Download Role of a Board Member in Financial Oversight

Not-for-Profit Finance and Accounting
for Board Members
Beth Allen
Paula Tilley
April 17, 2015
Agenda
Role of a Board Member in Financial Oversight
Internal Controls for Small Organizations
Common Users of Financial Statements
Understanding Financial Statements
Financial Statements Review Checklist
Routine Tax Reporting Requirements
Understanding the Form 990 and other filing
requirements
• Key Financial & Governance Policies
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Role of a Board Member:
Fiduciary Duty
• Approve the budget
• Monitor the Financial Statements
– Receive timely, accurate and comprehensible financial
statements
• Install/Monitor adequate internal controls
– Ensure appropriate and adequate internal controls are in place
(ask questions)
• Ensure legal obligations are met
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Ensure appropriate policies and procedures are in place
Make sure all necessary federal/state filings take place
Annually review the performance of the ED/Chief Executive
Oversee program outcomes and monitor progress
Role of a Board Member in
Financial Oversight
• Regularly prepare for and attend board meetings
• Read all the information provided to you
• Actively participate in board discussions,
exercising independent judgment in decision
making
• Ask questions so that you have a complete
understanding of the organization’s financial
picture
• Review your organization’s Form 990 prior to filing
Role of a Board Member in
Financial Oversight
• Consider going beyond public disclosure
requirements to increase transparency
• Adopt and implement appropriate financial
governance policies to protect your organization
• Understand the impact of various revenue and fund
development approaches on your organization’s
financial health
• Understand the roles of the board treasurer and the
financial and audit committees, and actively
participate in identifying and recruiting qualified
board members to fill those roles
Internal Controls for Small
Organizations
• Proper internal controls are essential for all
organizations
• Can be difficult for small nonprofits due to staff
size/number of volunteers
– Segregation of Duties
• Employees
• Volunteers
Separation of Duties
Two Person Office
Business Manager
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Record accounts receivable entries
Mail checks
Write checks
Record general ledger entries
Reconcile bank statements
Record credits/debits in accounting
records
Approve payroll
Receive cash
Disburse petty cash
Authorize purchase orders
Authorize check requests
Authorize invoices for payment
ED or Owner/Manager
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Approve and sign checks
Sign employee contracts
Complete deposit slips
Perform interbank transfers
Distribute payroll
Reconcile petty cash
Approve employee timesheets
Process vendor invoices
Review bank reconciliations and contents
of bank statements
Separation of Duties
Three Person Office
Bookkeeper
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Record accounts
receivable entries
Reconcile petty cash
Write checks
Record general ledger
entries
Reconcile bank statements
Record credits/debits in
accounting records
Office Manager
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Process vendor invoices
Receive cash
Mail checks
Approve invoices for
payment
Distribute payroll
Authorize purchase orders
Authorize employee
timesheets
Approve payroll
Disburse petty cash
ED or Owner/Manager
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Sign checks
Sign employee contracts
Complete deposit slips
Perform interbank transfers
Review bank
reconciliations and content
of bank statements
Common Users of Financial
Statements
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Management team members
Auditors
Donors/Funders
Lenders/Bankers
IRS and various governmental agencies
Board of Directors
Accounting 101
• Accounting helps organizations to identify how
much money is received and spent
– How much cash do we have?
– How much do we need to raise?
– What do we want to buy/support?
• Good accounting helps with obtaining grant
funding for projects
Understanding Financial Statements:
Statement of Financial Position
• Summarizes the assets and liabilities of an
organization at a point in time (balance sheet)
• Assets – Liabilities = Net Assets
• Net assets:
– Unrestricted
– Temporarily restricted
– Permanently restricted
Understanding Financial Statements:
Statement of Activities
• Similar to Income Statement for for-profit
entities
• Key sources of income:
– Revenue: resources that resulted from an exchange
(program or service fees)
– Support: resources for which no services are received
by donor/funder
Understanding Financial Statements:
Statement of Activities
• Critical areas for review:
– Budget vs Actual
– Revenue & Support
– Trends
– The Bottom Line (Net income/loss)
Understanding Financial Statements:
Statement of Cash Flows
• Converts accrual-based activity into a cashbasis format
• Critical areas for review:
– The Bottom Line (Total changes in cash)
– Trends
– Cash Flow from Operations
– Days of Operating Cash
Understanding Financial Statements:
Statement of Functional Expenses
• Only required for voluntary health and welfare
organizations
• Many organizations outside of voluntary H&W
organizations find this statement to be useful
Financial Statement Review
Checklist
• Statement of Financial Position:
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Are there unusual trends?
