1. © 2004 Wipfli Young © 2005 Wipfli LLP Example Title Screen # 1 Example Sub Title Financial Analysis for Nonprofit Organizations Presented by: Karl Pnazek, CAP Services, Inc. John Hemming, Wipfli, LLP NASCSP Monitoring Training May 2006

2. © 2005 Wipfli LLP Introduction Financial Analysis covers all aspects of an organization and can be incorporated into, and obtained from, many aspects of an organization, including:  Program reports  Program financial statements  Agency financial statements

3. © 2005 Wipfli LLP Introduction You will learn how organization’s should be looking at internal information and what you should be asking to ensure fiscal stability within the organization.

4. © 2005 Wipfli LLP Introduction Currently, what tools does the organization use? How often do they use them? How do they work? What is their biggest frustration?

5. © 2005 Wipfli LLP Agenda What we will cover:  What information should the organization be looking at on a monthly basis? Agency-wide information Program information Trends Key numbers Supporting information

6. © 2005 Wipfli LLP What information should the organization be looking at on an annual basis?  Agency-wide information  Analyticals  Program information Agenda

7. © 2005 Wipfli LLP Key #’s Overview How does all this fit together? Easy!! It leads to a more productive and better informed organization!! B/S Audit I/S Ratio s Trends Report s Schedule A Tax Returns

8. © 2005 Wipfli LLP Topic 1 – Monthly Financial Procedures Most important item to review is the agency-wide trial balance (How often is the organization reviewing their agency-wide trial balance? It should be monthly) (What should a monitor look for?)

9. © 2005 Wipfli LLP FOUR (4) KEY QUESTIONS TO ASK AND ANSWER What is it? Where is it from? What does it mean? What do we do with it? Topic 1 – Monthly Financial Procedures

10. © 2005 Wipfli LLP First thing to know about the trial balance is where do the numbers come from. Must have a review system in place that requires balances to be reviewed, reconciled, and adjusted on a regular basis. Topic 1 – Monthly Financial Procedures

11. © 2005 Wipfli LLP If the numbers aren’t supported by reliable information, the rest of analytical process is a waste of time. Also, if numbers aren’t reliable the information reported to funding agencies, program directors and your board is incorrect. (And a waste of their time!) Topic 1 – Monthly Financial Procedures

12. © 2005 Wipfli LLP What should you be looking for on the agency-wide balance sheet?  Does the balance sheet balance?!  Does the bank reconciliation agree to the general ledger?  Are there any credit balances in the asset accounts? Topic 1 – Monthly Financial Procedures

13. © 2005 Wipfli LLP What should you be looking for… (continued)  Do subsidiary ledgers support the reported amounts on the balance sheet?  Did the organization buy any equipment this month with agency funds? Was it recorded properly? Topic 1 – Monthly Financial Procedures

14. © 2005 Wipfli LLP What should you be looking for… (continued)  Are there any debit balances in the liability accounts?  Was any new debt incurred? If so, was it recorded properly? (Can be a very detrimental adjustment at year- end if not recorded properly) Topic 1 – Monthly Financial Procedures

15. © 2005 Wipfli LLP Overall, does it look reasonable? Any odd looking accounts? If so, were they looked into? Topic 1 – Monthly Financial Procedures

16. © 2005 Wipfli LLP If the balance sheet is correct, then the revenues and expenses are usually correct, but may be misclassified. Topic 1 – Monthly Financial Procedures

17. © 2005 Wipfli LLP Next, analyze the individual program trial balances and results.  Any odd looking balances in the revenues?  Any odd looking balances in the expenses? Topic 1 – Monthly Financial Procedures

18. © 2005 Wipfli LLP Next, analyze the individual program trial balances... (continued)  Have all revenues been recorded properly?  What is the bottom line? Are they over spent?  Have they recorded all of your invoices properly or receivables properly? Topic 1 – Monthly Financial Procedures

19. © 2005 Wipfli LLP Next, analyze the individual program trial balances... (continued)  How is the program doing compared to budget?  Any significant over spent areas?  Do they need to get modification from their funding source? Topic 1 – Monthly Financial Procedures

20. © 2005 Wipfli LLP Topic 1 – Monthly Financial Procedures

21. © 2005 Wipfli LLP A true budget reflects anticipated activity during certain times of the year, not equally throughout the year Topic 1 – Monthly Financial Procedures

22. © 2005 Wipfli LLP Topic 2 – Annual Analytical Procedures On the agency-wide trial balance, be sure that all accounts reconcile with supporting information

23. © 2005 Wipfli LLP Topic 2 – Annual Information Compare the year- end balances to prior year- end balances. Can the organization explain the variances?

