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Guide to Basic Bookkeeping for Not-for-Profit Organizations GUIDE TO BASIC BOOKKEEPING FOR NOT- FOR-PROFIT ORGANIZATIONS RURAL DEVELOPMENT SECTION 523 MUTUAL SELF-HELP HOUSING PROGRAM December 2002 Guide to Basic Bookkeeping for Not-for-Profit OrganizationsA Guide for Grantees of the USDA Section 523 Self-Help Housing ProgramDeveloped jointly by the Self-Help Housing Technical and Management Assistance (T&MA)Contractors:Florida Non-Profit Housing, Inc. (FNPH)Little Dixie Community Action Agency, Inc. (LDCAA)National Council of Agricultural Life and Labor Research Fund, Inc. (NCALL)Rural Community Assistance Corporation (RCAC)Funded by: United States Department of Agriculture, Rural DevelopmentThe work that provided the basis for this publication was supported by funding under an award withthe U.S.D.A. Rural Development. The substance and findings of the work are dedicated to the public
The T & MA Contractors are solely responsible for the accuracy of the statements and interpretationscontained in this publication. Such interpretations do not necessarily reflect the views of theGovernment
Published in 2002 by the T & MA Contractors, this guide is designed to provide accurate andauthoritative information in regard to the subject matter covered. It is distributed with theunderstanding that the authors are not engaged in rendering legal, accounting, or other professionalservices. If legal or other expert assistance is required, the services of a competent professional personshould be sought
All rights reserved. The text of this publication, or any part thereof, may not be reproduced in anymanner whatsoever without written permission from the T & MA Contractor. If you wish to make ordistribute copies, please write a letter indicating the number of copies that you wish to make ordistribute, the size and type of audience to whom you wish to distribute, and the type of organizationor agency that you are. Send the letter to: Region I Region II Florida Non-Profit Housing, Inc Little Dixie Community Action Agency, Inc
P.O. Box 1987 502 W. Duke Sebring, FL 33871-1987 Hugo, Oklahoma 74743 (863) 385-2519 (580) 326-5165 [email protected] [email protected] Region III Region IV NCALL Research, Inc. Rural Community Assistance Corporation 363 Saulsbury Rd. 3120 Freeboard Drive, Suite 201 Dover, Delaware 19904 West Sacramento, CA 95619 (302) 678-9400 (916) 447-2854 info.ncall.org www.rcac.orgRefer to the Introduction Chapter of this guide to identify the appropriate T & MA Contractor to contact for your area
After receipt of a consent and conditions letter you may copy and distribute the manual in accordance with such terms andconditions as set and approved by the T & MA Contractors
December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations Table of ContentsChapter PageIntroduction to the Mutual Self-Help Program .………………….. 1Additional Training Materials…………………………………….. 7Introduction to this Guide…………………………………………. . 11Basic Bookkeeping Principles………………………………………. 12 Assets, Liabilities, and Net Assets The Bookkeeping Equation Business Transactions and Changes in the Bookkeeping Equation The LedgerManual Bookkeeping System………………………………………. 17 Journals Trial Balance Six Column Worksheet Financial Statements Monthly Financial Monitoring Cash vs. Accrual Closing the Ledger Cash Systems and Checking Accounts The Bank Statement The Petty Cash Fund PayrollAutomated Accounting System……………………………………. 32Addendum………………………………………………………….. 38 SFA 117 SFA 116Summary……………………………………………………………. 40List of Appendices.………………………………………………… 41 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations INTRODUCTIONThe Self-Help Program Self-Help Housing is just as it sounds: Participants working together to build their own homes
This cooperative effort is a direct application of the church and barn raising techniques of the Amishand Mennonites. The participants supply the necessary labor while qualifying for mortgage financingto purchase land, materials, and subcontract work on very technical items. A private nonprofitcorporation, public body, or rural town can obtain a grant from Rural Development to hire skilledstaff, rent office facilities, pay for mileage, and purchase tools. This staff then works with theparticipants by providing the assistance and training necessary to fulfill the goals of the self-helphousing program. The specifics of the program are described below
With the assistance of the skilled staff, an association of generally 4 to 10 households isformed. (Once the grant is completed, at least 40% of the total participants served must have beenvery low income, 50% or less of the county median income.) They select lots, house plans, and applyfor individual mortgage loans. While participants await loan approval, the group studies theresponsibilities of homeownership, construction techniques, tool usage, safety, homeowner’sinsurance, taxes, home maintenance, and money management. This time is known as the pre-construction stage
Once the loans are approved, the group begins to build under the guidance of a skilledconstruction supervisor. The participants must complete a minimum of 65% of the construction labortasks, until the group of homes is completed; usually the more technical work is subcontracted out
The construction stage lasts from 6 to 12 months, depending on the size of the group. Participantswork during their spare time (evenings, weekends, and days off) so as not to interfere with the regularhousehold employment. Rural Development loans feature interest rates ranging from 1% to themarket rate, depending on the household’s adjusted annual income. The repayment period is 33 or 38years and no down payment is required
