Nonprofit leaders and board members need to have at least a basic understanding of financial management. However, it is not uncommon to only have one or two people on a nonprofit board that understand finances. This webinar will help nonprofit executives and board members develop the financial insight they need in order to make strategic decisions and fulfill their responsibilities.

1. Financial Management Fundamentals For Executive Directors &
Board Members
Rebeka Mazzone, CPA
November 17, 2010
Use Twitter Hashtag #npweb
Special Thanks To Our Sponsors

2. Helping ordinary people raise extraordinary amounts for nonprofits is all we do, and we love it.
A Proud Sponsor of NonprofitWebinars.com

3. Today’s Speakers
Rebeka Mazzone, CPA
Director, Rhode Island Region
Accounting Management Solutions
Hosting: Sam Frank, Synthesis Partnership
Assisting with chat questions: Chris Dumas, FirstGiving

4. Financial Management Fundamentals for Executive
Directors & Board Members
Rebeka Mazzone, CPA
Director, Rhode Island Region

5. Objectives
• Discuss why financials are
important
• Learn the key questions
Board members should ask
• Understand how ratios are
used to provide meaningful
information
8

6. 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 and insurance
• Oversight of short and long range strategic
planning
• Communication with auditors
9

7. Why Should You Care About Finance?
• Finance impacts every
aspect of your
organization
• Finance is the foundation
of success
• Money and mission are
directly linked
10

8. What Should You Know About Finance?
• Do we have enough resources to effectively deliver
the programs we have committed to?
• What are our outstanding liabilities and restricted
obligations?
• What will our future resources look like?
• Are we effectively managing our financial processes?
• Do we have the right team in place?
11

9. Reporting as a Roadmap
12

10. Reporting
Question Reports
Where do we want to go? Strategic plan
How are we going to get there? Budget
Do we have enough resources to get Balance Sheet and Cash Flow
there?
Are we on track? Income Statement vs. Budget
If not, what are we going to do about Board Discussion
it?
13

11. Characteristics of Effective Financial
Reporting
• Link to strategic plan
• Plan linked to budget
• Easy to understand
• Measures: Key Performance
Indicators (KPI) based on strategy
• Meaningful information
14

12. Understanding Financials
Ci tywi de Soci al Servi ces, Inc.
Statements of Financial Position
June 30,
2009 2008
As s e ts
Current assets:
Cash and cash equivalents $ 500,000 $ 427,000
Restricted cash 350,000 375,000
Short-term investments 150,000 122,000
Grants Receivable 775,000 700,000
Accounts receivable, net 530,000 574,000
Current portion of pledges receivable 600,000 454,000
Prepaid expenses 72,000 80,000
Total curre nt as s e ts 2,977,000 2,732,000
Long-term assets:
Property, plant and equipment, net 950,000 1,015,000
Pledges receivable, long-term 225,000 202,000
Investments 1,224,000 1,150,000
Other assets 120,000 114,000
TOTAL LONG TERM & FIXED ASSETS
Total long-te rm as s e ts 2,519,000 2,481,000
Total as s e ts $ 5,496,000 $ 5,213,000
Liabilitie s and Ne t As s e ts
Current liabilities:
Accounts payable $ 80,000 $ 68,000
Accrued expenses 210,000 176,000
Deferred revenue 82,000 55,000
Other liabilities 110,000 87,000
Current maturities of long-term debt 25,000 25,000
Total curre nt liabilitie s 507,000 411,000
Long-term debt 300,000 325,000
Total liabilitie s 807,000 736,000
Net assets:
Unrestricted 1,840,000 1,762,000
Temporarily restricted 2,424,000 2,320,000
Permanently restricted 425,000 395,000
Total ne t as s e ts 4,689,000 4,477,000
Total liabilitie s and ne t as s e ts $ 5,496,000 $ 5,213,000
- -
15

