Financial Management Slides


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Learn about nonprofit financial policies and procedures that will build on a strong financial management foundation for your organization

Published in: Business, Economy & Finance

Financial Management Slides

  1. 1. Non-profit Financial Fundamentals Essentials to a Healthy Non-profit
  2. 2. Welcome <ul><li>Introductions </li></ul><ul><li>Your take-a-ways… </li></ul><ul><ul><li>For your organization </li></ul></ul><ul><ul><li>For you personally </li></ul></ul>
  3. 3. Financial Management’s Primary Role: <ul><li>To control and direct the resources of an organization in support of the mission and goals. </li></ul>
  4. 4. Our Objectives …… <ul><li>Provide an overview of the elements for sound financial management. </li></ul><ul><li>Understand the fundamentals of financial management, why they are important, and how to implement them. </li></ul><ul><li>Understand the tools necessary to manage grants and financial resources. </li></ul><ul><li>Complete a self evaluation action plan that will improve your organizations grant readiness and improve your financial management capacity. </li></ul>
  5. 5. Financial Management Elements <ul><li>Strong Budget Process </li></ul><ul><li>Timely Management Reports </li></ul><ul><li>Strong Internal Controls </li></ul><ul><li>Consistent Documentation </li></ul><ul><li>Self Assessment & Capacity Development Plan. </li></ul>
  6. 6. Financial Management Benefits <ul><li>Provides a financial plan to support achievement of goals. </li></ul><ul><li>Promotes proactive decisions, not reactive ones. </li></ul><ul><li>Establishes trust and confidence in donors and grantors. </li></ul><ul><li>Provides a means to access more resources. </li></ul><ul><li>Ensures integrity in the stewardship of the resources you have. </li></ul>
  7. 7. Illustrations & Examples <ul><li>Structural steel in a building… </li></ul><ul><li>Engineering on Star Trek… </li></ul>
  8. 8. What characteristics are critical to making a successful … <ul><li>Farmer …… </li></ul><ul><li>Coach …… </li></ul><ul><li>Parent …… </li></ul><ul><li>Teacher …… </li></ul><ul><li>Grocer …… </li></ul>
  9. 9. The Faithful Fruitful Farmer
  10. 10. Let’s start with a story…. <ul><li>Food & Warmth Inc. </li></ul>
  11. 11. Food & Warmth Inc. <ul><li>Read the Case: </li></ul><ul><ul><li>What are the issues / problems you observe? </li></ul></ul><ul><ul><li>What are the requirements to earn the grant? </li></ul></ul>
  12. 12. Element #1: Strong Budget Process <ul><li>A budget is the foundation for all financial management. </li></ul>
  13. 13. Budget Process <ul><li>Step 1: Build a statement of financial position for the past year. </li></ul><ul><li>Step 2: Develop a one year budget for the upcoming year. </li></ul><ul><li>Step 3: Project cash flows by month </li></ul><ul><li>for the time period in the budget. </li></ul>
  14. 14. Budget Process Building Blocks <ul><li>Chart of Accounts & Accounting System </li></ul><ul><li>Track Revenue by Source of Income </li></ul><ul><li>Track Expenses by Administration, Fund Raising and Program. </li></ul><ul><li>Track Revenue and Expenses by Grant & In-Kind Giving </li></ul><ul><li>Project Cash Flow </li></ul>
  15. 15. Chart of Accounts <ul><li>Simply stated the chart of accounts allows you to categorize all financial transactions. It is the foundational building block for financial information and reports. </li></ul>
  16. 16. Example Chart of Accounts <ul><li>What are the elements / categories you see in this example chart of accounts? </li></ul><ul><li>What is missing from this chart of accounts? What accounts do you use in your own organization? </li></ul><ul><li>How would this chart of accounts be useful in your role as the Food & Warmth Financial Manager? </li></ul>
