Legacy Haven Academy Financial Controls Policy

1. Purpose

This Financial Controls Policy (the "Policy") establishes guidelines for the Legacy Haven Academy Foundation (the "Academy") to ensure transparent, accountable, and compliant financial management. As an educational organization serving orphaned and homeless youth aged 10-18 through hands-on learning, mentorship, and holistic development programs, the Academy is committed to fiscal responsibility that aligns with its mission of fostering hope, purpose, and lifelong skills (Legacy Haven Academy, n.d.).

Although the Academy has not yet obtained 501(c)(3) tax-exempt status, this Policy is designed to prepare for federal recognition under Internal Revenue Code (IRC) Section 501(c)(3), which requires organizations to be operated exclusively for exempt purposes such as education, with robust internal controls to prevent private inurement and ensure public benefit (Internal Revenue Service [IRS], 2025a). It complies with Arizona's Nonprofit Corporations Act (Arizona Revised Statutes [A.R.S.] Title 10), which mandates annual reporting and ethical governance for incorporated non-profits (Arizona Legislature, 2024a), and relevant provisions under A.R.S. §§ 11-624 and 35-181.03 for entities receiving public funds, requiring financial and compliance audits in contracts with state or county agencies (Arizona Legislature, 2024b, 2024c). Mohave County regulations, which align with state law, emphasize audit clauses in assistance contracts but impose no unique standalone financial controls for non-profits (Mohave County, n.d.).

This Policy covers budgeting, audits, and grantor requirements, incorporating best practices for internal controls to mitigate risks, enhance donor confidence, and support future tax-exempt operations (National Council of Nonprofits [NCN], 2025a; Jitasa Group, 2025a).

2. Scope

This Policy applies to all Academy staff, volunteers, board members, and contractors handling financial matters. It encompasses all funds, including donations, grants, program revenues, and operational expenses. Non-compliance may result in corrective action, up to termination or removal from the board.

3. Budgeting Procedures

Effective budgeting ensures resources align with the Academy's mission while maintaining solvency and transparency.

3.1 Budget Preparation

• The Finance Committee, comprising at least three board members with financial expertise, shall prepare an annual operating budget by September 1 each year, projecting revenues (e.g., donations, grants) and expenses (e.g., program delivery, administration) for the fiscal year (July 1–June 30).
• Budgets must allocate no more than 25% to administrative costs to align with IRS guidelines on reasonable overhead for educational organizations (IRS, 2025b; NCN, 2025b).
• Assumptions (e.g., enrollment growth, grant awards) must be documented, with contingency reserves of at least 5% for unforeseen needs like youth counseling or facility maintenance.

3.2 Approval and Monitoring

• The full Board shall review and approve the budget at its October meeting, with minutes reflecting the vote.
• Monthly financial reports, including actual vs. budgeted variances exceeding 5%, shall be presented to the Board. Variances over 10% require immediate corrective action plans.
• Mid-year budget adjustments require Finance Committee recommendation and Board approval.

3.3 Compliance

These procedures comply with Arizona's requirement for non-profits to maintain accurate financial records under A.R.S. § 10-1630 (Arizona Legislature, 2024a) and IRS best practices for pre-501(c)(3) entities to demonstrate fiscal discipline (IRS, 2025a). Best practices emphasize zero-based budgeting for resource-scarce educational foundations to prioritize mission-driven spending (Jitasa Group, 2024).

4. Audit Procedures

Audits promote accountability, detect irregularities, and satisfy regulatory thresholds.

4.1 Internal Audits

• Quarterly internal reviews of transactions shall be conducted by a designated staff member or external consultant, focusing on segregation of duties (e.g., no single individual authorizes and records payments).
• The Board Treasurer shall oversee these reviews, reporting findings to the Finance Committee.

4.2 External Audits

• An independent certified public accountant (CPA) shall conduct an annual financial statement audit if gross revenues exceed $500,000, aligning with Arizona best practices for charitable organizations and preparing for IRS Form 990 requirements post-exemption (Chesler, 2025; NCN, 2025c).
• For revenues between $100,000–$500,000, a compilation or review by a CPA is required; below $100,000, an internal review suffices unless triggered by grants.
• If receiving federal funds exceeding $750,000 annually, a single audit under Uniform Guidance (2 CFR Part 200) is mandatory to test grant compliance (IRS, 2025c; NCN, 2025d).
• For state or Mohave County contracts, audits must include compliance testing per A.R.S. §§ 11-624 and 35-181.03, submitted within 180 days of fiscal year-end (Arizona Legislature, 2024b, 2024c).
• Audit reports shall be presented to the Board within 60 days of receipt, with management responses to findings.

4.3 Compliance

Audits mitigate IRS audit triggers such as disproportionate fundraising expenses or compensation issues (Carr, Riggs & Ingram, n.d.). In Arizona, while no universal audit mandate exists for non-profits, funded entities must adhere to contract terms (Harbor Compliance, 2025).

5. Grant Management and Grantor Requirements

Grants form a critical revenue stream; compliance ensures continued funding and eligibility for tax-exempt status.

5.1 Grant Tracking and Reporting

• All grants shall be tracked in a dedicated ledger, segregating restricted funds (e.g., for specific programs like STEAM workshops) from unrestricted ones.
• Pre-award: Grants must align with the Academy's educational mission and be approved by the Board to avoid unrelated business income risks under IRC § 513 (IRS, 2025d).
• Post-award: Quarterly progress reports and financial statements shall be submitted to grantors, with expenditures limited to approved budgets.

5.2 Compliance Monitoring

• A Grant Compliance Officer (or delegated staff) shall review terms for matching requirements, allowable costs, and record retention (at least 3 years per IRS guidelines).
• For Arizona state grants, audits per A.R.S. § 35-181.03 are required; federal grants trigger single audits if thresholds met (Arizona Department of Revenue [ADOR], 2023; NCN, 2025d).
• Violations (e.g., misuse of funds) must be reported to grantors and the Board within 10 days, with repayment plans if applicable.

5.3 Best Practices

Adopt uniform grant tracking to comply with IRS private foundation rules (if applicable post-exemption) and Arizona's lack of solicitation registration, emphasizing voluntary transparency (Ballotpedia, 2025; IRS, 2025e).

6. General Internal Controls

To safeguard assets and ensure compliance:

• Segregation of Duties: At least two approvals for expenditures over $500; dual signatures on checks.
• Cash Handling: Daily reconciliations, secure storage, and annual training on fraud prevention.
• Expense Reimbursements: Documented receipts required; no advances without Board approval.
• Recordkeeping: Maintain financial records for 7 years, accessible to Board and IRS upon request (IRS, 2025f).
• Training: Annual financial literacy sessions for staff and Board.
• Whistleblower Policy: Anonymous reporting of irregularities, protected under Arizona law (A.R.S. § 10-1630).

Violations shall be investigated by the Board, with escalation to authorities if fraud is suspected.

7. Policy Review and Amendment

The Finance Committee shall review this Policy annually or upon regulatory changes. Amendments require Board approval by majority vote.