1. (Best) Fiscal Practices
Stephen Kattell, MBA, CPA
Kattell and Company, P.L.
Serving the Nonprofit Community

2. Summit Objectives
To provide education,
resources, and tools to
nonprofit staff and board
members on a specific topic
in order to further their
missions.

3. Fiscal Practices and Mission
Sound fiscal practices NEVER ensure that an
organization will achieve its mission.
HOWEVER
Deficient fiscal practices OFTEN prevent
organizations from achieving their mission.

4. Fiscal Practices and Mission
BUT, NOT ALWAYS
Some nonprofits achieve mission without sound fiscal
practices
– Sometimes just lucky
– Usually much more costly
DO YOU WANT TO LEAVE ACHIEVEMENT OF
YOUR MISSION TO CHANCE?
Do You Feel Lucky?

5. Responsibility
Responsibility can be
delegated but not
abdicated.

6. RESPONSIBILITY?
 Board of Directors
 Board Treasurer/Committees
 Chief Executive Officer
– Executive Director
 Chief Financial Officer
– Accountant
– Bookkeeper
– Finance director
– Controller
 Contractors
– Bookkeeper
– Payroll Company
– Auditor
– Attorney
 Volunteers

7. Responsibility (according to steve)
 Board of Directors
 Board Treasurer/Committees
 Chief Executive Officer
– Executive Director
 Chief Financial Officer
– Accountant
– Bookkeeper
– Finance director
– Controller
 Contractors
– Bookkeeper
– Payroll Company
– Auditor
– Attorney
 Volunteers

8. Board of Directors
 Set a budget.
 Monitor status of budget by comparison to
regular financial information.
– Balance Sheet
– Profit and Loss Statement
 Include budget to actual comparison
– Balance Sheet and P&L should “articulate”.
– Generated from the accounting software.
 Use care of a prudent person.

9. Board of Directors
 Let these do the leg work and report to the
full board:
– Treasurer
– Finance Committee
– Audit Committee
– Investment Committee
 The more financial experience the better.

10. Board of Directors
 Leg work includes:
– Liaisons between board and staff with respect to
all fiscal matters
– Meetings with the CEO and CFO to review
budgets and reports and recommend changes
– Reviewing and making recommendations
regarding internal controls
– Reviewing and making recommendations
regarding policies and procedures

11. Chief Executive Officer
 You can have great passion for the mission and
programs, but you must also have a working
knowledge of the finances:
– Where’s the cash?
– How does each action, decision, or program affect the
cash?
 CEO supervises the CFO.
 Some CEOs are better suited to be the CPO or DD
because they just don’t get it when it comes to the
finances.

12. Internal Controls
 That set of policies, programs, practices,
procedures… that provide assurance that
you will achieve your objective.
 Fiscal objectives
– Assets are safeguarded
– Financial information is accurate and reliable
– Transactions are authorized
 For smaller nonprofits – CASH is KING.

13. Internal Controls Perspective…
… the Fraud Triangle
 Incentives and pressures
 Bad habits – drugs, alcohol, gambling, spending
 Bad breaks – divorce, medical problems
 Solution – Robust HR Department
 Opportunities
 Lack of internal controls
 In most cases of theft of cash, obvious controls were missing.
 Attitudes/Rationalizations
 Low moral from layoffs
 Perceived inequities in hiring, pay, bonuses, promotions
 Solution – Establish a culture of high ethical standards and
integrity

14. Cash is King
 Get the cash in your hands.
– Ask for donations.
 If pledged, follow up on payments
– Bill for goods and services delivered
 Follow up and collect on accounts receivable
 Don’t let the cash out of your hands.
– The person responsible for paying the bills should be the
cheapest person in the organization.
– This person should not worry about being the most popular.
No Miss Congeniality awards here!

15. Internal Controls – Money In
 Principles:
– How do you know all of the money that should be
deposited into the bank actually makes it to the
bank?
– Rule of thumb. The fewer the number of people
who touch the money before it goes into the bank,
the fewer controls you need.

16. Internal Controls – Money In
 General
– Pass out “For Deposit Only” stamps like candy.
– Segregate Duties – establish healthy competition between functions.
 Revenues
– Segregate duties: Program personnel want to report maximum revenues.
– Processes to ensure invoicing and recording for all goods and services
delivered.
– Processes to follow up on collections.
 Contributions
– Segregate duties: Development people want to report maximum
contributions.
– Reconcile donor database with accounting records.
– Who sends out donor acknowledgements and on what basis?
 Grants
– Try not to leave money on the table.
– Reconcile grant billings to expenses in the GL.

17. Internal Controls – Money Out
 How do you know that all money taken out of the
bank (or investment accounts) was for a legitimate
and authorized purpose?
 checks written
 EFTs
 on-line bill pay
 automatic deductions
 fees
 Fraud Rule of Thumb. Most organizations typically
need to worry about just one person, the CFO.

18. Internal Controls – Money Out
 Controls over CFO
– If the CFO stole money, who would detect it?
– 2 signatures on checks - MEANINGLESS.
– Someone other than CFO needs to review bank
statements.
– Larger organizations need more complex
processes.

