Financial Management Policy

Matt Brooks | Approved on: Sept 22, 2024

I. Purpose

The purpose of the Financial Management Policy is to ensure that Esperanto-USA (the organization)’s financial assets are accurately accounted for and ultimately utilized to further the mission of the organization. This document will inform the Treasurer, Board of Directors, Central Office staff, and the Members about the budgeting process, how assets and liabilities are accounted for, how income and expenses are aligned to appropriate Programs, and how the organization will conduct financial reporting to the membership.

II. Scope

This policy applies to all parties responsible for financial decisions and utilization of assets for the organization. This includes the Board of Directors, the Treasurer, the Central Office staff, Fund or Program Managers, the Accountant, and any volunteers that may be asked to assist with financial matters (ex. running the bookstore during a national conference). 

III. Authority and Responsibilities

1. Board of Directors: Ultimate responsibility for the financial management of the organization.
2. Treasurer: Authorized to act on behalf of the Board on financial matters and oversees financial management.
3. Executive Director: Manages day-to-day financial operations, hires staff, and maintains financial records.
4. Accountant: Makes financial transactions, balances the books and runs end-of-period (e.g. month, quarter, year) reports, and ensures accounting practices are followed.
5. Program Managers (formerly Fund Managers): Individuals or committees that are designated and entrusted by the Board for a specific period of time. They act at the will of the Board and with a simple majority vote, can be created, dissolved, or modified. Their primary responsibility shall be to ensure that  requested expenditures align to a Program in the organization’s budget. They will work with the Treasurer and Executive Director to authorize and request payments be made to support their Programs.

IV. Financial Planning and Budgeting

1. Annual Budget:
   1. The annual budget will be drawn up and approved by the Board no later than the December board meeting each year.  
   2. The budget will include expected operational expenditures based on historic values and any known future plans. These will typically be part of the General & Administrative (G&A) section of the budget.  
   3. Programs will be defined by the Board in accordance with the mission of the organization. Program Managers, committee members, Executive Director and the Board will propose expenditures for the upcoming fiscal year which can be tracked throughout the year by the Treasurer, Executive Director, and the Accountant.  These will be in the Programming section of the budget.
   4. Included in the Programming expenses will be items such as scholarships, membership services, national conferences, et al.
2. Long-Term Planning: As part of the long-term planning of the organization, a separate Investment Management strategy and process will be developed by the Finance Committee and included as an Addendum in this document. This will include traditional investments in the organization’s brokerage account as well as board-created endowments and policies aligned to managing the organization’s trust(s) (see Section XI. Investment Management).

V. Revenue Management

1. Income Recording: The Accountant and Executive Director will share responsibility for recording income from the various sources (e.g. donations, membership dues, the online bookstore, real-time bookstore activities at conferences, endowment income, investment income from the organization’s investments, et al).  Income will be recorded in one of 5 income accounts (e.g. membership dues, donations, endowment income, investment income, and bookstore sales which will include any merchandise that the organization sells).
2. Non-cash Gift Acceptance: Donations of financial assets (e.g. stocks, mutual funds, et al investments) will be liquidated at the time of the donation and the current net value will be aligned to either a specific Program at the donor’s request, a specific Program at the Board’s discretion if there are no superseding donor instructions, or the General & Administrative account for operational needs.
   1. Exceptions include donations made as an Endowment or a Trust where the financial vehicle is required to remain in its current form to generate ongoing income. In these cases income will be liquidated quarterly and aligned to the designated purpose/according to pre-documented instructions (see Section VII. Asset Management § Brokerage Account).

VI. Expense Management

1. Authorization: The Treasurer and the Board ultimately have the responsibility to approve any and all expenses, especially those not already accounted for in the budget. The Treasurer reserves the right to set approval thresholds by which the Finance Committee and/or the Board should need to intervene prior to the Executive Director (or others) performing a payment transaction.
   1. For planned expenses already in the budget, the Program Manager should include the Treasurer on requests to the Executive Director for payment, but no further approval will be required so long as the amount aligns to the budget. The Treasurer will verify and approve Payroll before paychecks are issued.
   2. For expenses not already in the budget that are aligned to a program, the Program Manager will have authority to submit requests to the Executive Director and the Treasurer. Depending on the amount requested and in line with the addendum for Spending Limits, the expense will be reviewed and approved or rejected by the appropriate party (e.g. if the request is over a certain threshold, the Board may need to vote on the request via appropriate voting procedures). Prior to any approvals,the Treasurer and Executive Director will verify that the funds exist in the Program’s budget or are available from another source (e.g. G&A funds). 
   3. For special requests not aligned directly to a program, requests may be submitted to the Executive Director and the Treasurer. Depending on the requests, the Treasurer may, by either using a collaboration tool (e.g. Slack, email) or bringing to a Board Meeting, to raise discussion with the rest of the Board prior to approvals being made.
2. Documentation: Official estimates, invoices or other documentation outlining the vendor, purpose of the expense, date, and expense amount will be required prior to any payment transactions being performed in every case. All reimbursements made to the Executive Director shall first be approved by the Treasurer.  This is to ensure proper alignment to Program, accounts, and general good bookkeeping practices.

VII. Asset Management

1. Bank Accounts: The organization will maintain one checking and savings account for everyday operations and liquid savings. The organization will aim to maintain at least 12 months of operating expenses in the liquid savings account at any one time (see Section X. Cash Management). 
   
