The Forbes Funds Finance Matters-October 6, 2011


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  • Accuracy – ensure that data is entered into the system correctly and there are multiple checks and balances to eliminate possibility of error Reliability - ensures you can rely on reports generated by the financial system to make decisions with Security – ensure that adequate controls are in place to reduce the risk of fraud, theft
  • Most important preliminary safeguard to ensuring accuracy, reliability, security General policies and procedures – from 990 accounting department structure Conflict of interest Whistleblower Revenue and cash processing How cash, checks, credit cards are processed Contributions processed Billing/invoices In kind donations – recognition Purchasing and cash disbursements Purchases/purchase orders Accounts payable Employee expenses Travel, meals and entertainment Check preparation/signing Payroll Asset and liability account management Cash accounts: operational cash, reserves, etc and procedure for utilizing these funds Banking and bank reconciliation Investment policies Property, Equipment and depreciation Leases Notes payable Audit and tax reporting Filing of tax returns Unrelated business activities Auditor selection Budgeting and financial management Budget process Insurance requirements Government grants and contracts Board committee responsibilities Finance committee role Audit committee responsibilities Record retention and destruction Hard copies Software, backups etc Resource list – table of contents for P&P, McMillan internal controls checklist
  • Now – take 10 min and fill out the first section of the handout. Discuss with your group where you are strong and where you need improvement. Ask yourself the following questions:
  • Most important functions of chart of accounts – to track revenue and expenses by activity To differentiate between direct and indirect expenses Multi-dimensional classification – what does that mean? When entering a revenue or expense item, you use multiple fields to categorize an item
  • Most accounting programs allow for you to filter out revenue and expenses by class, job or other category if you utilize multiple fields
  • This is a potential model for an organization that has multiple locations, programs, and funding sources that require tracking. Once the standard chart of accounts is established using your major expense types (salaries, supplies, rent, etc.) There should be little reason to add any additional line items. Your organization may not be this complex – or could require additional fields See Unified Chart of Accounts – posted resource for more detail
  • Note: this method of coding: Requires you to add line items for each type of expense each time you add a new program Also does not allow for easy report generation without exporting into excel and doing quite a bit of cutting and pasting (leads to error!!!)
  • You may need more classifications depending on the complexity of your operations; or you may just want to classify by programs if your operations are relatively simple. This method of classification will also allow for easier allocation of overhead across programs by making journal entry adjustments (rather than having to make calculations outside of your accounting program.)
  • Accuracy – ensure that data is entered into the system correctly and there are multiple checks and balances to eliminate possibility of error Reliability - ensures you can rely on reports generated by the financial system to make decisions with Security – ensure that adequate controls are in place to reduce the risk of fraud, theft
  • If you have the right chart of accounts in place, this section will be a breeze.
  • Balance sheet – show your current financial position (assets and liabilities)’; a “snapshot” in time Budget vs. actual. Compares your profit and loss statement (also known as statement of activity) to your budget. A P&L by itself is not adequate to gauge progress. NOTE: make sure you compare your activity YTD to your budget YTD. It’s hard to look at an annual budget and do the math in your head to determine whether the org is on track. 1 Year Rolling Cash Flow: CRUCIAL. Projections can be done in a simple excel spreadsheet (will be posted online with resources) Cash flow statement (past activity – key distinction between statement and projection) Program/activity budgets and statements – it is crucial to know which of your programs/services/activities are sustained and which are not. OK to have a program with a deficit as long as its understood that the difference will have to be made up somewhere else or covered by unrestricted funds. Resource list: Sample board package – Fiscal Management Associates Cash flow projection/Contingency budget template – Nonprofit Assistance Fund – may be a bit complex
  • Fill out last section on questionnaire… discuss questions. Provide your questions for us to your consultant.
