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PowerPoint Financial Management for Nonprofits

VIEWS: 19 PAGES: 89

									   Financial Management for
           Nonprofits




November 18, 2009             1
                    Agenda
• 9AM – 10AM: Introductions
• 10AM – 12 Noon: Presentation
• 12 Noon – 1PM: Lunch
• 1PM – 3PM: Q&A plus pre-submitted
  questions.




November 18, 2009                     2
             Things to Consider
• Ask questions and interrupt! My job is to
  facilitate the discussion.
• Network with your peers. They have
  experienced or are experiencing your
  “pain”.
• Financial management topics to be
  covered:
    –   Budgeting;
    –   Reporting;
    –   Tracking;
    –   Decision making.

November 18, 2009                             3
    Lawyers and Accountants
• I am neither.
• You need both to manage your organization.
• They should have experience working with
  nonprofits.
• If you do not have one, get one. I prefer via an
  RFP.
• Just because your Board Members are Lawyers or
  Accountants does not mean you should lean on
  or use them. Why?
• Make sure you rotate your accounting and audit
  firms every few years. Why?

November 18, 2009                                4
             Mission and Vision
     At the end of the day, if your
    organization is not completing its
        mission, the best financial
   management system in the world will
       not matter. Proper financial
     management is a tool for you to
     efficiently deliver products and
         services to your clients.

November 18, 2009                    5
                               EFFECTIVE
                              FINANCIAL
       8. Matching           MANAGEMENT
       Requirements
       & In-kind
       Contributions

                                                5. Efficient
                                                Accounting
                    7. Time &
                                                System
                    Activity
                    Documentation   6. Budget
                                    Controls




November 18, 2009                                              6
    Regulatory Requirements
• Federal:
    – Most of you are 501(C)3s. There are a total of 28 kinds of
      501(C)s.
    – IRS (990, 990EZ, 990N, 990T):
        • 2009 Tax Year (Filed in 2010 or 2011):
             – Gross receipts normally ≤ $25,000:990-N.
             – Gross receipts > $25,000 and < $500,000, and total assets < $1.25
               million: 990-EZ or 990.
             – Gross receipts ≥ $500,000, or total assets ≥ $1.25 million: 990.
        • 2010 Tax Year and later (Filed in 2011 and later):
             – Gross receipts normally ≤$50,000:990-N.
             – Gross receipts > $50,000 and < $200,000, and total assets <
               $500,000: 990-EZ or 990.
             – Gross receipts ≥ $200,000, or total assets ≥ $500,000: 990.
        • 990T (Exempt Organization Business Income Tax Return):
             – $1,000 or more gross income from an unrelated business.
             – In addition to the obligation to file the annual information return.
             – Make quarterly payments of estimated tax on unrelated business
               income.


November 18, 2009                                                                     7
    Regulatory Requirements
• Federal (continued):
    – Failure to file:
        • $20 a day for each day the failure continues.
        • Same applies if you fail to give correct and complete
          information or required information on its return.
        • Maximum penalty for any one return is the lesser of
          $10,000 or 5 percent of the organization's gross
          receipts for the year.
        • If the organization has gross receipts in excess of
          $1,000,000, the penalties are increased to $100 per
          day with a maximum penalty of $50,000.
    – http://www.irs.gov/charities/article/0,,id=961
      03,00.html

November 18, 2009                                                 8
    Regulatory Requirements
• Federal (continued):
    – Grant reporting: Office of Management and
      Budget sets the primary rules.
    – Other agencies will require their own reports.
    – All require financial information.
    – Wages:
        • Federal income tax.
        • Social security taxes (FICA).
        • Federal unemployment tax (FUTA).
    – What other federal regulatory requirements do
      you have?

November 18, 2009                                      9
    Regulatory Requirements
• Commonwealth of Virginia:
    – Department of Agriculture and Consumer Services,
      Division of Consumer Protection reporting requirements:
        • Charitable or Civic Organization Registration Package.
        • Request for Exemption from Annual Registration - Form
          100.
        • Registration Statement for a Charitable Organization -
          Form 102.
        • Forms for Fundraisers.
    – Virginia Solicitation of Contributions Law: Section 57-
      55.3. Disclosure regarding financial statement required.
    – Rules Governing the Solicitation of Contributions.
    – http://www.vdacs.virginia.gov/allforms.shtml
• Localities: Varies by county and/or city.
November 18, 2009                                                  10
    Regulatory Requirements
• Board and staff MUST be aware of all
  regulatory requirements, guidelines
  and provisions.
• Financial information generally
  required for federal, state and local
  governments:
    – Annual report with embedded financials;
    – Audit with management letter;
    – Balance sheet (point in time).

November 18, 2009                          11
              Written Policies and
                  Procedures
• Specific to financial management and
  transactions.
• Litmus tests:
    – Does the organization operate within a written
      set of policies and procedures?
    – Are all Staff familiar with policies and
      procedures?
    – Are organizational policies and procedures up-
      to-date (at least within the last year)?
    – Do the policies and procedures incorporate
      grant provisions?