  17. 17. Review Food & Warmth Inc. <ul><li>Review the Budget Table. Does it provide for everything you need to satisfy the grant requirements? </li></ul><ul><li>What is still missing? </li></ul><ul><li>How does it compare to your own organizations budget? </li></ul>
  18. 18. Anticipate Your Cash Needs <ul><li>Project cash flows by month for the time period reflected in the budget. </li></ul>
  19. 19. Budget Process Skills <ul><li>You can categorize and track different sources of revenue by program/department. </li></ul><ul><li>You can separate out your administrative costs, fund raising costs, and program costs. </li></ul><ul><li>You can report at least one past year of historical revenue and expenses. </li></ul><ul><li>You can track grant specific revenue and expenses for the portion funded by the grantor and the part funded by your organization. </li></ul><ul><li>You can forecast net cash flow by month. </li></ul>
  20. 20. Self Evaluation Check List: #1: Strong Budget Process <ul><li>Review #s 1-17 </li></ul>
  21. 21. Element # 2 Timely Management Reports: <ul><li>Reports provide the opportunity to focus </li></ul><ul><li>on the right things , </li></ul><ul><li>demonstrate faithful stewardship , </li></ul><ul><li>provide valuable information that guides and supports decision making in achieving the mission of your organization. </li></ul>
  22. 22. Management Reports Building Blocks <ul><li>Timely : Ensure all deadlines are met. </li></ul><ul><li>Accurate : Use accounting data that has been reviewed. </li></ul><ul><li>Complete : Contain all pertinent information relating to the reporting period. </li></ul><ul><li>Identify costs by year and budget category. </li></ul><ul><li>Account for each grant separately. </li></ul><ul><li>Distinguish administrative, fund raising, </li></ul><ul><li>and program costs. </li></ul><ul><li>Track program outcomes and indicators. </li></ul>
  23. 23. Suggested Monthly Reports <ul><li>Monthly and year-to-date budget to actual reports. </li></ul><ul><li>Monthly cash on hand. </li></ul><ul><li>Track & monitor restricted fund balance. </li></ul><ul><li>In-Kind giving by area. </li></ul><ul><li>Develop program outcomes and indicators to go along with financial reports. </li></ul>
  24. 24. Develop Reporting Skills <ul><li>Understand the difference between direct and indirect costs. </li></ul><ul><li>Develop methods to allocate full costs to programs. </li></ul><ul><li>Able to track restricted fund balance. </li></ul><ul><li>Develop methods to capture in-kind contributions. </li></ul><ul><li>Identify program metrics and indicators as well as financial reports. </li></ul>
  25. 25. Indirect Cost Exercise (Square Feet) 10,000 5,000 4,000 500 500 Space Used 14 6 8 Number Volunteers 6 2 2 1 1 Number Staff $500,000 $160,000 $260,000 $40,000 $40,000 Actual Annual Cost Total Clothing Bank Food Bank Fundraising Admin Category
  26. 26. Food & Clothing Inc. Example <ul><li>Direct Costs? ___________ </li></ul><ul><li>Indirect Costs? _________ </li></ul><ul><li>Percent Breakdown: </li></ul><ul><ul><li>Admin: _______%, </li></ul></ul><ul><ul><li>Fundraising _______% </li></ul></ul><ul><ul><li>Program _______% </li></ul></ul><ul><li>Full Program Cost: </li></ul><ul><ul><li>Food Bank $ ____________ </li></ul></ul><ul><ul><li>Clothing Bank $ ____________ </li></ul></ul>
  27. 27. Self Evaluation Check List: #2: Timely Management Reports <ul><li>Review #s 18-22 </li></ul>
  28. 28. Element #3: Strong Internal Controls <ul><li>The purpose of internal controls is to: </li></ul><ul><li>Ensure expenditures are spent only upon proper authorization of management, for valid business purposes </li></ul><ul><li>Ensure all disbursements are properly recorded. </li></ul>
