1. Not-for-Profit Finance and Accounting for Board Members
Beth Allen
Paula Tilley
April 17, 2015

2. Agenda Role of a Board Member in Financial Oversight
Internal Controls for Small Organizations
Common Users of Financial Statements
Understanding Financial Statements
Financial Statements Review Checklist
Routine Tax Reporting Requirements
Understanding the Form 990 and other filing requirements
Key Financial & Governance Policies

3. Role of a Board Member: Fiduciary Duty
Approve the budget
Monitor the Financial Statements
Receive timely, accurate and comprehensible financial statements
Install/Monitor adequate internal controls
Ensure appropriate and adequate internal controls are in place (ask questions)
Ensure legal obligations are met
Ensure appropriate policies and procedures are in place
Make sure all necessary federal/state filings take place
Annually review the performance of the ED/Chief Executive
Oversee program outcomes and monitor progress

4. Role of a Board Member in Financial Oversight
Regularly prepare for and attend board meetings
Read all the information provided to you
Actively participate in board discussions, exercising independent judgment in decision making
Ask questions so that you have a complete understanding of the organization’s financial picture
Review your organization’s Form 990 prior to filing

5. Role of a Board Member in Financial Oversight
Consider going beyond public disclosure requirements to increase transparency
Adopt and implement appropriate financial governance policies to protect your organization
Understand the impact of various revenue and fund development approaches on your organization’s financial health
Understand the roles of the board treasurer and the financial and audit committees, and actively participate in identifying and recruiting qualified board members to fill those roles

6. Internal Controls for Small Organizations
Proper internal controls are essential for all organizations
Can be difficult for small nonprofits due to staff size/number of volunteers
Segregation of Duties
Employees
Volunteers

7. Separation of Duties Two Person Office
Business Manager
ED or Owner/Manager
Record accounts receivable entries
Mail checks
Write checks
Record general ledger entries
Reconcile bank statements
Record credits/debits in accounting records
Approve payroll
Receive cash
Disburse petty cash
Authorize purchase orders
Authorize check requests
Authorize invoices for payment
Approve and sign checks
Sign employee contracts
Complete deposit slips
Perform interbank transfers
Distribute payroll
Reconcile petty cash
Approve employee timesheets
Process vendor invoices
Review bank reconciliations and contents of bank statements

8. Separation of Duties Three Person Office
Bookkeeper
Office Manager
ED or Owner/Manager
Record accounts receivable entries
Reconcile petty cash
Write checks
Record general ledger entries
Reconcile bank statements
Record credits/debits in accounting records
Process vendor invoices
Receive cash
Mail checks
Approve invoices for payment
Distribute payroll
Authorize purchase orders
Authorize employee timesheets
Approve payroll
Disburse petty cash
Sign checks
Sign employee contracts
Complete deposit slips
Perform interbank transfers
Review bank reconciliations and content of bank statements

9. Common Users of Financial Statements
Management team members
Auditors
Donors/Funders
Lenders/Bankers
IRS and various governmental agencies
Board of Directors

10. Accounting 101
Accounting helps organizations to identify how much money is received and spent
How much cash do we have?
How much do we need to raise?
What do we want to buy/support?
Good accounting helps with obtaining grant funding for projects

11. Understanding Financial Statements: Statement of Financial Position
Summarizes the assets and liabilities of an organization at a point in time (balance sheet)
Assets – Liabilities = Net Assets
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted

12. Understanding Financial Statements: Statement of Activities
Similar to Income Statement for for-profit entities
Key sources of income:
Revenue: resources that resulted from an exchange (program or service fees)
Support: resources for which no services are received by donor/funder

13. Understanding Financial Statements: Statement of Activities
Critical areas for review:
Budget vs Actual
Revenue & Support
Trends
The Bottom Line (Net income/loss)

14. Understanding Financial Statements: Statement of Cash Flows
Converts accrual-based activity into a cash-basis format
Critical areas for review:
The Bottom Line (Total changes in cash)
Trends
Cash Flow from Operations
Days of Operating Cash

15. Understanding Financial Statements: Statement of Functional Expenses
Only required for voluntary health and welfare organizations
Many organizations outside of voluntary H&W organizations find this statement to be useful

16. Financial Statement Review Checklist
Statement of Financial Position:
Are there unusual trends?
Is the current ratio greater than 1.0?
Can we access capital in an emergency?
Are we prepared for a significant economic crisis?
Statement of Activities:
How are we addressing large variances between budget and actual?
Are we overly dependent on a single funding source?
Is revenue increasing at least as fast as expenses?
Did our bottom line meet expectations?

17. Financial Statement Review Checklist
Statement of Cash Flows:
Are we using more cash than we are generating?
How does the overall cash activity compare to prior year?
Do we have positive cash flow from operations?
Do we have at least 60 days of operating cash on hand?
Other Sources of Information:
Did we receive a clean audit opinion?
Do any of the footnotes cause us concern?
Are we complying with loan covenants?
What impression would a donor or lender have after reading our statements?

18. Routine Tax Reporting Requirements
Agencies:
IRS
Secretary of State
City and State Departments of Revenue
Payroll taxing authorities
Sales Tax

19. Forms Forms: When is your 990 due?
Form 1023: Application for Tax-Exempt Status
Form 990-N: <$50,000 revenue
Form 990-EZ: Gross receipts between $50,000-$200,000 or assets > $500,000
Form 990: Gross receipts >$200,000
Form 990-T: >$1,000 revenue unrelated to exempt purpose
When is your 990 due?
15th day of the 5th month after your accounting period ends (can extend up to 6 mos)
Automatic revocation of exempt status after 3 consecutive years
Can assess late filing penalties

20. Understanding Form 990 Snap Shot – Page 1
Summary of selected items contained in the return

22. Accomplishments

23. Checklist of Required Schedules
If questions are answered “yes”, a corresponding schedule must be completed

24. Governance, Management & Disclosures

25. Key Financial & Governance Policies
Governing Body
Conflicts of Interest Policy
Whistleblower Policy
Executive Compensation Policy
Gift Acceptance Policy

26. State/Local Filing Requirements
State Registration and/or Charitable Solicitation License
Annual Report
Sales & Use*
Property Tax
All of these vary considerably from state to state
* See appendices

27. Payroll & HR Reporting
Outsourcing payroll to a 3rd party service provider
Administer payroll and employment taxes on behalf of the employer
Reporting, collecting and depositing employment taxes with state and federal taxing authorities
REMINDER – Employer is ultimately responsible for the deposit and payment of taxes
Form 1099-MISC for independent contractor

28. Donor Acknowledgements
Required if contribution > $250
Solicit or receive contribution > $75 and organization provides valuable goods or services in return
Donors must maintain receipt for their contributions
Organization's name
Amount of cash contribution
Description (but not value) of non-cash contribution
Statement that no goods or services were provided by the organization, if that is the case
Description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution
Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible benefits, if that was the case

29. Resources
The American Institute of Philanthropy -
Better Business Bureau Wise Giving Alliance -
Charity Navigator -
Innovation Network -
National Center for Charitable Statistics -
Outcome Measurements Resource Network -
Guide Star -
National Committee on Planned Giving -
Partnership for Philanthropic Planning -
Non-Profit Accounting Basics -
IRS –
Kristin

30. Questions???
Beth Allen Senior Assurance Manager Paula Tilley Senior Tax Manager