Business Practices
and Internal Controls
2013-14
Presented By: Wei Pan
90 Minutes
 Introduction/Overview
(5-10 minutes)
 Main Discussion (65-75 minutes, 25
slides)
 Treasurer’s Corner (5-10 minutes)
 Wrap-up/Questions (5 minutes)
Topics for Discussion:










Objective
Employer ID Number
Tax Exempt Status
Code of Ethics
Internal Controls
On-Line Banking
Bank Reconciliations
FDIC Limit
Accountable Plan
Credit Card Policy

Sample Member Expense
Reimbursement Policy

Employee / Independent
Contractor
 Exempt Employee
 Non-Exempt Employee
 Payroll Responsibilities
 Treasurer’s Report
 Audit / Audit Committee
 Reserves

Protection of Assets

“Warning Signs” or “Red Flags”
Objective
(Page C-2)
Designed for the Treasurer to work with
the Executive Board in an inclusive and
interactive environment to develop,
document and maintain proper internal
controls and good business practices,
policies and procedures.
(Develop/grow to be a good/better Treasurer/Officer to
maintain a strong/healthy local chapter to serve its
members)
Documentation
 Document
policies and procedures
 Executive Board review and approval
 Orientation for potential and new leaders
 Continuous improvement
Employer Identification Number (EIN)
(C-2 through C-4)

Identification number assigned by the IRS
 Required to open bank accounts
 Does not provide exemption from income tax
 IRS Form SS-4 available on the IRS website
www.irs.gov
 IRS phone number: (800) 829-4933
Tax Exempt Status
(Page C-5)

CTA Affiliates are not automatically exempt from
federal & state income tax

CTA Group Exemption List (No Cost)
 Name of organization
 President of organization
 Mailing address
 Employer Identification Number (EIN)
 Authorization signature of President or Chair
 E-Mail Address
Tax Exempt Status (Continued)
(Page C-5)

Group Exemption Number (4 Digit GEN)
 Determination Letter from CTA
 Required on IRS 990/990-EZ & FTB 199
 Fiscal Year: September 1 – August 31


CTA Standing Rule 4-1(h)
Locals are still subject to property tax and
sales tax
 Must file annually IRS 990/990EZ/990-N and
FTB 199/199-N to maintain exempt status
Code of Ethics
(Page C-6)

Govern professionally/honestly/with integrity
 Fiduciary responsibilities
 Adhere to regulatory agencies
 Due process
 Respect confidentiality of information
 Provide members accurate data
 Report violations
 Not be part of illegal activities
Internal Controls
(Page C-7)
 Cash

Receipts – Timely deposits
Membership Dues
• Local Dues, FDE and Cash Flow
• Accounted for on the bank statement


Other revenue
Cash disbursements:





Check stock stored in a secured location?
Are two signatures required on a check?
Primary Signatories: President & Treasurer?
Any officers signing blank checks?
Supporting documentation attached?
On-Line Banking
(Page C-9)
 Inherent

Funds may be disbursed by one member
 Only

Risk
Treasurer should bank on-line
Inquiry/downloading check images preferred
 Pre-approved
 Limit
payment form
to Board approved vendors and limits
(cell phone bills, recurring payments, etc.)
Bank Reconciliations
(Page C-9)

Prepared and approved on a monthly basis

• Segregation of duties
• Treasurer prepares and President approves
Balance per Bank reconciling to Balance per Books
• Outstanding Checks
• Interest Income
• Check printing or minimum balance fees
Review for electronic debits and other debit activity
Transfer of cash from savings to checking to pay bills

Review check images to books and records


Federal Deposit Insurance Co. (FDIC)
(Page C-10)
 FDIC
deposit insurance temporarily
increased from $100,000 to $250,000 per
depositor through December 31, 2013
 At
this time, FDIC is set to end temporary
insurance limit and revert back to
$100,000 on January 1, 2014
Accountable Plan
(Page C-11)

