Nysca dec financial mgmt

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Nysca dec financial mgmt

  1. 1. Assessing Financial Management for DEC Funded Organizations Presented By Kelly Mathews Chief Operating Officer, Sr. V. P. Financial Accountability and Compliance Services New York Council of Nonprofits, Inc. New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta www.nycon.org
  2. 2. When Bad Things Happen to Good Nonprofits… <ul><li>For five years, CEO & other executives </li></ul><ul><ul><li>Fraudulently siphoned off $290,000 for their personal benefit </li></ul></ul><ul><ul><li>Lent $875,000, unsecured, to one executive’s private business venture, without informing the Board </li></ul></ul><ul><ul><li>Routinely falsified records </li></ul></ul><ul><ul><li>Nonprofit Staff utilize temporarily restricted State Funds for operations…then are unable to meet requirements of contract (deliverables, re-grants, etc.) </li></ul></ul>
  3. 3. When Bad Things Happen to Good Nonprofits… <ul><li>Nonprofit Executive Director routinely pays own household expenses with organization’s credit card…for three years… </li></ul><ul><li>Nonprofit Executive Director opens line of credit in organization’s name to finance home purchase…board doesn’t know about it…until it is in default… </li></ul><ul><li>Nonprofit Bookkeeper writes checks to pay own cell phone bill…no one notices…until she quits… </li></ul>
  4. 4. What Is Internal Control? <ul><li>A process, effected by an entity’s board, management & other personnel, designed to provide reasonable assurance regarding the achievement of the following objectives </li></ul><ul><ul><li>Accurate & reliable financial reporting </li></ul></ul><ul><ul><li>Operational effectiveness & efficiency </li></ul></ul><ul><ul><li>Compliance with laws & regulations </li></ul></ul><ul><ul><li>Safeguarding of assets </li></ul></ul>
  5. 5. Accurate & Reliable Financial Reporting <ul><li>Accounting information systems </li></ul><ul><ul><li>Software adequacy </li></ul></ul><ul><ul><li>Access controlled by management with limited board member access </li></ul></ul><ul><li>Adequacy of format </li></ul><ul><ul><li>Comprehensive, concise, understandable </li></ul></ul><ul><ul><li>Orientation process for board members </li></ul></ul><ul><li>Timeliness of reporting </li></ul><ul><ul><li>Internal to management & the board </li></ul></ul><ul><ul><li>External to funding sources & regulators </li></ul></ul>
  6. 6. Operational Effectiveness & Efficiency <ul><li>Programmatic efficiency & quality services </li></ul><ul><li>Adequate staffing for service level </li></ul><ul><li>Qualified fiscal staff </li></ul><ul><li>Minimal or no duplication of duties </li></ul><ul><li>Well-articulated management structure </li></ul><ul><li>Clearly written & legally compliant personnel policies </li></ul><ul><li>Clearly written job descriptions </li></ul>
  7. 7. Compliance With Laws & Regulations <ul><li>Federal, state & local reporting requirements </li></ul><ul><ul><li>IRS 990, CHAR 500, Audit or Review </li></ul></ul><ul><li>Funding source requirements </li></ul><ul><ul><li>Board Composition </li></ul></ul><ul><li>Labor laws </li></ul><ul><li>Quality assurance </li></ul><ul><li>Client/consumer protections </li></ul>
  8. 8. Safeguarding of Assets <ul><li>Protect assets from misappropriation </li></ul><ul><li>Protect assets from misuse </li></ul>
  9. 9. Occupational Fraud <ul><li>SAS No. 99 states that three conditions are generally present when fraud occurs: </li></ul><ul><ul><li>Incentive or pressure ( I need the money.) </li></ul></ul><ul><ul><li>Opportunity (No one is reviewing my work.) </li></ul></ul><ul><ul><li>Ability to rationalize committing a fraudulent act (I get paid so little and work so hard, they owe me!) </li></ul></ul>
  10. 10. Opportunity for Fraud at Nonprofit Organizations <ul><li>Lack of segregation of duties </li></ul><ul><li>Dominant leadership of the Executive Director /CEO or CFO </li></ul><ul><li>Negative regard for the fiscal function </li></ul><ul><li>Over-reliance on one individual </li></ul><ul><li>Less resources to support the accounting function </li></ul>
  11. 11. Opportunity for Fraud at Not-for-Profit Organizations <ul><li>Lack of financial expertise in fiscal & management functions </li></ul><ul><li>Use of volunteers on the board (our culture) </li></ul><ul><li>Focus on the mission, not the bottom line </li></ul><ul><li>Atmosphere of trust </li></ul><ul><li>Revenue sources that are difficult to control, e.g., contributions (we don’t know what response we may get to our solicitations) </li></ul>
