FISCAL POLICIES PROCEDURES

FISCAL POLICIES & PROCEDURES

LV eval form/trn/LV

Fiscal Policies and Procedures

Presented by: Janet Johnson Monday March 17, 2008 9:00 a.m. Your Name (Optional) Title Organization (Optional) Organization Type: EHS/HS CAA/CAP CPA WX Other

PLEASE RATE THIS SESSION Excellent Very Good Good Fair Poor A. Usefulness of the materials, including contribution to learning objectives and appropriateness of audiovisual materials: 5 4 3 2 1 B. Presentation skills of discussion leader(s), including timeliness and relevance of program content: 5 4 3 2 1 C. Knowledge of the discussion leader(s): 5 4 3 2 1 D. Overall satisfaction with this session: 5 4 3 2 1 E. What were the things you liked the most? F. If I could change this session, I would… (please suggest alternatives that could improve the value of this

session): G. “Quick Quote” - Overall reaction to this workshop experience: _______________________________

May we use your quote, name, title, and company in our marketing materials? Yes No

Please contact me re: GFP Internet Financial Procedures CD HR Procedures CD MIP/Abra

Other _________________________________________ Phone:____________________________________

LV eval form/trn/LV


Presented by: Janet Johnson Monday March 17, 2008 1:00 p.m. Your Name (Optional) Title Organization (Optional) Organization Type: EHS/HS CAA/CAP CPA WX Other

PLEASE RATE THIS SESSION Excellent Very Good Good Fair Poor A. Usefulness of the materials, including contribution to learning objectives and appropriateness of audiovisual materials: 5 4 3 2 1 B. Presentation skills of discussion leader(s), including timeliness and relevance of program content: 5 4 3 2 1 C. Knowledge of the discussion leader(s): 5 4 3 2 1 D. Overall satisfaction with this session: 5 4 3 2 1 E. What were the things you liked the most? F. If I could change this session, I would… (please suggest alternatives that could improve the value of this

session): G. “Quick Quote” - Overall reaction to this workshop experience: _______________________________

May we use your quote, name, title, and company in our marketing materials? Yes No

Please contact me re: GFP Internet Financial Procedures CD HR Procedures CD MIP/Abra

Other _________________________________________ Phone:____________________________________


©2008 Wipfli LLP

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Fiscal Policies & Procedures

March 2008

Presented by:

Janet Johnson

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Goals

• Introduce model financial policies and procedures

• Provide methods, tools and best practices

• Provide a process for planning your manual


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Agenda

1. Introduction to financial policies & procedures manuals

2. Example table of contents 3. Accounting processes best

practices4. Methods for developing your

manual 5. Summary


What are your goals?


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Definitions

• Policy – Plan of action to guide decisions and actions• What we do

• Procedure – Series of activities, tasks, steps, decisions, calculations and other processes to produce a desired result• How we do it


What is a financial procedures manual?

• A written, regularly updated document containing the organization’s business policies and the activities required to carry them out


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Why do we need a manual?

• Federal regulations require it• 45 CFR (A110) Part 215.21 Standards for

Financial Management Systems (NPOs)• Common Rule Sec._20 – 26 (governments)• HHS Grants Policy Statement

• Communicates to funding sources how you are implementing their requirements

• Communicates management’s policies to staff



• Promotes standard practices• Documents internal controls• Provides a training guide


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• SOX and the Improving the Head Start for School Readiness Act may impact your policy objectives• Accountability, ethics, transparency, duty, full-

disclosure, compliance, responsibility.• Increase board confidence in public in

reporting.• Increase management’s accountability for

financial reporting and information disclosed to the public



• SOX and the Improving Head Start for School Readiness Act may impact your policy objectives (continued)• Develop a stronger, more independent audit

system• Reduced accounting irregularities• Ensure that the internal controls surrounding

financial reporting are effective via internal monitoring functions

• Reduce fraud and increase accountability for expenses


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What do we do with it?

• How do you use your current manual?

• How often do you revise it?• Who is responsible for updating it?


What do Federal Regulations Require?

Federal Regulations:• A-110: written procedures to:

• Minimize the time between transfer of funds and issuance of payments (Sec. 215.21(b)(5))

• Determine reasonableness, allowability and allocability of costs (Sec. 215.21(b)(6))


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What do Federal Regulations Require?

Federal Regulations (continued):• Written standards of conduct for

procurement (Sec. 214.42)• Written procurement procedures

(Sec. 215.44(a))



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Example Table of Contents

Sections:1. Overview of the Organization2. Organization-wide Policies3. Accounting Policies and

Procedures4. Financial Reporting5. Fiscal Management


1. Overview of the Organization• Legal name and tax status• Mission statement• Organization structure

• Role of the Board• Finance/Audit Committees• Positions with fiscal responsibilities or

duties


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Section:1. Overview of the Organization2. Organization-wide Policies3. Accounting Policies and



2. Organization-wide policiesa. Business conduct b. Conflicts of interestc. Policy on suspected misconductd. Securitye. MIS policies


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Conflict of Interest Policy

From HHS Grants Policy Statement:

“The (conflict of interest) standards also must do the following:

• Address the conditions under which outside activities, relationships, of financial interests are proper or improper.

• Provide for advance notification of outside activities, relationships, or financial interests to a responsible organizational official.

• Include a process for notification and review by the responsible official of potential or actual violations of the standards.


Conflict of Interest Policy

From HHS Grants Policy Statement

“The (conflict of interest) standards also must do the following:

• Specify the nature of penalties that the recipient may impose. These penalties would be in addition to any penalties that HHS or a cognizant Federal agency may impose for infractions that also violate the terms and conditions of award.”


