The School Support Organization Financial Accountability Act of 2007 (as amended 2008) Presented by Chadwick W. Jackson, JD Staff Attorney Office of the Comptroller of the Treasury Division of Municipal Audit

What is this law about? This legislation governs groups or organizations that raise money in the name of a school to support the school and its students.

Who does this law affect? If money is raised by a nongovernmental group in the name of a school and for the benefit of a school or its students…that group is a school support organization (SSO) and must comply with this law.

What is the law intended to do? Promote accountability for school support organizations; Protect the school support organization members from certain personal civil liability through incorporation; Promote consumer and donor confidence in the school fundraising process by outside support organizations; and Provide legitimacy to school support organizations.

What is a School Support Organization? Booster Club, Foundation, PTA, PTO, PTSA, or Any nongovernmental organization or group of persons whose primary purpose is to support a: School, School district, School club, or Academic, arts, athletic or social activities related to a school.

School Support Organizations are the only organizations or groups that can raise money in the name of a school or school district.

Why are they the only groups? TCA § 49-2-604: “A group or organization may not use a school district’s or school’s name, mascot, or logos, property, or facilities for the raising of money, materials, property, or securities until a policy has been adopted by the local board of education concerning cooperative agreements, school support organizations, and the use of school facilities for fundraising purposes.”

Therefore… The Board Policy MUST require the group or organization to be a nonprofit entity. That nonprofit entity MUST be a school support organization. The primary purpose of the nonprofit entity MUST be to support the school system, school or its athletics, clubs or social activities.

Who or What is NOT a School Support Organization? …a group of persons who merely request that students, parents, or members of the general public make donations to a school district, school, school club, or academic, arts, athletic, or social activity related to a school… OR

Who or What is NOT a School Support Organization? …who assist in the raising of funds for a specified purpose under the sponsorship of a school employee where the funds are turned over to the school to be used for the specific purpose for which the funds were raised…

A Fork in the Road…

Two Paths From Which To Choose… Run the fundraiser through the school. Run the fundraiser through the not-for-profit incorporated SSO.

Through the School A school employee is in charge of the fundraiser. The school employee is responsible for collecting, receipting, accounting for, and safeguarding the money from the fundraiser.

Through the School The school sponsor turns the money over to the school’s bookkeeper to be run through the school’s accounting system. The bookkeeper keeps a separate account within the overall accounting system for the money. The bookkeeper deposits the money into the school’s bank account.

The end result… By law, money received through that fundraising effort must be spent in accordance with the purpose for which it was raised. Therefore, if the school-sponsored fundraiser is for new uniforms for the basketball team…the money can only be spent for new uniforms for the basketball team.

What becomes of the SSO? In order to achieve this type of fundraising activity, the members/parents of the traditional booster club act as volunteers for the school as part of a collaborative effort between parents and the school to raise money for a specific purpose.

What does all this mean? The “parent volunteers” do not fall under the definition of a “school support organization” under the SSOFAA. The “parent volunteers” assist the school with the fundraising activities and are not responsible for the financial aspects of the fundraiser… …that becomes the responsibility of the school.

What does all this mean? The “parent volunteers” can still raise money that is needed for specific items by the particular group or groups they support. The “parent volunteers” do not have to incorporate, elect officers, maintain bylaws, or maintain financial statements.

Caveat!!! There’s one catch… The “parent volunteers” can only dictate how the money is spent at the outset when the fundraiser is planned if it is to be for a “specific item” or “specific purpose”… …otherwise it falls into the broader category and the coach or sponsor must follow school policy and decide how the money is spent for their group.

BECAUSE… “A group of persons who…assist in the raising of funds for a specified purpose under the sponsorship of a school employee where the funds are turned over to the school to be used for the specific purpose for which the funds were raised, shall not be considered a school support organization.”

Behind Door #2!!! What must be done in order to raise money as an outside support organization or booster club?

What the law says… TCA § 49-2-604: “A group or organization may not use a school district’s or school’s name, mascot, or logos, property, or facilities for the raising of money, materials, property, or securities until a policy has been adopted by the local board of education concerning cooperative agreements, school support organizations, and the use of school facilities for fundraising purposes.”

The responsibility of the Board of Education Adopt a policy concerning: a. Cooperative Agreements b. School Support Organizations c. The use of school facilities for fundraising purposes. Develop a process to certify valid school support organizations authorized to raise money for local schools. ****These must be done before any fundraising will be allowed!!!

