Financial Leadership Presenter This program supports implementation of the Standards for Excellence® Code

Financial Leadership

Presenter

This program supports implementation of the Standards for Excellence® Code

Standards for Excellence® Code

Financial Accountability

1. A nonprofit should operate in accordance with an annual budget that has been approved by the board of directors

2. A nonprofit should create and maintain financial reports on a timely basis that accurately reflect the financial activity of the organization. Internal financial statements should be prepared at least quarterly, should be provided to the board of directors, and should identify and explain and material variation between actual and budgeted revenues and expenses.

3. For nonprofits with annual revenue in excess of $500,000, the financial reports should be subject to audit by a Certified Public Accountant.

4. Organizations should have written financial policies adequate for the size and complexity of their organization governing: (a) investment of the assets of the organization, (b) internal control procedures, (c) purchasing practices, (d) unrestricted current net assets.

Agenda

Introductions What is “financial leadership” Financial concepts you needs to know Financial planning Financial Reporting Internal Controls Financial Communication

Be Realistic, Not Idealistic

“Profit” (or positive Net Assets) is Not Bad You Need $$$ to Pursue Mission Revenue Takes Work Cash Flow Pays the Bills Bookkeeping & Accounting are Professions Errors might be an oversight, but bad

recordkeeping & fraud are negligence


Ensure Accuracy

Assess

Communicate

Plan


Be Financially Literate NOT A Financial Scholar View as a Management Tool not a Necessary Evil Know What’s Involved

Accounting Budgeting Reporting Controlling

Use the Right People


Move beyond mission-vs-money Cultivate financial leadership Programs are interdependent Strong infrastructure supports strong

programs Set strong accountability and transparency

tone

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Key Concepts

Types of Funds (Donor Intent) Unrestricted Temporarily Restricted Permanently Restricted

Accounting Principles Cash vs Accrual Capitalization & Depreciation Common Costs Allocation

Value of Different Reports

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Know What’s Involved

Recognizing grant revenue Accts Receivable / Payable Employee Time (FTE) Journal Entries

Double-entry bookkeeping

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Key Concepts

Assets (+) vs Liabilities (-)

Credits vs Debits

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()

(-)

Double-Entry Bookkeeping

Two Sides to Every Story

Assets (+) Liabilities (-)

Debit (+) Account Credit(-) Debit(-) Account Credit(+)

Cash $ 2,000.00 Salaries

$ 2,200.00 $ 200.00 Payroll Taxes

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The Budget

Annual Predictions(Best Guess)

Income Based (Realistic) Comprehensive Aligns with 990 Board Approved

Bu

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REVENUEProgram Services 3,600,000 Fundraising 900,000 Miscellaneous 160,000

TOTAL REVENUE 4,660,000

EXPENSESSalaries 3,028,800 Payroll taxes 302,880 Employee benefits 302,880 Consultants 30,000 Legal/Audit 15,000 Contracted services 36,000 Program supplies 490,000 Vehicle expenses 18,000 Equipment leases 24,000 Rent 288,000 Utilities 36,000 Property insurance 24,000 Depreciation 60,000

TOTAL EXPENSES 4,655,560

SURPLUS 4,440

Reporting

Statement of Activities Statement of Position Cash Flow 990 Audit

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Statement of Activities(aka Profit & Loss)

