2. 2 Cerini & Associates, LLP - NFP Advisor Cerini & Associates, LLP - NFP Advisor 3
Where do you want your organization to be in three to five
years from now? That question can be answered with a
strategic plan. A strategic plan is a document outlining the
objectives that an organization wants to achieve during
the next few years and describes the process for how the
organization plans to allocate its resources in order to
achieve those objectives. Whether the objectives are
driven towards increasing financial stability, improving
programmatic operations or a combination of both, a
strategic plan can be the map to guide the organization to
those objectives. The organization’s Board of Directors
and management work together to draft a strategic plan
that is then formally adopted by the Board of Directors.
What should be considered when drafting a strategic
plan? During the brainstorming process, this should
include identifying the current and future needs of
the organization (i.e. has there been an increase in
the demand for service? Is there a need to expand or
introduce new programs? Is there a future project that
the organization needs to take on and how should
it reach out to its donor base for restricted funding,
should the organization consider a merger/acquisition
strategy, etc…). Also, during this process, consider
if the organization attempted to attain these needs in
the past and if so, consider the events that occurred
and whether or not those events were beneficial to the
organization. Then, based on the matters discussed, set
realistic objectives. Some examples of those objectives
would include: adjusting resources to accommodate
changes or expected changes to demand in service of
the organization’s programs, introduce new or expand
current programs, tap into new funding streams (increase
discretionary funding), and establish or increase the
growth of a reserve or endowment fund. Establishing an
endowment or reserve fund can be extremely beneficial
to an organization during times of limited cash flow.
Now that the organization’s objectives are set, the next
step is to determine the steps that need to be taken in
order to accomplish the objectives. As mentioned above,
the strategies need to be realistic for the organization
to carry out. Does the organization have the resources
to attain the objectives? Once the strategic plan is
approved by the organization’s Board of Directors, it’s
the responsibility of both the Board of Directors and
management to ensure the organization is on track to
meeting the objectives. This should be discussed at the
Board of Director meetings a few times during the year
or at least on an annual basis. Evaluating the actions
that the organization has taken and just how on target
the organization is to reaching the objectives will help to
determine the likeliness of attaining the objectives and
whether or not the strategic plan should be modified to
ensure the objectives can be met.
Having a strategic plan is beneficial to an organization.
It indicates that management and the Board of Directors
are proactive in looking into the future success of the
organization.
Strategic Planning
A Word from the Editor, Ken Cerini
Editor
Ken Cerini, CPA, CFP,
DABFA
Cerini & Associates, LLP
Managing Partner
Associate Editors
Lisa Epstein, CPA
Cerini & Associates, LLP
Director of Audit
Lula Lukasiewicz
Cerini & Associates, LLP
Marketing Coordinator
Writers
Jeff Scott, CPA
Cerini & Associates, LLP
Staff III Accoountant
Lisa Epstein, CPA
Cerini & Associates, LLP
Director of Audit
Page Layout & Design
Michael Feeney
Cerini & Associates, LLP
Marketing Assistant/Graphic Artist
Contributors
3340 Veterans Memorial Hwy
Bohemia, N.Y. 11716
631-582-1600
www.ceriniandassociates.com
Welcome to the Spring/Summer 2015 edition of the NFP Advisor, the newsletter geared to
help nonprofit organizations operate more effectively. If you play in the nonprofit space, you
know that things are heating up. We are seeing an uptick in merger talks as organizations try
to make up for government cutbacks and the movement towards managed care. In addition,
it seems like regulatory audits are on the rise, with special education and OPWDD waiver
funded agencies assured of being audited over the next few years, and increased OSC, OMIG,
OASAS, and other audits being issued at a rapid pace.
With Executive Order 38, and the inability for organizations to spend on infrastructure, it is
making it much more difficult for organizations to maintain appropriate control environments.
This makes it very hard for small community based organizations, the life-blood of the LI
nonprofit sector, to make ends meet.
In this issue of the NFP Advisor, there are articles on:
• Strategic Planning – Organizations need to get out of crisis management and be forward
thinking if they are going to flourish in the sector
• Survey Benchmarking – We look at what you can learn from the most recent nonprofit
survey
• Succession Planning – With the greying of nonprofit leadership, is your organization
prepared for the next generation of leadership
• Surviving a Regulatory Audit – It’s no longer an issue of if you will be audited it’s a matter
of when, are you prepared
We are here as a resource, if you have questions about something you’ve read, or anything that
is impacting your agency, please feel free to call us, we want to help.
Also, our nonprofit seminar will be on June 30, 2015 from 8 am to 1 pm at the Upsky Long
Island Hotel on Vanderbilt Motor Parkway in Hauppauge. The seminar will include accounting
and legal updates, a discussion on regulatory audits, a discussion on nonprofit mergers, and
more. We look forward to seeing you there. To register, e-mail Lula Lukasiewicz at
lulal@ceriniandassociates.com.
