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Overview School Support Organization Financial Accountability Act Lewis King Representatives – Chuck Cagle, Leader Overview School Support Organization Financial Accountability Act Lewis King Representatives – Chuck Cagle, Leader Firm’s Educational Practice – Joe Ballard, Associate July 2008 1

Overview: School Support Organization Financial Accountability Act “SSOFAA” • A Tennessee law which becomes Overview: School Support Organization Financial Accountability Act “SSOFAA” • A Tennessee law which becomes fully effective July 1, 2008. The recent amendments HAVE NOT changed this effective date. • Enacted to address concerns of parents and supporters of school support organizations to ensure that money raised is safeguarded and used for its intended purpose • Scope is far reaching and will impact most if not all school support organizations that solicit funds from the public in pursuit of their mission – Band clubs – PTO/PTA – School Boosters – Athletic – Arts 2

Overview: • School Support Organization Financial Accountability Act “SSOFAA” School Support Organizations “SSOs” subject Overview: • School Support Organization Financial Accountability Act “SSOFAA” School Support Organizations “SSOs” subject to the provisions of the Act are required to: – Be approved by the Director of Schools as an approved School Support Organization – Obtain approval from the Director of Schools prior to specific fund raising activity • To become an approved SSO will require that these organizations formalize their organizational structure and record keeping • While it may be beneficial, a SSO is NOT required to obtain 501(c)(3) tax-exempt status 3

Overview: School Support Organization Financial Accountability Act “SSOFAA” • What is a SSO – Overview: School Support Organization Financial Accountability Act “SSOFAA” • What is a SSO – School Support Organization means a booster club, foundation, parent teacher association, parent teacher organization, parent teacher support association, or any other nongovernmental organization or group of persons whose primary purpose is to support a school district, school club, or academic, arts, athletic, or social activities related to a school which collects or receives money, materials, property or securities from students, parents, or members of the general public • Exceptions to definition of what constitutes a SSO – A group of persons who merely request that donations be made to a school district, school or school club or academic, arts, athletic, or social activity are not considered to be a SSO – Additionally, individuals or groups of persons that merely assist a sponsoring school employee in raising funds, which are immediately turned over to the school, are not considered to be a SSO 4

Formation And Governance Documents Director Of Schools/ Principal Description 1. Charter / articles of Formation And Governance Documents Director Of Schools/ Principal Description 1. Charter / articles of incorporation – describes the organization, its mission and purpose – must be filed with the Secretary of State. When accepted the state provides a Certificated of Good Standing. This certificate along with a copy of the charter should be maintained as part of the organization’s permanent records 2. By laws / operating agreement – documents that specify the officer positions and how the organization is governed and operated. These records are not filed with the state but should be maintained by the organization as part of its permanent records 3. Minutes – written record of actions taken by the Directors or Members of the organization which required a formal vote pursuant to the by laws of the organization. These records are not filed with the state but are ongoing and should be maintained by the organization as part of its permanent records 5 TN Secretary Of State X IRS

Formation And Governance Documents Director Of Schools/ Principal Description 4. EIN: Employer Identification Number Formation And Governance Documents Director Of Schools/ Principal Description 4. EIN: Employer Identification Number from IRS – necessary to open a bank account for the organization. These organizations can no longer utilize the school or school district’s bank account for their separate funds 5. To be classified as a non-profit organization and to be listed as such by the IRS so the activity of the organization is not subject to Federal Income Tax and donor contributions are deductible as a charitable contribution a request for such tax treatment must be filed with the IRS (RECOMMENDED) 6 TN Secretary Of State IRS X Form SS 4 X Form 1023

Specific Act Requirements For SSO Director Of Schools/ Principal Description 1. To be recognized Specific Act Requirements For SSO Director Of Schools/ Principal Description 1. To be recognized as a SSO you must prepare and submit a form showing non-profit organizational status (see formation slide), goals and objectives of the organization (these should be consistent with those identified in the organization’s charter) and the telephone and address of the Officers and Directors (the SSO will be exempt from the initial registration fee, but required to pay the annual renewal fee) X 2. The information in 1 above must be updated annually X 3. Bookkeeping – before the end of each school year a detailed statement of total revenues (including cash receipts) and disbursements (financial records must be maintained for a period of at least 4 years) X 7 TN Secretary Of State IRS

Officers And Directors • Safe guard funds raised – make sure funds are spent Officers And Directors • Safe guard funds raised – make sure funds are spent only for goals and objectives of the organization ( the provisions of the charter and by-laws should be broad to cover current and future activities) • Adopt and maintain accounting policy and procedures for controlling assets received and disbursements (Comptroller of Treasury to publish model policy and procedures) • Must obtain approval from the Director of Schools prior to any specific fund raising – this is in addition to the requirement to be approved as a SSO • Books and records are subject to audit by state Comptroller 8

Prohibited Actions • An organization may not: – Use the school’s or school district’s Prohibited Actions • An organization may not: – Use the school’s or school district’s sales tax exemption to purchase items – Represent or imply that its activities, contracts, purchases, or financial commitments are made on behalf of or binding upon any school district – Use organization funds for a purpose other than ones related to the organization’s goals – Maintain or operate a bank account that bears the EIN of a school board, school, or any other school related governmental entity • A school representative may not: – Act as a treasurer or bookkeeper – Be a signatory on the checks • A majority of the voting members of the organization’s board should not be composed of school representatives 9

School Bookstore The local board of education may grant the principal the authority to School Bookstore The local board of education may grant the principal the authority to contract with a SSO to operate a bookstore that makes direct sales to students. Any money or any designated portion that the SSO collects from the sale of items shall be considered SSO funds and not student activity funds. Additionally, the SSO must provide the school with collection documentation. 10

