1November 18, 2009 Financial Management for Nonprofits

1November 18, 2009

Financial Management for Nonprofits

2November 18, 2009

Agenda

• 9AM – 10AM: Introductions• 10AM – 12 Noon: Presentation• 12 Noon – 1PM: Lunch• 1PM – 3PM: Q&A plus pre-submitted

questions.

3November 18, 2009

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.

4November 18, 2009

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?

5November 18, 2009

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.

6November 18, 2009

1.

Regulatory

Requirements

2. Written Policies &

Procedures

3. Track Costs/Expenses

4. Manage Cash

5. Efficient Accounting System

6. Budget Controls

7. Time & Activity Documentation

8. Matching Requirements & In-kind Contributions

9. Reporting

10.

Internal

Controls

EFFECTIVE

FINANCIAL

MANAGEMENT

7November 18, 2009

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.

8November 18, 2009

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=96103,00.html

9November 18, 2009


• 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?

10November 18, 2009


• 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.

11November 18, 2009


• 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).

12November 18, 2009

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?

13November 18, 2009


• 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.

14November 18, 2009


• 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.

15November 18, 2009


• 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.

16November 18, 2009

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.

17November 18, 2009

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?

18November 18, 2009

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.

19November 18, 2009

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.

20November 18, 2009

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.

21November 18, 2009

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.

22November 18, 2009

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.

23November 18, 2009

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.

24November 18, 2009

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.

25November 18, 2009

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).

26November 18, 2009

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?

27November 18, 2009

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).

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• 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.

29November 18, 2009


• 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?

30November 18, 2009


• 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?

31November 18, 2009


• 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?

32November 18, 2009


• 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?

33November 18, 2009

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.

34November 18, 2009


• 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.

35November 18, 2009


• 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.

36November 18, 2009

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.

37November 18, 2009

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.

38November 18, 2009

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.

39November 18, 2009

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.

40November 18, 2009

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.

41November 18, 2009

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!!!

42November 18, 2009

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.

43November 18, 2009

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.

44November 18, 2009

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.

45November 18, 2009

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.

46November 18, 2009

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.

47November 18, 2009

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.

48November 18, 2009


• 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.

49November 18, 2009


• 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.

50November 18, 2009


• 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.

51November 18, 2009

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.

52November 18, 2009

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.

53November 18, 2009

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.

54November 18, 2009

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!!!

55November 18, 2009

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.

56November 18, 2009

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.

57November 18, 2009

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.

58November 18, 2009

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.

59November 18, 2009

Internal Controls - SampleI. 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.

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Internal Controls - SampleIV. 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.

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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.

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Internal Controls - SampleIX. 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.

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Internal Controls - SampleX. 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.

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Internal Controls - SampleXIII. 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.

65November 18, 2009

Internal Controls - SampleXIV. 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.

66November 18, 2009

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.

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Pre-Submitted Questions2. 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.

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2. (SAS) 99: Auditor’s Responsibility for Fraud Detection

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2. SAS 99: Auditor’s Responsibility for Fraud Detection

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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.

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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.

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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/sarbanes

-oxley.pdf

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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).

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Pre-Submitted Questions5. 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.

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Pre-Submitted Questions6. 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.

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7. Budgeting, forecasting • Budgeting (Slides 35-44).

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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).

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9. Assessment tool/checklist for assessing nonprofits management practices.

• http://managementhelp.org/org_eval/uw_list.htm

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10.What software to use • Efficient Accounting System (Slides

27-34).

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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.

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Pre-Submitted Questions11. 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?

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Pre-Submitted Questions11. 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.

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Pre-Submitted Questions11. 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

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Pre-Submitted Questions11. 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.

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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.

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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.

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14.Essentials to include in financial policies.

• Internal Controls (slides 57-64).

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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

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Contact Information

THANK YOU!!!Cian Robinson

PresidentRobinson Ventures, LLCOffice: 276-880-7088

[email protected]

Documents

1November 18, 2009 Financial Management for Nonprofits