• Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
752
On Slideshare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
19
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Introduction toFinancial Decision Makingfor Non-Profits San Fernando Valley Community Leadership Development Program Saturday, October 8, 2011
  • 2. Agenda  Commence 10:00a | Wendy Saunders  Session Five (NFP Laws and Ethics) Review 10:05a | Wendy Saunders  Financial Decision Making for Non-Profits; Emerging Leader’s Perspective 10:30a | Alan Lewis  Break 11:00a  Financial Decision Making for Non-Profits; Established Leader’s Perspective 11:15a | Roberto Barragan  Closing Remarks 12:45p | Wendy Saunders  Adjourn 1:00p | Wendy Saunders CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 2
  • 3. NFP Financial Decision Making;Emerging Leader’s PerspectiveAlan Lewis | 2011 SFV CLDP Vice-Chair
  • 4. Presentation Objectives  Provide an introduction to the key concepts, terms, and considerations related to financial decision making for non-profit board leaders.  Establish an understanding of the importance of responsible and sustainable accounting and financial practices for non-profits of all sizes.  Instill financial responsibility and stewardship in CLDP participants.  Provide an array of resources to assist in decision making. CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 4
  • 5. Overview  Basic Principles  Financial Issues for Board Members  Key Terms  Key Points for Consideration  Avoiding Trouble  Real Life: Mid Valley Family Y  NFP Financial Decision Making Goals  References CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 5
  • 6. Basic Principles  Who here has taken Accounting I and II?  Responsibilities of Board and Committee Members  Recap from Law and Ethics: Duty of Loyalty, Care, and Obedience  FUNDRAISING: Fiduciary Responsibility  Financial integrity, solvency, safeguard, and procedures to protect the organization  Reading and Interpreting Financial Statements  Audited vs. Unaudited Financials  Accounting Standards (e.g. GAAP, FASB, GASB)  Financial Stewardship / Governance  Risk Management  Diversification  Good faith  Implementation of Sarbanes-Oxley Section 404 (Audit of Internal Controls) CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 6
  • 7. Financial Issues for Board Members  Fundraising  Planning and Budgeting  Monitoring Revenue and Expenditures  Available Cash and Reserves  Ensuring Appropriate Actions o Purpose restricted grants or contributions o Federal or State funding o Program funding CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 7
  • 8. Key Terms• Generally Accepted Accounting Principles (US-GAAP): A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.• Financial Accounting Standards Board (FASB): Independent board responsible for establishing and interpreting US-GAAP. Financial Accounting Standards 116 and 117 govern the nonprofit sector. FAS 116 deals with contributions made and received while FAS 117 deals with financial statement format.• Revenue: Payments for services, donations from individuals, foundations and corporations, support and contract payments from government agencies, income from fundraising activities, and investments.• Expenses: Represent the total cost of operating the organization, including payments made to employees and other parties, including operating expenses, debt, principal payments, capital expenditures, non-cash expenses, fixed assets, and funds set aside each year for future use.• Assets: An item of current or future economic benefit to an organization. Examples include: cash, short-term investments, accounts receivable, grants receivable, inventories, prepaid expenses, buildings, furniture, equipment, vehicles, and long-term investments.• Liabilities: Items owed by an organization or claims against its assets. Examples: accounts payable, accrued salaries and benefits, accrued payroll taxes, deferred revenue, lines of credit, construction loans, current portion of long-term debt, short-term notes payable, and long-term debt.• Financial Statements: Written reports that quantitatively describe the financial health of an organization. A complete financial statement includes a balance sheet, an income statement, a statement of cash flows, and often a statement of functional expenses. Financial statements are usually compiled on a monthly, quarterly and annual basis. CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 8
  • 9. Key Terms (cont.)  International Financial Reporting Standards  Due Diligence (IFRS)  Conflict of Interest  Government Accounting Standards Board  Internal Controls (GASB)  Budget  Form 990  Capital Campaign  Grants  Case Statement  Membership  Collateral  Audit  Compound Annual Growth Rate  Income Statement  Contributions  Statement of Cash Flows  Etl.  Balance Sheet CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 9
