Smart Strategies for Great Financial Mgmt.

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Smart Strategies for Great Financial Mgmt.

  1. 1. Texas Nonprofit Summit September 9, 2011 Presented by Cheryl Black Chief Financial Officer Smart Strategies for Great Financial Management
  2. 2. <ul><li>Introductions and Class Survey </li></ul><ul><li>Plan for the session </li></ul><ul><ul><li>Participation </li></ul></ul><ul><ul><li>Questions </li></ul></ul><ul><ul><li>Review the outline </li></ul></ul><ul><ul><li>Concentrate on the five major sections </li></ul></ul><ul><ul><li>Wrap up Q&A </li></ul></ul>
  3. 3. <ul><li>Achieving Nonprofit Financial Health </li></ul><ul><ul><li>Differences between non-profit and for-profit organizations – FASB requirements </li></ul></ul><ul><ul><li>Setting up systems and getting started </li></ul></ul><ul><ul><ul><li>Chart of accounts </li></ul></ul></ul><ul><ul><ul><li>Accounting software </li></ul></ul></ul><ul><ul><ul><li>Basic financial statements </li></ul></ul></ul><ul><ul><ul><li>Establishing good internal controls </li></ul></ul></ul>
  4. 4. <ul><li>Annual Operating Cycle </li></ul><ul><ul><li>Budget preparation </li></ul></ul><ul><ul><li>Monthly Activities </li></ul></ul><ul><ul><ul><li>Closing the books </li></ul></ul></ul><ul><ul><ul><li>Working with the Board and other departments </li></ul></ul></ul><ul><ul><ul><li>Investment and Cash Management </li></ul></ul></ul><ul><ul><li>Year end closing </li></ul></ul><ul><ul><ul><li>Audit, Review or Compilation </li></ul></ul></ul><ul><ul><ul><li>Management Letter </li></ul></ul></ul><ul><ul><li>Reporting requirements </li></ul></ul><ul><ul><ul><li>Form 990 Tax return </li></ul></ul></ul><ul><ul><ul><li>Single Audit A-133 </li></ul></ul></ul><ul><ul><ul><li>Payroll reports </li></ul></ul></ul>
  5. 5. Differences Between Non-profit & For-profit Organizations
  6. 6. <ul><li>FASB 117 - “Financial Statement of Non-Profit Organization” </li></ul><ul><ul><li>Statement of Financial Position </li></ul></ul><ul><ul><li>Statement of Activities </li></ul></ul><ul><ul><li>Statement of Functional Expenses </li></ul></ul><ul><ul><li>Statement of Cash Flows </li></ul></ul><ul><ul><li>Financial Statement Disclosures </li></ul></ul><ul><ul><li>Accrual Basis of Accounting </li></ul></ul>
  7. 7. <ul><li>Disclose </li></ul><ul><ul><li>In Statement of Activities or </li></ul></ul><ul><ul><li>In the footnotes </li></ul></ul><ul><li>Functional Classifications </li></ul><ul><ul><li>Program services </li></ul></ul><ul><ul><li>Management and general </li></ul></ul><ul><ul><li>Fundraising </li></ul></ul>
  8. 8. <ul><li>Definitions </li></ul><ul><ul><li>Accrual </li></ul></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Modified Cash </li></ul></ul><ul><li>Factors to consider when choosing </li></ul><ul><ul><li>Few payables or receivables </li></ul></ul><ul><ul><li>Expertise and time constraints on bookkeeping staff </li></ul></ul><ul><ul><li>Budget size </li></ul></ul>
  9. 9. <ul><li>FASB 116 - “Accounting for Contributions Received and Contributions Made” </li></ul><ul><ul><li>Recognized as revenues in period received </li></ul></ul><ul><ul><li>Recorded as either restricted or unrestricted revenue (donor imposed conditions) </li></ul></ul>
  10. 10. <ul><li>In-Kind Contributions </li></ul><ul><ul><li>Donor sets value, not non-profit </li></ul></ul><ul><ul><li>Shows true cost to operate the organization </li></ul></ul><ul><ul><li>IRS does not allow in-kind services or facility rental to be deducted from Form 990 tax return </li></ul></ul>
