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Member of Russell Bedford International, a global network of independent professional service firms.
When the last bell rings, school is far from over. Schools have a myriad of extracurricular activities running nearly every day of the week and late into the evening. This includes everything from athletics to fine arts to chess club and all the activities in between. All of these activities involve money, including fundraising, participant fees, and expenditures for equipment and services. Most Illinois school districts track this money in “activity funds” or “club accounts”. These accounts make enriching school experiences possible, but they come with challenges and risks. Here’s what every school district should keep in mind to stay organized, transparent and compliant.
Set up clear rules for handling money
Before any club or team collects or spends a dollar the district should have a clear plan in place for how that money is managed. This includes who is allowed to make purchases. Will coaches and club sponsors be able to buy things directly? Will everything need to go through the district’s business office first?
It also means establishing how cash and check deposits will be handled. Who physically takes money to the bank, what paperwork is required and whether the district has a check scanner to make deposits easier. Finally the district needs to decide what software system will be used to track the money and who has access to it. Bottom line: Coaches and sponsors need clear, easy-to-follow reports so they can make good decisions for their clubs. Make sure that information gets to them regularly.
Bottom line: Coaches and sponsors need clear, easy-to-follow reports so they can make good decisions for their clubs. Make sure that information gets to them regularly.
Keep each club’s money in its own account
Each club or team account is meant for that specific group. For example, the cheerleading account is for cheerleading, the drama fund is for drama, and so on. Money shouldn’t be moved casually between accounts. If one club temporarily needs to borrow from another, the district should be sure to set up a due to/from entry. This keeps the records clean and makes it easy to see exactly what is happening with each club’s funds at any time.
Bottom line: Treating each account as its own separate “budget” prevents confusion and keeps things transparent for everyone involved.
Use the district’s sale tax exemptions correctly
Illinois school districts are units of local government, which means they are generally exempt from paying sales tax on purchases. Most districts often have an official letter that employees can use at checkout to provide proof that the exemption applies. This is a benefit that needs to be used responsibly. Only coaches and sponsors should use the tax exemption and only for legitimate school purchases. Requiring purchase orders for all transactions is a good way to keep this process organized and eliminate misuse.
Bottom line: Train coaches and sponsors on how and when to use the tax exemption and make sure it’s not being used for personal purchases.
Be careful with crowdfunding platforms
Crowdfunding platforms, like GoFundMe may seem like an easy way to raise money for a team or club but they carry real risks for school districts. If a coach sets up a personal crowdfunding campaign on behalf of the school, the district may have little control over where the money goes or how it’s reported.
Best practice is for the school district to require approval for any crowdfunding campaign set up in the school’s name and to ensure all funds raised are deposited into official district accounts. Some districts choose to establish a policy forbidding crowdfunding for school-sponsored purposes. This eliminates the risk entirely.
Bottom line: Have a written policy on crowdfunding before someone launches a campaign. Reacting after the fact is much harder than preventing the problem before it happens.
Activity funds are a small but important part of what makes school life meaningful for students. With the right policies and some training, they don’t have to be a source of stress or confusion. By setting clear expectations from the beginning, Illinois K-12 districts can support their clubs and teams with confidence while avoiding the financial headaches that can distract from what matters most: the students.
Illinois K-12 school districts manage significant assets including; schools buildings, administrative buildings, furniture, vehicles, athletic facilities, and maintenance equipment. Schools need to be mindful of record keeping and reporting of capital assets to avoid auditing and reporting issues down the road.
In simple terms, a capital asset is:
For example, a laptop may be expensed, while a school bus or major HVAC system would likely be recorded as a capital asset.
Because these assets affect a school district’s financial statements and compliance reporting, having a clear system in place with respect to capital assets is essential.
Every district needs a reliable way to track its capital assets. There are several options.
Handle It In-House
Many modern school district ERP systems have a capital asset module. A district business office employee can use this module to perform regular record keeping tasks.
Outsource to an Accountant
An external accounting firm can maintain your capital asset records, for a fee, ensuring technical accuracy and compliance.
