There is an important distinction between financial management and financial leadership. Financial management is the collecting of financial data, production of financial reports, and solution of near-term financial issues. Financial leadership, on the other hand, is guiding a nonprofit organization to sustainability. This is the job of an executive director. He or she is responsible for developing and maintaining a business model that produces exceptional mission impact and sustained financial health. To do that successfully, the executive director has to be ever mindful of essential nonprofit business concepts and realities. The following is a guide to this way of thinking for an executive —a summary of what we see as the eight key business principles that should guide financial leadership practice.
Strong annual budgeting is an essential element of financial leadership. The best annual budgets align to an annual plan—a written narrative that all staff and board understand about the core activities the organization will undertake in the coming year and how they will be financed. If the budget includes as-yet-unidentified income, which is standard for many organizations, that amount should be clear to all board and staff along with the plan to raise the funds during the year.
Achieve a net financial result. A classic mistake executives make is allowing staff to spend all year on budget when income is not coming in as expected. In fact, it is critical to emphasize to your staff that an annual budget is a plan to reach a net financial result—to yield a specific surplus or to invest a specific amount of the organization’s reserves through a planned deficit. Whichever the financial goal for the year, if the organization is not running on pace to achieve that net financial result, then even budgeted expenses should be questioned and reconsidered. The budget is never permission to spend when income is not coming in as planned.
Anticipate the future. Given that many organizations raise funds and encounter new risks and opportunities throughout the fiscal year, it is important not to stay overly focused on budget variance analysis to the exclusion of rolling analysis of your anticipated financial position. Budget variance is the difference between budgeted and actual results for a given period. While it is useful to understand why predictions were off, it is just as important to be actively anticipating the future. We see too many executives and boards focused on “hitting the budget” rather than anticipating and intentionally shaping their financial futures beyond the current fiscal year. Fiscal years are arbitrary units of time; in reality, the decisions we make—and the consequences of deferred decisions— live on well beyond the fiscal year. For this reason, we recommend that organizations build the habit of rolling financial projection.
Commit to financial projection. At least quarterly, the management team should evaluate what they are learning about current and possible revenue streams, shifts in programming, and strategic opportunities, and there should be a means to capture that up-to-the moment thinking in a financial projection. Midway through the fiscal year, we recommend adding a projection column to the income statement, so that for the rest of the year it includes year-to-date actuals, year-to-date budget, and a column for management’s current projection of where the organization is likely to end the year. Even better, the projection can roll into the “fifth quarter”—that is, across the arbitrary finish line of the fiscal year and into the first quarter of next year.
Income diversification is often touted as a tenet of sustainability—the idea being that having all of your eggs in one basket is by definition riskier than having them in multiple baskets—or in this case, multiple revenue streams. In fact, nonprofit business models vary considerably by field or service type.
Determine the degree of diversification you need. Income diversification is more possible and more necessary in some models than in others. For instance, community mental health services are likely to be heavily government funded, and once a nonprofit has established a successful track record of providing these services, that government funding may remain in place for years. Even though the organization is technically dependent on one set of government contracts, it may not be in a riskier position than another kind of nonprofit struggling to raise small amounts of money from individuals, corporations, and foundations, for instance. The reliability and competitiveness of your revenue streams dictate the degree of diversification that you need.
Determine risk. Income diversification carries some real risks. Evidence shows that more revenue streams don’t necessarily mean greater annual surpluses or organizational scale. To attract new revenue streams, an organization has to develop and sustain new capacities. As nonprofit finance expert Clara Miller has noted, “Maintaining multiple, highly diverse revenue streams can be problematic when each requires, in essence, a separate business. Each calls for specific skills, market connections, capital investment, and management capacity. Only then will each product attract reliable operating revenue, pay the full cost of operations, and deliver results.” And a recent analysis of high-growth nonprofits by the consulting firm Bridgespan Group found that 90 percent had a single, dominant source of funding. Bridgespan concluded that organizations get to scale by specializing in a certain type of funding, and that diversification, and thus risk management, happens by “securing multiple payers of the same type to support their work.”
Most financial reports are historical documents, useful to verify what has already happened and compare to budgets and plans.
Develop a cash flow projection. For looking forward, one of the most important tools is a cash flow projection. Executive directors need to know how the organization’s cash flows, and what to do if the cash doesn’t flow. Unless your organization has built up a substantial base of operating cash, any nonprofit can run into cash flow problems. What causes them? A variety of factors, including seasonal fundraising, annual grant payments, reimbursement-based contracts, and start-up costs for new programs.
Anticipate—and resolve—cash flow issues. Cash flow projections require knowledge and judgment that the accounting department may not have. Because of this, executive directors need to have a direct role in developing useful cash flow projections, agreeing on the assumptions to use, and reviewing the projections carefully. The earlier you anticipate cash flow issues, the easier it is to address them. As a first step, assess whether the cash flow shortfall is a problem with timing or is an indication of a deficit. The strategies used to solve the cash flow problem should match the cause of the shortfall.
Manage your shortfalls. Timing problems can be prevented by managing the timing of payments and receipts, improving internal systems, or arranging for a line of credit. Shortfalls caused by deficits need to be solved by budget adjustments or strategic choices to absorb a near-term shortfall. All of these options need the input and support of senior management. Managing cash flow is not a one-time activity. Insist that projecting and discussing cash flow every month or quarter become routine practice.
“Building a reserve” is on the top of the financial wish list of just about every executive director. It’s an understandable goal—just read the preceding section about cash flow and you’ll understand why. Having a cushion of cash that can absorb an unexpected delay in receiving funds, a shortfall in revenue for a special event, or unbudgeted expenses can stabilize an organization. Nonprofits that have built up a good cash cushion have had options and opportunities during the recession that have allowed them to respond to reduced income and increased demand more strategically and carefully than those organizations with few extra dollars in the bank.
Achieve a surplus. Wishing you had reserves is not the same as planning for reserves. But where do reserves come from? For most nonprofits, reserves are built up over time by generating unrestricted surpluses and intentionally designating a portion of the excess cash as a reserve fund. On rare occasions a nonprofit will receive a grant to create an operating reserve fund. So step one in planning for reserves is to develop realistic income and expense budgets that are likely to result in a surplus. Step two is to make sure that achieving a surplus is a priority that is understood and supported by staff and board members. For some organizations, there is an earlier step, too. They have to stop operating with deficits before they can even dream of having a reserve.
Determine your reserve goal. How much should you have? While there are some rules of thumb, generic target amounts don’t take some important variables into account, such as the stability of ongoing cash receipts. A commonly used reserve goal is three to six months’ expenses. At the low end, reserves should be enough to cover at least one payroll, including taxes.
Manage your cushion. Once a nonprofit has been able to build a reserve, using it must be intentional and strategic. Using reserves to fill a long-term income gap is dangerous. A cash cushion allows you to weather serious bumps in the road by buying time to implement new strategies, but reserves should be prudently used to solve temporary problems, not structural financial problems. To maintain reliable reserves, it’s also important to have a realistic plan to replenish them from future surpluses.