Is the current ratio greater than 1.0?
Can we access capital in an emergency?
Are we prepared for a significant economic crisis?
• Statement of Activities:
– How are we addressing large variances between budget and
actual?
– Are we overly dependent on a single funding source?
– Is revenue increasing at least as fast as expenses?
– Did our bottom line meet expectations?
Financial Statement Review
Checklist
• Statement of Cash Flows:
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Are we using more cash than we are generating?
How does the overall cash activity compare to prior year?
Do we have positive cash flow from operations?
Do we have at least 60 days of operating cash on hand?
• Other Sources of Information:
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Did we receive a clean audit opinion?
Do any of the footnotes cause us concern?
Are we complying with loan covenants?
What impression would a donor or lender have after reading
our statements?
Routine Tax Reporting
Requirements
• Agencies:
– IRS
– Secretary of State
– City and State Departments of Revenue
– Payroll taxing authorities
– Sales Tax
Forms
• Forms:
– Form 1023: Application for Tax-Exempt Status
– Form 990-N: <$50,000 revenue
– Form 990-EZ: Gross receipts between $50,000-$200,000 or
assets > $500,000
– Form 990: Gross receipts >$200,000
– Form 990-T: >$1,000 revenue unrelated to exempt purpose
• When is your 990 due?
– 15th day of the 5th month after your accounting period ends (can
extend up to 6 mos)
– Automatic revocation of exempt status after 3 consecutive years
– Can assess late filing penalties
Understanding Form 990
• Snap Shot – Page 1
– Summary of selected items contained in the return
Accomplishments
Checklist of Required Schedules
• If questions are answered “yes”, a corresponding schedule must be
completed
Governance, Management &
Disclosures
Key Financial & Governance
Policies
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Governing Body
Conflicts of Interest Policy
Whistleblower Policy
Executive Compensation Policy
Gift Acceptance Policy
State/Local Filing Requirements
• State Registration and/or Charitable Solicitation
License
• Annual Report
• Sales & Use*
• Property Tax
• All of these vary considerably from state to state
* See appendices
Payroll & HR Reporting
• Outsourcing payroll to a 3rd party service
provider
– Administer payroll and employment taxes on behalf of
the employer
– Reporting, collecting and depositing employment taxes
with state and federal taxing authorities
• REMINDER – Employer is ultimately responsible
for the deposit and payment of taxes
• Form 1099-MISC for independent contractor
Donor Acknowledgements
• Required if contribution > $250
• Solicit or receive contribution > $75 and organization provides
valuable goods or services in return
• Donors must maintain receipt for their contributions
• Organization's name
• Amount of cash contribution
• Description (but not value) of non-cash contribution
• Statement that no goods or services were provided by the
organization, if that is the case
• Description and good faith estimate of the value of goods or services,
if any, that the organization provided in return for the contribution
• Statement that goods or services, if any, that the organization
provided in return for the contribution consisted entirely of intangible
benefits, if that was the case
Resources
The American Institute of Philanthropy - www.charitywatch.org
Better Business Bureau Wise Giving Alliance - www.bbb.org/us/charity
Charity Navigator - www.charitynavigator.org
Innovation Network - www.innonet.org
National Center for Charitable Statistics - http://nccs.urban.org/
Outcome Measurements Resource Network - www.unitedway.org
Guide Star - www.guidestar.org
National Committee on Planned Giving - www.ncpg.org
Partnership for Philanthropic Planning - www.pppnet.org
Non-Profit Accounting Basics http://www.nonprofitaccountingbasics.org/
IRS – http://www.irs.gov/Charities-&-Non-Profits
Questions???
Beth Allen
Senior Assurance Manager
[email protected]
Paula Tilley
Senior Tax Manager
[email protected]
704.377.0239