Use a Capital Asset Inventory or Appraisal Company
Some districts work with an external asset appraisal company, typically the one that performs the district’s insurance valuation. These firms can maintain capital asset records for the district and assist with updates.
No matter which option you choose, a district employee must provide accurate information and oversee the process. Good data input and regular supervision are critical.
A strong financial policy should clearly address capital assets. Your policy should include:
Policies set expectations. Processes ensure they are followed. Documented processes and procedures should answer such questions as:
If your district purchases equipment or does construction with Federal or state funds, you may have additional rules to consider. For example:
Capital assets represent some of the largest investments an Illinois K-12 school district will make. With clear policies, well-defined processes and consistent oversight, districts can avoid audit issues, stay compliant with funding requirements and maintain accurate financial reporting. If you have any questions, the trusted advisors at Cray Kaiser can help you. You can contact us here or call us at 630.953.4900.
College foundations play a critical role in creating opportunities for students, but managing the internal accounting procedures of those organizations can be complex. In this fourth and last video in our college foundations series, Dan Swanson, shares his perspective on the unique challenges and opportunities college foundations face. Dan discusses best practices for financial reporting, common issues foundations encounter and how clear communication can help organizations stay focused on their ultimate goal, which is supporting students through scholarships and funding.
Transcript
Welcome, everybody. I’m very excited to be here today. My name is Dan Swanson. I am an assurance manager here at Cray Kaiser. I’ve been with the firm for about 12, 13 years now, and I wanted to talk about a subject matter that I’m very passionate about, and that is college foundations and some of the important factors that we need to be considering, some of the hot topic issues. I want to talk about some success stories, some issues that they commonly face.
One of the reasons I’m very passionate about this, because we always hear that question, if I wasn’t an accountant, what would I be doing? I’m a big fan of education. My parents were teachers. I have brothers that are teachers. So if I wasn’t an accountant, I would be a teacher. So by serving these college foundations, I feel like I get the best of both worlds. I’m helping students while getting to use my accounting knowledge and expertise. So it’s very near and dear to me.
So I wanted to kind of talk about foundations and how we here at CK have helped foundations on a number of different areas. So where I think Cray Kaiser can really add value and where I believe sets us apart from either having an internal full-time person or another outsourced firm, assisting with the monthly accounting is I’m a big fan of the education piece and the communication piece.
So what I always try to do is explain to the foundation and the staff is here’s what I’m doing. Here’s why I’m doing it. And here’s kind of the end game. Here’s the goal. Start with the end in mind. So here’s what we’re trying to get to. But in order to get there, we got to do these three, four, five things. So really helping them understand my process or CK’s process. Here’s how we’re going to go through it. Here’s how we’re going to work through it. I think really helps them understand kind of the efforts and what it takes and the value that they are getting from this.
Because I don’t ever want to be just an expense item on their income statement. I want that to have meaning, to add value. If we’re just a necessary evil expense, then I feel like I’m not doing my job. But if we can help them add that value, then it’s a win-win.
So again, that’s educating them along the way, communicating with them. And really kind of strategically thinking, how do we make things better? How do we make the financial statements more transparent? If there’s this big manual, Excel manual process, how do we let the system do that heavy lifting? Because if there’s a time-consuming manual process, what happens? We’re all human. We all make errors. So if we can let the system do those, automate it, utilize the system to automate those tasks, our consistency and our errors are going to improve.
So again that’s I think where we can come in since we’ve worked with these systems, we know how they work we know how they operate we know how they think so let’s lean on that to streamline processes, streamline these manual processes and then educate.
That’s where I think we come in to improve is if you have a question ask. You know the old Who Wants to be a Millionaire game show. I want to be your “phone a friend”, if you have a question, give me a call and we’ll talk through it. I’m a big fan of let’s just get better. So just because we did it last month doesn’t mean we’re going to hit cruise control and do it the same way the following month. Consistency is key, but can we improve? And so let’s work together to always get better, always get more transparent, and let’s continue to have those conversations with the executive director, the finance committee, the board members, and let’s make sure we’re all in it together. Because again, what’s the goal? What’s the purpose of these foundations? Let’s raise money. Let’s raise donations. So we have tons of scholarship funds available for students. That’s the goal so let’s keep the goal in mind and so that’s and how do we get there? Again, that’s education communication and constant improvement.
