Transitioning Your Chapter to a Fiscal-Year Reporting Period

FOR DISCUSSION PURPOSES

Transitioning Your Chapter to a Fiscal-Year Reporting Period

These Talking Points were issued in connection with a webcast of the same title presented by Teri Newhouse, Director of Finance on December 15, 2015. Questions pertaining to this document or the related webcast should be submitted to Laurence Rhodes, Accountant or any member of the Chapter Relations department. The APWA Staff Directory is located on the national website at

Background

National, 63 Chapters and more than 90 Branches (APWA) was organized and operates as one legal entity. As such, APWA National prepares and files all Federal [U.S. and Canadian], State and Provincial financial reports, on a consolidated basis.
In June 2000, APWA National Board of Directors (the Board) made the decision to move forward with efforts to change APWA’s accounting period from a calendar-year to a fiscal year [July 1- June 30].
The IRS granted APWA permission to change to a fiscal-year reporting period beginning July 1, 2001.
The transition period spanned 18-months: January 1, 2001 to June 30, 2002 and positioned major revenue-producing activities earlier in the budget cycle; increasing the Board’s capacity to respond to financial and economic conditions earlier in the fiscal year and prior to preparation of the next year’s budget.
The Board determined that Chapters would continue to report on a calendar year basis.
In 2003, staff resources were increased to address the need to convert chapter financial data remitted on a calendar-year basis to a fiscal-year basis for financial reporting purposes.
In 2008, the US Internal Revenue Service (IRS) revised the Form 990 - Return of Organization Exempt from Income Tax. The goal was to increase transparency and accountability among exempt organizations, especially those organized as public charities. The revised Form 990 tripled the level of effort required by APWA national staff, volunteer treasurers and chapter administrators, collectively to complete the annual audit and file related annual reports and tax returns.
Over the years, the chapter accountant position has grown to provide direct support for chapter treasurers and administrators including face-to-face training at the PWX, formerly “Congress”; topic-specific webinars; standardization of report templates and other resource materials.

Current Process

Currently chapters are required to remit mid-year financial reports to National no later than August 15th, leaving staff thirty (30) calendar days to review, prepare and analyze both calendar-year and fiscal year data; resolve discrepancies and prepare necessary audit and tax schedules – on a consolidated basis.

As an example, in order to prepare the June 30, 2015 audit and tax schedules, national staff will:
Review all chapter reports to ensure the data is complete and accurate;
Calculate chapter financial data for the last six months of each calendar year [July 1- Dec 31, 2014] by subtracting the first six month’s totals [Jan 1- June 30, 2014] from the chapter’s annual report [Jan 1 – Dec 31, 2014] for that same calendar year;
Combine the newly calculated figure [July 1 – Dec 31, 2014] with the most recent six month’s data [Jan 1 – June 30, 2015]; collectively producing chapter financials that coincide with National’s fiscal year.
The chapter fiscal year data is reviewed a second time and is then used to prepare the consolidated reports and schedules necessary for audit and tax purposes.
100% of chapters must remit their mid-year and annual reports before the final audit and tax schedules can be completed.
In order to resolve variances or confirm data national staff must revert back to the calendar year data prior to any communications with the chapters and then adjust the fiscal year data, accordingly.
Variances tied to branch reports require further communication from the chapter to the branch.
Due to the significant time and effort required to identify and communicate variances to the chapters, many treasurers have advanced to the next officer position and so it becomes increasingly more difficult for national and chapters to address the issues in a timely manner.

Why Is Timely Financial Reporting So Important?

Timely issuance of the audited financial statements is essential to meeting mandatory deadlines for filing of informational and income tax returns with the IRS and Revenue Canada.
Similar to for-profit entities, NFPs are given 5 months (from end of the accounting period) to file Form 990 and related schedules and returns. Revenue Canada imposes a December 31 filing deadline. Penalties (and interest) for late filing varies and can range from $50 to $2,500, per filing.
Many state and provincial agencies require a copy of the most recent audited financials and IRS Form 990 and/or Canadian T2 accompany the state annual reports or at a minimum, are available for public inspection at the time of filing with the state.
Many states and provinces now require nonprofit organizations to register to conduct business and also register as a “charity” if the organization will be conducting “fundraisers” within the state/province. APWA’s most recent audited financial statements and Form 990 must be submitted with the initial registration and annually, thereafter.
APWA’s ability to establish credit with hotels, convention centers and service providers may diminish absent the availability of timely financial information.

On The Horizon.