  • The Forbes Funds Finance Matters-October 6, 2011

    1. 1. Financial Management Series Organizational Systems and Controls October 6, 2011
    2. 2. Why Financial Management? <ul><li>Economic downturn has had a significant toll on our community and in turn the nonprofit sector. </li></ul><ul><li>Delays in reimbursements, reduced revenue sources and increased demand has placed organizations under increased stress. </li></ul><ul><li>Close monitoring and oversight of financials are critical in these uncertain times. </li></ul>
    3. 3. Why Financial Management? <ul><li>Decision-making through a financial lens is imperative </li></ul><ul><li>Understanding of organizational systems, data analysis and necessary skill sets is required for success </li></ul><ul><li>Series will give nonprofits knowledge necessary to manage their financials daily </li></ul>
    4. 4. Series Agenda <ul><li>Session 1: Organizational Systems and Controls </li></ul><ul><ul><li>Internal controls and compliance, financial infrastructure, reporting systems </li></ul></ul><ul><ul><li>Roles and responsibilities of key board and staff members </li></ul></ul><ul><li>Session 2: Data Analysis </li></ul><ul><ul><li>Interpreting financial statements </li></ul></ul><ul><ul><li>Dashboards </li></ul></ul><ul><ul><li>Ratios </li></ul></ul>
    5. 5. Partners <ul><li>Kate Sphar, Dewey & Kaye </li></ul><ul><li>Scott Leff, Bayer Center for Nonprofit Management </li></ul>
    6. 6. Session 1 Organizational Systems & Controls <ul><li>Internal Controls and Compliance </li></ul><ul><li>Financial Infrastructure </li></ul><ul><li>Your Reporting System </li></ul><ul><li>Roles & Responsibilities </li></ul>
    7. 7. Internal Controls and Compliance <ul><li>Accuracy </li></ul><ul><li>Reliability </li></ul><ul><li>Security </li></ul>
    8. 8. Internal Controls and Compliance <ul><li>POLICIES & PROCEDURES </li></ul><ul><ul><li>Revenue and cash processing </li></ul></ul><ul><ul><li>Purchasing and cash disbursements </li></ul></ul><ul><ul><li>Asset and liability account management </li></ul></ul><ul><ul><li>Audit and tax reporting </li></ul></ul><ul><ul><li>Budgeting and financial management </li></ul></ul><ul><ul><li>Government grants and contracts </li></ul></ul><ul><ul><li>Board committee responsibilities </li></ul></ul><ul><ul><li>Record retention and destruction </li></ul></ul>
    9. 9. Internal Controls and Compliance <ul><li>QUESTIONS: </li></ul><ul><ul><ul><li>Are we confident in our controls, policies and procedures? </li></ul></ul></ul><ul><ul><ul><li>Where could we improve? </li></ul></ul></ul><ul><ul><ul><li>What resources do we need to help us make improvements? </li></ul></ul></ul>
    10. 10. Financial Infrastructure <ul><li>Chart of Accounts </li></ul><ul><ul><li>Track revenue and expenses by activity </li></ul></ul><ul><ul><li>Differentiate between direct program and indirect expenses </li></ul></ul><ul><li>Multi-dimensional classification </li></ul><ul><ul><li>By program </li></ul></ul><ul><ul><li>By cost center </li></ul></ul><ul><ul><li>By “class or job” </li></ul></ul><ul><ul><li>By funding source </li></ul></ul>
    11. 11. Financial Infrastructure <ul><li>Benefits of multi-dimensional coding </li></ul><ul><ul><li>Detailed tracking by program or activity </li></ul></ul><ul><ul><li>Allows for more detailed reports about financial impact of programs/activities </li></ul></ul><ul><ul><li>Less time spent by staff on reporting tasks </li></ul></ul>
    12. 12. Financial Infrastructure Sample Chart of Accounts Standard Chart of Accounts First Classification Second Classification Third Classification 1000-1999 Assets 2000-2999 Liabilities 3000-3999 Net Equity/Assets 4000-6999 Revenues Location G&A Program Funding Source 7000-9999 Expenses Location G&A Program Funding Source
    13. 13. Financial Infrastructure <ul><li>7500 – Supplies </li></ul><ul><ul><li>7501 – Supplies: Drug & Alcohol </li></ul></ul><ul><ul><li>7502 – Supplies: Mental Health </li></ul></ul><ul><ul><li>7503 – Supplies: Youth Services </li></ul></ul><ul><ul><li>7504 – Supplies: Education </li></ul></ul>Example of Inadequate Coding Scheme
    14. 14. Financial Infrastructure <ul><li>For supplies for a youth program offered in Wilkinsburg as part of a grant from DHHS for 2011 fiscal year: </li></ul><ul><li>7501-03-017-DHHS11 </li></ul><ul><li>Line item 7501 – Supplies </li></ul><ul><li>First classification 03 – Wilkinsburg Branch </li></ul><ul><li>Second classification 017 – Youth Services </li></ul><ul><li>Third Classification DHHS11 - 2011 DHHS Grant </li></ul>Example Coding Scheme
