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Track 1 Finance: The Financial Basics of Grant Review

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  • 1. THE FINANCIAL BASICS OF GRANT REVIEW Joe McCarthy and Tina Kasmarzik September 26, 2005
  • 2. AGENDA
    • FINANCIAL BASICS
    • - FINANCIAL STATEMENTS
    • AND DETERMINING FINANCIAL
    • HEALTH
    • UNDERSTANDING BUDGETS
    • REVISING PROJECT BUDGETS
    • WAR STORIES
  • 3. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • CHART OF ACCOUNTS
    • INCOME STATEMENT/
    • STATEMENT OF ACTIVITIES
    • BALANCE SHEET/
    • STATEMENT OF FINANCIAL POSITION
    • CASH FLOW STATEMENT
    • AUDIT REPORT
    • ANALYSIS
  • 4. UNDERSTANDING BUDGETS
    • WHAT IS A BUDGET?
    • WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET?
    • BUDGET FORMAT
    • HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?
  • 5. REVISING PROJECT BUDGETS
    • WHEN WILL GRANTEES TRY AND REVISE THEIR BUDGETS?
    • WHEN SHOULD YOU LET A GRANTEE REVISE THEIR BUDGET?
    • HOW MUCH DOES IT COST TO REVISE A BUDGET?
  • 6. WAR STORIES
    • CONFERENCE ATTENDEE QUESTION AND ANSWER SESSION
    • FREE CONSULTING
    • (for whatever that is worth)
  • 7. CONFERENCE ATTENDEES
    • WHO IS IN THE AUDIENCE?
    • WHAT IS THE LEVEL OF FINANCIAL EXPERTISE?
  • 8. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • CHART OF ACCOUNTS
    • INCOME STATEMENT/
    • STATEMENT OF ACTIVITIES
    • BALANCE SHEET/
    • STATEMENT OF FINANCIAL POSITION
    • CASH FLOW STATEMENT
    • AUDIT REPORT
    • ANALYSIS
  • 9. ACCOUNTING EXPERIENCE
    • WHO IN THE AUDIENCE HAS EVER PERFORMED AN ACCOUNTING ENTRY?
    CASH EXPENSE
  • 10. CASH EXPENSE (DEPOSIT) (WITHDRAWAL)
  • 11. TAKE SOMETHING WITH YOU
    • AS WE MOVE THROUGH THE PRESENTATION, IF YOU HAVE LITTLE OR NO KNOWLEDGE OF FINANCIAL MANAGEMENT, JUST RELATE THE INFORMATION TO YOUR PERSONAL FINANCES, AND YOU’LL LEARN SOMETHING.
  • 12. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • CHART OF ACCOUNTS
    • A LISTING OF THE ACCOUNT TITLES AND ACCOUNT NUMBERS BEING USED BY AN ORGANIZATION FOR RECORDING FINANCIAL TRANSACTIONS.