1 December 2002 Guide to Basic Bookkeeping for Not-for-Profit OrganizationsRural Development Rural Development is an agency of the United States Department of Agriculture. It wasoriginally a credit agency for lower income farmers who could not qualify for loans elsewhere. Sincethe 1960's rural non-farm households have been eligible for mortgage credit. Rural Development’sfunction as a lender is significant because private credit institutions in rural areas are relatively few innumber, smaller, and often impose more rigid terms, which can be a barrier to homeownership
The Rural Development mission is to help rural Americans improve the quality of their lives
Rural Development helps rural communities meet their basic needs by: • Building water and wastewater systems, • Financing decent, affordable housing, • Supporting electric power and rural businesses, including cooperatives, and • Supporting community development with information and technical assistance
Rural Development has been providing the funds for the self-help housing program since thelate 1960's. They provide technical assistance grants to eligible entities to start and implement theprogram and they thoroughly review the preapplication and final application before a grant is awarded
When a grant is awarded, Rural Development is saying that there is a need for self-help housing in thisarea; this agency is suited to administer a self-help housing program; the proposed plan, budget andschedule are feasible; house plans meet local, state and Rural Development building codes; adequatebuilding sites are available; the project ingredients are in place; and Rural Development is ready toprovide the financial resources necessary to make the project work. There is no charge to participatinggroups. Grant funds provided to grantees by Rural Development do not have to be repaid. It is aninvestment Rural Development is willing to make in order to see self-help housing work
Rural Development will continue to monitor and provide oversight in the areas of constructionand administration, through quarterly meetings, construction inspections, and participant accountsthroughout the term of the program
In many cases Rural Development provides another important ingredient to the self-helpprogram, construction/permanent financing. They are independent of private or conventional lendinginstitutions; the financing is directly between Rural Development and the borrower. While labor andconstruction are group efforts, each applicant must qualify and obtain a loan directly from RuralDevelopment
2 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations Rural Development Offices Rural Development usually operates from four levels: national, state, area and local
The National Rural Housing Service Administrator in the National Office and the State Directors are politically appointed – all others are federal civil service employees
Rural Housing Service National Office The Rural Housing Service National Office is responsible for developing policy and interacts with Congress for legislation development and program funding. The National Office also awards and monitors all Section 523 grants. The program staff at the national level maintains reports and statistics on operating self-help organizations and projected needs for funding
Rural Development State Office The State Office has the approval authority over the smaller Section 523 grant applications. Section 502 loans are allocated on a state-by-state basis and the State Office allocates the 502 money based on a State formula. There are additional staff members who are key to the operation of a self-help program located in many State Offices: Rural Development State Director Rural Housing Program Director Rural Development State Architect Rural Development Appraiser Rural Development Housing Specialist Rural Development Area Office The Rural Development Manager is responsible for the Section 523 grant. It is his or her responsibility to ensure that the grant is operated effectively and in accordance to regulations. The Rural Development Manager will evaluate the Section 523 self-help agencies on a quarterly basis and review grant applications for new and on-going programs. In addition, Rural Development Construction Analysts are usually available through this office
3 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations Rural Development Local Office Within this office, the Community Development Manager is responsible for making the Section 502 mortgages to participating applicants of each group. He or she will be responsible for monitoring the 502 loans and will also be the co-signer on the participant checking accounts. Usually, this office does construction inspections
The Rural Development Section 502 Rural Housing Loan Many applicants that participate in the self-help housing program use Rural DevelopmentSection 502 loan to finance their homes. Section 502 loans are only available to families living inrural areas. "Rural" is defined as towns with populations of 10,000 or fewer, and designated citieswith populations between 10,000 and 20,000 in counties that are not associated with StandardMetropolitan Statistical Areas (SMSA) where a serious lack of mortgage credit exists
In order to qualify for a Section 502 loan, prospective self-help applicants must meet RuralDevelopment income eligibility requirements as low-income or very low-income. They must becredit-worthy, have repayment ability for the loan requested, and be unable to secure credit from othersources. The low-income measure is 80% or less of the county median income, based on family size
Very low-income is defined as 50% or less of the county median income, based on family size. Theseincome standards, established by HUD and adopted by Rural Development, are subject to localvariation and periodic change. Current information on income standards and eligibility requirementsfor Section 502 loans is available at Rural Development local offices
