FIDICUARY RESPONSIBILITES

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FIDICUARY RESPONSIBILITES FINANCIAL
MANAGEMENT PRESENTED BYRoger Payne, NST
COUNCIL OF PRISON LOCALS 33
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Who Are The Financial Officers?

• President
• Vice-President
• Treasurer
• Executive Board
• Or individuals that make financial decisions or
  reviews for the Local
• Audit Committee
• Budget Committee

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Goals of this Class

• Make the Financial Officer a financially savvy
  individual
• To keep the Financial Officers out of Jail !!

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General Responsibilities

• A Locals Financial Officer must have a strong
  sense of
• responsibility. He or she is entrusted by the
• Membership with the faithful performance of vital
  duties
• Safeguarding the property of the Local and its
  Members
• Collecting and disbursing Local funds
• Accurately recording all financial transactions
• Reporting to Federal State Government Agencies

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Fiduciary Responsibilities

• Local Officers manage and handle funds which
  belong to the Local and its Members, they hold
  positions of trust known as Fiduciary Positions
• These Fiduciary Duties are imposed on Union
  Officers by law
• These Federally-imposed Fiduciary Duties are set
  forth in Section 501 of the Labor-Management
  Reporting and Disclosure Act of 1959 (LMRDA),
  which provides that Union Officers must

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Fiduciary Responsibilities Under Section 501
of the Labor-Management Reporting and Disclosure
Act of 1959 (LMRDA)

• Hold unions money and property solely for the
  benefit of their Union and its Members.
• Manage, invest, and disburse funds and property
  only as authorized by the Unions Constitution
  and By-Laws or by proper resolution of its
  Membership.
• Refrain from financial or personal interests
  which conflict with those of their Union and
  account to their Union for any profits received
  from transacting Union business.
• Union officials who violate these federally
  created fiduciary duties are subject to civil
  lawsuits in federal or state court for money
  damages or other appropriate relief. In addition,
  there are criminal penalties for embezzling or
  stealing Local propertyfines up to 10,000,
  imprisonment for up to five years, or both.

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AFGE Articles that Govern the Financial Officers
AFGE National Constitution

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Article II Section 3
Independent Local The Local is an autonomous
organization. Article IV Section 1
Dues Initiation Fees Dues shall be
established and adjusted as may be necessary to
ensure that they allow adequate funds for the
payment of Per Capita Tax and sufficient funds
for the operating expenses of the Local.
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• Article V Section 4
• Annual Audits
• In order for the bond to be effective, the Local
  shall file an Annual Audit Report (to include a
  copy of the DOL LM Form and an approved Annual
  Budget) with the National Secretary Treasurer
  (NST).
• Article V
  Section 5
• Open
  Records
• All books, records, and financial accounts shall
  be open to the inspection of the National
  Executive Council or any duly authorized
  representative.

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Conducting a Local Audit
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AFGE Annual Audit

• Each local is required to conduct an Audit at
  least once a year and make a certification using
  Audit Certification Form 41 to the National
  Secretary-Treasurer showing that an audit has
  been completed.
• It is mandatory that you conduct an Audit
• At the close of each Year End
• When there is a change in Financial Officers
• Or when there is a suspicion of any wrong doing

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Conducting Local Audits

• Who should be on the Audit Committee or conduct
  the Audit
• Annual Internal Audit
• The President should appoint an odd number of
  members (3-5) that do not have signature
  authority on any accounts
• Annual External Audit
• You may hire outside Accountants or Bookkeepers
  to perform the audit also
• Monthly Audits by the Financial Officers
• AFGE suggests that the Financial Officers conduct
  an audit of the Savings, Checking, Investment and
  Credit Card Account Statements on a monthly basis
  to insure that all items have been reconciled. A
  review of the checkbook and dues deduction
  listings is also recommended

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Records Needed to Perform an Audit

• Checkbook
• Savings, Checking, and Investment Account
  Statements, Cancelled Checks, Deposit Slips, and
  Credit Card Statements
• Dues Deduction Listings
• Local Constitution and By-Laws
• Minutes of Local Meetings
• Minutes of E-Board Meetings
• LM-2, LM-3, OR LM-4 Reports for Past Two (2)
  Years
• IRS 990 for Past Two (2) Years
• Annual Budgets
• Prior Audit Committee Reports
• Form W4s for Past Two (2) Years (Payroll)
• Current Financial Roster
• Inventory of all Fixed assets (i.e.., Computer,
  Office Furniture)
• Payroll Tax Returns, Forms 940, 941, W-2s and
  1099s

