Financial Management Fundamentals for Nonprofits (Finance 101) was presented at the Third Annual Essex County Institute for Trustees.

1. Financial Management Fundamentals
Leigh J. Tucker, CPA
Managing Director, Nonprofit Client Practice

2. Objectives
• Discuss why financials are
important
• Learn the key questions
Board members should ask
• Interactive session- this is
an opportunity to ask what’s
on your mind
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3. Leigh Tucker, CPA
• Managing Director,
Nonprofit Solutions Practice
• CPA
• PWC & KPMG Alum
• A-133 Federal Funds Audit Expert
• Senior executive in private industry
• Founder of Nonprofit Executives, a
successful nonprofit networking group
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4. About Us
• For more than a decade,
Accounting Management
Solutions, (AMS) has provided
accounting support, financial
management leadership and project
management at the consulting CFO,
controller and accounting manager
level to dynamic companies
throughout the Northeast.
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5. Financial Oversight Responsibilities
• Review Financial Reports and Budget to ensure the
financial health of the organization
• Make Budget and Policy recommendations
• Safeguard the assets of the organization through
internal controls
• Provide oversight of short and long-range strategic
planning
• Communicate with auditors
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6. Why Should You Care About Finance?
• Finance impacts every aspect
of your organization
• Finance is the foundation for
success
• You need financial information
in order to make key decisions
• Money and mission are directly
linked
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7. Financial Management
Overview
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8. Financial Management Overview
• A Budget serves as a financial guideline and projects the
future financial activity of an organization
• Cash flow planning and monitoring is the process planning
and monitoring the inflows and outflows of cash – money
received and money paid out
• Bookkeeping and Accounting is the process of recording
financial and nonfinancial transactions. It records present
expenditures and funds. It also provides a history of all
financial transactions
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9. Budgeting Basics
• A Budget is a plan that specifies how the resources
available, especially time or money, will be allocated or
spent during a particular period of time
• Budgeting is one of the most important steps in the
management process and is used to make important
decisions about the allocation of resources
• Budgeting is the foundation of annual strategic planning
• Budget preparation often takes place during the last
quarter of the fiscal year
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10. Budgeting
• Board drives budget
objectives
• Link to strategy
• What does it tell us about
the future
• Considerations:
• Deficits carryover – how to fund
• Operating vs. Capital
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11. Types of Budgets
• Capital – high cost, long term items
• Expense – consumption of resources
• Line Item – from charts of accounts
• Operating – revenue and expense budgets
• Program – focuses on program costs
• Revenue – basis for expense budget
• Zero Based – starting from scratch
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12. What Does a Budget Look Like?
• A budget can include monetary and non-monetary units (e.g. units
sold, hours, etc.)
• “Cash” vs. “Accrual” budgets
• A budget is usually for one year although it can be developed for
multiple years
• Senior management and the Board need to be involved in the
process of developing and approving annual budgets.
• It’s very important that the Annual Budget be compared to
actual financial performance during the year and variances be
investigated and understood in order to be effective.
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13. Cash Flow Projection
• Statement vs. Projection
• Is this important?
• Do we have enough money to get there?
• To be valid:
• Must relate to budget
• Must closely tie to Balance sheet
• Must include capital cash outlays
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14. Financial Reporting:
Obtaining & Using the
Financial Data You Need
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15. Characteristics of Effective
Financial Reporting
• Link to strategic plan
• Plan linked to budget
• Easy to understand
• Measures: Key Performance
Indicators (KPI) based on strategy
• Provide meaningful information
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16. Statement of Financial Position (SOP)
• AKA - Balance Sheet
• Depicts the overall value of the organization at a given
time (usually at the end of the year)
• Total assets (what you have or what you are owed) –
total liabilities (what you owe to others ) =
net assets (what is left over)
• Net assets for nonprofits are reported in terms of unrestricted,
temporarily restricted and permanently restricted assets.
• Funders often want to see the statement of financial
position
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17. Statement of Financial Activities (SOA)
• AKA - Income Statement
• Depicts the changes in the organization’s assets over
the past year
• SOA is particularly useful to tell you if you are operating
with extra money or at a deficit
• Gives you a good idea of the organization’s rate of
revenues and spending
• Can also signals areas of concern
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18. Reporting
Question Reports
Where do we want to go? Strategic plan
How are we going to get there? Budget
Do we have enough resources to get Balance Sheet and Cash Flow
there?
Are we on track? Income Statement vs. Budget
If not, what are we going to do about Board Discussion
it?
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19. What to Expect
Financial Reports
• Should be provided to the Board or a sub-committee
on at least a quarterly basis
• Reports should show comparison to budget
• Reports should show comparison to prior year
• Reporting should include a narrative explaining
significant variances to budget and the outlook for
the remainder of the year
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20. What to Expect (Continued)
Financial Reports
• The source of the reports should be the general
ledger, not an off-line spreadsheet
• Timely reporting, not 6 months after the fact
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21. Fiscal Controls to Protect
the Organization
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22. Internal Controls
• Objectives of Internal Controls
• Provide Reliable Financial Data
• Safeguard Assets
• Promote Operational Efficiency
• Encourage Adherence to Policy
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23. Elements of Effective Internal Controls
• Budget/Actual Comparisons
• Definitions of Responsibility (Job Descriptions)
• Segregation of Duties
• Reconciliation of Records
• Documented Policies & Procedures- which are
actually followed
• Periodic Outside Review by Independent Auditors
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24. Role of the Board
• Board develops/authorizes a set of procedures for how
the organization manages its finances
• Board’s treasurer usually coordinates the board's
responsibility for the manual, including its regular review
and update
• Board and leadership team ensures compliance to the
policies & procedures outlined in the manual
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25. Nonprofit Audit
• Another form of financial control is an audit
• An audit is a comprehensive analysis, by an independent
CPA firm, of your financial management procedures and
activities
• The auditor produces a report that indicates how well
your organization is managing its resources
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26. Questions to Ask the Auditor
• Were there any audit adjustments recorded by
management?
• Were there any proposed adjustments not recorded by
management?
• If so, why were they not recorded?
• What were the key audit areas of focus?
• Internal Controls
• Will a management letter be issued?
• Are there any control deficiencies?
• Are there segregation of duties concerns?
• Are there control deficiencies relative to the administration of
federal funds?
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27. Common Issues in Financial
Management
• Inadequate reporting
• Improper staffing
• Inadequate management and
board oversight
• Lack of strategic measures to
help detect early warning signs
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28. Being an Engaged Board Member
• Board input is critical to effective management
• Effective Board reporting should include:
• A summary of key issues (good and bad)
• The likely unknowns critical to financial health
• A summary of critical decisions to be made
• Make sure you understand the information
• Ask the hard questions
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29. Questions?
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30. Contact Information
Leigh J. Tucker, CPA
Managing Director, Nonprofit Client Practice
Accounting Management Solutions, Inc
Phone: 781-419-9220
E-mail: ltucker@amsolutions.net
@NonprofitCFOs
http://www.nonprofitexecutives.org
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