Navy Supply Corps Foundation · 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD INCOME...
Transcript of Navy Supply Corps Foundation · 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD INCOME...
Foundation Treasurer Report
Captain Bruce E. Maxon, SC, USN (retired)
Navy Supply Corps Foundation
11 Nov, 2017
Agenda
Treasurer Role and Responsibilities
NSCF Financial Situation
The Big Picture over the last decade
Investment Advisory Committee
Investment Results
Responses to tasking
Budget Review
2017 Status and 2018 Plans
Financial Audits
2017 Internal Audit
2018 External Audit
Chapter Financial Reports
What/So What/Now What
NSCF Treasurer Role &
Responsibilities
Reports to the Board of Directors; Executive Committee Member
Financial Operations: reports preparation to the Board
Corpus: oversees Foundation investment activities
Budget Planning: reviews requirements and submits annual budget
Budget Execution: coordinates with CSO on budget administration
Financial Policy: development and execution, including auditing
Committee Oversight:
• Investment Advisory (Dan Pionk, Chair)
• Finance and Budget (Vacant Chair)
• Audit (Mike McCleary, Chair)
Annual review of the Business Continuity Plan
Other responsibilities as directed by the Foundation Board or Chair
Investment Portfolio over
11 years (K$) thru 10/17
$5,824
$4,013
$4,840
$5,331 $5,117
$5,462
$5,993 $5,772
$5,353 $5,544
$6,066
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
NSCF Investment Fund Ending Balance K$
Sources and Uses of Investment
Funds over last 11 Years
-$500
-$400
-$300
-$200
-$100
$0
$100
$200
$300
$400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Deposits and Withdrawals K$
Deposits Scholarships Other Withdrawals
IAC Members
Bruce Maxon, MS, CLU (Treasurer, NSCF)
Dan Pionk, MBA, MA (Chairman)
Dennis Collins, MBA, CFP, CIMA, CPWA (Past Chairman)
Mike Kalas, MBA, CFP (Past Chairman)
Craig Doyle, MBA, MA
John Drerup, MBA, MS
Joe Dunn, MSc, MS
Pete Eltringham, MBA, MS
Jack Evans (Chief Staff Officer)
Chuck Parker, MBA, PhD (Past Treasurer)
Eric Schuck, MA, PhD
Matt Webster, MBA
Bill Withrow, MBA
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Dennis Collins, CFP®, CIMA®, CPWA®
• BS - DePaul University; MBA- University of Denver
• Partner, Chapel & Collins Wealth Management
• Registered Principal, Raymond James Financial Services, Inc.
• 19 years of financial industry experience advising families, foundations and corporate clients
• Commander, Supply Corps, US Navy Reserve
Meet the IAC
Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor
Michael R. Kalas, CFP®, AIF®
• BS – USNA, Annapolis, MD; MBA – Southern Illinois University, Edwardsville, IL
• Owner/President, Potomac Financial Private Client Group, LLC, McLean, VA
• Registered Principal, Commonwealth Financial Network, LLC
• 18 years of financial industry experience advising families, foundations and corporate clients
• Captain (Retired), Supply Corps, US Navy
Peter S. Eltringham • BS – University of South Carolina; MBA- Bryant University; MS –
National Defense University (ICE)
• Principal, At Turning Point LLC-4 years; Fauquier County,
Virginia Transportation Committee – 10 years; Representative,
Salve to Wine Imports – 1 year; Former Vice President, Telos
Corporation - 9 years; Former Managing Partner, Nice Legs
LLC Wine Distributors – 11 years
• 29 years of SUN service - 12 in major command and
headquarters staff financial/budget positions
• Captain (Retired), Supply Corps, US Navy
Daniel Pionk
• BS – Ferris State University; MA – U.S. Army War College;
MBA – Regis Jesuit University
• Commodities and Futures Trader
• 25 years risk management and executive management consulting to Manufacturing and Consumer Product corporations
• Captain, Supply Corps, US Navy Reserve
Charles W. Parker, III
• BA – Yale; MBA- University of Chicago; PhD – London
School of Economics
• Senior Consultant, Control Risks, Mexico City, Mexico
• Prior experience as Adjunct Professor of economics, business and international relations and as Client Executive at IBM
• Captain, Supply Corps, US Navy Reserve
John W. Drerup, Jr.