13. Understanding Financials
Citywide Social Services, Inc.
Statements of Activities and Changes in Net Assets
Year Ended June 30, 2009 2008
Temporarily Permanently
Unrestricted Restricted Restricted Total Total
Revenue, gains and other support:
Government contracts $ 4,400,000 $ - $ - $ 4,400,000 $ 4,230,000
Contributions/grants 927,000 1,600,000 30,000 2,557,000 2,010,000
Program revenue 1,082,000 - - 1,082,000 1,043,000
Net investment income (loss) 27,000 54,000 - 81,000 (22,000)
Other revenue 15,000 - - 15,000 22,000
Total revenue, gains and other support 6,451,000 1,654,000 30,000 8,135,000 7,283,000
Net assets released from restrictions 1,550,000 (1,550,000) - - -
Total revenue, gains, other support,
and releases of restriction 8,001,000 104,000 30,000 8,135,000 7,283,000
Expenses:
Program services 6,724,000 - - 6,724,000 6,050,000
Administration 823,000 - - 823,000 818,000
Fundraising 376,000 - - 376,000 352,000
Total expenses 7,923,000 - - 7,923,000 7,220,000
Change in net assets 78,000 104,000 30,000 212,000 63,000
Net assets, beginning 1,762,000 2,320,000 395,000 4,477,000 4,414,000
16 Net assets, ending $ 1,840,000 $ 2,424,000 $ 425,000 $ 4,689,000 $ 4,477,000

14. Financial Language: Perception
LEFT BRAIN LANGUAGE RIGHT BRAIN LANGUAGE

15. Financial Language: Old Language

16. Financial Language
Net Tuition and Continuing Studies
Fees -256k Savings +122k
Annual Fund -371k Hiring Freeze
+512k
Other Investment
Income -144k Reserved Funds
from Operations
Net Tuition and +185k
Fees for Credit
Grad Assistants
+25k
and Student
Auxiliary Employment
Enterprises +78k -125k
Operating Saved Expenses
Revenue -668K +694K

17. Financial Language: Creation of a New
Language
Annual Budget Annual Actual Extra Surplus
310K 527K +217K

18. Ratios
Ratios can give a quick, clear picture of the organization
2009 2010 Goal
Do We Have Enough Resources?
Days Cash on Hand 35 30 35 days
Liquid Funds Ratio 158 144 160 days
Endowment Ratio 56 49 55 days
How are we going to get there?
Contributions & Grants Ratio 86% 92% 85%
Expendable Financial Resources $ 3,314,000 $ 3,069,000 $ 3,350,000
Fundraising Expense Ratio 5% 5% 5%
Fundraising Efficiency Ratio 5.05 6.20 5.00 times
Program Expense Ratio 85% 86% 85%
Total Return on Investments 6.12% 2.40% 8.00%
Are we on track?
Operating Margin -3% -23% 0%
Debt Service to Operations 1% 0% 2%
Debt Service Coverage Ratio 6.02 4.30 6.00 times
21

19. Ratios
Days Cash on Hand - How many days an
organization can rely on its cash and liquid assets
to fund operations
Days Cash on Hand
Total Cash on Hand $650,000
40
Avg. Daily Expenses $21,707 35
Days Cash on Hand 30 days 30
25
20
15
10
5
0
March '09 June '09 Sept '09
22

20. Ratios
Contributions and Grants Ratio - Measures the
portion of total revenue that is received from
third party support
Total Revenue
Total Misc Revenue $1,178,000
Total Contributions & Grants Revenue $6,957,000
Total Revenue $8,135,000
Contributions and Grants Ratio 86% $6,957,000
$1,178,000
23

21. Ratios
Fundraising Expense Ratio - Measures the
relationship between fundraising expenses and
total expenses
Total Expenses
Total Misc Expenses $7,547,000
Total Fundraising Expenses $376,000
Total Expenses $7,923,000
$7,547,000
Fundraising Expense Ratio 5%
$376,000
24