November 18, 2009                                  12
              Written Policies and
                  Procedures
• Examples:
    – General Policies and Procedures — Accounting
      department structure, ethics, conflicts of interest, fraud,
      security, technology, general ledger, chart of accounts,
      etc.
    – Revenues and Cash Receipts Processing — Revenue
      recognition, contributions, gift acceptance, billing, in-
      kind, accounts receivable, processing of cash receipts,
      lockboxes, credit card payments, etc.
    – Purchasing and Cash Disbursements — Purchasing,
      solicitation of quotations from vendors, accounts
      payable, employee expense reports, travel and business
      entertainment, check preparation, payroll, etc.



November 18, 2009                                              13
              Written Policies and
                  Procedures
• Examples:
    – Asset and Liability Accounts — Cash, bank
      reconciliations, investments, inventory, prepaid
      expenses, property and equipment, depreciation, leases,
      fair value accounting, accrued expenses, note payable,
      income taxes payable, etc.
    – Financial and Tax Reporting — Interim financial
      statements, annual financial statements, filing of
      information and tax returns, public access to returns,
      unrelated business activities, etc.
    – Financial Management — Budgeting, external audit,
      selecting auditors, finance committees, audit
      committees, insurance, record retention and destruction,
      functional expense reporting, expense allocations, etc.


November 18, 2009                                           14
              Written Policies and
                  Procedures
• Examples:
    – Federal Grants and Contracts —
        • Administration of federal awards.
        • Cash draw downs.
        • Selection and monitoring of sub-recipients.
        • Special procurement requirements including
          equipment purchased with federal funds.
        • Grant close out procedures.
        • Charging of direct and indirect costs, cost
          sharing and matching.
November 18, 2009                                   15
         Track Costs/Expenses
• All staff are familiar with expense policies and
  procedures. Organization has proper record
  retention policies.
• All expenses have supporting documentation.
  General documentation requirements to support
  expenditures:
    –   Reasonable.
    –   Necessary.
    –   Can be allocated.
    –   Allowable.
    –   Adheres to organizational policies and procedures.
    –   In many cases must follow grant guidelines.


November 18, 2009                                            16
         Track Costs/Expenses
• Cost types:
    – Direct: Costs that can closely be associated
      with a program and its objectives. What are
      some examples?
    – Indirect: Also known as administrative costs,
      are costs to operate the organization and are
      not directly attributable to a program. What
      are some examples?
    – Are there instances when a cost category can
      be considered both direct and indirect? Or does
      it depend on the situation?
November 18, 2009                                  17
                    Manage Cash
• Managing cash is likely to be your largest
  challenge!!!
• The overall purpose of managing your cash flow
  is to make sure that you have enough cash to
  pay current bills.
• Organizations can manage cash flow by
  examining a cash flow statement and cash flow
  projection.
    – The cash flow statement includes total cash received
      minus total cash spent over a predefined period.
    – The cash flow project is similar but is an estimate.
• Cash management looks primarily at actual cash
  transactions.

November 18, 2009                                            18
                    Manage Cash
• The most commonly used format for the cash flow
  statement is broken down into three sections:
    – Cash flows from operating activities.
    – Cash flows from investing activities.
    – Cash flows from financing activities.

• Cash flows from operating activities are related to your
  principal line of business and include the following:
    –   Cash receipts from sales or for the performance of services.
    –   Payroll and other payments to employees.
    –   Payments to suppliers and contractors.
    –   Rent payments.
    –   Payments for utilities.
    –   Tax payments.



November 18, 2009                                                      19
                    Manage Cash
• Investing activities:
    – Include capital expenditures – disbursements that are
      not charged to expense but rather are capitalized as
      assets on the balance sheet.
    – Include long term investments.

• Investing cash flows could include:
    – Purchases of property, plant and equipment.
    – Proceeds from the sale of property, plant and
      equipment.
    – Purchases of stock or other securities (other than cash
      equivalents).
    – Proceeds from the sale or redemption of investments.

November 18, 2009                                               20
                    Manage Cash
• Financing activities include cash flows
  relating to the business’s debt or equity
  financing:
    – Proceeds from loans, notes, and other debt
      instruments.
    – Installment payments on loans or other
      repayment of debts.
    – Cash received from the issuance of stock or
      equity in the business.
    – Dividend payments, purchases of treasury
      stock, or returns of capital.

November 18, 2009                                   21
                    Manage Cash
• Cash for purposes of the cash flow statement includes:
    – Cash.
    – Cash equivalents: Short-term, temporary investments that can be
      readily converted into cash, such as marketable securities, short-term
      certificates of deposit, treasury bills, and commercial paper.
• The cash flow statement shows:
    – The opening balance in cash and cash equivalents for the reporting
      period.
    – The net cash provided by or used in each one of the categories
      (operating, investing, and financing activities).
    – The net increase (positive) or decrease (negative) in cash and cash
      equivalents for the period.
    – The ending balance. Positive is good…
• There are two methods for preparing the cash flow statement –
  the direct method and the indirect method. Both methods yield
  the same result, but different procedures are used to arrive at the
  cash flows.