• BS – U. S. Naval Academy, MS- University of Florida; MS-Personal Financial Planning, The College for Financial Planning
• Investment Management, The Burney Company, since 2004
• Captain (Retired), Supply Corps, US Navy
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Meet the IAC
Bruce Maxon
• BA – USNA, Annapolis, MS – Naval Post Graduate School, CLU – American College
• Treasurer, Navy Supply Corps Foundation
• Interim Dean, Mesa College, School of Business and Computer Science
• CFO of two non-profit corporations
• Captain, Supply Corps, SUN (ret)
Joe Dunn
• BA – University of Denver; MS Finance – London Business School; MS – Naval Post Graduate School; Senior Executive Program – Columbia University
• Director, Vendor Governance, Prudential Financial
• Chartered Financial Analyst Candidate
• Captain (Retired), Supply Corps, US Navy
Matt Webster
• BS – Williams College; MBA – Tuck School of Business at Dartmouth
• Investment Officer, University of California Investment Office
• 10 year of investment experience across private markets including debt and equity
• Lieutenant, Supply Corps, US Navy Reserve
Eric Schuck
• BA – Pacific Lutheran University; MA – University of Montana; PhD – Washington State University
• Professor of Economics at Linfield College
• 18 years experience as a professor. Author of 17 journal articles and two-time Fulbright Specialist grant recipient . Expertise in agricultural and natural resource economics.
• Lieutenant Commander, Supply Corps, US Navy Reserve
Bill Withrow
• BS – University of Colorado; MBA – Harvard University
• Executive Chairman, President and CEO of Pear Track Security Systems, Inc
• Former Mayor and Councilmember, Alameda, CA
• 20+ years experience in financial industry, retiring from Wells Fargo and Company. Chairman of the Robert Lippert Foundation and current Trustee of Peralta Colleges.
• Captain (Retired), Supply Corps, US Navy
Craig P. Doyle
• BA – Arizona State University; MBA – Wharton, University of Pennsylvania; MA - U.S. Army War College
• President, Sequence Media Group
• 32 years of financial industry experience in commercial banking, and consulting to financial institutions on strategy, operations and credit risk management
• Captain, Supply Corps, US Navy Reserve
Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor
8
IAC Process & Methodology
Monthly Meetings
Strict investment discipline
Guided by NSCF Investment Policy Statement (IPS)
Continually improve metrics to gauge performance and allocation
Periodic evaluation of strategy vis a vis other foundations/institutions
9
Portfolio Performance vs the IPS Benchmark
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Data as of 10/31/2017
*Benchmark Not Assigned During Three Year, Five Year and Since Inception time periods; Bechmark is composed of 5% Citigroup US treasury Bill 3 Month USD, 25% Barclays Aggregate
Bond Index and 70% MSCI ACWI (All Country World Index). Investment Policy Statement signed 9/25/2015
Last Month Year to Date One Year Three Years Five YearsSince Inception
(1/1/09)
Portfolio 1.08 13.56 17.74 6.13 8.14 9.21
IPS Benchmark 1.47 14.38 16.08 6.26 8.12 9.57
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Ret
urn
Portfolio Performance vs. Benchmark
Portfolio vs Target Allocation
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Cash & Cash Alternatives 214,049$ 3.5% 303,306$ 5.0% 89,257$ -1.5%
Fixed Income 1,358,727$ 22.4% 1,516,529$ 25.0% 157,802$ -2.6%
Large Cap US Equity 1,784,247$ 29.4% 1,698,513$ 28.0% (85,735)$ 1.4%
Mid/Sm Cap US Equity 1,118,490$ 18.4% 970,579$ 16.0% (147,912)$ 2.4%
Non-US Equity 1,324,330$ 21.8% 1,273,884$ 21.0% (50,445)$ 0.8%
Alternatives 266,273$ 4.4% 303,306$ 5.0% 37,033$ -0.6%
TOTAL 6,066,116$ 100% 6,066,116$ 100%
+/- 5%
+/- 3%
+/- 5%
+/- 5%
Current Target Variance Permitted Var.
