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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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?

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

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

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

Accomplishments

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

Governance, Management & Disclosures

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

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

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

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

Resources The American Institute of Philanthropy - www.charitywatch.org Better Business Bureau Wise Giving Alliance - www.bbb.org/us/charity Charity Navigator - www.charitynavigator.org Innovation Network - www.innonet.org National Center for Charitable Statistics - http://nccs.urban.org/ Outcome Measurements Resource Network - www.unitedway.org Guide Star - www.guidestar.org National Committee on Planned Giving - www.ncpg.org Partnership for Philanthropic Planning - www.pppnet.org Non-Profit Accounting Basics - http://www.nonprofitaccountingbasics.org/ IRS – http://www.irs.gov/Charities-&-Non-Profits Kristin

Questions??? Beth Allen Senior Assurance Manager beth.allen@greerwalker.com Paula Tilley Senior Tax Manager paula.tilley@greerwalker.com 704.377.0239