There is an ongoing debate among grantmakers about whether general operating funds are a better investment strategy than programmatically restricted grants. And frustration with funding restrictions is a common refrain among nonprofit executives. But at times this debate gets oversimplified to a notion that all restricted money is bad and inherently compromising of organizational sustainability, when this is not the case. As an executive, what you need to be concerned with is not whether a grant is restricted but what it is restricted to. A restricted grant for a program central to your desired impact and that covers a robust portion of that program’s cost is functionally the same thing as general operating support— it is funding a core piece of the work that you do. The two qualifiers are key, though: you are doing something that the organization would do anyway, and you are getting paid fairly to do it. What you need to avoid is chronic reliance on grants and contracts that pull the organization in unaligned directions or that refuse to pay fairly for the promised outcomes.
Develop effective grant proposals. Your development of sophisticated grant proposals is essential to incorporating restricted funding in your business model effectively. Take a very broad view of any program you are proposing for funding by including as direct costs such elements as hiring program staff, marketing and outreach to clients, staff professional development, and program evaluation. These are the kinds of organizational expenses that directly benefit programs but for which we too rarely charge our investors. If you believe that program evaluation is essential to monitoring effectiveness of outcomes, it’s your obligation to force the issue with funders who classify the cost as “overhead.” Incorporating sophisticated language in your proposal narratives that links staff development to program design to strong program outcomes sets the stage for a budget that includes these critical expenses. Restricted funding from foundations and corporations that genuinely understand and value your organization’s work can be a very sustainable revenue stream if you are very selective about which funders to pursue, and if you pursue them with well- conceived programs and accompanying budgets.
Put simply, too many executives have not staffed their finance function properly, and they pay the price with chronically underdeveloped financial systems, low-grade financial reporting, and the lack of a trusted partner with whom to do analysis and projection. In Financial Leadership: Guiding Your Organization to Long-Term Success, co-authors Jeanne Bell and Elizabeth Schaffer describe three functional aspects of the finance function: transactional, operational, and strategic. The transactional are the clerical tasks that support the accounting function, such as copying, filing, and making bank deposits; they require someone with excellent attention to detail and exposure to basic accounting principles. The operational are the range of accounting functions, such as paying bills and producing monthly financial statements; they require someone with strong nonprofit accounting knowledge, including managing grants and contracts. And the strategic are the systems development, financial analysis, planning, and communication about the organization’s financial position; they require what we think of as CFO-level knowledge and skills.
Determine your optimal staffing approach. Every organization needs all three functions, but organizational size and complexity will determine how much time each requires and the optimal staffing approach. In general, it is income that makes nonprofits more or less complex. A $10,000,000 organization that gets all of its money from individual donors requires a very basic accounting system, while a $2,000,000 organization with government contracts and restricted foundation grants requires a very robust accounting system. As an executive, you seriously jeopardize your organization’s funding and reputation if you maintain inadequate systems for tracking contract and grant dollars—it’s a true nonnegotiable. If you have these funds in your business model, you should assume that you will need to fund a very experienced, senior finance staff role.
Invest in contract consultants. So how does an organization with limited resources adequately attend to all three finance functions? Increasingly, we are seeing executives pair contract consultants with staff in the finance function. For instance, a small or midsize nonprofit might invest in an excellent full-time staff accountant who can handle the operational functions expertly and provide oversight to an administrative generalist—such as an office manager, who handles the transactional functions during the 50 percent of her workweek that is directed to the accounting function. Then the executive contracts with a CFO-level consultant who spends fifteen hours per month answering any questions the staff accountant may encounter, doing financial analysis for the management team and board finance committee, developing budgets and projections, and so forth. This way, the executive has a strategic financial partner without creating a fixed staffing cost that she can’t afford. Board members, including the treasurer, have a role that is distinct from the staff finance team. The executive needs an uncomplicated relationship to her finance team so that she can direct them in developing the analysis and reporting she needs as the organization’s financial leader.
Boards have a governing role in assessing and planning an organization’s finances. In too many cases, though, executive directors expect their boards to stay high-level and strategic without equipping them for the role. It is the executive director’s responsibility to provide the board with information that is appropriate to members’ roles and responsibilities.
Design your financial reports thoughtfully. The board is responsible for short- and long-term planning of the organization, and its members must ensure that systems are in place for effectively using resources and guarding against misuse. The board has legal responsibility for financial integrity but board members are not the accountants, so don’t inundate the board with pages of detailed accounting records and then wonder why the board can’t see the “big picture.” Boards need analysis and interpretation more than they need the numbers. There is no one-size-fits-all financial report. Reports must be designed to communicate information specific to the organization’s size, complexity, and program structure in a format that matches the knowledge level and role of board members.
information. The format and content of reports for the board should be determined by their intended purpose. Boards actually use financial information for four distinct purposes: compliance with financial standards, evaluation of effectiveness, planning, and immediate action.
Compliance. Most nonprofits do pretty well with providing the board with financial reports that comply with the board’s legal fiduciary role to know how much the organization has received and expended. Historical financial reports, audits, and 990s are the common reports.
Evaluation. For the board to evaluate how well the organization has used financial resources, different information is needed. Comparisons are needed to measure progress toward goals, assess the financial aspect of programs, and consider financial strategies.
Planning. When the board is engaged in planning to project future needs and changes or to develop budget guidelines, they need a big-picture understanding of the organization’s history and of the external environment and financial drivers.
Taking Action. Sometimes the board needs to make a key financial decision to implement a strategic plan, react to a sudden change, or respond to an opportunity. In order to make a wise but timely decision, the board needs to understand the background and situation and scenarios based on one or two possible actions. And form should follow function: before developing financial reports for the board, ask what type of actions or decisions the board will need to make, and provide them with the right amount of information and analysis in a format that fits the purpose. Don’t ask your board to maintain a top-level focus on strategy while submitting financial reports better suited to the auditors.
To reduce and manage risks, most nonprofits develop policies and procedures for each area of the organization. The facilities manager maintains controls over keys, access, and insurance coverage. The finance director assures appropriate segregation of duties, internal controls, and checks and balances. Program managers compile information and data to run background checks, keep licenses up to date, and maintain required reporting. If we put them all together in a binder, these policies make up the organization’s risk management process.
Assess your organization’s risks holistically. If each area assesses and formulates its own risks, who is responsible for deciding which risks have the most magnitude and impact on the organization? Put another way, if a nonprofit decided that at least one of its policies had to be eliminated for some reason, how would you decide which one the organization could do without? For example, which of these possible events pose the greatest risk to the organization’s ability to achieve its mission, programmatic, and financial goals: theft of a laptop computer, loss of confidential client data on that computer, or damage to the organization’s reputation if client data were made public?
