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Polling Questions - How to Participate
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How Is Finance Perceived Management & The Board?
https://www.youtube.com/watch?v=XD_lR47Zbtk
https://www.youtube.com/watch?v=ingAVhzkcco
Common Perceptions By Management & The Board?
➢Hard workers
➢Historical reporters
➢Data manipulators
➢Transaction processors
➢Reactors and followers
➢Organization police
10 Threats To Effective Financial Leadership
Guarded Risk
Prefers Seclusion
Loathes Change
Passive Aggressive Behavior
Elevated Risk
Does Not Delegate
Minimal Board
Contact
High Risk
Arrogant Attitude
Last To “Get the Memo”
Fears Technology
Severe Risk
Reports Aren’t Accurate
And/or Timely
Disparages Management
Characteristics of a Top Finance Team
These are desirable skills but in reality, one or more of these characteristics are typically lacking in many nonprofit finance operations.
Integrity
High ethical standard and trustworthy
Competence
Technical skills in finance &
accounting
Foresight
Anticipate events and their
probable impact
Strategy
Develop plans for accomplishing
objectives
Implementation
Execute operational and financial plans
Communication
Synthesize in non-technical
terms
What Finance Needs to Ask? The Self Evaluation
Can my finance function moreeffectively?
Or
Finance is perfect – we get a clean audit every year
The Self Evaluation
1) Is my Finance Department providing timely, meaningful, and cost-effective services?
2) Can my Finance Department increase its effectiveness, efficiency, and support of the organization’s objectives?
3) Do I want to focus more on high-value decision-support services and provide information critical to the decision-making process?
1. Assess Staff Duties & Competencies
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
Is Your Finance Department Strategically Aligned?
• Where are we going, what are the risks & are our KPIs?
Strategic Plan
• Is your Finance Team structured to help accomplish these strategic objectives?
Finance Structure
• Do the finance operations prioritize the achievement of these strategic objectives?
Finance Operations
Allocation of Finance Resources (Percent of Finance Costs)
Financial Reporting (16%)
Grants Management (14%)
Other Non-Finance Related (10%)
G/L Account Reconciliations/Other (18%)
Transaction Processing (36%)
Forecasting & Budgeting (6%)
Too Many Resources Dedicated to Transaction Processing
Locating Accounting Data/
Transaction Processing
Decision Support
Budget/Analysis/Forecasting
Current Focus of Finance is on Low-value Added Activities
TRANSACTION
PROCESSING
DECISION
SUPPORT
CONTROL
MANAGEMENT
❑ Billing/collection
❑ Purchasing/payments
❑ Payroll
❑ Expense reimbursement
❑ General accounting
❑ Tax filings
❑ Benefits administration
❑ Fixed assets
❑ Financial analysis
❑ New programs
❑ Program-based costing
❑ Cash/investments
❑ Risk Insurance
❑ Budgeting
Illustration - Moving From Hard to Soft Closes (Continuous Accounting)
Period ended -20 -10 -5 +5 +10 +15 +30Final
Report
Data gathering
ReconciliationsReview/analysis
Days –before period end Days –after period end
Period end
Period ended -20 -10 -5 +5 +10 +15 Final Report
Continuous data gathering & reconciliation
Review/analysis
Days –before period end Days –after period end
Period end
Establish Accountability for the Project Work Plan
Task H M L
Consider COSO Guidelines (see Director of Finance Roadmap)
Staff Assessment - Can they accomplish Organizational goals ✓ 3/31/2019 Director
Risk Assessment - Are resources matched with risks ✓ 3/31/2019 Director
Process assessment and recommendations ✓ See below See below
Communicate new processes, controls, policies, procedures ✓ when complete Director/Assistant Director
Monitor processes, controls, policies, procedures ✓ when complete Director/Assistant Director
Process Improvements:
Implement remote deposit ✓ 4/30/2019 A/R Manager
Streamline investment account reconciliation process ✓ 4/30/2019 Accounting Manager
Complete Concur paperless procure to pay process ✓ 5/31/2019 A/ Manager
Complete Nimble automation process ✓ 8/31/2019 Accounting Manager
Move advertising billing from Finance ✓ 10/1/2019 Director
Financial reporting & Close
Develop reconciliation checklist and deadlines ✓ 3/31/2019 Assistant Director
Propose a financial reporting structure to Sr. Management ✓ 3/31/2019 Director
Deploy new reporting structure and chart of accounts (if desired) ✓ 10/1/2019 Director/Assistant Director
Deploy BI 360 to replace OSR ✓ 10/1/2019 Assistant Director
Deploy new reporting structure and chart of accounts (if desired) ✓ 10/1/2019 Assistant Director
Purchase reconciliation software ✓ 10/1/2019 Director
Compress monthly close time ✓ ongoing Assistant Director
Priority Completion
Date Person Responsible
The Control Fanatic (Finance Staff of 22 FTEs)
CFO
Director Subsidiary
Senior Accounting Manager
Director of Finance
GrantsFacilities Director
Document Management
Revised Structure
CFO
Director Subsidiary
Controller/Financial Reporting
(New CPA)
Senior Accounting Manager
Accounting Manager
Grants
Senior Acct.