November 18, 2009                                                           22
                    Manage Cash
• Direct method:
    – Analyze your cash and bank accounts to identify cash
      flows during the period via your general ledger.
    – Under the direct method, sections of the cash flow
      statement include:
        • Cash receipts from customers, grants, investments,
          donations, and other.
        • Cash payments for inventory.
        • Cash paid to employees.
        • Cash paid for operating expenses.
        • Taxes paid.
        • Interest paid.
        • Equals net cash provided by (used in) operating activities.



November 18, 2009                                                   23
                    Manage Cash
• Indirect method:
    – Net income per the income statement.
    – Minus entries to income accounts that do not
      represent cash flows.
    – Plus entries to expense accounts that do not
      represent cash flows.
    – Equals cash flows before movements in
      working capital.
    – Plus or minus the change in working capital.
    – The net effect of the above would then be
      reported as cash provided by (used in)
      operating activities.

November 18, 2009                                    24
                    Manage Cash
• Litmus Test:
    – Organization has adequate cash on hand to
      meet obligations.
    – Organization is raising funds on a regular
      basis.
    – Grants: Advance requests (if used) are timed
      so funds are sufficient to run programs.
    – Organization performs monthly bank
      reconciliations with financial records.
    – Monthly cash flow statement is produced.
    – Appropriate financial vehicles are in place to
      manage cash flows (e.g. Line of credit and/or
      loan).
November 18, 2009                                      25
                    Manage Cash
• Questions to consider:
    – How much cash should we hold in
      reserve?
    – How should we invest our short term
      cash balances?
    – What is petty cash and how should we
      handle it?
    – What is the Board's Responsibility in
      cash management and investments?
November 18, 2009                             26
Efficient Accounting System
• System must be capable of:
    – Distinguishing grant verses non-grant
      related expenditures.
    – Identifying costs by program.
    – Identifying costs by budget category.
    – Differentiating between direct and
      indirect costs (administrative costs).



November 18, 2009                              27
Efficient Accounting System
• System must be capable of (continued):
    – Accounting for each award/grant separately
      (fund accounting).
    – Maintaining matching funds separately from
      grant funds.
    – Recording in-kind contribution as both
      revenues and expenses.
    – Allowing management to easily obtain financial
      reports at both the summary or detailed levels.
    – Correlating accounting information and
      documents to financial reports.

November 18, 2009                                  28
Efficient Accounting System
• Questions to ask before choosing:
    – Does your organization have someone on staff
      doing your accounting? If so, is your
      accounting system computerized?
    – If the accounting system is not computerized,
      do you think it should be? Why?
    – What kind(s) of accounting software does your
      organization use?
    – Is your computerized accounting system
      currently working well?

November 18, 2009                                 29
Efficient Accounting System
• Questions to ask before choosing:
    – Would your accounting system be adequate
      with a 25 percent increase in volume?
    – Is the accounting staff able to keep your
      organization's accounts accurately and easily?
    – Do your computers run the accounting
      software adequately?
    – Does your organization need to upgrade to a
      newer version of your current program or even
      a different program? If so, what program do
      you need?
    – How many computers will not be able to run
      the new software?

November 18, 2009                                 30
Efficient Accounting System
• Questions to ask before choosing:
    – Do you need fundraising software, accounting
      software, or both? If you need both, do they
      need to be connected? Why?
    – How many funds do you have? How
      independent are they? How many accounting
      transactions do you have each month?
    – Do you have specific reporting requirements
      from your funders?



November 18, 2009                                    31
Efficient Accounting System
• Questions to ask before choosing:
    – Can you support the software internally,
      or are you going to need long-term help
      from the consultant who installs it?
    – What is your budget for this project?
    – Is your connection fast enough that
      using an ASP (Application Service
      Provider) is feasible?


November 18, 2009                            32
Efficient Accounting System
• Vendors include:
    – For small nonprofits (Less than 5 users and under $1M
      in budget):
        •   QuickBooks by Intuit.
        •   Peachtree by Sage.
        •   FundEZ by E-Z Development Corporation.
        •   Cost $100 - $1,000.
    – For Mid-Sized Nonprofits (More than 5 users and greater
      than $1M):
        • MIP Fund Accounting by Sage.
        • Fundware by Kintera.
        • The Financial Edge by Blackbaud.
        • Dynamics by Microsoft (formally Great Plains, Solomon,
          and Navision).
        • MAS90/MAS200 by Sage.
        • Cost: $5,000 - $250,000.

November 18, 2009                                                  33
Efficient Accounting System
• Vendors include:
    – For Large National and International
      Nonprofits:
        • Oracle (including Oracle Financials, PeopleSoft, and
          JDEdwards).
        • Microsoft's Dynamics AX.
        • Lawson Software.
        • Each must be tailored to your specific needs.
        • Cost: Upper six figures to well into the millions.
• Great resource for choosing and buying
  accounting software is ww.techsoup.com.
November 18, 2009                                                34
Efficient Accounting System
• GIGO – Garbage in Garbage Out.
• Your accounting system will only be
  as good as your financial manager.
• Make sure you have $ allocated
  annually so that your in-house
  person can have training on both the
  system as well as professional
  development.
November 18, 2009                    35
                Budget Controls
• A properly approved budget is:
    – A financial blueprint to help an organization
      meet its goals and objectives.
    – A tool to help ensure an organization is
      meeting matching requirements.
• An Organization should:
    – Periodically review budget to actual.
    – Assure budget changes are properly approved.
    – Review movements between line items and
      verify if they are within provisions, guidelines,
      and/or policy.

