1. Page 0©2012 Clark Nuber. All rights reserved Sound Financial Stewardship For Your Chorus Chorus America Conference June 14, 2013 Seattle, WA Rob Fleming, CPA Clark Nuber P.S. RFLEMING@CLARKNUBER.COM

2. Page 1 AGENDA DUTIES OF BOARD FINANCIAL RESPONSIBILITIES READING FINANCIAL STATEMENTS IRS FORM 990 INTERNAL CONTROLS RISK MANAGEMENT

3. Page 2 BOD RESPONSIBILITIES DUTY OF CARE –KNOW YOUR DUTIES –BE INVOLVED DUTY OF LOYALTY –ACT IN BEST INTEREST OF CHARITY –AVOID SELF-DEALING DUTY OF OBEDIENCE –OBEY THE LAW –SEEK EXPERT COUNSEL

4. Page 3 BOD RESPONSIBILITIES HIRE, COACH AND EVALUATE THE EXECUTIVE DIRECTOR DEVELOP MISSION, VISION, VALUES AND POLICIES/PROCEDURES DEVELOP STRATEGIC PLAN ASSURE FINANCIAL STEWARDSHIP FUNDRAISE BE AN ADVOCATE ENSURE BOD’S OWN EFFECTIVENESS

5. Page 4 WASHINGTON ATHLETIC CLUB MISSION –TO ENRICH THE QUALITY OF LIFE OF OUR MEMBERS VISION –TO BE THE PREMIER ATHLETIC CLUB IN AMERICA VALUES –LEADERSHIP, EXCELLENCE, INTEGRITY, SERVICE, AND SENSITIVITY

6. Page 5 COMMON BOARD CONCERNS ACCOUNTABILITY AND TRANSPARENCY SUSTAINABILITY PRUDENT BEHAVIOR ETHICAL BEHAVIOR COMPLIANCE WITH LAWS AND REGULATIONS

7. Page 6 RECENT EXAMPLES PENN STATE/SECOND MILE SUSAN G. KOMEN FOUNDATION

8. Page 7 RECENT EXAMPLES ARCHDIOCESE OF NEW YORK GEORGETOWN U.

9. Page 8 RECENT EXAMPLES CITY OF DIXON, ILLINOIS LIVESTRONG FOUNDATION

10. Page 9 FINANCIAL STEWARDSHIP GOALS ACCOUNTABILITY AND TRANSPARENCY –FINANCIAL REPORTS ARE ACCURATE, COMPLETE, TIMELY AND USEFUL –MONITOR INTERNAL CONTROLS –COMMUNICATE WITH AUDITORS

11. Page 10 FINANCIAL STEWARDSHIP GOALS SUSTAINABILITY –REVIEW, APPROVE AND MONITOR OPERATING AND CAPITAL BUDGETS –MONITOR CASH FLOWS (BOTH INVESTMENT POLICIES AND DEBT POLICIES) PRUDENT BEHAVIOR –EXPENSES ARE REASONABLE AND NECESSARY –APPROVE MAJOR TRANSACTIONS

12. Page 11 FINANCIAL STEWARDSHIP GOALS ETHICAL BEHAVIOR –MONITOR ISSUES RELATING TO CONFLICTS OF INTEREST, CODE OF ETHICS, WHISTLEBLOWER REPORTS, AND EXCESSIVE COMPENSATION COMPLIANCE WITH LAWS AND REGULATIONS –MONITOR COMPLIANCE REPORTING –IMPLEMENT RECORD RETENTION/DESTRUCTION POLICY

13. Page 12 TEXAS INSTRUMENT’S ETHICS TEST IS THE ACTION LEGAL? DOES IT COMPLY WITH OUR VALUES? IF YOU DO IT, WILL YOU FEEL BAD? HOW WILL IT LOOK IN THE NEWSPAPERS? IF YOU KNOW IT’S WRONG, DON’T DO IT IF YOU ARE NOT SURE, ASK KEEP ASKING UNTIL YOU GET AN ANSWER

14. Page 13 DISCUSSION PICK ONE OF THE EXAMPLES AND DISCUSS WHAT THE BOARD SHOULD HAVE DONE DIFFERENTLY OR WHAT PROCEDURE SHOULD HAVE BEEN FOLLOWED BUT WASN’T.