Consider enterprise risk management. Many nonprofits do a better job of managing the risk of a small theft than they do of identifying and reducing these other two, much greater, risks. Enterprise risk management (ERM) is a term that your auditors may have brought up recently. ERM is essentially the process of assessing all of the risks that the organization faces with a comprehensive, enterprise-wide view and making decisions about managing risk in the same way. An ERM process considers both risks that are evident today and those that are will emerge as operational and strategic plans are implemented. Some organizations need to complete a formal, extensive internal assessment with a staff team and outside consultants. Smaller organizations can complete their own organization-wide review of risks through brainstorming and discussions. The most important step is to start thinking about all the parts as a whole. In the case of the stolen laptop, for example, too much emphasis on limiting access to the office on weekends might have led a program staff member to store confidential data to take home to complete a needed report. Balanced together, these risks would probably have been managed differently than if looked at separately.
With the big-picture view of the organization always in mind, the executive director is the right person to advocate ERM by asking members of his or her team to think beyond their own area to the wider enterprise.
What’s old is new again. These principles are both longstanding practices and emerging trends for nonprofits. Some of these business principles are undoubtedly familiar to you. Others may run counter to what you may believe to be a “best practice.” Executive directors learn that leading a nonprofit requires a constant balancing of current needs, external demands, and long-term vision. Financial leadership is fundamental to the role and cannot be fully delegated. These principles will help executive directors adapt to the demands of the changing environment and maintain the balance needed for mission impact and sustained financial health.
A SUMMARY OF THE EIGHT MUST-DO’S FROM THIS ARTICLE . . .
Source: “An Executive Director’s Guide to Financial Leadership”. Nonprofit Quarterly
What should your organization know about Nonprofit Taxes? Aren’t nonprofit organizations exempt from nonprofit tax issues except employment related taxes? The answer is no, but many organization’s make this assumption. With limited accounting and finance staff, there is a tendency to rely too much on other professionals for this knowledge. It is also important to develop internal capacity to deal with nonprofit tax issues as the board and management are ultimately responsible. If these nonprofit tax issues aren’t dealt with proactively, they can take significant effort and resources to resolve later, reducing your ability to serve others. Keep in mind that just because an organization has received tax-exempt status from the federal government does not mean it is exempt from state and local taxes, property taxes, sales taxes, payroll taxes, or other taxes.
The following is some basic nonprofit tax knowledge:
More Information – At the end of the article will go into more detail about how to stay in compliance and avoid taxes and penalties. What are you doing to make sure you are paying no penalties and taxes and staying in compliance. If this nonprofit tax issues aren’t dealt with proactively, they can take significant effort to resolve with significant resources allocated to compliance. Additionally, these taxes and penalties increase your cost and ability to serve others.
The Internal Revenue Service Form 990-Keep in mind the different filing thresholds which include Form 990-N Electronic Notice (e-Postcard) for organizations with gross receipts of $50,000 or less. Form 990-EZ threshold is gross receipts of $200,000 or less and Total Assets at the end of the tax year less than $500,000. Organizations with $200,000 or more in revenue or $500,000 of assets will file the full Form 990. Form 8868 (extension) may be filed electronically or in paper form. The IRS Annual Report noted the following common issues: private benefit and inurement, no filers, political activities, employment tax issues, and organization’s not operating as required by exempt status.
The health care tax credit is a great contribution to smaller nonprofit to offset increasing health insurance costs. It maybe difficult to qualify if the employer contributions to health insurance are not enough or the average salary of your employees exceeds $50,000.
For property, utility, innkeeper, and sales tax exemptions, you need to make sure that you meet the proper filing requirements. A nonprofit organization must register for a sales tax exemption by filing Form NP-20A, available online at http://www.in.gov/dor/3506.htm Form ST-105 is used by nonprofits for sales tax exemptions including the 10 digit state tax ID. The Sales Tax Information Bulletin #10 lists out the nonprofit sales tax exemption. Form ST-200 is used for each account to exempt sales taxes from utilities. GA-110L can be filed to claim a sales tax refund relating to utilities for the current and prior 3 years. For property exemptions, you need to file Form 136 on the even years along with Form 103 and Form 104
For IN state unemployment, you are no longer exempt once you employ four or more individuals for a day for 20 weeks during the calendar year. There is no minimum dollar amount associated with this qualification. You may opt to become a reimbursable employer, as opposed to an employer paying premiums.
Our firm provides tax preparation and consulting services so please contact us if we can help your organization.
Finance for Every Board Member
As a Board member for a not-for-profit organization, you wear many hats – some fun, and some very serious. Overseeing the finances of your organization is one of the more serious roles because it ties so directly to your agency’s long-term existence, reputation, and ability to provide services.
Finances Are Means To an End
While every Board member must take personal responsibility for understanding the financial condition of the organization, you must also keep in mind that the organization does not exist merely for its finances. You exist in order to accomplish a mission – some critical benefit to society. So – don’t let finances dominate your meetings. Many boards struggle with having too much information yet not feeling they know what is happening with the organization. Decide what you need to know and the best way to appropriately oversee financial operations and move on to what really matters.
But We Have a CPA On the Board
Having financial professionals on your Board is a great asset and advantage. However, far too many not-for-profits utilize the skills of their financially astute board members while letting everyone else “off the hook”.
If you have a CPA (Certified Public Accountant) on your Board, I would suggest they may be looking for a more people or program-oriented opportunity to participate. If they are excited about supporting your financial function, then connect them on a team with others including some non-finance professionals.
In addition to continuity through board member terms, these lay people may be more effective at presenting the numbers to the board in understandable terms plus bringing insights about the “programs and activities behind the numbers”. You may also find that CPAs are not very available during certain times of the year, making your “one-person finance committee” less effective or highly stressed.
Key Differences Between Businesses and Not-for-Profits
Different Sources of Income & Expense
Why is a Budget so Important?
What to Look for in Our Financial Reports?
What are Clues to Poor Financial Management?
Why Do We Need an Audit?
What is “Conflict of Interest”?
What Does the Finance Committee Do?
What is the IRS Form 990?
What is Accrual versus Cash-basis Accounting?
Restricted versus Unrestricted Gifts
What’s The Big Deal About Fund Accounting?
We Have to Show Pledges as Income?
How Do We Reduce the Likelihood of Theft or Fraud?
Will We Lose our Not-for-Profit Status If We Run A Business?
Is It Appropriate to Have a Financial Reserve?
Managing Risks and Disaster Recovery
Staffing the Accounting or Financial Office
Sharing Services or Outsourcing
Buying Nonprofit Financial Software
Glossary of Terms
Key Differences Between Business and Not-for-Profit
Businesses and charitable not-for-profit organizations have much in common. They both have mission statements and employ people, own and lease facilities or office space, and provide a service or product that meets a need. The key difference is that a business exists to make money for its investors and owners while the not-for-profit is focused on fulfilling a need in the community that cannot typically be supported by a business – harnessing donations of time and money to fulfill its obligations, and enriching no one but the community. As a Board member, it is your job to effectively steward the organization on behalf of your local community.
|What defines Success?||Profits||Mission Results|
|Who owns the organization?||Investors||Community|
|Where does the organization get operating funds?||Sales Revenue
|Foundation Grants, Government Contracts, Donations, Fundraising, and Fees for Services|
|When revenues exceed expenses, what happens to the surplus?||To owners to invest in business||Expand Program Services|
|Who performs the work of the organization?||Paid Employees||Volunteers, Paid Employees, Contract Employees|
|What is the primary basis for decision making?||Profitability||Mission|
|How is accounting organized?||Cost of Goods and Services||Expenses by Funding Source/Program|
Different Sources of Income and Expense
If you are new to the nor-for-profit sector, you may not have noticed that different
types of organizations receive their funding from very different sources.