  • 10. Key Points for Consideration  For Profit and Not-for Profit Accounting is Not Very Different  Not for Profit Organizations must report Fundraising expense  Financial Reports are prepared by Management  A Healthy Non-profit organization makes money  A Non-profit might budget a deficit  There are three categories of endowment funds: Permanently restricted, Temporarily restricted, and Quasi-endowment funds as designated by the Board  Financially oriented committees within non-profits generally include: Finance, Audit, and/or Compensation. CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 10
  • 11. Avoiding Trouble  Attend board meetings  Follow the procedures as outlined in the Articles of Incorporation and Bylaws  Review meeting minutes and committee reports  Promptly Disclose any conflicts of interest  Ask that experts be retained when the board needs to take action when outside its experience  Review financial statements  Review IRS Form 990  Insist on annual budgets, internal accounting controls, and frequent financial reports  Review audit reports and management letters  Foster an atmosphere that encourages staff to come forward with problems  Insist on compliance with all applicable law  Be leery of a one man show CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 11
  • 12. Real Life: Mid Valley Family Y  Former Mid Valley Board and current Tri-Y Finance Committee member ( >5 Years )  Mid Valley Branch operating deficits went from $400k to $200k per year ( > trending towards $0 )   Accrued liability with LA Metro over $2m  Agreed to debt plan, wherein debt is “frozen”, until an asset sale, and no more direct financial support from Metro  Completed (first of its kind) three way merger between West, Mid, and East Valley Y’s  Cash flow positive collectively with current and projected increasing cash surpluses  Trending towards ability to qualify for capital campaign  Aging facility with need for short and long-term renovations with possibility of an extensive capital campaign for redevelopment  Memberships are subsidized, which means with the addition of each new member there is a greater need to raise money for membership scholarship fund  Growing need within the community (urban branch) CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 12
  • 13. Financial Decision Making Goals  What is stewardship versus profitability?  What is the importance of financial record keeping?  What are financial statements?  What is the difference between a for-profit and not-for-profit financial statement?  What are state and federal reporting requirements (e.g. Form-990) for non-profits?  What are a non-profits financial disclosure requirements to its stakeholders?  How does financial decision making and legal compliance work together?  What is a budget and how is it best prepared and followed?  What can an NFP invest in versus a for-profit?  What are the types of donations an NFP can accept (e.g. endowment, restricted)  What financial indicators are important when determining a non-profits financial health?  What is the role of a Treasurer versus a CFO in a non-profit? CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 13
  • 14. References Nonprofit Finance Fund | Glossary of Financial Terms http://nonprofitfinancefund.org/financial-terms Financial and Accounting Guide for Not-for-profit Organizations http://books.google.com/books?id=I1iQByG15r0C&dq=non- profit+financial+decision+making&printsec=frontcover&source=in&hl=en&ei=f4d1TPHNHJCisAP2joyhDQ&sa=X&oi=book_result&ct=result&resnum =12&ved=0CD0Q6AEwCw#v=onepage&q&f=false Financial Responsibilities of Nonprofit Boards http://books.google.com/books?id=USS8Bsl_g-wC&printsec=frontcover&dq=governance+non- profit&hl=en&ei=qGuuTOTVF43QsAOg36D6Cw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CD4Q6AEwAzge#v=onepage&q&f=false A Desktop Guide for Nonprofit Directors, Officers, and Advisors http://books.google.com/books?id=_vEMnYkV9yoC&pg=PA206&dq=governance+non- profit&hl=en&ei=xWuuTLbeKIrEsAOwodS0DA&sa=X&oi=book_result&ct=result&resnum=6&ved=0CE8Q6AEwBTgy#v=onepage&q=governance%20 non-profit&f=false Financial Basics for Nonprofit Managers http://books.google.com/books?id=-6TOB0oa7jsC&pg=PA151&dq=non- profit+finance+terms&hl=en&ei=vHCuTLGfAo64sQOLzf3bDA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CEUQ6AEwBA#v=onepage&q&f=f alse Financial Management for Nonprofit Organizations http://books.google.com/books?id=ywEEoO_CRvcC&pg=PA331&dq=non- profit+finance+terms&hl=en&ei=vHCuTLGfAo64sQOLzf3bDA&sa=X&oi=book_result&ct=result&resnum=10&ved=0CGEQ6AEwCQ#v=onepage&q=n on-profit%20finance%20terms&f=false CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 14
  • 15. NFP Financial Decision Making;Established Leader’s PerspectiveRoberto Barragan | President, Valley Economic Development Center San Fernando Valley Community Leadership Development Program Saturday, October 8, 2011
  • 16. What is Stewardship v. Profitability?  Stewardship: managing to breakeven i.e., Maintenance, meeting payroll, keeping the doors open.  Profitability: generating an annual surplus of revenues minus expenses i.e., surpluses, reserves, employee retention through merit increases and bonuses. CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 16