So that’s what I try to bring, that’s what Cray Kaiser tries to bring, is that winning successful attitude. Other issues that I see or that we can help out with I may have mentioned just timeliness on monthly financials. So how do we get to you by the 20th of every month. Those month end financials are done and closed. So us being auditors and us understanding the importance of internal controls and processes, when you come to Cray Kaiser, we can kind of plug in that mentality and really help you streamline your month end closes.
What are some best practices? What are some great work papers? What are some great recs that we can do? We can help meet with your staff there and kind of help train them, help guide them, help empower them to do some of that work ahead of time. We’re happy to do it, but we’re also happy to help train and guide your people internally, so they know how to do it moving forward, as well. I really want it to be a team atmosphere. I want to educate you along the process. Here’s what we’re doing. Here’s why we’re doing it. And this is why I think it’s going to help everybody here. So that’s kind of the time. Yes, we’ll set a schedule. This is what we want to do. And this is how we’re going to do it. Do we always meet that? No, there’s always issues that come up, but we can work through them.
So from some of my past experiences, that timeliness of financial reporting wasn’t being done or there’s a transition. This long time finance position person is retiring and we’re having a hard time finding a new person or training a new person, so that’s where since we have the experience here can kind of come help in and either bridge that gap or even be that outsourced kind of finance position to help you produce accurate financial statements, either quarterly, monthly, whatever you need, so your finance committee, your board, can review and approve, etc.
Here’s a scenario where Cray Kaiser was able to step in and provide value. So there was a longtime financial person in the shoes that we are at now who retired. What happened was they retired and then that transition did not go well and so they were five to six months behind in their financial reporting. They were months behind in entering payables into their accounting system and they were months behind in just simply cutting vendor checks. So it’s kind of triage, what are what are the key items, the key problems, the key sources that you need us to do.
So I still remember day one us simply going out there and looking through their vendor payables, entering them and cutting checks was a huge win. Just that simple task was a big win just because that transition for whatever reason did not go well. But again with us and our knowledge with nonprofits, our knowledge of accounting principles, our knowledge with working with different systems, we were able to quickly step in kind of see their system that we weren’t new to, understand it and start just simply cutting checks. Sweet! Day one we got a win. Okay, now tomorrow let’s come back. Okay, what else what else is on your mind, what else hasn’t been done, what else is of super importance. You tell us what you need us to do we don’t want to ever just assume and do things so you help us understand your struggles and we’ll provide solutions or provide help where we need it.
So again there was the just simply cutting checks and then just bank reconciliations. In the accounting world that’s key. Can we get timely bank reconciliation done? Again five, six months behind and a simple, quote unquote, simple bank reconciliation. So that was on their mind. So let’s make sure we understand that process and get that moving forward and get that scheduled out.
I keep talking about the investment piece. So again, as foundations, depending on the size, that they could have millions of dollars in investments that have earnings each month. So how do we make sure that these earnings are being appropriately allocated to these 200 scholarship funds? Are all those scholarship funds included in those earnings? If there’s a new endowment, how do we make sure that new endowment is now added to that pool?
So it’s kind of going through a whole list of scholarships or endowments. What should be part of that earnings pool? And is it in there? And what are some best practices to track that moving forward to ensure as new ones are added, they’re added timely. As new money comes into the foundation, how do we make sure those new funds are invested in a timely fashion? So again, that’s where that internal control processes, best practices come into play. And that’s where I think Cray Kaiser does a good job stepping in and just having those discussions to make sure we’re aware of all the issues so we can address them one at a time.