• Membership organizations usually receive their income from dues,
conferences, and services sold to members.
• Churches rely primarily on donations from individuals.
• Colleges and Universities receive tuition from students (fees for
service) plus additional funding from individual and corporate
donations, sports events and licensing revenues, and often government
•Arts organizations look co ticket sales, sponsorships from businesses,
and individual donations. Foundations will often support
the education and outreach efforts of arcs organizations.
• Finally, human services organizations commonly look to foundations,
individuals, United Way, and the government for support.
• Many organizations are now exploring businesses to further their
missions or make money for programs. Goodwill is an example of a
nor-for-profit chat runs retail stores to provide financial support for
programs and to create job training opportunities. The YMCA runs
fitness centers to subsidize work with youth and urban families.
On the expense side, there is more commonality between not-for-profits. As service providers, nor-for-profits look similar to service businesses. The largest expense item is almost always staffing costs, sometimes running as high as 80% of the budget. Other major line items can include facilities, transportation, insurance, and contracted services.
The focus of this booklet is on the boards of charitable 50 I (c)3 not-for-profit organizations – organizations that are able to accept tax-deductible gifts from donors. The advice will also apply to organizations that are on their way to forming a charitable not-for-profit.
Why is a Budget So Important?
The Board of Directors has three primary avenues to oversee and direct the organization, all very important:
1) Confirm the Mission and Establish the Strategic Plan
2) Hire, supervise and evaluate a capable Executive Director or Chief Executive
3) Review and approve an Annual Budget that ties to the current year’s implementation
of the Strategic Plan, then monitor expenditures and manpower to that budget. The budget should serve as the financial blueprint and prioritize
the organization’s objectives for the coming year.
Working With The Budget
The entire Board should look at the actual financials compared to budget at least quarterly with the finance committee or treasurer examining monthly reporting.
Keep in mind that finances are a lagging indicator, so even when you are reviewing current financials, the information is at least a month old. Don’t allow this to become casual or “take a couple months off”. You cannot expect to identify problems or spot trends in time to correct them if you are not catching chem immediately. In addition, staff should intentionally keep the Board informed of any factors that might cause funding sources or donors to increase or decrease funds. The budget should be updated, with Board review and approval, for major changes that
occur during the year in order to keep reporting relevant.
What to Look For in Financial Reports
It is easy to gee overwhelmed by Board reports that give you lots of numbers but
very little information. The financial detail that the whole board sees is driven by
1) The size of the Board
2) The complexity and size of the organization
3) The existence of a finance or audit sub-committee
4) The financial expertise of the board “as a whole”
5) The financial expertise of the staff
Every Board will have different information needs, and it is important that overall Board reporting focus first on what the organization is accomplishing and then financials – often reported in terms of progress against the goals of the Strategic Plan.
Typical Financial Reports (Revenue/Expenses)
• Revenue/Expenses vs. Budget for month and year to date
• Revenue/Expenses vs. Prior Year for month and year to date
• Projected Year-end Revenue/Expenses vs. Budget
Questions you might ask about these reports include:
• Did we have significant unexpected income or expenses during this period?
•Why are we way over or way under budget and/or prior year income or expenses in a major category?
• Is the amount of the expense budget remaining in each category sufficient to complete the year?
• Do we have any one time or seasonal expenses in the next period?
• Do we have any open staff positions and what was their financial and programmatic impact?
• Have we changed any of the basic assumptions that we used in assembling our budget? If so, what is the impact?
Typical Financial Reports (Assets/Liabilities)
• Assets and Liabilities – Shows what we own and what we owe
• Assets and Liabilities vs Prior Year – How we compare to last year
• Cash Flow Forecast – Shows timing of anticipated cash income and expenses, identifying when shortfalls will occur and when excess funds may be available for short-term investment.
Questions you might ask about these reports include:
•What is our balance of restricted and unrestricted funds?
• Do we have cash to cover current expenses in the months ahead?
• Do we have relationships with banks or other funders to cover shortfalls?
• Has our unrestricted reserve balance increased or decreased during the past 3 months, 6 months, or year?
What Are Clues to Poor Financial Management?
Whether you are a new Board member or a long-rime Board member who has not
had much participation in the finances of the organization, here are a few things to
• Financial reports are not timely and accuracy is often questioned.
• No one seems to know the current financial condition.
• One person controls all financial information and does not share it openly.
• Finance personnel seem to work long hours for limited results.
• The annual audit report and management letter have many comments.
• The issues from prior years audit report have nor been addressed.
• The auditor or accounting staff people turn over frequently.
• Board members routinely use their position to do business with the
organization or to get favors for family or friends.
Do We Really Need an Audit?
Yes and No. From your perspective as a Board member, an audit has several desired
1) To provide some assurance that the financial records of the organization are appropriately organized and that revenues and expenses are being tracked and recorded according to Generally Accepted Accounting Principles (GAAP).
2) To have an outside, independent party regularly examine your records to decrease the likelihood of financial mismanagement or fraud.
3) To increase the credibility of your organization to the board, donors, and other funders.
An audit is not designed to detect fraud, but all auditors must review your internal control systems and make recommendations on how they can be improved . The audit is best performed by a Certified Public Accounting firm who is trained both in the process of auditing your financial records and is familiar with not-for-profit operations and accounting. A “free” or low-cost audit provided by a CPA “friend of your organization” who is not a not-for-profit accounting specialist may not provide the guidance and credibility you seek from this process. One test of
credibility is whether the accountant is familiar with Office of Management and Budget (OMB) Circulars. Unfortunately, audits by well-qualified firms typically start at $5-7,000 and quickly move past $ 10,000 based on your size and if you have any complex program reporting requirements from funders. The audit is considered an indirect expense, so few funders are interested in funding it, though they expect it of well run agencies.
Alternatives – There are two less expensive alternatives to a full audit, but they also bring less credibility. If you are a small or start up organization and your financials are quite limited, they may be suitable until you have a specific requirement expressed by a foundation, government funder, or major donor.
• A “compilation” puts your records in the hands of an experienced outside party to assemble financial reporting and offer insights on improving accounting operations.
• A “review” is more thorough and looks deeper into your financial records and the way you process transactions, but falls short of the
assurances that come with an audit.
What is “Conflict of Interest”?
In terms of not-for-profit board service, a conflict of interest question arises when a board member uses their access to the organization to derive a direct benefit for themselves, their business, or their family or friends. This can be a sensitive legal issue and different organizations will have more or less lenient policies.