The repayment period for the Section 502 loan is either 33 or 38 years, and the interest rate isbetween 1% and the current market rate. The actual rate of interest the borrower pays depends on theborrower's income, as does the loan term. If a borrower is eligible to pay less interest than the marketrate, the borrower then receives a subsidy called “payment assistance”. The amount of paymentassistance a borrower receives is determined by the loan amount, loan period, and the householdincome. The assistance makes up the difference between the full loan rate and the rate the participantpays
Section 502 funds are advanced from the Rural Development finance office in St. Louis anddisbursed by the local offices based on regulatory guidelines. TA grantees prepare the drawdowns andchecks for each participant's account as needed to purchase materials for different phases ofconstruction. Note that the participant's loan payments are deferred during construction
4 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations When all the money is withdrawn from a participant's account, Rural Development's financeoffice sends payment books to the participant. The participant's first loan payment is due within thirtydays of termination of deferred payments. Payments then go directly to Rural Development’sCentralized Servicing Center (CSC) in St. Louis
The 523 Mutual Self-Help Housing Technical Assistance Grant In order to enable organizations to operate a mutual self-help housing program, RuralDevelopment provides grant funds to operate and oversee mutual self-help housing programs. EachTA grant is usually for a period of up to two years, and is available to public and private nonprofitorganizations and units of state or local government. The amount of grant funds an organization canreceive is based upon how many houses they build in a grant period. An organization can receive 15%of the average cost of a new home financed under the 502 program in their area, for every home theyare planning to build
Activities that are allowable uses of Section 523 Technical Assistance grant funds include: • Recruiting eligible households to participate in the self-help program; • Holding training meetings with participants on the self-help process and homeownership topics such as mortgages, insurances, taxes, and maintenance; • Assisting participants obtain and develop building sites; obtaining or creating Rural Development-approved house plans and helping participants select theirs; • Helping participants bid and select building supplies and subcontractors; train participants in construction techniques and provide construction supervision; • Supervise participant Section 502 loan accounting, including: --Totaling invoices and itemizing payments to suppliers and subcontractors; --Maintaining records of deposits and withdrawals; --Preparing checks (accompanied with invoices and statements)
Disallowed activities using Section 523 Technical Assistance grant funds include: • The use of any TA funds to pay staff to provide labor on the houses; • Purchasing any real estate or building materials for participating families; • Paying any debts, expenses or costs which should be the responsibility of the participating families; • Any lobbying activities as prohibited in OMB Circular A-122
5 December 2002 Guide to Basic Bookkeeping for Not-for-Profit OrganizationsThe T&MA Contractors In 1979 the appropriations language was changed to authorize the use of Section 523 grantfunds to contract for technical assistance to self-help grantees. There were initially six Technical andManagement Assistance (T&MA) Contractors; currently there are four
Rural Development contracts with these groups to assist operating and potential self-helphousing grantees across the country. This assistance comes in the form of staff and board training,grant management, development of applications, 502 loan program, training, newsletters andconferences, among other services. These services are provided at no cost to the grantee
The four contractors are: • Florida Non-Profit Housing - covering Region I, the Southeast, including the states of AL, FL, GA, MS, NC, SC, TN, Puerto Rico and the Virgin Islands
• Little Dixie Community Action Agency, Inc. – covering Region II, the South Central US, including the states of AR, KS, LA, MO, ND, NE, NM, OK, SD, TX, WY
• NCALL Research, Inc. – covering Region III, the Northeast and Midwest, including the states of CT, DE, IA, IL, IN, KY, MA, MD, ME, MI, MN, NH, NJ, NY, OH, PA, RI, VA, VT, WI, WV
• Rural Community Assistance Corporation (RCAC) – covering Region IV, the Western US, including the states of AK, AZ, CA, CO, HI, ID, MT, NV, OR, UT, WA
6 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations Additional Training Materials The T&MA Contractors have produced a variety of other training materials for the purpose ofassisting grantees and training grantee staff. The following is a list of the available guides. Pleasecontact your T&MA Contractor for a copy or for more information
Board of Directors Boards of Directors play a critical role in the success of any non-profit organization. With thisin mind, this guide was designed for use by board members of any housing agency. This guide isintended primarily as a reference and not to dictate that, "this way is the only way". However, it is aninformational resource that may be used as a training tool and can provide new insights and a clearerunderstanding of nonprofit organizations, board meetings, operations, agency planning, administrationof agency personnel, teamwork, orientation for new board members, federal accounting requirements,and self-help agency activities
Project Director’s Guide It is the responsibility of the Project Director or Executive Director to administer a successfulMutual Self-Help Housing Program. This guide should be used as an important resource to assist withthe goal. It can also be used as a training manual when new staff is hired. The Project Director’s Guidetakes a general look at the Self-Help Program as well as providing information on required reports,program criteria, grant and financial management, personnel and fair housing