As accountants, as CPAs, I kind of say, we have that strong accounting foundation, that accounting base. So we have a step up on working with new accounting software. We already know what the answer should be because we’re strong accountants. So how do we get the system to do what we know the accounting needs to be? And if you can kind of have that strong accounting knowledge, it makes utilizing that system that much better.
So if you made it this far in my video presentation, I want to thank you for staying. If you have any questions that you would want to ask me, please feel free to reach out. You can go to the Cray Kaiser website. And you can find me. Again, I’m Dan Swanson. I’m an assurance manager here. Again, I’m very passionate about foundations and the importance of solid financial reporting. Over the years working with them, I think I’m pretty good at it. And again, I always think of what is their mission, what is their vision, what is their value of these foundations? And at the end of the day, we want to provide opportunities, funding for students.
Again if I wasn’t an accountant I would be a teacher and educator so working with these foundations, I get the best of both worlds. I’m able to achieve both of those dreams. So again if you have any questions, if you’re seeking more information, hey, if you just want to talk to me for a half hour I’d love to help. So again please feel free to contact me all that information is on the Cray Kaiser website. And again, thanks for staying on if you made it this long.
Financial statement audit season can feel overwhelming for K-12 school districts, but it doesn’t have to be. With a little preparation and clear communication, school districts can prepare themselves to have a successful and smooth audit. Below are some practical steps you can take in the months leading up to your audit to help ensure a positive experience.
Good organization is the foundation of a smooth audit. Make sure that important documentation is easy to access and clearly labeled, including:
When auditors can quickly locate what is needed, the process moves more quickly and requires fewer follow-up questions.
Before auditors arrive, your accounting records should be current. You will need to do the following:
Ideally, your books should be reconciled through the current date. Up-to-date records reduce surprises.
Don’t wait for the auditor to tell you that something looks unusual.
Run:
Then ask:
If something stands out, investigate it ahead of time. Unusual results often point to adjusting journal entries or posting errors that can be corrected before the audit.
School districts have unique compliance requirements that often go beyond the basic financial statement audit.
Be aware of:
If your district received significant federal funding during the year, you may be subject to additional compliance testing. Confirm your requirements early so you’re not caught off guard.
Strong communication can prevent most audit frustrations.
Schedule a pre-planning meeting to clarify expectations in the following areas:
Logistics
If possible, schedule audit work so that your team is not stretched too thin with everything else going on.
Staffing
Clear roles reduce confusion and duplicate requests.
Engagement Letter
Audit work should not begin until you have signed an engagement letter and you understand the letter.
PBC (Prepared by Client List)
Review the list carefully and begin gathering items as early as possible.
Discussion of Significant Matters
If any significant, unusual transactions have occurred during the year, or your organization is unsure about your books/records and the treatment of certain areas, ask your auditors for advice on these at this time. Early conversations help to prevent complications later.
Deliverables and Deadlines
An exit conference helps confirm the next steps and ensures everyone is aligned before the audit is completed.
An audit shouldn’t feel like a surprise inspection, instead it should be a well-managed project. When a school district stays organized, keeps financial records current, understands the compliance requirements and communicates clearly with auditors, audit season becomes more manageable. If you have any questions during your district’s audit, the trusted advisors at CK can help. You can call us at 630.953.4900 or contact us through our website.
In this video about not-for-profit organizations, Carl Thomas, a manager at Cray Kaiser, explores how federal and state funding can impact the regulatory compliance for nonprofits. He takes a close look at how uniform guidance audits can present valuable opportunities for growth and improvement.
Transcript
I’m Carl Thomas. I’m a manager at Cray Kaiser. Many not-for-profit organizations receive federal funding, even state funding, perhaps. Now, this can have certain implications for your regulatory compliance. One thing that can happen is over $750,000 of federal awards can qualify you for what we call a uniform guidance audit. This is an audit that requires the auditor to gain an understanding of the internal control over compliance with the federal grants. It also requires an actual compliance audit. So we would test the compliance with that grant. It definitely adds some time to the project. And it can also give you some insights into how you’re managing these grants and what can, you know, if there’s any room for improvement.
