Financial Management Fundamentals for Nonprofits - Leigh Tucker

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Financial Management Fundamentals for Nonprofits (Finance 101) was presented at the Third Annual Essex County Institute for Trustees.

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  • Patrick
  • Don’t be shy- questions welcome throughout the presentation
  • GOV6: Governance Responsibilities and FIN1: Governing Body Financial Responsibilities
  • The objective of every organization is mission related, that is truly the most iportant focus of every organization, however, this is sometimes to the detrament of the organization. Every aspect of your organization is somehow linked to money, without money, you do not have mission, yet it is the area we tend to know the least about and the firs tplace we cut resources, because we do not undertsnd value. It is important to understand your strengths and weaknesses as a manager and assess which staff you have that can counterbalance your weaknesses. Who believes they are strong in the financial management area? For those of you that are not, di you have someone at your organization who is strong?
  • When should it take place? Who should be involved in the decision making process? Especially at the programmatic level?
  • Loss in one year needs to be paid for a some point Capital items need to be funded, purchase of computers, loan payments
  • QUICK No surprises for management – paralyzed by indecision Link to strategic plan Plan linked to budget Key Performance Indicators (KPI) based on strategy Ratios Easy to understand Meaningful information
  • Zip Thru
  • Where do we want to go? – starategic plan How are we going to get there? – budget Do we have enough resources to get there? – BS CF Are we on track? IS vs Budget If not, what are we going to do about it? Board Discussion
  • ZIP Through!!
  • Zip Thru
  • Its about seeing the forest through the trees. Sometimes we get so caught up in the individual line items or variances on our financial statements that we forget to ask the really important questions, , like…(above) I have some theories about why this happens that are not always popular beliefs, but they are based on my extensive work with and observations of NFPS: accountnts love numbers, we understand them, and we know it is important for you to understand your fiannces and numbers are the language we speak. What if I were from France and you understood a little french. If I gae my entire presentation in French, would you understand it? Isnt it more important that I speak to you in a language that you understand than in the language I am comfortable with? Because you are not fluent in my language, you are intmidated by speaking to me in my language. Understandable. Does anyone ever travel to another country and grab one of those little engligh to spanish pocket guides that list all of the common terminology related to travel, like words comonly used in hotels, taxis and restaurants? Those guides are great because you do not need a complete dictionary, you only need to know what is relavant for your needs. Knowing what is relevant is important Solution: we need to find a common language and we need to define what is relevant so we both know what to talk about.
  • ZIP Through!!
  • zip
  • zip
  • ZIP Through!!
  • 2 hours board meeting, 30 minutes on finance, becomes critical to have key issues highlighted and engage board in decisions Finance dept and management want your input, key is deciding how to present info to solicit feedback and help
  • Financial Management Fundamentals for Nonprofits - Leigh Tucker