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XYZ Nonprofit Organization

Sample Statement of Activities

April 2009 through January 2010

Actual Actual Actual Act % Bud Budget Forecast Actual Actual

Jan 10 Jan 09 Apr 09-Jan 10 (target 83%) FY10 FY10 Apr 08- Jan 09 FY09

Revenue

GRANTS & CONTRIB-RESTRICTED 25,625 307,235 330,000 341,500 291,873 291,873

NEWSLETTER ADS 2,400 2,880 44% 6,500 3,005 2,736 2,736

SEMINARS AND WORKSHOPS 11,080 19,749 119,891 57% 211,905 138,772 113,896 125,010

FOUNDATIONS 10,000 2,455 110,273 115% 96,000 110,034 104,759 110,273

INDIVIDUAL GIVING 15,925 32,850 36,222 65% 56,090 41,222 34,411 45,992

CORPORATE CONTRIBUTIONS 16,046 15,005 125,000 89% 140,000 140,000 118,750 125,000

INVESTMENT INCOME

ANNUAL GALA 2,000 2,000 23,250 93% 25,000 24,230 22,088 25,250

Total Income 83,076 72,059 724,751 84% 865,495 798,763 688,513 726,134

Expense

SALARIES & WAGES 36,333 26,666 266,667 83% 320,000 267,483 253,334 380,000

BENEFITS & PAYROLL TAX 6,420 6,500 64,200 83% 77,035 85,490 60,990 75,000

SEMINARS AND WORKSHOPS 2,000 2,000 244,400 98% 250,095 250,000 240,000 250,000

PROFESSIONAL DEVELOPMENT 2,200 3,109 4,300 86% 5,000 5,000 4,085 5,000

SUPPLIES & OFFICE EXP 7,500 330 11,115 111% 10,000 3,773 10,559 12,000

OCCUPANCY 15,918 14,512 30,000 83% 36,000 37,000 28,500 30,000

POSTAGE 4,460 1,324 20% 6,500 3,168 1,258 1,522

PRINTING 62 12,089 33,092 35% 95,158 39,158 31,438 33,092

TRAVEL 1,880 2,452 26,287 75% 35,000 33,500 24,972 27,650

DEPRECIATION 1,190 4,770 87% 5,500 4,770 4,531 5,000

ANNUAL GALA EXPENSE 140 3,003 7,224 103% 7,000 7,224 6,863 6,400

Total Expense 73,642 75,121 693,379 82% 847,288 736,566 666,530 825,664

Net Income 9,434 (3,062) 31,372 172% 18,207 62,197 21,983 (99,530)

Statement of Position(aka Balance Sheet)

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Exhibit 5 Balance Sheet as of 12/31/xx

Insert

Last Day Prior Fiscal Year

Insert Last Day of Fiscal Year

Assets

Cash 45,368 80,411

Accounts Receivable 125,153 178,235

Prepaids 5,323 5,866

Plant & Equipment 324,225 342,336

Less Accumulated Depreciation (259,380) (256,752)

Total Assets 240,689 350,096

Liabilities and Equity

Liabilities - Accounts Payable 68,233 28,223

Total Liabilities 68,233 28,223

Equity

Net Assets 172,456 321,873

Total Equity 172,456 321,873

Total Liabilities and Equity 240,689 350,096

Cash Flow

“I know what I’m worth, but can I write a check?”

Revenues may be reported but not collected Expenses are incurred but not yet paid Some expenses are not actually cash going

out the door

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Cash Flow12 Generic Months

Annual Budget Jan Feb Mar Apr May Jun Jul Aug Sept OctCASH IN

Program Services 3,600,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 Fundraising 900,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Miscellaneous 160,000 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333

TOTAL IN 4,660,000 388,333 388,333 388,333 388,333 388,333 388,333 388,333 388,333 388,333 388,333

CASH OUTSalaries 3,028,800 252,400 252,400 252,400 252,400 252,400 252,400 252,400 252,400 252,400 252,400 Payroll taxes 302,880 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 Employee benefits 302,880 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 Consultants 30,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Legal/Audit 15,000 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 Contracted services 36,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Program supplies 490,000 40,833 40,833 40,833 40,833 40,833 40,833 40,833 40,833 40,833 40,833 Vehicle expenses 18,000 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Equipment leases 24,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Rent 288,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 Utilities 36,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Property insurance 24,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Depreciation 60,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000

TOTAL OUT 4,655,560 387,963 387,963 387,963 387,963 387,963 387,963 387,963 387,963 387,963 387,963

NET INFLOW (OUTFLOW) 4,440 370 370 370 370 370 370 370 370 370 370 BEGINNING BALANCE 10,000 10,000 10,370 10,740 11,110 11,480 11,850 12,220 12,590 12,960 13,330 ENDING BALANCE 14,440 10,370 10,740 11,110 11,480 11,850 12,220 12,590 12,960 13,330 13,700

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Cash Flow12 Real Months

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Annual Budget Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

CASH INProgram Services 3,600,000 300,000 300,000 300,000 300,000 300,000 200,000 150,000 150,000 300,000 450,000 450,000 400,000 Fundraising 900,000 50,000 50,000 75,000 50,000 50,000 50,000 50,000 50,000 50,000 250,000 75,000 100,000 Miscellaneous 160,000 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333