  29. 29. “ Opportunity facilitates Temptation” <ul><li>Appropriate internal controls will protect your organization and your people. </li></ul><ul><li>Given opportunity: </li></ul><ul><ul><li>even an honest individual will be tempted. </li></ul></ul><ul><ul><li>an honest individual in great need is at great risk of compromising their values. </li></ul></ul><ul><ul><li>a dishonest individual will award you with responsibility for their fraudulent behavior. </li></ul></ul>
  30. 30. Internal Control Building Blocks <ul><li>Board Approved Budget </li></ul><ul><li>Establish authority and process limits. </li></ul><ul><li>Cash management. </li></ul><ul><li>Segregation of duties. </li></ul><ul><li>Restricted fund management. </li></ul><ul><li>Establish performance standards. </li></ul><ul><li>Three bid requirement. </li></ul>
  31. 31. 1. Budget ; 2. Authority <ul><li>Board Approved Budget: The Board reviews and approves the annual budget. </li></ul><ul><li>2. Established authority limits: Identify who is authorized to spend money and at what limit. Areas to set limits include the following: </li></ul><ul><ul><li>Determine who is a signer on each bank account. </li></ul></ul><ul><ul><li>Set signature authority limits: </li></ul></ul><ul><ul><ul><li>For example: Checks over $5,000 require two signatures. </li></ul></ul></ul><ul><ul><ul><li>Program Director can authorize spending up to $500 without Executive Director approval. </li></ul></ul></ul>
  32. 32. 3. Cash Management <ul><li>Two count cash at all times </li></ul><ul><li>Petty Cash account documentation and reconciliation. </li></ul><ul><li>Target the number of days cash to have on hand. </li></ul>
  33. 33. Target Days Cash on Hand Average Monthly Expenses Target / Goal $60,000 $45,000 $30,000 90 $40,000 $30,000 $20,000 60 $20,000 $15,000 $10,000 30 $20,000 $15,000 $10,000 Days Cash on Hand
  34. 34. 4. Segregation of Duties <ul><li>Segregation of duties means that no financial transaction is handled by only one person from beginning to end. </li></ul><ul><li>What are the dangers if the same person …. </li></ul><ul><li>Opens Mail </li></ul><ul><li>Counts Cash </li></ul><ul><li>Deposits Cash </li></ul><ul><li>Posts Deposit </li></ul>
  35. 35. Design Segregation of Duties <ul><li>For your own organization fill out the Actual segregation of duties worksheet. </li></ul><ul><li>Exchange your sheet with someone else and talk through how you could increase segregation of duties. </li></ul><ul><li>Use the “Revised Segregation of Duties” to make any recommended changes. Think about non financial donated items as well. </li></ul>
  36. 36. 5. Restricted Fund Management <ul><li>Money which has been restricted by the donor for a specific use. </li></ul><ul><li>For example: Buying a new building or starting a new program, should only be used for the purpose for which it has been given. </li></ul>
  37. 37. Restricted Funds <ul><li>Receipt of grant funds usually is accompanied by a contract which spells out how the funds can be used. </li></ul><ul><li>Develop a method to review the status of restricted funds on a monthly basis. </li></ul>
  38. 38. Restricted Funds Example $ 120,000 $ 120,000 Total Restricted & Unrestricted $ (5,000) $ 40,000 Unrestricted Funds $ 125,000 $ 80,000 Total Restricted Funds $ 20,000 $ 5,000 Intern Support $ 25,000 $ 15,000 Federal Grant $ 80,000 $ 60,000 Building Restricted Funds $ 120,000 $ 120,000 Total Cash All Accounts Example 2 Acct. Bal. Example 1 Acct. Bal. Funds