+/- 3%
+/- 5%
7%
21%
30%
18%
19%
5%
Current Portfolio Allocation
Cash & Cash Alternatives
Fixed Income
Large Cap US Equity
Mid/Sm Cap US Equity
Non-US Equity
Alternatives
5%
25%
28%
16%
21%
5%
IPS Target Allocation
Contributions
• 2/13/17: $45,000
• 2/22/17: $50,114.24
• 2/28/17: $6,954.01
• 4/21/2017: $50,000
Withdrawals
• 6/12/2017: $50,000 Schwab
Govt Money Fund (Operating
Expenses)
• 7/24/2017: $280,000 Schwab
Govt Money Fund
(Scholarships)
• 8/30/2017: $45,000 Schwab
Govt Money Fund (Cruise)
Contributions &Withdrawals (YTD)
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Portfolio Change In Value
13
Actions Taken Since Last Board Meeting
Monthly Conference Calls
Rebalanced portfolio in accordance with Asset Target Allocation Model
Portfolio Bond Review and Assessment
Investment Policy Statement (IPS) Review
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IPS Review Process
Historical Perspective
- Internal ROR
- Deposits/Withdrawals
- Budget
Asset Target Allocation
Benchmark Component
Active vs Passive Fund Management
Overall Investment Policy Statement
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Asset Target Allocation
Portfolio Asset Class Target Weight
Cash & Equivalents 5% (+/-3%)
Fixed Income / Bonds 25% (+/-5%)
Domestic Large-Cap Equity 28% (+/-5%)
Domestic Small-Cap and/or Mid-Cap Equity 16% (+/-3%)
International Equity 21% (+/-5%)
Alternatives 5% (+/-5%)
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Recommend keeping existing Asset Target Allocation:
Asset mix normally generates high long-term returns but can be volatile
Portfolio has very normal exposure to all market sectors
The Portfolio is spread evenly across the market and includes a good mix of
small, medium, and large companies
Benchmark Component
17
Benchmark Component Benchmark
Weight
Citigroup US Treasury Bill 3 Month USD 5%
Barclays Aggregate Bond Index 25%
MSCI ACWI (All Country World Index) 70%
Recommend keeping existing Benchmark Component:
Current Benchmark provides a blended yardstick, big picture view, and
consistent measurement
Recommend studying an alternate benchmark by Asset Class based on
Asset Class Target Weight Percentages….as a potential for an additional
yardstick for measuring basic performance
Alternate Benchmark Component Study
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Recommended Notional Alternate Benchmark Component….based on Asset
Class and Target Weightings:
Vanguard Cash & Equivalents Index performance X 5%
Vanguard Fixed Income/Bond Index performance X 25%
Vanguard Large Cap Domestic Index performance X 28%
Vanguard Small-Cap + Mid Cap performance X 16%
Vanguard International Equity Index performance X 21%
Vanguard Alternatives Index performance X 5%
Active vs Passive Fund Management
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0
2
4
6
8
10
12
14
16
Active Funds Passive Funds
16
5
76% Active Funds
24% Passive Funds
Current Portfolio Allocation (Funds/Holdings):
Active vs Passive Fund Management
20
Recommend IPS consider both Active and Passive investments in the
Foundation’s Portfolio….No recommendation on target weightings
Historically, active funds have had a better chance at outperformance in less
efficient markets (i.e. emerging markets, small caps, etc.)
