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This article is part of the following categories:
Bylaws/Nonprofit Finance & Budget Treasurer


5 Smart Financial Controls

Avoid unnecessary headaches with these practices to keep your assets safe and your records clean and up to date.

by Christy Forhan

A few financial controls can make the treasurer's job much easier, keep the PTO's money safer, and ease a lot of stress. Here are five smart practices for any parent group, whether your budget is $1,000 or more than $100,000.

1. Require Two Signatures

Can you write a PTO check on your own? Do you need a second authorized signature? No? Then you are accepting an unnecessary risk and a big personal burden. Just one person has the power to spend the PTO's hard-earned money. Now is the time to consider tightening up your PTO's check-signing policy. Having two officers or, as in some PTOs, an officer and the principal, sign every check ensures that two leaders know—and accept the responsibility for—how the money is being spent.

Get together with your executive board to decide who should be the authorized signers. Then visit your bank. Update the account signature card, if necessary, to add the new authorized signers. The bank may also need to update your account record to reflect that two signatures are now required on your checks. The bank may allow you to start using a second signature with your current checks. In the future, when you need to reorder checks, you can request that the printer add a second signature line. In our PTO, the president, vice president, and treasurer are authorized to sign, though only two at once.

If you adopt this policy, it might be tempting to have an officer sign a few checks just in case. Don't do that. Never sign a blank check, and never ask another officer to do so. It's really bad practice. It means the officer is authorizing the expenditure of PTO funds without knowledge of the expense. This negates the dual signature control and places an unfair risk on the officer and an extra burden on you.

2. Maintain a Paper Trail

Have you had a conversation like this one?

"Hey, PTO Treasurer! Oh, I'm so glad I caught you (as you're racing out of the grocery to get home in time for the bus). I've been carrying these receipts around from the fall festival for a while, and I've been meaning to drop them off to get reimbursed. They're in here somewhere. Here they are. Thanks!"

And you are handed a crumpled wad of receipts as your friend disappears into the produce section.

Here's a different ending to this conversation.

"I'll be glad to cut you a check. Just fill out a yellow Reimbursement Request Form and attach your receipts. I'll send a form home with your daughter tomorrow or you can pick one up at the school. After you turn it in, I'll mail you the check."

And now the responsibility is where it belongs, on the volunteer's shoulders until she can provide the proper information needed to back up the reimbursement.

Preparing a separate supporting document for each transaction might, at first, seem like overkill. After all, vendors provide paper invoices, and volunteers turn in paper receipts for reimbursement. Isn't that enough?

Look at your files for the answer. Can you easily retrieve the receipt that supports a particular check? Is it easy to figure out what activities generated the money in a certain large deposit? Are the receipts and deposit tickets scrawled with notes or stapled to little scraps of paper? Have you ever had trouble tracing transactions during your audit? If so, you can benefit from paving the paper trail with standard control forms.

A paper trail for each transaction ensures traceability and visibility of every PTO dollar, develops historical information that is useful for future planning, facilitates your annual audit, and keeps your files neat. Plus, the information on the control form can remind you of the steps to properly complete the transaction: secure two signatures, assign budget category, log transaction, mail reimbursement check, etc. Use control forms for a while and they will naturally become part of your standard operating procedures.

There are three major financial transactions for which you can design a unique control form. All the forms should have a place for treasurer approval, date, budget category, and a place to check off that the transaction has been logged. The rest of the information varies based on the type of transaction.

Reimbursement Request. Include the requesters name, phone number, and address if you plan to mail the check. Add a place for a second officer approval, the check number, the check date, the amount, and reason for reimbursement. Remind the volunteer to attach the receipt to the form.

Check Request. Use this form when a check is needed in advance of the transaction, such as for an assembly or mail order purchase. Check requests are similar to reimbursement requests, but your form should include the check payee name and address of the payee. A completed check request form is a reminder to watch for an invoice or receipt coming your way.

Cash Receipt. After a money-generating event, your volunteers use a cash receipt form to record the money collected. The form should have a tally area by bill and coin denomination, along with a place to record checks and the check total. You can staple the banks deposit ticket to the control form after the money is deposited.

I use control forms like these and find they work best for me when I copy each type onto a different color paper. If I see a yellow form in my treasurer binder, I know I have a reimbursement request to process. If there's a pink form, I need to prepare a check. And if I am carrying a green cash receipts form, I'm on my way to the bank.

I like the color forms for my own ease of filing and also so I can direct a volunteer to the proper form by color, not just by title. I use 25 to 50 of each type each year, and I just photocopy them at school.