Sincerely,
Tania Quigley
Cerini & Associates, LLP
Supervisor
Elizabeth Crowe
Cerini & Associates, LLP
Tax Staff
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been similar or would you have fared better or worse?
There are multiple approaches that auditors will take in
looking at your operations and trying to recoup funds.
The key will hinge on how you are funded. If you receive
deficit funded payments (cost-based reimbursement), the
focus of the audit will be on the costs you charged to
the grant/funding stream, are these costs permissible,
were they done in accordance with your funding
stream’s regulations, were the allocation methodologies
appropriate and supportable by generally accepted
accounting principles, and do you have appropriate
substantiation to support your expense claims. If, on the
other hand, you are funded on a fee for service basis,
the audit approach will be more of a compliance based
approach, focused on specific rules and regulations and
required documentation that needs to be performed
in order for your claim to be valid. Things like
signatures, reviews, log notes, dates of service, etc. are
all going to be properly documented. In either event,
one thing is certain, if your information is not properly
documented, the costs or services will be disallowed.
I have heard more than one auditor mutter, “if it isn’t
documented it didn’t occur.” Utilize your internal audit
department or your quality control folks to do a mock
audit and check that all documentation is appropriate.
When a governmental agency comes in to perform an
audit, they will request a lot of information, and provide
you with a short period of time to gather it. Your ability
to appropriately pull the necessary information will
be directly linked to the strength of your systems and
controls. If you have strong systems, all your files will
be easy to find, they will be consistent, you will have
information in the format requested by the auditors,
and policies in place … such as allowable cost policies,
allocation methodologies, bids and quotes policies, etc.
If on the other hand, your systems are weaker, it will
be harder to find information, your data will not be
consistent, you won’t have support for your activities,
and this could result in take-backs by the auditors.
In order to prepare yourself for an audit, you should
consider the following:
One thing is pretty
much for certain,
that is if you receive
government funding,
at some time you
will be audited. It is
no longer a matter
of if, it is now a
matter of when. If
you are funded by the
NY State Education
Department, you know
the OSC (the Office of the
State Comptroller) will arrive
sometime before the end of 2018.
If you receive OPWDD waiver
funding, your time frame is shorter;
probably sometime over the next 12
months or so. OASAS, OMH, the Office
of the Medicaid Inspector General, the OAG,
and the Department of Health are all active on the audit front,
as are many local county funders. With everyone looking over your
shoulder, how do you get prepared for when that letter actually comes?
At this point, audits are not new. When you get selected, you should not be
blazing new ground. Most of the regulators have given you a roadmap to
help prepare you. The key is to know where to look. Visit your funder’s
websites. Most of them have audit protocols, questionnaires, checklists, and
other tools that you can utilize to test your audit preparedness. Go through
them and do a self-audit. You should also download copies of audit reports
issued on agencies similar to yours and gain an understanding of the nature
of the findings. If you had been the one audited, would the findings have
Surviving a Regulatory
Audit
1) Stalk the OSC, OMIG, and your funders’
websites for reports issued. Review these re-
ports to get a feel for what they are looking at
and see if your agency would have a similar
problem.
2) Download audit protocols and use it as a
checklist to get your house in order.
3) Put together a formal accounting policy and
procedural manual which includes among
other things, an allocation policy, an allow-
able cost policy, purchasing policies, conflict
of interest policies, and more.
4) Ensure that you have proper documentation to
support your operations. Things like sign-in
sheets, time studies, salary agreements, con-
tractor agreements, and other support should
all be in place.
5) Familiarize yourself with your funding
stream’s regulations … whether it’s the claim-
ing manual, cost reporting regulations, grant
agreement, etc. Ensure that you are in com-
pliance with these regulations.
6) If you have multiple programs or operations,
make sure that your allocation methodologies
are in accordance with regulatory guidelines,
are supportable, are appropriate, and are doc-
umented.
7) Ensure all related party transactions are prop-
erly documented and considered for reim-
bursement.
8) Make sure you include your fiscal, compli-
ance, and program staff in the process of pre-
paring for an audit.
If you take the proper steps up front to prepare
yourself for when the audit comes, put proper controls
in place, learn from others that have paved the way
by being audited already, you won’t necessarily have a
clean audit, but you will greatly reduce the impact of
givebacks when the audit starts.
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Many nonprofit organizations find themselves in crisis
mode when their Executive Director or a board member
leaves unexpectedly. That is where proper succession
planning can be a lifesaver. Succession planning is
critical to maintaining continuity of leadership in
nonprofit organizations. Nonprofit organizations need to
have a plan in place for transitions, whether they occur
due to an unexpected vacancy of a staff or board position
or the anticipated departure of a long-tenured leader.
