, including:

  1. Prepare financial reports including cash flow projections for the board.
  2. Develop the annual budget for board approval and monitors it throughout the year.
  3. Review and sign all issued checks and coordinating with a co-signer for amounts that exceed a board approved limit.
  4. Approves inter-account bank transfers.
  5. Is a signatory for all bank accounts along with another board designated person.
  6. Receives all bank statements (online or by mail), reviews for any irregularities, and reviews or  completes monthly bank reconciliations.
  7. Reviews financial position for potential charity partners.  Ensures they are official 501c3 organizations in good standing.
  8. Oversees the adherence to all internal controls.
  9. Review and approve all reimbursements and fund requests.
  10. Draft the IRS 990, 990-N, and 990-T (UBIT) for board review and approval before submitting to the IRS.

The treasurer should not be expected to handle every aspect of the financial management process for a club. Instead the treasurer, in agreement with the president/chair, should appoint two or more individuals to a finance committee.  The members of the committee should be a mix of board members and general members.  Having one or more non-board members provides for greater oversight.

The finance committee can:

  • Take on duties under the bookkeeper paid staff roles to allow for division of duties in an all-volunteer organization.
  • Review reimbursement requests.
  • Review bank reconciliations.
  • Review credit card payments or other types of e-payments.
  • Review income and expenses from club-owned events and make recommendations about donations to charity partners while ensuring financial stability for the club.
  • Meet periodically to review financial performance and review policies and procedures to strengthen the organization’s financial controls.

The Treasurer may delegate some duties to a part-time bookkeeper or paid staff.  These may include:

  1. Data entry into accounting system.
  2. Processes invoices and prepares checks for signature.
  3. Makes bank deposits.
  4. Processes payroll.
  5. Maintains general ledger.
  6. Prepares monthly and year-end financial reports.
  7. Reconciles all bank accounts.
  8. Mails vendor checks.
  9. Issue IRS-1099 forms to contractors and submit to the IRS.
  10. Manages Accounts Receivable

Important Questions Your Board
Should be Able to Answer

The following questions should be reviewed at board meetings periodically to help spur discussions:

The budget is the annual financial plan for an organization. While drafting and managing a budget can be a bit of a look into the crystal ball exercise, a few important planning steps can help improve budget accuracy.

The first step in drafting a budget is to look at the prior year’s income and expenses to help establish an operating baseline. If your organization ran a deficit, learn from the loss.

  • Was your organization over ambitious on revenue planning?
  • Did you have an unexpected expense? Will this be a re-occurring issue in the future?
  • If so, plan for it, don’t avoid it.
  • Do you have new goals for the coming year?

It is important to outline new goals in writing; then determine an associated cost or revenue projection. For example, if your goal is to increase membership or race entrants by 25% then you will increase your membership income budget, but at the same time, you may need to increase the budget for your marketing expenses.

When drafting your budget, be realistic about the revenue your organization can generate. Inflating the revenue budget to simply exceed the budgeted expenses can lead to an actual deficit at the end of the year. Be sure to have a contingency plan if revenue falls short of expectations to minimize the likelihood of a deficit at year’s end.

When drafting your budget, it is also important to review your accounting system. Your budget categories should match your chart of accounts or accounting categories. It is also important to account for income and expenses how they are outlined in a budget. If the two systems do not match, then you will not be able to generate financial statements that match your budget. The result is that your board may not get an accurate picture of the income and expenses compared to the budget.

The actual budget should consist of three important elements:

  • The budget period i.e. January 1–December 31, 2008
  • Two-year income and expense comparison (You may need to use projections for the immediate previous year)
  • The budget for the coming year, which includes income, expenses, and budgeted profit or loss with notes outlining significant variances compared to previous years.

Keep in mind, nonprofit does not mean “no profit.” A nonprofit club or event may budget a profit, but board members may not distribute the profit amongst themselves. This is what defines them as a nonprofit. A nonprofit may also elect to budget a loss if there are adequate cash reserves to support the loss. For example the budget may include spending reserves for a special project that annual income may not fully support. If a board elects to budget a loss, this fact should be clearly recorded in the organization’s minutes.

Many small nonprofits use a simple cash basis for accounting, meaning they simply record cash in and expenses out of a checking account. This is adequate for very small organizations with simple operations. The treasurer should report to the board the income received, the expenses paid, and the balance of the checking account, and if there is an adequate cash  in the account to cover future expenses.

In organizations with more sophisticated operations, multiple events, multiple programs, independent contractors, employees, etc. an accrual and fund accounting system is recommended. An accrual system matches income and expenses within the same time period. To be in conformity with generally accepted accounting principles, financial statements should be prepared on the accrual basis. Fund accounting is a concept most often related to nonprofit organizations. Financial records should be maintained for each program, race, or activity that receives income designated for that specific purpose. Each set of records is called a “fund” and is considered a separate accounting category and may have sub-categories. There should also be corresponding expense lines. For example an accounting system or chart of accounts and your corresponding budget may look similar to the following:

Income

  • Membership Dues
  • Individual
  • Family
  • Club Sponsorship
  • Program Fees
  • Beginning Running Program
  • Marathon Training Program
  • Youth Running Program
  • Contributions
  • Race Income (Create a category for each race as opposed to lumping them all together)
  • Race Entry Fees
  • Sponsorship
  • Donations collected
  • Misc. Income

There are many great accounting systems on the market to help organizations account for income and expenses and generate reports.  We recommend using a cloud-based accounting system like QuickBooks onlin where you can set-up user and reader access.

Recommend Expense Line Items

  • Program Expenses
  • Beginning Running Program
  • Marathon Training Program
  • Youth Running Program
  • Race Expenses (Create a category for each race as opposed to lumping them all together)
  • Permit Fees
  • Contractors
    • Finisher Items
    • Contributions or grants given
    • Prize Money
    • Create additional line items as needed
  • Club Management
    • RRCA Membership—Dues & Insurance
    • Board meeting expenses
    • Membership Recruitment & Retention
    • Staff (as needed)
    • Depreciation of assets (timing systems, clocks, etc.)
  • Create additional line items as needed