Fraud in a homeschool group

HandsWithCash

 

I received a phone call from a homeschool support group leader that broke my heart. She had just learned that her treasurer had embezzled over $10,000 from her group during the past two years. Her tale was heartbreaking as she spoke of what painful lessons she had learned and how to go forward.

The leader saw a few things that tipped her off:

  • The treasurer’s business income had taken a recent financial hit making his personal finances in trouble.
  • No budget was created.
  • The treasurer was not detailed oriented.
  • The treasurer did the bank reconciliation, so no one else saw the bank statements.The checkbooks was kept locked in the treasurer’s business office and frequently inaccessible.
  • The leader had a difficult time getting the treasurer to write checks to members for expenses.
  • The treasurer was married to the vice chair, who was a close friend of the leader, so the leader was reluctant to confront her friends.
  • The board was small and few people were willing to volunteer, making the leader desperate and grateful when anyone said they would serve as treasurer.

Here is what the group is doing now:

  • Consulting with a lawyer about criminal prosecution.
  • Pursuing restitution from the treasurer.
  • Using a bank account with on-line access for visibility.
  • Having someone besides the treasurer do  the bank reconciliation.
  • Creating a budget.
  • Amending bylaws and policies to add accountability. The treasurer will be required to make financial report at every meeting.

I hope you never face a similar situation.

To prevent fraud in your homeschool group, follow the practices mentioned above and in my book Money Mangement for Homeschool Organizations which you can order from the Bookstore page.

I also offer an excerpt from the book, a list of Recommended Financial Practices in the Chapter titled Fraud: It Couldn’t Happen to Us. It’s so important that your homeschool group put in place good financial oversight that I’m offering that part of the book at no charge.

Carol Topp, CPA

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Homeschool field trip leader wants checks written to her (or she’ll quit!)

From looking at your book, Money Management in a Homeschool Organization, it appears that all field trip money should be run through the group’s account. Checks should be made out to the group, any cash receipted, then one check going out to pay for the field trip. This seems to be a real hassle, especially since trip attendance can change the day of the trip due to illness, etc.

After a year of not having field trips, a committee was put together, so now some are on the calendar. It was my belief that the above needed to be practiced. The leader refused. She wants the money paid to her, checks preferred, no receipts. This is how she operates another large homeschool prom she coordinates for another set of people. I was on the field trip team for years. This has never been done before! If we do not do it her way, she won’t do field trips.

I am new as Treasurer. I don’t know if we can do that, legally.

The other question it brings up is putting those field trips in our yearbook (we do a yearbook each year of our sports, activities, field trips). If they are not really functions of our group (which is what the leader is saying), can they be in yearbook? If they are in yearbook, does the money need to be run through the account and all that hassle?

Thank you so much!
Karen M Treasurer

 

Karen,

Thank you for contacting me. I’m glad to see you have read my book Money Management in a Homeschool Group  and are trying to be compliant with good money practices.

Yes, all field trip money should go through your homeschool group’s bank account. But in reality, sometimes it is easier to collect cash on the day of the event and pay for the field trip that day with cash. I understand that. But, as much as possible, if checks are collected they should be made out to your organization and deposited in the organization’s checking account.

It greatly concerns me that your field trip volunteer is demanding that checks be made out to her. That is a red flag! It looks suspicious. She is trying to direct money that belongs to your group to her (that’s called embezzlement!). Tell her that your group does not do things in an improper way just because another group does it that way. You are seeking to implement good financial practices and that means no checks for funds that that belong to the organization are written to a volunteer (i.e., her).

Tell her that if checks are written to her then:

1. It is personal income to her and needs to be included on her personal tax return (!) and
2. If checks are written to her then your homeschool organization is not sponsoring the trip and your insurance will not cover the event. Her personal insurance must cover the event (Get her to agree to #1 and #2 in writing!) and
3. If the checks are written to her, then this is not sponsored by your group and should not have your group’s name associated with the field trip or include it in the group’s yearbook.

This is less a legal issue than a moral, ethical problem. If a volunteer insists on checks written to her personally and threatens to quit her volunteer job if you don’t comply with her demands, you have an ethics problem.

I am concerned that her behavior and demands sound as if she is trying to embezzle money. Have nothing to do with her, at least as far as handling money goes.

If she threatens to quit leading field trips consider yourself fortunate!

For more help in managing the money in your homeschool group get my book Money Management in a Homeschool Organization or listen to these podcasts:

How to Handle Reimbursements

Can a Homeschool Group Collect Money Now for Next Year?

What Homeschool Leaders Don’t Know About Fundraisers

Carol Topp, CPA

P.S. I will be unavailable from October 24, 2017 through November 5, 2017. I will be on a long-desired trip to Israel, walking where Jesus walked! Thank you in advance for your patience as it will take me some time to catch up after I return.

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Simplify your homeschool group fees (please!)

Carol,

Our all volunteer homeschool co-op charges fees for several things:

  • A $20/family registration fee.
  • A $12/family fee to pay a cleaning crew for cleaning.
  • The building usage fee is $40/student/school year.
  • A $4 PayPal fee per transaction.