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Whistleblower Protection

• Policy and procedures required for NPOs by Sarbanes-Oxley


Security

• Physical security• Locked files• Sensitive information

• Data security• Password policies• Data and system back up


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MIS Policies

• Management Information Systems• Acceptable use• Responsibilities for maintain systems and

applications• Email protocols


HR vs. Finance

Potential overlap:• Code of conduct• Technology policies• Leave policies• Travel policies and procedures• Others?


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HR vs. Finance

Does it matter?• If it’s related to a fiscal activity, it

probably belongs in the Finance manual

• If it applies to everyone, it probably belongs in the HR manual

• But, as long as it’s someplace (but not both places), it doesn’t matter






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Accounting Polices & Procedures

Sections:a. General ledger & chart of accountsb. Revenue and cash receiptsc. Expendituresd. Specific Accounts


3. Accounting Polices & Proceduresa. General Ledger and chart of accounts

• Fiscal yearb. Revenues and cash receipts

• Federal awards• In-kind• Contributions• Billing and invoicing• Cash receipts• Accounts receivable management


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General Ledger

• Fiscal year• Journal entries

• Internal controls – approvals• Most common types

• Chart of accounts• Maintenance of accounts• Distribution of the chart


Revenue – Federal Awards

• Revenue recognition policies• List of major sources of support

• Government contracts – cost based, fee for service, cost plus.

• Fee for service – private pay, Medicaid• Contributions – unrestricted, temporarily

restricted, permanently restricted• Other – rents, dividends & interest


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Revenue – In-Kind

• Most common types of in-kind• Policies and procedures for

recording and valuing• Roles and responsibilities


Accounts Receivable Best Practices

• Management of receivables is key to cash flow• Know the timing of receivables. Compare

when invoiced to when cash received.• Review the aged receivables. Implement a

follow-up policy if over a certain time.• Fee-based programs – standard policies

and procedures to collect.


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Other Receivables Best Practices

• Employee loans – Don’t loan more than their average pay check

• Interfund loans – know the rules. Example: no loans from Head Start funds

• Travel Advances – No more than 1 month outstanding


3. Accounting Polices & Procedures (continued)c. Expenditures

• Procurement policies & procedures• Accounts payable• Credit card policies• Political intervention and lobbying• Cost allocation• Payroll


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Procurement

Know what’s required:• Written procurement procedures are

required• Purchase orders are NOT required!• 2 CFR Part 215 (A-110) Sec. 215.40 – 48• Common Rule__.36


Procurement Best Practices

What’s required by the OMB circulars?• Competition, price comparisons• Written procurement procedures• Documentation of purchase decisions


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Procurement Best Practices

• Define levels of approval to authorize spending

• Allow some discretionary spending• Limit and control the use of corporate

credit cards• Take advantage of quantity discounts

through annual purchasing agreements


Small Head Start < $2,000,000

3 written bids or proposals

Department ManagerExecutive DirectorBoard of Directors

Category 4: > $10,000

3 oral or written bidsDepartment ManagerExecutive Director

Category 3: $501 ≤ $10,000

2 oral bidsDepartment Manager Category 2: $101 ≤ $500

Price comparisons required; can be done annually

Classroom TeacherCategory 1: < $100

ProcessRequired ApprovalsAmount of Purchase


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Large NPO > $125,000,000

•Proposals & evaluations, or•Purchase order•Procurement checklist

•Select pre-qualified vendor, or•RFP process

•Project Director,•Div. Vice-President ,•Fiscal Office and•Treasurer (or designee)

> $100,000

•Proposals & evaluations, or•Purchase order•Procurement checklist


•Project Director,•Div. Vice-President and•Fiscal Office

$25,001 ≤$100,000

•Proposals and evaluations, or•Purchase order•Procurement checklist


•Project Director and•Div. Vice-President

$5,001 ≤$25,000

•Memo describing oral bids, or•Procurement checklist•Receipt/invoice

•Select pre-qualified vendor, or•2 oral bids

•Project Director$501 ≤ $5,000

•Invoice/receipt•At the discretion of the project director

•Project Director≤ $500

Documentation of Decision

Solicitation Process

ApprovalsAmount of Purchase


Purchase Orders

Purchase Orders allow a department manager to determine ahead of time if a proposed purchase is:• Reasonable• Necessary• In the budget


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Accounts Payable

Establish Responsibilities• Where is the responsibility for accurate

coding of invoices?• Who is responsible for checking math

accuracy?• Who authorizes payment of invoices?


Accounts Payable Best Practices

Establish a processing schedule• Establish a regular schedule for

entering and paying invoices• This helps the accounting staff plan

their work, and• Helps the program staff know when

information will be available and when payments will be made


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Credit Cards

• Best Practices• Keep corporate credit cards locked up

and checked out when needed• Have a policy on personal charges:

• Credit card privileges revoked if any occur• Credit card slips are not adequate

documentation of expenses – require original receipts – hotel bills, etc.


Credit Cards

• Best Practices• Monthly statement is sent unopened to

the Board Treasurer for review• Set up on-line review of credit card

statements for the Board Treasurer, the Executive Director and the Finance Director

• Recognize and control the risk!


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Political Intervention

• State the rules and your policy

Don’t ignore it just because you can’t do it!