November 18, 2009                                     36
                Budget Controls
• Budgets can be general operating or
  project based.
• Budget changes requiring approval:
    – Changes in scope, objectives or goals of
      organization or program.
    – Substantial changes in level of revenues
      received.
    – Grants: Additional sub-grants or contracts.
    – Line item changes greater than 10% of original
      budget.

November 18, 2009                                 37
                Budget Controls
• Forming your budget (create three
  budgets):
        • Blue sky (best case).
        • Devastation (worse case).
        • Probable (average of best and worst cases)
• Be conservative: estimate revenues
  low and expenses high.
• Budgets are dynamic and flexible.

November 18, 2009                                      38
                Budget Controls
• Budgets should include:
    – Expenses
        • Basics: Lights, heat, telephones, internet,
          rent, water, office supplies, printing,
          website, etc.
        • People: Salaries, benefits, and taxes.
        • Project specific items.
        • Use actual costs. Do not guess.



November 18, 2009                                       39
                  Budget Controls
• Budgets should include:
    – Income (aka revenue, funding):
        • Six major “pots”:
             –   Operations (aka earned income).
             –   Investments.
             –   Foundations.
             –   Corporations.
             –   Government.
             –   Individuals.
        • Grants: Only include those that are awarded.
        • Use actuals. Do not guess.


November 18, 2009                                        40
                Budget Controls
• Document, document, document.
• Multiple iterations will be required.
• Review by board, staff, and major
  partners.
• Use prior year as starting point (at
  minimum to determine the line items
  necessary).
• If you are brand new, beg, borrow and
  steal samples. If you cannot find an
  example online, use a library!!!

November 18, 2009                         41
                Budget Controls
• Consider using Zero Based Budgeting (ZBB): A
  method of budgeting in which all expenses must
  be justified for each new period.
    – Zero-based budgeting starts from a "zero base" and
      every function within an organization is analyzed for its
      needs and costs.
    – Budgets are then built around what is needed for the
      upcoming period, regardless of whether the budget is
      higher or lower than the previous one.
• ZBB allows top-level strategic goals to be
  implemented into the budgeting process by tying
  them to specific functional areas of the
  organization.

November 18, 2009                                             42
                Budget Controls
• ZBB Pros:
    – Efficient allocation of resources, as it is
      based on needs and benefits.
    – Drives managers to find cost effective
      ways to improve operations.
    – Detects inflated budgets.
    – Municipal planning departments are
      exempt from this budgeting practice.
    – Useful for service departments where
      the output is difficult to identify.
November 18, 2009                                   43
                Budget Controls
• ZBB Pros (continued):
    – Increases staff motivation by providing greater
      initiative and responsibility in decision-making.
    – Increases communication and coordination
      within the organization.
    – Identifies and eliminates wasteful and obsolete
      operations.
    – Identifies opportunities for outsourcing.
    – Forces cost centers to identify their mission
      and their relationship to overall goals.

November 18, 2009                                    44
                Budget Controls
• ZBB Cons:
    – Time-consuming and exhaustive.
    – Forced to justify every detail related to
      expenditure.
    – Favors production department.
    – Necessary to train managers.
    – In a large organization, the volume of
      forms/data may be so large that no one person
      could read it all.
    – Honesty of the managers must be reliable and
      uniform. Any manager that exaggerates skews
      the results.

November 18, 2009                                45
                    Time and Activity
                     Documentation
• This primarily relates to grants or other
  reimbursable activities.
• Time and Activity Documentation:
    – All salaries and wages charged to grants must
      be supported by signed time and attendance
      records.
    – Must reflect an after-the-fact distribution of
      each employee’s actual activity.
    – Must account for the total activity of each
      employee.
    – Must be prepared at least monthly and should
      coincide with one or more pay periods.
    – Must be signed by the employee.
November 18, 2009                                  46
    Matching Requirements and
      In-Kind Contributions
• Must be verifiable from recipient
  records.
• Must not be included as contribution
  for other federally-assisted
  programs.
• Must be necessary for accomplishing
  program objectives.
• Must be allowable according to cost
  principles and grant provisions.
November 18, 2009                    47
    Matching Requirements and
      In-Kind Contributions
• Are to be recorded in the general
  ledger.
• Need to be properly documented.
• Need to have the value supported by
  appropriate documentation.
• Fair market value = What you would
  pay for it if it was not donated.

November 18, 2009                   48
    Matching Requirements and
      In-Kind Contributions
• In-kind contributions documentation have same
  standards as other expenditures.
• In-kind contributions should be recorded as both
  a revenue and an expense.
• Document the basis for determining the value of
  personal services, material equipment, building,
  and land. Obtain acknowledgement of the
  contribution which should include:
    –   Name of donor.
    –   Date and Location of donation.
    –   Description of item/service.
    –   Estimated value.