A system in which reimbursed expenses or
charged expenses are accounted for on a
timely basis as defined by the IRS

IRS Three Components:
 A valid business connection
 Substantiation - receipt or invoice
 Submit within 60 days of the charge
• Consider 30 day deadline (30 days follow-up)
Accountable Plan – Continued
(Pages C-11, C-24 & C-25)
 Lodging


- itemized statement required
Receipt does not substantiate expense
Examples of non-valid business expenses:
• “Pay-per-view movies”
• “Snacks”
• “Health club fees”
 Advances
need to be substantiated
 Failure to comply with IRS Regulations:


Impute income on IRS Form 1099 or W-2
Jeopardize Accountable Plan
Credit Card Policy & Review
(Pages C-11, C-26 and C-27)

Credit Card Policy








Written Board approved policy for authorized use
Establish card with Affiliate’s EIN
Emboss name of affiliate and officer on card
Business purpose needs to be identified
Establish credit limits
Receipt procedures submitted within 30 days
Do not issue debit cards
Credit Card Statement Review

President and Treasurer should thoroughly review
Sample Member Expense Policy – Travel
(Page C-28)

Requires advanced Board approval
 Plane – Coach airfare (attach receipt)
 Train/Bus/Taxi (attach receipt)
 Auto

Standard Business Mileage Rate (www.irs.gov)
• Currently at 56.5 cents per mile

Shortest Highway Route
• Safety First considerations for alternative route


Mileage reimbursement cannot exceed airfare
Toll roads & bridges reimburse at actual cost
Sample Member Expense Policy – Lodging
(Page C-28)

CTA/NEA Conferences



Half the cost of a double occupancy hotel room
Single room – Member pays differential
Extenuating circumstances – Advance approval
Other Travel – Cost of a standard hotel room
 Extra night due to auto travel not reimbursable
 Personal charges not reimbursable



Laundry, snacks, pay per view movies, etc.
Portage/Housekeeping - $7 a day
Sample Member Expense Policy – Meals
(Page C-28)
 Reimbursements
are not allowed when a
meal is already paid for and provided by
the local, UniServ, CTA, NEA or SCC
 Daily Meal Limits:





Individual Meal: $40.00
Daily Meal Limit: $70.00
Receipts required for $10.00 or more
Maximum Tip Percentage: 18%
Extra meals due to auto travel not reimbursed
Sample Member Expense Policy – Other
(Page C-29)
 Case


by Case Basis (advance approval)
Cell phone and/or Home Internet (President)
Sample Situations:
• PAC Chair during election cycle
• Bargaining Chair during bargaining with district
 Deadlines



for filing Member Expenses
30 day policy allows for 30 day follow-up
Up to three late reimbursements per year
Appeals – Members should be able to appeal
• Executive Board has final decision
Employee vs. Independent Contractor
(Page C-12)

Classification is based on “degree of control”
and “independence” based on:




An employee (on payroll) is issued a W-2 annually


When and where to do the work
What equipment and supplies to use
Type of training, direction and instruction
Withholding: IRS & FTB income tax/FICA/SDI
An independent contractor is issued a 1099
annually
Exempt Employees
(Page C-13)
 Exempt

Employees
Professional in nature and project oriented
• Job Duty and not the Job Title and/or Description





Assessments are based on timely and
successful completion of the project
Fixed salaries and are not paid overtime
Usually paid on a monthly basis
Current Contract in place and annual reviews
Examples of Exempt employees:
• Managers, CPAs, Attorneys, Educators, PCS
Non-Exempt Employees
(Page C-13)
 Non-Exempt







Employees
Administrative and support functions
Assessments are based on work completed
during a defined period
Current Contract in place and annual reviews
Paid at least semi-monthly (CA Labor Code)
Hourly rate (or convert to fixed gross pay)
Daily record keeping – Vacation/Sick/Overtime
Admin Assistances, bookkeepers, office staff
Payroll Responsibilities
(Page C-12)

