Principle 5: Finances

Infrastructure Checklist

IRS Form 990 or IRS 990-EZ 

• Form 990
• Form 990-EZ
• Comprehensive Resource Guide on the IRS 990
• Safe Harbor Checklist

Unrelated Business Income Tax Reporting    

• Registering and Reporting Requirements
• About UBIT
• Form 990w

Connecticut Annual Report     

• Tips for creating a good Annual Report
• Order CT annual report

Payroll (federal, state and local quarterly withholdings/filings)

Connecticut Sales and Excise Tax Exemption

• Sales Tax Information

Internal Control Procedures

• Internal controls FAQ

Documentation of Accounting Policies and Systems

•  Financial Modeling as a Strategic Tool

Chart of Accounts       

•  Unified Chart of Accounts (UCOA)

Spending Limits Policy and Signature Authority

• Sample purchasing policy

Asset and Cash Management Policies and Procedures

• Cash management policies and procedures handbook

Financial Records Retention Policy

• Sample Record Retention Policy

Audit Committee Policies and Procedures

• Audit Committee Charter Matrix

Audited Financial Statements/Management Letters

• Sample audit report

Budgets (revenue/expenses)

• About annual budget planning

Investment Policy Statement

• Investment policy statement template

Contract Management Policies and Procedures

• About nonprofit contract management

Memo of Agreement for Each Collaborative Commitment

• About nonprofit collaboration & mergers

Bulk Rate Postage Permit

• Getting a Permit for Bulk Mailing

Sufficient Accounting System Appropriate for Contract/Grant Compliance

• Critical Issues in Financial Accounting Regulation

Documentation of Restrictions on Income and Net Assets should be retained

• Managing Restricted Funds  

Recommended Practices 

1. A nonprofit should review Connecticut’s Basic Infrastructure Checklist (see Part Two of this document) to verify the existence of appropriate policies, procedures and reporting mechanisms, and should demonstrate compliance with all legal financial obligations.
2. A nonprofit board member should clearly understand how to read and interpret financial statements.
3. Annually, the board should review and approve an annual budget for the organization. While each board should determine the appropriate budget needed to achieve its mission, various industry benchmarks provide target ranges of 65 percent to 80 percent of expenditures for programs, and no more than 20 percent to 35 percent for administration, fundraising and evaluation.
4. In the event that a budget deficit occurs, the board must be aware of this outcome and must participate fully in determining a plan to restore the budget to a balanced state.
5. A nonprofit should generate accurate and relevant financial reports that include the comparison of actual to budgeted revenue and expense totals, and that identify and explain any significant variances. These reports should be provided to the board of directors for regular review and discussion, preferably on a quarterly basis.
6. A nonprofit with annual total state revenues in excess of $300,000³ or gross revenue in excess of $500,000⁴ must subject its financial reports to an annual audit by a Certified Public Accountant. A nonprofit under this threshold, or exempt by law, should have a CPA provide a review of its finances to the board annually. Financial audits must be approved by the organization’s board and certified by the executive director and chief financial officer of the organization.
7. The auditor should meet with the organization’s board separately from management staff, and the board audit committee should approve the financial report.
8. To the extent possible given the size of the organization, a nonprofit should ensure separation of specific financial duties within a check and balance system. It is recommended that a nonprofit board of directors have an audit committee that does not share members with and works independently of the finance committee.
9. A nonprofit executive director and chief financial officer should verify and certify the Form 990 or 990-PF before it is submitted to ensure that it is accurate and complete.
10. A nonprofit board should strictly prohibit financial loans to members of the board or to organization personnel.
11. A nonprofit board should establish and maintain a financial reserve which is equal to three to six months of operating expenses.
12. A nonprofit has a legal and ethical obligation to expend funds responsibly and to ensure that funds are dispensed according to the funders’ requirements.
13. A nonprofit board with full knowledge of its legal obligations and liabilities, may undertake responsibility of fiscal sponsorship for another organization.

³ Connecticut State Single Audit: In 2009, CT Nonprofits worked with the Office of Policy and Management to increase the state-single audit threshold for state-funded nonprofits. Governor Rell signed into law Public Act 09-7, which amends Sections 4-230 through 4-236 of the Connecticut General Statutes. The amended statute now requires that each municipality, audited agency, tourism district and not-for-profit organization that expends state financial assistance equal to or in excess of $300,000 in any fiscal year of the entity, shall have a single audit made for such fiscal year in accordance with the provisions of the above-referenced General Statutes. If total state financial assistance expended for the fiscal year is for a single state program, a program-specific audit may be conducted in lieu of a single audit.

⁴ State of Connecticut Office of the Attorney General Form Annual Charity Registration Application and Instructions–Form PCUREG-01–Audit: In 2009, CT Nonprofits worked with the Attorney General’s Office to increase the audit threshold for all nonprofits. Governor Rell signed into law Public Act 09-102, which amends Section 21a-190e of the Connecticut General Statutes. The statute now requires the financial report of an organization which received more than $500,000 in gross revenue (before any deductions) in the year covered by this report, not including grants and fees from government agencies and revenue from trusts held by a trustee (usually a bank) for the benefit of the organization, must be accompanied by an opinion of any independent licensed public accountant or certified public accountant. This requirement may be satisfied in either of two ways: (1) the opinion may refer directly to the Internal Revenue Service form or (2) the opinion may refer to a set of financial statements. If the latter is chosen, the financial statements to which the audit opinion refers must be filed in addition to the IRS form. All audit reports must be on the accountant’s letterhead and be signed. Compiled or reviewed financial statements do not fulfill the audit requirement.

 Indicates "must" practices required by state or federal law

 Indicates IdeaEncore contribution