  • 13. CHART OF ACCOUNTS
    • 1xxx ASSETS
    • 2xxx LIABILITIES
    • 3xxx EQUITY
    • 4xxx REVENUE
    • 5xxx EXPENSE
  • 14. TYPES OF ACCOUNTING CASH / ACCRUAL
    • CASH BASIS ACCOUNTING
    • ACCOUNTING FOR CASH WHEN RECEIVED AND CASH DISBURSEMENTS WHEN MADE
    • ACCRUAL ACCOUNTING
    • ACCOUNTING THAT RECOGNIZES REVENUE WHEN EARNED AND EXPENSES WHEN THEY ARE INCURRED
  • 15. CASH / ACCRUAL ACCOUNTING
    • CASH BASIS – DR. OFFICE
    • ACCRUAL – 95% OF ALL BUSINESSES
    • EXAMPLE – ORDER $10,000 OF FURNITURE WITH 2 MONTH LEAD TIME
  • 16. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • INCOME STATEMENT /
    • STATEMENT OF ACTIVITIES
    • THE PURPOSE OF AN INCOME STATEMENT IS TO SHOW THE REVENUE AND EXPENSES OF A BUSINESS OVER A PERIOD OF TIME (MONTH OR YEAR)
  • 17. STATEMENT OF ACTIVITIES
    • THE DIFFERENCE BETWEEN REVENUE AND EXPENSE IS
    • - NET INCOME
    • (FOR PROFIT WORLD)
    • - CHANGE IN NET ASSETS
    • (NON-PROFIT)
  • 18. STATEMENT OF ACTIVITIES
    • REVENUE
    • PROGRAM FEES
    • SERVICE FEES
    • GRANTS
    • INTEREST EARNINGS
    • EXPENSE
    • SALARY
    • BENEFITS
    • RENT
    • SUPPLIES
    • EACH ACCOUNTING PERIOD THESE ACCOUNTS ARE CLOSED (ZEROED OUT) AND BALANCES REVERT TO THE EQUITY SECTION OF THE BALANCE SHEET (AS EITHER PROFIT OR LOSS)
  • 19. STATEMENT OF ACTIVITIES
    • IN-KIND REVENUE AND EXPENSE
    • (GAAP ACKNOWLEDGES IN-KIND)
    • WAR STORY – ADP GROCERY STORE WITH $1 MILLION BUDGET AND BASIC SUPPORT APPLICANT WITH $200,000 BUDGET
  • 20. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • BALANCE SHEET/STATEMENT
    • OF FINANCIAL POSITION
    • PURPOSE OF A BALANCE SHEET IS TO SHOW THE FINANCIAL POSITION OF A BUSINESS ON A PARTICULAR DATE (SEPTEMBER 30, 2005)
  • 21. BALANCE SHEET
    • A BALANCE SHEET CONSISTS OF A LISTING OF THE ASSETS AND LIABILITIES OF A BUSINESS AND THE EQUITY (ALSO REFERRED TO AS NET ASSETS)
  • 22. BALANCE SHEET ASSETS ARE RESOURCES OWNED BY A BUSINESS CASH AND INVESTMENTS EQUIPMENT BUILDING LIABILITIES ARE DEBTS ACCOUNTS PAYABLE ACCRUED SALARY LOAN BALANCE EQUITY/NET ASSETS – RESIDUAL BALANCE IN ASSETS AFTER DEDUCTING LIABILITIES
  • 23. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • STATEMENT OF CASH FLOW
      • CASH IS THE MOST USEFUL LIQUID ASSET
      • THE EFFICIENT USE OF CASH IS ONE OF THE MOST IMPORTANT TASKS OF MANAGEMENT
  • 24. STATEMENT OF CASH FLOW
    • A CASH FLOW STATEMENT IS PREPARED TO PROVIDE INFORMATION ON CASH RECEIPTS AND CASH DISBURSEMENTS THAT OCCURRED DURING AN ACCOUNTING PERIOD (MONTH OR YEAR)
  • 25. STATEMENT OF CASH FLOW
    • SOURCES OF CASH COLLECTIONS FROM CUSTOMERS
    • GRANT FUNDS RCV’D
    • LESS USES OF CASH
    • EQUIPMENT PURCHASE
  • 26. STATEMENT OF CASH FLOW
    • EQUALS EITHER AN INCREASE OR
    • DECREASE IN CASH
    • ADD CHANGE TO CASH AT THE BEGINNING OF THE PERIOD
    • TO EQUAL CASH AT THE END OF THE PERIOD
    • (ENDING CASH TIES TO THE CASH ACCOUNT ON THE BALANCE SHEET)
  • 27. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH
    • AUDIT REPORT
    • INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REVIEW ACCOUNTING PROCESSES, TRANSACTIONS, RECORDS AND FINANCIAL STATEMENTS
    • (IN MOST CASES ANNUALLY)
  • 28. AUDIT REPORT
    • AUDIT FIRM EXPRESSES AN OPINION (ALSO REFERRED TO AS AN AUDIT REPORT)
    • AUDIT REPORTS FREQUENTLY INCLUDE A ‘MANAGEMENT LETTER’ THAT CONTAINS RECOMMENDATIONS
  • 29. ANALYSIS OF FINANCIAL STATEMENTS
    • RATIO ANALYSIS
    • A RATIO IS A SIMPLE MATHMATECIAL EXPRESSION OF THE RELATIONSHIP OF ONE ITEM TO ANOTHER ITEM
    • MOST RATIOS ARE APPLICABLE IN A FOR-PROFIT ENVIRONMENT BUT SOME ARE APPLICABLE IN THE NON-PROFIT WORLD ALSO
  • 30.