Then some of the class teachers charge a supply fee or require the parents to purchase books, etc.
Is there a way to simply these fees?
Emily

 

Emily,

I’ve seen lots of homeschool groups with complicated fee structures. There are separate fees for the facility, the supplies, the insurance, the website, etc. The list of fees on the parents invoice is 5-6 separate lines!

Something like this is invoice overkill!

You don’t need to be this complicated with all the separate fees!

Most preschools, private schools, colleges,  etc. include all their fees into one tuition fee charged to parents. (Okay, I  know that colleges love to charge lots of fees for supplies, etc. and then can claim they are not increasing tuition!)  The school adds up all the expenses to operate their program and charge the parents enough to cover those expenses (that’s why a budget is so important). They lump everything into one bill to the parents called “tuition.”

Instead, just lump it all the fees into one fee, call it student fees or “tuition,” if you like. The parents do not need to see all the details of what goes into running the organization; that’s what the board does. The budget is the place to list the expenses and see if the tuition charged is enough to cover all the expenses.

Simpler invoice to send to parents. All fees lumped together.

P.S. About the Paypal fee you’ve been charging…Paypal forbids you tacking on an extra charge to cover their fee. It’s in the User Agreement your organization agreed to when you signed up for a Paypal account. It says, “You agree that you will not impose a surcharge or any other fee for accepting PayPal as a payment method.” So just roll that fee into your total fee charged to parents.

Why You Can’t Charge Clients Paypal Fees + What to Do About It.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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What Does a Treasurer Do?

 

Do you think all a treasurer does is write checks? Their job involves a lot more that that! Carol Topp of HomeschoolCPA explains the tasks a treasurer does and why her position needs lots of oversight in this short podcast (14 minutes).

In the podcast Carol mentioned a list of Best Financial Practices for homeschool organizations. Find it at  http://HomeschoolCPA.com/Fraud

 

Carol Topp, CPA has written a book just for homeschool treasurers:

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

 

Carol Topp, CPA

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Homeschool support group has problems with bank and IRS

Carol – I just got off with the IRS and I am EXTREMELY irritated and frustrated!!!!! Our homeschool group is a 501c7 social club; we have adopted by-laws. To open up a bank account, the bank wants documentation from the IRS giving proof that we are recognized as a nonprofit organization.

I spoke with two different people at the IRS and the last one was in the tax exempt dept. He and I did not communicate well. He said we had no paperwork in and that I needed documentation for our group. I explained that I had by-laws but he wanted to know if they were signed. I asked if that meant with a signature and he just kept saying the same thing without answering my question.  We kept going round and round with him asking me the same question. Just frustrating!!!

So what do we need to do to be able to get our checking account opened?

Joy

 

Joy,
I’m sorry you had such difficulty with that IRS employee.

The IRS Exempt Organization has lost many of its experienced employees to retirement and to other parts of the IRS managing the Affordable Care Act (Obamacare). And what we’re left with is robots like you talked to. They simply read from a script. I’ve heard several complaints.

Forget the IRS. Go back to the bank. Explain to them that you do not have IRS proof because you are a self-declared tax exempt 501c7 Social club. Bring your bylaws, a list of board members, and your EIN letter form the IRS. Common law states that a nonprofit is formed when you have a board and bylaws.

Proof from the IRS is not needed to establish a nonprofit checking account because the IRS grants tax-exempt status, not nonprofit status. There IS a difference.

Read this article: How to become a recognized Nonprofit

You may need to educate the bank teller. They are frequently misinformed.

Hand them this blog post: http://homeschoolcpa.com/banker-wants-irs-letter-t…

Tell him that 501c7 social clubs can self-declare tax exempt status and do not need a letter from the IRS to prove tax exempt (or nonprofit) status.

Read more about self declaring tax exempt status: Homeschool Groups as Social Clubs

Act informed and confident. You are eligible to open a nonprofit checking account and do not need “proof” from the IRS of self-declared tax exempt status.

Good luck!!

Carol Topp, CPA
Helping homeschool leaders

 

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Giving Scholarships or Discounts in Your Homeschool Group

Does your homeschool group give discounts, scholarships or benevolent gifts?

What’s the difference and how should they be operated?

Homeschool CPA, Carol Topp, offers advice and tips on offering help for needy members in this short podcast episode (15minutes).

 

 

I mentioned my book

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

 

Carol Topp, CPA

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Used curriculum sales and taxes

When a homeschool group has a fund raiser like a used curriculum sale or mini-exhibit hall is the income taxable?
Thanks,
Dorothy
Dorothy,
Fundraisers are usually considered unrelated business income, meaning that the fundraiser activities are not related to your organization’s tax exempt purpose. In other words, a homeschool group’s purpose is education, not selling curriculum or hosting an exhibit hall.

 

Unrelated business income is taxable income. It’s called UBIT-unrelated business income tax.