Cost Allocation

• Put your plan in the manual?• Usually no, but• You may briefly describe your method and

say where to find the detail


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Payroll Best Practices

Use standard forms and a consistent process for transmitting information from HR to PR for:• Setting up new employees• Making changes to current employees’

files


Human Resources & Payroll


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Payroll Best Practices

• Run payroll semi-monthly –eliminates 2 payrolls per year and simplifies month-end accruals

• Use direct deposit – it will provide good internal control and streamline your process


Travel Best Practices

• Limit travel advances to no more than ($500) and require expense reports no later than 30 days

• Reimburse travel as part of payroll• Limit and control the use of agency

credit cards!


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3. Accounting Polices & Procedures (continued)d. Specific accounts:

• Cash• Inventory• Investment policies• Property and equipment• Accruals• Notes payable• Net assets


Cash Management

Federal Funds Advances• NPO’s advances shall be deposited and maintained in

insured accounts whenever possible• NPO’s advances shall be in an interest bearing

account UNLESS:• Receive less than $120,000 annually• Best available account would not return interest > $250

annually• Average minimum balance requirement too high

• Government Agencies• Not required to keep cash in an interest-bearing account• If interest is earned, the agency can keep no more than $100


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Cash Management

Federal Requirements• Written procedures to minimize the time

between transfer of funds from the U.S. Treasury to grantee

• Payment methods that minimize time between receipt of funds from Treasury and issuance of checks

Know what your funding sources require!


Cash Management

“Federal funds advance to the recipient should be fully disbursed (checks written, signed and issued to the payees) by the close of business the next work day after receipt of the funds.”

HHS Grants Policy Statement, page I-37


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Cash Management Best Practices

• Have a policy defining “timely” deposits• Track grant advances to avoid using them to

cash flow other projects• Whenever possible, use electronic funds

transfers to receive payments• Have a policy on stale checks, but be aware

of your state’s laws• Escheat laws



Create a weekly cash needs report with your accounting system:• List checks to be paid• Then draw the cash needed to cover


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Example of Timing:• Run a Cash Needs report on

Wednesday• Draw the cash on Thursday• Mail the checks on Friday



• Consider using a line of credit to cover shortfalls due to timing of deposits


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4. Financial Reportinga. Financial statements

• Frequency of preparation • Distribution procedures• Budget-to-actual analysis

b. Government Returns• Federal, state and local returns• Due dates• Public access to information


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SAMPLE SUMMARY FINANCIAL REPORTMonth of _________________________

TOTALS

UnexpendedTotal GrantProgram Period to Date

Current Month Expenses

Funding PeriodFunding SourceProgram


SAMPLE PERFORMANCE REPORTMonth of _________________________

TOTALS

CommentsPerformanceYear-to-Date

Performance RequiredFunding PeriodFunding SourceProgram


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5. Fiscal Managementa. Budgetingb. Annual auditc. Insuranced. Record retention policies


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Budgets for Management

• Board oversight• Financial control• Compliance with requirements• Cash forecasting


A Budget is Prepared by…

• Senior management and the Board provide guidance and oversight

• Management closest to the program fill in the details for specific areas

• Finance provides input and reviews the results


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Budgets

• Needed in every organization.• Budgets are of very little value if

nobody is held accountable.• Program – vs. – Fiscal responsibility• A great budget does not

automatically equal a great program or great financial control.


Records Retention

• Best Practices:• Sort out and dispose of the records you

don’t need to keep• Identify permanent records• Keep everything else 7 years

• Consider scanning


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From Theory to Implementation


Roles and Responsibilities

• Developers – Management and staff• Approvers – Board of Directors• What about the Head Start Policy

Council?


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Who Uses the Manual?

• Everyone who has any accounting-related responsibilities:• Accounting staff • Program managers• Executive Director and senior managers


Steps for Developing a Manual

1. Review your current manual2. Compare your manual to the

example table of contents3. Incorporate best practices4. Add forms5. Add flowcharts6. Share it with users to see if it’s clear

and complete7. Publish it on-line so it’s accessible

and easy to update


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1. Start with your current manual• When was it last updated?• Is staff following it?• Is it in compliance?



2. Compare your manual to the example table of contents• What’s missing?• Do you have enough or too much

detail?


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How Much Detail Do You Need?

• Enough so readers know what the policy is and how to implement it

• But, not to the level of what screen to go into and what box to click on• More detailed, how-to instructions can

supplement this manual• Remember, the manual is used by the

entire organization, not just the accounting staff



3. Consider best practices• Best practices are efficient and

effective procedures that work best for your organization

4. Build in forms• Include examples of all forms• Date the forms so you are sure you

have the most current version


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5. Illustrate procedures with flowcharts

6. Share the manual with Accounting staff and department managers• Do they understand it?• Does it provide enough detail so they

know what to do?