22. Ratios
Program Expense Ratio - The relationship
between resources spent on the mission of the
organization and total expenses
Total Expenses
Total Misc Expenses $1,199,000
Total Program Expenses $6,724,000
Total Expenses $7,923,000
Program Expense Ratio 85% $6,724,000
$1,199,000
25

23. Ratios
Operating Margin Ratio - Indicates the excess
margin by which annual unrestricted revenues
cover operating expenses
Operations
$7,000,000
Operating Income $(1,472,000)
$6,000,000
Total Operating Expenses $6,451,000 $5,000,000
Operating Margin -23% $4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
($1,000,000)
($2,000,000)
Operating Income Total Operating
Expenses
26

24. Ratios
Total Return on Investments - Total investment
income (interest, dividend, realized, unrealized
gains) as a percent of funds invested
$1,600,000
$1,400,000
Investment Return $81,000 $81,000
$1,200,000
Average Investments $1,323,000
$1,000,000
Total Return on Investments 6.12%
$800,000
$1,323,000
$600,000
$400,000
$200,000
$0
27

25. Ratios
Expendable Financial Resources - Measure of financial
resources that are ultimately expendable
Expendable Financial Resources
$5,000,000
Temp Restricted Net Assets $2,424,000
Unrestricted Net Assets $1,840,000 $4,000,000
Less Fixed Assets ($950,000)
$3,000,000 $2,424,000
Expendable Financial $3,314,000
Resources $2,000,000
$3,314,000
$1,000,000 $1,840,000
$0
($950,000)
($1,000,000)
28

26. List and Prioritize – Critical
HIGH
Value to
Institution
& Mission
No Value to
Mission or
Customers
LOW Value to Customers HIGH

27. EXAMPLE: Organizational Scorecard

28. What to Expect of Your Finance
Department
Financial 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 year
31

29. What to Expect of Your Finance
Department
Financial Reports (Continued)
• The source of the reports should be the general
ledger, not an off-line spreadsheet
• Timely reporting, not 6 months after the fact
Questions to ask the CFO
• Are the statements on the cash or accrual basis?
• Does the organization have adequate reserves?
32

30. What to Expect of Your Finance
Department
Questions to ask the CFO (Continued)
• What is the status of the outstanding receivables,
are there any collectability issues?
• Is the organization on track to meet budget for the
full year?
• How frequently are the significant accounts (cash,
receivables, payables) reconciled?
• If the organization received federal stimulus funds,
are the controls in place to meet the enhanced
reporting requirements?
33

31. Financial Statement Audit
• Whose Financial Statements are they?
• Role of the CPA
• Opinion materially correct, not ensure 100%
accurate
• Why are internal statements different from
audit? Is this okay?
34

32. 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
35 administration of federal funds?

33. Questions to Ask the Auditor
• Any material instances of fraud noted?
• Executive session – the Board should conduct
an executive session with the auditor,
management would not be present
• Concerns with competency of management?
• Concerns with succession planning - would the
department function in the absence of the controller
or CFO?
• Quality of the staff below CFO/Controller
36

34. Engaged Board and Management
• Ask the “dumb” questions
• Ensure more than one member of the Board
understands finance
• Perform board member training and orientation
• Present financial information in a meaningful
way
37

35. Next Steps: Questions to Ask
• Is there financial knowledge
across the organization?
• Is your organization missing
critical functions?
• Do you have the right people in
the right role?
• Can you link money to
mission?
38

36. Decisions
• 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 questions
39

37. Strategic Goals & Objectives
40

38. Contact Information
• Rebeka Mazzone, CPA
Director – Rhode Island Region
Accounting Management Solutions, Inc
One Richmond Square, Suite 124C
Providence, RI 02906
Phone: 401-374-3222
E-mail: rmazzone@amsolutions.net
41

39. Find the listings for our current season of webinars
and register at
NonprofitWebinars.com
Chris Dumas
Chris@NonprofitWebinars.com
707-812-1234
Special Thanks To Our Sponsors