Successfully Transmitting Financial Transparency

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http://nonprofitbanker.com - Presentation slides from "Successfully Transmitting Financial Transparency" by Shuey Fogel, The Nonprofit Banker. Lecture was given at a half-day seminar entitled "Adjusting to the New Normal: Putting Transparency into Practice" that took place in Jerusalem on June 14, 2012.

The full content from the seminar can be found at: http://nonprofitbanker.com/TransparencyJune

Visit The Nonprofit Banker on the web to discover original articles and resources on the tips, trends, tools, and regulations affecting Israel's (global) nonprofit sector.

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Successfully Transmitting Financial Transparency

  1. 1. Successfully Transmitting Financial Transparency Adjusting to the New Normal: Putting Transparency into Practice June 14th, 2012The Nonprofit Banker nonprofitbanker.com
  2. 2. Transparency is a…The Nonprofit Banker nonprofitbanker.com
  3. 3. The Nonprofit Banker nonprofitbanker.com
  4. 4. Transparency Boils down to: What you’re doing Why you’re doing itThe Nonprofit Banker nonprofitbanker.com
  5. 5. The Nonprofit Banker nonprofitbanker.com
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  9. 9. Treasurer “The Treasurer, subject to the order of the Board of Directors, shall have the care and custody of the money, funds, valuable papers, and documents of the Corporation and shall have and exercise, under the supervision of the Board of Directors, all the powers and duties commonly incident to such office. The Treasurer shall deposit all funds of the Corporation in such bank or banks as the Board of Directors shall designate. The Treasurer may endorse for deposit or collection all checks and notes payable to the Corporation or to its order, may accept drafts on behalf of the Corporation. The Treasurer shall keep accurate books of account of the Corporation’s transactions which shall be the property of the Corporation, and shall be subject at all times to the inspection and control of the Board of Directors.” – Template from Nonprofit Assistance Fund •Boring! •Bookkeeper’s job description with legal responsibilitiesThe Nonprofit Banker nonprofitbanker.com
  10. 10. Treasurer Financial leadership • Knowledge (financial reports) • “To manage your finances as effectively as possible, you should, at least, have an understanding of the basic accounting process."The Nonprofit Banker nonprofitbanker.com
  11. 11. Treasurer Financial leadership • Communications • Translate financial information & concepts for the Board • Explain & re-frame financial reports • Interpret & translate Board’s questions, goals, and concerns to staffThe Nonprofit Banker nonprofitbanker.com
  12. 12. Treasurer Financial leadership • Planning • Partner with staff to create a budget • Prep Board for budget discussions • Ensures that budget priorities reflect the intentions & objectives of BoardThe Nonprofit Banker nonprofitbanker.com
  13. 13. Treasurer Financial leadership • Strategy • Financial options & decisions for long term goals • Initiate to connect finance & missionThe Nonprofit Banker nonprofitbanker.com
  14. 14. Take-Away Financial Leadership LiaisonThe Nonprofit Banker nonprofitbanker.com
  15. 15. The Nonprofit Banker nonprofitbanker.com
  16. 16. Why are Boards Crucial? • People give to people • The more involved, the greater the trust • Recently – People give to person • Charismatic Leader model is breaking down • USA – expense account scandals • ISRAEL – recent amutot scandalsThe Nonprofit Banker nonprofitbanker.com
  17. 17. Boards in USA & Israel Very different: Legal – YES Fundraising – YES Management – NO!The Nonprofit Banker nonprofitbanker.com
  18. 18. Nonprofit Finance Fund 2012 State of the Sector Survey •4th Straight Year: • Demand Continues to Rise • Funding Continues to Shrink •What does this mean for the Board?The Nonprofit Banker nonprofitbanker.com
  19. 19. Nonprofit Finance Fund 2012 State of the Sector Survey •In order to remain relevant • Meet increasing demand • Develop innovative solutions • Require Human Capital • (a.k.a. The Board)The Nonprofit Banker nonprofitbanker.com