  39. 39. <ul><li>Establish Performance Standards </li></ul><ul><li>Establish goals for timeliness and accuracy. </li></ul><ul><li>Bill and reimbursement payment. </li></ul><ul><li>Deposits: Daily, no cash overnight. </li></ul><ul><li>Receipts. </li></ul><ul><li>Filing. </li></ul><ul><li>Account reconciliation monthly. </li></ul><ul><li>Treasurer review monthly; </li></ul><ul><ul><li>Cash on hand </li></ul></ul><ul><ul><li>Restricted fund balances </li></ul></ul><ul><ul><li>Bank account reconciliations </li></ul></ul>
  40. 40. 7. Three Bid Requirement <ul><li>Some grants require you to get three bids on purchases over a certain threshold. $500 is a common threshold. For example, purchase of a computer or lap top with software would require you to solicit three bids before purchase. Documentation of the bids would need to be saved. </li></ul><ul><li>See example “Procurement Form” </li></ul>
  41. 41. Building Your Capacity <ul><li>Take the time to formalize your internal controls in the form of board approved policies and procedures. </li></ul><ul><li>Plan to review your policies and revise them as needed at least annually. </li></ul><ul><li>If you don’t start…it won’t get done. </li></ul>
  42. 42. Self Evaluation Check List: #3: Strong Internal Controls <ul><li>Review #s 23-35 </li></ul>
  43. 43. Element #4: Consistent Documentation: Financial & Program Activity <ul><li>Documentation demonstrates stewardship and accountability in your organization relative the financial transactions. </li></ul><ul><li>It is being faithful in the daily “little” things that will prepare you for the trust donors and grantors will give you for greater resources. </li></ul>
  44. 44. Documentation Building Blocks: <ul><li>Donations: </li></ul><ul><li>Expenses: </li></ul><ul><li>Bank Reconciliation </li></ul><ul><li>In-kind contributions. </li></ul><ul><li>Time sheets </li></ul><ul><li>Sign-In sheets </li></ul>
  45. 45. Principles of Documentation <ul><li>Date </li></ul><ul><li>Signature </li></ul><ul><li>Sign in Sheet </li></ul><ul><li>Purpose </li></ul><ul><li>Originals filed </li></ul><ul><li>Use a three ring binder </li></ul>
  46. 46. Review of Example Forms <ul><li>Request for Reimbursement </li></ul><ul><li>Request for Expenditure </li></ul><ul><li>Debit Card Expenditure </li></ul><ul><li>Electronic Funds Expenditure </li></ul><ul><li>Bank Transfer Authorization </li></ul><ul><li>Time Sheet </li></ul><ul><li>Volunteer Time Sheet </li></ul>
  47. 47. Building Your Capacity <ul><li>Develop the forms and process that will provide an efficient and accurate audit trail. </li></ul>
  48. 48. Self Evaluation Check List: #4: Consistent Accurate Documentation <ul><li>Review #s 36-42 </li></ul>
  49. 49. Element #5: Self Assessment & Capacity Development Plan. <ul><li>The key improving is to determine what you need to work on, and get busy. </li></ul><ul><li>Set your goals to incrementally improve. </li></ul>
  50. 50. Self Assessment & Capacity Building Blocks <ul><li>Complete a self evaluation & take action. </li></ul><ul><li>Develop the areas that will make you ready for grants. </li></ul><ul><li>Complete an outside audit. </li></ul>
  51. 51. Key Elements for Grant Readiness <ul><li>Chart of accounts and accounting software that supports segmentation and reporting of revenue and expenses by grant. </li></ul><ul><li>Internal controls that ensure grant funds are expended according to the grant. </li></ul><ul><li>Capacity to add the additional work not only for grant program implementation, but in the accounting and administrative areas. </li></ul><ul><li>Develop a clear idea of what you need resources for. </li></ul>
  52. 52. Fundamental Financial Elements <ul><li>Strong Budget Process </li></ul><ul><li>Timely Management Reports </li></ul><ul><li>Strong Internal Controls </li></ul><ul><li>Consistent Documentation </li></ul><ul><li>Self Assessment & Capacity Development Plan. </li></ul>
  53. 53. “Daily” “Faithful” & “Fruitful”