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Achieving Nonprofit Financial Health, featuring Cheryl Black

Our Speaker
Cheryl Black Chief Financial Officer Texas Association of Nonprofits Cheryl has 29 years of experience working within nonprofit organizations as a volunteer, board member, fund-raiser, donor, independent auditor, consultant, seminar speaker, controller and executive director.

In addition to working at TANO Cheryl serves on the Audit Review Committee for United Way Capital Area and as grant reviewer for the AmeriCorps State Grant Competition.
Cheryl has a B. S. in Business Administration from the University of Nebraska - Kearney and a State of Nebraska CPA certificate.
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Agenda
Differences between non-profit and for-profit organizations FASB requirements

Setting up systems and getting started

Chart of accounts Accounting software Basic financial statements Establishing good internal controls

 Annual Operating Cycle Budget preparation Monthly Activities

Closing the books Working with the Board and other departments Investment and Cash Management

Year end closing

Audit, Review or Compilation Management Letter

Reporting requirements
Form 990 Tax return Single Audit A-133 Payroll reports

Differences Between Non-profit & For-profit Organizations

 FASB 117 - Financial Statement of NonProfit Organization

Statement of Financial Position Statement of Activities Statement of Functional Expenses Statement of Cash Flows Financial Statement Disclosures Accrual Basis of Accounting

 Disclose
In Statement of Activities or In the footnotes

Functional Classifications
Program services Management and general Fundraising

 Definitions
Accrual Cash Modified Cash

Factors to consider when choosing

Few payables or receivables Expertise and time constraints on bookkeeping staff Budget size

 FASB 116 - Accounting for Contributions Received and Contributions Made

Recognized as revenues in period received Recorded as either restricted or unrestricted revenue (donor imposed conditions)

 In-Kind Contributions
Donor sets value, not non-profit Shows true cost to operate the organization IRS does not allow in-kind services or facility rental to be deducted from Form 990 tax return

 Special Events and Membership Dues

Fund-raiser attendees often receive a tangible benefit in return Membership dues may entitle individuals to benefits The portion of ticket or dues which represents the fair market value of the benefit received is NOT tax deductible Minimal benefits are excluded Non-profit required to send letters to donors re: amount that may be taken as tax deduction

 IRS Publication 1771 - Charitable Contributions - Substantiation and Disclosure Requirements

 FASB 124 - Accounting for Certain Investments Held by Not-for-Profit Organizations

Investments be reported at fair market value Gains and losses be included in a statement of activities

 FASB 93 - Recognition of Depreciation by Notfor-Profit Organizations

Recognize the cost of using up long-lived tangible assets (depreciation) Exceptions Certain works for art Certain historical treasures

Setting up Systems and Getting Started

Chart of Accounts - Design Planning

A tool used to code all the transactions that will be recorded in the accounting records. The accounts set up here are then consolidated into the financial statement presentation. If not well thought out, the financial statements will be less effective as a management tool in making decisions about the future of the organization.

Chart of Accounts - Design Planning

Decisions to make
Unified Chart of Accounts (UCOA) Numbered accounts
Usually follow standard industry practice 100 Assets 200 Liabilities 300 Net Assets (Fund Balance) 400 Revenue 500+ Expenses

 Overall Considerations
Most important features Cost Off the shelf or customized Number of modules Training of accounting staff Maintenance contract Specialized non-profit packages vs. general accounting packages Compatible with rest of applications

Basic Financial Statements Statement of Activities

Commonly known as the Income Statement Is the cumulative total of revenue and expense activity for the current annual operating cycle
Calendar year Fiscal year

Management focuses on this statement more than the Statement of Financial Position (Balance Sheet)

Basic Financial Statements Statement of Functional Expenses

Is the breakdown of natural expenses into functional categories.
Admin and general (or overhead) Programming Fundraising

Is closely linked to the Statement of Activities (Income Statement) Can be a supplement report or an audit footnote

Basic Financial Statements

Statement of Financial Position
Commonly known as the Balance Sheet Is a snapshot of the financial position of the organization on a certain day Consists of three main categories
Assets (what you own) Liabilities (what you owe) Net Assets (what the organization is worth)

Independent auditors focus on this statement more than the Statement of Activities (Income Statement)

Basic Financial Statements

Statement of Cash Flows
Commonly known as the Change in Financial Position Breaks down the use of cash into three different activities
Operations Investing Financing

Lets the reader know exactly where the organization received and spent cash during the period

Internal Controls Overview

Main objectives include Safeguarding assets Promoting efficiency in operations Enhancing reliability and completeness of financial reporting Minimizing the risk of misuse or abuse of the organizations resources

Internal Controls Overview (contd.)