  11. 11. <ul><li>Special Events and Membership Dues </li></ul><ul><ul><li>Fund-raiser attendees often receive a tangible benefit in return </li></ul></ul><ul><ul><li>Membership dues may entitle individuals to benefits </li></ul></ul><ul><ul><li>The portion of ticket or dues which represents the fair market value of the benefit received is NOT tax deductible </li></ul></ul><ul><ul><li>Minimal benefits are excluded </li></ul></ul><ul><ul><li>Non-profit required to send letters to donors re: amount that may be taken as tax deduction </li></ul></ul>
  12. 12. <ul><li>IRS Publication 1771 - “Charitable Contributions - Substantiation and Disclosure Requirements” </li></ul>
  13. 13. <ul><li>FASB 124 - “Accounting for Certain Investments Held by Not-for-Profit Organizations” </li></ul><ul><ul><li>Investments be reported at fair market value </li></ul></ul><ul><ul><li>Gains and losses be included in a statement of activities </li></ul></ul>
  14. 14. <ul><li>FASB 93 - “Recognition of Depreciation by Not-for-Profit Organizations” </li></ul><ul><ul><li>Recognize the cost of using up long-lived tangible assets (depreciation) </li></ul></ul><ul><ul><li>Exceptions </li></ul></ul><ul><ul><ul><li>Certain works for art </li></ul></ul></ul><ul><ul><ul><li>Certain historical treasures </li></ul></ul></ul>
  15. 15. Setting up Systems and Getting Started
  16. 16. Chart of Accounts - Design Planning <ul><li>A tool used to code all the transactions that will be recorded in the accounting records. </li></ul><ul><li>The accounts set up here are then consolidated into the financial statement presentation. </li></ul><ul><li>If not well thought out, the financial statements will be less effective as a management tool in making decisions about the future of the organization. </li></ul>
  17. 17. Chart of Accounts - Design Planning <ul><ul><li>Decisions to make – </li></ul></ul><ul><ul><ul><li>Unified Chart of Accounts (UCOA) </li></ul></ul></ul><ul><ul><ul><li>Numbered accounts </li></ul></ul></ul><ul><ul><ul><ul><li>Usually follow standard industry practice </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>100 Assets </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>200 Liabilities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>300 Net Assets (Fund Balance) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>400 Revenue </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>500+ Expenses </li></ul></ul></ul></ul></ul>
  18. 18. <ul><li>Overall Considerations </li></ul><ul><ul><li>Most important features </li></ul></ul><ul><ul><li>Cost </li></ul></ul><ul><ul><li>Off the shelf or customized </li></ul></ul><ul><ul><li>Number of modules </li></ul></ul><ul><ul><li>Training of accounting staff </li></ul></ul><ul><ul><li>Maintenance contract </li></ul></ul><ul><ul><li>Specialized non-profit packages vs. general accounting packages </li></ul></ul><ul><ul><li>Compatible with rest of applications </li></ul></ul>
  19. 19. <ul><li>Statement of Activities </li></ul><ul><li>Commonly known as the “Income Statement” </li></ul><ul><li>Is the cumulative total of revenue and expense activity for the current annual operating cycle </li></ul><ul><ul><li>Calendar year </li></ul></ul><ul><ul><li>Fiscal year </li></ul></ul><ul><li>Management focuses on this statement more than the Statement of Financial Position (Balance Sheet) </li></ul>Basic Financial Statements
  20. 20. Basic Financial Statements <ul><li>Statement of Functional Expenses </li></ul><ul><li>Is the breakdown of “natural” expenses into “functional” categories. </li></ul><ul><ul><li>Admin and general (or overhead) </li></ul></ul><ul><ul><li>Programming </li></ul></ul><ul><ul><li>Fundraising </li></ul></ul><ul><li>Is closely linked to the Statement of Activities (Income Statement) </li></ul><ul><li>Can be a supplement report or an audit footnote </li></ul>