   The organization will also maintain a business credit card account to facilitate payments for operating and program expenses. The credit card account will be paid in full on its due date every month to avoid any unnecessary interest charges. Where possible, the organization will utilize a credit card plan that offers cash back and other incentives, but does not have an annual fee. 

2. Brokerage Accounts: The organization will maintain a brokerage account for long-term financial planning (see Section XI. Investment Management). The brokerage account will consist of one or multiple sub-accounts that represent the various endowments that are donated to the organization. Separately, the organization may have its own investments in a sub-account that is not entangled with the endowment accounts. This will facilitate easy and accurate accounting of income from investments which will be dispersed quarterly.
3. Fixed Assets: The organization will follow all GAAP procedures and methodologies to manage the value of its fixed assets. Currently the organization maintains some small equipment, however as significant fixed assets are purchased in the future, they will be put into the organization’s financial register and depreciated over the usable life per the IRS’s guidelines for the asset.
4. Inventory: The organization will follow all GAAP¹ procedures and methodologies to manage the inventory for the online bookstore (a.k.a. la Retbutiko). The Accountant will generally assist the Executive Director with entering inventory into the financial register, if needed, as well as ensure it is checked out, written down, or impaired as needed in the future. The actual inventory will live in the bookstore software and a monthly and quarterly true-up of the value of the inventory will be performed to ensure the financial system is up to date and accurate.

VIII. Internal Controls

IX. Financial Reporting

1. Regular Reporting: The Accountant, Executive Director, and Treasurer will ensure that financial statements are reconciled and closed monthly and produce reports at each Board meeting. The format and type of reports will be determined by the Board and can change at any time either during a Board discussion or other conversation with the Treasurer. 
   
   The organization will share quarterly summary reports with the membership via the official organ (aka ‘Usona Esperantisto’). These will include simplified overviews of the financial performance of the organization with respect to the annual budget. Additional transactional detail will not be published as it is considered privileged information per the organization’s bylaws. 

X. Cash Management

1. Petty Cash: The organization does not have petty cash. Small transactions required for operating expenses should utilize the organization’s checking account or the associated debit card.
2. Reserves: The organization will maintain at least 12 months of cash in the liquid savings account per best practices for non-profit organizations (see Section VII. Asset Management).

XI. Investment Management

1. Investment Policies: The Finance Committee will develop a detailed strategy and process for investments made via the organization’s brokerage account. Note this excludes endowment sub-accounts and only pertains to the organization’s own investments. The detailed strategy will be added as an Addendum to this document.
2. Risk appetite and guidelines: Although greater detail will be provided in an Addendum to this document, the Finance Committee will set and periodically review the risk appetite and choose which types of financial vehicles (e.g. dividend-bearing Exchange Traded Funds (ETFs), mutual funds, bonds, et al) to prioritize. 
3. Oversight: The Treasurer and Finance Committee will review the performance of the investments every quarter. They will partner with the brokerage fund’s account management team for advice and to balance the risk in the investment portfolio.

XII. Risk Management

1. Insurance: The organization will maintain insurance and bonding for key Board members and staff, including the Executive Director and Treasurer, per the bylaws. The Executive Director will be directly responsible for these activities within one month of a person’s official start date in one of these roles. The board may decide to apply bonding to another role (e.g. the President of the Board). The Executive Director will update the insurance and bonding instructions with the current insurance agency within one month after the Board’s decision.

XIII. Compliance

1. Regulatory Compliance: The organization will defer to bookkeeping and accounting professionals to ensure that all GAAP and other IRS policies are followed for all transactions. Members will not be allowed to make financial decisions on behalf of the organization without the approval of the Treasurer and other Board members and staff based on the spending limits in the Addendums.
2. Donor Restrictions: Gifts made with instructions in writing from the donor will be considered donor-restricted gifts. The organization will make every effort to respect the donor’s instructions. Should the organization not be able to meet the instructions, the Executive Director, Treasurer, or other Board member will communicate with the donor to either return the gift or ask for revisions (in writing) to the instructions. The Board will publish a separate policy for Donor Restricted Gifts and their management.
   
   The organization may make options available via the online bookstore or other means for members to make a donation for a specific expense item, program, or general operating purposes. The organization will treat these as donor-restricted gifts insofar as making every attempt to utilize those funds for the specific purpose laid out in the bookstore. These instructions, however, will be considered only as narrow as the description provided to the donor and generally will have the latitude to be used for any expense within the given program.²

XIV. Review and Revision

1. Policy Review: This policy will be reviewed and if needed, updated, annually in Oct.
2. Revisions: Any proposed revisions will be reviewed by the Treasurer and/or Finance Committee. If approved, they will then be reviewed by the Board for final approval.

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Footnotes:

1. Generally Accepted Accounting Principles – standard methodologies within the United States for bookkeeping and financial management ↩︎
2. Ex: a donor can give very specific purpose and time restrictions in a written form when making a donor restricted gift. However on the bookstore or other donation webpage, the organization may indicate that donations to this item will be used for educational purposes. Such a broad terminology gives the Board latitude to use those donations for any educational purpose as determined by the Board or the education Program Manager. No additional communication with the donor in this case is required nor will be performed by the Board. ↩︎