  12. 12. <ul><li>This can be accomplished through </li></ul><ul><ul><li>Control environment </li></ul></ul><ul><ul><ul><li>Effective board of directors </li></ul></ul></ul><ul><ul><ul><li>Effective committee structure </li></ul></ul></ul><ul><ul><ul><li>Effective management </li></ul></ul></ul><ul><ul><li>Compensating for limited segregation of duties </li></ul></ul><ul><ul><li>Monitoring activities </li></ul></ul>Attaining Cost-Effective Internal Control in Nonprofits
  13. 13. <ul><li>Organizational structure </li></ul><ul><ul><li>Up-to-date job descriptions & organizational chart (who is accountable for what and to whom?) </li></ul></ul><ul><ul><li>Flowcharts or narratives to document the flow of transactions, controls & reporting responsibilities </li></ul></ul>The Control Environment in Nonprofit Organizations
  14. 14. Monitoring Internal Control <ul><li>Have board committees & officers with clear charges & articulated authority (ideally in bylaws) </li></ul><ul><li>Review & document segregation of duties </li></ul><ul><li>Review financial reports regularly, including budget vs. actual & programmatic activity </li></ul><ul><li>Where staffing is minimal, insert processes that ensure a separate review </li></ul><ul><li>Interact with the external auditor & regularly review the status of management letter comments </li></ul>
  15. 15. High Risk Area: Receipts <ul><li>Restrictive endorsements on checks received </li></ul><ul><li>Lock boxes for cash </li></ul><ul><li>Pre-numbered receipts </li></ul><ul><li>Make all deposits regularly </li></ul><ul><li>Timely reconciliation between accounting & development/program departments </li></ul><ul><li>Timely reconciliation between general ledger & receivables ledger with supervisory review </li></ul><ul><li>For collections of currency, have two people count cash </li></ul>
  16. 16. Disbursements - Payroll <ul><li>Our LARGEST expense category </li></ul><ul><ul><li>Time sheets with supervisory approval </li></ul></ul><ul><ul><li>Maintain accurate vacation, personal and sick time records </li></ul></ul><ul><ul><li>Document salaries or hourly rates for each position </li></ul></ul><ul><ul><li>Document check preparation (or refer to Payroll service process) </li></ul></ul><ul><ul><li>Document check distribution process </li></ul></ul><ul><ul><li>Document recording in general ledger </li></ul></ul><ul><ul><li>Reconcile payroll service sheets to general ledger </li></ul></ul>
  17. 17. Disbursements - Vendors <ul><li>Document and to extent possible, separate: </li></ul><ul><ul><li>Purchasing (or authorization for purchasing) </li></ul></ul><ul><ul><li>Preparation of checks </li></ul></ul><ul><ul><li>Approval for payment </li></ul></ul><ul><ul><li>Recording in general ledger </li></ul></ul><ul><ul><li>Signatures </li></ul></ul><ul><ul><li>Responses to vendor inquiries </li></ul></ul>
  18. 18. Disbursements - Vendors <ul><li>Control over checks </li></ul><ul><ul><li>Numerical integrity </li></ul></ul><ul><ul><li>Physical security </li></ul></ul><ul><li>Appropriate signatures on checks </li></ul><ul><li>No checks payable to “cash” </li></ul><ul><li>Tighten controls over petty cash </li></ul><ul><ul><li>Timely reconciliation-complete back-up </li></ul></ul><ul><li>Purchase orders/receiving reports </li></ul><ul><li>Board Chair, Treasurer or finance committee reviews ED or CEO’s expense (including travel) reimbursements </li></ul>
  19. 19. Cash/Reconciliations <ul><li>Minimal cash accounts, yet enough to ensure segregation of re-grant $ from operational funds </li></ul><ul><li>Bank statement should be opened and examined by someone outside of receipts/disbursements functions </li></ul><ul><li>Cash reconciliations should be reviewed by someone outside of receipts/disbursements functions </li></ul>
  20. 20. Other Control Policies <ul><li>Code of conduct </li></ul><ul><li>Conflict of interest policy </li></ul><ul><li>Employee/vendor hotline </li></ul><ul><li>Whistle-blower policy </li></ul><ul><li>Enforce mandatory vacations </li></ul><ul><li>Bond employees who handle cash </li></ul><ul><li>Fiscal procedures manual </li></ul>
  21. 21. Open Discussion & Questions
  22. 22. Assessing Financial Management for DEC Funded Organizations Presented By Kelly Mathews Chief Operating Officer, Sr. V. P. Financial Accountability and Compliance Services New York Council of Nonprofits, Inc. New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta www.nycon.org

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