  • 17. What is the importance of Financial Record Keeping?  Difference between existence and shutdown  Financial recordkeeping is not just about recordkeeping, but about: o Getting paid by government entities and surviving their audits o Keeping track of cash flow needs and staying ahead of it o Being able to report accurately to Boards o Staying in compliance with state and federal tax authorities o Being able to raise money from foundations and corporations in an increasing watchful environment CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 17
  • 18. What are Financial Statements? • Statement of Financial Position • Statement of Financial Activities • Statement of Cash flows • Comparative Profit and Loss Statement • Summary of Cash Balances, Accounts Receivables, Accounts Payables CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 18
  • 19. What is the difference between for-profit and non-profit financials statements?  Unrestricted, Temporarily Restricted and Permanently Restricted Assets  Unrestricted: Donations, Fees for Service, Interest Income, Dues  Temporarily Restricted: Grants for specific activities and programs that become unrestricted as activities/programs are implemented  Permanently Restricted: Buildings, endowments, non- operating revenue activities: DON’T TOUCH! CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 19
  • 20. What are a non-profits financial disclosure requirements toits stakeholders? • AUDITS: annual review performed by CPA of financial statements with sufficient testing such that the CPA can certify their accuracy and integrity • Distribution to all funders and posting on the website • Not discretionary, best practice period • No asking for money if you have no audit • Cost of doing business CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 20
  • 21. How does Financial Decision Making and Compliance worktogether?  Make financial decisions so as to comply with the law and stay out of jail  Tax returns are required  Payroll taxes are a must  HR can kill an organization faster than cash flow o Wrongful termination o Sexual Harassment o Non payment of wages CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 21
  • 22. What is a budget and how is it best prepared and followed?  Annual exercise in forecasting revenues and expenses.  Should be based on committed and/or expected revenues, not on optimistic fundraising goals; PROJECTED can be a bad word  Should be balanced without reserves, reserves are for cash flow problems and surprises  We’re not the feds, we can’t print money; we’re not the state, we can’t issue IOUs; and we’re not the city, so we can’t raise taxes CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 22
  • 23. What is a budget and how is it best prepared and followed?(cont.)  On a monthly basis, statements should be prepared with variances to budget  Variances should be analyzed to determine if they are timing issues or real differences in revenues and expenses  On a quarterly basis, take action to deal with those variances, don’t wait until the end of the year with some fundraising appeal  Make the hard decisions early, or someone else will make them for you CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 23
  • 24. What can an NFP invest in v. a For-Profit? • Anything!!! (However, if its not related to mission, you may have to pay taxes: other businesses, real estate (not for the non-profit) • Good: Securities, like business activities, your own building • Bad: Businesses with reputational risk, whole portfolios in individual stocks • Remember liquidity and risk CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 24
  • 25. What are the types of Donations an NFP can accept?  Anything!!  Again mission is the issue  As well as reputational risk  Real estate, bequests, endowments, vehicles, cash, jewelry  As long as it doesn’t cost you money to maintain, i.e. animals, farms, land with no commercial value CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 25
  • 26. What Financial Indicators are Important when determininga Non-profits Health?  Operating Results, Year to Year Monthly Net Income  Unrestricted Profit and Loss, Revenue by Source o Reimbursements o Business Revenue o Donations  Liquidity Dashboard o Cash days on Hand: cost/cash needed per day o Unrestricted Cash balances o Accounts Payable and Receivable (AR / AP)  Sources and Uses of Funds w/ corresponding cash flows, LOCs, reserves CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 26
  • 27. What is the role of a Treasurer v. a CFO in a NFP? • TREASURER: Board member with responsibility to report financial results to Board of Directors • CHIEF FINANCIAL OFFICER: Employee responsible for accurate and responsible financial reporting and cash flow management CLDP | Session 5 | NFP Financial Decision Making Saturday, October 8, 2011 Slide 27
  • 28. NFP Financial Decision Making;Questions and AnswersRoberto Barragan | President, Valley Economic Development Center San Fernando Valley Community Leadership Development Program Saturday, October 8, 2011