7. Make the manual easily accessible to employees• Put it on your intranet. It will be easy

to research and update


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Process Documentation

Let’s look at some tools to document processes


What you can accomplish:• Create a picture of the current

process• Compare the actual with the ideal• Come to agreement on the steps

in the process• Create a training aid

Flow Charts


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Purpose:• To identify the actual flow or

sequence of events in a process or system

• To learn how workers do the same task differently

Flow Charts


Flow Charts

What to look for:• Complexity• Redundancy• Unnecessary loops• Places to standardize


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Basic Flow Chart Symbols

Connector to other chart

End of Process

Manual Process

Decision Point

Electronic Process

Paper Document

Electronic Data

On-page reference


Detailed Flow Chart


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Payroll Process

Employee Supervisor Human Resources Manager Payroll Accountant Executive Director

Fills out new employee paperwork

Identifies need for employee & fills

out Personnel Hire form

New employee hired & given

paperwork to fill out

Forms sent to Acctg for set up in

MIP

Reviews forms for completeness

HR sets up new hire in Excel

database

HIRING

PAYROLL

Fills out timesheet

Prints out and signs Reviews & signs

Delivered to HR by Fri. 9 AM week

before payroll paid

Verifies total hours on timesheets

Go to pg. 2

Page 1

Sorts timesheets alphabetically

Print list of names & standard hrs

from Excel database


Payroll Process

Employee Supervisor Human Resources Manager Payroll AccountantExecutive Director

PAYROLL

From to pg. 2

Page 2

Okay?Contact

supervisor to resolve

No

Send timesheets to Accounting

Checks timesheets

Enter hours into MIP & calculate PR

Print timesheet

report

Check vs adding machine tape

Add total, leave and WC hours

Okay?Find errors & correct No

Go to pg. 3Yes

J Johnson, WipfliJuly 2005

Yes

Fills out summary section of

timesheets


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• Clearly define where the process starts and stops.

• Define the level of detail needed so readers will know what to do

• List the major activities and decisions points from the beginning of the process to the end. If you are doing this with a group of people, put the steps on Post-it©

notes and stick them on a flip chart.

How to Create Detailed Flow Charts


• Use a noun and verb to describe each action or step.

• Arrange the Post-it © notes in the order they occur. Be sure you portray what is, not what should be.



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• Keep the picture simple.• Add arrows to show the flow of

events.• Test the flow chart for

completeness:• Are the symbols used correctly?• Are the steps clearly defined?• Is every loop closed?

• Show the chart to others who are familiar with the process to get their feedback.



Next Steps

• What needs to be done to build your manual?

• Who needs to be involved?• When will it be finished?


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Five Fast Facts!

What we’ve learned:1. A financial policies and procedures manual is

required by federal regulations as well as for effective management

2. Start with your existing manual and update it for current regulations and practices

3. Include managers and staff involved in business processes

4. Get Board approval5. Keep it updated


Evaluations!

We love your feedback!

Don’t forget to turn in your evaluation as you leave.


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Model Accounting & Financial

Policies and Procedures Manual for Grant-Funded Programs

- Demonstration File - Note: This is a demonstration file of a limited number of example policy statements

from the complete Model Accounting and Financial Policies & Procedures Manual for Grant-Funded Programs. Included in this demo file is the complete table of contents, which lists all of the model policies included in the complete file, plus a few policies. The complete policies and procedures file contains more than 240 individual model policies.

Note to Users: The model policies and procedures included herein should only be used as a guide in

developing policies and procedures applicable to your particular organization. Users should carefully read the accompanying instructions and eliminate, add to or modify these policies and

procedures as necessary to customize them for your organization. These model policies and procedures are copyrighted materials of Nonprofit Resource Center and Wipfli LLP. Purchasers

are authorized to use these materials only for one particular not-for-profit organization. Additional uses for multiple organizations or any other copying, reselling or re-distribution of

these policies and procedures is expressly prohibited.

1

TABLE OF CONTENTS

Page Number Introduction ..................................................................................................................................... 10

GENERAL POLICIES Organizational Structure ................................................................................................................ 11 The Role of the Board of Directors........................................................................................ 11 Committee Structure ............................................................................................................. 11 Finance Committee Responsibilities ..................................................................................... 12

Audit Committee Responsibilities.......................................................................................... 12 The Roles of the [Executive Director] and Staff .................................................................... 12 Example Organization Chart ................................................................................................. 13 Accounting Department Overview ................................................................................................ 14 Organization.......................................................................................................................... 14 Responsibilities ..................................................................................................................... 14 Standards for Financial Management Systems .................................................................... 15 Business Conduct .......................................................................................................................... 16 Practice of Ethical Behavior ..................................................................................................16 Compliance with Laws, Regulations, and Organization Policies........................................... 16 Conflicts of Interest ........................................................................................................................ 17 Introduction ........................................................................................................................... 17 What Constitutes a Conflict of Interest?................................................................................ 17 Disclosure Requirements ...................................................................................................... 18 Resolution of Conflicts of Interest ......................................................................................... 18 Disciplinary Action for Violations of This Policy..................................................................... 19 Policy on Suspected Misconduct.................................................................................................. 20 Introduction ........................................................................................................................... 20 Definitions ............................................................................................................................. 20 Reporting Responsibilities ....................................................................................................21 Whistleblower Protection....................................................................................................... 21 Investigative Responsibilities ................................................................................................22 Protection of Records – Federal Matters .............................................................................. 22 Disciplinary Action................................................................................................................. 23 Confidentiality........................................................................................................................ 23 Disclosure to Outside Parties................................................................................................ 24 Security............................................................................................................................................ 25 Accounting Department.........................................................................................................25 Access to Electronically Stored Accounting Data ................................................................. 25 Storage of Back-up Files....................................................................................................... 25 Storage of Sensitive Data .....................................................................................................25 Destruction of Consumer Information ................................................................................... 26 General Office Security ......................................................................................................... 26