If there’s certain state awards as well. So when we talk about state awards, we mean state of Illinois, perhaps the Department of Commerce and Economic Opportunity, perhaps the Department of Human Services, even the State Board of Education is one that will provide state awards. And when I say state awards, I mean awards that are derived from state revenues. So a state agency may administer a federal award as a pass-through. So that’s important to understand as well. There is a distinction there. Now, when state awards are involved too, and federal awards, you may have what we call a GATA implication in the state of Illinois. Now, this is similar to a uniform guidance opinion and requires the submission of what we call a CYEFR, a consolidated year and financial report.
Now, as a result of potentially having a federal audit or certain implications of the GATA requirement in Illinois, your organization may find themselves in a position of receiving maybe an audit finding. However, it’s not really a negative thing. It’s really an opportunity for improvement, right? The auditors are looking at transactions in detail, they’re testing internal controls with grant compliance and things. And in an intensive audit, you’re bound to almost have some suggestions and value add things that come out of that. However, again, it shouldn’t be seen as a penalty. It should really be seen as an opportunity for growth. Because in the next year, it’s an opportunity to improve on that matter and take that finding away, quite frankly, with action on your part. And so there can be some value there.
Well, thank you for tuning in today. If anything we’ve talked about is resonating with you, or sounds like something you want to discuss further, please feel free to call the dedicated Cray Kaiser not-for-profit team. We’re always available. The number is listed on our website. You can ask for Carl or Amy to start, but anyone can point you in the right direction. Thank you.
In this video, Carl Thomas, a manager at CK, provides a clear overview of a Statement of Functional Expense. This is a key financial report for not-for-profit organizations. Learn how this statment breaks down expenses into three essential categories: program services, management and general and fund raising. Each of these categories reflects how an organization allocates its resources to fulfill its mission. Whether you’re a nonprofit leader or simply curious about nonprofit finances, this is an important foundational topic to understand.
Transcript
I’m Carl Thomas. I’m a manager at Cray Kaiser focusing on the assurance line of business. Not-for-profits have unique financial reporting requirements – a little bit different than your average for-profit organization and government, of course. And one of the unique financial statements that is produced is called a Statement of Functional Expense. Now, what this does is it breaks up expense by three main categories, which we call functions. Now, a function is – a good way to think about it is – what is the organization doing with the money? What is the activity? What is the action, correct? So, the three main categories are what we will call management and general. So, you can think of this as, you know, the chief financial officer, probably human relations, certain sort of back-office functions, if you will.
And then another category that is used is program. Now, program is really the deliverance of the service that the organization exists for. So, for example, if it’s a childcare entity, it’s going to be the people taking care of the kids every day, in a simple sense. Now, the third category is fundraising. Now, this is pretty self-explanatory, I think, but at the end of the day, it’s money spent to, I guess, raise more money, right? So, for example, like gala might be a good example, where donors are coming and having a nice time, and there’s perhaps a silent auction – different things like that.
Not-for-profit organizations really do need to think pretty hard about this statement because it can have implications for donors, for granting, et cetera, and so forth. It’s really important to try to break down, at a detailed level, where the expenses are going. If an organization is showing a lot of management and general expense, what you may have is – you may have donors getting a little nervous, saying, “Oh, well, a lot of money is going to overhead,” is kind of what that’s saying in a financial sense. Donors typically want to see their money going to program. The organization needs overhead. It has overhead. It’s never going to get rid of the overhead. But to the extent that a lot of thought can go into this statement to reflect the true reality, the organization is going to be presenting themselves that much better to the public and to potential donors, grantors, and those types of stakeholders.
Well, thank you for tuning in today. If anything we’ve talked about is resonating with you or sounds like something you want to discuss further, please feel free to call the dedicated Cray Kaiser not-for-profit team. We’re always available. The number is listed on our website. You can ask for Carl or Amy to start, but anyone can point you in the right direction. Thank you.
In the not-for-profit world, maintaining strong internal controls can be a challenge, especially when working with limited budgets, small teams and basic account software. Watch our video and learn more about common internal control issues, practical workarounds like compensating controls and strategies to strengthen financial oversight, even with limited resources.