The responsibility of the Director of Schools or his/her designee Post or publish a list of organizations that have complied with the adopted board of education policy on school support organizations. Do not allow fundraising activities without approval.

The School Board’s Policy Shall include at a minimum that… i. Prior to soliciting, raising, or collecting money, materials, property, or securities to support a school district, school, school club, or any academic, arts, athletic, social activity or event related to a school… …a school support organization shall submit to the director of schools or his/her designee a form that documents certain things.

The form shall include the following: The organization’s status as a nonprofit organization, foundation, or a chartered member of a nonprofit organization or foundation; The goals and objectives of the organization; and The telephone number, address, and position of each officer of the organization.

What does it mean to be a “nonprofit organization”? The long and the short of it is… CHARTER

How to charter as a nonprofit organization Fill out Form SS-4418 (Nonprofit Charter Form) from the Secretary of State. Fill out Form SS-4520 (Statement of Exemption). Mail those two forms to the Secretary of State’s Office, Division of Business Services in Nashville.

A few notes on filling out the Nonprofit Charter Anyone can be listed as the nonprofit corporation’s registered agent….so long as they have a Tennessee address. Anyone associated with starting the nonprofit corporation can be listed as an “incorporator” on the charter.

A few notes on filling out the Nonprofit Charter If the school board and the principal will allow it, mail and other corporate documents can be sent to the school to make things easier on the booster club’s officers who may only be in office for a year.

How to be a booster club under the SSOFAA Comply with the local board policy. Maintain bylaws. Keep minutes of meetings. Maintain a copy of your charter. Retain a copy of what the Sec of State sends back to you when you file your charter. Maintain detailed statements of receipts and disbursements. Adopt and maintain a written accounting policy for your booster club.

Written Accounting Policy What the law says: “A school support organization’s officers shall ensure that school support organization funds are safeguarded and are spent only for purposes related to the goals and objectives of the organization.”

Written Accounting Policy Specifically, the law states that: “The organization shall adopt and maintain a written policy that specifies reasonable procedures for accounting, controlling and safeguarding any money, materials, property or securities collected or disbursed by it.”

Model Financial Policy “Procedures Manual” The SSOFAA authorizes the Office of the Comptroller to adopt a model financial policy for school support organizations. The “Procedures Manual” can be found on our website at http://comptroller.state.tn.us/ma/sso.htm

School Support Organizations Annual Requirements Before the beginning of the school year, submit a form to the director or his/her designee... …verifying your continued existence as a nonprofit organization; …stating your goals and objectives; …current telephone numbers and addresses of officers;

Additional Annual Requirements File a statement of total revenues and disbursements before the end of each school year with the director of schools or his/her designee. Return the Annual Report to the Secretary of State after the close of each fiscal year.

What a booster club is not allowed to do…

A nongovernmental group or organization including all school support organizations MAY NOT… Use the school or district sales tax exemption to purchase items; Bind the school or school district to any contracts or financial obligations; Maintain or operate a bank account that bears the EIN of a school, school board or district; or Use its funds for a purpose other than those related to its goals and objectives that relate to supporting a school district, school, school club, or school academic, arts, athletic or social activity.

“SCHOOL REPRESENTATIVES” A FEW WORDS ON “SCHOOL REPRESENTATIVES”

Who is a “school representative”? A “school representative” is A school board member; The director of Schools; A principal; Any school or school system’s bookkeeper; OR Any individual who works for the school system who, as a part of their employment by the school system is charged with directing or assisting in directing the related school club or activity… …specifically including but not limited to coaches, assistant coaches, band directors, or any other school sponsor of a related club or activity.

What is a “school representative” not allowed to do? “A school representative may not act as a treasurer or bookkeeper for a school support organization.” “A school representative may not be a signatory on the checks of a school support organization.” “A majority of the voting members of any school support organization board should not be composed of school representatives.”

What is allowed… The band director can be the treasurer of the basketball booster club. An English teacher can be treasurer and sign checks for the football booster club. Et cetera…et cetera…et cetera…

BECAUSE… A school representative for purposes of a school club or activity is the person who is in charge of directing or assisting in directing the club or activity as part of their employment by the school system.

AND FINALLY… Any teacher, coach, assistant coach, principal, bookkeeper, director, or board member can sell items in a fundraiser for any group and act as a volunteer to assist with the raising of money for any SSO or club, regardless of what activity it is.