Financial Analyst/Budget
/Forecasting
Senior Acct.
Senior Management’s Wish List
Strategy- Strategic finance- Information by product/service lines- Forecasting, KPIs and data modeling
Style- Predictable behavior/Proactive- Communicate timely/effectively- Presentations for non-financial audience- Receptive to feedback/ideas
Focus- Senior Management priorities- Balance control with efficiency- Automate
Delegation- Full-time CFO- Direct access to the Finance team
Wish List
Finance Staff of 11 FTEs
Director
Senior Accounting Manager
Accounting Coordinator
Program Manager
AP Manager
Accounting Associate
AR Manager
Accounting Associate
Grants Manager
Accountant
Project Coordinator
Revised Structure - Finance Staff of 12 FTEs
Director
Project Coordinator Assistant Director
Senior Acctg. Manager
Accounting Coordinator
Accounting Manager
Grants Manager
Accountant
AP Manager
Accounting Associate
AR Manager
Accounting Associate
Senior Management’s Wish List
Strategy- Real-time data/dashboards- More information by product/service lines- Forecasting, KPIs and data modeling
Style- Averse to Change- No culture of process efficiency- Communicate more timely/effectively- Not customer friendly
Focus- More nimble & communicative- Understanding of programs- Balance control with efficiency- Automate
Process- More transparent processes - Faster close (now 45 days)- Educate & train customers
Wish List
Evolving Structure of Your Finance Function
Transaction
Processing/
Reconciliations/
Journal Entries
Traditional
Finance
Structure
Strategic
Finance
/ReportingStrategic Finance
/Reporting
Transaction
Processing/
Reconciliations/
Journal Entries
Ideal/Future
Finance
Structure
2. Don’t Spend Dollars Saving Pennies
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
Balance Sheet AccountAmount (in millions) %
F/S Impac
tAccou
ntProce
ssFraud Risk
Entity-Wide Factor
s
Overall Risk Rating
Cash & cash equivalents $8.0 8% M M L H L L
Receivables 12.0 12% M H H M M M
Investments 58.0 58% H M L L L L
Property & equipment 20.0 20% M L L L L L
Prepaids & Other 2.0 2% L L L L L L
Total assets 100.0 100%
Accounts payable 15.0 15% M H H H H H
Deferred revenue 25.0 25% H H H L H H
Mortgage payable 15.0 15% M M L L L M
Total Liabilities 55.0 44%
Restricted net assets 25.0 25% H H M L M L
Unrestricted net assets 20.0 20% H L L M L M
Total Liabilities & Net Assets $100.0 100%
SOA AccountAmount (in millions) %
F/S Impac
tAccou
ntProce
ssFraud Risk
Entity-Wide Factor
s
Overall Risk Rating
Subscriptions $40.0 40% H H H M H H
Dues 10.0 10% M H H M M M
Contributions 8.0 8% L M L L H M
Advertising 14.0 14% M M M M H M
Grants 25.0 25% H H M M M M
Investment 3.0 3% L M L L L L
Total Revenue 100.0 100%
Personnel 66.0 66% H M M H M M
Contracted services 20.0 20% H H H H H H
Occupancy 9.0 9% L L L L L L
Other 5.0 5% L M M M M L
Total Expense $100.0 100%
Risk Assessment Characteristics
Impact on Financial Statements: A quantitative measure is used to measure potential impact on financial reporting and the potential for certain accounts being understated.
Account Characteristics: Considers factors such as volume of transactions through an account, judgment required, and complexity of accounting principles. Management also considers such external factors as well (e.g., regulatory environment, changes in technology, customer demands, etc.
