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Achieving Nonprofit Financial Health


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Don’t lose sight of your mission by losing control of your finances! A nonprofit organization’s financial health depends on precise execution of the key components of an annual operating cycle. This session will leave you with a comprehensive grasp of how to develop your nonprofit organization’s financial health, thus supporting the life of your mission.

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Achieving Nonprofit Financial Health

  1. 1. WELCOME!Achieving Nonprofit Financial Health,featuring Cheryl Black
  2. 2. Our Speaker Cheryl Black Chief Financial Officer Texas Association of Nonprofits Cheryl has 29 years of experience working within nonprofit organizations as a volunteer, board member, fund-raiser, donor, independent auditor, consultant, seminar speaker, controller and executive director. In addition to working at TANO Cheryl serves on the Audit Review Committee for United Way Capital Area and as grant reviewer for the AmeriCorps State Grant Competition. Cheryl has a B. S. in Business Administration from the University of Nebraska - Kearney and a State of Nebraska CPA certificate. 2
  3. 3. Agenda– Differences between non-profit and for-profit organizations – FASB requirements– Setting up systems and getting started • Chart of accounts • Accounting software • Basic financial statements • Establishing good internal controls
  4. 4. • Annual Operating Cycle – Budget preparation – Monthly Activities • Closing the books • Working with the Board and other departments • Investment and Cash Management – Year end closing • Audit, Review or Compilation • Management Letter – Reporting requirements • Form 990 Tax return • Single Audit A-133 • Payroll reports
  5. 5. Differences Between Non-profit &For-profit Organizations
  6. 6. • FASB 117 - “Financial Statement of Non- Profit Organization” – Statement of Financial Position – Statement of Activities – Statement of Functional Expenses – Statement of Cash Flows – Financial Statement Disclosures – Accrual Basis of Accounting
  7. 7. • Disclose – In Statement of Activities or – In the footnotes• Functional Classifications – Program services – Management and general – Fundraising
  8. 8. • Definitions – Accrual – Cash – Modified Cash• Factors to consider when choosing – Few payables or receivables – Expertise and time constraints on bookkeeping staff – Budget size
  9. 9. • FASB 116 - “Accounting for Contributions Received and Contributions Made” – Recognized as revenues in period received – Recorded as either restricted or unrestricted revenue (donor imposed conditions)
  10. 10. • In-Kind Contributions – Donor sets value, not non-profit – Shows true cost to operate the organization – IRS does not allow in-kind services or facility rental to be deducted from Form 990 tax return
  11. 11. • Special Events and Membership Dues – Fund-raiser attendees often receive a tangible benefit in return – Membership dues may entitle individuals to benefits – The portion of ticket or dues which represents the fair market value of the benefit received is NOT tax deductible – Minimal benefits are excluded – Non-profit required to send letters to donors re: amount that may be taken as tax deduction
  12. 12. • IRS Publication 1771 - “Charitable Contributions - Substantiation and Disclosure Requirements”
  13. 13. • FASB 124 - “Accounting for Certain Investments Held by Not-for-Profit Organizations” – Investments be reported at fair market value – Gains and losses be included in a statement of activities
  14. 14. • FASB 93 - “Recognition of Depreciation by Not- for-Profit Organizations” – Recognize the cost of using up long-lived tangible assets (depreciation) – Exceptions • Certain works for art • Certain historical treasures
  15. 15. Setting up Systems and Getting Started
  16. 16. Chart of Accounts - Design Planning• A tool used to code all the transactions that will be recorded in the accounting records.• The accounts set up here are then consolidated into the financial statement presentation.• If not well thought out, the financial statements will be less effective as a management tool in making decisions about the future of the organization.
  17. 17. Chart of Accounts - Design Planning– Decisions to make – • Unified Chart of Accounts (UCOA) • Numbered accounts – Usually follow standard industry practice » 100 Assets » 200 Liabilities » 300 Net Assets (Fund Balance) » 400 Revenue » 500+ Expenses
  18. 18. • Overall Considerations – Most important features – Cost – Off the shelf or customized – Number of modules – Training of accounting staff – Maintenance contract – Specialized non-profit packages vs. general accounting packages – Compatible with rest of applications
  19. 19. Basic Financial Statements Statement of Activities• Commonly known as the “Income Statement”• Is the cumulative total of revenue and expense activity for the current annual operating cycle – Calendar year – Fiscal year• Management focuses on this statement more than the Statement of Financial Position (Balance Sheet)
  20. 20. Basic Financial Statements Statement of Functional Expenses• Is the breakdown of “natural” expenses into “functional” categories. – Admin and general (or overhead) – Programming – Fundraising• Is closely linked to the Statement of Activities (Income Statement)• Can be a supplement report or an audit footnote
  21. 21. Basic Financial Statements Statement of Financial Position• Commonly known as the “Balance Sheet”• Is a snapshot of the financial position of the organization on a certain day• Consists of three main categories – Assets (what you own) – Liabilities (what you owe) – Net Assets (what the organization is worth)• Independent auditors focus on this statement more than the Statement of Activities (Income Statement)
  22. 22. Basic Financial Statements Statement of Cash Flows• Commonly known as the “Change in Financial Position”• Breaks down the use of cash into three different activities – Operations – Investing – Financing• Lets the reader know exactly where the organization received and spent cash during the period
  23. 23. Internal Controls – Overview• Main objectives include - – Safeguarding assets – Promoting efficiency in operations – Enhancing reliability and completeness of financial reporting – Minimizing the risk of misuse or abuse of the organization’s resources