November 18, 2009                                49
    Matching Requirements and
      In-Kind Contributions
• In-kind may not include the value of direct
  community services performed by volunteers.
• Services that contribute to organizational
  functions such as accounting, training of staff or
  members may be counted as in-kind.
• In general, in-kind services are recognized in the
  financial statements if the services received:
    –   Create or enhance non-financial assets.
    –   Requires specialized skills.
    –   Provided by individuals possessing those skills.
    –   Would need to be purchased if not provided by donation.
• In the end, please check with your accountant.

November 18, 2009                                            50
                    Reporting
• All Financial reports must be
  supported by the accounting system
  and should match the information in
  the general ledger.
• Determine if reporting will be done
  on a cash or accrual basis.



November 18, 2009                       51
                    Reporting
Financial reports should have six
  characteristics:
1. They should be easily comprehensible so that any
   person taking the time to study them will
   understand the financial picture.
2. They should be concise so that the person
   studying them will not get lost in detail.
3. They should be all- inclusive in scope and should
   embrace all activities of the organization.


November 18, 2009                                 52
                    Reporting
Financial reports should have six
   characteristics:
4. They should have a focal point for comparison so
   that a person reading them will have some basis
   for making a judgment.
5. They should be prepared on a timely basis. The
   longer the delay after the end of the period, the
   longer the period before corrective action can be
   taken.
6. Statements should reflect the organization’s
   position as accurately as possible.


November 18, 2009                                 53
                    Reporting
• Primary financial reports for nonprofits:
    – Cash Flow Statements.
    – Balance Sheet (aka Statement of Net Assets or
      Statement of Financial Position).
    – Income Statement (aka Operating Statement
      or Statement of Activity).
    – Budget vs. Actual.
    – Profit Loss Statement (for organization or
      project). Why, you are a nonprofit?
• All can be derived from your accounting
  software package!!!
November 18, 2009                                54
                      Reporting
• Macro Level Oversight:
    – Nonprofits need a mix of private and public grant money
      and other sources of funding to deliver the financially
      healthy, viable programs that you want in ways that are
      best for the communities you serve.
    – Investing for the Future.
    – Understanding Financial Position.
    – Understand your balance sheet, including:
        • Short/Long-term cash-flow needs.
        • An ability to fund expansion.
        • Funds needed for future equipment maintenance.
        • The soundness of your cash-management strategy (or if
          you need one!).
        • Future debt payment requirements.

November 18, 2009                                                 55
                    Reporting
• Operational Level Oversight:
    – Know what's going on. Look at the details,
      systems, and checks and balances. Make sure
      you can defend your budget to your board,
      supporters and colleagues.
    – Budgeting for Programs.
    – Financial reports must clearly show the
      restricted and unrestricted funds. This is
      critical for knowing what can and cannot be
      changed if the budget should require
      adjustment.
    – Passing the Logic Test.
    – Addressing Problems.

November 18, 2009                               56
                    Reporting
• The Forest for the Trees:
    – To make sure your nonprofit organization is
      financially healthy, you need to know the
      details, ask questions, demand answers and
      understand the big picture.
    – Be more entrepreneurial.
    – Certainly, having a firm grasp on your finances
      on a regular basis will help you understand
      your organization on a deeper, more holistic
      level. And this knowledge – and power –
      should help you sleep a whole lot better.
November 18, 2009                                  57
               Internal Controls
• Organization has developed and
  communicated rules of operations to
  employees and members.
• Follow-up is done to ensure that
  expectations are met.
• Financial duties are properly segregated.
• Accounting system tracks grant and
  matching funds separately.
• Accounting system is used to create
  financial reports.
• Proper safeguards over assets exist.

November 18, 2009                             58
  Internal Controls - Sample
I. Finance Committee:
• The Board of Directors of Nonprofit Agency, Inc. will annually appoint a
    Finance Committee who works under the Board Treasurer to ensure the
    appropriate preparation of an annual budget, appropriate handling and
    distribution of funds, and the appropriate preparation and presentation of
    regular financial statements. The Finance Committee directs, reviews, and
    presents the annual audit to the Board of Directors.
II. Approval of plans and commitments before they are implemented:
• The Board of Directors will set the annual budget, based on Nonprofit
    Agency, Inc. fiscal year (January through December), to direct how funds
    are spent. Board approval is necessary in order to spend significant funds
    or make significant financial commitments to projects that have not
    already been incorporated into the approved budget.
III. Accurate, timely financial reports and information returns:
• The Finance Committee oversees that Nonprofit Agency, Inc. provides
    accurate, timely financial reports and information returns. The Finance
    Committee will regularly review financial statements, including a balance
    sheet and a comparison of actual financial activity to the approved budget.
    The Finance Office staff will maintain a calendar of report deadlines and
    will advise the Board of Directors to ensure that all financial reports and
    information returns have been filed as required.

