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Fiscal Practices (Steve Katell, MBA, CPA)

Fiscal Practices (Steve Katell, MBA, CPA)






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    Fiscal Practices (Steve Katell, MBA, CPA) Fiscal Practices (Steve Katell, MBA, CPA) Presentation Transcript

    • (Best) Fiscal Practices Stephen Kattell, MBA, CPA Kattell and Company, P.L. Serving the Nonprofit Community
    • Summit Objectives To provide education, resources, and tools to nonprofit staff and board members on a specific topic in order to further their missions.
    • Fiscal Practices and MissionSound fiscal practices NEVER ensure that an organization will achieve its mission. HOWEVER Deficient fiscal practices OFTEN prevent organizations from achieving their mission.
    • Fiscal Practices and Mission BUT, NOT ALWAYSSome nonprofits achieve mission without sound fiscal practices – Sometimes just lucky – Usually much more costly DO YOU WANT TO LEAVE ACHIEVEMENT OF YOUR MISSION TO CHANCE? Do You Feel Lucky?
    • Responsibility Responsibility can be delegated but not abdicated.
    • RESPONSIBILITY? Board of Directors Board Treasurer/Committees Chief Executive Officer – Executive Director Chief Financial Officer – Accountant – Bookkeeper – Finance director – Controller Contractors – Bookkeeper – Payroll Company – Auditor – Attorney Volunteers
    • Responsibility (according to steve) Board of Directors Board Treasurer/Committees Chief Executive Officer – Executive Director Chief Financial Officer – Accountant – Bookkeeper – Finance director – Controller Contractors – Bookkeeper – Payroll Company – Auditor – Attorney Volunteers
    • Board of Directors Set a budget. Monitor status of budget by comparison to regular financial information. – Balance Sheet – Profit and Loss Statement  Include budget to actual comparison – Balance Sheet and P&L should “articulate”. – Generated from the accounting software. Use care of a prudent person.
    • Board of Directors Let these do the leg work and report to the full board: – Treasurer – Finance Committee – Audit Committee – Investment Committee The more financial experience the better.
    • Board of Directors Leg work includes: – Liaisons between board and staff with respect to all fiscal matters – Meetings with the CEO and CFO to review budgets and reports and recommend changes – Reviewing and making recommendations regarding internal controls – Reviewing and making recommendations regarding policies and procedures
    • Chief Executive Officer You can have great passion for the mission and programs, but you must also have a working knowledge of the finances: – Where’s the cash? – How does each action, decision, or program affect the cash? CEO supervises the CFO. Some CEOs are better suited to be the CPO or DD because they just don’t get it when it comes to the finances.
    • Internal Controls That set of policies, programs, practices, procedures… that provide assurance that you will achieve your objective. Fiscal objectives – Assets are safeguarded – Financial information is accurate and reliable – Transactions are authorized For smaller nonprofits – CASH is KING.
    • Internal Controls Perspective…… the Fraud Triangle Incentives and pressures  Bad habits – drugs, alcohol, gambling, spending  Bad breaks – divorce, medical problems  Solution – Robust HR Department Opportunities  Lack of internal controls  In most cases of theft of cash, obvious controls were missing. Attitudes/Rationalizations  Low moral from layoffs  Perceived inequities in hiring, pay, bonuses, promotions  Solution – Establish a culture of high ethical standards and integrity
    • Cash is King Get the cash in your hands. – Ask for donations.  If pledged, follow up on payments – Bill for goods and services delivered  Follow up and collect on accounts receivable Don’t let the cash out of your hands. – The person responsible for paying the bills should be the cheapest person in the organization. – This person should not worry about being the most popular. No Miss Congeniality awards here!
    • Internal Controls – Money In Principles: – How do you know all of the money that should be deposited into the bank actually makes it to the bank? – Rule of thumb. The fewer the number of people who touch the money before it goes into the bank, the fewer controls you need.
    • Internal Controls – Money In General – Pass out “For Deposit Only” stamps like candy. – Segregate Duties – establish healthy competition between functions. Revenues – Segregate duties: Program personnel want to report maximum revenues. – Processes to ensure invoicing and recording for all goods and services delivered. – Processes to follow up on collections. Contributions – Segregate duties: Development people want to report maximum contributions. – Reconcile donor database with accounting records. – Who sends out donor acknowledgements and on what basis? Grants – Try not to leave money on the table. – Reconcile grant billings to expenses in the GL.
    • Internal Controls – Money Out How do you know that all money taken out of the bank (or investment accounts) was for a legitimate and authorized purpose?  checks written  EFTs  on-line bill pay  automatic deductions  fees Fraud Rule of Thumb. Most organizations typically need to worry about just one person, the CFO.
    • Internal Controls – Money Out Controls over CFO – If the CFO stole money, who would detect it? – 2 signatures on checks - MEANINGLESS. – Someone other than CFO needs to review bank statements. – Larger organizations need more complex processes.
