Financial Management for NFPs John Olsavsky Assistant Professor SUNY Fredonia - School of Business May 22, 2014

Financial Management for NFPs Welcome Introductions Materials In Front Of You Expectations… School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Board Financial Responsibilities NYS Office of the Attorney General (Appendix 1) “Right From the Start: Responsibilities of Directors of Not-for-Profit Corporations” Duties Care Loyalty Obedience School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Board Financial Responsibilities Right From the Start… (Appendix 1) Duties Care Requires a director to be familiar with the organization's finances and activities and to participate regularly in its governance. Loyalty Requires a director to act in the interest of the corporation. Obedience Requires a board to insure that the organization complies with applicable laws and regulations and its internal governance documents and policies. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Board Financial Responsibilities NYS Department of Law, Statutes Booklet (Appendix 2) Solicitation and Collection of Funds for Charitable Purposes (Page 3 & 4) Registration of charitable organizations Reports by registered charitable organizations Prohibited Activities Registration of Professional Fund Raisers School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Initially IRS Form 1023 (Appendix 3) Application for Recognition of Exemption Form 410 (Appendix 4) Registration Statement for Charitable Organizations School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Annually IRS Form 990 (Appendix 5) Return of Organization Exempt from Income Tax Form 1099-MISC (Appendix 6) Miscellaneous Income W-2s with W-3 Transmittal Payroll School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Annually NYS CHAR 500 (Appendix 7) Form 990 Annual Financial Report for Charitable Organizations Form 990 Return of Organization Exempt from Income Tax Independent Accountant’s Report If Total support & revenue over $100,000, REVIEW If Total support & revenue over $250,000, AUDIT School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Annually Public U.S. GAAP-based Financial Statements (Appendix 8) GAAP = Generally Accepted Accounting Principles School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Quarterly (Payroll tax reports) IRS Form 941 NYS Employer’s Quarterly Federal Tax Return (Appendix 9) NYS NYS-45-MN Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return (Appendix 10) School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Reporting Monthly Board Treasurer’s Report (Appendix 11) At least, a Comparative Statement of Activity (AKA, Income Statement) Budget versus Actual Current month versus Year-to-date School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Statements Statement of Financial Position AKA Balance Sheet Statement of Activities AKA Income Statement Statement of Functional Expenses Statement of Cash Flows School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Statements Statement of Financial Position Snapshot Structure Definitions/Comments Rules School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Statements Statement of Activities Structure Definitions/Comments Key Ideas School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Statements Statement of Functional Expenses Structure Definitions/Comments Program versus Supporting Services School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Financial Statements Statement of Cash Flows Structure Definitions/Comments Net cash flows should be positive. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Independent Auditors’ Reports Types Compilation Review Audit School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Independent Auditors’ Reports Compilation The accountant assembles the prospective financial information and considers whether the assumptions or presentation are obviously inappropriate without expressing an opinion/conclusion or any other assurance on the financial forecast or projection or the underlying assumptions. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Independent Auditors’ Reports Review The accountant performs inquiry and analytical procedures to provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that need to be made to the financial statements in order for them to be in conformity with GAAP (negative assurance). NOTE: Required by NYS if Total Revenue and Support more than $100,000, up to $250,000. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Independent Auditors’ Reports The accountant evaluates the preparation of the prospective financial information, the supporting underlying assumptions, and the conformity of the presentation with AICPA guidelines, in order to provide the accountant with a reasonable basis for expressing an opinion on the conformity of the financial forecast or projection with AICPA guidelines and on the reasonableness of the assumptions. NOTE: Required by NYS if Total Revenue and Support more than $250,000. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Sarbanes-Oxley Act of 2002 (SOX) Areas of Concern 1. Insider Transactions and Conflicts of Interest 2. Independent and Competent Audit Committee 3. Responsibilities of Auditors 4. Certified Financial Statements 5. Disclosure 6. Whistle-Blower Protection 7. Document Destruction Resources A Checklist for Nonprofits (Appendix 12) Internal Controls Checklist (Appendix 13) Segregation of Duties Staffing Patterns (Appendix 14) School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Non-Profit Revitalization Act of 2013 Highlights (Mostly effective, July 1, 2014) Elimination of Letter Types Significant Corporate Real Estate Transactions Modernization of Board Procedures and Meetings Required Financial Reporting and Audit Procedures Mandatory Whistleblower Policy Mandatory Conflict of Interest Policy Related-party Transactions Chair Requirements Executive Compensation Privacy Independent Director Entire Board Nonprofits With Educational Purposes. School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

NYS Non-Profit Revitalization Act of 2013 Required Financial Reporting and Audit Procedures Effective for filing due dates July 1, 2014, to June 30, 2017: If Annual Gross Revenue and Support > $250,000, file annual financial report with an independent CPA’s review report If Annual Gross Revenue and Support > $500,000, file annual financial report with an independent CPA’s audit report Effective for filing due dates July 1, 2017, to June 30, 2021: If Annual Gross Revenue and Support > $750,000, Effective for filing due dates on or after July 1, 2021: If Annual Gross Revenue and Support > $1,000,000, School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Budgets What is a budget? Why do we prepare budgets? When do we prepare budgets? When and how do we use budgets? Typical NFP budgets Operating budget Cash budget Capital budget School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Budgets Operating budget Prepared annually (or monthly) Contains expected Revenues Expenses School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Budgets Cash budget Prepared monthly (or weekly or daily) Contains expected Cash receipts from operating, investing and financing activities Cash payments from operating, investing and financing activities School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Budgets Capital budget Prepared annually for the next two to ten years Contains expected Purchases of “capital assets” Sales of “capital assets” School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Sources and Resources Books/Pamphlets Web Sites GuideStar.org Contact Info Workshop Files School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

Questions? Comments? School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up

The End School of Business 20140522 Overview Responsibilities Reporting Statements Audits & Budgets Wrap-up