  24. 24. Internal Controls – Overview (cont’d.)• Nonprofits at greater risk for fraud? – An atmosphere of trust – Many cash donations (difficult to control) – Limited availability of qualified staffing resources (salary constraints) – Mixture of volunteers and employees with lack of business/financial experience involved in operations – Volunteer Board of Directors (decision makers)
  25. 25. • Segregation of Duties – No financial transaction is handled by only one person
  26. 26. • Policies and Procedures – Established way of doing business that ensures public confidence – Maintains integrity of your organization and its assets – But does not inhibit your ability to get your daily work done – Assists with training new employees – Prevents fraud
  27. 27. Annual Operating Cycle
  28. 28. • Overall significance – Used to monitor success of goals – Used to show strength of plan• Detailed Plan – Choose format and tool (how) – Choose level of staff/Board participation (who) – Commit to a time line for completion (when)
  29. 29. • Detailed Process – Begin with upcoming year goals – Translate those into resources needed and expense outlays to carry them out – Balanced budget - yes or no • Board policy in place to be followed • Deficit • Surplus – Review during the operating year
  30. 30. • Generating monthly financial statements – Policy for month-end closing• Working with others – Board and committees – Other departments within organization
  31. 31. • Investment management – Investment policy – Investment spending policy• Cash management – Cash flow shortage policy – Cash flow surplus policy
  32. 32. • Compilation – Information just “compiled” by outside accounting firm – Uses standard form of financial statement presentation – Provides no opinion or assurance that the information is reliable – Cost is minimal
  33. 33. • Review – Limited examination of the organization’s financial statements – Limited testing – Provides limited assurance on the reliability of the information presented – Cost is much less than audit
  34. 34. • Audit – Process for testing the accuracy and completeness of information presented in the organization’s financial statements – Completed by independent CPA’s – An “opinion” issued on how fairly the financial position has been presented – If financial statements comply with GAAP
  35. 35. • Audit report - consists of – Auditors opinion letter (qualified or unqualified) – Required Financial Statements – Required Notes to the Financial Statements• Management letter – Informs organization of ways to improve their internal control processes and day to day management
  36. 36. Form 990 Reporting Overview• Purpose for filing with IRS – Required information for statistics and tracking – not a “tax return” – Have information available for public inspection – May be primary or only source of information available to the public – IRS cleaning up their database• When to file – 15th day of 5th month after close of fiscal year
  37. 37. Form 990 Reporting Overview Who Must File 2007-2009 Rules • Organizations with gross Old Rules receipts <$25K per year –• Organizations with gross receipts <$25K per year – 2010 Rules • No filing requirements • Organizations with gross receipts <$50K per year – • Required to file electronic notice • “e-Postcard” or Form 990-N
  38. 38. Changes Since 2007• Form 990-N – Filing • Log in to • Click on “Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard) – Failure to file for three consecutive years will result in revocation of tax exempt status
  39. 39. Old Rules 2008 Rules• Organizations with • Organizations with – Gross receipts between $25K – Gross receipts >$25K but <$l M and $100K – Total assets <$2.5 M – Total assets <$250K at year • File Form 990-EZ end • Can elect to file Form 990 • File Form 990-EZ and schedules • Could elect to file Form 990
  40. 40. Changes Since 2007 (cont’d.)• Form 990-EZ – Has not been redesigned, but changes have been made – Review Schedules A, B, C, E, G and L and determine if they apply to your organization
  41. 41. Old Rules 2008 Rules• Organizations with • Organizations with – Gross receipts > $100K – Gross receipts >$l M – Total assets >$250K at year – Total assets >$2.5 M end • Required to file Form 990 • Required to file Form 990
  42. 42. 2009 Rules • Organizations with Old Rules – Gross receipts >$500K• Organizations with – Total assets >$1.25 M – Gross receipts > $100K • Required to file Form 990 – Total assets >$250K at year end • Required to file Form 990 2010 Rules • Organizations with – Gross receipts >$200K – Total assets >$500K • Required to file Form 990
  43. 43. Changes Since 2007 (cont’d.)• Form 990 – Revised for fiscal years beginning in 2008 – Last revision was in 1979 – More questions about governance – Instructions include “Sequencing List” – Format • Core form with eleven parts – Part IV – Checklist of Required Schedules • Sixteen schedules
  44. 44. Form 990 List of Schedules• A-Public Charity Status and • I-Grants and Other Assistance to Orgs, Public Support Gov’t., and Individuals• B-Schedule of Contributors • J-Compensation Info• C-Political Campaign and • K-Supplemental Information for Tax- Lobbying Activities Exempt Bonds• D-Supplemental Financial Statements • L-Transactions with Interested Persons• E-Schools • M-Non-Cash Contributions• F-Statement of Activities • N-Liquidation, Termination, Dissolution Outside the US • O-supplemental Information to Form 990• G-Supplemental Info Regarding Fundraising or Gaming • R-Related Organizations and Unrelated Activities Partnerships• H-Hospitals
  45. 45. • Circular A-133 single audit report – $500,000 or more in federal awards expended in any fiscal year – Audited annually – Available for public inspection – Auditee duties • Schedule of Expenditures of Federal Awards • Maintain internal controls
  46. 46. • Payroll reporting – Quarterly (941) reports – Annual (940) reports – W-2’s – 1099’s
  47. 47. • Unrelated Business Income Tax (UBIT) – Regularly carries on a trade or business – Not substantially related to its exempt purpose – IRS Publication 598 - Tax on Unrelated Business Income of Exempt Organizations
  48. 48. Please type in chat window online.
  49. 49. Contact Information• Connect with the Texas Association of Nonprofit Organization’s at . You can also contact Cheryl via email at cheryl<at>tano<dot> com.• Connect with Sage – Email nps <at> sage <dot> com – Download the presentation and handouts from – Read our blog, – Like us on Facebook, – Follow us on Twitter, – Join the discussion in our group on LinkedIn. – Watch and follow on YouTube, – Pin with us on 49