15. Page 14 BEST PRACTICES NATIONAL –CORPORATE GOVERNANCE PROPOSALS OF SENATE FINANCE COMMITTEE DID NOT BECOME LAW –INDEPENDENT SECTOR IN OCTOBER, 2007 ISSUED “PRINCIPLES OF GOOD GOVERNANCE AND ETHICAL PRACTICE: A GUIDE FOR CHARITIES AND FOUNDATIONS”

16. Page 15 BEST PRACTICES REPORT CONTAINS 33 SUGGESTED PRACTICES –LEGAL COMPLIANCE –EFFECTIVE GOVERNANCE –FINANCIAL OVERSIGHT –RESPONSIBLE FUNDRAISING SEE FULL REPORT AT Independentsector.org

17. Page 16 WHAT IS UNIQUE ABOUT NONPROFITS? MISSION OTHER THAN TO MAKE A PROFIT TAX DEDUCTIBLE CONTRIBUTIONS NO OWNERSHIP SPECIAL TAX BENEFITS –INCOME TAXES, PROPERTY TAXES, POSTAGE RATES AND LOCAL TAXES

18. Page 17 ACCOUNTANTS’ REPORTS AUDIT - HIGHEST LEVEL REVIEW - ANALYTICS AND INQUIRY COMPILATION - NO ASSURANCE NO ACCOUNTANT’S REPORT – FINANCIALS PREPARED INTERNALLY

19. Page 18 Financial Statements Statement of Financial Position Statement of Activities Statement of Cash Flows Footnotes Optional: Statement of Functional Expenses

20. Page 19 AUDITED FINANCIAL STATEMENTS Not-for-profit Statement of Financial Position or Balance Sheet Statement of Activities N/A (typically included in SOA) Statement of Cash Flows Statement of Functional Expenses For-profit Balance Sheet Income Statement Stockholders’ Equity Statement Statement of Cash Flows N/A

21. Page 20 COMPONENTS OF FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION –DETAIL OF ASSETS, LIABILITIES AND EQUITY (NET ASSETS) –REPRESENTS A POINT IN TIME –INDICATES FUTURE CASH FLOW

22. Page 21 Statement of Financial Position

23. Page 22 Key Information - Statement of Financial Position Balance s Liquid assets Debt Unrestricted net assets Ratios Current ratio = Current assets / Current Liability Debt to net assets = Debt / Net assets

24. Page 23 COMPONENTS OF FINANCIAL STATEMENTS STATEMENT OF ACTIVITIES –SHOWS REVENUES AND EXPENSES OVER A PERIOD OF TIME –SHOWS REVENUES BY RESTRICTION –SHOWS EXPENSES BY FUNCTION (PROGRAM AND ADMIN./FUND RAISING)

25. Page 24 Statement of Activities

26. Page 25 Key Information – Statement of Activities Balance s Unrestricted change in net assets Components of revenues Ratios Liquid operating reserves = (unrestricted net assets – fixed assets) (total expenses/12) Support expenses vs. total expenses

27. Page 26 COMPONENTS OF FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS –SUMMARY OF CHANGES IN CASH DURING THE PERIOD

28. Page 27 Statement of Cash Flows

29. Page 28 Key Information – Statement of Cash Flows Balance s Subtotals of each type of cash flow Purchase of fixed assets Depreciation expense

30. Page 29 Statement of Functional Expenses

31. Page 30 Key Information – Statement of Functional Expenses Balance s Subtotals of each type of expenses Major expense categories Depreciation expense Ratios Program vs. total expenses