    1. 1. Financial Management Fundamentals Leigh J. Tucker, CPA Managing Director, Nonprofit Client Practice
    2. 2. Objectives• Discuss why financials are important• Learn the key questions Board members should ask• Interactive session- this is an opportunity to ask what’s on your mind2
    3. 3. Leigh Tucker, CPA• Managing Director, Nonprofit Solutions Practice• CPA• PWC & KPMG Alum• A-133 Federal Funds Audit Expert• Senior executive in private industry• Founder of Nonprofit Executives, a successful nonprofit networking group 3
    4. 4. About Us • For more than a decade, Accounting Management Solutions, (AMS) has provided accounting support, financial management leadership and project management at the consulting CFO, controller and accounting manager level to dynamic companies throughout the Northeast.4
    5. 5. Financial Oversight Responsibilities• Review Financial Reports and Budget to ensure the financial health of the organization• Make Budget and Policy recommendations• Safeguard the assets of the organization through internal controls• Provide oversight of short and long-range strategic planning• Communicate with auditors5 5
    6. 6. Why Should You Care About Finance?• Finance impacts every aspect of your organization• Finance is the foundation for success• You need financial information in order to make key decisions• Money and mission are directly linked6
    7. 7. Financial Management Overview7
    8. 8. Financial Management Overview• A Budget serves as a financial guideline and projects the future financial activity of an organization• Cash flow planning and monitoring is the process planning and monitoring the inflows and outflows of cash – money received and money paid out• Bookkeeping and Accounting is the process of recording financial and nonfinancial transactions. It records present expenditures and funds. It also provides a history of all financial transactions8
    9. 9. Budgeting Basics• A Budget is a plan that specifies how the resources available, especially time or money, will be allocated or spent during a particular period of time• Budgeting is one of the most important steps in the management process and is used to make important decisions about the allocation of resources• Budgeting is the foundation of annual strategic planning• Budget preparation often takes place during the last quarter of the fiscal year9
    10. 10. Budgeting• Board drives budget objectives• Link to strategy• What does it tell us about the future• Considerations: • Deficits carryover – how to fund • Operating vs. Capital10 10
    11. 11. Types of Budgets• Capital – high cost, long term items• Expense – consumption of resources• Line Item – from charts of accounts• Operating – revenue and expense budgets• Program – focuses on program costs• Revenue – basis for expense budget• Zero Based – starting from scratch11
    12. 12. What Does a Budget Look Like?• A budget can include monetary and non-monetary units (e.g. units sold, hours, etc.)• “Cash” vs. “Accrual” budgets• A budget is usually for one year although it can be developed for multiple years• Senior management and the Board need to be involved in the process of developing and approving annual budgets.• It’s very important that the Annual Budget be compared to actual financial performance during the year and variances be investigated and understood in order to be effective.12
    13. 13. Cash Flow Projection• Statement vs. Projection• Is this important?• Do we have enough money to get there?• To be valid: • Must relate to budget • Must closely tie to Balance sheet • Must include capital cash outlays13
    14. 14. Financial Reporting: Obtaining & Using the Financial Data You Need14
    15. 15. Characteristics of EffectiveFinancial Reporting• Link to strategic plan• Plan linked to budget• Easy to understand• Measures: Key Performance Indicators (KPI) based on strategy• Provide meaningful information15
    16. 16. Statement of Financial Position (SOP)• AKA - Balance Sheet• Depicts the overall value of the organization at a given time (usually at the end of the year)• Total assets (what you have or what you are owed) – total liabilities (what you owe to others ) = net assets (what is left over) • Net assets for nonprofits are reported in terms of unrestricted, temporarily restricted and permanently restricted assets.• Funders often want to see the statement of financial position16
    17. 17. Statement of Financial Activities (SOA)• AKA - Income Statement• Depicts the changes in the organization’s assets over the past year• SOA is particularly useful to tell you if you are operating with extra money or at a deficit• Gives you a good idea of the organization’s rate of revenues and spending• Can also signals areas of concern17
    18. 18. Reporting Question ReportsWhere do we want to go? Strategic planHow are we going to get there? BudgetDo we have enough resources to get Balance Sheet and Cash Flowthere?Are we on track? Income Statement vs. BudgetIf not, what are we going to do about Board Discussionit?18
    19. 19. What to ExpectFinancial Reports • Should be provided to the Board or a sub-committee on at least a quarterly basis • Reports should show comparison to budget • Reports should show comparison to prior year • Reporting should include a narrative explaining significant variances to budget and the outlook for the remainder of the year19
    20. 20. What to Expect (Continued)Financial Reports • The source of the reports should be the general ledger, not an off-line spreadsheet • Timely reporting, not 6 months after the fact20
    21. 21. Fiscal Controls to Protect the Organization21
    22. 22. Internal Controls• Objectives of Internal Controls • Provide Reliable Financial Data • Safeguard Assets • Promote Operational Efficiency • Encourage Adherence to Policy22
    23. 23. Elements of Effective Internal Controls • Budget/Actual Comparisons • Definitions of Responsibility (Job Descriptions) • Segregation of Duties • Reconciliation of Records • Documented Policies & Procedures- which are actually followed • Periodic Outside Review by Independent Auditors23
    24. 24. Role of the Board• Board develops/authorizes a set of procedures for how the organization manages its finances• Board’s treasurer usually coordinates the boards responsibility for the manual, including its regular review and update• Board and leadership team ensures compliance to the policies & procedures outlined in the manual24
    25. 25. Nonprofit Audit• Another form of financial control is an audit• An audit is a comprehensive analysis, by an independent CPA firm, of your financial management procedures and activities• The auditor produces a report that indicates how well your organization is managing its resources25
    26. 26. Questions to Ask the Auditor• Were there any audit adjustments recorded by management?• Were there any proposed adjustments not recorded by management? • If so, why were they not recorded?• What were the key audit areas of focus?• Internal Controls • Will a management letter be issued? • Are there any control deficiencies? • Are there segregation of duties concerns? • Are there control deficiencies relative to the administration of federal funds?26
    27. 27. Common Issues in FinancialManagement• Inadequate reporting• Improper staffing• Inadequate management and board oversight• Lack of strategic measures to help detect early warning signs27
    28. 28. Being an Engaged Board Member• Board input is critical to effective management• Effective Board reporting should include: • A summary of key issues (good and bad) • The likely unknowns critical to financial health • A summary of critical decisions to be made• Make sure you understand the information• Ask the hard questions28
    29. 29. Questions?29
    30. 30. Contact InformationLeigh J. Tucker, CPA Managing Director, Nonprofit Client Practice Accounting Management Solutions, Inc Phone: 781-419-9220 E-mail: ltucker@amsolutions.net @NonprofitCFOs http://www.nonprofitexecutives.org30

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