  20. 20. Trust Twofold: •Donors trust in the organization, it’s staff, and it’s Board •The Board trusts and believes in the financial decisions of the organizationThe Nonprofit Banker nonprofitbanker.com
  21. 21. NP Business Model Statement Must consider financial viability and mission impact together!The Nonprofit Banker nonprofitbanker.com
  22. 22. NP Business Model Statement • Internal document • Describes what fuels the economic engine of the organization • More than listing all the types of funding • Strategy for financial sustainability • Reference guide for organizations focus & strategiesThe Nonprofit Banker nonprofitbanker.com
  23. 23. NP Business Model Statement • Ex: (Blue Avocado) • Food Bank: "We obtain donated food from businesses (85%) and individuals (15%), sorted and distributed largely by volunteers, and financially supported by individual donors and the community foundation.“ • Affordable Housing: "We build affordable housing for low-income people where government and developer fees are available."The Nonprofit Banker nonprofitbanker.com
  24. 24. Create an Involved Board Use Financial Transparency to connect to your Board •If I don’t understand • Then my opinion doesn’t count •If they take the time to explain • They see value in my opinionThe Nonprofit Banker nonprofitbanker.com
  25. 25. American “Friends Of” • USA org is separate & independent • BFF • Need transparency with all stakeholders • Place one of “their” people on the Board • While avoiding conflicts of interest • (Perhaps, vice versa too) • Who’s proving to whom who’s worthy?The Nonprofit Banker nonprofitbanker.com
  26. 26. Take-Away Use Financial Transparency to Increase Engagement & Trust InternallyThe Nonprofit Banker nonprofitbanker.com
  27. 27. The Nonprofit Banker nonprofitbanker.com
  28. 28. Financial Reports “The quality of financial decisions is directly related to the quality of the financial information.”The Nonprofit Banker nonprofitbanker.com
  29. 29. Financial Reports Should be: •Accurate and Consistent •Available soon enough to be of use in monitoring and planning •Understood in context of history & planning •Understood in relationship to programsThe Nonprofit Banker nonprofitbanker.com
  30. 30. Financial Reports Basic “Must-Have” Financial Information: •Balance Sheet •Income Statement •Annual Budget Understand not just the NUMBERS but the SIGNIFICANCE of the reportsThe Nonprofit Banker nonprofitbanker.com
  31. 31. Watch Out for “Flags” Yellow Flags •Income Statement • Short Term Red Flags •Balance Sheet • Short AND Long TermThe Nonprofit Banker nonprofitbanker.com
  32. 32. The Challenge • Balance Sheet is more important • Balance Sheet is harder to understand • Based on accounting terminology, standards, and rules Simply providing the reports isn’t good enough!The Nonprofit Banker nonprofitbanker.com
  33. 33. The Solution Narrative Explanations in conjunction with the Financial ReportsThe Nonprofit Banker nonprofitbanker.com
  34. 34. Income Statement Includes: •Income and Expense Reports for the accounting year •Can be compared to the BudgetThe Nonprofit Banker nonprofitbanker.com
  35. 35. Income Statement Create a Narrative that: •Relates to tracking progress and expense controls • Limited because of short time period •Alerts Board of big variances •Analyzes deficitsThe Nonprofit Banker nonprofitbanker.com
  36. 36. Balance Sheet Includes: •Assets • What the organization HAS • What are they? • How liquid? • Are there any restrictions?The Nonprofit Banker nonprofitbanker.com
  37. 37. Balance Sheet Includes: •Liabilities • What the organization OWES • What are they? • When are they due? • Long or short termThe Nonprofit Banker nonprofitbanker.com
  38. 38. Balance Sheet Includes: •Net Assets • What the organization is WORTH • Are assets greater than liabilities? • Has the organization accumulated surplus over time?The Nonprofit Banker nonprofitbanker.com
  39. 39. Balance Sheet Create a Narrative that: Demonstrates a cumulative effect of all financial activity Healthy Org Problematic Org Cash reserves Diminishing Cash Built-up assets Insufficient working capital Unrestricted net Diversion of restricted funds assets Too much restricted funds Reasonable debt Creeping debtThe Nonprofit Banker nonprofitbanker.com