 

From the IRS: Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T (and pay federal income tax).

 

Fortunately, the IRS has several exceptions to paying the UBIT tax:

  • A $1,000 threshold allows that the first $1,000 in gross revenues from an unrelated business will not be taxed.
  • If the fundraiser (or unrelated business) is run by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.
  • If the fundraiser is not regularly carried on, such as a once-a-year unsed curriculum sale, then the proceeds are not subject to UBIT.
  • If you are selling donated items, like in a garage sale, the income raised is not taxed.

One of these exceptions are bound to apply to most homeschool organizations.

So, while the income from an unrelated business activity may be taxable, in reality, no tax will be paid because one of the exceptions mentioned above applies.

 

Carol Topp, CPA

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Recording scholarships in homeschool group bookkeeping

 
Hi Carol,

How are scholarships recorded in our homeschool co-op’s bookkeeping? We charge an amount for classes but would like to provide a scholarship and return the full amount of tuition or provide a partial scholarship back to the family. For example, we collect the full tuition payment due but then write a check with a certain scholarship amount back to that same family. Is that considered simply as an expense?

Thank you so much!
Sharon

 

Sharon,

What you call a scholarship is really a tuition discount.

The best way to handle this is to give the discount BEFORE the family pays anything. Then the payment is recorded as income (although smaller income than originally budgeted).

If instead you wish to return some of the tuition a family pays, then you record it as a reduction income. We accountants call it a “contra-income” account. Sort of a negative income account. It’s not an expense; it’s a reduction in income.

Something like this:

Income

Tuition Payments: $5,000

Tuition reduction to needy family: ($500) numbers in parentheses are subtraction or negative numbers

Total Tuition Collected: $4,500

So, it’s not recorded as an expense, even if you write a check. It’s recorded as a contra-income (or a reduction in income) transaction.

I cover this topic and many more in my book, Money Management in a Homeschool Organization. You might find it helpful.

Carol Topp, CPA

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Returning homeschool co-op supplies to parents

Carol,
How should our homeschool co-op should handle classes where there are nonconsumable items purchased?  We had a class where Lego kits were purchased for a class.  Students shared kits and we charged a small fee.  Now parents think they should get half of the kits or that future classes should have to pay for the kits and they receive a credit each time.
We have never done that with any classes in the past.  It has always just become property of the co-op.  It sounds like it would be a bookkeeping nightmare.
Thanks for your input,
Becky  in KY

Becky,

You’re right, tracking the LEGO kits sound like a bookkeeping nightmare.  I like to keep things simple but as fair as possible.

We had a similar situation in my homeschool co-op with Spanish books.  The teacher bought a curriculum to use and was planning on spreading out the cost of the teacher manuals and CDs over two years of students. It took some guess work to figure out how many students she would have this year as well as future years.  In the end we decided  that this year’s students would end up paying for a portion of the teachers books and CDs.  The rest of the cost was absorbed by the co-op as a whole. The co-op then owned the teacher books and CDs. Future Spanish classes were charged a small supply fee so that the co-op could recoup the cost of the teachers books and CDs.

I think the co-op should own non consumables, not the individual parents. Sounds like that’s how you have done it in the past. Parents pay a supply fee, but are not entitled to the equipment afterward nor a credit from future students.

So maybe instead of charging the current students full price for nonconsumables, your co-op could try to save up some money over a few years and purchase nonconsumable equipment that will be owned by the co-op. Or have a fundraiser to buy the equipment.

Carol Topp, CPA

Is a surplus added to next year’s budget?

Carol,
When does extra money from the previous year’s budget get added into the new year’s budget? Our treasurer  dumped all the leftover money from our prior year into the new year. I am pretty sure that isn’t supposed to happen. The way she has it, it looks as though we have $1,200 more to spend in next year than we really do.
Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?
Angela

 

Angela,

Technically, a surplus (leftover money) never gets added to the next year’s budget. The surplus stays in your checking account (as an asset) and is reflected on the Balance Sheet (as the balance in the checking account), not as part of next years’ revenues.

In accounting we have two major financial statements: the Statement of Revenues and Expense (sometimes called Profit and Loss) and the Balance sheet which shows what you own (the assets) and what you owe (the liabilities).

Of course your board should have a plan for your surplus. Maybe it stays as an emergency fund or as the deductible on your insurance policy or is accumulated for a big future purchase (like equipment or a building). Some boards like to have the treasurer put a footnote on the Balance Sheet about money is kept in reserve and it’s purpose, so it doesn’t get spent. Or they move some money into a saving account, so it is less likely to be spent.

Something like this:

Balance Sheet as of DATE
Assets
Checking Account $5,400.00
Savings Account* $1,550.00
Total Assets $6,950.00

*Savings set aside for:
Emergency fund: $1,000
Insurance deductible: $500
Saving for science equipment: $50

“Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?” I think that is wise fiscal management to live within your means each year.

My book Money Management in a Homeschool Organization would be very helpful to your treasurer.

Carol Topp, CPA
HomeschoolCPA.com