2

Technology and Electronic Communications.............................................................................. 27 Purpose and Scope............................................................................................................... 27 Acceptable Use of Organization Property ............................................................................. 27 Password Security ................................................................................................................ 27 Confidentiality........................................................................................................................ 28 E-Mail Communications ........................................................................................................ 28 Anti-Virus Controls ................................................................................................................ 28 Disposal of Computer Equipment ......................................................................................... 28 Copyrighted Information........................................................................................................ 29 Installation of Software.......................................................................................................... 29 Other Prohibited Uses........................................................................................................... 29 Disciplinary Action for Violations........................................................................................... 30 Reporting of Suspected Violations........................................................................................ 30 General Ledger and Chart of Accounts ........................................................................................ 31 Chart of Accounts Overview ............................................................................................. 31 Distribution of Chart of Accounts........................................................................................... 31 Control of Chart of Accounts ................................................................................................. 32 Account Definitions ............................................................................................................... 32 Changes to the Chart of Accounts ........................................................................................ 34 Fiscal Year of Organization...................................................................................................34 Accounting Estimates............................................................................................................ 34 Journal Entries ...................................................................................................................... 34

POLICIES ASSOCIATED WITH REVENUES AND CASH RECEIPTS Revenue ........................................................................................................................................... 36 Revenue Recognition Policies .............................................................................................. 36 Definitions ............................................................................................................................. 36 Administration of Federal Awards ................................................................................................ 38 Definitions ............................................................................................................................. 38 Preparation and Review of Proposals................................................................................... 38 Post-Award Procedures ........................................................................................................ 38

Compliance with Laws, Regulations and Provisions of Awards............................................ 39 Close Out of Federal Awards ................................................................................................ 40

Cost Sharing and Matching (In-Kind)............................................................................................ 41 Overview ............................................................................................................................... 41 Valuation and Accounting Treatment .................................................................................... 44 Contributions Received.................................................................................................................. 46 Overview ............................................................................................................................... 46 Distinguishing Contributions from Exchange Transactions................................................... 46 Unconditional Promises to Give ............................................................................................ 47 Receipts and Disclosures ..................................................................................................... 47 Disclosures of Promises to Give ........................................................................................... 48 Billing/Invoicing Policies................................................................................................................ 50 Overview ............................................................................................................................... 50 Responsibilities for Billing and Collection ............................................................................. 50

3 Billing and Financial Reporting ............................................................................................. 50

Cash Drawdowns Under Letters of Credit............................................................................. 51 Accounts Receivable Entry Policies...................................................................................... 52 Classification of Income and Net Assets............................................................................... 52

Cash Receipts ................................................................................................................................. 53 Overview ............................................................................................................................... 53 Processing of Checks and Cash Received in the Mail.......................................................... 53 Endorsement of Checks........................................................................................................ 54 Timeliness of Bank Deposits................................................................................................. 54 Reconciliation of Deposits..................................................................................................... 54 Grants Receivable Management.................................................................................................... 55 Monitoring and Recognition .................................................................................................. 55 Accounts Receivable Management............................................................................................... 56 Monitoring and Reconciliations ............................................................................................. 56 Credits and Other Adjustments to Accounts Receivable ...................................................... 56 Accounts Receivable Write-Off Authorization Procedures.................................................... 56

POLICIES ASSOCIATED WITH EXPENDITURES AND DISBURSEMENTS Purchasing Policies and Procedures............................................................................................ 57 Overview ............................................................................................................................... 57 Responsibility for Purchasing................................................................................................ 57 Code of Conduct in Purchasing ............................................................................................ 57 Competition ........................................................................................................................... 58

Non-Discrimination Policy ..................................................................................................... 58 Procurement Procedures ...................................................................................................... 58

Use of Purchase Orders........................................................................................................ 59 Authorizations and Purchasing Limits ................................................................................... 61

Required Solicitation of Quotations from Vendors ................................................................ 61 Extension of Due Dates and Receipt of Late Proposals ....................................................... 62 Evaluation of Alternative Vendors ......................................................................................... 62 Affirmative Consideration of Minority, Small Business & Women-Owned Business............. 63 Availability of Procurement Records ..................................................................................... 63 Provisions Included in All Contracts...................................................................................... 64

Special Purchasing Conditions ............................................................................................. 65 Right to Audit Clause ............................................................................................................ 66 Vendor Files and Required Documentation .......................................................................... 66 Procurement Under Federal Regulations Flowchart ............................................................. 67 Receipt and Acceptance of Goods........................................................................................ 68 Political Intervention....................................................................................................................... 69 Prohibited Expenditures ........................................................................................................ 69 Endorsements of Candidates................................................................................................ 69 Prohibited Use of Organization Assets and Resources ........................................................ 69 Lobbying.......................................................................................................................................... 70 Introduction ........................................................................................................................... 70 Definition of Lobbying Activities ............................................................................................ 70 Segregation of Lobbying Expenditures ................................................................................. 70

4 Lobbying Election.................................................................................................................. 71

Charging of Costs to Federal Awards........................................................................................... 72 Overview ............................................................................................................................... 72 Segregating Unallowable from Allowable Costs ................................................................... 72 Criteria for Allowability........................................................................................................... 72 Direct Costs........................................................................................................................... 73 Indirect and Joint Costs ........................................................................................................ 74 Indirect Cost Rate ................................................................................................................. 74 Cost Pools............................................................................................................................. 75 Accounting for Specific Elements of Costs ........................................................................... 75 Accounts Payable Management .................................................................................................... 79 Overview ............................................................................................................................... 79

Recording of Accounts Payable ............................................................................................ 79 Accounts Payable Cut-Off..................................................................................................... 79 Establishment of Control Devices ......................................................................................... 79 Preparation of a Voucher Package ....................................................................................... 80 Processing of Voucher Packages ......................................................................................... 80 Payment Discounts ............................................................................................................... 80 Employee Expense Reports.................................................................................................. 80 Reconciliation of A/P Subsidiary Ledger to General Ledger ................................................. 81