Nonprofits at greater risk for fraud?
An atmosphere of trust Many cash donations (difficult to control) Limited availability of qualified staffing resources (salary constraints) Mixture of volunteers and employees with lack of business/financial experience involved in operations Volunteer Board of Directors (decision makers)

 Segregation of Duties
No financial transaction is handled by only one person

 Policies and Procedures

Established way of doing business that ensures public confidence Maintains integrity of your organization and its assets But does not inhibit your ability to get your daily work done Assists with training new employees Prevents fraud

Annual Operating Cycle

 Overall significance
Used to monitor success of goals Used to show strength of plan

Detailed Plan
Choose format and tool (how) Choose level of staff/Board participation (who) Commit to a time line for completion (when)

 Detailed Process
Begin with upcoming year goals Translate those into resources needed and expense outlays to carry them out Balanced budget - yes or no
Board policy in place to be followed Deficit Surplus

Review during the operating year

 Generating monthly financial statements

Policy for month-end closing

Working with others

Board and committees Other departments within organization

 Investment management
Investment policy Investment spending policy

Cash management
Cash flow shortage policy Cash flow surplus policy

 Compilation
Information just compiled by outside accounting firm Uses standard form of financial statement presentation Provides no opinion or assurance that the information is reliable Cost is minimal

 Review
Limited examination of the organizations financial statements Limited testing Provides limited assurance on the reliability of the information presented Cost is much less than audit

 Audit
Process for testing the accuracy and completeness of information presented in the organizations financial statements Completed by independent CPAs An opinion issued on how fairly the financial position has been presented If financial statements comply with GAAP

 Audit report - consists of Auditors opinion letter (qualified or unqualified) Required Financial Statements Required Notes to the Financial Statements Management letter Informs organization of ways to improve their internal control processes and day to day management

Form 990 Reporting Overview

Purpose for filing with IRS
Required information for statistics and tracking not a tax return Have information available for public inspection May be primary or only source of information available to the public IRS cleaning up their database

When to file
15th day of 5th month after close of fiscal year

Form 990 Reporting Overview Who Must File

Old Rules Organizations with gross receipts <$25K per year
No filing requirements

2007-2009 Rules Organizations with gross receipts <$25K per year 2010 Rules Organizations with gross receipts <$50K per year
Required to file electronic notice e-Postcard or Form 990-N

Changes Since 2007

Form 990-N
Filing Log in to www.irs.gov/eo Click on Annual Electronic Filing Requirement for Small Exempt Organizations Form 990-N (e-Postcard) Failure to file for three consecutive years will result in revocation of tax exempt status

Old Rules
Organizations with Gross receipts between $25K and $100K Total assets <$250K at year end File Form 990-EZ Could elect to file Form 990

2008 Rules
Organizations with Gross receipts >$25K but <$l M Total assets <$2.5 M File Form 990-EZ Can elect to file Form 990 and schedules

Changes Since 2007 (contd.)

Form 990-EZ
Has not been redesigned, but changes have been made Review Schedules A, B, C, E, G and L and determine if they apply to your organization

Old Rules Organizations with

Gross receipts > $100K Total assets >$250K at year end Required to file Form 990

2008 Rules Organizations with

Gross receipts >$l M Total assets >$2.5 M Required to file Form 990

2009 Rules

Old Rules
Organizations with
Gross receipts > $100K Total assets >$250K at year end Required to file Form 990

Organizations with Gross receipts >$500K Total assets >$1.25 M

Required to file Form 990

2010 Rules
Organizations with Gross receipts >$200K Total assets >$500K
Required to file Form 990

Changes Since 2007 (contd.)

Form 990
Revised for fiscal years beginning in 2008 Last revision was in 1979 More questions about governance Instructions include Sequencing List Format Core form with eleven parts
Part IV Checklist of Required Schedules

Sixteen schedules

Form 990 List of Schedules

A-Public Charity Status and Public Support

B-Schedule of Contributors C-Political Campaign and Lobbying Activities

I-Grants and Other Assistance to Orgs, Govt., and Individuals

J-Compensation Info K-Supplemental Information for TaxExempt Bonds L-Transactions with Interested Persons M-Non-Cash Contributions N-Liquidation, Termination, Dissolution O-supplemental Information to Form 990 R-Related Organizations and Unrelated Partnerships

D-Supplemental Financial Statements

E-Schools F-Statement of Activities Outside the US

G-Supplemental Info Regarding Fundraising or Gaming Activities

H-Hospitals

 Circular A-133 single audit report

$500,000 or more in federal awards expended in any fiscal year Audited annually Available for public inspection Auditee duties
Schedule of Expenditures of Federal Awards Maintain internal controls

 Payroll reporting
Quarterly (941) reports Annual (940) reports W-2s 1099s

 Unrelated Business Income Tax (UBIT) Regularly carries on a trade or business Not substantially related to its exempt purpose IRS Publication 598 - Tax on Unrelated Business Income of Exempt Organizations

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Contact Information
Connect with the Texas Association of Nonprofit Organizations at www.tano.org . You can also contact Cheryl via email at cheryl<at>tano<dot> com. Connect with Sage Email nps <at> sage <dot> com Download the presentation and handouts from www.slideshare.net/sagenonprofit Read our blog, http://www.SageWords.net. Like us on Facebook, http://www.facebook.com/sagenonprofit Follow us on Twitter, http://www.twitter.com/sagenonprofit

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