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Smart Strategies for Great Financial Management<br />Texas Nonprofit Summit<br />September 9, 2011<br />Presented by Chery...
Introductions and Class Survey<br />Plan for the session<br />Participation<br />Questions<br />Review the outline<br />Co...
Achieving Nonprofit Financial Health <br />Differences between non-profit and for-profit organizations – FASB requirements...
Annual Operating Cycle<br />Budget preparation<br />Monthly Activities<br />Closing the books<br />Working with the Board ...
Differences Between <br />Non-profit <br />&<br />For-profit Organizations<br />
FASB Requirements<br />FASB 117 - “Financial Statement of Non-Profit Organization”<br />Statement of Financial Position<br...
Functional Expenses<br />Disclose<br />In Statement of Activities or<br />In the footnotes<br />Functional Classifications...
Accrual, Cash or Modified Cash Accounting<br />Definitions <br />Accrual<br />Cash<br />Modified Cash<br />Factors to cons...
FASB Requirements (continued)<br />FASB 116 - “Accounting for Contributions Received and Contributions Made”<br />Recogniz...
Accounting for Contributions<br />In-Kind Contributions<br />Donor sets value, not non-profit<br />Shows true cost to oper...
Accounting for Contributions(continued)<br />Special Events and Membership Dues<br />Fund-raiser attendees often receive a...
Accounting for Contributions(continued)<br />IRS Publication 1771 -  “Charitable Contributions - Substantiation and Disclo...
FASB Requirements (continued)<br />FASB 124 - “Accounting for Certain Investments Held by Not-for-Profit Organizations”<br...
FASB Requirements (continued)<br />FASB 93 - “Recognition of Depreciation by Not-for-Profit Organizations”<br />Recognize ...
Setting up Systems <br />and <br />Getting Started<br />
Chart of Accounts - Design Planning<br />A tool used to code all the transactions that will be recorded in the accounting ...
Chart of Accounts - Design Planning<br />Decisions to make –<br />Unified Chart of Accounts (UCOA)<br />Numbered accounts<...
Accounting Software<br />Overall Considerations<br />Most important features<br />Cost<br />Off the shelf or customized<br...
Basic Financial Statements<br />Statement of Activities<br />Commonly known as the “Income Statement”<br />Is the cumulati...
Basic Financial Statements<br />Statement of Functional Expenses<br />Is the breakdown of “natural” expenses into “functio...
Basic Financial Statements<br />Statement of Financial Position<br />Commonly known as the “Balance Sheet”<br />Is a snaps...
Basic Financial Statements<br />Statement of Cash Flows<br />Commonly known as the “Change in Financial Position”<br />Bre...
Internal Controls – Overview <br />Main objectives include -	<br />Safeguarding assets<br />Promoting efficiency in operat...
Internal Controls – Overview (cont’d.)<br />Nonprofits at greater risk for fraud?<br />An atmosphere of trust<br />Many ca...
Establishing Good Internal Controls<br />Segregation of Duties<br />No financial transaction is handled by only one person...
Establishing Good Internal Controls (continued)<br />Policies and Procedures<br />Established way of doing business that e...
Annual Operating Cycle<br />
Budget Preparation<br />Overall significance<br />Used to monitor success of goals<br />Used to show strength of plan<br /...
Budget Preparation (continued)<br />Detailed Process<br />Begin with upcoming year goals<br />Translate those into resourc...
Monthly Activities<br />Generating monthly financial statements<br />Policy for month-end closing<br />Working with others...
Monthly Activities (continued)<br />Investment management<br />Investment policy<br />Investment spending policy<br />Cash...
Year End Closing<br />Compilation<br />Information just “compiled” by outside accounting firm<br />Uses standard form of f...
 Year End Closing (continued)<br />Review<br />Limited examination of the organization’s financial statements<br />Limited...
Year End Closing (continued)<br />Audit<br />Process for testing the accuracy and completeness of information presented in...
Year End Closing (continued)<br />Audit report - consists of<br />Auditors opinion letter (qualified or unqualified)<br />...
Form 990 Reporting Overview<br />Purpose for filing with IRS<br />Required information for statistics and tracking – not a...
Form 990 Reporting OverviewWho Must File<br />2007 Rules<br />Organizations with gross receipts <$25K per year –<br />Requ...
 Changes Since 2007<br />Form 990-N<br />Filing<br />Log in to www.irs.gov/eo<br />Click on “Annual Electronic Filing Requ...
Form 990 Reporting Overview (continued)Who Must File<br />Old Rules<br />Organizations with<br /> Gross receipts between $...
 Changes Since 2007 (cont’d.)<br />Form 990-EZ<br />Has not been redesigned, but changes have been made<br />Review Schedu...
Form 990 Reporting Overview (continued)Who Must File<br />Old Rules<br />Organizations with<br />Gross receipts > $100K<br...
Form 990 Reporting Overview (continued)Who Must File<br />2009 Rules<br />Organizations with<br /> Gross receipts >$500K<b...
 Changes Since 2007 (cont’d.)<br />Form 990<br />Revised for fiscal years beginning in 2008<br />Last revision was in 1979...
Form 990 List of Schedules<br />A-Public Charity Status and Public Support<br />B-Schedule of Contributors<br />C-Politica...
Other Reporting Requirements <br />Circular A-133 single audit report<br />$500,000 or more in federal awards expended in ...
Other Reporting Requirements<br />Payroll reporting<br />Quarterly (941) reports<br />Annual (940) reports<br />W-2’s<br /...
Miscellaneous Issues<br />Unrelated Business Income Tax (UBIT)<br />Regularly carries on a trade or business<br />Not subs...
Wrap Up Q&A<br />
Smart Strategies for Great Financial Management<br />Texas Nonprofit Summit<br />September 9, 2011<br />Presented by Chery...
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Financial Management with Cheryl Black

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Financial Management with Cheryl Black

  1. 1. Smart Strategies for Great Financial Management<br />Texas Nonprofit Summit<br />September 9, 2011<br />Presented by Cheryl Black<br />Chief Financial Officer<br />
  2. 2. Introductions and Class Survey<br />Plan for the session<br />Participation<br />Questions<br />Review the outline<br />Concentrate on the five major sections<br />Wrap up Q&A<br />
  3. 3. Achieving Nonprofit Financial Health <br />Differences between non-profit and for-profit organizations – FASB requirements<br />Setting up systems and getting started<br />Chart of accounts<br />Accounting software<br />Basic financial statements<br />Establishing good internal controls<br />
  4. 4. Annual Operating Cycle<br />Budget preparation<br />Monthly Activities<br />Closing the books<br />Working with the Board and other departments<br />Investment and Cash Management<br />Year end closing<br />Audit, Review or Compilation<br />Management Letter<br />Reporting requirements<br />Form 990 Tax return<br />Single Audit A-133<br />Payroll reports<br />
  5. 5. Differences Between <br />Non-profit <br />&<br />For-profit Organizations<br />
  6. 6. FASB Requirements<br />FASB 117 - “Financial Statement of Non-Profit Organization”<br />Statement of Financial Position<br />Statement of Activities<br />Statement of Functional Expenses<br />Statement of Cash Flows<br />Financial Statement Disclosures<br />Accrual Basis of Accounting<br />
  7. 7. Functional Expenses<br />Disclose<br />In Statement of Activities or<br />In the footnotes<br />Functional Classifications<br />Program services<br />Management and general<br />Fundraising<br />
  8. 8. Accrual, Cash or Modified Cash Accounting<br />Definitions <br />Accrual<br />Cash<br />Modified Cash<br />Factors to consider when choosing<br />Few payables or receivables<br />Expertise and time constraints on bookkeeping staff<br />Budget size<br />
  9. 9. FASB Requirements (continued)<br />FASB 116 - “Accounting for Contributions Received and Contributions Made”<br />Recognized as revenues in period received<br />Recorded as either restricted or unrestricted revenue (donor imposed conditions)<br />
  10. 10. Accounting for Contributions<br />In-Kind Contributions<br />Donor sets value, not non-profit<br />Shows true cost to operate the organization<br />IRS does not allow in-kind services or facility rental to be deducted from Form 990 tax return <br />
  11. 11. Accounting for Contributions(continued)<br />Special Events and Membership Dues<br />Fund-raiser attendees often receive a tangible benefit in return<br />Membership dues may entitle individuals to benefits<br />The portion of ticket or dues which represents the fair market value of the benefit received is NOT tax deductible<br />Minimal benefits are excluded<br />Non-profit required to send letters to donors re: amount that may be taken as tax deduction<br />
  12. 12. Accounting for Contributions(continued)<br />IRS Publication 1771 - “Charitable Contributions - Substantiation and Disclosure Requirements”<br />
  13. 13. FASB Requirements (continued)<br />FASB 124 - “Accounting for Certain Investments Held by Not-for-Profit Organizations”<br />Investments be reported at fair market value<br />Gains and losses be included in a statement of activities<br />
  14. 14. FASB Requirements (continued)<br />FASB 93 - “Recognition of Depreciation by Not-for-Profit Organizations”<br />Recognize the cost of using up long-lived tangible assets (depreciation)<br />Exceptions<br />Certain works for art<br />Certain historical treasures<br />
  15. 15. Setting up Systems <br />and <br />Getting Started<br />
  16. 16. Chart of Accounts - Design Planning<br />A tool used to code all the transactions that will be recorded in the accounting records.<br />The accounts set up here are then consolidated into the financial statement presentation.<br />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.<br />
  17. 17. Chart of Accounts - Design Planning<br />Decisions to make –<br />Unified Chart of Accounts (UCOA)<br />Numbered accounts<br />Usually follow standard industry practice<br />100 Assets<br />200 Liabilities<br />300 Net Assets (Fund Balance)<br />400 Revenue<br />500+ Expenses<br />
  18. 18. Accounting Software<br />Overall Considerations<br />Most important features<br />Cost<br />Off the shelf or customized<br />Number of modules<br />Training of accounting staff<br />Maintenance contract<br />Specialized non-profit packages vs. general accounting packages<br />Compatible with rest of applications<br />
  19. 19. Basic Financial Statements<br />Statement of Activities<br />Commonly known as the “Income Statement”<br />Is the cumulative total of revenue and expense activity for the current annual operating cycle<br />Calendar year<br />Fiscal year<br />Management focuses on this statement more than the Statement of Financial Position (Balance Sheet)<br />
  20. 20. Basic Financial Statements<br />Statement of Functional Expenses<br />Is the breakdown of “natural” expenses into “functional” categories.<br />Admin and general (or overhead)<br />Programming<br />Fundraising<br />Is closely linked to the Statement of Activities (Income Statement)<br />Can be a supplement report or an audit footnote<br />
  21. 21. Basic Financial Statements<br />Statement of Financial Position<br />Commonly known as the “Balance Sheet”<br />Is a snapshot of the financial position of the organization on a certain day<br />Consists of three main categories<br />Assets (what you own)<br />Liabilities (what you owe)<br />Net Assets (what the organization is worth)<br />Independent auditors focus on this statement more than the Statement of Activities (Income Statement)<br />
  22. 22. Basic Financial Statements<br />Statement of Cash Flows<br />Commonly known as the “Change in Financial Position”<br />Breaks down the use of cash into three different activities<br />Operations<br />Investing<br />Financing<br />Lets the reader know exactly where the organization received and spent cash during the period<br />
  23. 23. Internal Controls – Overview <br />Main objectives include - <br />Safeguarding assets<br />Promoting efficiency in operations<br />Enhancing reliability and completeness of financial reporting<br />Minimizing the risk of misuse or abuse of the organization’s resources<br />
  24. 24. Internal Controls – Overview (cont’d.)<br />Nonprofits at greater risk for fraud?<br />An atmosphere of trust<br />Many cash donations (difficult to control)<br />Limited availability of qualified staffing resources (salary constraints)<br />Mixture of volunteers and employees with lack of business/financial experience involved in operations<br />Volunteer Board of Directors (decision makers)<br />
  25. 25. Establishing Good Internal Controls<br />Segregation of Duties<br />No financial transaction is handled by only one person<br />
  26. 26. Establishing Good Internal Controls (continued)<br />Policies and Procedures<br />Established way of doing business that ensures public confidence<br />Maintains integrity of your organization and its assets<br />But does not inhibit your ability to get your daily work done<br />Assists with training new employees<br />Prevents fraud<br />
  27. 27. Annual Operating Cycle<br />
  28. 28. Budget Preparation<br />Overall significance<br />Used to monitor success of goals<br />Used to show strength of plan<br />Detailed Plan<br />Choose format and tool (how)<br />Choose level of staff/Board participation (who)<br />Commit to a time line for completion (when)<br />
  29. 29. Budget Preparation (continued)<br />Detailed Process<br />Begin with upcoming year goals<br />Translate those into resources needed and expense outlays to carry them out<br />Balanced budget - yes or no<br />Board policy in place to be followed<br />Deficit<br />Surplus<br />Review during the operating year<br />
  30. 30. Monthly Activities<br />Generating monthly financial statements<br />Policy for month-end closing<br />Working with others<br />Board and committees<br />Other departments within organization<br />
  31. 31. Monthly Activities (continued)<br />Investment management<br />Investment policy<br />Investment spending policy<br />Cash management<br />Cash flow shortage policy<br />Cash flow surplus policy<br />
  32. 32. Year End Closing<br />Compilation<br />Information just “compiled” by outside accounting firm<br />Uses standard form of financial statement presentation<br />Provides no opinion or assurance that the information is reliable<br />Cost is minimal<br />
  33. 33. Year End Closing (continued)<br />Review<br />Limited examination of the organization’s financial statements<br />Limited testing<br />Provides limited assurance on the reliability of the information presented<br />Cost is much less than audit<br />
  34. 34. Year End Closing (continued)<br />Audit<br />Process for testing the accuracy and completeness of information presented in the organization’s financial statements<br />Completed by independent CPA’s<br />An “opinion” issued on how fairly the financial position has been presented<br />If financial statements comply with GAAP<br />
  35. 35. Year End Closing (continued)<br />Audit report - consists of<br />Auditors opinion letter (qualified or unqualified)<br />Required Financial Statements<br />Required Notes to the Financial Statements<br />Management letter<br />Informs organization of ways to improve their internal control processes and day to day management<br />
  36. 36. Form 990 Reporting Overview<br />Purpose for filing with IRS<br />Required information for statistics and tracking – not a “tax return”<br />Have information available for public inspection <br />May be primary or only source of information available to the public<br />IRS cleaning up their database<br />When to file<br />15th day of 5th month after close of fiscal year<br />
  37. 37. Form 990 Reporting OverviewWho Must File<br />2007 Rules<br />Organizations with gross receipts <$25K per year –<br />Required to file electronic notice <br />“e-Postcard” or Form 990-N<br />Old Rules<br />Organizations with gross receipts <$25K per year –<br />No filing requirements<br />
  38. 38. Changes Since 2007<br />Form 990-N<br />Filing<br />Log in to www.irs.gov/eo<br />Click on “Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)<br />Failure to file for three consecutive years will result in revocation of tax exempt status<br />
  39. 39. Form 990 Reporting Overview (continued)Who Must File<br />Old Rules<br />Organizations with<br /> Gross receipts between $25K and $100K<br />Total assets <$250K at year end<br />File Form 990-EZ<br />Could elect to file Form 990<br />2008 Rules<br />Organizations with<br /> Gross receipts >$25K but <$l M<br />Total assets <$2.5 M<br />File Form 990-EZ<br />Can elect to file Form 990 and schedules<br />
  40. 40. Changes Since 2007 (cont’d.)<br />Form 990-EZ<br />Has not been redesigned, but changes have been made<br />Review Schedules A, B, C, E, G and L and determine if they apply to your organization<br />
  41. 41. Form 990 Reporting Overview (continued)Who Must File<br />Old Rules<br />Organizations with<br />Gross receipts > $100K<br />Total assets >$250K at year end<br />Required to file Form 990<br />2008 Rules<br />Organizations with<br />Gross receipts >$l M<br />Total assets >$2.5 M<br />Required to file Form 990<br />
  42. 42. Form 990 Reporting Overview (continued)Who Must File<br />2009 Rules<br />Organizations with<br /> Gross receipts >$500K<br />Total assets >$1.25 M<br />Required to file Form 990<br />Old Rules<br />Organizations with<br />Gross receipts > $100K<br />Total assets >$250K at year end<br />Required to file Form 990<br />2010 Rules<br />Organizations with<br /> Gross receipts >$200K<br />Total assets >$500K<br />Required to file Form 990<br />
  43. 43. Changes Since 2007 (cont’d.)<br />Form 990<br />Revised for fiscal years beginning in 2008<br />Last revision was in 1979<br />More questions about governance<br />Instructions include “Sequencing List”<br />Format<br />Core form with eleven parts<br />Part IV – Checklist of Required Schedules<br />Sixteen schedules<br />
  44. 44. Form 990 List of Schedules<br />A-Public Charity Status and Public Support<br />B-Schedule of Contributors<br />C-Political Campaign and Lobbying Activities<br />D-Supplemental Financial Statements<br />E-Schools<br />F-Statement of Activities Outside the US<br />G-Supplemental Info Regarding Fundraising or Gaming Activities<br />H-Hospitals<br />I-Grants and Other Assistance to Orgs, Gov’t., and Individuals<br />J-Compensation Info<br />K-Supplemental Information for Tax-Exempt Bonds<br />L-Transactions with Interested Persons<br />M-Non-Cash Contributions<br />N-Liquidation, Termination, Dissolution<br />O-supplemental Information to Form 990<br />R-Related Organizations and Unrelated Partnerships<br />
  45. 45. Other Reporting Requirements <br />Circular A-133 single audit report<br />$500,000 or more in federal awards expended in any fiscal year <br />Audited annually<br />Available for public inspection<br />Auditee duties<br />Schedule of Expenditures of Federal Awards<br />Maintain internal controls<br />
  46. 46. Other Reporting Requirements<br />Payroll reporting<br />Quarterly (941) reports<br />Annual (940) reports<br />W-2’s<br />1099’s<br />
  47. 47. Miscellaneous Issues<br />Unrelated Business Income Tax (UBIT)<br />Regularly carries on a trade or business<br />Not substantially related to its exempt purpose<br />IRS Publication 598 - Tax on Unrelated Business Income of Exempt Organizations<br />
  48. 48. Wrap Up Q&A<br />
  49. 49. Smart Strategies for Great Financial Management<br />Texas Nonprofit Summit<br />September 9, 2011<br />Presented by Cheryl Black<br />Chief Financial Officer<br />

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