As we ramp up efforts to become (and remain) compliant with state and provincial business and charitable registration and annual reporting requirements, Chapters will be required to remit additional reports primarily related to program and fundraising activities.
States where more than one chapter operates will require national staff consolidate the data prior to filing and where Chapters serve members in more than one state, multiple schedules may need to be prepared to meet the reporting requirements for each state, respectively.
As the reporting requirements increase; deadlines will need to be tightened. The current reporting process simply does not allow adequate time for National staff to work with the chapter treasurers; to meet auditor-imposed deadlines; and file federal, state and provincial returns in a timely manner.
The current process must be redesigned to reduce the overall level of effort required by national staff, volunteer treasurers and chapter administrators related to chapter financial reporting. Timeliness is key. In order to address this challenge, we will begin to transition Chapters to a fiscal-year accounting period to coincide with National.
Chapters will have two options to choose from in making the transition to a fiscal year accounting period [July 1 – June 30].

Anticipated & Asked Questions by chapters

Why doesn’t National revise its fiscal year to coincide with chapters?
This question was raised and discussed. Approximately 1/3 of National’s annual budget is directly tied to PWX, formerly “Congress”. With PWX held in the first quarter of National’s fiscal year; staff working with the Board of Directors have data to forecast for the remainder of the fiscal year and adjust expenditures accordingly, if need be. If National were to revert back to a calendar year budget cycle to match that of the chapters, PWX would fall in the third-quarter of the budget year. Adjustments necessary as result of differences between budgeted to actual for PWX could not be implemented prior to the close of the calendar year. Further, lack of final financial data from the PWX until the fourth-quarter would likely impact National’s ability to properly plan and budget for new initiatives in the coming budget year as well. The financial sustainability of APWA is a strategic priority that can not be jeopardized by adjusting the accounting period to a calendar-year.
The IRS authorized APWA to change from a calendar-year to a fiscal-year accounting period based on the circumstances outlined above. Absent any changes in these circumstances, the likelihood that the IRS would grant APWA permission to revert back to a calendar-year reporting period is remote.
In changing to a fiscal year reporting period for chapters it is understood some chapters will encounter their largest revenue generating activities late in the fiscal year, thus creating a challenge in being able to forecast year end numbers. National staff will work with chapters where there is a concern for financial stability due to reliance on a single event occurring in the last quarter (April – May – June) of the fiscal year.
Chapters will continue to report on a Cash-Basis (vs. GAAP-Basis) to National, where permitted by law. In some cases, the State or Provincial agency may require a GAAP Basis report at the Chapter and Branch level. These reporting requirements are not known at this time and are subject to change.
Chapters will continue to have the opportunity to amend a Budget, should an extraordinary event occur causing a substantial change in anticipated revenue and/or expenses requiring an amendment to a budget. Extraordinary events will continue to be defined by the Chapter.

What affect does a change to a fiscal year accounting and budget cycle have on the chapter and its election and appointment of officers, most specifically the treasurer?
This question has been raised and discussed by staff with volunteers. The recommendation from National is for all chapter elected and appointed positions to remain as is - on a calendar year (for almost all chapters).
What this change would mean is for those chapters who appoint/elect a treasurer on a calendar year basis, this individual would begin his/her role in January managing a budget and financial affairs for the chapter under an established budget. This treasurer would have a number of months to become acclimated to the role before working to prepare the chapter’s next fiscal year budget beginning in July.
National is recommending chapters consider such options as having an assistant treasurer position to allow for knowledge transfer and understanding during a transition year before assuming this role. If this is not feasible or optimal the chapter would be encouraged to have the incoming treasurer engaged in the chapter as soon as possible to gain an understanding of; and engage in the budget planning conversations.
There is no set requirement for chapters when it comes to the treasurer position as some chapters have opted to have a treasurer serve a term of more than one year and it is also a practice of chapters to contract for financial management services; thus a change in the fiscal year in managing a budget that crosses two administrative years has minimal impact.
Chapters could opt to change the term for the treasurer’s position to match the fiscal year with a July - June term.

Will chapter bylaws need to be revised?
Chapter bylaws will need to be revised to reflect the change to a fiscal year as well as any changes to the election/appointment. National will send out the revised language for bylaw changes to chapters by the end of calendar year 2015. This particular bylaw change will not require approval by chapter members, given this is a required change.

Will calendar year report be needed for 12/31/15 and 12/31/16 or just the 6 month reports?
This depends on the ‘Option’ chosen. If option A is chosen, there will not be a need for a 12/31/16 calendar year report.

Will we be transitioning to one reporting program? Previously discussed and considered.
Yes. When the transition is complete, there will be a single fiscal Financial and Budget report each year.