Passive funds seem best suited for the most efficient asset classes (i.e.
large cap US stocks, maybe large cap international)
Investors in passively managed funds generally have a standard set of
expectations - they will get the market return less a fee
Actively managed funds may offer better protection against losses in bear
markets relative to passively managed funds
Other Recommendations – Budget Draw
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Recommend a maximum rate of 4% of budget draw from the corpus based
on the 10 year average of net Deposits and Withdrawals
Not a change to the Investment Policy Statement
Consideration for Treasurer and By Laws to inform IAC on Budget
expectations relative to the Foundation’s Portfolio
Provides a linkage of the Budget to the Foundation’s Portfolio
Budget: 2017 Year-T0-Date 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD
INCOME
CONTRIBUTIONS $312,500 $358,579 $405,000 $311,780
Income From Regalia Sales $0 $681 $1,200 $163
TOTAL INCOME $312,500 $359,260 $406,200 $311,943
EXPENSES
PROGRAM EXPENSES
Scholarship Program $284,000 $266,357 $291,000 $273,798
Recognition Program $15,000 $6,598 $15,000 $8,742
Communications Program $99,000 $64,575 $144,000 $75,794
Chapter Development $35,000 $28,460 $40,000 $15,355
Heritage Legacy $22,000 $11,849 $71,000 $14,053
Transition Committee $5,000 $0
2016 River Cruise Momentos $1,458 $0 $0
Humanitarian Aid $2,500 $0 $2,500 $1,500
FAST $3,500 $0 $3,500 $0
TOTAL PROGRAM EXPENSES $478,000 $379,297 $572,000 $389,241
TOTAL OPERATING EXPENSE $229,700 $228,697 $312,480 $174,035
TOTAL EXPENSES $707,700 $607,993 $884,480 $563,275
NET INCOME -$395,200 -$248,733 -$478,280 -$251,332
CORPUS TRANSFER
@4.5% of average corpus valueRestricted (Scholarships) $171,600 $141,589 $125,000 $120,000
Unrestricted (Scholarships) $171,600 $116,296 $125,000 $130,000
Unrestricted Memorial Scholarships $35,000 $30,000
Unrestricted Operating Expenses $0 $95,000
Unrestricted (Plan Implementation) $0 $0 $229,000 $0
$343,200 $257,885 $514,000 $375,000
NET (Income + Corpus Thansfers - Expenses) $123,668
Internal Audit Overall Assessment
by Dan Foster • Satisfactory
– Small number of transactions
– Oversight is generally provided
• Key areas for improvement
– Update and simplify polices
– Document key procedures
– Create an organized cycle for oversight and review
Financial Operations Policy
Statement (FOPS) inconsistency
• Summary:
– FOPS includes policies, procedures and audit steps, some of which have elements
that either were not fully implemented or differed from actual operations.
– Budget and Finance Committee (BFC) Chair position vacant. Therefore, guidance
and/or oversight not provided.
– From previous audit, policies for Credit Card Management and Insurance still not
developed.
– Internal audits procedures should not be in a policy document.
• Recommendations:
– Appoint a BFC Chair to oversee CSO development of procedures to carry out
Board approved policies.
– Develop policies for Credit Card Management, Insurance and the handling of
Donations.
– Separate auditing procedures from the FOPS and Audit Committee develop broad
scope of internal audit areas for upcoming audit.
Procedures need development
and/or compliance as follows: • To carry out existing policies, the CSO, in support of the BFC Chair needs to draft
procedures in the following areas:
– Establishing budget guidelines
– Clearly identifying the reason for accounting entry reconciliation
– Establishing SOPs for paying bills or reconciling Foundation credit cards
– Identifying the requirement on blank checks that a second signer is required on all
checks over $5,000
• When policies and/or procedures exist, they need to be complied with or receive a
documented exception or modification for the following:
– Performing due diligence on vendors
– Obtaining the required number of competitive bids when contracting for major
expenditures, e.g. the SC History book or river cruise
– Obtaining bids on personal service contracts when the cumulative expenditure
exceeds policy levels.
– Securing Board approval when large payments are not specifically called out in
Board minutes such as the NSCF office lease
– Obtaining legal review for contracts in excess of policy limitations, e.g. the Cruise
– Requiring review of travel by audit committee for travel claims over $1,000.