November 18, 2009                                                           59
  Internal Controls - Sample
IV. Banking institutions and accounts:
• In order to minimize risk and maximize benefit, Nonprofit Agency,
   Inc. utilizes only federally insured local banking and savings
   institutions. The amount on deposit with any one institution may
   not in the usual course of business exceed the FDIC insured limit
   of $100,000. The Finance Committee will review the banking
   relationship annually.
V. Deposits:
• All income intended for Nonprofit Agency, Inc. will be properly
   received, deposited, recorded, reconciled, and kept under
   adequate security. Any cash received must be promptly and fully
   deposited.
VI. Grants, gifts, and pledges:
• All grants and gifts will be properly received and recorded.
   Compliance with terms of any related restrictions will be
   monitored by staff and reported to the Finance Committee.
   Pledges are recorded at the time they are made. Thank you
   letters to donors are in compliance with IRS regulations.

November 18, 2009                                                 60
  Internal Controls - Sample
VII. Donated good and services:
• Donated goods and services are recorded in the
  accounting records when they would have been
  purchased if they were not donated. Gifts are
  recorded at fair market value.
VIII. Line of credit:
• Nonprofit Agency, Inc. shall maintain an
  appropriate line of credit to ensure regular cash
  flow, the use of which may be approved by the
  Executive Director and shall be reported to the
  Finance Committee.


November 18, 2009                                     61
    Internal Controls - Sample
IX. Fixed assets:
• Expenditures for land, building and equipment are recorded at cost.
    Donated assets and capitalized donated leases are recorded at their
    estimated fair market values at the date of donation. Depreciation
    expenses are calculated using the straight‐line method and the following
    estimated useful lives:
     – Buildings and improvements 10‐35 years
     – Furniture and equipment 3‐10 years
     – Vehicles 3‐5 years
•   Maintenance and repairs, which materially add to the value of the property
    or appreciably prolong its life, are recorded as an increase to the
    appropriate asset account. Nonprofit Agency, Inc. capitalizes all fixed
    assets with a cost greater than or equal to $1,000 and a useful life of at
    least three years, unless otherwise stipulated by a grant. When an asset is
    purchased through a grant, the grant’s capitalization rules apply. Nonprofit
    Agency, Inc. will conduct a regular inventory of fixed assets and maintain
    a central list of fixed assets which includes date of purchase, registration
    numbers, warranty information, original cost, and estimated life.




November 18, 2009                                                              62
  Internal Controls - Sample
X. Petty cash:
• A petty cash fund may be maintained by staff to facilitate efficient
   operations. Such petty cash funds will be disbursed only for
   proper purposes, will be properly recorded, and will be adequately
   safeguarded at all times.
XI. Credit cards:
• Nonprofit Agency, Inc. may maintain credit card accounts to
   facilitate efficient operations. Credit cards will only be issued in
   the name of specific employees with specific credit limits as
   appropriate and will be adequately safeguarded at all times. All
   credit card transactions will be only for proper purposes and will
   be properly recorded.
XII. Procurement and purchasing:
• Nonprofit Agency, Inc. will always seek to maximize value and
   cost‐effectiveness in all procurement and purchasing. Purchases
   exceeding $1,000 shall require at least three competitive bids.



November 18, 2009                                                    63
  Internal Controls - Sample
XIII. Disbursements:
• Funds will be disbursed only upon proper authorization of
   management and only for valid business purposes. All
   disbursements will be initiated only from properly
   authorized documentation and will be properly recorded. No
   check may be made out to Cash. The Board shall designate
   the Board Chair, the Board Treasurer, the Executive
   Director, and any other Board member or staff member
   deemed appropriate as authorized signers of checks on
   behalf of Nonprofit Agency, Inc. Any check for an amount
   over $2,500 must carry two signatures unless otherwise
   specifically authorized in advance by the Board of Directors
   (such as for payroll or office rent). No check signer may
   sign a blank check.




November 18, 2009                                            64
  Internal Controls - Sample
XIV. Payroll:
• Payroll disbursements will be made only to bona fide employees
   and only upon proper authorization. Changes to each payroll will
   be properly documented. Nonprofit Agency, Inc. will ensure that
   payroll disbursements are properly recorded and that related
   disbursements (such as payroll tax deposits and retirement funds)
   are made timely. Payroll checks will not be released prior to
   payday, and employee advances are not permitted.
XV. Reconciliation of banking/security statements:
• All banking/security statements will be delivered unopened to a
   designated individual who is not otherwise involved in the
   preparation of checks, the depositing of funds, or is an authorized
   signer of checks. This designated individual shall review and initial
   each statement on a timely basis. An appropriately qualified
   finance staff person will reconcile each bank account monthly prior
   to the issuance of financial statements.




November 18, 2009                                                     65
    Pre-Submitted Questions
1. How to prepare and present user friendly
   financial statements/financial news to
   stakeholders and Boards (especially that
   will help boards address issues and make
   informed decisions).
• Slides 50-56.
• Consider a consent agenda.
• Get reports out at minimum 1 week in
   advance.

