presented by Nicholas Cheung, CPA, CA Vice-President, Member Services

2

Assists in tracking performance, analyzing results

and taking action

Ensures that the focus is on achieving financial

and other defined business goals

Tools available:

• Budgets and Forecasts

• Financial statements

• Ratios/Variance analysis

Why financial management?

3

Internal Users

Board – Ultimate responsibility for financial reporting, ensure

funds spent in accordance with donors’ or funders’ criteria,

fulfillment of statutory obligations

Management – monitor performance, use in decisions

Employees – provide analysis for management

External Users

Lenders, funders and clients – to assess viability and

liquidity of entity.

Government – to assess accuracy of information declared

for CRA compliance

Who needs financial information, and why?

4

Three way arrangement

Roles and responsibilities

MANAGEMENT

BOARD

AUDITOR

5

Ultimate responsibility for financial reporting

Ensure funds are spent in accordance with

donors’ or funders’ criteria

Statutory obligations

Internal controls to prevent fraud

Board responsibilities

6

Prepare financial statements and reports

Develop internal controls

Carry out activities as directed by the Board

Management

7

Independent assessment of financial statements

Provides professional opinion on whether they

give fair presentation of the organization’s

financial position

Auditor

8

• Statement of Operations (Income Statement)

• Statement of Financial Position (Balance sheet)

• Statement of Cash Flow – details the corporation’s cash flow

activities i.e., the use of cash over a specific period of time

• Statement of Changes in Net Assets

• Budgets – allows tracking of expectations versus actuals.

• Ratios – used as key performance indicators to identify potential

concerns ahead of crisis

Key financial management reports to

assess financial health

9

Purpose

Displays the revenue recognized for a specific

period and the related expenses for the same

period;

Indicates how effectively management controls

expenses in light of its revenue;

Shows whether the organization is profitable or not

over a specific period.

Statement of operations

(income statement)

10

Sample statement of operations

11

Purpose

Shows the assets the organization owns and

needs to protect;

Highlights how much money the organization

owes;

Provides information on the financial health of the

organization;

Allows for a better understanding of the growth

potential of the organization.

Statement of financial position

(balance sheet)

12

Sample statement of financial position

13

Cash

Revenue and Expenses recognized when cash is

received or paid

Does not reflect earned revenue and liability

obligations

Accrual

Revenue and Expenses recognized at time of sale

or purchase whether paid or not

Reflects accurate financial position

Cash vs. Accrual accounting

14

May 14: Received invoice of $15,000 for purchase (invoice not paid)

May 18: Invoiced $23,000 for consulting services (invoice not paid)

May 30 : Received payment for May 18 consulting fees

June 12: Paid invoice of May 14

Example

15

Revenue

Total revenue from grants, contributions and

fundraising

Cash availability

Amount of cash available at a particular point in time

Could be substantially different from Revenue

Important to control expenses, receivables,

payables

Revenue vs. Cash available

16

What is the purpose of a budget?

Provides knowledge on the business

Control over costs

Establishes a starting point used for comparatives year over year

Allows the analysis of variances between actuals vs expectations

Needed to forecast change and identify contributing causes

Identifies regular or unexpected trends

Helps address two key questions

Does the organization have enough resources to carry out its

plans?

What needs to be prioritized?

Budget

17

How to develop a budget

Use previous year’s experience

Incorporate assumptions/plans

about upcoming year

Develop from the ground up

Developing a budget

18

Questions to keep in mind

What are the key assumptions behind the estimates

of revenues and the estimates of expenditures for

the coming year?

Are there significant differences between the current

year-end projections and the budget estimates for

the upcoming year? If so, what are the explanations

for these differences?

What is the plan for staffing levels and staff

compensation for the coming year?

Developing a budget

19

Questions to keep in mind

Are there any significant changes planned for

programs and services inherent in the budget?

Is the budget fully in accord with our strategic plan?

What “scenarios” have been considered in the

budget planning process?

How much of a cushion do we have against

unanticipated adverse events?

Developing a budget

20

Analyze and explain variances

Budget vs actual

Actual vs prior year

Budget vs forecast

Monitoring financial performance

21

Indicator of financial strength;

Reflects the dollar of assets expected to be converted

into cash within a year to allow debt payment within

same period.

This ratio should be around 1.5 or better, but no more

than 3.0. A ratio that is too high usually

reflects too much cash on hand, so poor money

management.

Ratios

22

One of the key indicators for financial condition of an

organization. The higher the working capital, the less strain

on a business.

Ratios

23

evaluate the efficiency of an investment or to compare

the efficiency of a number of different investments

Gauges the investment’s profitability

Ratios

24

Percentage of donors who return to give a subsequent gift

within a specific timeframe

High retention rate means a healthy support system for the

organization

Ratios

25

Ratios

Life time value of donors = average gift x # of expected years as donor

Source: http://recharity.ca/what-is-lifetime-value/

26

Helps with budgeting purposes

Determines the success of each campaign for future

planning

Ratios

27

Higher is better – meaning that qualified respondents are

responding to the message and/or campaign

Admin costs per employee

Admin costs as a % of revenue

Grant proposal success rate

Fundraising costs as a % of revenue

Fundraising expenses of a % of total expenses

Ratios

28

Financial Management tools are important to assists

in tracking performance, analyzing results and

taking action

It allows for a focus on profitability and other defined

strategic objectives

Tools available:

• Financial statements

• Budgets and Forecasts

• Ratios & Variance analysis

Cpacanada.ca/governance

Conclusion

29

Q & A

30

Nicholas F. Cheung, CPA, CA, CIPP/C

Vice-President, Member Services

Publisher, CPA Magazine

ncheung@cpacanada.ca

Chartered Professional Accountants of Canada

277 Wellington St. West

Toronto ON M5V 3H2

T. 416 204.3251 F. 416 204.3414

cpacanada.ca

Contact info

31

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