Financial Leadership in Nonprofit Governance

1. strengthening nonprofit governance and management

2. ED Academy Financial Leadership

3. Raise your hand if you…. Naturally keep your receipts Balance your home checking account weekly Have a personal budget Always look for the best deal If someone else writes the checks If you have qualified staff to manage the financial aspects

4. Rarely do you become an ED because  you want to manage the check book.

5. What’s at stake? • Your mission – the ability to do your job • Jobs – yours & your staff • Income – yours & your staff • The future of your organization • The reputation of your organization • CYA

6. Who are the stewards? • It must be a team effort • Entire Board of Directors • Treasurer • Executive Director • Financial staff (bookkeeper) • Finance Committee • Outside entities

7. Size Matters Number of staff Size of budget Life Cycle Governance expectations Trust and accountability

8. Your job… To know what your role and authority is, and what others role and authority is Teach, train and remind what others role is Manage the process Suggest changes to the process when it is appropriate

9. Also your job… Know the bank balance Execute your policies Protect all assets Ethical practices Legal Practices

10. First and Most Important • Set the Control Environment • Policies in place • Everyone has to follow the policies • No one – especially people in leadership – makes exceptions for himself or herself • Everyone uses timesheets, gets approval for travel expenses, has credit cards scrutinized

11. What is your Current Control Environment?

12. Legal Stuff • Payroll taxes  • Not paying payroll taxes could also result in criminal penalties and imprisonment in addition to IRS penalties. If you are found guilty of willful failure to comply with federal employment tax laws, you can be fined up to $10,000 and/or be imprisoned for up to five years. ONLY TIME INDEMINIFCATION IS VOID

13. Other Legal Stuff • Contracts (verbal is binding) • Audit/990 • Must have an audit if more than $250,000 in contributions • Fundraising – • Designated Gift • Restricted Gifts • Grants

14. Who is the owner of the assets? (trick question)

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

16. Definitions Embezzlement – Converts a resource for own use without the consent of the owner Financial Fraud – Intentional perversion of the truth

17. Embezzlement Siphoning: pocketing money without creating discrepancies Check Kiting – series of deposits and withdrawals between several banks Lapping – use incoming money from customers to deposit to several fake companies

18. Embezzlement Payroll – add fake employees to draw additional income (different than falsifying timecard) Kickbacks – A vendor gives gifts or money directly to the employee to buy from vendor Overtime – falsification of timecard to add hours not worked

19. Financial Fraud Examples Editing financials for grant applications to appear “better” to funder Hiding bills to make balance sheet look better Editing financials to get paid a better salary

20. What keeps you awake?

21. Requirements The Right Tools • Microsoft Excel is not accounting software • QuickBooks • used by 80% of nonprofits. Techsoup has QuickBooks for $50 • Peachtree is also an option. The Right People • People that know how to use accounting software. ** Money well spent ** • People with accounting/bookkeeping acumen

22. Discuss the financial wisdom you have collected to serve your organization. Yours, your staff, your board, your finance committee, your treasurer. What gaps do you have and how do you fix them?

23. All in One Place Budget All Expenses All Income All Accounts Payable All Accounts Receivable All Bank and Credit Card Balances Up to date information that can be retrieved regularly. (If you are living month to month – 45 day old information is useless.) Historical information Comparisons

24. Budgeting Income Based vs. Expense Based

25. Expense Based Budgeting True cost of programs and services Competitive Wages with Competitive Benefits Packages Staff time is included in Fund Raising Event costs Computers are upgraded regularly Evaluation of programs/R&D of New programs

26. How do you build a budget? • Historical knowledge • Examine trends in spending and income • What’s going to be the same or different? • What’s going to be new? • Inflation? • Increased cost of goods? Gas prices? • What’s threats exist? • What didn’t you have enough money for?

27. How does your board/finance committee/treasurer know it’s the right budget?

28. Practices, Habits and Philosophies • Pay bills • Early? Late? On time? • Why? • Where do you keep your Reserves? • High Risk? Low Risk? Long term? Short term?

29. April 2019 YTD

30. Value of Projections Bank balance throughout the months (do you have enough to make payroll every month?) Actual trends meeting expectations? Point of no return?

31. Do you have a finance committee? If you don’t, I can guess the financial situation is either monopolizing the conversation at the board meeting -- or -- no one is spending adequate time reviewing the financials

32. What should the committee analyze? Budget Vs. Actual: YTD and Month Balance Sheet Bank Reconciliations Cash flow projections Accounts Receivable and Payable

33. How often should the committee review reports?

34. What else? Help assess risk Determine insurance coverages Assist with ED compensation conversation Advocate for spending or saving Understand what impact the strategic plan will have on spending Understand which funding streams are at risk or safe

35. Other Financial Conversations • When would we use our savings? • Crisis? • Mission expansion? • Salaries – are we paying enough? • Capital expenses or plan for general maintenance • Projections

36. Grade your Finance Committee What support do they need to get better? Where will they get that support?

37. Oversight and Management • Board members Responsibilities • Acquire sufficient financial acumen • Financial Planning • Adoption and adherence to financial policies and procedures • Regular monitoring via reports • Be diligent

38. Oversight and Management • Executive Director responsibilities • Coordinate team effort (calendar, info flow) • Facilitate timely and complete reporting • Champion adherence to adopted polices and procedures • Supervise staff • Be diligent

39. Executive Directors should be evaluated on the ability to: Develop and maintain a budget Manage cash flow Manage assets Communicate financial status and issues to the board Find creative or new funding sources Grade yourself from no skills to excellent skills. Develop your performance improvement plan.

40. How much should you have in the bank and why? Are you including a plan for savings in your budget? When would you use it? Does your board agree?

41. What does money in the bank buy you? And, are you taking advantage of that?

42. Oversight and Management • Audits • Audits, Reviews, Compilations • Auditor Selection • Audit Report • Management Letter What do you do with final report?

43. 990 • Purpose & Intent • Public Document – anyone can see it • What does it say?

44. Actual questions on the 990 Did the organization make changes to governing documents? Did any officer, director or key employee have a family or business relationship with any other officer, director or key employee? Has the organization provided a complete copy of this form to all of its governing members before filing the form? Does the organization have a conflict of interest policy, whistleblowers policy and document destruction policy?

45. Oversight and Management • Compliance • Legal • IRS Forms • State Forms • Generally Accepted Accounting Principles (GAAP) • Revenue & expense recognition • Funder

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

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

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

50. Proof