1. Nonprofit Finance oversight and management
Presentation by:
Mike Macdonald, Executive Director, Budget Systems and Process, CMS Energy
Content from Detroit Executive Service Corps

2. Oversight and Management
Agenda
Overview of the Financial Management Model
Fiduciary Responsibilities
Treasurer and Finance Committee
Oversight and Management Responsibilities
Ask Questions – What if I can’t answer them? – Keep a parking lot?

3. Oversight and Management
Session Objectives
Understand the Six Core Competencies of Financial Management
Understand the Board’s fiduciary responsibilities and liability
Understand the Treasurer and Finance Committee Responsibilities
Understand Oversight and Management Responsibilities

4. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

5. Oversight and Management
Fiduciary Responsibilities

6. Board Member Fiduciary Responsibilities
Duty of Diligence
Duty of Loyalty
Duty of Obedience
Business Judgment Rule

7. Duty of Diligence or Care
Directors and officers must act with the care of a “reasonably prudent person”
Perform duties in good faith and in a manner they reasonably believe to be in the best interest of the nonprofit
Make informed business decisions
Key aspects of the duty of diligence:
Paying attention to the organization
Monitoring its activities
Achieving its mission
Protecting its financial resources

8. Duty of Loyalty
Refrain from engaging in personal activities that would injure or take advantage of the organization
Prohibited from using their position of trust and confidence to further private interests
Requires undivided and unselfish loyalty to the organization
Requires no conflict between one’s duty to the organization and self-interest
Key aspect of the duty of loyalty
Avoid conflicts of interest

9. Duty of Obedience
Perform duties in accordance with applicable statutes and the terms of the organization’s articles and bylaws
Liability may occur when board’s authorize acts beyond the powers conferred by articles, bylaws and federal/state laws
Key aspects of duty of obedience:
Carry out the mission/purpose of the organization
Comply with all laws

10. Follow the Defense of the ‘Business Judgment Rule’
Directors are presumed to have acted properly and to have satisfied these three basic duties if the Business Judgment Rule (BJR) applies
The BJR recognizes that directors may be personally liable for loss to the organization if the elements of the defense are not satisfied
Elements of the Business Judgment Rule Defense:
Act in good faith
With a reasonable basis for believing that their conduct is in the lawful and legitimate furtherance of the organization’s purposes
Exercise their honest business judgment after due consideration of what they reasonably believe to be the relevant factors

11. Oversight and Management
Treasurer Responsibilities
Typically Include: oversight role in the following:
Financial Planning Process
Policies & Procedures
Finances
Reporting
Compliance
Expertise Resource to Staff & Board
Liaison between Board & Staff
Staff Competency evaluation
Chair the Finance Committee

12. Oversight and Management
Finance Committee Responsibilities
Typically Include:
Review of Financial Statements
Provide analysis & recommendations for improvement
Involved in policy formulation
Actively participate in oversight & controls
Standing vs Advisory committee

13. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

14. Oversight and Management
Financial Planning
Provide Budget Guidelines
Financial Goals
Realistic
Meaningful
Measureable
Linked to Strategic Plan
Timeline
Establish Dates For
Completion
Approval
Implementation
Time Horizon and Reporting Periods

15. Oversight and Management
Financial Planning
Provide Budget Guidelines (cont’d.)
Level of Detail
Type of Revenue and Expense
By Activity
Program
Event
Department
Responsibilities
Who Does What

16. Oversight and Planning
Financial Planning
Budget Approval
Verify Budget is in Accordance with the Mission
Verify Budget meets Guidelines
Forecasts
Periodic updates or revisions to original budget
Projections
Cash Flow

17. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

18. Oversight and Management
Financial Policies & Procedures
Policies
Investment
Banking
Spending Authority
Check Signing
Accounting Method
Procedures
Accounting
Asset & Liability
Revenue & Expenses
Internal controls
Cash Receipts
Disbursements
Separation of Duties

19. Oversight and Management
Review Systems
Practices
Established review systems are in place and used to compare expected results to actual results.

20. Oversight and Management
Continuous Improvement
Activities
A methodology is developed and used to improve cost effectiveness through the elimination of waste and implementation of best practices.

21. Oversight and Management
Audits etc
Audits, Reviews, Compilations
Auditor Selection
Audit Report
Management Letter

22. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

23. REPORTING
Accurate All transactions posted to the correct chart of accounts in the proper period. All general journals posted to the general ledger to the correct chart of accounts in the proper period. All account reconciliations completed.

24. REPORTING Meaningful process for the organization.
All reports distributed assist in the decision making
process for the organization.

25. REPORTING
Timely All reports must be completed and distributed as soon as practical after the reporting period ends.

26. REPORTING Financial Reports Determine Report Requirements
Income & Expense Statement
Balance Sheet
Cash Flow Statement
Accounts Receivable Aging
Accounts Payable Aging
Monitor Results
Comparison to Budget
Comparison to Prior Period
Comparison to Prior Year
Identify Key Indicators
Review Variance Analysis
Review CFO/Treasurer Commentary

27. REPORTING
Types of Reports Standard Custom Subsidiary

28. REPORTING
Standard Report Balance Sheet Statement of Financial Position Content Assets, Liabilities and Net Assets Purpose Snapshot of financial position

29. REPORTING
Standard Report Income Statement Profit & Loss Revenue & Expenditures Statement of Activities Content Income, expenses and net income Purpose Summary of activity for a period

30. REPORTING
Standard Report Cash Flow Statement Content Sources of cash and outlay of payments Purpose Reconciliation of beginning and ending cash position.

31. REPORTING
Custom Reports Specific to each organization. Examples Activity Funder Donor Dashboard

32. REPORTING
Supporting Detailed reports that justify the numbers on the Balance Sheet.

33. REPORTING
Frequency of Reporting

34. REPORTING
Analysis Actual Performance vs Planned. Period Comparisons Trends Peer Group Comparisons Ratios

35. REPORTING
Analysis Actual Performance vs Planned. Income Statement Month Year-to-date

36. REPORTING
Analysis Period Comparisons Balance Sheet Month vs Previous Month Month vs Same Month Previous Year

37. REPORTING
Analysis Trends Trailing Twelve Month Multiple Year Historical

38. REPORTING
Analysis Peer Group Comparisons

39. REPORTING
Analysis Key Ratios Reserves Number of months cash reserves Rule of thumb is 3 months Unrestricted Cash and Investments / Average Months Expense

40. REPORTING
Analysis Key Ratios (continued) Functional Spending Program, Mgt & Admin and Fund Development as a percent of total Rule of thumb is 75% for Programs

41. REPORTING
Analysis Key Ratios (continued) Fundraising Expense measured by the Cost to raise a $ Rule of thumb is 25 to 35 cents Fundraising Expense / Contributions and Special Events

42. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

43. Oversight and Management
Compliance
Legal
Generally Accepted Accounting Principles (GAAP)
Funder

44. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

45. Oversight and Management
Organization
Financial training for board and staff
Performance evaluations for financial staff
Software Tools

46. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

47. Oversight and Management
Record Retention
Established policies and procedures established to meet record retention, storage and media requirements.

48. Oversight and Management
The Six Core Competencies of Financial Management are;
PLANNING CONTROLLING REPORTING
Budgets Procedures Accurate, meaningful
Forecasts Review Systems and timely financial
Projections Continuous Improvement statements
Audits
COMPLIANCE ORGANIZATION RETENTION
Legal Training Plan Records Storage
GAAP Staff Evaluations
Funder Software Tools

49. Oversight and Management
Any Other Questions??