Succession is a topic that should be discussed even if no
one is anticipating a change in leadership. Organizations
rely heavily on their staff to fulfill their mission, provide
services, and meet their goals. They need to think about
what would happen to those services and the ability for
the organization to fulfill its mission if a key staff member
leaves.
Who is responsible for planning for these transitions?
Both the board of directors and the Executive Director
play key roles in succession planning. The board is
responsible for planning for the succession of the Executive
Director position while the Executive Director ensures a
succession plan is in place for other key positions within
the organization.
Whenever possible, a succession plan should involve
developing employees from within the organization.
This will ensure that there are qualified and motivated
employees who are able to take over should the need arise.
This may not always be possible for smaller nonprofits.
Similarly, it may not be possible to groom a successor
from within the organization for the Executive Director
position. In this situation, staff should be cross-trained to
ensure that at least two people know the job well enough
to fill in while a new Executive Director is located.
Here are some helpful tips for successful succession
planning:
• Ensure that top management and the board engage
in the succession planning process.
• Review and update the succession plan regularly.
• Develop procedures manuals for important
tasks carried out by each key position within the
organization.
• Identify successors early in the process to ensure the
smoothest possible transition for the organization.
• Remember that the succession plan is a direct
reflection of the organization.
Organizations need to keep in mind that no matter how
well or how far in advance they plan, even the best laid
plans are not fool proof. Something could happen that
the organization was not prepared for or did not address
in their plan. Therefore, succession plans need to be
flexible enough to adapt to these unforeseen obstacles.
A well-designed succession plan shows the organization’s
clients, funders, and employees that the organization is
committed to and able to provide excellent programs
and services at all times, even during times of transition.
in the
NONPROFIT
WORLD
SUCCESSION
PLANNING
Non-profits face many challenges in today’s financial
environment including the needs to increase self-
sufficiency, maintain transparency, attract donors, and
follow more stringent regulations. In order to overcome
these obstacles, the organizations’ leaders must analyze
their current operations and plan effectively for the
future. It is important for non-profits to understand the
composition of their revenues and expenses and this
information can aid immeasurably in decision making.
Similarly, organizations should have procedures in place
to evaluate their effectiveness in achieving their mission.
Two effective tools that can assist non-profits to analyze
their operations and increase their efficiencies include
financial ratio analysis and survey benchmarking.
Ratio analysis allows organizations to analyze trends
over time and to compare their performance to similar
non-profits. Perhaps the best part of ratio analysis is that
there is no need to compile additional information; all of
the information needed is in the organization’s financial
reports. Keep in mind, however, that a single ratio in
isolation will not provide the whole picture, but looking
at all of the ratios together and over time can provide a
multitude of useful information that will be very helpful
when strategizing for the future.
Two key ratios that non-profits should examine include the
program efficiency ratio and the defensive ratio. Arguably,
the most important ratio for getting donors excited is the
program efficiency ratio. This ratio looks at how much
money the organization spends on its mission as opposed
to administrative and fundraising expenses. To calculate
the program efficiency ratio, take the total amount spent
on program services and divide by total expenses. The
closer this ratio is to one, the more confident potential
donors will be when contributing to the organization’s
cause. If the ratio is much lower than one, it is possible
that the organization is not managing its funds efficiently
and that non-program expenses are too high, or it could
mean the agency is not properly classifying expenses.
The defensive ratio is another important ratio because it
allows organizations to calculate how many months they
could remain in operation if their revenues were to stop
or decline dramatically. To calculate the defensive ratio,
take the sum of the organization’s liquid assets including
cash, receivables, and securities, and divide by the
organization’s average monthly expenses. It is advisable
to always have high enough liquid assets to be able to
sustain operations for three to six months.
Survey benchmarking is another excellent tool and it helps
organizations to understand how others perceive them
over time. Survey benchmarking begins with conducting
a survey of a target audience. The survey questions can be
targeted to any specific area including customer service,
community impact, and general perception to name a few.
Once the results are collected, the organization should
review them and determine the areas that they wish to
improve. After the organization has taken the appropriate
actions to improve the selected areas, they re-survey
the population and can see whether their results have
improved. By conducting surveys on an ongoing basis,
an organization can ensure that it is constantly improving.
When used to track progress over time and to indicate
areas of change and success, ratio analysis and survey
benchmarking can be great tools to keep organizations
self-aware and ever improving. The benefits of these tools
may also translate into more confident donors, higher
revenues, and better managed expenses. There are many
other tools that can help non-profits to grow and prosper
and these two are just the tip of the iceberg.
