Articles

Keeping Client Funds Separate—at All Costs

By Robert E. McLean, CAE

Let's talk about staples. Not the office supply store, but those metal devices for holding together multiple pieces of paper. If you have two association clients, do you need to buy two staplers? Or submit individual bills for staples? Of course, you don't need to do either.

Overhead costs (including staplers and staples) are typically part of the management fee, and most AMCs keep separate inventories of larger items. But it is important for AMC owners to decide how and when to separate costs, put those thoughts into a written document, and then ensure that all AMC employees follow it. Such a policy is a good first step for newer AMCs that want to develop professional standards and follow industry best practices.

An AMC can develop a policy and procedures manual for itself, as well as one for each client (representing the association's different preferences on financial and other operational issues). For the AMC, perhaps the single most important reason for writing a manual is to ensure that finances are accounted for in an ethical and legal manner. Problems most often occur when AMCs commingle funds, rather than ensuring the complete separation of financial transactions.

Here are two common examples of how confusion can occur.

The situation: Your AMC puts hotel food and beverage charges for a client's conference on its credit card. It then writes a check on the client association's bank account paying for the amount of the charge. (If you think such transgressions don't occur, think again.)

Best practice: The appropriate process would be for your AMC to pay the credit card bill, and then submit an invoice to the client association for the costs. The client association then writes a check to the AMC. Going one step further, the AMC should submit a “checks written” report to the client monthly or quarterly, detailing which checks were written to the AMC for the monthly retainer and expenses.

The situation: An AMC chooses a conference registration system that accepts online payments—for all of its clients. When funds are received, can the vendor (and the AMC) easily distinguish which funds are received for each client?

Best practice: Any systems you buy or lease, whether for conference registrations or other items, must be purchased with the intention of supporting the policy that prohibits commingling of funds.

It's also a good idea after developing a policy to coordinate its implementation with your accountant. This professional, who will recognize the importance of keeping funds separate, can review the chart of accounts in your accounting software and the chart of accounts for the association. For new AMCs, the easiest way to follow this standard is to write the policy first, then speak with your accountant to ensure that you've created a chart of accounts that will support the policy.

So the language in your policy and procedures manual regarding the commingling of funds could read something like this: “Expenses incurred and paid by the AMC on its credit card must be paid with AMC funds. The AMC must then submit the expenses for reimbursement by the client association from its bank account. The association will be asked to pay invoices from vendors (including the AMC) only when the invoice is in the association's name and all expenses on the invoice are exclusively for that association.”

It's also easy to avoid commingling of expenses such as long-distance telephone charges. Most long-distance carriers will allow you to create a system that requires keying in a 2- to 10-digit access code before placing a long-distance call. Create an access code for each client (for example, 3000), with subnumbers for major events that receive discrete funding in the association's budget (3010 for the annual conference).

There are many other essential standards that small and emerging AMCs should follow. Examples include establishing spending guidelines, ensuring that the AMC operates ethically and in compliance with all applicable laws and regulations, and validating that the AMC observes federal requirements for maintaining the tax status of its clients.

For more information and resources on these and other AMC best practices, visit the AMC Section online.

Robert E. McLean, CAE, is president of REM Association Services, an association management company located in Arlington, VA (near the nation's Capitol). He is a former member of the leadership of the AMC Institute and is currently in a leadership role with the American Society of Association Executives. McLean is a registered lobbyist who trains more than 5,000 grassroots lobbyists annually. REM manages numerous nonprofits, including national associations, societies, and foundations. The AMC also has several consulting clients, frequently facilitating strategic planning programs.