In general terms, as a board member, you are expected to act in the best interests of the organization – not your personal interests. This means that you encourage and respect the procedures established in the organization to solicit bids before purchasing products or services and that you do not ask special favors of the staff in hiring relatives or friends. And you respectfully open discussions around issues or transactions that could be perceived as conflicts of interest for board or staff members.
You should never join a board with the expectation that you can sell your services to the organization. To the contrary, I would suggest that you join the board expecting to give your services to the organization.
Some organizations will allow board members to submit bids to provide services along with other vendors. General practice would be for that board member to leave the meeting during the discussion and vote. If it is believed by the board that the board member’s business can provide the best value to the organization, they may choose to contract – keeping in mind the uncomfortable situation with your
board member if service is unsatisfactory.
What Does the Finance Committee Do?
The Finance Committee is typically chaired by the Board Treasurer and staffed by the lead Accounting staff member or Executive Director. A typical list of responsibilities and expectations of the Finance Committee would include:
• Regularly review financial reports with the agency staff.
• Regularly present the financials and report to the Board on the financial condition of the organization, including variances to budget.
• Report to the board any financial irregularities, concerns, or opportunities.
• Recommend financial guidelines, financial policies, and procedures to the board (such as expenditure authority or appropriate financial
reserves to maintain).
• Work with staff to design financial reports and ensure that reports are accurate and available in a timely manner.
• Recommend selection of the auditor and work with the auditor, unless there is a separate audit committee.
• Establish budget assumptions with the staff and outline the annual budgeting process.
• Review budgets drafted by staff and ensure appropriate links between the budget and the organization’s plans.
• Serve as advisors to the Executive Director and staff on other financial priorities, such as insurance or investments, depending on committee member expertise.
What is the IRS Form 990?
The 990 is the informational tax return that essentially every 50 I (c)3 nonprofits files annually with the IRS. The 990 is initially drafted by either your organization’s audit firm, accounting firm or by the organization. Every board member is asked to review the form prior to submission.
In addition, your Form 990 is a public record and muse be made available upon request to anyone who wants to know more about your organization. Take the extra time to ensure it is accurate, conveys what your organization does, and looks neat and professional. Go to www.guidestar.org and look up your organization’s latest 990.
What is Accrual versus Cash-basis Accounting?
This is less confusing than it sounds. Accrual accounting works the same way in the not-for-profit environment as is does in business. While small agencies may run on a cash basis for several years, eventually they will grow tired of financial reports rarely matching budgets as large expenses throw off a different category each month. The Accrual Accounting method shows what the organization owns and owes based
on when the organization earned or incurred the financial obligation not based on when the cash was received or disbursed.
An example is when three bi-weekly pay periods are paid in one month – a twice a year happening. On a cash basis, you would see three pay periods or six weeks pay in the month (overstating) with 4 weeks pay in the months surrounding it (understating). The accrual method would show payment for the number of accrual workdays in the month – usually 21 -23.
Restricted versus Unrestricted Gifts
When a foundation, government, or a donor gives money to your organization, they have the option to designate it to be used in specific way or for a specific program.
Whats the Big Deal About Fund Accounting?
The accounting principles that have been established for not-for-profits require that revenues and expenses be classified by restriction, funding source and program.
Fund Accounting necessitates that you have:
• A separate set of books for each grant, with its own balance sheet and net asset balances to ensure that your funding resources can be
reported separately and are not commingled.
• The ability to track and report budget and actual financial information to satisfy each funding source’s unique reporting requirements
including cross or multi fiscal year reporting.
• The ability to allocate the expenses you incur across multiple grants or programs including indirect cost pools for administration and facilities.
The fact that records need to be maintained by funding source does not mean that the financial reporting for the Board must be in that format. The Board may prefer to have reporting set up by account, department, program, location, or grant. If your accountant is not able to provide reports in that format consider seeking assistance from a consultant who is expert in your accounting software package. You may need not be using the proper accounting software and may need to switch to a Nonprofit Accounting Software that can handle fund accounting. Our firm can help you through this evaluation.
We Have to Show Pledges as Income?
This is one of the most confusing pans of not-for-profit accounting because it defies the intuitive logic of either recognizing income when it is received or matching it to the expenses incurred to perform the agreed program. In the mid- l 990’s, the Federal Accounting Standards Board (FASB) determined that nor-for-profits were not accurately representing their financial status when they had received commitments from donors or funders to provide sizeable donations or grants, but had not yet received those funds.
In simple terms, any firm commitment for funds (not just large ones) is to be presented as income received in the year committed – even if it will be paid to the organization the following year or in installments over several years. This means that you may show big income in one year and the big expenses associated with it the next year, making financial reports very difficult to understand. Cash Row reporting can be helpful in keeping a proper understanding of when the money is actually coming in. Look to your accountant or auditor for a full explanation and reporting that is understandable for management purposes.
How Do We Reduce the Likelihood of Theft or Fraud?
Experts say that there is nothing that businesses or not-for-profits can do to eliminate the risk of theft or fraud, bur there are steps that can reduce the likelihood.
• Have an annual audit by an outside accounting firm. If you are not doing that yet, consider having a couple skilled volunteers conduct
an internal audit.
• Review your internal control practices annually with your auditor. Internal controls separate the responsibilities of people receiving
money from chose recording receipts and the people dispersing money from chose approving disbursements.
• Ensure that the bank and investment statements are mailed, unopened, to someone disconnected from the hands-on accounting
function – in a large organization, this is the CFO or Chief Executive; in a very small organization, this could be the Board Treasurer
(or the Board Chair, if the Treasurer writes the checks).
• Consider outsourcing a portion of the accounting function so that a non-employee is reconciling bank statements or executing the transactions.
• Do credit and criminal history checks on prospective accounting employees.
• Look for unexplained changes in the standard of living of accounting employees.
• Consider doing annual credit checks on accounting/financial employees to identify personal crises that could impact their judgment
• Consider using an accounting system that has auditor controls built into the system to minimize the capability to commit and conceal fraud.
• Require your accounting staff members to take of at least one full week of vacation per year and rotate staff occasionally between
• Provide adequate professional training to your accounting staff.
• Purchase Fidelity Bonds and other insurance on staff that handle funds.
Can We Lose Our Not-for-Profit Status if We Run a Business?
Yes, but it is very uncommon.
Not-for-Profits are given some very special privileges by the IRS – to accept tax deductible donations, nor pay property or income taxes, etc. It is not the intent of the IRS that a nor-for-profit would use their advantages to create unfair competition for the local business community. The first adaptation that the IRS created was that not-for-profits must pay taxes on Unrelated Business Income (UBI) – they essentially put the not-for-profit on a level playing field with the business community.
Generally, income is considered unrelated if it is:
I) A Trade or Business,
2) Not Substantially Related to the Mission, and
3) Regularly Carried on – nor a weekend bazaar or once a year cookie sale.
Unrelated business income typically excludes Investment Income
Many people are afraid of paying UBI, bur it can be viewed as a good thing since you are making enough money to have taxes to pay. In reality, few organizations pay much UBI because indirect expenses of the organization can be appropriately allocated to absorb much of the “profit”.