Transcript
I’m Carl Thomas, I’m a manager at Cray Kaiser focusing on the assurance line of business. In my experience working with not-for-profit organizations, a big challenge is internal controls and segregating duties and making sure that the process is well protected from error and mistakes and things.
A couple of reasons these challenges may exist is limited budget constraints and limited staffing in the finance office. Another challenge is that a lot of smaller and not-for-profit organizations use off-the-shelf accounting software, which may not be able to limit access controls in terms of who can do what in the system. With a small finance office, there’s also limited FTEs. So you can’t necessarily break a process up amongst three, four people if your finance office is maybe only two people. So that’s also a challenge.
A good way to work around these limitations is what we call compensated controls in the industry. Now, compensated controls would be something that is outside of that process. So it could have a time lag where it happens after it, or it could be someone even outside of the finance office looking at something. An example would be after payroll was run, the president or CEO may run a report for what we call an exception report, for example, where they’re looking for paychecks that may be populated for a plus or minus 10 percent different than the last period. This would really target the review by someone who is not familiar with the usual finance processes and make it very efficient. And since that person, in general, does not have access to assets or the accounting system, it would provide sort of an independent check on that process. In this case, this would be a pretty good control for payroll. However, it is important to understand that that person, again, should not have access to any of the accounting system or assets. Otherwise, it kind of negates the value of that process because controls could be overridden. We call that management override in our business.
Another good compensated control is keeping the board of directors engaged. Now, the board should be reviewing financial information regularly. Balance sheet, investment reports, profit and loss statement, and potentially even cash flow statements. This helps the board be informed about operations and how the organization is performing. It’s very important that the board assess performance. Now, it’s also interesting because this is a control. And so it’s important to keep the board engaged because the board being engaged is actually a great control.
Other good things to have in process are what we would call entity level controls. And when we talk about these, we’re talking about things that are outside of that transactional process. For example, good tone at the top is actually pretty important. If there’s a good tone at the top with the board of directors and management, it cascades down. And this is actually very paramount in our industry. If we do not have a good tone at the top, it can lead to problems in the organization. So that is actually a very good control and that is very hard to quantify, but it is something that organizations should be thinking about. It’s very important.
Going along with the entity level concept, too, it’s really important to have well-defined policies and procedures. For example, employee handbook, perhaps a code of conduct can also be quite helpful. People operate better when they have a framework of what’s expected, I think, and that’s also another great entity-level control. Something from a blocking and tackling standpoint could be maybe a tip line. All right, tip line. If you see something, say something.
Going again with the entity-level control, something that organizations may also wish to think about is keeping their employees and their stakeholders engaged. And a great way to do this could be something what we call maybe a suggestion box or a way to keep engaged where there’s a two-way communication between employees, management, and the board of directors. In this way, certain things that may not be visible at some levels of the organization may be apparent if there’s good two-way communication. Two-way communication is also a foundational principle of auditing. Auditors have to have good two -way communication with our boards of directors so that everyone is informed of matters that are relevant.
These challenges and issues are inherent to many small, medium, and even large-sized not -for-profit organizations. If some of these challenges are resonating with you, feel free to give us a call. Cray Kaiser is a full-service CPA firm with a dedicated team to not-for-profits, and we’d be very happy to hear from you.
Financial statement audits don’t have to be a stressful time for nonprofit organizations. With some proactive planning and preparation, nonprofits can successfully prepare themselves to have a successful and smooth audit process. Below are some key tips to help your team get ready before the auditors arrive:
1. Get Organized
Make sure that important documents are easy to find and well-organized. This includes:
Having these readily available will help to streamline the audit process.
2. Update Your Books
Ensure your accounting records are current. You should:
Up-to-date books are essential for a smooth audit.
3. Review and Analyze Financial Results
Before the audit:
If something looks off, investigate further. It might require adjusting a journal entry.