Collection of Funds during school day Activities or events held by a SSO outside Collection of Funds during school day Activities or events held by a SSO outside of the school day and involving students may be collected by the SSO during the school day. These funds will be SSO funds, and not student activity funds; provided, that school employees are not involved in the accounting of such funds and the funds are turned in using sealed envelopes. 11

Federal Tax Filings 12 Federal Tax Filings 12

Federal Tax Reporting Requirements • Please consult with a certified public accountant for a Federal Tax Reporting Requirements • Please consult with a certified public accountant for a complete understanding of the federal reporting and record retention requirements • The following are some of the more important requirements 13

Federal Tax Issues For Non-Profit Organizations • To be designated as a non-profit organization Federal Tax Issues For Non-Profit Organizations • To be designated as a non-profit organization and exempt from federal income tax on the earnings of the organization and for contributors to receive a charitable tax deduction the organization must file Form 1023 with IRS • It can take 6 months, or longer, for the organization to receive a Determination Letter from the IRS accepting the application and information provided in Form 1023 and granting the organizations status as a 501(c)(3) entity • A key requirement in granting and maintaining this status is that at least two thirds of the cash receipts are from the general public 14

Federal Tax Issues For Non-Profit Organizations • Non-profit organizations granted 501(c)(3) status by IRS Federal Tax Issues For Non-Profit Organizations • Non-profit organizations granted 501(c)(3) status by IRS are subject to annual tax reporting filings requiring records on fund raising activities including details by individual contributors • Annual filing is done using Tax Forms 990, 990 -Ez or 990 -T (used if an organizations received income that is taxable) • Exception to 990 Filing Requirement – Organization with less than $25, 000 in cash receipts during the year do not have to file – However, starting with tax year 2007 (reports filed in 2008) this exception has been modified and a post card report 990 -N will be required 15

Federal Tax Reporting Requirements • Organizations may file form 990 EZ if its gross Federal Tax Reporting Requirements • Organizations may file form 990 EZ if its gross receipts are less than $100, 000, and its total assets are less than $250, 000 • If filing a group return, the group must file IRS form 990. 16

Federal Tax Reporting Requirements • If an individual contributes $5, 000 or more, the Federal Tax Reporting Requirements • If an individual contributes $5, 000 or more, the organization needs to obtain the contributors: – Name, address, and aggregate contribution amount – If any contributor donates property, the organization needs to obtain: • A description of the property donated • Its fair market value on date of donation, and • The date the property was received • All contributors of $250 or more must be provided a receipt for their contribution (we believe the best policy is to provide receipts to all contributors and to maintain a duplicate copy of each receipt provided) 17

How We Can Help Lewis King Legal Services 18 How We Can Help Lewis King Legal Services 18

Critical Actions • As we see it there are two broad action areas for Critical Actions • As we see it there are two broad action areas for school support groups to become compliant with SSOFAA – Organization and formation activities – Post formation governance, operating and record keeping • As a law firm we are in a position to assist with many of the actions required by the first category: organization and formation • Our services are for a fee and our billings will be based on hours spent at an hourly rate plus reasonable out of pocket expenses • We have created a 3 step process for executing our services in a timely and cost efficient manner 19

Our Three Step Process 1. All Hands Organizational Meeting – as soon as possible Our Three Step Process 1. All Hands Organizational Meeting – as soon as possible after our selection and engagement acceptance a Lewis King attorney will schedule a meeting with the organization’s leaders and appropriate members. If possible a representative of the school district should be in attendance as well. The purpose of this meeting is two fold – to discuss the purpose of the organization, its size and fund raising activities and alternatives for structure and how each decision impacts future record keeping. Second is to reach a decision on structure and to gather the necessary information to allow the designated attorney to complete the organizational documents and state and federal filing forms. This all hands meeting will last anywhere from 2 -4 hours depending on the size and complexity of the organizing entity. 20

Our Three Step Process 2. Document Preparation And Filing – the information obtained in Our Three Step Process 2. Document Preparation And Filing – the information obtained in the all hands meeting plus any additional required data will be utilized by attorney to prepare draft documents and filings. A representative for the organization will need to be responsible for reviewing all draft documents prior to filing. Upon approval attorney will then file the documents with the state and federal agencies. 21

Our Three Step Process 3. Post Organization Wrap Up Meeting – after the filings Our Three Step Process 3. Post Organization Wrap Up Meeting – after the filings have been completed and submitted to the agencies attorney will schedule a Wrap Up Meeting with the leaders of the organization and appropriate members including if possible a representative of the school district to review the organizational structure that has been agreed to, discuss actions that will be necessary once the filings are approved by the state and federal agencies and to answer questions. 22

Summary • New law will impact most School Support Organizations • Compliance may require Summary • New law will impact most School Support Organizations • Compliance may require organizations to formalize their legal structure through filings with the Secretary of State – Charter – By-laws • Organizations may opt to become 501(c)(3) entities pursuant to IRS regulations • Booster clubs, band clubs and PTOs within a school or school district may need to find unity within the structure of one legal entity with separate fund accounting for each interest • The fundamental purpose of the law to increase accountability for funds raised by these organizations will require more administrative skills and time 23

Resources to Help Description New Lewis King educational blog site Documents • • Draft Resources to Help Description New Lewis King educational blog site Documents • • Draft charter and by-laws Governmental forms Links 24 www. lkbulletin. squarespace. com Login: lkbulletin Password: wk 3173

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