Business Process Characteristics: Consider factors such as complexity of the process, centralization versus decentralization, IT systems supporting the process, interaction with external parties.
Fraud Risk: Assess the risk of misstatements due to fraud.
Entity-Wide Factors: Consider the nature of activities, employees’ access to assets, number and quality of personnel and levels of training provided, changes in IT, key personnel, or responsibilities.
3. Build Your Processes & Internal Controls
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
•Reporting needs: Who needs what and why?
•Identify major accounts and associated risks
Reporting
•Map existing processes and who does what?
•Identify unnecessary and/or inefficient steps
•Map revised process
Process•Identify software and/or third party solutions
•Assess staff competencies
Technology
Where Do You Begin?
Major Processes for Every Nonprofit
1) Record to Report
2) Order to Cash
3) Procure to Pay
4) Hire to Pay
Create a Layered Approach to Stakeholder Reports
FINANCE
- Internal Financial Roll-Up
- Annual Audit
- Grant Compliance
- Tax Reporting-
DEPARTMENT HEADS
- Department & Program Detail
- Department KPIs
- Some Customized Reporting
CEO & SR. MANAGEMENT
- Consolidated Detail
- Department & Program Detail
- KPIs
F&A COMMITTEE
- Consolidated Summary
- Department & Program Summary
- KPIs
BOARD
- Consolidated Summary
- KPIs
General Ledger
AMS/Donor D-base
Education
Exhibits
Publications
Investments
Grants & Contracts
Payroll & Benefits
Expense Reim-
bursements
Contract Mgmt. & Payables
Too Much Time is Spent on Transaction Processing
Are your data input
processes manual or
automated?
Do You Have Multiple Data Repositories?
GL(Lawson)
Licensing (30%)
Salesforce/ Advantage
M-ship (8.5%)
Advantage
Subscriptions (4.6%)
Advantage
Other (3%)
Raiser’s Edge
Reprints (4.3%)
Outsourced/JEAnnual
Meeting (1%)
Experient
Other (1.5%)
Salesforce/ Financial Force
Investment & Lease (5.8%)
Manual JEs
Grants (28%)
PTS/Grants D-Bases/Fed. Sys.
Advertising (14.3%)
Salesforce/WebOE/Financi
al Force
Common Findings
Monthly close 30 days or more (no soft close)
Manual checks, paper invoices
Bank reconciliations consume excessive amounts of time
Excessive invoice approvals/weak procurement process
Controlling credit cards, coding & documentation
Grant compliance falls upon finance (not program staff)
Manual time reporting – sometimes for no good reason
Reconciling billings and cash receipts
4. Communicate Process, Control and Other Information
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
What Kind of Information and How Is It Communicated?
Concept: Information must be disseminated for people to comply
Examples:
◦ Basic meetings (Internal and Board/Committee)
◦ Employee portal – where controls/policies are described (for employees and the board)
◦ Diagrams
◦ Nonfinancial information
◦ Whistleblower program (internal and external parties)
◦ Ethics Hotline
◦ Communications with outsourced service providers and/or customers
5. Monitor Your Processes & Controls
Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring
What is Monitored?
Examples:
Are controls functioning as designed/documented?
Any changes in personnel/technology/business that affect the controls?
KPIs
Budget to actual
Reserves
Financial Governance
1. Establish clear lines of communication with the committee chair
2. Challenge the need for separate audit and finance committees
3. Consider a financial orientation for the Board
4. Risk management
Reserve/Liquidity Position – The Most Important KPI
2014 2015 2016 2017
Unrestricted net assets beginning of year $93,000,000 $83,000,000 $77,000,000 $60,000,000
Fixed assets (58,000,000) (57,000,000) (56,000,000) (55,000,000)
Related debt 10,000,000 7,000,000 0 0
Liquid net assets $45,000,000 $33,000,000 $21,000,000 $5,000,000
Total expenses 70,000,000 75,000,000 80,000,000 85,000,000
Reserve ratio 64% 44% 26% 6%
Audited
Questions?
C H A R L E S TAT E , C PA
M A N A G I N G PA R T N E R
2 0 2 - 4 1 9 - 5 1 0 1
C TAT E @ TAT E T R YO N .C O M
H T T P S : / / W W W. L I N K E D I N . C O M / I N / C H A R L E S TAT E /
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