However… A school’s bookkeeper or a bookkeeper for the entire school system is not allowed to be the bookkeeper for any booster club in the district. TCA 49-2-603(3)(A)(i)(d) and (ii)(d) states that a school representative is “Any individual who is primarily responsible for accounting for school system funds or the funds of an individual school”

SPECIAL COMMENTS The SSOFAA does not require a school support organization to be designated as a 501(c)(3) under the IRS tax codes. Nothing in the law requires SSOs to surrender their funds to the school principal… …however, the board policy may be more restrictive than the law.

SPECIAL COMMENTS A local board of education may grant the principal of a school the authority to enter into an agreement with a school support organization to operate and collect money for a concession stand or parking at a school event… …where any money it collects or any portion designated by the agreement shall be considered as school support organization funds and not as student activity funds… Provided that…

Booster clubs and concessions The board has adopted a policy concerning school support organizations; and The SSO provides the school with the relevant collection documentation that would have been required pursuant to the provisions of the TISUAPM (the “Manual”) for student activity funds.

Booster clubs and bookstores “A local board of education may grant the principal of a school the authority to enter into an agreement with a school support organization to operate a bookstore located on school grounds…where any money the school support organization collects or any portion designated by the agreement shall be…school support organization funds; provided,

Booster clubs and bookstores The board has adopted a policy; 100% of the profits of the operation of the bookstore are used for support of the school; and The SSO provides the school with the relevant collection documentation that would have been required by the “Manual” for student activity funds.

The Envelope Rule A principal may allow a school support organization to turn in its fundraising money during school and it may be collected by teachers and turned into a designated school support organization member…HOWEVER, the money must be turned in using sealed envelopes.

The Envelope Rule conflicts with the “Manual” The Internal School Uniform Accounting Policy Manual provides that once a teacher, in his or her official capacity, receives money… …that money automatically belongs to the school and must be run through the school’s accounting system. So, to keep teachers from inadvertently violating either the “Manual” or the SSOFAA, the Envelope Rule was created.

Thus… If the money is in a sealed envelope and the teacher does not actually “receive”, “receipt”, or “handle” the money directly…it can continue to be school support organization funds and therefore turned in at school.

In a Nutshell… A school support organization must File a charter and exemption form with the Secretary of State. Maintain organizational structure through bylaws and officers. Adopt an accounting and financial policy. Get permission from the director of schools or his/her designee before conducting a fundraiser. Keep up with records for 4 years.

A school support organization must also… Document and maintain a detailed list of receipts and disbursements. Annually file a statement of total revenues and disbursements with the director of schools or his/her designee before the end of the school year. Maintain adequate separation of duties between SSO officers and the school representative related to the school group or organization (i.e. football coach, assistant coaches…band director…choir director…etc)

CAUTION!!!

I.R.S. IMPLICATIONS If your booster club is not a 501(c) corporation under the Internal Revenue Code, the booster club MAY HAVE TO PAY FEDERAL INCOME TAX on the money you raise!!! The booster club may be required to file a form 1120 corporate tax return annually with the IRS.

Credits against extracurricular activity fees If parents receive monetary deductions on fees for extracurricular activities … the IRS may require those parents to account for those fee-credits as income. Services performed in exchange for a benefit = Income Kentucky booster parents hit with $30,000 personal IRS bill.

Credits against extracurricular activity fees NOTE: This office does not condone the use of “credits” given to individual students or their parents or “accounts” maintained on behalf of individual students. It appears that the SSOFAA does not provide for nor allow the disbursement of booster club funds for the benefit of individual students.

Credits against extracurricular activity fees Since a “school support organization” may not use its funds for a purpose other than those related to its goals and objectives that relate to supporting a school district, school, school club, or school academic, arts, athletic or social activity…TCA 49-2-608(3) …it would appear that credits to individual accounts are not allowed under the law other than those credits which are applied to all students who participate in the club or activity.

Comptroller Audits The Comptroller has the authority to audit an SSO. These audits are not performed annually. An SSO does not have to submit an annual financial report or audit to the Comptroller. Audits will occur on a case-by-case basis in the event of corporate mismanagement, theft, or a failure to comply with the SSOFAA.

School Support Organization Financial Accountability Act of 2007 Passed May 21, 2007. Amended June 13, 2008. Effective July 1st, 2008.

Contact Information Comptroller of the Treasury Division of Municipal Audit Bank of America Plaza, Suite 1100 414 Union Street Nashville, Tennessee 37243-0271 615-532-4475 http://comptroller.state.tn.us/cpdivma.htm