    • OPERATING EXPENSE RATIO
    • TOTAL EXPENSE/REVENUE
    • PROGRAM EXPENSE OR OVERHEAD EXPENSE RATIO
    • EXPENSE /TOTAL EXPENSE
    • (BOTH RATIOS MEASURE ABILITY TO CONTROL EXPENSES)
    RATIO ANALYSIS – STATEMENT OF ACTIVITIES
  • 31.
    • PROFITABILITY RATIO
    • NET INCOME/REVENUE
    • (MEASURES LEVEL OF PROFITABILITY)
    RATIO ANALYSIS – STATEMENT OF ACTIVITIES
  • 32.
    • CURRENT RATIO
    • CURRENT ASSETS/CURRENT LIABILITIES
    • (MEASURES SHORT-TERM ABILITY TO PAY DEBTS
    • DEBT RATIO
    • TOTAL LIABILITIES/TOTAL ASSETS
    • (MEASURES BURDEN OF DEBT)
    • DAYS CASH ON HAND
    • TOTAL EXPENSE/360 = DAILY ‘BURN’ RATE
    • CASH/’BURN’ RATE = DAYS OF CASH
    • (MEASURES ABILITY TO PAY BILLS)
    RATIO ANALYSIS – STATEMENT OF FINANCIAL POSITION
  • 33. ANALYSIS OF FINANCIAL STATEMENTS
    • COMPARATIVE FINANCIAL ANALYSIS
    • OCCURS WHEN YOU PLACE FINANCIAL STATEMENTS SIDE BY SIDE OVER A PERIOD OF TIME (USUALLY YEARS) TO ANALYZE CHANGES
  • 34. BUDGETS
  • 35. UNDERSTANDING BUDGETS
    • WHAT IS A BUDGET?
    • WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET?
    • BUDGET FORMAT
    • HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?
  • 36. UNDERSTANDING BUDGETS
    • WHAT IS A BUDGET?
    • A BUDGET IS A FINANCIAL PLAN LISTING ALL REVENUES AND EXPENSES FOR A PERIOD OF TIME FOR AN ORGANIZATION OR FOR A SPECIFIC PROJECT
    • (YES, REVENUES )
  • 37. UNDERSTANDING BUDGETS
    • IF YOU DON’T RECOGNIZE NEW REVENUE THAT IS GENERATED AS A DIRECT RESULT OF A GRANT AWARD, YOU ARE OVERFUNDING A PROJECT
    • EXAMPLE: MENTAL HEALTH CONSULTING SERVICES WITH A CO-PAY
    • WAR STORY – McC COUNSELING
  • 38. UNDERSTANDING BUDGETS
    • WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET?
  • 39.
    • ANSWER
    • REALITY
  • 40. UNDERSTANDING BUDGETS
    • BUDGET FORMAT
    • (THE SIMPLER…THE BETTER)
  • 41. MFH BUDGET FORMAT
    • MFH STARTED OFF REQUESTING TOO MUCH DETAIL
    • - LISTING FRINGE BENEFITS
    • (FICA, MEDICAL,PENSION, ETC.)
    • - LISTING OVERHEAD EXPENSES
    • (PHONE, RENT, ETC.)
    • - APPLICATIONS GOT TOO
    • COMPLEX AND CONTAINED TOO
    • MANY ERRORS
  • 42.