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RED Flag Items During an Audit

• One Signature Checks
• Pre-signed Checks by ONE OFFICER
• Checks Written Out of Sequence
• Checks Written to CASH
• Checks written to INDIVIDUALS
• Advance Payment of Salary to Employees
• Unbalanced Checkbooks with no Deposit Records

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Article VI
Section 1(a)
Local Officers The general officers shall be
elected by the total Membership and
shall constitute the Executive Board and shall
consist of the President, Treasurer, Secretary
and others as the Locals bylaws may prescribe
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• Article VI Section 3
• Presidents Duties
• The President shall be the executive officer of
  the Local. He/she
• shall exercise general supervision over the
  affairs of the local and
• insure that all other officers comply with their
  responsibilities
• and constitutional duties.
• Article VI Section 3
• Filling in for the President
• If the President is unable to perform his or her
  duties. The President
• will delegate the responsibilities of the office
  based on the locals bylaws.

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• Article VI Section 5
• Treasurers Duties
• The Treasurer shall maintain a Bookkeeping
  System as prescribed by the National
  Secretary-Treasurer. The Treasurer must make a
  financial report at each regular meeting keep an
  up-to-date roll of the membership make monthly
  membership changes (adds drops) make address
  changes and report such to the NST. Perform
  additional financial duties as assigned.

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• Article V Section 2
• Check Signing
• The Treasurer shall sign and the President shall
  countersign checks covering proper expenditures
  for the Local. In the absence of these officers,
  such other Officers as defined by the Locals
  Bylaws, may sign.
• Article V Section 3
• Bonding
• The Officers, agents, shop stewards, employees
  or other representatives of the Local who handle
  funds or property of the Local shall be bonded.

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Bonding Requirements
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Bonding Requirements for your Local

• Bonding is a type of insurance policy that
  insures an organization
• against financial loss caused by persons who
  handle the finances for the Local. The insurance
  policy is called a bondoften a security bond
  or fidelity bond.
• Federal Labor Law requires bonding to protect
  Unions from financial losses caused by
  fraudulent or dishonest acts by Union Officers
  or Employees
• All AFGE Locals are covered under a blanket bond
  and charged annually for the coverage
• In order for your bond to be in effect you must
  conduct a Annual Audit and submit to AFGE a Form
  41 with a copy of your LM Report and the approved
  Annual Budget.
• The Labor-Management Reporting and Disclosure Act
  (LMRDA) establishes specific bonding
  requirements

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(LMRDA) Bonding Requirements

• A bond, like any insurance policy, has a maximum
  recovery amount. Per the Department of Labor the
  bond must be equal to at least 10 percent of the
  assets the Local.
• A quick formula for computing required
  coverage
• Current Assets (Cash,
  Investments) Total Receipts X
• 10 Amount
  of Coverage Required AFGE recommends that your
  coverage be 100 of your total assets.

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• Article VIII Section 2
• Executive Board Duties
• It shall be the duty of the Executive Board
  to devise and initiate actions
• that may be necessary in the interim between
  the Locals meetings. All
• actions shall be subject to Local approval.
• 
  Article VIII Section 3
• Expenditures
• Expenditures by the E-Board in excess of
  500 per month must have
• prior approval of the Membership, or be an
  approved budget item. Any expenditure authorized
  by the E-Board must be reported in writing at the
  next Membership meeting

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Article VIII
Section 4 Annual Budget The Executive
Board of the Local shall prepare an Annual Budget
(subject to the Membership's approval) insuring
that revenues are sufficient to meet its
financial obligations.
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What Agencies and Individuals must Financial
Officers report to?

• Internal Revenue Service (IRS)
• Department of Labor (DOL)
• Your Local Membership
• AFGE Headquarters

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IRS Requirements

• AFGE Locals are exempt from federal income taxes
  by the Internal Revenue Service by being a 501c
  (5) organization. AFGEs Group Exemption Number
  is 0194. Generally AFGE Locals are not exempt
  from Sales Taxes.
• Locals must pay employment taxes on salaries,
  lost time or annual leave reimbursements paid to
  their officers or members. The members receiving
  these types of payments must report the income
  and pay taxes.
• Locals must report all income to the Internal
  Revenue Service whether it is taxable or not.
  The exemption from tax does not extend to all
  types of Local income. Certain types of income
  are taxable and must be reported to the IRS on
  form 990T.

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When do I have to report to the IRS ?