  21. 21. Basic Financial Statements <ul><li>Statement of Financial Position </li></ul><ul><li>Commonly known as the “Balance Sheet” </li></ul><ul><li>Is a snapshot of the financial position of the organization on a certain day </li></ul><ul><li>Consists of three main categories </li></ul><ul><ul><li>Assets (what you own) </li></ul></ul><ul><ul><li>Liabilities (what you owe) </li></ul></ul><ul><ul><li>Net Assets (what the organization is worth) </li></ul></ul><ul><li>Independent auditors focus on this statement more than the Statement of Activities (Income Statement) </li></ul>
  22. 22. Basic Financial Statements <ul><li>Statement of Cash Flows </li></ul><ul><li>Commonly known as the “Change in Financial Position” </li></ul><ul><li>Breaks down the use of cash into three different activities </li></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><li>Investing </li></ul></ul><ul><ul><li>Financing </li></ul></ul><ul><li>Lets the reader know exactly where the organization received and spent cash during the period </li></ul>
  23. 23. Internal Controls – Overview <ul><li>Main objectives include - </li></ul><ul><ul><li>Safeguarding assets </li></ul></ul><ul><ul><li>Promoting efficiency in operations </li></ul></ul><ul><ul><li>Enhancing reliability and completeness of financial reporting </li></ul></ul><ul><ul><li>Minimizing the risk of misuse or abuse of the organization’s resources </li></ul></ul>
  24. 24. Internal Controls – Overview (cont’d.) <ul><li>Nonprofits at greater risk for fraud? </li></ul><ul><ul><li>An atmosphere of trust </li></ul></ul><ul><ul><li>Many cash donations (difficult to control) </li></ul></ul><ul><ul><li>Limited availability of qualified staffing resources (salary constraints) </li></ul></ul><ul><ul><li>Mixture of volunteers and employees with lack of business/financial experience involved in operations </li></ul></ul><ul><ul><li>Volunteer Board of Directors (decision makers) </li></ul></ul>
  25. 25. <ul><li>Segregation of Duties </li></ul><ul><ul><li>No financial transaction is handled by only one person </li></ul></ul>
  26. 26. <ul><li>Policies and Procedures </li></ul><ul><ul><li>Established way of doing business that ensures public confidence </li></ul></ul><ul><ul><li>Maintains integrity of your organization and its assets </li></ul></ul><ul><ul><li>But does not inhibit your ability to get your daily work done </li></ul></ul><ul><ul><li>Assists with training new employees </li></ul></ul><ul><ul><li>Prevents fraud </li></ul></ul>
  27. 27. Annual Operating Cycle
  28. 28. <ul><li>Overall significance </li></ul><ul><ul><li>Used to monitor success of goals </li></ul></ul><ul><ul><li>Used to show strength of plan </li></ul></ul><ul><li>Detailed Plan </li></ul><ul><ul><li>Choose format and tool (how) </li></ul></ul><ul><ul><li>Choose level of staff/Board participation (who) </li></ul></ul><ul><ul><li>Commit to a time line for completion (when) </li></ul></ul>
  29. 29. <ul><li>Detailed Process </li></ul><ul><ul><li>Begin with upcoming year goals </li></ul></ul><ul><ul><li>Translate those into resources needed and expense outlays to carry them out </li></ul></ul><ul><ul><li>Balanced budget - yes or no </li></ul></ul><ul><ul><ul><li>Board policy in place to be followed </li></ul></ul></ul><ul><ul><ul><li>Deficit </li></ul></ul></ul><ul><ul><ul><li>Surplus </li></ul></ul></ul><ul><ul><li>Review during the operating year </li></ul></ul>
  30. 30. <ul><li>Generating monthly financial statements </li></ul><ul><ul><li>Policy for month-end closing </li></ul></ul><ul><li>Working with others </li></ul><ul><ul><li>Board and committees </li></ul></ul><ul><ul><li>Other departments within organization </li></ul></ul>