Management of Accounts Payable Vendor Master File ........................................................ 81 Verification of New Vendors.................................................................................................. 82 Example Accounts Payable Process Flowchart.................................................................... 83 Travel and Business Entertainment.............................................................................................. 85 Travel Advances ................................................................................................................... 85 Employee and Director Business Travel ............................................................................... 85 Reasonableness of Travel Costs .......................................................................................... 86 Special Rules Pertaining to Air Travel................................................................................... 86 Spouse/Partner Travel .......................................................................................................... 87 Cash Disbursement (Check-Writing) Policies.............................................................................. 88 Check Preparation ................................................................................................................ 88

Check Signing....................................................................................................................... 89 Use of Positive Pay System.................................................................................................. 89 Mailing of Checks.................................................................................................................. 90 Voided Checks and Stop Payments...................................................................................... 90 Recordkeeping Associated with Independent Contractors ................................................... 90 Credit Cards .................................................................................................................................... 91 Issuance of Corporate Credit Cards...................................................................................... 91 Cardholder Responsibilities .................................................................................................. 91 Revocation of Corporate Credit Cards .................................................................................. 92

Employee Credit Cards ......................................................................................................... 92 Payroll and Related Policies .......................................................................................................... 93 Classification of Workers as Independent Contractors or Employees .................................. 93 Wage Comparability Study.................................................................................................... 94

Payroll Administration ........................................................................................................... 94 Changes in Payroll Data .......................................................................................................95 Payroll Taxes ........................................................................................................................ 96

5 Personnel Activity Reports ....................................................................................................96

Preparation of Timesheets .................................................................................................... 97 Processing of Timesheets..................................................................................................... 98 Review of Payroll .................................................................................................................. 98 Distribution of Payroll ............................................................................................................ 98 Internal Audit of Payroll Data ................................................................................................98 Human Resources and Payroll Processes Flowchart ........................................................... 99

POLICIES PERTAINING TO SPECIFIC ASSET ACCOUNTS Cash and Cash Management ....................................................................................................... 100 Cash Accounts .................................................................................................................... 100 Authorized Signers.............................................................................................................. 100 Bank Reconciliations........................................................................................................... 101 Cash Flow Management ..................................................................................................... 102 Stale Checks....................................................................................................................... 102 Petty Cash........................................................................................................................... 102 Wire Transfers..................................................................................................................... 103 Inventory of Materials................................................................................................................... 104 Description of Inventory ......................................................................................................104 Accounting for Inventory ..................................................................................................... 104 Physical Counts .................................................................................................................. 104 Contributed Inventory.......................................................................................................... 104 Prepaid Expenses ......................................................................................................................... 105 Accounting Treatment ......................................................................................................... 105 Procedures.......................................................................................................................... 105 Investment Policies ...................................................................................................................... 106 Introduction ......................................................................................................................... 106 Delegation of Authority........................................................................................................ 106 Investment Objectives.........................................................................................................106 Allowable Investments ........................................................................................................ 106 Diversification...................................................................................................................... 107 Accounting Treatment ......................................................................................................... 107 Procedures and Reporting .................................................................................................. 107 Accounting for Investments in Other Entities ...................................................................... 108 Property and Equipment .............................................................................................................. 109 Capitalization Policy............................................................................................................ 109 Contributed Assets.............................................................................................................. 109 Equipment and Furniture Purchased with Federal Funds................................................... 109 Establishment and Maintenance of a Fixed Asset Listing................................................... 110 Receipt of Newly-Purchased Equipment and Furniture ...................................................... 110 Depreciation and Useful Lives ............................................................................................ 111 Changes in Estimated Useful Lives .................................................................................... 111 Repairs of Fixed Assets ...................................................................................................... 112 Dispositions of Fixed Assets ............................................................................................... 112 Write-Offs of Fixed Assets .................................................................................................. 112 Leases............................................................................................................................................ 113 Classification of Leases ......................................................................................................113

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Valuation of Leases ............................................................................................................ 113 Accounting for Leases ........................................................................................................ 113 Scheduled Increases in Rent Payments ............................................................................. 114 Rent Abatements and Other Lease Incentives ................................................................... 114 Changes in Lease Terms.................................................................................................... 114 Software Acquisition and Development Costs .......................................................................... 115 Costs to Be Capitalized.......................................................................................................115 Costs to Be Expensed as Incurred...................................................................................... 115 Web Site Costs.............................................................................................................................. 116 Costs to Be Capitalized.......................................................................................................116 Costs to Be Expensed As Incurred ..................................................................................... 116

POLICIES PERTAINING TO SPECIFIC LIABILITY AND NET ASSET ACCOUNTS Accrued Liabilities ........................................................................................................................ 118 Identification of Liabilities .................................................................................................... 118 Accrued Leave .................................................................................................................... 118 Notes Payable ...............................................................................................................................119 General Policy..................................................................................................................... 119 Recordkeeping.................................................................................................................... 119 Accounting and Classification ............................................................................................. 119 Non-Interest-Bearing Notes Payable .................................................................................. 120 Net Assets ..................................................................................................................................... 121 Classification of Net Assets ................................................................................................ 121 Reclassifications from Restricted to Unrestricted Net Assets ............................................. 121 Reclassifications from Unrestricted to Restricted Net Assets ............................................. 122 Disclosures ......................................................................................................................... 122

