Guide to Conducting an Internal Financial Review

Nonprofit organizations should conduct a financial review of the organization’s financial practices each year. This review is intended to ensure that appropriate financial policies are in place, and that each organization is following these policies.

Step #1: Gather financial documents including:

• Copies of all written financial policies
• Copies of treasurer’s reports for the year (or other period) to be reviewed
• List of all bank and investment accounts, including names of persons authorized to sign on each account
• Copies of all bank and other financial statements for the period to be reviewed
• Copies of all bank and investment account reconciliations for the period to be reviewed
• Cash tally sheets / Cash receipts journal
• Invoices, receipts and other documents
• Documentation of any restrictions on the use of any particular funds or donor gifts
• IRS letter documents including most recent Form 990, IRS letter recognizing tax-exempt status, and IRS letter assigning an EIN (employer identification number) to the organization.

Step #2: Review financial documents and processes.

• Check the organization’s EIN (employer identification number) as assigned by the IRS against the EIN used on the organization’s bank and other financial accounts. Make sure the school’s EIN is not being used.
• Check names of persons authorized to (a) approve transactions and (b) sign checks, against:
  • persons authorized to conduct these activities in the organization’s minutes; and,
  • bank records indicating who is authorized as a signatory.

  Step #3: Review income and receipts.

  • Determine if the deposits listed on the financial reports provided to the organization match deposits listed on bank statements.
  • Check to see if cash tally sheets match the amount of cash reported as received from an event on financial reports, and also match the deposit indicated on bank statements.

  Step #4: Review disbursements.

  Test to be sure that payments made were properly authorized – by a line item in the approved budget, an approved amendment to the budget, or an appropriate vote authorizing the expenditure. Test purchase orders to be sure that they were properly approved and match the actual disbursement or invoice. Review records to ensure that there is an invoice, receipt or other appropriate written documentation for each disbursement, and that the amounts match.

  Step #5: Review Tax/information returns.

  Review financial records to ensure that appropriate federal (IRS Form 990) and state income tax/information returns have been timely filed.

  Step #6: Review financial control systems.

  • Check to evaluate whether financial duties have been appropriately separated. Although it can be difficult for small organizations to separate financial duties, certain separations are essential for appropriate financial controls. These separations protect both the organization, and the individuals handling the finances. Specifically:
    • Individuals with signature authority should NEVER approve the transactions/disbursements for which they sign. All expenditures should be approved in an annual budget, as originally approved or amended, or by a vote of the board or membership as appropriate. All disbursements should be documented by an invoice, receipt or other appropriate written documentation.
    • The individual(s) with signature authority may reconcile bank statements. However, at least one additional officer or director should review monthly bank statements, or bank statements may be included with the treasurer’s report to the board/membership.
    • Finances should be reviewed annually by an audit committee that consists of two or more individuals who do not routinely handle the organization’s finances, such as by being a signatory on the accounts.
    • Cash should always be counted by at least 2 persons at/near the time received, and then recounted by the treasurer or other individual prior to deposit.

    Step #7: Review reporting systems to ensure adequate information is provided for the organization and its officers/directors to make reasonable decisions.

    • Are reports from the treasurer timely and complete?
    • Are financial policies, including separation of financial controls, being followed?
    • Are all records being gathered (invoices, receipts, cash records, checks and disbursement records, bank records, treasurer’s reports) so that they can be reviewed as needed, and only discarded in accordance with the organization’s record retention guidelines?

    Step #8: Write a report.

    The financial review/audit report should document at a minimum:

    • Steps taken in the financial review
    • Current fund(s) balance and balance sheet
    • Comments, if any, on any concerns or discrepancies found and the audit committee’s recommendations to correct these concerns or discrepancies.

    RENOSI is the leader in helping national organizations set up and manage affiliate chapters. Setting up local, regional and state affiliate chapters is an excellent way to grow your national organization. Managing hundreds and even thousands of chapters, however, is time-consuming and difficult.

    Since its inception, RENOSI has provided a simple and stress-free solution to help obtain and maintain tax-exempt status for over 5,500 nonprofits. With the interactive myRENOSI dashboard, our partners can organize their state and federal registrations, allowing our team of experts to help ensure your tax-exempt status is not revoked.

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    Group Exemption Management Requires Form 990 – Everyone Must File!

    Jack Englund

    Have you ever had a group project where someone just didn’t pull their own weight? It made it harder for everyone else. Maybe you recently took a canoe down the Colorado River with your friend Paul, and when you hit the rapids, Paul just took his paddle out of the water. Or worse, Paul started panicking and flipped the whole canoe over. Managing your group exemption is the ultimate group project. Making sure everyone files form 990 is a major part.

    New Rules Are Coming…

    When managing your group tax exemption with the IRS, ensuring your subordinate members file their 990-series return every year is like ensuring everyone does their part of the group project. The IRS requires group exemption holders to supervise/control its subordinate chapters. On June 12, 2020, the IRS issued new proposed rules that defined and strengthened this requirement.

    Just Keep Paddling!

    The newly defined rules require group exemption holders to educate their subordinates on the annual filing requirements of Form 990. This also means that the group exemption holder must obtain, review, and retain a copy of each subordinate 990, each year. The IRS wants to know that Paul, and everyone else, kept their paddles in the water.

    What if We Don’t?

    This one is simple: In the newly proposed rules, the IRS indicates that if 50% or more of its subordinate organizations do not file their 990, which ultimately leads to the auto-revocation of said subordinate groups, the canoe will likely flip. As a result, the organization will be at risk of losing its group exemption.

    Form 990 is Crucial.

    Filing your 990, and ensuring that all your subordinate members file their 990 every year, is crucial to the survival of your group exemption. The new rules for group exemption management are coming. When they arrive, the IRS will be looking to enforce their policies and you do not want your organization to be the one that gets caught without a paddle!

    Greek Boss is on the road!

    Jack here! I’m hitting the road to introduce RENOSI and Greek Boss . So far, I’ve been to 10 states. More travel is coming! I can’t wait to share Greek Boss with more student leaders and Greek Life Advisors!

    In late September, the Texas tour takes off! I’ll be visiting Alabama, Louisiana, and traversing the great state of Texas.

    Let me know if you’d like me to stop by your school. I can even do a workshop for your students!