  31. 31. <ul><li>Investment management </li></ul><ul><ul><li>Investment policy </li></ul></ul><ul><ul><li>Investment spending policy </li></ul></ul><ul><li>Cash management </li></ul><ul><ul><li>Cash flow shortage policy </li></ul></ul><ul><ul><li>Cash flow surplus policy </li></ul></ul>
  32. 32. <ul><li>Compilation </li></ul><ul><ul><li>Information just “compiled” by outside accounting firm </li></ul></ul><ul><ul><li>Uses standard form of financial statement presentation </li></ul></ul><ul><ul><li>Provides no opinion or assurance that the information is reliable </li></ul></ul><ul><ul><li>Cost is minimal </li></ul></ul>
  33. 33. <ul><li>Review </li></ul><ul><ul><li>Limited examination of the organization’s financial statements </li></ul></ul><ul><ul><li>Limited testing </li></ul></ul><ul><ul><li>Provides limited assurance on the reliability of the information presented </li></ul></ul><ul><ul><li>Cost is much less than audit </li></ul></ul>
  34. 34. <ul><li>Audit </li></ul><ul><ul><li>Process for testing the accuracy and completeness of information presented in the organization’s financial statements </li></ul></ul><ul><ul><li>Completed by independent CPA’s </li></ul></ul><ul><ul><li>An “opinion” issued on how fairly the financial position has been presented </li></ul></ul><ul><ul><li>If financial statements comply with GAAP </li></ul></ul>
  35. 35. <ul><li>Audit report - consists of </li></ul><ul><ul><li>Auditors opinion letter (qualified or unqualified) </li></ul></ul><ul><ul><li>Required Financial Statements </li></ul></ul><ul><ul><li>Required Notes to the Financial Statements </li></ul></ul><ul><li>Management letter </li></ul><ul><ul><li>Informs organization of ways to improve their internal control processes and day to day management </li></ul></ul>
  36. 36. Form 990 Reporting Overview <ul><li>Purpose for filing with IRS </li></ul><ul><ul><li>Required information for statistics and tracking – not a “tax return” </li></ul></ul><ul><ul><li>Have information available for public inspection </li></ul></ul><ul><ul><li>May be primary or only source of information available to the public </li></ul></ul><ul><ul><li>IRS cleaning up their database </li></ul></ul><ul><li>When to file </li></ul><ul><ul><li>15 th day of 5 th month after close of fiscal year </li></ul></ul>
  37. 37. <ul><li>Old Rules </li></ul><ul><li>Organizations with gross receipts <$25K per year – </li></ul><ul><ul><ul><li>No filing requirements </li></ul></ul></ul><ul><li>2007 Rules </li></ul><ul><li>Organizations with gross receipts <$25K per year – </li></ul><ul><ul><ul><li>Required to file electronic notice </li></ul></ul></ul><ul><ul><ul><li>“ e-Postcard” or Form 990-N </li></ul></ul></ul>
  38. 38. Changes Since 2007 <ul><li>Form 990-N </li></ul><ul><ul><li>Filing </li></ul></ul><ul><ul><ul><li>Log in to www.irs.gov/eo </li></ul></ul></ul><ul><ul><ul><li>Click on “Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard) </li></ul></ul></ul><ul><ul><li>Failure to file for three consecutive years will result in revocation of tax exempt status </li></ul></ul>
  39. 39. <ul><li>Old Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts between $25K and $100K </li></ul></ul><ul><ul><li>Total assets <$250K at year end </li></ul></ul><ul><ul><ul><li>File Form 990-EZ </li></ul></ul></ul><ul><ul><ul><li>Could elect to file Form 990 </li></ul></ul></ul><ul><li>2008 Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts >$25K but <$l M </li></ul></ul><ul><ul><li>Total assets <$2.5 M </li></ul></ul><ul><ul><ul><li>File Form 990-EZ </li></ul></ul></ul><ul><ul><ul><li>Can elect to file Form 990 and schedules </li></ul></ul></ul>
  40. 40. Changes Since 2007 (cont’d.) <ul><li>Form 990-EZ </li></ul><ul><ul><li>Has not been redesigned, but changes have been made </li></ul></ul><ul><ul><li>Review Schedules A, B, C, E, G and L and determine if they apply to your organization </li></ul></ul>