• Locals must file an Annual Informational Return
  with the IRS.
• If your gross receipts are less then 25,000 you
  will need to file a 990-N (E-Postcard)
• If your gross receipts are greater than 25,000
  but less then 100,000 you are required to file a
  Form 990EZ
• If your gross receipts are greater than 100,000
  you are required to file a Form 990

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When are the Form 990s Due ?

• You must file the 990, 990EZ or the 990-N Form by
  the 15th day of the 5th month, after your
  Locals Year End. For a calendar year you will
  report on 5/15.
• A Penalty of 20 _at_ day up to 10,000 may be
  charged if the Form is filed late or an
  incomplete return is submitted.
• You can get an extension of 3 months by
  submitting an IRS Extension to File Form 8868

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Annual Electronic Filing Requirement for Exempt
Organizations Form 990-N (e-Postcard)

• Tax-exempt organizations whose gross receipts are
  normally 25,000 or less are required to
  electronically submit Form 990-N, also known as
  the e-Postcard.
• The Pension Protection Act of 2006 added this
  filing requirement to ensure that the IRS has
  current information about your organization.

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Due Date of the e-Postcard

• The first e-Postcards are due in 2008 for tax
  years ending on or after December 31, 2007. The
  e-Postcard is due every year by the 15th day of
  the 5th month after the close of your tax year.
  For example, if your tax year ended on December
  31, 2007, the e-Postcard is due May 15, 2008. You
  cannot file the e-Postcard until after your tax
  year ends.

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Information You Will Need To File the e-Postcard

• Employer identification number (EIN)
• Tax year
• Legal name and mailing address
• Any other names the organization uses
• Name and address of a principal officer
• Web site address if the organization has one
• Confirmation that the organizations annual gross
  receipts are normally 25,000 or less
• If applicable, a statement that the organization
  has terminated or is terminating (going out of
  business)

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Where do I get the IRS Forms?

• You can get the forms from the IRS Web Site at
• http//www.irs.gov/formspubs/index.html
• When on the Web Site enter the Form you are
  looking for in the Search Box at the top of the
  screen. Example 990 or 990EZ or 8868
• You may also go to the AFGE Web Site under
• NST Financial Officers Resources and get the
  Forms

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When is the Local an Employer and when must you
pay Payroll Taxes?

• Remember the Local is an Employer when it makes
• payments to Officers, Stewards, Staff or others
• to perform duties or services for the Local
• Salaries
• Payment for Lost Time (LWOP)
• Annual Leave Reimbursements
• Stipends

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IRSs Description of an Employee

• Here are several factors tending to indicate
  that an individual is an employee under tax law
  (only one need exist)
• The members compensation is measured by the
  hour, week, or month rather than by the job.
• The member is required to perform the services
  personally, without the ability to delegate the
  task to somebody else.
• There is a continuing working relationship
  between the member and the Local.
• The Local supplies materials or facilities used
  by the member in performing the services, such as
  an office, office supplies, a telephone, etc.
• The Local provides instructions or training to
  the member and the member performs the services
  in question solely for the Local (and not for
  others).

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Labor Department Reporting

• The LMRDA requires Locals to file an Annual
  Financial Report with the U. S. Department of
  Labor.
• If your Local has Gross Receipts of
• More than 250,000, you must file an LM-2 Report
• Less than 250,000 and more then 10,000 you must
  file an LM-3 Report
• Less than 10,000, you must file an LM-4 Report
• DC Government Locals are not required to file a
  LM Report with DOL

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When are the Labor Department Reports Due?

• The LM Forms are due 90 Days after the Locals
• Year End
• If you are on a Calendar Year this is 3/31
• If you are on a Fiscal Year, it is 90 days from
  the close of your Year End

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Where do I get Labor Department Forms ?

• The best place is the Labor Department Web Site
  at
• http//www.dol.gov/esa/olms_org.htm

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Reporting to your Local Membership

• The Financial Officers have a responsibility to
• keep the Membership informed of
• All Income received by the Local (Dues and Other
  Income)
• All Expenditures and Payments made on behalf of
  the Local
• All Assets and Accounts held on behalf of the
  Local
• The creating and reporting of Budget items
  allocated by the Local

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Other Areas for Consideration Responsibilities

• Retention of Documents and Other Items
• Use of a Credit Card
• Completing the IRS 1099 requirements
• Making Loans to Members

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Retention of Documents and Other Important Items
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Recommended Retention of Documents and other Items

• General Local Files
• By-laws and Amendments -------Permanent
• Correspondence -------------------5 Years
• Election Records-------------------2 Years beyond
  the term of office
• Local Memorandums of
• Understanding----------------------Permanent
• Minutes of Meetings--------------Permanent
• (Membership E-Board)
• Items that Document the
• Locals History --------------------Permanent