POLICIES ASSOCIATED WITH FINANCIAL AND TAX REPORTING Financial Statements .................................................................................................................... 123 Standard Financial Statements of the Organization............................................................ 123 Frequency of Preparation.................................................................................................... 123 Review and Distribution ...................................................................................................... 124 Budget Variance Analysis and Projections ......................................................................... 124 Monthly Distribution............................................................................................................. 124 Special Quarterly [Semi-Annual] Distribution ...................................................................... 124 Annual Financial Statements .............................................................................................. 125 Trend Analysis .................................................................................................................... 125 Government Returns .................................................................................................................... 126 Overview ............................................................................................................................. 126 Filing of Returns.................................................................................................................. 126 Public Access to Information Returns ................................................................................. 127 Unrelated Business Activities ..................................................................................................... 129

7 Identification and Classification........................................................................................... 129

Allocation of Expenses to Unrelated Activities .................................................................... 129 Reporting............................................................................................................................. 129

FINANCIAL MANAGEMENT POLICIES Budgeting ...................................................................................................................................... 130

Overview ............................................................................................................................. 130 Preparation and Adoption ................................................................................................... 130

Monitoring Performance...................................................................................................... 131 Budget and Program Revisions .......................................................................................... 131 Budget Modifications........................................................................................................... 132 Annual Audit.................................................................................................................................. 133 Role of the Independent Auditor ......................................................................................... 133

How Often to Review the Selection of the Auditor .............................................................. 133 Selecting an Auditor ............................................................................................................ 133 Preparation for the Annual Audit ......................................................................................... 134 Concluding the Audit ........................................................................................................... 135 Audit Committee Responsibilities........................................................................................ 135 Insurance ....................................................................................................................................... 136 Overview ............................................................................................................................. 136 Coverage Guidelines...........................................................................................................135 Insurance Definitions .......................................................................................................... 137 Record Retention .......................................................................................................................... 138 Policy................................................................................................................................... 138

BOARD GOVERNANCE Audit Committee ........................................................................................................................... 140

Purpose............................................................................................................................... 140 Authority .............................................................................................................................. 140 Membership ........................................................................................................................ 141 Responsibilities ................................................................................................................... 141

Finance Committee....................................................................................................................... 144

Purpose............................................................................................................................... 144 Authority .............................................................................................................................. 144 Membership ........................................................................................................................ 144 Responsibilities ................................................................................................................... 144

SUBRECIPIENTS

Making of Subawards.......................................................................................................... 146

Monitoring of Subrecipients................................................................................................. 146

GENERAL POLICIES ORGANIZATIONAL STRUCTURE

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The Role of the Board of Directors Example GFP is governed by its Board of Directors, which is responsible for the oversight of the Organization by: 1. Planning for the future 2. Establishing broad policies, including financial and personnel policies and procedures 3. Approving grant applications 4. Reviewing and approving the annual audit 5. Reviewing financial information 6. Identifying and proactively dealing with emerging issues 7. Interpreting the Organization’s mission to the public 8. Soliciting prospective contributors 9. Hiring, evaluating, and working with the [Executive Director] 10. Establishing and maintaining programs and systems designed to assure compliance with terms

of contracts and grants 11. Authorizing establishment of all bank accounts and check signers. The [Executive Director] shall be responsible for the day-to-day oversight and management of Example GFP. Committee Structure The Board of Directors shall form committees in order to assist the board in fulfilling its responsibilities. These committees are responsible for the review of particular programs and providing recommendations to the full board. Standing board-level committees of Example GFP consist of the following: 1. Executive Committee 2. Finance Committee 3. Audit Committee 4. Nominating Committee 5. Program Committee(s) 6. Public Relations Committee 7. Development Committee 8. Personnel committee

Editor’s note: The preceding list should identify each standing committee of the governing board. The eight committees identified above are examples of some of the most common committees and not all of these committees are necessarily required. For example, audit and finance functions are often combined into a single committee. Some organizations have no “program” committees at the board level, while others have a separate committee for each program.

See the Organization’s by-laws for board and committee details. However, roles of committees with direct responsibilities for the financial affairs of the Organization are further described in this manual. These committees shall be referred to in appropriate sections of this manual. Finance Committee Responsibilities

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The Finance Committee is responsible for direction and oversight regarding the overall financial management of Example GFP. Functions of the Finance Committee include: 1. Review and recommendation of the Organization’s annual budget (prepared by the staff) for

final approval by the full board 2. Long-term financial planning 3. Establishment of investment policy and monitoring investment performance 4. Evaluation and approval of facilities decisions (i.e., leasing, purchasing property) 5. Monitoring of actual vs. budgeted financial performance 6. Oversight of reserve funds 7. Review of financial procedures The review of the Organization’s financial statements shall not be limited to the Finance Committee, but shall involve the entire Board of Directors. Audit Committee Responsibilities The Audit Committee hires an independent CPA firm and communicates directly with the CPA firm for an annual audit, as described in the Organization’s by-laws. The Audit Committee shall review and approve the final audited financial statements, and any other communications received from the auditor regarding internal controls, illegal acts, or fraud. The Audit Committee also serves as the primary point of contact for any employee who suspects that fraud has been committed against the Organization or by one of its employees or board members. The Audit Committee’s role in the annual audit is more fully explained in the section of this manual covering the annual audit.

Editor’s Note: In smaller nonprofits, the Finance Committee will assume the responsibilities of the Audit Committee.