November 18, 2009                         66
     Pre-Submitted Questions
2.   Statement on Auditing Standards (SAS) 99:
     Auditor’s Responsibility for Fraud Detection
•    Auditing statement issued by the Auditing
     Standards Board of the American Institute of
     Certified Public Accountants (AICPA) in October
     2002.
•    Became effective for audits of financial
     statements for periods beginning on or after
     December 15, 2002.
•    Response to Enron and other financial scandals.
•    More thorough audit process.
•    Primary criticism of the standard is that many
     procedures are suggested rather than required.

November 18, 2009                                 67
    Pre-Submitted Questions
    2. (SAS) 99: Auditor’s Responsibility for
                 Fraud Detection




November 18, 2009                               68
    Pre-Submitted Questions
2. SAS 99: Auditor’s Responsibility for Fraud
                  Detection




November 18, 2009                          69
    Pre-Submitted Questions
2. SAS 99: Auditor’s Responsibility for Fraud
                  Detection
Financial Risks Red Flags:
• Failure to report or inaccurate financial reporting.
• Failure to meet minimum legal and regulatory requirements.
• Failure to budget responsibly.
• Failing to track income and expenses on a timely basis and make
  adjustments as needed.




November 18, 2009                                               70
     Pre-Submitted Questions
3.   Back –up procedures for electronic records –
     options, cost, polices that need to be in place.
•    Files should be backed-up daily.
•    2 week rotation of media (tape, CD or DVD).
•    Alternate taking media offsite.
•    Store onsite media in fire safe box.
•    Cost can be anywhere from $250 or better.
     Depends on solution and storage amount.
•    Online solutions are available.



November 18, 2009                                       71
     Pre-Submitted Questions
4.   Sarbanes-Oxley Act – what is the provision and
     how does it relate to nonprofits?
•    Independent and Competent Audit Committee.
•    Responsibility of Auditors.
•    Certified Financial Statements.
•    Insider Transactions and Conflicts of Interest.
•    Disclosure.
•    Whistle-Blower Protection.
•    Document Destruction.
•    http://www.boardsource.org/clientfiles/sarbane
     s-oxley.pdf

November 18, 2009                                  72
    Pre-Submitted Questions
5. 990 – Understand there are new
   requirements that begin with 2009
   filing year – highlight some of the
   critical changes (or person indicates
   that they can talk one on one with
   you if the others in the class are
   familiar with the requirements).


November 18, 2009                      73
     Pre-Submitted Questions
5.   990 Changes:
•    Regulatory Requirements (Slides 7 -8).
•    990EZ does not mean it is. Significantly more detailed.
•    Core 990 form has grown from 9 pages to 11.
•    Where both the EZ version and the long form had 2 sub-
     schedules before, there are now 16.
•    Form 1023 and the new 990 are more in line with each other.
•    Approximately 80% of the new Form 990/990EZ deals with
     questions concerning compliance, governance, structure,
     procedure, activities…in excruciating detail.
•    Intent of the changes is to push compliance and transparency in
     a way that hasn’t been done before.
•    Influence the behavior of 501(c)(3)s through these new
     reporting requirements.
•    Another Sarbanes-Oxley effect.



November 18, 2009                                                 74
    Pre-Submitted Questions
6. How can an organization effectively use
   Guidestar to relate the financials (can it be
   updated regularly?) and how others use the
   information on Guidestar?
• The most important way you can influence
   Guidestar is to accurately fill out your 990.
• It can only be updated via your tax filings. In
   general, Guidestar does not allow you to directly
   influence your data.
• Uses:
    –   Research: Benchmarking, compensation, financial
        performance, grant making.
    –   Giving: Charity verification.


November 18, 2009                                         75
    Pre-Submitted Questions
7. Budgeting, forecasting
• Budgeting (Slides 35-44).




November 18, 2009             76
    Pre-Submitted Questions
8. What are key things that should be
   used to effectively manage financial
   statements and analysis for small
   nonprofits?
• Budgeting (Slides 35-44).
• Reporting (Slides 50-56).
• Internal Controls (Slides 57-64).

November 18, 2009                     77
    Pre-Submitted Questions
9. Assessment tool/checklist for
   assessing nonprofits management
   practices.
• http://managementhelp.org/org_ev
   al/uw_list.htm




November 18, 2009                78
    Pre-Submitted Questions
10.What software to use
• Efficient Accounting System (Slides
   27-34).




November 18, 2009                   79
    Pre-Submitted Questions
11.How to prepare for an audit?
• Choose an Auditor:
    –    Experience in the nonprofit sector.
    –    Experience with other nonprofits in your area
         of work.
    –    Training in General Accounting Office (GAO)
         Standards.
    –    Via RFP. Samples can be borrowed from
         other NFPs.
    –    Negotiate the fee.