24. © 2005 Wipfli LLP Topic 2 – Annual Information What should you look for? Is the cash balance up from prior years? If so, why? Are their receivables down? Are their payables down? What is their deferred revenue balance? Each of these has a direct effect on their cash balance, both positively and negatively!

25. © 2005 Wipfli LLP Topic 2 – Annual Information Are their prepaid balances comparable to prior year? If not, why? If they have increased, have their corresponding expenses increased too? Or have their expenses not been recorded in the proper period?

26. © 2005 Wipfli LLP Topic 2 – Annual Information Does their physical inventory of property and equipment agree with their property and equipment on their general ledger. Required to be done once every two years!! If their property and equipment balances increased, has their depreciation expense increased? If property and equipment is down, and disposals were sold, was the sale recorded properly?

27. © 2005 Wipfli LLP Topic 2 – Annual Information Are their accounts payable up? If so, are their overall expenses up as well? Or, are they experiencing cashflow problems, which may become greater when carried over to the next year.

28. © 2005 Wipfli LLP Topic 2 – Annual Information Are their accrued wages up in proportion to the increase in wage rates? Have they added new programs therefore adding new staff? If so, did their accrued vacation increase proportionately too? What about other benefit accruals? Do they make sense given the level of employees?

29. © 2005 Wipfli LLP Topic 2 – Annual Information How do their deferred revenues compare to prior years? Can they explain the variances from prior years? Finally, most important number to verify is net assets. Do they agree with their prior year audit? If not, why? There should be NO adjustments to this account during the year.

30. © 2005 Wipfli LLP Topic 2 – Annual Information What other accounts do they have? What would account for their fluctuations? Can they explain the variances?

31. © 2005 Wipfli LLP Topic 2 – Annual Information Next, look at their income statement in comparison to prior years. Are revenues up? Did they get new programs? Did they get increases in your existing programs?

32. © 2005 Wipfli LLP Topic 2 – Annual Information How do their overall expenses look? Are salaries up? If so, is this increase comparable to wage increases, or did it come from new staff and new programs? (Remember to relate this to their balance sheet amounts for accrued payroll and benefits.) Are they renting new facilities? Or have their lease costs increased? Are they budgeting for anticipated (or built in) rental cost increases?

33. © 2005 Wipfli LLP Topic 2 – Annual Information How does their depreciation expenses compare to prior years? Again, relate this to their balance sheet analysis for property and equipment. How about interest expense? Does it agree with their year end statement from their bank? How have they planned for or budgeted for their insurance increases?

34. © 2005 Wipfli LLP Topic 2 – Annual Information Overall, what is their bottom line? Excess revenues over expenses? If so, why? Fee for service activities? Fund-raising campaign?

35. © 2005 Wipfli LLP Topic 2 – Annual Information Overall, what is your bottom line? Excess expenses over revenues? Are programs overspent? Did they lose funding and not cut expenses?

36. © 2005 Wipfli LLP Topic 2 – Annual Information The organization should be able to answer all of these questions. They will be asked by all who use their statements.