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Recommended Retention of Documents and other Items

• Local Membership Records
• Dues Deduction Forms (1187, 1188, etc.)
  -------------3 Years
• EEO Case Files -----------------------------------
  ---------5 Years
• Grievance Case Files------------------------------
  --------5 Years
• (MSPB) Case Files --------------------------------
  --------5 Years
• Workers Compensation Case Files------------------
  ---5 Years
• Financial Records
• Correspondence -----------------------------------
  --------5 Years
• IRS Forms-----------------------------------------
  ---------5 Years
• LM Forms------------------------------------------
  --------5 Years
• Financial Statements Reports--------------------
  -- Permanent
• Officer Bonds ------------------------------------
  ------- Permanent
• Many of these Retentions are mandated by the
  Department of Labor and IRS

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Use of Local Credit Cards
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Local Credit Cards

• A Local cannot effectively conduct Financial
  Business without the use of a Credit Card, but
  there are some inherent problems with Credit Card
  usage.
• How to avoid problems when using Credit Cards
• Credit Cards should be in the name of the
  Individual Local Officer
• Monthly dollar amount limits should be placed on
  Credit Cards
• No ATM or Debit capability should be allowed
• Credit Cards are to be used for Local business
  only. No personal charges by an officer.
• A Credit Card Statement should not be considered
  authorization for paymentYou must provide
  receipts, hotel statements, vouchers, etc.
• Use of a Credit Card should be defined in the
  Locals Bylaws.

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Taxable Non-Taxable Payments to Officers and
Members
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Payments that are Not-Taxable

• Business Related Expenses
• When
• Expense is for union business
• Detail vouchers are provided showing time,
  place, and business purpose
• Documentation is submitted in a timely manner
• Any unused funds are returned to the organization
  
• All 4 factors must be met or payment is Taxable

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Payments that are Not-Taxable

• Officer Allowances
• When
• Expense is for union business
• Expense vouchers are provided
• Documentation is submitted in a timely manner
• Any unused funds are returned to the organization
  
• All 4 factors must be met or payment is Taxable

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Payments that are Not-Taxable

• Reimbursed Travel Expenses
• When
• Expense is for union business
• Expense vouchers are provided showing time,
  place, and business purpose
• Documentation is submitted in a timely manner
• Any unused funds are returned to the organization
  
• All 4 factors must be met or payment is Taxable

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IRS 1099 Reporting
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When are you Responsible for Completing a 1099

• When non-payroll payments are made and exceed
  599 annually for an individual or vendor
• What type of payments require a 1099
• Membership Recruitment payments made to a member
  or officer
• Payments made for services performed by
  Arbitrators, Accountants, Legal Services,
  Consultants Etc.
• Items or Equipment purchased for the Officers or
  Members i.e. personal cell phones, laptops Etc.

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When Must I Complete the 1099

• 1099s must be given to the Individual or Vendor
  by January 31st
• Copies of all 1099s must be filed with the IRS
  by February 28th along with an Annual Summary
  (Form 1096)

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What must I Include on the 1099

• The Individuals
• Name
• Address
• Social Security Number
• Your Organizations Federal Tax ID (EIN )
• The total amount paid to the Individual or Vendor
• Box 1- Rent, Box 6- Medical Health Care,
• Box 7-Nonemployee Compensation and Box
  14-Attorney Fees
• Note Payments made through payroll are reported
  on IRS Form W-2

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What must I Include on the 1096

• Your Organizations
• Name
• Address
• Federal Tax ID (EIN )
• A count of the total number of 1099s issued (Box
  3)
• The total dollar amount reported for all 1099s
  (from corresponding 1099 Boxes)
• Contact Name and Phone
• Copies of all 1099s issued

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Making Loans to Members
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Loans
AFGE does not recommend making Loans to Members.
Recovery of defaulted loans are costly and
difficult. If you do choose to

• They must be Approved by the Membership
• The Executive Board CANNOT Approve Loans!
• A Loan cannot be more than 2,000 per Individual.
• For any Loan, there should be a very clear
  Standard Criteria that the Local has adopted.
• Remember what the Local does for ONE member, you
  must do for ALL members.
• All outstanding advances in excess of 2,000 are
  considered by DOL as a loan.

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AFGE Locals Financial System

• The suggested approach for AFGE Locals and
  Councils is the AFGE Customized Accounting System
  through the use of Quick Books Pro