    • Internal Controls – Money Out Over-Payments – Payables Clerk should be the cheapest person in the organization. – Compare to contract or agreement. – Compare to last month’s invoice. – Compare to last year’s invoice. – Compare to purchase order. – Compare to receiving report or packing list approved by the person who actually received the goods. Most common over-payments – sales tax. – Company credit cards/debit cards are acceptable when properly controlled.
    • Bookkeeping Basics…Check Your Work! Cash - monthly bank reconciliations. My latest pet peeve – bank reconciliations that don’t reconcile. What’s a bank reconciliation? Bank reconciliations can only have 4 items: – Balance per bank statement – Plus – Deposits in Transit – Minus – Outstanding Checks – Equals – Balance per general ledger
    • Bookkeeping Basics…Check Your Work! Investments – Agreement to investment statements. – Proper recording of current period income, fees, gains and losses. Receivables and payables. – Agreement to subsidiary schedule. – No bogus entries or balances.
    • Bookkeeping Basics…Check Your Work! Prepaid expenses. – Some sort of supporting schedule proving the amounts prepaid. Fixed Assets. – Actually on hand. – Depreciation schedule. Long Term Debt. – Balance agrees to monthly statement, if any. – Balance agrees to amortization schedule.
    • Bookkeeping Basics…Check Your Work! Look at your trial balance. Do you understand every account that is there and do you understand every balance? A more complex organization means more complex accounts and balances. Complex accounts and balances require more skill from top level management.
    • Management Information Use of classes if highly recommended for – Functional reporting  Required by IRS and GAAP – Departmental reporting  Accountability – Grant reporting  Required by state and federal law  Provides evidence that double dipping did not occur. (Note: double dipping is bad.) – Tracking donor restrictions  Keeping donors informed – Determining profit and loss from one or more activities.
    • Audits – Who Needs Them? Independent (external) – CPA “Internal Audits” for smaller organizations can be a nice substitute for an external audit – Set up an “audit committee” who will provide an after the fact review. – Volunteers who know their way around financial records.
    • Independent Audits Not required by the State of Florida Not required by the IRS Typically required by funding sources. – United Way of North Central Florida requires for budgets of over $500,000. – Federal government requires for expenditures of federal awards of more than $500,000. – Consult other funding or regulatory requirements.
    • Independent Audits Don’t be penny wise and pound poor. Think twice: How much is the cost of an audit compared to the large donor who didn’t give you a second thought? There are actually benefits of an audit – Sometimes quantifiable. – Usually less tangible. – Not always cost justified.
    • Audit Alternatives Reviews – United Way requires reviews for organizations under $500,000. – Provides limited assurance based on limited procedures. Compilations – Provides no assurance.
    • And Now for My Soapbox There are those that suggest that auditor rotation is a best practice. It is not a best practice. Studies show it’s not even a good practice. Mandatory rotation “dumbs down” the process. The best practice is to evaluate your auditor every year and to make any future engagement contingent on the quality of the latest engagement.
    • Internal Revenue Service Primary source of laws and regulations governing the activities of tax-exempt organizations (TEOs) Generally prohibiting: – Private benefit – Private inurement – Political activities Limiting: – Lobbying Providing for: – Taxation of unrelated business activities
    • IRS – Compensation Issues Reasonable compensation or excess benefit. What is reasonable? Safe harbor provisions provide a rebuttable presumption of reasonableness. – Independent committee – Comparability data – Contemporaneous documentation
    • Compensation Issues One of the most common criticisms that is found in an audit… compensation that is not properly reported to the IRS. – Bonuses – Gifts – Awards – Personal use of  Vehicles  Computers  Cell phones.
    • Compensation Issues Non Taxable Benefits: – Health, Life, Dental Insurance  Part of a plan applicable to all employees.  Reimbursement for actual health insurance.  Seek professional help. – Retirement Plans  Can’t just give them money  403(b)  401(k)  457  Others  Seek professional help
    • Form 990 Series Form 990-N – Gross receipts ≤ $50,000. – Filed electronically Form 990-EZ – 2008: Receipts < $1,000,000 and assets < $2,500,000 – 2009: Receipts < $500,000 and assets < $1,250,000 – 2010: Receipts < $200,000 and assets < $500,000 Form 990 – All others. – Extensive.
    • Form 990 – Governance Policies Form 990. Do ALL members of governing board review Form 990 BEFORE filing? – Describe process for review. Conflict of Interest Policy. Does TEO have a conflict of interest policy? – Annual disclosures? – Regular and consistent monitoring?  Describe such monitoring Whistleblower Policy. Written whistleblower policy? Document Retention. Written document retention and destruction policy? Compensation. Did process for determining compensation of CEO, officers and other key employees include safe harbor provisions? – If yes, then describe the process. Joint Venture Arrangements. Local Chapters, Branches, or Affiliates.
    • Questions?
    • Applause!