37. © 2005 Wipfli LLP Parts of an Audit Report Financial  Opinion  Statement of Financial Position  Statement of Activities  Cashflow Statement Notes to the Financial Statements Topic 3 – Audited Financial Statements

38. © 2005 Wipfli LLP Parts of an Audit Report  Internal Control Over Financial Statements  Compliance and Internal Control Over Major Programs  Supplemental  Funding Source Requirements Topic 3 – Audited Financial Statements

39. © 2005 Wipfli LLP Footnotes to the financial statements provide the reader with information to further understand the financial information. It describes the significant account policies. Provides more detailed information to material account balances. Topic 3 – Audited Financial Statements

40. © 2005 Wipfli LLP Basis of Presentation  Accrual  How do they record grant awards?  Description of Cost Allocation Plan Topic 3 – Audited Financial Statements

41. © 2005 Wipfli LLP Other disclosures:  Concentration of cash, if cash balances are over $100,000 (the FDIC insured limit)  Terms of notes receivable and payable  Related parties  Subsequent events  Commitments and contingencies  Functional classification of expenses Topic 3 – Audited Financial Statements

42. © 2005 Wipfli LLP Other disclosures:  Retirement plan  Leases  Related parties  Property and equipment  Descriptions of material balance sheet items Topic 3 – Audited Financial Statements

43. © 2005 Wipfli LLP Other disclosures:  Revolving loans (housing)  Notes/mortgages payable  Changes in accounting policy  Prior period adjustments Topic 3 – Audited Financial Statements

44. © 2005 Wipfli LLP Schedule of Federal Expenditures has two purposes:  Fulfills A-133 requirements for disclosing expenses based on CFDA #’s (Catalog of Federal and Domestic Assistance).  Breaks down annual activity by individual grant. Topic 3 – Audited Financial Statements

45. © 2005 Wipfli LLP Topic 3 – Audited Financial Statements

46. © 2005 Wipfli LLP Which programs do they subsidize on an annual basis? How much reserves do they have on hand and how long will they last if they continue to subsidize? Every program should be analyzed to gain information Topic 3 – Audited Financial Statements

47. © 2005 Wipfli LLP How should you use this schedule?  Review each grant and program to see if it appears reasonable  Which programs are overspent?  Which programs are under spent?  If there is an over expenditure, who is paying for it?  CSBG $$, Agency $$, private funding sources Topic 3 – Audited Financial Statements

48. © 2005 Wipfli LLP If a grant is completed, did they spend it all? Are the individual line items in line within the grant budget? If they didn’t spend it all, have they requested carryover? Or do they have to return unspent funds? Topic 3 – Audited Financial Statements

49. © 2005 Wipfli LLP Are there any negative expenses? If so why? Is there something that should be reclassified? What was the outcome of their agency activity? Did they have to use reserves to fund overspent grants? Did they add to your unrestricted net asset balance? Or take away? Topic 3 – Audited Financial Statements

50. © 2005 Wipfli LLP What is the balance of their temporarily restricted net assets? And what are they restricted for? What is the balance of their unrestricted net assets? And how is it funded? i.e., property and equipment, receivables, loans, or cash? If either one (temporarily or unrestricted net assets) is in a deficit position, this needs to be addressed ASAP!! Topic 3 – Audited Financial Statements

51. © 2005 Wipfli LLP RULE OF THUMB: Available unrestricted net assets should be equal to 5-10% of annual revenue Organization’s 2005 Revenue: $17,644,944 Organization’s 2005 Unrestricted Net Assets are $175,713 Recommended balance should be between $882,250 and $1,764,500 Topic 3 – Audited Financial Statements

52. © 2005 Wipfli LLP Topic 3 – Audited Financial Statements

53. © 2005 Wipfli LLP Analyzing A Statement of Financial Position Page 9

54. © 2005 Wipfli LLP Analyzing A Consolidated Statement of Activities Page 6

55. © 2005 Wipfli LLP Analyzing Expenses 1995 2004 2002 Page 12

56. © 2005 Wipfli LLP Analyzing Unrestricted Net Assets  RULE OF THUMB: Unrestricted net assets should be equal to 5-10% of expenditures with 50% of unrestricted net assets in cash.  CAP Services, Inc.’s 2004 expenditures were $13.2 million.  CAP Services, Inc.’s 2004 unrestricted net assets were $581,273 with no unrestricted cash balance.  Recommended unrestricted net asset balance should be between $660,000 and $1,320,000 with unrestricted cash of $330,000 to $660,000. Page 13

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