Too much of a good thing? – If you have a successful business within your not-for-profit, at some point the IRS will begin to question whether you are a not-for-profit with a business on the side, or really a business under the cover of a not-for-profit.
Is It Appropriate to Have a Financial Reserve?
A common question presented by and to Boards of Directors relates to financial reserves.
“What about the people who will want or need your services five years from now, twenty years from now?”
Reserves can shield the organization from reductions or delays in funding or provide the flexibility to pursue a new opportunity. It is generally considered prudent to have at least several months of unrestricted funding in operating reserves to allow focus on services instead of extreme cash management. One more factor is to define the expectations of your financial supporters. It is common wisdom that sizeable funding goes first to well-established and financially stable organizations – nor to organizations that will close if they don’t get it. If you are fortunate and your organization begins to accumulate a sizable reserve or even endowment, are your supporters the type to give more or to steer their support to
other organizations with lesser resources? In uncertain economic rimes, organizations cannot sit on the edge of financial insolvency for very long. All it rakes is a couple grants or major donors that change plans, the loss of a critical staff person, a negative article in the newspaper – and the organization is history. And what will be the impact of your closure on the community and the people you serve?
Managing Risk and Disaster Recovery
So many activities fall into the Executive Director’s and financial staff’s “miscellaneous
duties” that important items can be overlooked. Some of these things can substantially impact the solvency or credibility of the organization.
T he Board might find it helpful to put together a reminder list that can be checked off each year to keep the Board apprised.
Some items will require more discussion and can be charged to a committee to explore. Ir might be wise to make risk management the topic for one board meeting, each year, especially if you are a hands-on service organization – invite your insurance
agent and attorney to join you.
Some finance and risk management issues to spend time on or include on your list:
• Directors and Officers Insurance
•Executive or key staff turnover, or serious illness/injury
•General Liability insurance – premises, vehicles, staff actions
•Property insurance – facility, vehicles, furniture, equipment, computers and software
• Special Liability Coverages – such as Professional, Improper Sexual Conduct, Volunteers, Volunteers/Staff use of own automobiles,
employee dishonesty or fraud.
• Workers Compensation
• Legal – HR, contracts and agreements
• Staff training on established risk reduction policies and procedures
• IRS and state paperwork to maintain nonprofit and corporate statuses
• Payroll tax payments
• Internal controls reviewed and updated
• Facility reviews with fire dept, insurance rep, etc
• Record keeping, retention, and backup – HR, Accounting, Funder, legal, insurance docs
• Emergency communications – staff, clients, media, funders – to prepare for an unfortunate program circumstance and also in case of disaster.
•Response to Natural Disaster
• Backup strategies for computer systems
• Resuming operations after a loss of facilities or computer systems
Most organizations find it helpful to identify a point person to lead the assembly of a disaster recovery strategy.
Staffing the Accounting or Financial Office
Several factors will determine the necessary staffing of the accounting and finance function of your organization.
Volume Total income is not a good measure if you have a large volume of transactions to process, even if much is “automated”, you will need staff to do the work, and to oversee and verify its accuracy.
Complexity Are you in a field that uses complex contracts and grant requirements or where specialized knowledge in real estate, financing, Medicare/Medicaid or risk management is routinely needed in day to day operations?
Variety Are all of your transactions similar, allowing you to train someone in a standard procedure or are you constantly faced with new questions and the need to create new ways of handling relationships, contracts, or transactions?
Partners What other organizations do you work with and what level of expertise do they have or expect of you? Can you expect your bookkeeper to keep up with their CFO? Or can your bookkeeper use their CFO as a resource?
Funders and Donors Do your funders or major donors expect access to a “financial professional” when they have questions about your organization? Though some of the rules are a little different, most of the functions of a not-for-profit accounting office parallel those of a business – payroll, payables, receivables, financial reporting, forecasting, cash management, etc.
Think of Staff in Six Groupings
Administrative Support Staff These are people who can follow well-defined procedures, such as processing payables or updating an accounting system, but do not have accounting training or a true understanding of how their work ties into the overall finance and accounting function.
Accounting and Data Entry Support Staff These people may have extensive accounting experience, but it may be in a limited area – such as payroll or accounts payable.
Bookkeepers These people usually have some accounting training and/or extensive experience. Often, there is overlap between the duties of a full charge bookkeeper in one organization and an accountant or controller in another.
Accounting or Financial Analyst This position often appears in larger accounting departments where they need a degreed or well-trained professional to handle particular reconciliations or provide forecasting or reporting support to the controller or CFO.
Accountant or Controller This is the in-charge accounting position that either pulls the books together every month or makes sure they come together. Most accounting department staff would report to this person.
Controller or CFO In larger organizations, this person will typically oversee the accounting area plus other areas like office management technology, facilities or human resources.
Because of the differences in operations and reporting needs of various organizations, it is difficult to suggest any “standard” staffing tied co revenue. At the same time, I would offer that it is unusual to see an experienced accountant in an organization smaller than $500,000 unless they also have other professional duties. It would also be unusual to see an organization with a budget over $1 million without
an experienced accountant or an outsourcing relationship that provides access to a qualified accountant on a regular basis.
Sharing Services or Outsourcing —
As you might conclude from the information above, it is often difficult for small organizations to hire the people they really need to provide the level of financial support and expertise required to serve the organization, funders, and the board.
There are two alternatives to hiring full-time staff that organizations use with varying levels of success – Sharing Staff with other not-for-profits, and Outsourcing Services to a person or business with expertise in not-for-profit accounting. Both of these offer the possibility of improving internal controls and bringing more qualified staff.
Sharing Staff The advantages of sharing a staff person are that you get significant hours of a person, on-site, who brings the specialized skills that you need. The downside is that you must find another organization or two with compatible needs, a trusting relationship, and adequate budget/timing to bring the person on when you want them. You are also subject to staff turnover and retraining issues.
Outsourcing The advantages of outsourcing include gaining a higher level of expertise and more flexible capacity from the provider, a defined cost per month, the ability to start on your schedule, and a reduced likelihood of vendor turnover.
The disadvantages could include not having another person in the office to fill in for absence or work overflow from others, and a higher hourly rate than a typical employee.
Buying Nonprofit Financial Software
Most small not-for-profits begin their lives using one of the common small business accounting packages, looking for clever ways to change labels to make things work. Quicken, QuickBooks, and Peachtree are three common packages and some now offer nonprofit editions that reduce the compromises involved.
For many not-for-profits, these packages can meet the routine recording and reporting needs. But as you begin to get grants from multiple sources, grants that cross your accounting year boundaries, or you get pledges or multi-year commitments – life starts to get more difficult and staff find themselves spending a lot of time exporting data to spreadsheets and telling the board that “our system won’t do reports that way”.
Often, when an organization reaches $500,000 or more in revenue, it starts to make sense to explore a specialized not-for-profit software package that has been designed to handle the challenges above plus ease your audit preparation and even prepare certain tax schedules.
