PTO Today Q&A

Question: Club Accounts, money management

I am the PTO treasurer. We have been asked to deposit funds from school club accounts and issue checks for their projects. For example the PE department sells PE clothes and gives us the money then they ask us to pay for their invoices. Many other club accounts do this like the year end trips. The PTO fundraises on their own and supports the clubs but I do not believe we should be responsible for their accounting. Shouldn't each club have their own account set up thru the school EIN number and not the PTO? It is difficult to keep track of all of the separate club monies when it is constantly coming in and out for different clubs. I thought that the PTO should be managing only their money and not clubs or the Principal's vending accounts. Thank you for your advise and help


Asked by kristinb103

ANSWER IT


Answers:

Community Advice

Critter writes:
This is a bad idea for many reasons. You are right to be leery of this request.
The PTO has its own mission statement and its own EIN, and maybe its own 501c3 status. The money deposited under your EIN belongs, technically, to the PTO, no matter who raised it. That presumes it was raised and spent in accordance with the PTO’s mission statement. It also means you are accepting the risk of managing and accounting for it. It also inflates the financial picture of your PTO.
If your PTO has not already filed for 501c3 status, and you want to do so in the future, all that unrelated financial activity could really mess up your application. Specifically, the IRS charges a filing fee of $400 if the PTO’s GROSS revenue is expected to be about $10,000 per year, and you can apply using Form 1023-EZ. Greater than $10,000, and you pay $850 and have to complete the more complicated Form 1023. No doubt the extra club activity will push you above $10,000 even if your PTO is small. And trying to explain in your application why the PTO is handling funds for the Equestrian team, for example, could be really tricky.
If your PTO already has its 501c3 tax-exempt status, you’ll need to include all that unrelated financial activity in your annual 990x return to the IRS. Again, this could change the complexity of your filing. If gross receipts are below $50,000, you get to file the easy Form 990-N. But if all that unrelated activity from those other groups pushes you above $50,000, you have to file Form 990-EZ. That’s still not a difficult form, but it’s more trouble than the 990-N. $50,000 sounds like a lot of money, but it’s GROSS receipts, not net profit that the IRS measures and it doesn’t take many fundraisers to push gross above that mark.
Generally, “tax exempt” means exempt from federal income tax. But if your PTO – or any of the clubs you handle money for – engage in the sale of things not directly to your PTO’s approved tax-exempt purpose, then you are technically supposed to be paying income tax on that income. Another unintended consequence.
Now as a practical matter, trying to the banker for all the clubs is a headache, to put it mildly. If someone bounces a check to the Choir Club, for example, the PTO treasurer is now responsible for tracking down the offender even though this has nothing to do with the PTO. And what if the offender never pays up…..If your bank charges any kind of transaction fee, you may also incur more fees because of the extra cash, check, and debit card transactions these other clubs cause. You also run the risk of being asked to “loan” groups money. For example, the volleyball team orders uniforms, but doesn’t have all the money collected from the parents yet. The invoice must be paid before the uniforms will be delivered. In desperation, they ask the PTO to pay the invoice, just borrowing the money for a little while. Now all of a sudden, their uniform sale becomes your problem.
Being banker also makes the PTO’s monthly reporting and annual financial review (audit) much more complicated. The additional transactions add complexity and introduce more chance for human error. Every month, you have to be worried about balancing everyone’s individual accounts, in addition to reconciling the check book. And at the end of the fiscal year, you have lots more activity to review.
A far better approach is for the school to set up a booster or activities account, using the school’s own EIN, overseen by a paid employee of the school. The PTO should be independent. I would not agree to be a volunteer treasurer for a PTO that is asked to manage everyone else’s money.


Community Advice

Critter writes:
This is a bad idea for many reasons. You are right to be leery of this request.
The PTO has its own mission statement and its own EIN, and maybe its own 501c3 status. The money deposited under your EIN belongs, technically, to the PTO, no matter who raised it. That presumes it was raised and spent in accordance with the PTO’s mission statement. It also means you are accepting the risk of managing and accounting for it. It also inflates the financial picture of your PTO.
If your PTO has not already filed for 501c3 status, and you want to do so in the future, all that unrelated financial activity could really mess up your application. Specifically, the IRS charges a filing fee of $400 if the PTO’s GROSS revenue is expected to be about $10,000 per year, and you can apply using Form 1023-EZ. Greater than $10,000, and you pay $850 and have to complete the more complicated Form 1023. No doubt the extra club activity will push you above $10,000 even if your PTO is small. And trying to explain in your application why the PTO is handling funds for the Equestrian team, for example, could be really tricky.
If your PTO already has its 501c3 tax-exempt status, you’ll need to include all that unrelated financial activity in your annual 990x return to the IRS. Again, this could change the complexity of your filing. If gross receipts are below $50,000, you get to file the easy Form 990-N. But if all that unrelated activity from those other groups pushes you above $50,000, you have to file Form 990-EZ. That’s still not a difficult form, but it’s more trouble than the 990-N. $50,000 sounds like a lot of money, but it’s GROSS receipts, not net profit that the IRS measures and it doesn’t take many fundraisers to push gross above that mark.
Generally, “tax exempt” means exempt from federal income tax. But if your PTO – or any of the clubs you handle money for – engage in the sale of things not directly to your PTO’s approved tax-exempt purpose, then you are technically supposed to be paying income tax on that income. Another unintended consequence.
Now as a practical matter, trying to the banker for all the clubs is a headache, to put it mildly. If someone bounces a check to the Choir Club, for example, the PTO treasurer is now responsible for tracking down the offender even though this has nothing to do with the PTO. And what if the offender never pays up…..If your bank charges any kind of transaction fee, you may also incur more fees because of the extra cash, check, and debit card transactions these other clubs cause. You also run the risk of being asked to “loan” groups money. For example, the volleyball team orders uniforms, but doesn’t have all the money collected from the parents yet. The invoice must be paid before the uniforms will be delivered. In desperation, they ask the PTO to pay the invoice, just borrowing the money for a little while. Now all of a sudden, their uniform sale becomes your problem.
Being banker also makes the PTO’s monthly reporting and annual financial review (audit) much more complicated. The additional transactions add complexity and introduce more chance for human error. Every month, you have to be worried about balancing everyone’s individual accounts, in addition to reconciling the check book. And at the end of the fiscal year, you have lots more activity to review.
A far better approach is for the school to set up a booster or activities account, using the school’s own EIN, overseen by a paid employee of the school. The PTO should be independent. I would not agree to be a volunteer treasurer for a PTO that is asked to manage everyone else’s money.


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