The Roles of the [Executive Director] and Staff The Board of Directors hires the [Executive Director], who reports directly to the board. The [Executive Director] is responsible for hiring and evaluating [Department Directors] for each of the Organization’s departments. Each [Department Director] reports to the [Executive Director]. [Department Directors] are responsible for hiring employees to work in that department with approval from the [Executive Director]. All employees within a department shall report directly to that department’s [Department Director], who shall be responsible for managing and evaluating all employees within the department. BILLING/INVOICING POLICIES Overview The Organization’s primary sources of revenue are:

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• Reimbursement grants – billed monthly, or as funders require, based on allowed, incurred expenses

• Fee-for-service income – billed according to contract requirements based on number of units of services provided

Other lesser sources of income such as transportation fees, meal charges or child care fees will be collected and recorded when the services are provided. Responsibilities for Billing and Collection Example GFP’s Accounting Department is responsible for the invoicing of funding sources and the collection of outstanding receivables. (Note: Cash receipts, credit memo, and collection policies will be discussed in subsequent sections.) Billing and Financial Reporting Example GFP strives to provide management, staff and funding sources with timely and accurate financial reports applicable to Federal awards. These reports include monthly and cumulative expenditures, a project budget, and a balance remaining column. Example GFP shall prepare and submit financial reports as specified by the financial reporting clause of each grant or contract award document. Preparation of these reports shall be the responsibility of [Senior Accountant], subject to review and approval by [Director of Finance]. The following policies shall apply to the preparation and submission of billings to Federal agencies under awards made to Example GFP: 1. The Organization will request reimbursement after expenditures have been incurred, unless an

award specifies another method. 2. Example GFP will strive to minimize the time between receipt and disbursement of grant funds

by issuing payments within 24 hours of receipt of such funds. 3. Each award normally specifies a particular billing cycle. Therefore, a schedule is established for

each grant and contract to ensure that reimbursement is made on a timely basis along with any other reporting that is required in addition to the financial reports.

4. Requests for reimbursement of award expenditures will use the actual amounts as posted to the

general ledger as the source for all invoice amounts.

Editor’s Note: If a source other than the general ledger is used for preparing requests for reimbursement, this policy should include an additional statement that this alternate source shall be reconciled to the general ledger balances on a monthly basis.

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5. All financial reports required by each Federal award will be prepared and filed on a timely basis. To the extent Example GFP’s year-end audit results in adjustments to amounts previously reported to Federal agencies, revised reports shall be prepared and filed in accordance with the terms of each Federal award.

Example GFP shall maintain separate billing records in addition to the official general ledger accounting records. Billing records shall be reconciled to the general ledger on a monthly basis. At the time invoices (requests for reimbursement) are prepared, revenue and accounts receivable shall be recorded on the books of Example GFP by the [Senior Accountant]. If a Federal award authorizes the payment of cash advances to Example GFP, the [Director of Finance] may require that a request for such an advance be made. Upon receipt of a cash advance from a Federal agency, Example GFP shall reflect a liability equal to the advance. As part of the monthly close-out and invoicing process, the liability shall be reduced, and revenue recognized, in an amount equal to the allowable costs incurred for that period. Cash Drawdowns Under Letters of Credit Cash drawdowns under letters of credit from Federal agencies shall be made [weekly] in conjunction with the accounts payable and payroll schedule, based on need. All Federal funds shall be deposited into an interest-bearing cash account under the cash receipts policies and procedures described in this manual. Example GFP requires that Federal funds will be disbursed within 24 hours of receipt using the following process:

1. On [Wednesday], the [Senior Accountant] will print out a listing of checks to be disbursed 2. The [Director of Finance] approves the listing

3. On [Thursday], the [Senior Accountant] draws down the cash required

4. On [Friday], the checks are printed, signed and disbursed in accordance with cash

disbursement policies.

Editor’s Note: The preceding discussion utilizes a drawdown schedule based on one week’s cash needs, which assumes a weekly bill-paying cycle within the Organization. More or less frequent drawdowns are possible. For an example of the cash drawdown and disbursement processes, see the flowchart in the Accounts Payable section of this manual.

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Accounts Receivable Entry Policies Individuals independent of the cash receipts function shall post customer invoices, credit adjustments, and other adjustments to the accounts receivable subsidiary ledger. Classification of Income and Net Assets All income received by Example GFP is classified as "unrestricted,” with the exception of the following: 1. Grants and other awards received from government agencies or other grantors, which are

classified as temporarily restricted. 2. Special endowments received from donors requesting that these funds be permanently

restricted for specific purposes. From time to time, Example GFP may raise other forms of contribution income which carry stipulations that the Organization utilize the funds for a specific purpose or within a specified time period identified by the donor of the funds. When this form of contribution income is received, Example GFP shall classify this income as Temporarily Restricted income. As with all Temporarily Restricted net assets, when the restriction associated with a contribution has been met (due to the passing of time or the use of the resource for the purpose designated by the donor), Example GFP will reclassify the related net assets from "Temporarily Restricted" to "Unrestricted" in its Statement of Financial Position and reflect this reclassification as an activity in its Statement of Activities.

Editor’s Note: Some restrictions are more clearly communicated than others. In addition, it is not always necessary to include specific restrictions in order to satisfy the needs of a particular donor. Organizations should always communicate with donors to clearly establish the donor’s intentions associated with a gift and whether those intentions are best met through the establishment of a restriction.

From time-to-time, the Example GFP Board of Directors may determine that it is appropriate to set funds aside for specific projects. Such funds shall be classified as “unrestricted,” labeled “Board-Designated,” and reported as a separate component of unrestricted net assets.

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