Some of the most commonly used and best regarded packages are Abila MIP , AccuFund , and Araize. Please contact us for help with your software evaluation.
Glossary of Terms – Finance and Accounting
Annual Audit – Nonprofit organizations should have an audit performed annually by a CPA firm familiar with not-for-profit accounting practices. This audit is not intended to identify fraud but to ensure that revenues and expenses are accounted for by accepted methods. Most funding organizations and major donors require audited financial statements.
Audit Committee-May be a separate committee or often performed by the finance committee. Selects the auditor and receives the report from the auditor. The staff is usually involved but the committee needs a direct link to the auditor to ensure that all information is communicated directly to the Board.
Check Signers – In smaller organizations, it is common for board members to act as the check signers as a part of the internal controls process. This provides an opportunity to review expenditures as they are made.
Director’s and Officer’s Insurance – Liability insurance to protect the board in case of a lawsuit. Policies should be reviewed regularly and explained to board members. Lawsuits are becoming more frequent and often involve issues related to employee termination, accidents on premises, insufficient financial oversight, or inappropriate actions of employees or volunteers.
Endowment – Contributions that are permanently set aside in compliance with donor restrictions to provide perpetual income to the organization. Once funds are established as an endowment, the organization is limited to withdrawing only a small share of the funds – usually a % or a formula based on investment earnings. Planned gifts from donors are often designated to endowment funds.
Fees for Service – Many not-for-profits structure their services in a way that clients or the government pays $X per treatment/visit/session, etc.
Finance Committee – Reviews financial reports, annual audit results, creates financial policies, and supports staff in assembling the annual budget. Reports to the board at each meeting on the financial status of the organization. Commonly chaired by the board treasurer.
Fiscal year – The accounting or financial year that the organization uses. Most organizations are on either a January 1 – December 31 or July 1 – June 30 year. The decision is commonly based on matching the fiscal year to significant funders or the organization’s peak service delivery season.
Fund Accounting – A fundamental difference between not-for-profits and businesses. When a foundation, or the government provides funds for a program, those funds must be tracked for assets and liabilities with the related expenses and revenues reported back to the funder.
Grant Tracking or Reporting – When a foundation or the government provides a grant, there is regular reporting due back to the granting organization detailing how the funding is being used and the program is progressing.
Many Forms 990 are prepared incorrectly or incompletely.
Because the Form 990 is a public document — nearly all are posted on GuideStar.com and many organizations post them on their websites — it is important that the Form 990 be prepared completely, correctly and consistently.
An incorrect Form 990 could reflect negatively on the organization when reviewed by possible donors, the community or even the media. More importantly, an incorrect Form 990 might be viewed as an incomplete filing by the IRS, subjecting the organization to late filing and other penalties even though a Form 990 was filed.
Here are some of the most common errors we have encountered.
Missing the deadline. The 990 is due on the 15th day of the 5th month after the organization’s year-end. That means May 15th for calendar year organizations and November 15th for organizations with a June 30th year-end. There is a 6-month extensions available but this has to be filed by the deadline. Final deadline after all extensions is November 15th for calendar year-end organizations and May 15th for June 30th organizations. Late filing fees can be as high as $50,000. Failure to file for 3 consecutive years results in loss of exempt status. If the organization has unrelated business income, it must file an extension for the 990 and a separate extension for the 990-T.
Filing an incomplete return. The IRS can consider an incomplete return as never filed in which case late filing penalties up to $50,000 can apply. Missing schedules is one of the most common reasons for incomplete returns. Listed below are some of the most common schedules. Keep in mind that some schedules only apply to organizations filing a 990 and some schedules apply to both the 990 and the 990-EZ.
Voting members of the governing body.
Line 3 of Part I asks for the number of voting members of the governing body. This should be the number as of the end of the organization’s year end. For a calendar year organization, this is the number of voting board members at December 31. This number should never be more than the number of board members listed in Part VII. Part VII should include the name of any individual that served on the organization’s board at any time during the fiscal year. There may be individuals listed in Part VII that were not board members as of the last day of the organization’s year but served earlier in the year.
New significant programs.
Line 2 of Part III asks if the organization took on any significant program services during the year which were not listed on the prior form. Nonprofits need to check this box yes and provide a description for any new programs that began during the year. When an organization applies for tax-exempt status, it must describe its program services in its application for exemption. It is important the nonprofit notify the IRS of any new programs so that the IRS can ensure that these new programs coincide with the organization’s exempt purpose. The IRS may be able to challenge any new programs as unrelated which could result in unrelated business income taxes.
Part VI asks if the organization has various policies in place. Nonprofits will not lose their exempt status simply because they do not have these policies in place; however, it is best practices to have them. Two of the questions address provisions of the 2002 Sarbanes-Oxley Act. Although most provisions of the Sarbanes-Oxley Act apply to public companies, two provisions apply to nonprofit organizations – a whistle-blower policy and document retention and destruction policy. In addition, if a nonprofit is required to file Schedule L, Transactions with Interested Persons which reports financial transactions or arrangements between the organization and disqualified persons, there should be a conflict of interest policy in place.
Donated services and facilities should not be recorded in Part VIII as revenue or in Part IX as expenses. Items such as donated advertising or the use of materials, equipment or facilities are recorded in the organization’s financial statements prepared using generally accepted accounting principles but they are excluded from Form 990.
Page 1 of Form 990 includes summary information relating to the organization and creates a first impression for the reader.
Organizations should consider a concise description that fits in the allotted space on the first page, so the reader can gain a clear idea of the organization’s most significant activity without searching through the voluminous disclosures in Schedule O.
Part I of Page 1 also includes summary information regarding the number of voting board members, employees and volunteers. Unpaid board members are considered volunteers for purposes of reporting the number of volunteers on Page 1.
Organizations with unpaid board members often fail to count them as volunteers on Form 990.
Total members of the governing body and total independent members of the governing body are often counted incorrectly on Form 990.
The IRS instructions ask for the total number of voting members of the governing body, which may not be the same number listed in Part VII of Form 990.
In addition, the concept of independent members of the governing body is defined differently for purposes of Form 990 completion. Often, members of the governing body who are compensated for services performed outside their service as a board member, as well as members of the governing body who have interested person transactions reported on Schedule L, are counted as independent board members in error.
Business and family relationships often are not disclosed as required in question 2. Exempt organizations that have large numbers of board members — more than 20 — or are located in rural areas are likely to have a business or family relationship with fellow board members. This question is often answered “no” in error.
While reporting revenue and expenses of an exempt organization should be routine, many times items of revenue or expense are not properly reported. Common reporting issues include:
Schedule A reports the public charity status of an organization. Many times, organizations select the wrong public charity type in Part I. For organizations classified as publicly supported, one of the public support tests included in Part I or Part II must be completed.
These computations often are completed inaccurately with incorrect amounts reported throughout. A common error is the omission or incorrect computation of excluded support on Line 5 of Part II or Line 7 of Part III.