Since we have multiple Branches in our Chapter, we have concerns regarding the timeframe being allowed for our Chapter report submission to National. We feel that this time frame may need to be increased to allow enough time plus a little bit for our Branches to prepare, review, approve and submit their reports to the Chapter and for the Chapter to prepare, review, approve and submit the report to National especially given that this reporting time is the time of year when the construction season is in full swing, good weather, vacations, etc. that impact the time required by our volunteers preparing, reviewing and approving the reports at both levels.
‘Option B’ gives Chapters 12 months to get the transition process started

Would National be willing to provide a CPA agency or some financial assistance to the Chapters to hire a CPA agency experienced with non-profits in NYS to assist in the preparation of the required financial reports? Our thoughts being that Branches and Chapters could report to the CPA agency quarterly and this could standardization all reporting by branches and chapters and assist in the time frame requirements of National?
No. National does not have the capacity to provide such recommendations.

Will there be an impact on the number of staff members due to the change?
No, staff levels will remain the same. Staff will continue to work with chapters in providing assistance and ensuring deadline dates are met.

Does officer elections need to be change?
This decision is at the discretion of the chapter. See above for more information.

Are all Chapters within the region expected to choose the same option?
Each Chapter should choose the option that works best for them. This is a chapter decision and not a regional or National decision.

After the transition is made, will mid-year reports still be required?
We are requiring six months reports. Please see ‘Option’ forms for specifics.

When will audits be due?
Chapters (and Branches) will continue to conduct “audits” of their financial statements and supporting documents as an internal control measure. However, the Audit Checklist will no longer be remitted to National unless a concern is formally identified and raised by the audit committee.
Chapters will conduct the annual audits within 90 days of fiscal year-end [September 30th].
Concerns raised by the audit committee along with recommended steps for corrective action will be formally communicated to the Director of Finance within 30 days of completing the audit [October 31st].
The Director of Finance may escalate items to the Council of Chapters, Board of Directors, Executive Director or National Audit Committee on a case-by-case basis, as warranted.
If no matters or concerns are noted by the Chapter or Branch audit committee, no report is due to National.
After the transition is complete, a Cash-Basis Fiscal-Year Financial Reporting package will be due on August 1st of each year. These financials will be unaudited.
Can National provide a visual timeline of all the Financial Reports required of the Chapters and the required due dates?
Yes, please see ‘Option’ forms, along with the ‘Fiscal Change Agreement Form’. Both forms were made available via email and may also be found on the National APWA website under Chapter Leaders Resources.

If Option A is chosen, does the 6-month report need to be audited?
No.

Would two audits be required close together as transition from calendar year to fiscal year?
No, two audits will not be required close together as transition from calendar year to fiscal year.

Option A (Preferred Option)

A chapter choosing this option would transition to a fiscal-year reporting period beginning July 1, 2016.
A chapter would prepare a six-month budget for January 1 – June 30, 2016. The 6-month budget would not have to be balanced with the understanding a balanced budget would be presented for subsequent fiscal-years. The 2016 six-month budget is due January 31, 2016.
A chapter would prepare a 12-month balanced budget in the Spring of 2016 for July 1, 2016 – June 30, 2017. The 2017 annual budget is due July 31, 2016.
A chapter choosing this option would be required to prepare and submit to National only one six-month financial reporting package during the transition period, as follows:
January 1 – June 30, 2016 due August 1, 2016;
A chapter would prepare and submit an annual financial reporting package in August 2017 for July 1, 2016 – June 30, 2017.
A chapter choosing this option would prepare two fewer reporting packages compared to Option A.
A chapter would prepare an audited annual financial report in March 2016 for calendar year 2015 activities.

Option B

A chapter choosing this option would remain on a calendar-year reporting period for 2016 and would transition to a new July-June fiscal year beginning on July 1, 2017.
A chapter would prepare a balanced budget for January 1 – December 31, 2016. The 2016 annual budget is due January, 31 2016.
A chapter would prepare a six-month budget for January 1 – June 30, 2017. The 6-month budget would not have to be balanced with the understanding a balanced budget would be presented for subsequent fiscal-years. The 2017 six-month budget is due January 31, 2017.
A chapter would prepare a 12-month balanced budget in the spring of 2017 for July 1, 2017 – June 30, 2018. The 2018 annual budget is due July 31, 2017.
A chapter choosing this option would be required to prepare and submit to National three six-month financial reporting packages during the transition period, as follows:
January 1, 2016 – June 30, 2016 due August 1, 2016;
July 1, 2016 – December 31, 2016 due February 1, 2017; and
January 1, 2017 – June 30, 2017 due August 1, 2017.
A chapter would prepare and submit an annual financial reporting package in August 2018 for July 1, 2017 – June 30, 2018.
A chapter would prepare an audited annual financial report in March 2016 for calendar year 2015 activities.

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