Financial Leadership Presenter This program supports implementation of the Standards for Excellence® Code

Standards for Excellence® Code Financial Accountability 1.A nonprofit should operate in accordance with an annual budget that has been approved by the board of directors 2.A nonprofit should create and maintain financial reports on a timely basis that accurately reflect the financial activity of the organization. Internal financial statements should be prepared at least quarterly, should be provided to the board of directors, and should identify and explain and material variation between actual and budgeted revenues and expenses. 3.For nonprofits with annual revenue in excess of $500,000, the financial reports should be subject to audit by a Certified Public Accountant. 4.Organizations should have written financial policies adequate for the size and complexity of their organization governing: (a) investment of the assets of the organization, (b) internal control procedures, (c) purchasing practices, (d) unrestricted current net assets.

Agenda Introductions What is “financial leadership” Financial concepts you needs to know Financial planning Financial Reporting Internal Controls Financial Communication

Be Realistic, Not Idealistic “Profit” (or positive Net Assets) is Not Bad You Need $$$ to Pursue Mission Revenue Takes Work Cash Flow Pays the Bills Bookkeeping & Accounting are Professions Errors might be an oversight, but bad recordkeeping & fraud are negligence

Financial Leadership Ensure Accuracy Assess Communicate Plan

Financial Leadership Be Financially Literate NOT A Financial Scholar View as a Management Tool not a Necessary Evil Know What’s Involved Accounting Budgeting Reporting Controlling Use the Right People

Financial Leadership Move beyond mission-vs-money Cultivate financial leadership Programs are interdependent Strong infrastructure supports strong programs Set strong accountability and transparency tone Management Tool

Key Concepts Types of Funds (Donor Intent) Unrestricted Temporarily Restricted Permanently Restricted Accounting Principles Cash vs Accrual Capitalization & Depreciation Common Costs Allocation Value of Different Reports Nonprofit Accounting 101

Know What’s Involved Recognizing grant revenue Accts Receivable / Payable Employee Time (FTE) Journal Entries Double-entry bookkeeping Accounting

Key Concepts Assets (+) vs Liabilities (-) Credits vs Debits Accounting ()()()() (-)(-)

Double-Entry Bookkeeping Two Sides to Every Story Assets (+) Liabilities (-) Debit (+)Account Credit(-) Debit(-)AccountCredit(+) Cash $ 2,000.00Salaries $ 2, $ Payroll Taxes Accounting

The Budget Annual Predictions (Best Guess) Income Based (Realistic) Comprehensive Aligns with 990 Board Approved Budgeting

Reporting Statement of Activities Statement of Position Cash Flow 990 Audit Reporting

Statement of Activities (aka Profit & Loss) Reporting XYZ Nonprofit Organization Sample Statement of Activities April 2009 through January 2010 Actual Act % BudBudgetForecastActual Jan 10Jan 09Apr 09-Jan 10(target 83%)FY10 Apr 08- Jan 09FY09 Revenue GRANTS & CONTRIB-RESTRICTED 25, , , , ,873 NEWSLETTER ADS 2,400 2,88044% 6,500 3,005 2,736 SEMINARS AND WORKSHOPS 11,080 19, ,89157% 211, , , ,010 FOUNDATIONS 10,000 2, ,273115% 96, , , ,273 INDIVIDUAL GIVING 15,925 32,850 36,22265% 56,090 41,222 34,411 45,992 CORPORATE CONTRIBUTIONS 16,046 15, ,00089% 140, , ,000 INVESTMENT INCOME ANNUAL GALA 2,000 23,25093% 25,000 24,230 22,088 25,250 Total Income 83,076 72, ,75184% 865, , , ,134 Expense SALARIES & WAGES 36,333 26, ,66783% 320, , , ,000 BENEFITS & PAYROLL TAX 6,420 6,500 64,20083% 77,035 85,490 60,990 75,000 SEMINARS AND WORKSHOPS 2, ,40098% 250, , , ,000 PROFESSIONAL DEVELOPMENT 2,200 3,109 4,30086% 5,000 4,085 5,000 SUPPLIES & OFFICE EXP 7, ,115111% 10,000 3,773 10,559 12,000 OCCUPANCY 15,918 14,512 30,00083% 36,000 37,000 28,500 30,000 POSTAGE 4,460 1,32420% 6,500 3,168 1,258 1,522 PRINTING 62 12,089 33,09235% 95,158 39,158 31,438 33,092 TRAVEL 1,880 2,452 26,28775% 35,000 33,500 24,972 27,650 DEPRECIATION 1,190 4,77087% 5,500 4,770 4,531 5,000 ANNUAL GALA EXPENSE 140 3,003 7,224103% 7,000 7,224 6,863 6,400 Total Expense 73,642 75, ,37982% 847, , , ,664 Net Income 9,434 (3,062) 31,372172% 18,207 62,197 21,983 (99,530)

Statement of Position (aka Balance Sheet) Reporting Exhibit 5Balance Sheet as of 12/31/xx Insert Last Day Prior Fiscal Year Insert Last Day of Fiscal Year Assets Cash 45,368 80,411 Accounts Receivable 125, ,235 Prepaids 5,323 5,866 Plant & Equipment 324, ,336 Less Accumulated Depreciation (259,380) (256,752) Total Assets 240, ,096 Liabilities and Equity Liabilities - Accounts Payable 68,233 28,223 Total Liabilities 68,233 28,223 Equity Net Assets 172, ,873 Total Equity 172, ,873 Total Liabilities and Equity 240, ,096

Cash Flow “I know what I’m worth, but can I write a check?” Revenues may be reported but not collected Expenses are incurred but not yet paid Some expenses are not actually cash going out the door Reporting

Cash Flow 12 Generic Months Reporting

Cash Flow 12 Real Months Reporting

Cash Flow Expense/Revenue vs. Cash Flow Expense/Revenue Reporting

Cash Flow Government Help? Reporting

Audit Are Your Books In Order? (to a CPA that is) Review of accounts, controls, reports Official Opinion Issued (Management Letter) Unqualified Qualified  Adverse  Going Concern  $500 MD Threshold Funders/Contractors may require Reporting

990 “Tax-Exempt” Not “Tax Form Exempt” Everyone Files Now! Public Record New Questions Number of volunteers Number of voting members of governing board Material diversion of assets Documentation of meetings and actions Governing body review of the 990 Conflict of interest policy Annual Disclosure of Interests Whistle blower and document retention policies Reporting

990 Reporting

Internal Controls Policies / Procedures Source Documents (3 years) Double-entry Bookkeeping Signature Authority Contracting Authority Segregating Duties Documentation (accounting and physical) Regular Reconciliation Insurance (liability, fidelity, etc) Whistleblowers Controlling

Financial Leadership The Questions You Should Be Asking Is there anything we don’t know the cost of? What are the immediate financial strengths and weaknesses? What are the long-term financial strengths and weaknesses? Are we efficient and effective?

Financial Leadership Communications & Using The Tools Are the reports helpful to making decisions? Does my staff understand the numbers? Does my board understand the numbers? What do I share with funders / public?

Financial Leadership Q & A This program supports implementation of the Standards for Excellence® Code