November 18, 2009                                    80
      Pre-Submitted Questions
11.   How to prepare for an audit?
•     While the following is not a complete list, it is representative of
      the information an auditor is likely to require:
•     Confirmations: A confirmation is an independent statement
      which supports the financial information in your records.
      Auditors will ask you to prepare confirmation letters on your
      letterhead (they will provide the format) to your bank(s),
      funders, attorney, people, and organizations you owe money to
      and who owe you money to confirm the amounts reflected in
      your books. Confirmations are mailed by and returned directly
      to your auditor to ensure their credibility.
•     Evidence of Internal Controls: The auditor will either meet with
      staff members or request that they complete a questionnaire
      documenting the procedures related to spending and receiving
      money and other resources, complying with laws, donor
      restrictions and regulations, maintaining property and
      equipment, and recording financial information in the books.
•     Accounts Receivable -- Who owes you money, how much, when
      it was due?

November 18, 2009                                                      81
      Pre-Submitted Questions
11.   How to prepare for an audit?
•     Property and Equipment (Fixed Assets) -- When acquired, how
      much you paid, how long they are expected to last, how much
      they are depreciated each year, and how much has been
      depreciated to date?
•     Payables -- Who you owe money to, how much you owe each
      individual/organization? Copies of invoices or loan agreements.
•     Deferred Revenue -- If you have deferred any contributions due
      to donor conditions or restrictions, provide the information
      noted under Grants and Contributions, in the Revenue section
      below.
•     Grants and Contributions--Funder/donor names and addresses,
      grant period, grant amount, when received, restrictions, and
      copies of the grant letters and grant applications. In the case of
      individual contributions, your auditor will specify which donors
      to include on this list based on a minimum level of contributions
      they will establish for you based on your overall budget and
      total contributions.


November 18, 2009                                                     82
      Pre-Submitted Questions
11.   How to prepare for an audit?
•     Donated services and materials--You may be required to place a dollar value on
      contributions of certain services and materials. Prepare a list of these donations to
      discuss with your auditor.
•     Special events and benefits--Show income and expenses, and documentation for
      the value of goods or services which donors received (and, therefore, are not
      included in the tax-deductible portion of their payment.)
•     Documentation--such as contracts and invoices, names and addresses,
      registrations, etc. for fees from memberships, tuition, performances, and other
      services.
•     Inventory--If you sell tee-shirts, books, or other products, keep a record of sales
      throughout the year so that beginning inventory can be reconciled with inventory
      at the end of the year.
•     Payroll records, including federal and state tax returns related to payroll, vacation
      records.
•     Leases and other contracts
•     Bank statements, bank reconciliations, checkbooks, and canceled checks
•     Financial files for paid bills and deposits
•     Components of the accounting system -- chart of accounts, journals and ledgers,
      printouts if the system is computerized, trial balance, etc.
•     Budget for the fiscal year being examined



November 18, 2009                                                                       83
      Pre-Submitted Questions
11.   How to prepare for an audit?
•     Finally, you will want to consider the non-financial aspects of the audit.
      The staff should understand what is involved in an audit, that it is a
      routine examination of financial and other information, and that they
      may be asked a few questions in relationship to that examination. You
      should assign one person to be the audit coordinator. In a small
      nonprofit, that may be the bookkeeper or executive director. In a larger
      organization, it may be the finance director. The audit coordinator
      should have access to all in formation the auditors may need, and
      should plan to be available to the auditors while they are on-site. In
      addition, some thought should be given to setting aside a physical
      location for the auditors so they can work efficiently.
•     Most organizations select an auditor prior to the end of their fiscal year.
      About the time your fiscal year ends, you will want to meet with your
      auditor to determine what information will be required for the audit. If
      your financial management system is reasonably well organized, the
      audit can usually begin within two months of the end of your fiscal year.
      However, new government funding and other complicating factors may
      extend the amount of time needed to prepare for the audit.




November 18, 2009                                                             84
    Pre-Submitted Questions
12. Is financial management more than
    bookkeeping and accounting?
• YES!!!
• Bookkeeping: Putting financial information into
    the right place in the accounting system.
• Accounting: The rules used to analyze and
    manage financial data. Also the principles and
    law used to keep organizations in check
    financially. GAAP.
• Financial Management: Process of using repots
    generated to run the organization.


November 18, 2009                                85
    Pre-Submitted Questions
13.Evaluating the risk of fundraising efforts
   especially new ones in this economy.
• Set $ goal too high.
• Set timeframe too short.
• Time to raise friends.
• Time to plan. Do your homework.
• What are the costs for NOT raising
   money? Urgency?
• While the economy is bad, people are
   still giving.
November 18, 2009                               86
    Pre-Submitted Questions
14.Essentials to include in financial
   policies.
• Internal Controls (slides 57-64).




November 18, 2009                       87
                    Other Q&A
• No one expects all of these issues to be
  reviewed and addressed (if necessary) in
  one week!!!
• Determine the area where your
  organization is most deficient, vulnerable,
  or liable and fix then move on to
  something else.
• Any other questions?
• Information available via the Robinson
  Ventures website:
   http://www.robinsonventures.com/content/pages
   /2009housingconference

November 18, 2009                              88
           Contact Information
                  THANK YOU!!!
                  Cian Robinson
                     President
             Robinson Ventures, LLC
              Office: 276-880-7088
          cian@robinsonventures.com


November 18, 2009                     89

								
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