3. Report Monthly

Every month, that's 12 in all, the treasurer should prepare a report of financial activity for the executive board and members. If activity is reported every month, it is less likely that a surprise will catch the PTO off guard or short of cash.

Robert's Rules of Order recommends a monthly report showing the balance at the beginning of the month, plus receipts (cash in), and less disbursements (checks out), with the ending balance at the bottom. If your parent group operates under a preapproved annual budget, your standard report might also include year-to-date performance against plan for each of your budget categories.

The completed report should be signed by the treasurer, presented at your regular meeting, and filed for future reference. If you keep your financial records in a computer-based system, you may be able to generate the report automatically from the system. Check your user manual or online help for advice.

4. Reconcile Monthly

If your PTO maintains a checking account, as most PTOs do, you should reconcile that account every month.

Occasionally, you may make a mistake when you record information in the checkbook. Banks also sometimes make mistakes. If you do not reconcile your checking account, you must rely solely on what the bank reports as your balance, even if that amount differs widely from what you think it should be. The longer an account goes unreconciled, the bigger the potential mess and the larger the risk to the PTO.

Reconciling is the mathematical process of verifying the balance in your account, based on the transactions posted against your account at the bank.

Reconciling by hand can take a little time and concentration, but it's not an overwhelming task if it's done promptly each month. Chances are, there's a worksheet for account reconciliation printed on the back of your monthly statement. Detailed instructions likely are included there, too. If you consistently use a computer-based system, monthly reconciliation can be reduced to just a couple of minutes, since the computer does all the computations for you.

What if your checking account hasn't been reconciled for months? You have two choices. You can find all the back statements and reconcile them month by month against the checkbook. Or if that is simply an impossible task, adjust the checkbook balance to match what the bank reports as of your last statement date. Be careful, though; you will need to re-record any transactions that you posted to your check register after that date, because those will not be reflected on the bank statement. From that point on, do the right thing and reconcile each month.

If you are really stuck, check with your bank. They may be willing to spend some time with you getting your checkbook to match their balance. You may also be able to recruit a volunteer with a head for numbers from your members. It is far better to ask for help and get the matter under control than to allow a financial mess to fester.

5. Conduct an Annual Audit

The annual audit is an independent verification of the PTO's financial practices. An audit can also highlight ideas for improvements in financial control and reporting. In the PTO world, an audit is a financial review, but the word does not refer to the legal opinion of a professional accounting firm, as is the case in the business world. PTO members, parent volunteers, or a paid professional can complete the PTO's audit.

Some PTOs define the make-up of their audit committee in their bylaws. Other groups recruit one parent volunteer. In any case, if you have consistently applied good financial controls, your audit should run smoothly and be completed quickly. Your auditors will appreciate organized files, balanced records, and complete data.

Christy Forhan is a veteran PTO treasurer who has filled that role for two schools in West Bloomfield, Mich.



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(23 Votes)

Comments

  1. avatar

    Posted by Craig on Oct. 28, 2009

    Hi Julie,

    You're certainly doing the right thing by insisting on receipts. You work too hard at fundraising to be so casual with how the money is spent. On top of that, how would parents who contribute feel if they knew that the money was being used without a real system in place to keep track of it? Because PTOs are all independent, there are no national guidelines. But there's no doubt that turning in receipts is a best practice. The real risk is that money can easily be misspent, even for personal use, because you don't have simple checks and balances in place.

    Craig

  2. Posted by - Julie on Oct. 14, 2009

    Hi,

    I just took over as treasurer for our pto. I am frustrated because they are telling me that there are no receipts available for years past and for the current fiscal year I have not received all of the receipts. I am constantly being told to stop "stressing" over this because "this is a very laid back group". I am also told that they are not filing IRS returns so they are not subject to the same rules as other organizations and non-profits. I used to run a 501(c)3 non-profit and I realize that the scale for a PTO is very different but I believe that the same best practices should apply. Could you point me to some legal or pto nationwide best practices documentation which shows that you must keep receipts for items purchased and for all cash receipts.

  3. Posted by - Mary on Jun. 04, 2009

    Regarding Michelle's post... Our teachers and administrators do NOT have a vote regarding how the money is spent. The funds belong to the PTO and we strongly feel that they cannot tell us how to spend our money. We consider and discuss their requests/suggestions at exec. board meetings however, they do have a vote. The PTO is operated by parent volunteers and funded by parents dues/fundraiser support. Therefore, the parents should decide how to allocate the funds to benefit their children and the school. Welcome feedback and suggestions but I would say no to a teacher vote.