Donations
Summary
1. Financial statements and current year budgets are not publicly disclosed.
2. The importance of unrestricted donations has not been emphasized.
3. No policy exists for donations over a certain threshold to determine donor intent.
Recommendations
1. Work with the webmaster to publish the audited foundation financial statements, current year budgets, and a link to tax filings on the foundation website.
2. Draft for the Chairman’s approval a summary of current year operations to be included on the website. This summary should emphasize the importance of unrestricted donations.
3. Draft a policy, for the Chairman’s approval, that dictates when a donor/executor will be contacted to ensure the intent of the donation is understood.
New Accounting Guidance and
Asset Accounts
Summary
1. New accounting guidance for not-for-profits will eliminate the
classification of temporarily restricted assets.
- Asset classes will only be restricted and unrestricted
2. The Foundation uses only one checking account and one
investment account for all classes of restriction.
Recommendations
1. Work with The Foundation accounting firm to implement the new
2018 accounting guidance for not-for-profits.
2. Consider a separate checking account for restricted assets and
pay restricted payments from that account.
Open items from prior years’ audits
Summary
1. The recommendation to obtain employee fraud insurance was not implemented.
2. Procedures for The Foundation credit card were not implemented.
3. Documentation from board meetings related to financial transaction would benefit from continued improvement.
Recommendations
1. Submit bids and coverage options for fraud insurance for approval by the board.
2. Draft credit card policies and CSO document credit card procedures in the Financial Operations Policy Statement.
3. Work together to better reflect financial transactions and approvals in the minutes.
Chapter Operations
Summary
1. There was no evidence the current Chapter Operations Manual was adopted or approved.
2. The reporting from the chapters was not available for review at the administrative office.
3. A summary of Financial Reports from the last Board meeting did not agree with the official end of the year totals for Chapter donations.
Recommendations
1. The board review and specifically approve and adopt the new Chapter Operations Manual.
2. Track and report on chapter financial operations.
3. Jack and I have reconciled the two reports and found some that should applied to the previous calendar year or that were received by NSCF but not recorded in the Chapter Financial Reports.
Results of the External Audit by Patat and
Turner, P.C.
• To be handed out at the Board meeting
Chapter Financial Report Status
& rationale for report submission
• All but 6 of our 36 chapters submitted their 2016 Financial Reports.
• FY 2017 Chapter Financial Reports are due by the end of January
2018.
• By reviewing these reports NSCF is complying with their fiduciary
responsibilities to avoid the risk of losing our 501(c)3 tax exempt
status.
– The report format is provided in Attachment C of the NSCF
Chapter Operations Guide as template 1.
Business Continuity Plan agenda
by Chuck Parker
Business Continuity Management Definition and Process
Business Continuity Plan Elements: (see document)
• Scope: NSCF Critical Business Processes
• Role and Responsibilities: CSO, BCP Team, Treasurer, Chair
• Risk Assessment: with Risk Mitigation measures
• Key Documentation and Incident Notification
• Required Actions:
- Annual BCP Walkthrough (BCP Team, completed Oct 2017)
- Hard Copy Digitation and Backup (CSO, early 2018)
- Continued improvement of BCP in preps for annual Board Meeting
- Annually reviewed and signed by CSO and Treasurer
Definition and Process
Business Continuity Management (BCM) is a holistic management process
that identifies potential threats to an organization and the impacts to business
operations those threats, if realized, might cause, and which provides a framework
for building organizational resilience with the capability of an effective response that
safeguards the interests of its key stakeholders, reputation, brand and value-
creating activities. (Source: ISO 22301:2012)
BCM Process: The business continuity management lifecycle usually includes a
series of steps:
Risk assessment
Business impact analysis (BIA)
Plan development
Documentation
Testing
Maintenance
NSCF Critical Business Processes
Financial and Legal: including donations, ongoing operations, taxes,
501(c)3 reporting and associated transactions;
Chapter and Scholarship Operations: including Chapter contributions
and event support, and scholarship application and disbursement support;
Information Management: of NSCF and Chapter data, including
Leadership, Member Lists, Vendor/Supplier and Donor information;
Communications: including NSCF website, The Oakleaf, and others;
Investment Advisory Committee: and associated accounts and
transaction support;
Seasonal Operations: including Events, Scholarship Board, Board of
Directors and Chapter President Meetings.