32. Page 31 COMPONENTS OF FINANCIAL STATEMENTS FOOTNOTES –DESCRIPTION OF BUSINESS AND OPERATIONS –DESCRIPTION OF ACCOUNTING POLICIES –DETAIL OF B/S AMOUNTS –UNUSUAL EVENTS AND CONTINGENCIES

33. Page 32 DISCUSSION WHAT FINANCIAL CONCERNS HAVE YOU HAD AT YOUR ORGANIZATION?

34. Page 33 IRS FORM 990 SAME INFORMATION AS FINANCIAL STATEMENTS ALSO PROVIDES INFORMATION ON COMPENSATION, DONORS, EXPENSES BY CATEGORY, AND BOARD MEMBERS 17 QUESTIONS ON CORPORATE POLICIES NOW ON FORM FORM IS RECEIVING MUCH MORE ATTENTION IRS REVISED THE FORM FOR 2008

35. Page 34 MAINTAINING YOUR EXEMPT STATUS FOLLOW MISSION NO POLITICAL ACTIVITY LIMITED UNRELATED ACTIVITY NO SELF INUREMENT COMPLY WITH IRS AND STATE REQUIREMENTS

36. Page 35 INTERNAL CONTROLS ACTIVE INVOLVEMENT BY MANAGEMENT PERFORM BACKGROUND CHECKS HAVE TWO PEOPLE PROCESS CASH RECEIPTS EXAMINE SUPPORT FOR ALL DISBURSEMENTS SEPARATE CONTROL OF ASSETS FROM ACCOUNTING

37. Page 36 INTERNAL CONTROLS REVIEW UNOPENED BANK STATEMENTS APPROVE ALL ADJUSTMENTS AND WRITE-OFFS COMPARE ACTUAL RESULTS TO BUDGETS RELATE FINANCIAL RESULTS TO SERVICE EFFORTS AND ACCOMPLISHMENTS

38. Page 37 ENTERPRISE RISK MANAGEMENT PROCESS OF IDENTIFYING, MITIGATING AND MONITORING RISKS THAT COULD HAVE A SIGNIFICANT IMPACT ON YOUR ORGANIZATION Board and management should be asking three questions: –What are our major risks? –How do we know we have identified all risks? –What is our mitigation plan to reduce identified risks?

39. Page 38 HOW ARE RISKS IDENTIFIED? MANAGEMENT OBSERVATIONS BOARD OBSERVATIONS INSURANCE ADVISORS INVESTMENT ADVISORS BANKERS ACCOUNTANTS AND AUDITORS COMPUTER CONSULTANTS GENERAL NEWS INDUSTRY PUBLICATIONS

40. Page 39 RISK AREAS FINANCIAL OPERATIONAL TECHNOLOGY GOVERNANCE STRATEGIC HUMAN RESOURCES REPUTATION

41. Page 40 TOP 5 CHALLENGES FOR NONPROFITS IN 2012 1.PROPOSED LIMITS ON CHARITABLE DEDUCTIONS 2.SHRINKING GOVERNMENT AID 3.ATTRACTING YOUNGER EMPLOYEES 4.DEMANDS FOR RESULTS BY DONORS 5.SOCIAL ENTERPRISE BUSINESS MODELS

42. Page 41 ENTERPRISE RISK MANAGEMENT

43. Page 42 ENTERPRISE RISK MANAGEMENT MITIGATION OPTIONS –AVOIDANCE –SHARE THE RISK INSURANCE JOINT VENTURE –REDUCE THE RISK LIMIT THE INVOLVEMENT DIVERSIFY –ACCEPTANCE

44. Page 43 DISCUSSION WHAT WOULD BE SOME OF THE MAJOR RISKS FOR PENN STATE, SUSAN G. KOMEN, CITY OF DIXON, LIVESTRONG FOUNDATION, GEORGETOWN U. OR THE ARCHDIOCESE OF NEW YORK THAT SHOULD HAVE BEEN ADDRESSED?

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