  4. Posted by - Craig Bystrynski from PTO Today on Jun. 01, 2009

    Hi Treas -- Legally they have no "right" to audit your group. You are an independent organization separate from the school. However, the district does have the power to make life very difficult for you -- for instance, preventing you from sending information home through the classrooms/students. The question you must weigh is how important it is to take a stand on this issue and what the consequences are likely to be. Good luck! -- Craig

  5. Posted by - Treasurer on Jun. 01, 2009

    I have just gotten word that our School District plans on auditing our parent association. Can they do this? Do they have any right to examine our books. We have set up our own audit committee to review the books. We are a 501 3c non-profit.

  6. Posted by - Craig from PTO Today on May. 15, 2009

    Hi VJ -- Groups that gross less than $5,000 aren't required to file. If you sell $7,000 worth of candy for your fundraiser and half of that goes to the fundraising company, meaning you raised $3,500, you still have to file. (Because your gross is above $5,000., even though your net is below.) If your gross is above $5,000 but less than $25,000, you can file form 990-N, which is actually a postcard. From $25,000 to less than $100,000 you can file form 990EZ, which is less involved than form 990. If you gross $100,000 or more, you must file form 990. Hope this helps! -- Craig

  7. Posted by - VJ on May. 14, 2009

    Does anyone know if there is an IRS threshold under which a PTO won't have to file the 990 form? We are a new PTO and we would like to begin fundraising 1 month before the beginning of our fiscal year.

  8. Posted by - Nancy on Mar. 20, 2009

    I would disagree that a PTO should "save or invest" a large amount of money long-term. If there is money left over in the budget, the PTO should vote to either roll the money over to the next school year's budget or to spend it. It's great that you have money left over. The way schools are not fully funded, it's surprising you couldn't find something to direct the funds towards.

    Because PTO's don't have paid staff or really any monthly expenses, they don't need to keep a permanent reserve/emergency fund, like a home or business. Have you asked your parents about having this reserve? What are their expectations about when the money should be spent?

    I definitely wouldn't invest the funds in anything that has risk involved. That money was hard earned by volunteers and given by parents.

  9. Posted by - Nancy on Mar. 20, 2009

    For those folks who have principals/schools wanting to deposit the money into their accounts, or having check signing rights, don't. You are a separate entity with separate bylaws, mission, board, etc. If you've gone through the work of becoming a separate 501(c)3 organization, you should have separate bookkeeping transactions, a board and PTO members to make decisions. You've raised the money, you get to decide how it's spent--not the principal, teachers, etc.

    Our PTO funds a non-licensed staff member, so that school's budget line item can be transfered to fund a portion of a teacher's salary. It's how our school has tried to make up for lost teacher positions.

  10. Posted by - MICHELLE on Mar. 12, 2009

    I AM NEW TO THE P.T.O. THIS YEAR. MY QUESTION IS WHETHER OR NOT TEACHERS SHOULD HAVE A VOTE AS TO HOW FUNDS ARE SPENT? WE HAVE A SERIOUS PROBLEM WITH THE PARENTS BEING OUTNUMBERED EACH MONTH BY SCHOOL DIST. EMPLOYEES.

  11. Posted by - Craig Bystrynski from PTO Today on Feb. 24, 2009

    Not true. Imagine, for example, the American Cancer Society trying to spend all of their money the same year it was raised. That wouldn't make a lot of business sense. Parent groups are governed by the same IRS rules. Nothing says you can't put money aside, and good business practice says you should save at least a little so you don't have to start from scratch each year. For one thing, it's harder to connect with people when the first thing they see from you is a fundraising request. And certainly don't spend the money just to spend it. You worked hard enough to get it -- you want to make your dollars count. Good luck!

    --Craig

  12. Posted by - Maria Scotto Rosiello on Feb. 24, 2009

    Hello, i have a question that i am having trouble getting an answer to. hope you can help
    we are a PTO and nonprofit 501 (c). in 2005 the existing board put $8000 in a saving account to "keep for a rainy day" the money is still there and has only increased by $135 in interest. we are thinking of putting the money into a new risk CD. the question is we are hearing from other PTO or PTA that you must spend all of your fundraised money during that year it was raised. if this is true then it was a mistake for the board to hold back that money in 2005. each year we do spend all the incoming money but never touch that "safety net of $8000" do you know if this is true? are we able to hold money aside from year to year? thanks for your help

  13. Posted by - Treasurer on Feb. 04, 2009

    I am the treasurer of the PTO at my child's school and I also have a home based business. We were wanting to use my home based business and have a fundraiser to raise money for the PTO. Is there a problem with that if I am donating the profit to the school?