    • HOW MANY APPLICANT BUDGETS FAILED THE FIRST TIME THROUGH THE INTERNAL REVIEW PROCESS?
    MFH BUDGET FORMAT
  • 43.
    • 95%
  • 44.
    • MFH BUDGET FORMAT HAS BEEN GREATLY SIMPLIFIED TO REDUCE RE-WORK AND ANALYSIS
    • - ESTABLISHED MAXIMUM
    • FRINGE RATE BY SALARY
    • - ESTABLISHED OVERHEAD
    • RATE (15% OF SALARY)
    • WAR STORY - UNIVERSITIES
    MFH BUDGET FORMAT
  • 45. ANALYZING BUDGETS
    • HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?
  • 46. ANALYZING BUDGETS
    • YOU’RE ALL FINANCIAL MANAGERS NOW, YOU SHOULD KNOW HOW TO DO THIS
    • (RATIO ANALYSIS, COMPARATIVE ANALYSIS)
  • 47. ANALYZING BUDGETS
    • ANALYZE BUDGETS USING COMMON SENSE
    • - ANNUAL SALARIES
    • - FRINGE RATES
    • - COST FOR EQUIPMENT
    • - TOTAL COST ON A PER
    • PERSON SERVED BASIS
  • 48. REVISING PROJECT BUDGETS
    • WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS?
    • WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET?
    • HOW MUCH DOES IT COST TO REVISE A BUDGET?
  • 49. REVISING PROJECT BUDGETS
    • WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS?
    • ANSWER : JUST ABOUT ANY TIME THAT THEY THINK THEY CAN GET AWAY WITH IT
  • 50. REVISING PROJECT BUDGETS
    • WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET?
    • ANSWER : AS SELDOM AS POSSIBLE
    • MFH HAS A 25% BUDGET REVISION RATE – TOO HIGH
  • 51.
    • MFH HAS BEEN FORCED TO ESTABLISH A POLICY TO NOT ACCEPT BUDGET REVISIONS WITHIN 1 ST YEAR OF A PROJECT
    • AND ONLY ONCE A PROJECT YEAR THEREAFTER
    REVISING PROJECT BUDGETS
  • 52. REVISING PROJECT BUDGETS
    • HOW MUCH DOES IT COST TO REVISE A BUDGET?
    • ANSWER : TOO MUCH FOUNDATION STAFF TIME
    • - PROGRAM OFFICER TIME
    • - GRANTS MANAGER TIME
    • - BUDGET REVISION
    • - CONTRACT AMENDMENT
  • 53. REVISING PROJECT BUDGETS
    • BUDGET REVISIONS MUST BE TIGHTLY CONTROLLED
    • MFH ENFORCES BUDGETS THROUGH GRANT AWARD AGREEMENT
  • 54. REVISING PROJECT BUDGETS
    • INTERIM FINANCIAL REPORTS MUST TIE OUT TO THE APPROVED BUDGET (OR NEXT CHECK HELD)
    • FINAL REPORT MUST ALSO TIE OUT (5% WITHHOLD)
  • 55. BUDGET ISSUES
    • MFH HAS A LATE PAYMENT REPORT (WATCH LIST)
    • WAR STORIES–
        • BOOTHEEL
        • THE CLINIC
        • ST. CHAS DENTAL
  • 56. CONTROL BUDGET ISSUES
    • SET A CAP ON GRANT AWARDS AS A % OF OPERATING EXPENSE
    • CONDUCT GRANTEE ORIENTATIONS
    • ANALYZE FINANCIAL REPORTS – INVITE GRANTEES TO VISIT CFO IF OUT OF TOLERANCE
  • 57. WAR STORIES
    • NOW IS THE TIME TO SHARE YOUR WAR STORIES
    • QUESTIONS, CONCERNS OR ISSUES RELATING TO GRANT APPLICANT FINANCIAL STATEMENTS OR PROJECT BUDGETS