    15. 15. Financial Infrastructure <ul><li>QUESTIONS: </li></ul><ul><ul><ul><li>Are we confident that our chart of accounts and coding mechanisms accurately reflect our activity? </li></ul></ul></ul><ul><ul><ul><li>Where could we improve? </li></ul></ul></ul><ul><ul><ul><li>What resources do we need to help us make improvements? </li></ul></ul></ul>
    16. 16. Reporting System <ul><li>Financial Statements </li></ul><ul><ul><li>Provide financial information for stakeholders </li></ul></ul><ul><ul><ul><li>External (regulators, lenders) </li></ul></ul></ul><ul><ul><ul><li>Internal (management team, department managers, shareholders, board of directors) </li></ul></ul></ul><ul><ul><li>Show the financial condition of the organization </li></ul></ul><ul><ul><li>Standardized accounting conventions make it possible to look at an organization over time and to compare to other organizations </li></ul></ul>
    17. 17. Reporting System <ul><li>What financial statements should be generated by my reporting system, and how often? </li></ul>Report Frequency For Whom? Balance Sheet (Statement of Financial Position) Monthly Board & staff Budget v. Actual Statement Monthly Board & staff 1-Year Rolling Cash Flow Projection At least monthly Board & staff Cash flow statement Monthly or weekly (depending on need) Staff, Finance Committee Program/activity statements At least quarterly Staff, Finance Committee
    18. 18. Cash Flow Projections Sample Six-Month Cash Flow Calculation
    19. 19. Program Tracking Sample Program/Activity Statement
    20. 20. Reporting System <ul><li>QUESTIONS: </li></ul><ul><ul><ul><li>Are we confident that we are generating accurate, reliable and useful reports? </li></ul></ul></ul><ul><ul><ul><li>Where could we improve? </li></ul></ul></ul><ul><ul><ul><li>What resources do we need to help us make improvements? </li></ul></ul></ul>
    21. 21. Financial Roles at a Glance
    22. 22. Financial Dos and Don’ts <ul><li>Boards should: </li></ul><ul><ul><ul><li>Review and approve budget and financial reports </li></ul></ul></ul><ul><ul><ul><li>Oversee budget development process </li></ul></ul></ul><ul><ul><ul><li>Oversee audit and financial statement preparation </li></ul></ul></ul><ul><ul><ul><li>Develop financial strategy with management </li></ul></ul></ul><ul><ul><ul><li>Review internal controls and investment policies </li></ul></ul></ul><ul><li>Staff should: </li></ul><ul><ul><ul><li>Develop financial reports </li></ul></ul></ul><ul><ul><ul><li>Provide information and assistance to board and auditors </li></ul></ul></ul>
    23. 23. Financial Dos and Don’ts <ul><li>Boards should not: </li></ul><ul><ul><ul><li>Manage day-to-day financial operations </li></ul></ul></ul><ul><ul><ul><li>Develop financial reports or budget </li></ul></ul></ul><ul><ul><ul><li>Hire and supervise staff </li></ul></ul></ul><ul><li>Staff should not: </li></ul><ul><ul><ul><li>Implement budget, controls or policies without approval from the board </li></ul></ul></ul><ul><ul><ul><li>Assign all financial duties to a single staff member </li></ul></ul></ul>
    24. 24. Financial Skills and Expertise <ul><li>Valuable skills & expertise </li></ul><ul><ul><li>Bookkeeping and basic accounting </li></ul></ul><ul><ul><li>Certified Public Accountant </li></ul></ul><ul><ul><ul><li>Audit </li></ul></ul></ul><ul><ul><ul><li>Tax preparation </li></ul></ul></ul><ul><ul><li>Nonprofit finance </li></ul></ul><ul><ul><li>Nonprofit management </li></ul></ul><ul><ul><li>Legal </li></ul></ul><ul><ul><li>Banking/investments </li></ul></ul>
    25. 25. Discussion Questions <ul><li>Are board and staff performing appropriate duties? </li></ul><ul><li>Have we separated financial duties as much as possible given our human resources? </li></ul><ul><li>What steps can we take to ensure both staff and board have the right skills to manage our finances? </li></ul>
    26. 26. Session 1 Organizational Systems & Controls <ul><li>Questions? </li></ul>
    27. 27. Finance Matters Cohort <ul><li>Outcome: </li></ul><ul><ul><li>Participant organizations will be financially and structurally strengthened within a year after the start of the cohort . </li></ul></ul><ul><li>Who Should Apply: </li></ul><ul><ul><li>Organizations that have identified improved financial systems and process as a priority. </li></ul></ul><ul><li>Deadline: </li></ul><ul><ul><li>October 28, 2011 at 5:00pm </li></ul></ul><ul><li>Timeline: </li></ul><ul><ul><li>Site Visits in November </li></ul></ul><ul><ul><li>Peer Learning Sessions January – April 2012 </li></ul></ul>
    28. 28. Thank You! <ul><li>Staci Brogan Susan E. Maloney </li></ul><ul><li>Garrett Cooper Howard B. Slaughter, Jr. </li></ul><ul><li>Kyle M. Fisher Geoffrey Stillson </li></ul><ul><li>Ben Hodes Sheila Washington </li></ul><ul><li>Angela Lucente-Prokop </li></ul>
    29. 29. Future Sessions <ul><li>Data Analysis </li></ul><ul><li>October 20, 2011 </li></ul>