Risk Assessment and Mitigation
The highest impact risks incident to NSCF operations, and associated
mitigation treatment, in approximate descending order are below.
Data: Loss or theft of key systems, financial data, donor lists, etc.;
Staff: Resignation of CSO or Assistant;
Fraud: Fraudulent activities and associated operational and reputational
impact, including Chapters;
Accommodation: Office damage or destruction, including natural
disaster, loss of utility services, water damage, loss of hard data and paper
records; and,
Contractor: Dependencies and associated failure of service (i.e. Target
Systems, which hosts the Foundation website and email servers).
(Mitigation measures for each risk area are detailed in the signed BCP.)
What/So What/Now What • What?
– After a five year downturn in donations to the Investment Portfolio, there was in 2017 a marked
increase in passing donations to the Foundation Investment portfolio.
– IAC has followed Board approved investment target objectives and met NSCF needs.
– Budget are aligned with the Strategic Plan and income and expenses are meeting projections.
– Internal Audit Reports report are satisfactory and we are responding to recommendations.
– Chapter Financial Reports were received from 31 of 36 chapters in 2016 and the 2017 reports
are to be submitted in January 2018.
• So What? – We need to continue to receive donations to ensure we can meet Strategic Planning Budget
targets or adjust expenditures as the year progresses.
– Our financial records are being properly maintained.
– The Financial Operations Policy Statement needs update
– Chapter Reports will continued to be reviewed to comply with our 501(c)3 tax exempt status.
• Now What? – Encourage all NSCF members to participate in the ongoing fund raising appeal.
– Each Committee Chairman is to carry out their 2017 budget and Strategic Plan.
– Follow-thru on Audit recommendations and submit updated FOPS by next Board meeting.
– Encourage Chapters to submit Financial Reports per the guidance.
Back-Up
• List of Mutual Funds in the NSCF Schwab
portfolio as of 31 Oct 2017
• 2017 Capital Investment Projects
• Uses of NSCF resources & potential
losses
• Recurring audit reviews
• %01(C)3 IRS tax code mandates
List of Funds in NSCF Schwab
portfolio as of 31 Oct 2017
2017 Capital Investment Projects
CAPITAL INVESTMENT PROJECTS
History Book 2016 31 Oct 2017 YTD
Beginning Inventory Value 278,203.79 240,734.54
Shipping Expenses 4747.57. 509.48 NSCS
Storage 1,633.18 3,253.60
Total 284,584.54 244,497.62
Sales 25,800.00 750.00
Donated Books 10,000.00 9,250.00 NSCS
Books Consigned to Chapters 8,050.00 0.00
Total 43,850.00 10,000.00
Ending Value 240,734.54 234,497.62
2018 Oakleaf River Cruise Reimbursable Dow n Payment -112,356.00
2018 River Cruise Donations Donations Received 10,400.00
Uses of foundation resources with
potential losses
Summary
1. Funding items like the history book and cruises create a possible
negative outcome for which The Foundation is liable, and that
have the potential to lose money.
Recommendation
1. Adopt a policy for taking on future liabilities that includes analysis
to be performed to determine potential losses for The Foundation.
Recurring reviews
Summary
• Financial operations oversight is provided by the various people.
and functions above are not coordinated as part of the overall
internal control environment.
Recommendation
• Work together to identify control points for revised policies and new
procedures. They will develop review steps and present them to the
audit committee for approval.
501(c)3 IRS tax code mandates
501(c)3 IRS tax code allows tax exempt status to non-profits organizations complying
with certain provisions:
• May not participate in any political or lobbying activity.
• Activities, donations and income must be focused on the purpose of the
Foundation as originally reported to the IRS.
• May not sell property of the organization to a board member for less than the fair
market value, nor may a member receive free services from the nonprofit that
others pay for.
• May not have substantial, unrelated business income.
• When holding a charitable event, must ensure attendees know what portion of
price of attendance is tax exempt.