  14. Posted by - Becky on Jan. 21, 2009

    Do you have a good audit sample to use to do a yearly audit?
  15. avatar

    Posted by plus on Jan. 13, 2009

    We have started selling scrip at our school. How do other schools reconcile it each month? Do you make bank deposits each time the money is received or do you make deposits once a week? What type of cash handling policies do other schools have in place?
    Thank you,
    Tami

  16. Posted by - Mary on Jan. 10, 2009

    I have a question: I have recently been elected as treasurer at my sons New High School.
    I need to open a pta bank account and have no idea what is required. I would be grateful if you could help.

    Thank you

    Mary

  17. Posted by - Treasurer on Jan. 02, 2009

    I do all these things but....where I see the money disappearing is when CASH is involved before it ever hits the checkbook. You can require two people to be there to count receipts but what if one has to go to the bathroom or bends down to pick up a quarter from the floor? $20's, $50's and $100's are easy to stuff into a pocket or purse.

    Even having two people man the cash drawer poses the same problems. So....you add a third person or maybe put them on camera? We have a school store that sells huge amounts of clothing and merchandise to students and parents.

    Cash handling procedures are so complicated when you're busy and you have to remember, you're dealing with volunteers who like to feel they're trusted.

  18. Posted by - Deborah Julien on Dec. 17, 2008

    Great article. My sentiments exactly.

  19. Posted by - Laura O. on Oct. 22, 2008

    Our organization supports only the instrumental music department, but our budget process is still applicable. We've done it several different ways - from putting the lion's share of our assets into the music department account, and letting them spend it...which led to a hefty overrage. ..and no accountability.

    Our current system requires that they provide a budget request before the school year starts. We raise our first round of funds, do a projection, revise their request to fit our projection, and give them a spreadsheet of approved expenditures for the year. They then have to submit requests to our treasurer to have checks cut to vendors, their activity account, or for personal reimbursement. If the item does not fit a line item on the approved budget, it doesn't get paid by us!

  20. Posted by - Lisa on Oct. 21, 2008

    What I am trying to say is that the money that the PTO has is to be distributed at the discretion of the PTO board, not the principal or a school staff member. You might want to convene a meeting and discuss this, because the main workings of the PTO is it is a parent run organization that works with the teachers to better the learning environment which our children use.
    The principal of the school or an office staff member should not be making the decisions about what the money is used for. If you have questions about if a money request is within or outside of the teachers required budget that the district defines, then the principal or office staff member that knows the school budget can help you, but they should not be writing PTO checks.

  21. Posted by - Lisa on Oct. 21, 2008

    Regarding the comment from C. Burkhardt and Betty, this is not a normal practice. The money that the PTO raises and uses to function is not for the school to use at their discretion. The PTO is not to use money to pay for teachers to be reimbursed for extra work. Taxes have to be taken out. You are getting into a sticky situation. This is not what you want to be a part of as a PTO board.
    In our school district the teachers are given an allotted amount in their paychecks for extra work or education. When you are paying for teachers to basically do their job then I feel that this does not benefit the children.

  22. Posted by - Betty on Oct. 03, 2008

    Our group is currently facing the same problem.. After 3 years of running the PTO the school is now wanting a staff member in the business office to having signing rights to the account. Our group is not comfortable with this. We also have a question of a particular request the principal has made to pay a teacher through the PTO for doing an additional project. Isn't that compensation and why should the parent group pay for that? Any feedback would be greatly appreciated.

    Thanks,

  23. Posted by - C. Burkhardt on Sep. 30, 2008

    Hi,
    Our parent organization has typically held the monies it has raised and then disbursed them to the school or other vendor. Our Head of School doesn't want to hassle with asking us for money and wants to hold our funds in the school's account and disburse as she needs them. Our parent group is not comfortable with this. Is it typical to have the school hold and disburse monies and is it wrong to be raising money for the school's operating budget?

    Thanks
    Chris

  24. Posted by - kimberly on Jun. 18, 2008

    i need some trasurer forms

  25. Posted by - Tim Sullivan on Apr. 03, 2008

    I'd another simple, smart control here: the person who receives and opens your bank statements shoud not be a signer on your checks. It's a 5-minute process to receive the statement, take a quick loom at the returned checks to make sure they look kosher and to take aquick scan at the transaction record for same.

    And then the statement can be handed over to treasurer for balancing.

    This one is a key for me.

    Tim

  26. Posted by - seRena Chambers on Apr. 02, 2008

    Hi, please read the article

  27. Posted by - Heather Hock on Feb. 11, 2008

    GREAT article! Very concise, great advise.

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