  41. 41. <ul><li>Old Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts > $100K </li></ul></ul><ul><ul><li>Total assets >$250K at year end </li></ul></ul><ul><ul><ul><li>Required to file Form 990 </li></ul></ul></ul><ul><li>2008 Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts >$l M </li></ul></ul><ul><ul><li>Total assets >$2.5 M </li></ul></ul><ul><ul><ul><li>Required to file Form 990 </li></ul></ul></ul>
  42. 42. <ul><li>Old Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts > $100K </li></ul></ul><ul><ul><li>Total assets >$250K at year end </li></ul></ul><ul><ul><ul><li>Required to file Form 990 </li></ul></ul></ul><ul><li>2009 Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts >$500K </li></ul></ul><ul><ul><li>Total assets >$1.25 M </li></ul></ul><ul><ul><ul><li>Required to file Form 990 </li></ul></ul></ul><ul><li>2010 Rules </li></ul><ul><li>Organizations with </li></ul><ul><ul><li>Gross receipts >$200K </li></ul></ul><ul><ul><li>Total assets >$500K </li></ul></ul><ul><ul><ul><li>Required to file Form 990 </li></ul></ul></ul>
  43. 43. Changes Since 2007 (cont’d.) <ul><li>Form 990 </li></ul><ul><ul><li>Revised for fiscal years beginning in 2008 </li></ul></ul><ul><ul><li>Last revision was in 1979 </li></ul></ul><ul><ul><li>More questions about governance </li></ul></ul><ul><ul><li>Instructions include “Sequencing List” </li></ul></ul><ul><ul><li>Format </li></ul></ul><ul><ul><ul><li>Core form with eleven parts </li></ul></ul></ul><ul><ul><ul><ul><li>Part IV – Checklist of Required Schedules </li></ul></ul></ul></ul><ul><ul><ul><li>Sixteen schedules </li></ul></ul></ul>
  44. 44. Form 990 List of Schedules <ul><li>A-Public Charity Status and Public Support </li></ul><ul><li>B-Schedule of Contributors </li></ul><ul><li>C-Political Campaign and Lobbying Activities </li></ul><ul><li>D-Supplemental Financial Statements </li></ul><ul><li>E-Schools </li></ul><ul><li>F-Statement of Activities Outside the US </li></ul><ul><li>G-Supplemental Info Regarding Fundraising or Gaming Activities </li></ul><ul><li>H-Hospitals </li></ul><ul><li>I-Grants and Other Assistance to Orgs, Gov’t., and Individuals </li></ul><ul><li>J-Compensation Info </li></ul><ul><li>K-Supplemental Information for Tax-Exempt Bonds </li></ul><ul><li>L-Transactions with Interested Persons </li></ul><ul><li>M-Non-Cash Contributions </li></ul><ul><li>N-Liquidation, Termination, Dissolution </li></ul><ul><li>O-supplemental Information to Form 990 </li></ul><ul><li>R-Related Organizations and Unrelated Partnerships </li></ul>
  45. 45. <ul><li>Circular A-133 single audit report </li></ul><ul><ul><li>$500,000 or more in federal awards expended in any fiscal year </li></ul></ul><ul><ul><li>Audited annually </li></ul></ul><ul><ul><li>Available for public inspection </li></ul></ul><ul><ul><li>Auditee duties </li></ul></ul><ul><ul><ul><li>Schedule of Expenditures of Federal Awards </li></ul></ul></ul><ul><ul><ul><li>Maintain internal controls </li></ul></ul></ul>
  46. 46. <ul><li>Payroll reporting </li></ul><ul><ul><li>Quarterly (941) reports </li></ul></ul><ul><ul><li>Annual (940) reports </li></ul></ul><ul><ul><li>W-2’s </li></ul></ul><ul><ul><li>1099’s </li></ul></ul>
  47. 47. <ul><li>Unrelated Business Income Tax (UBIT) </li></ul><ul><ul><li>Regularly carries on a trade or business </li></ul></ul><ul><ul><li>Not substantially related to its exempt purpose </li></ul></ul><ul><ul><li>IRS Publication 598 - Tax on Unrelated Business Income of Exempt Organizations </li></ul></ul>
  48. 49. Texas Nonprofit Summit September 9, 2011 Presented by Cheryl Black Chief Financial Officer Smart Strategies for Great Financial Management

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