Schedule L reports a variety of transactions with interested persons. Many organizations define interested persons too narrowly and only inquire as to possible transactions with board members.
Interested persons are defined differently depending on the type of transaction reported on Schedule L, and inquiries regarding these transactions should include not only officers, directors and trustees but also key employees, highest-paid employees and, in some cases, certain donors.
Organizations should take care to inquire about interested-person transactions regarding all interested persons.
Once a transaction with an interested person is identified, the organization reports certain information in Schedule L. Business transactions tend to be the most often reported transaction on Schedule L. Part IV requests the name of the interested person (and not the ODTKE), the relationship and amount of the transaction. In many cases, the ODTKE of the organization is reported in error as the interested person.
Schedule O is used to provide required disclosures based on the answers to certain questions contained in the core form of Form 990. The disclosures range from expanded program service descriptions and internal Form 990 review processes to availability of certain documents for public access and compensation-setting processes.
Often the disclosures are incomplete, not updated for current reporting information or so lengthy the purpose of the disclosure is lost to the reader.
Care should be taken to read each disclosure to ensure it answers the question or describes the issue completely, correctly and concisely.
Please contact us to review your current Form 990 for any errors or let us prepare your Form 990 and we will make sure you comply with the IRS requirements. Also, we work with our clients on a daily basis so we typically know the organization very well which also contributes to a better prepared return with little effort from our busy clients.
The following series is a listing of some of the financial statement errors found in Not-for-Profit organizations. I have broken it down by the different financial reports.
The Statement of Financial Position which is commonly referred to as a Balance Sheet may have the following financial statement errors:
The Statement of Activities which is commonly referred to as an income statement or statement of revenues and expenses may have the following financial statement errors:
The Statement of Cash Flows may have the following financial statement errors:
The Statement of Functional Expenses may have the following financial statement errors:
The Notes to the Financial Statements may have the financial statement errors:
We hope you find this list helpful as your review and evaluate your current financial statements. The notes to the financial statements are typically only included in the audited financial statements which means the organization is typically unaware of these disclosures. We work with our clients on a daily basis to review and update the financial statements on a regular basis so let us know if you would like us to review and update your financial reports.
We will cover 15 commonly asked questions and mis-perceptions of financial governance. Please provide this to your board and especially new board members and leaders to help educate them on the roles and responsibilities on Nonprofit Leadership and Governance. Please register for our November forum to review this topic in more detail and invite your board treasurer, finance committee, and leaders.
Please be advised that this is only an introduction to financial governance and does not address all the areas that an organization should be concerned with. We would be glad to assist your organization with training and make sure you meet the requirements of financial governance and leadership.
Small to medium sized NPF’s struggle with segregating financial duties. Volunteers and Outside experts may play key roles in ensuring the proper segregation of duties. The best course is to segregrate duties to minimize risks and prevent fraud. The following reference charts are available for organizations with two, three, or four employees involved in the outsource function. If you only have one employee, we would recommend including our firm or another outside expert or volunteer to help with segregation of duties.
The following reference charts are provided to provide examples of segregation of duties. Please contact us before you implement any of these suggestions.
This would allow be good time to evaluate your financial department including updating your financial policies and procedures manual for the finance departments responsibilities.
Tax Enhancements Completed:
Reporting Enhancements Completed:
Security Enhancements Completed:
Administration Enhancements Completed:
Payroll Enhancements Completed:
With the 2019.1 release, we resolved 18 outstanding defects, including three HR defects. Defects
included in DLL releases from 2018.1 to 2019.1 are also included in this list.
FA‐20024 An ARS session allows duplicate document numbers to be created. For those document numbers that are used twice in one session, AR reporting doubles the amounts on the report output
FA‐21915 Aatrix: Info in AUF not Sorted or Grouped Properly
FA‐22185 The posting process taking an excessive amount of time
FA‐22929 MIP Closes when attempting to export report to XLS using the Red Door
FA‐23145 Changing one Employee in Review/Modify for a Supplemental Payroll triggers all employees to be recorded in the Summary Organization Audit with no associated user ID
FA‐23149 Appending or Prepending to an Excel Worksheet Removes Decimals That End in 0
FA‐23201 After exporting a report to Excel, formulas create #VALUE!
FA‐23262 Hourly Rate Change on Salaried Employees Does Not Save
FA‐23281 Append to Excel files with file type XLSM Fails (macros)
FA‐23316 HR: ‘dg2_initializeLayout’ error when adding Certificates in HR 2 14 of the defects on this list were from the prioritized Support Top 25 defects list.
FA‐23320 Rename Employee is Creating New Employees Instead of Renaming
FA‐23339 HR: Payroll Check printing rather than voucher
FA‐23343 HR: Misspelling in Ethnic Drop‐Down Options
FA‐23376 Some Report Types Printed from Excel Exported from MIP are Improperly Formatted
FA‐23395 Electronic Funds files have wrong Object Count when filler rows not included on a Data File ending in a perfect 10 count
FA‐23437 Reprint Pay Stub subtracts Workers Comp from Net Pay
FA‐23445 Reprint Pay stubs Produces Incorrect YTD Earnings for Local Taxes
FA‐23605 After applying the DLL to fix FA‐23281, Running the Bank Rec report to screen causes MIP to close. It also replaces the ‘from’ field
with the name of the database rather than the email address of the user attempting to email a report.
Abila MIP Advance™
The focal point of the 2019.1 release was the debut of the MIP Advance™ Reporting module. Extensive refinement to the UI along with the introduction of 57 previously unreleased reports are the highlight of the features included here. See below for more detailed information.
New Reports ‐ Inclusion of 57 new reports to the Advance user interface. A list of report
categories and sub‐categories is included below.
Aged Payables, Detail A/P Ledger, Invoices Selected for Payment, Summary A/P Ledger, Vendor 1099 Adjustments List, Vendor Activity, Vendor Information List
Aged Receivables, Customer Activity, Customer Information List, Detailed A/R Ledger, Summary A/R Ledger
Bank Reconciliation – Checks/Vouchers, Combined Reconciliation, Deposits, Other Cash Items, Suspense Items
Budget – Budget Worksheet, Detail Budget/Actual Transactions, Posted Budget Transactions, Summary Budget Comparison, Unposted Budget Transactions
Financial Statement – Balance Sheet, Combining Balance Sheet, Statement of Cash Flows, Combining Statement of R&E, Statement of Activities, Statement of Cash Flows, Statement of Financial Position, Statement of R&E, Statement of Revenues and Expenditures by Period
General Ledger Analysis – Comparative Trial Balance, Expanded GL, Normal Trial Balance, Standard GL, Working Trial Balance
Journals – Cash Journal, Expenditure Journal, Revenue Journal
Lists – Account Code Combinations, Attachments, Chart of Accounts, Closing Account Assignments, Distribution Codes, Email Templates, Financial Statement Format, Group Information, Offset Account Assignments, Report Group Assignments, Security, UDF Default Sources, User Defined Fields, User Information List
Transactions – Memorize/Recurring Transactions, Unposted GL Transactions, Posted GL Transactions