4. Know Your Compliance Requirements
Nonprofits face unique compliance obligations. Be aware of the following:
Know your state and federal requirements ahead of time.
5. Coordinate with Your Audit Firm
Proactive communication with your auditor can prevent delays and confusion. Consider the following:
At Cray Kaiser, we understand that preparing for an audit can feel overwhelming. Our experts are here to support you every step of the way, from organizing your records to navigating compliance requirements and coordinating with your auditors. If you need guidance with preparing for your upcoming audit, don’t hesitate to contact us at 630.953.4900 or fill out this form.
2024 ushers in significant regulatory relief for Illinois nonprofit organizations, thanks to Public Act 103-0121. This new legislation raises the contribution revenue thresholds that determine the filing requirements for nonprofits in Illinois, potentially reducing the financial obligation for smaller organizations.
The changes to the contribution revenue thresholds for Illinois not-for-profit organizations are as follows:
The changes brought by Public Act 103-0121 apply to organizations with an initial due date (without considering any extension) occurring after January 1, 2024. Consequently, this requirement applies to organizations with a fiscal year ending on June 16, 2023, and later.
One of the advantages of this regulatory update is the potential cost savings for nonprofits. Reviewed financial statements typically cost less than audited financial statements. This reduction in expenses could be a substantial benefit for smaller organizations operating on tight budgets.
However, nonprofits should consider the long-term implications of switching from audits to reviews. If an organization has decreased revenue in the current year but anticipates revenue growth in the future, it might be more cost-effective to continue with audits despite the immediate savings from reviews. This is especially true if grantors or financing arrangements require audited financial statements. Initial or resumed audits require more setup time and effort from both clients and auditors, so maintaining continuity with audits could lead to greater efficiency and reduced future workload.
As fiscal year-end approaches, organizations should begin to review their year-to-date activity. A proactive review will help in deciding what if any services are needed. Ensuring that books and records are in order will facilitate efficient and effective services from a CPA firm. Monthly bank reconciliations completed through the fiscal year-end date are a good starting point. These reconciliations are a good indicator to CPAs of an organization’s readiness for an audit.
If you are a nonprofit and want to learn more about how Public Act 103-0121 may impact you, please reach out to the CK nonprofit team at (630) 953-4900.
Illinois lawmakers passed a new bill (HB1197) this summer which increases the threshold requirements for obtaining an “Audited” financial statement by an independent accountant for nonprofit organizations (NFPs). The bill also sets new requirements for NFPs that sit between the old threshold and the new threshold to get “Reviewed” financial statements. The new law becomes effective for tax years beginning January 1, 2024 and currently set to expire after tax years ending December 31, 2028.
Previously, most NFPs soliciting for contributions to the general public were required to get “Audited” financial statements if their total contributions for an annual period were above $300,000. The new bill increases the Audit threshold to $500,000.
However, the bill sets a new requirement for those NFPs with total contributions between the old threshold of $300,000 and the new threshold of $500,000 to get “Reviewed” financial statements. This means that the NFPs resting in this window are not completely off the hook for getting an independent sign off on their financials. However, the accounting and administrative burden should be less expensive and less time consuming since a Review does not require as much validation or substantiation by an independent accountant as an Audit.
The new law was enacted in May of 2023 and Illinois is still ironing out the kinks. There may be additional guidance to follow as forms are reworked for the 2023/2024 filing season. CK will make sure to update you on any amendments or guidance related to the bill as it becomes finalized by Illinois lawmakers and the Attorney General’s Office.
Reminder:
For the purposes of the reviewed and audited financial statement thresholds “Contributions” include all funds raised by solicitation activities to the general public. This includes donations, pledges, program service revenue, fundraising events, etc. However, there is an exception in the law to exclude admission/ticket revenue for music or theatrical performances by nonprofits organized under 501(c)(3) with the mission/purpose of providing live public performances on a regular basis.
For more information on the increase in the Audit threshold, the new Review requirements, or understanding on what constitutes “Contributions” for the purpose of these thresholds, please contact the CK nonprofit team by calling (630) 953-4900.