19. Internal Controls – Money Out
 Over-Payments
– Payables Clerk should be the cheapest person in the
organization.
– Compare to contract or agreement.
– Compare to last month’s invoice.
– Compare to last year’s invoice.
– Compare to purchase order.
– Compare to receiving report or packing list approved by the
person who actually received the goods.
 Most common over-payments – sales tax.
– Company credit cards/debit cards are acceptable when
properly controlled.

20. Bookkeeping Basics…
Check Your Work!
 Cash - monthly bank reconciliations.
 My latest pet peeve – bank reconciliations that don’t
reconcile.
 What’s a bank reconciliation? Bank reconciliations
can only have 4 items:
– Balance per bank statement
– Plus – Deposits in Transit
– Minus – Outstanding Checks
– Equals – Balance per general ledger

21. Bookkeeping Basics…
Check Your Work!
 Investments
– Agreement to investment statements.
– Proper recording of current period income, fees,
gains and losses.
 Receivables and payables.
– Agreement to subsidiary schedule.
– No bogus entries or balances.

22. Bookkeeping Basics…
Check Your Work!
 Prepaid expenses.
– Some sort of supporting schedule proving the amounts
prepaid.
 Fixed Assets.
– Actually on hand.
– Depreciation schedule.
 Long Term Debt.
– Balance agrees to monthly statement, if any.
– Balance agrees to amortization schedule.

23. Bookkeeping Basics…
Check Your Work!
 Look at your trial balance.
 Do you understand every account that is
there and do you understand every balance?
 A more complex organization means more
complex accounts and balances.
 Complex accounts and balances require
more skill from top level management.

24. Management Information
 Use of classes if highly recommended for
– Functional reporting
 Required by IRS and GAAP
– Departmental reporting
 Accountability
– Grant reporting
 Required by state and federal law
 Provides evidence that double dipping did not occur. (Note:
double dipping is bad.)
– Tracking donor restrictions
 Keeping donors informed
– Determining profit and loss from one or more activities.

25. Audits – Who Needs Them?
 Independent (external) – CPA
 “Internal Audits” for smaller organizations
can be a nice substitute for an external audit
– Set up an “audit committee” who will provide an
after the fact review.
– Volunteers who know their way around financial
records.

26. Independent Audits
 Not required by the State of Florida
 Not required by the IRS
 Typically required by funding sources.
– United Way of North Central Florida requires for
budgets of over $500,000.
– Federal government requires for expenditures of
federal awards of more than $500,000.
– Consult other funding or regulatory requirements.

27. Independent Audits
 Don’t be penny wise and pound poor.
 Think twice: How much is the cost of an audit
compared to the large donor who didn’t give
you a second thought?
 There are actually benefits of an audit
– Sometimes quantifiable.
– Usually less tangible.
– Not always cost justified.

28. Audit Alternatives
 Reviews
– United Way requires reviews for organizations
under $500,000.
– Provides limited assurance based on limited
procedures.
 Compilations
– Provides no assurance.

29. And Now for My Soapbox
 There are those that suggest that auditor rotation is
a best practice.
 It is not a best practice. Studies show it’s not even a
good practice.
 Mandatory rotation “dumbs down” the process.
 The best practice is to evaluate your auditor every
year and to make any future engagement contingent
on the quality of the latest engagement.

30. Internal Revenue Service
 Primary source of laws and regulations governing
the activities of tax-exempt organizations (TEOs)
 Generally prohibiting:
– Private benefit
– Private inurement
– Political activities
 Limiting:
– Lobbying
 Providing for:
– Taxation of unrelated business activities

31. IRS – Compensation Issues
 Reasonable compensation or excess benefit.
 What is reasonable?
 Safe harbor provisions provide a rebuttable
presumption of reasonableness.
– Independent committee
– Comparability data
– Contemporaneous documentation

32. Compensation Issues
 One of the most common criticisms that is
found in an audit… compensation that is not
properly reported to the IRS.
– Bonuses
– Gifts
– Awards
– Personal use of
 Vehicles
 Computers
 Cell phones.

33. Compensation Issues
 Non Taxable Benefits:
– Health, Life, Dental Insurance
 Part of a plan applicable to all employees.
 Reimbursement for actual health insurance.
 Seek professional help.
– Retirement Plans
 Can’t just give them money
 403(b)
 401(k)
 457
 Others
 Seek professional help

34. Form 990 Series
 Form 990-N
– Gross receipts ≤ $50,000.
– Filed electronically
 Form 990-EZ
– 2008: Receipts < $1,000,000 and assets < $2,500,000
– 2009: Receipts < $500,000 and assets < $1,250,000
– 2010: Receipts < $200,000 and assets < $500,000
 Form 990
– All others.
– Extensive.

35. Form 990 – Governance Policies
 Form 990. Do ALL members of governing board review Form 990 BEFORE
filing?
– Describe process for review.
 Conflict of Interest Policy. Does TEO have a conflict of interest policy?
– Annual disclosures?
– Regular and consistent monitoring?
 Describe such monitoring
 Whistleblower Policy. Written whistleblower policy?
 Document Retention. Written document retention and destruction policy?
 Compensation. Did process for determining compensation of CEO, officers
and other key employees include safe harbor provisions?
– If yes, then describe the process.
 Joint Venture Arrangements.
 Local Chapters, Branches, or Affiliates.

36. Questions?

37. Applause!