  40. 40. Take-Away Narrative Explanations Of Financial ReportsThe Nonprofit Banker nonprofitbanker.com
  41. 41. The Nonprofit Banker nonprofitbanker.com
  42. 42. Reporting • See Reporting as an opportunity • Too much focus on secrecy and protecting • Lawyer in the USA: • How much are we forced to disclose? • Compare it to parenting • Maybe instinctive reaction should be “yes” unless proven otherwiseThe Nonprofit Banker nonprofitbanker.com
  43. 43. Internet • No longer need a printed copy • Post on charity’s website • Budget is no longer a restriction • Any organization of any size can compete for transparency • (Anyway, disclosure requirements are pretty minimal)The Nonprofit Banker nonprofitbanker.com
  44. 44. Control the Environment #1 Reasons to Post Financial Information •Agencies & Watchdogs are already posting • Have the Charity present the info • Frame it in a way that it constructive • You tell your story the best #2 – Mitigate against public criticismThe Nonprofit Banker nonprofitbanker.com
  45. 45. Control the Environment Which sites post financials? USA •Guidestar •Charity Navigator Israel •Registrar of Charities / Tax Authority •Guidestar •MidotThe Nonprofit Banker nonprofitbanker.com
  46. 46. The Bare Minimum Post government-required reports •USA – 990 •Israel – Financials & Narrative Report Official Financial Reports What, just the bare minimum?!? •But people don’t understand them •If the Board has trouble then certainly donors will tooThe Nonprofit Banker nonprofitbanker.com
  47. 47. Best Practices Charities Review Council of Minnesota •Within 3 clicks: • Financials • Leadership • Mission •Narratives should always be present • Don’t give people a chance to pass judgmentThe Nonprofit Banker nonprofitbanker.com
  48. 48. Franchise Rules Need to worry about Parent Charity AND Supporting Charities Potential Solution •Ex: Groups using your name need to maintain a minimum rating score In General, •Consider posting in two languagesThe Nonprofit Banker nonprofitbanker.com
  49. 49. Take-Away Control the Environment 3 Clicks Post Narratives TooThe Nonprofit Banker nonprofitbanker.com
  50. 50. Drama Queen Is all this really necessary? •Today, nothing is sacred • Not the people & not the causes •Still in early adoption phase - be a leader! •These trends will soon be in Israel •Fight the good fight! • Promote a better, professional sectorThe Nonprofit Banker nonprofitbanker.com
  51. 51. Examples The Jewish Federations of North American www.jewishfederations.orgThe Nonprofit Banker nonprofitbanker.com
  52. 52. Annual Report is easilyfound onorganization’shomepage. www.amutot.u-bank.net
  53. 53. Annual Report is housed in a separate website. Two clicks brings us to the Financials (Balance Sheet). Site takes advantage to make readily available organization’s mission & goals (see above navigator bar) while viewing the Financials.The Nonprofit Banker nonprofitbanker.com
  54. 54. Examples Nonprofits Assistance Fund www.nonprofitsassistancefund.orgThe Nonprofit Banker nonprofitbanker.com
  55. 55. The Nonprofit Banker nonprofitbanker.com
  56. 56. The Nonprofit Banker nonprofitbanker.com
  57. 57. Two clicks brings us to overflowing list of various Financial reports. Site takes advantage to make readily available organization’s Strategy (above & not shown) and History (bottom).The Nonprofit Banker nonprofitbanker.com
  58. 58. Annual Report is very narrative: Explains services offered, what money is used for & various accomplishments.The Nonprofit Banker nonprofitbanker.com
  59. 59. Annual Report is very narrative (continued): Provides both Balance Sheet & Income Statement and provides additional details of services offered (graph above).The Nonprofit Banker nonprofitbanker.com
  60. 60. Thank You Shuey Fogel, The Nonprofit Banker nonprofitbanker.com @nonrprofitbanker facebook.com/nonprofitbanker Photo Credits “Buzz Aldrin” by Scott Beale (Flickr) “Buzz Lightyear Air and Space” by Nasa HQ Photo (Flickr) “Buzz” by Sean MacEntee (Flickr) “Ripples” by Bill Gracey (Flickr)

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