Payroll processed: In-house or by a third party provider

Quarterly and Annual payroll tax returns







IRS & Employment Development Department (EDD)
IRS W-4 on file for each employee
IRS Form W-2s issued to individuals by 1/31
IRS Form W-3 with W-2s to the IRS by 2/28
Worker’s compensation coverage
Adhere to Garnishments from IRS and FTB
Employment practices liability coverage-optional
Treasurer’s Report
(Pages C-14 through C-16)

Treasurer’s Report:
 Year-To-Date: Revenue and Expenses
 Cash Balance(s) as of the reporting date

Treasurer’s Reports should be presented, “received and
filed” at each Executive Board meeting and subsequent
Representative Council.

A year-end Treasurer’s Report is required by PERB to
be signed and certified for its accuracy by the President
and the Treasurer by October 30 and available for
inspection by its bargaining unit members (Page E-8)
Annual Audit
(Pages C-17 through C-19)

Accrual Basis of Accounting:




Matching “revenue” with “expenses”
Material release time owed to the district
Accrued leave for employed staff
Cash Basis of Accounting

Revenue and expenses are recognized based on cash flow

Small Locals – Internal Audit Committee (Page C-19)

Audit Timelines (Reduce costs by being organized and timely):


Commence by 10/15 and conclude audit and taxes by 1/15
Auditor presentation to E-Board by 1/15
Criteria for Determining Reserves
(Page C-21)
 Relationship



Contract in Place? When does it expire?
Is the affiliate experiencing reductions in force?
Status on current Bargaining: Work stoppage?
 Current






with the District:
Reserves:
What are the current cash balance(s)?
Positive cash flow last two to three years?
Local dues qualify for CTA Crisis Arbitration Fund?
Does the affiliate have an adequate Crisis Fund?
Cash available to pay August & September bills?
Affiliate have 3 to 6 months for operating expenses?
Criteria for Determining Reserves (continued)
(Page C-21)

Real Property
•
•
•
•
•

Does the affiliate own a building?
Is there a Building Fund?
Is there a mortgage?
Principle balance? Monthly payments? Insurance?
Is affiliate looking to own in lieu of renting?
Staff
• Does the affiliate employ staff?
• Reserves established to pay for accrued vacation?
Protection of Association Assets
(Pages C-31 and C-32)


Misappropriation of funds tend to occur by member
leaders and staff who occupy positions of trust
Executive Board should evaluate each step:





Identify “warning signs” or “red flags” for evaluation
Assess in accordance with due process procedures
Determine to contact Board member, PCS and Manager
Further determination: Controller’s Office
In the case of a misappropriation:



Controller’s Office would assist with the Fidelity Bond Claim
Police Report most likely be filed by the affiliate or insurance co.
Result could be: Arrest/Probation/Restitution
Sample “Warning Signs” or “Red Flags”
(Pages C-31 and C-32)
Audit – Not hearing from the Auditor
 Bank Reconciliations – Not being done or reviewed
 Change in Staff – Not re-evaluating business practices
 Checks – Blank checks/stamps/one-signature policies
 Credit Card – No receipts or Statements not reviewed
 Debit Card-Cash withdrawals/Debits on bank statement
 Oversight – No Budget Committee done by Rep Council
 Payroll – Staff handles all steps and no review
 Post-It-Notes- Instructing colleagues not to take calls
 Personal Crisis – Change in financial condition
 Sprinkling of Account distribution – Avoid detection

Treasurer’s Corner
(login required)
 “Treasurer’s

CTA Budget




Conner” on CTA.org
Adopted Budget
Forms
Local Chapter (Affiliate) Treasurers
 Treasurer’s Handbook
Resources and Communications




Agency Fee and PERB Annual Notifications
IRS Information Returns and Mileage Rate
PAC – Annual Filing Fee and Updates
Sample Policies (Member Expenses, Conflict of Interest, etc.)
Business Practices - End
 Wrap-Up
Questions