FINANCIAL MANAGEMENT FOR THE LOCAL HISTORICAL SOCIETY

By Michael D. Clevenger

Local History Notebook, July / August 1986

Suddenly you have found yourself elected treasurer of your local historical society. The organization has grown from ten members to over one hundred members. The first fund-raiser you held netted $50. Now continuing projects, dues, and donations are well over $5,000. The board of directors has turned to you as treasurer to develop a formal plan to organize the society's financial records and finances. Where do you begin?

The question of "where do I begin?" can be answered by learning some basic financial management tools which can be applied to the small volunteer historical society. Financial responsibilities, basic record-keeping, internal control and preparation of budgets and financial statements will be discussed.

It is important to remember that no organization is too small for a formal financial plan. If you develop a plan when your society is small, the basic principles can be expanded as your financial success grows.

General Financial Responsibilities

In a small organization almost all of the financial responsibilities are delegated to the treasurer. The treasurer, like everyone else, is a volunteer with limited time to spend on the organization's activities. However, the treasurer is usually charged with the following duties:

This is sometimes a heavy load to handle, and the treasurer may want to delegate some parts of his or her responsibilities. Some delegation is desirable, and will be discussed later.

Nonprofit Vs. Commercial Enterprise

The treasurer must understand what a nonprofit organization is and the importance of financial stewardship since the principal difference between a nonprofit and a commercial profit-making organization involves the stewardship function. Financial stewardship is the administration of funds for the benefit of another. A nonprofit organization's purpose is to carry out programs which meet the needs of the community it serves. Therefore, the emphasis is on accountability of the funds collected and disbursed. A profit-making enterprise, although it must be concerned with accountability, has, as its primary goal, to return a profit to the owners. The social concerns of the community must be considered, are secondary to the profit motive. The board of trustees of a nonprofit organization has a legal responsibility to manage the assets of the organization in a prudent manner. By accepting donations from the general public, the directors must practice sound financial stewardship and use the funds as the constitution and bylaws of the organization dictate.

Basic Accounting and Record-Keeping

The financial records of the organization should be complete and accurate. Completeness requires that a record be kept of all funds received and disbursed. The records need to indicate the date, source, and purpose of all transactions. The records must be accurate so that they may be compared to outside sources such as bank statements, invoices, and other records without discrepancies. At a minimum, the following journals or records should be kept:

The cash receipts journal shows one month's activity. Note that it gives the date received, source, total received that day, and a breakdown of the various sources. At the end of the month, it should be totaled and compared with the total deposits listed on the bank statement.

The cash disbursements journal also shows a month's activity and indicates all the necessary information to identify a transaction and its purpose. As with the cash receipts, this journal should be totaled and compared with the checks listed on the bank statement. From these two journals alone a financial statement can be prepared.

Basically then, any bookkeeping system can be described as having three steps:

As the size of your society grows and accumulates assets such as properties, collections, and excess cash, it will become necessary to establish a "double entry" bookkeeping system. A general ledger will be maintained to record assets and liabilities along with receipts and disbursements. Then a balance sheet can be prepared. When a general ledger becomes necessary, it is advisable to obtain professional guidance for the initial setup and proper instruction for the recording of transactions.

Preparing a Budget

Every society regardless of its size should prepare a budget. A budget is simply a statement showing the anticipated receipts and disbursements for the year. It is a financial plan of action and an important financial tool because it helps the organization determine what programs and activities are financially feasible. Preparation of a budget is a simple process. But it takes the input of all the society's key people, including committee people in charge of fund-raising activities and programs.

The budget preparation should begin by listing two prior years' receipts and expenditures, leaving a column open for the coming year's anticipated activity. A budget committee should evaluate each source of income and expense and determine a reasonable budget figure. The committee's budget should then be presented to the board of trustees for revision and final approval. After approval, a copy should be distributed to all members.

Remember that a budget is only an estimate. It must be periodically compared to actual results and adjusted if necessary.

Internal Control

Internal control refers to the system of procedures and cross-checks which minimizes the likelihood of misappropriation of the society's assets. These procedures and controls are a must to properly carry out the financial stewardship function and protect the treasurer and board of directors from suspicion of any wrongdoing. One of the most effective methods of internal control is the use of a budget. Budgets, when compared to actual results on a periodic basis, can reveal deviations or irregularities very quickly. The following controls are basic for the small local historical society:

Control over receipts

Control over disbursements

General control

Federal and State Reporting Requirements

The Internal Revenue Code provides exemption from income tax for certain specific organizations. The most widely applicable to historical societies is Code Section 501 (c) (3). This section provides exemption for organizations organized primarily for religious, educational, charitable, or scientific purposes.

Almost all exempt organizations are required to file an annual information return with the IRS. This return, called Form 990, includes information on income, receipts, contributions, disbursements, assets, and liabilities. The return must be filed by the fifteenth day of the fifth month after the end of the fiscal year. Failure to file could result in substantial penalties if a valid reason is not shown. There are exceptions to this reporting requirement. The exception which generally applies to small organizations is that you need not file if your gross receipts are $25,000 or less.

The reporting requirements in the State of Ohio generally are concerned with the solicitation of funds. All organizations are required to register with the Attorney General or the County Clerk prior to soliciting funds from the general public. Not all solicitations must be registered. For specific information you should contact the Office of the Attorney General, Charitable Foundations Section, 30 E. Broad Street, Columbus, Ohio 43215 (614) 466-3180.

Summary

The financial management and stewardship responsibilities of a local historical society are extremely important. Your organization's continued existence will depend on how effectively these functions are performed. The basic principles contained in this article can provide you with a starting point for developing and maintaining the financial stability of your historical society.

Suggested Reading

The following suggested readings are available through the Local History Office Lending Library.

Daughtrey, William 11. Museum Accounting Handbook. Washington, D.C.: American Association of Museums, 1978.

Gross, Malvern J. Financial and Accounting Guide for Nonprofit Organizations. New York: Wiley, 1983.

Haller, Leon. Financial Resource Management for Nonprofit Organizations. Englewood Cliffs, New Jersey: Prentice-Hall, 1982.

Pizer, Laurence R. Technical Leaflet No. 106. "Financing Your History Organization: Setting Goals." Nashville, Tennessee: American Association for State and Local History, 1978.

Michael D. Clevenger, CPA, is a partner in the public accounting firm of Clevenger-Loofbourrow and Associates, Inc., Columbus, Ohio. A past president of two nonprofit organizations, Mr. Clevenger is a board member and treasurer for the Worthington Historical Society in which capacity he has served since 1981. In his profession as a CPA, he has dealt extensively with nonprofit organizations and has participated in and helped to develop materials in seminars relating to nonprofit organizations.

The Local History Notebook is edited and published by the Ohio Historical Society's Local History Office, in order to bring useful information to persons working in the local history field. The selection of subjects and authors is based on inquiries to the Local History Office and on the editor's determination of issues which are timely in nature and lasting in scope. The reference inserts are copyrighted 1986 the Ohio Historical Society. Reprints are available; please specify volume and number. For information on prices, write to: