This webinar will offer an accessible introduction to nonprofit accounting and to the primary documents used to communicate your organization’s financial reality to funders, potential donors, board members, and the interested public. Documents covered will include operating budgets, audited financial statements, the IRS Form 990, and the annual report.

1. Accountability 101:
Basic Nonprofit Financial Documents
July 21, 2010
Special Thanks To Our Sponsors

2. Helping ordinary people raise extraordinary amounts for nonprofits is all we do, and we love it.
A Proud Sponsor of NonprofitWebinars.com

3. Today’s Speakers
Jennifer Ahern Lammers
The Philanthropy Hub
www.philanthropyhub.com
Hosting: Sam Frank, Synthesis Partnership
Assisting with chat questions: Chris Dumas, FirstGiving

4. ACCOUNTABILITY 101:
BASIC NONPROFIT FINANCIAL DOCUMENTS
Presented By: Jennifer Ahern Lammers

5. Agenda
 Why the Numbers Matter
 Looking Forward
 Budgets
 Strategic Plans
 Looking Back
 Annual Report
 IRS Form 990
 Financial Statements

6. Why the Numbers Matter
 They are an important management tool
 The are essential for successfully:
 planning for the future
 responding to crisis
 preventing loss and fraud

7. Why the Numbers Matter to Others
 They communicate an organization’s priorities
 They record an organization’s history
 They are one of the only means stakeholders
have of comparing one organization to another
quickly and “objectively”

8. LOOKING FORWARD
Financial Projections

9. Projection Documents
 Program/Project Budgets
 Department/Division Budgets
 Organizational Budgets
 Strategic Plan

10. Budget Building
3 to 5 Year Strategic Plan
Organization
Department, Division,
Location
Project, Program

11. The Budget
Based on Tempered by
An Educated A Plan Stated
Historical Environmental
Guess In Dollar Term
Knowledge Realities

12. Purposes of a Budget
Control
Spending
Allocate
Minimize Fraud
Resources
Incent
Express Plans
Managers

13. Budget Qualities
Realistic
Consistent
Flexible
Effective

14. Budget Narrative
What it Covers What Period? Basis?
• Program? • Year? • Cash?
• Department? • Month? • Accrual?
• Organization? • Multi-Year
Span?

15. Budget Basis
Cash Accrual
 records all revenues  records revenues and
and expenditures expenses when they are
when cash is either incurred, regardless of
received or disbursed when cash is exchanged
 easily manipulated to
 more accurately reflects
financial position and is
cover financial
harder to manipulate
shortcomings

16. Budget Presentation
Revenues Expenses
Sources Categories
Grants
Contributions Personnel
Earned Income Benefits
Interest Other Than Personnel (OTP)
Other

17. Personnel Costs
 Salaries
 Benefits
 Insurance
 AccruedVacation
 401k/403b contributions
 Taxes
 Personnel Costs are often 70% or more of total
expenses
 Fringe Benefit costs add between 18 – 35% over
salaries

18. Common OTP Natural Categories
 Rent/Occupancy
 Insurances
Depending  Utilities
 Travel/Transportation
on
Mission
 Small Equipment
 Office Supplies
 Professional Fees (accountants, lawyers)
 Interest

19. Projects and Program Budgets
 Clearly labeled as to project/program and time
period
 Present all sources of revenue, indicating any money
transferred temporarily restricted funds raised in a
prior period and/or allocated from the
organizations unrestricted funds
 List expenses by Personnel/Benefits and then OTP
costs
 Conform with organization’s total budget

20. After School Sports Program
2010 -2011 School Year Support (Fiscal Year July 2010 - June 2011)
Revenues
Enrollment Fees $33,350.00
United Way $17,750.00
General Support Funds Allocated to Program $5,500.00
Total Revenues $56,600.00
Expenses
Salaries
Full Time Instructor $28,000.00
Part-Time Aids $10,500.00
Benefits $9,205.00
Allocated Space & Utility Cost $1,300.00
Insurances $3,500.00
Allocated Depreciation $225
Program Marketing $500
Equipment $1,200.00
Snacks $950.00
Transportation $1,200.00
Total Expenses $56,580.00
Excess Revenue over Expenses $20.00

21. Department/Division Budgets
 Span the gap between projects and total
organization
 Include revenues earned by and grants restricted to
programs and projects in the division
 Include space costs, equipment depreciation, utilities
and other “allocated” costs
 Should aim for a profit

22. Organizational Budgets
 Include all sources of revenue
 Include all expenses for programs and support
areas
 Should present expenses by major programs and
support areas
 Additional information on natural classifications
(salaries, rent, supplies) should be provided when
appropriate and in “column” fashion

23. Youth Organization for Urban Teen Health (YOUTH)
Fiscal Year July 2010 -June 2011
Revenue
Enrollment Fees $63,300.00
Grants $78,000.00
Contributions $33,250.00
Branded Item Sales $8,500.00
Interest and dividends $5,300.00
Totat Revenue $188,350.00
Expenses
Program
Breakfast Tutor Program $22,350.00
College Prep Program $45,000.00
After School Sports Programs $56,580.00
Total Program Costs $123,875.00
Support Services
Management and General $28,750.00
Fundraising $19,500.00
Total Support Costs $48,250.00
Total Expenses $172,125.00
Excess (deficit) of Revenue After Expenses $16,225.00

24. Strategic Plan
 3 to 5 year narrative and financial projection
 Includes costs of proposed program growth or
expansion including but not limited to salaries,
space, marketing, necessary fundraising, etc.
 Identified environmental issues that could impact
revenues or expenses
 Is tied to the organization’s long term mission goals
 A strategic plan without an attached budget is not a
strategic plan

25. Budget Communication
 Not every one needs to see the same level of detail
 The standard Personnel/OTPs presentation of
expenses works for smaller projects, programs and
internal uses of department or division budgets
 The more compact Program/Management/
Fundraising presentation is often better for
presenting the whole organization budget to stake
holders

26. LOOKING BACK
Accounting for Prior Activities & Expenditures

27. Achievements of the Past Year
 The Annual Report
 IRS Form 990
 Financial Statements

28. The Annual Report
 A single document that includes:
 Mission
 Program highlights
 Revenue and expenses for current year
 Board roster
 Provided to anyone seeking information on your
organization

29. Annual Report Tips
 Need not be an expensive glossy publication
 Can be made “multi-year” by having a folder flap
on the back cover in which updated board roster
and financial information are inserted
 Can be online and printed only for those without
internet access

30. The IRS Form 990
 IRS form filed annually by public charities and
private foundations
 Form list assets, receipts, expenditures and
compensation of officers, among other facts
 Forms are publically available from the IRS,
charities, and on Guidestar.org

31. Which Organizations have to File?
 Private foundations. They file a Form 990-PF.
 Larger nonprofits that have gross receipts of more
than $25,000 have to file Form 990 or 990-EZ
 Small nonprofits with gross receipts of $25,000 or
less must file the new form electronic 990-N (the e-
postcard) to maintain exempt status
 Instructions and forms can be found at
 http://www.irs.gov/pub/irs-pdf/i990.pdf
 http://www.irs.gov/pub/irs-pdf/f990.pdf

32. Recent 990 Changes
 Guiding principles:
 Enhancing Transparency
 Promoting Compliance
 Minimizing the burden on nonprofits
 Why is this important?

33. The Core Form
I. Summary
II. Signature Block
III. Statement of Program Service Accomplishments
IV. Checklist of Required Schedules
V. Statements Regarding Other IRS Filings and Tax Compliance
VI. Governance, Management, and Disclosure
VII. Compensation… (with Sections A, B, C)
VIII. Statement of Revenue
IX. Statement of Functional Expenses
X. Balance Sheet
XI. Financial Statements and Reporting

34. Some of the Supplemental Schedules
A. Public Charity Status and Public Support
B. Schedule of Contributions
C. Political Campaign and Lobbying Activities
D. Supplemental Financial Statements
E. Schools
F. Statement of Activities outside the US
G. Fundraising or Gaming Activities
H. Hospitals
I. Grants and other Assistance to Organizations
J. Compensation Information
K. Supplemental Information on Tax Exempt Bonds
L. Transactions with Interested Persons
M. Non Cash Contributions
N. Liquidation, Termination, Dissolution or Significant Disposition of Assets
O. Supplemental Information

35. The New 990
First Page Priorities
BEFORE AFTER
 No mission statement  Mission statement, line 1
 Board, staff and volunteer info
 No staff, volunteer or before numbers
board information  Revenue and its sources,
combined into larger categories
 Revenue and its sources,  Expenses with less intuitive break
in detail downs, highlighting salaries,
member benefits and
 Expenses broken down professional fundraising fees
by Program Services,  Program and Admin expenses
joined in “other expenses”
Admin, and Fundraising

36. More Information, Easier to Find
 Greater emphasis on narrative information,
especially as it pertains to mission, policies, and
procedures
 Real questions about management practices
 Management and board should review the
document before it is filed with the IRS
 The form, as filed, is available to the public

37. Complete Financial Statements
Audit Opinion
Statement
Statement Statement Cash Flow of
Notes
of Position of Activity Statement Functional
Expense

38. The Audit Process
 Provides an independent review of procedures and
accounting of significant transactions
 Provides constructive recommendations for
improving systems and procedures
 Satisfies external compliance requirements from
funders and some state agencies
 The Gold Standard

39. Audit Opinions
Disclaimer of
Unqualified Qualified Adverse
Opinion
• Considered a • Statements • Statements • “No opinion”
“clean have one or do not on statements
opinion” more conform to • Auditors were
• States that material GAAP unable to
statements problems • Readers are apply
are • Raises provided “no auditing
presented awareness of assurance” on standards
fairly issues the figures • Very unusual,
rarely issued

40. Other Options
• Step down from a full audit
• CPA provides only limited assurances based on staff inquiries
Reviews and spot checks of procedures
• Further step down
Compilations • CPA provides no assurance as to the validity of the numbers
• Should follow GAAP (FSB 116 and FSB 117) format
Internally • If prepared correctly may be more useful than a compilation
Generated

41. The Statement of Financial Position
a.k.a:
The What you Own – What you Owe
Balance =
Sheet What’s left

42. Balance Sheet
• Most liquid first
• Cash & Cash Equivalents, Contributions Receivable,
Assets Investments, Prepaid Expenses, Fixed Assets, etc.
• Due in 12 months or less first, then longer term
• Line of Credit, Accounts Payable, Accrued Expenses, Long
Liabilities Term Debt, etc.
• Unrestricted (includes fixed assets and any board reserves)
Net Assets • Temporarily and Permanently Restricted

43. ABC Organization
Statement of Financial Postion
December 31, 2010 and 2009
Assets 2010 2009
Cash $50,000 $82,768
Accounts Receivable $256,164 $314,709
Unconditional Promises to Give $229,382 $204,269
Grants Receivable $54,691 $215,875
Prepaid Expenses $28,463 $40,636
Property & Equipment (net of dep) $1,942,736 $1,993,281
Other Assets $19,054 $26,817
Total Assets $2,580,490 $2,878,355
Liabilities and Net Assets 2010 2009
Liabilities
Line of Credit $117,319 $136,400
Accounts Payable $126,394 $151,759
Accrued Expenses $74,000 $91,080
Accrued Payroll and Taxes $48,461 $120,238
Long-term Debt $673,714 $686,150
Total Liabilities $1,039,888 $1,185,627
Net Assets
Unrestricted 1,076,134 1,050,277
Temporarily Restricted 258003 435923
Permanently Restricted 206465 206465
Total Net Assets 1,540,602 1,692,665
Total Liabilities & Net Assets $2,580,490 $2,878,292

44. Asset Classifications
 Permanently: Money given that must be invested.
The principal can not be spent, but earnings can
 Temporarily: Money given for a specific project or
time period.
 Unrestricted: Money given without a specific
assigned use. “In support of the important work of
your organization.”

45. Statement of Activities
 Where money came from and what it was spent on
over a particular period of time
 Most analyzed statement included in an audit
packet

46. Revenues
 Sources of revenue are broken down and often
include:
 Individual support
 Foundation and corporate support
 Special events revenue
 Earned income
 Interest
 Assets released from restriction

47. Revenues (cont’d)
 Revenues are presented according to donor
restriction:
 Unrestricted
 Temporarily Restricted
 Permanently Restricted
 Although both are accepted by GAAP the column
format – not the stacked – is best as it is much
easier to understand

48. Donor Restrictions
 Only donors can make restrictions!
 However, we often shape the nature of the
restriction by the language of the “ask”
 Make sure your revenues are appropriately
categorized
 Make sure you have back up to substantiate nature
of the restriction

49. Expenses
 Expenses are presented by program, management
& general, and fundraising
 Expenses occur in the “Unrestricted” column
 Program expenses are broken down by program
 Identified program areas conform with the
organization’s other materials

50. ABC Organization
Statement of Activities
For the Year Ended
December 31, 2009
Temporarily Permanently
Revenue and Other Support Unrestricted Restricted Restricted Total
Service revenues $4,982,631 $4,982,631
Grants $238,000 $151,790 $10,000 $399,790
Contributions $109,058 $77,201 $186,259
Special Events (less of direct
costs of $19,399) $1,976 $1,976
Interest & Dividends $38,032 $38,032
Unrealized Gain $117,425 $117,425
Misc. $21,382 $21,382
Net Assets released from
restriction $406,911 $(406,911) $-
Total Revenue $5,915,415 $(177,920) $10,000 $5,747,495
Operating Expenses
Program Services
Association Services $2,842,480 $2,842,480
Children & Teen Services $675,153 $675,153
Family Supoort $822,531 $822,531
Therapy $1,038,814 $1,038,814
Total Program
Expenses $5,378,978 $5,378,978
Supporting Services
Management and general $188,896 $188,896
Fundraising $166,403 $166,403
Total Supporting
Expenses $355,299 $355,299
Total Expenses $5,734,277 $- $- $5,734,277
Change In Net Assets $181,138 $(177,920) $10,000 $13,218
Net Assets Beginning
of Year $2,348,570 $435,923 $206,465 $2,990,958
Net Assets End of
Year $2,529,708 $258,003 $216,465 $3,004,176

51. Statement of Cash Flows
 Reports the cash generated and used during the
year
 Least understood statement in the nonprofit setting
 Less useful as an end of year analysis that as a
monitored management tool (cash flow projection)

52. Where the Cash Came or Went
converts the reports the reports on
Operating Activities
items purchase and any loan
Financing activities
Investing activities
reported on sale of long- payments
the term made or
statement of investments credit
activities and secured
from the property,
accrual basis plant and
to cash equipment

53. Misc. Organization for Good
Statement of Cash Flow
Fiscal Year Ended September 31, 2010
2010
Cash Flow from Operating System
Increase (decrease) in net assets $XXXX
Adjustments to reconcile decrease in net assets to cash
Depreciation $XXXX
Net realized gain on the sale of investments ($XXXX)
Net unrealized gain on sale of investments ($XXXX)
Change in opertating assets and liabilities
Reimbursable expenditures under contracts ($XXXX)
Contributions receivable $XXXX
Prepaid expenses and other assets $XXXX
Grants payable ($XXXX)
Accounts payable and accrued expenses $XXXX
Net cash (used in) provided by operating activities
Cash flows from investing activities
Purchase of investments ($XXXX)
Proceeds from the sale of investments $XXXX
Purchase of fixed assets ($XXXX)
Sale of fixed assets $XXXX
Use of restricted cash ($XXXX)
Net cash provided by investing activities $XXXX
Cash flows from financing activities
Payment of note payable ($XXXX)
Net cash used in financing activities ($XXXX)
Net increase in cash and cash equivalents $XXXX
Cash and cash equivalents
Beginning of year $XXXX
End of year $XXXX

54. Statement of Functional Activities
 Required by GAAP for all voluntary health and
welfare organizations
 Required by the BBB for all charities soliciting public
support
 An important document for demonstrating priorities
and clarifying necessary expenses

55. ABC Organization
Statement of Functional Expense
For the Fiscal Year Ended December 31, 2009 Program Support 2009
Homeless
Soup Kitchen Night Shelter Intervention Total Program Administration Development Total Support Total Expenses
Compensation and related
expenses
Salaries and Wages 62,000 45,000 36500 143,500 75,000 58,000 133,000 276,500
Payroll Taxes 11000 3000 2000 16000 13,000 6000 19,000 35,000
Fringe Benefits 17360 12600 10220 40180 21000 16240 37240 77,420
Total 90,360 60,600 48720 199,680 109,000 80,240 189,240 388,920
OTP
Outside services 12000 9000 12000 33000 0 36000 36000 69,000
Rent 22000 22000 0 44000 11000 11000 22000 66,000
Depreciation and amortization 20000 14000 0 34000 2000 3000 5000 39,000
Telephone 1000 1000 5000 7000 3000 4000 7000 14,000
Utilities 975 975 1950 400 400 800 2,750
Travel - - 1500 1500 1000 400 1400 2,900
Insurances 6500 8000 2300 16800 1200 7000 8200 25,000
Printing 900 250 1100 2250 11250 18000 29250 31,500
Equiptment rental 4500 0 0 4500 0 6500 6500 11,000
Postage 0 0 0 0 2400 3500 5900 5,900
Event Space Rental 0 0 0 0 0 22000 22000 22,000
Misc. 222 457 354 1033 354 555 909 1,942
Total 68097 55682 22254 146033 32604 112355 144959 290,992
Total
Expenses 158,457 116,282 70,974 345,713 141,604 192,595 334,199 679,912

56. The Notes
 Not to be ignored
 If you think someone reviewing your financial
statements would be more informed if they knew
(fill in the blank) . . . it should be in the notes
 Note 1 (or 1a) is the first narrative opportunity
an organization has in its financial statements
 Its
content should be given the same care and
thought as any other publicly available materials

57. About the Speaker
Jennifer Ahern Lammers, Founder, The Philanthropy Hub
Jennifer brings a passion for seeing nonprofits succeed and an in-depth knowledge of the sector to
each of her training offerings. Her areas of special focus include accountability, governance,
financial communication, and ethics. Jennifer has created and delivered dozens of nonprofit specific
accounting, budgeting and management trainings for charities in a wide range of fields, including
workforce development, AIDS services, housing, and volunteer management. In 2002, in NYC, she
helped launch the Certified Nonprofit Accounting Professional (CNAP) program, through which 100s
of nonprofit professionals have received intensive financial and accounting instruction. In
partnership with Parent, McLaughlin & Nangel, Jennifer brought the CNAP training to MA in 2008.
Formerly, she was vice president and director of the New York Philanthropic Advisory Service for
the Better Business Bureau, one of the largest charity watchdog and donor education programs in
the country. While with the BBB, she managed the evaluation of over 1000 charities and
developed the National September 11th Charity Database.
Jennifer holds a Masters of Public Administration from New York University, and received her
Bachelor of Arts from the University of Chicago.

58. Find the listings for our current season of webinars
and register at
NonprofitWebinars.com
Chris Dumas
Chris@NonprofitWebinars.com
707-812-1234
Special Thanks To Our Sponsors