TOTAL IN 4,660,000 363,333 363,333 388,333 363,333 363,333 263,333 213,333 213,333 363,333 713,333 538,333 513,333

CASH OUTSalaries 3,028,800 232,985 232,985 349,477 232,985 232,985 232,985 232,985 232,985 349,477 232,985 232,985 232,985 Payroll taxes 302,880 23,298 23,298 34,948 23,298 23,298 23,298 23,298 23,298 34,948 23,298 23,298 23,298 Employee benefits 302,880 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 25,240 Consultants 30,000 2,500 5,000 7,500 7,500 7,500 Legal/Audit 15,000 1,000 2,000 2,000 2,500 2,500 2,500 2,500 Contracted services 36,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Program supplies 490,000 42,000 42,000 42,000 42,000 32,000 24,000 42,000 42,000 42,000 49,000 49,000 42,000 Vehicle expenses 18,000 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Equipment leases 24,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Rent 288,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 Utilities 36,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Property insurance 24,000 24,000 Depreciation 60,000

TOTAL OUT 4,655,560 357,023 357,023 485,165 382,023 351,523 341,023 359,523 359,523 492,665 374,023 371,523 364,523

NET INFLOW (OUTFLOW) 4,440 6,310 6,310 (96,832) (18,690) 11,810 (77,690) (146,190) (146,190) (129,332) 339,310 166,810 148,810 BEGINNING BALANCE 10,000 10,000 16,310 22,621 (74,211) (92,901) (81,090) (158,780) (304,970) (451,159) (580,491) (241,181) (74,370) ENDING BALANCE 14,440 16,310 22,621 (74,211) (92,901) (81,090) (158,780) (304,970) (451,159) (580,491) (241,181) (74,370) 74,440

Cash Flow

Year 1 Year 2 Year 3Contributions 100,000 100,000 100,000 Special Grant 100,000 100,000 100,000

Total Revenue 200,000 200,000 200,000

Salaries 150,000 150,000 150,000 All Other 40,000 40,000 40,000

Total Expenses 190,000 190,000 190,000

Surplus (Deficit) 10,000 10,000 10,000

Year 1 Year 2 Year 3Contributions 100,000 100,000 100,000 Special Grant 300,000

Total Revenue 400,000 100,000 100,000

Salaries 150,000 150,000 150,000 All Other 40,000 40,000 40,000

Total Expenses 190,000 190,000 190,000

Surplus (Deficit) 210,000 (90,000) (90,000)

Expense/Revenue vs. Cash Flow

Expense/Revenue

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Cash In/Out CumulativeJune Awarded a contract for $240,000July Expenses (20,000.00) (20,000.00) Beginning of August Invoice State for JulyAugust Expenses (20,000.00) (40,000.00) Beginning of Sept Invoice State for AugustSeptember Expenses (20,000.00) (60,000.00) September State pays for July 20,000.00 (40,000.00) Beginning of Oct Invoice State for SeptemberOctober Expenses (20,000.00) (60,000.00) October State pays for August 20,000.00 (40,000.00)

Cash In/Out CumulativeJune Awarded a contract for $120,000July Expenses (10,000.00) (10,000.00) Beginning of August Invoice State for JulyAugust Expenses (10,000.00) (20,000.00) Beginning of Sept Invoice State for AugustSeptember Expenses (10,000.00) (30,000.00) September State pays for July 10,000.00 (20,000.00) Beginning of Oct Invoice State for SeptemberOctober Expenses (10,000.00) (30,000.00) October State pays for August 10,000.00 (20,000.00)

Cash FlowGovernment Help?

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Audit

Are Your Books In Order? (to a CPA that is)

Review of accounts, controls, reports Official Opinion Issued (Management Letter)

Unqualified Qualified Adverse Going Concern

$500 MD Threshold Funders/Contractors may require

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990

“Tax-Exempt” Not “Tax Form Exempt” Everyone Files Now! Public Record New Questions

Number of volunteers Number of voting members of governing board Material diversion of assets Documentation of meetings and actions Governing body review of the 990 Conflict of interest policy Annual Disclosure of Interests Whistle blower and document retention policies

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990R

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Internal Controls

Policies / Procedures Source Documents (3 years) Double-entry Bookkeeping Signature Authority Contracting Authority Segregating Duties Documentation (accounting and physical) Regular Reconciliation Insurance (liability, fidelity, etc) Whistleblowers

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The Questions You Should Be Asking

Is there anything we don’t know the cost of? What are the immediate financial

strengths and weaknesses? What are the long-term financial

strengths and weaknesses? Are we efficient and effective?


Communications & Using The Tools

Are the reports helpful to making decisions?

Does my staff understand the numbers? Does my board understand the numbers? What do I share with funders / public?


Q & A

This program supports implementation of the Standards for Excellence® Code