Division Best Practices and Financial Accountability

1. Division Best Practices and Financial Accountability Presented by Thomas P. Kennedy, Partner Michelle S. O’Reilly, Manager February 24, 2011 New York State Podiatric Medical Association, Inc.

2. Discussion Items • Corporate Best Practices and Governance Standards-Why are they important? • Divisional Activity • Divisional Challenges • Best Practices • Corporate Compliance and Financial Accountability • Internal Controls and Reporting Guidelines • Summary

3. Why are Corporate Best Practices Important to the Divisions? • NYS Podiatric Medical Association is a not for profit professional membership organization exempt from Federal income taxes under Section 501 (c)(6) of the IRC • The Association has 13 regional divisions that operate through independent governing boards • The Divisions are part of the Association legal entity-they are not separately incorporated and have no legal status as independent bodies (the Association has the authority to dissolve Divisions) • Legal structure of the Association ensures limited liability which is extended to Divisions • Division By laws serve as administrative guidelines for operating the Divisions

4. Why are Corporate Best Practices Important to the Divisions? • Actions of the Divisions may legally bind the Association • Divisional financial activity is reportable as part of the Association’s financial activity • The changing economic environment has increased fiscal scrutiny • IRS monitors corporate compliance • Questions regarding the Association’s corporate compliance is identified on its IRS Form 990 • Conducting activities outside of the scope of the Association’s exempt purpose COULD result in revocation of exempt status

5. The Divisions-Activity • Assets of the Divisions comprise approximately 9% of the Association’s total assets at April 30, 2010 ($253,966). • Revenue of the Divisions comprise approximately 10% of the Association’s total revenue for the fiscal year end April 30, 2010 ($177,870). Revenue activity over the last 5 years ranged from $135,000 to $178,000. • Expenses of the Divisions comprise approximately 9% of the Association’s total expenses through the fiscal year end April 30, 2010 ($154,513). Expense activity over the last 5 years ranged from $135,000 to $155,000.

6. NYSPMA-Revenue SourcesYear ended April 30, 2010

7. NYSPMA-Expense SourcesYear ended April 30, 2010

8. NYSPMA-Divisional Activity for theYear Ended April 30, 2010

9. Divisional Challenges • The Association’s Independent Auditor has reported the lack of controls over reporting Divisional activity as a “material weakness” • A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis

10. Divisional Challenges (continued) • Need for the establishment of policies and procedures for the organization-wide internal controls over: • The custody of assets • Divisional recordkeeping • Reporting of Divisional financial activity to the Association for timely reporting

11. Financial Reporting-Current Practice Recordkeeping conducted at the Divisional level Limited fiscal oversight by the Association Financial reporting to the Association at year end for the annual audit in prescribed format of cash receipts and disbursements Copies of year end bank statements provided to corroborate cash balances Expectation that there are no material accounts receivable or accounts payable outstanding at April 30th (representation of management) Divisional Challenges (continued)

12. Implement Internal Controls over Financial Reporting and the custody of Assets at the Divisional Level Establish Corporate Governance Structure Establish Organization-wide fiscal policy Conducted by a committee of the Association to examine the needs and current practices and set reporting policies and procedures Implement procedures for monitoring assets Implement guidelines for marketing and conducting Division programs/events Best Practices-Corporate Compliance & Financial Accountability

13. Best Practices-Internal Controls & Reporting Guidelines • Division Officers should submit annual budgets • Officers should receive training as to their responsibilities and authority • Recordkeeping should continue to be performed at Divisional level • Financial reporting to Association performed at least quarterly (activity coded in Association chart of account format) for inclusion in Association’s general ledger • Bank reconciliations provided to Association at least quarterly • Narrative summaries of significant financial and operational activity provided during the reporting period

14. Best Practices-Internal Controls & Reporting Guidelines • Implement procedures over writing and signing checks: Vouchers for requisitioning, authorizing, verifying, recording and monitoring all expenditures • Representation by Division Presidents and Treasurers that governance policies are adhered to • Implement procedures over cash receipts: depositing, recording and monitoring • Conflict of Interest Policy-annual declaration by Division Officers

15. Best Practices-Corporate Compliance • Develop a Corporate Compliance Handbook for the Divisions • Develop an annual Division calendar (election of officers, board meetings, etc) • Best practices over the custody of assets and fund administration • Best practices over administration of special events and seminars • Define the Division’s responsibilities to the Association • Marketing guidelines

16. Best Practices-Corporate Compliance • Develop a Corporate Compliance Handbook for the Divisions, continued • Create contract review policy for Divisions (e.g. $10,000 or more) • Include membership information • Other Divisional and Association policies

17. Best Practices-Corporate Compliance • Consider use of an ‘E-Access’ general ledger system (multiple site access). QuickBooks has this capability • Manage the financial reporting guidelines of the Divisions • Divisions help to limit the business risk to the Association • Legal and business risks should be consistently and constantly analyzed and assessed regarding obligations • Consideration of unrelated business taxable income

18. Summary • Increased scrutiny of not-for-profit organizations by the Government necessitates: • Transparency in financial reporting • Governance over Divisional asset management • Compliance with laws and regulations • Accountability to the public and members • Professional competency

19. ODMD Contact Information PKF-LLP New York, NY 10006 212.867.8000 www.ODMD.com 500 Mamaroneck Avenue Harrison, NY 10528 914.381.8900 Dorothy B. Kraft Building 15 Essex Road Paramus, NJ 07652 201.712.9800 60 East 42nd Street New York, NY 10165 212.286.2600 One Stamford Landing Stamford, CT 06902 203.323.2400 555 Hudson Valley Avenue New Windsor, New York 12553 845.220.2400