Financial Management for Federally-Funded Organizations The purpose of this Financial Management Guide is to aid new and operating grantees with thedevelopment of financial management systems and policies that are compatible with the fiscalresponsibilities set forth by the funding agency (Rural Development) and the Office of Managementand Budget (OMB). While self-help housing programs that have been operating for many years mayhave sophisticated financial systems and policies, others are lacking written, established financialprocedures that assure proper internal controls
This Financial Management Guide offers grantees sample information, guides, and checklistsfor virtually all fiscal aspects of self-help housing including: Section 523 grant accounting, Section502 participant loan accounting, establishing accounting systems, program and payroll expenditures,tax requirements, personnel records, federal accounting requirements, and audit preparation
7 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations While this Guide has been developed specifically for self-help housing grantees, the principlesand information provided are applicable to any nonprofit housing development corporation utilizingfederal financing or administrative funding
Guide to Accounting for Individual Borrower 502 Loan Accounts In addition to establishing and maintaining an accounting system for the Section 523 grantfunds, the Self-Help Housing grantee is responsible for keeping an accurate account of thedisbursement of funds from the individual self-help participants' Section 502 loan accounts
Instruction 1944-I indicates that technical assistance provided by the grantee to the participants shouldinclude "providing financial supervision to individual families with Section 502 loans, which willminimize the time and effort required by Rural Development in processing borrower expenditures formaterials and contract services.” In order to fulfill this accounting responsibility, the granteesmust establish a record keeping system with clear procedures for handling the purchase of constructionsupplies, invoices from subcontractors and vendors, and accounting for expenditures from participantloan funds. This guide provides guidelines for self-help grantees to use in designing the proceduresnecessary for a minimum standard of control and a system of checks and balances to protect theparticipants and the grantee
Group Coordinator The job duties and responsibilities of a Group Coordinator are crucial to the success of the self-help program. The Group Coordinator is the person that is responsible for locating interestedparticipants, screening them and packaging their 502 loan applications, preparing them for theconstruction phase and homeownership, and helping to track their progress during construction. If oneof these duties is not fulfilled, the entire program is put in jeopardy
Because the Group Coordinator often wears so many hats in a self-help agency, there are otherguides that the Group Coordinator is going to need to read in addition to this one. The 502 LoanProcessing Guide is crucial to the success of qualifying and processing families, the PreconstructionMeetings Guide will help guide the Group Coordinator through these meetings, and the SHARESManual will instruct the Group Coordinator on the task of entering information into the SHARESdatabase
This guide will help the Group Coordinator in the areas of recruitment, communication,forming a group, group management, motivation, and money management
8 December 2002 Guide to Basic Bookkeeping for Not-for-Profit Organizations502 Loan Processing Guide(This guide is currently under development.) While the labor and construction is a group effort, each participant must qualify and obtain aloan individually from Rural Development. In order to qualify, a household must fall within theincome guidelines set by Rural Development, must have demonstrated repayment ability, must have agood credit rating, and should have a low debt load. Because the 502 self-help loan process can becomplicated for the individual, the technical assistance staff will pre-screen participants for programeligibility and prepare the application packages for Rural Development
The 502 Loan Processing Guide will help to train the Group Coordinator or appropriate staffperson in packaging these loans. The loan terms, application forms, credit reports, and the additionaldocumentation required are all covered
Preconstruction Meetings Guide(This guide is currently under development.) Each self-help grantee is responsible for organizing participants into groups, which remaintogether from loan processing through construction. The organization of participants into groupsreinforces the "mutual” aspect of the self-help program because participants within a group areexpected to work on each other’s house until all houses in the group are completed. In addition toorganizing participants into groups, self-help programs are responsible for explaining the self-helpconcept and methodology to participants, and for educating participants about their responsibilities asself-help participants, 502 loan borrowers, and homeowners. This is achieved through a series of “pre-construction meetings.” Group meetings provide self-help grantees, Rural Development, and the self-help participantswith an opportunity to develop bonds which can contribute to the timely construction of houses – ofwhich all can be proud – and which can place participants on a sound footing for assuming theirhomeownership responsibilities
The information and materials contained in this guide are presented as informational resources,ready to use formats, or samples to be modified to suit each grantee’s individual circumstances
9 December 2002
Guide to Basic Bookkeeping for Not -for-Profit Organizations December 2002 A Guide for Grantees of the USDA Section 523 Self -Help Housing Program Developed jointly by the Self …
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