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Presented by:

Brian Carter, CPAPartner

Mauldin & Jenkins, LLC

Karen JubrailVice President of Development

Glazer Children’s Museum

Your Financial Statements – A Donor’s Perspective

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• Who are your donors?• Financial ratios to consider• Other important financial statement items

• Governance issues

Agenda

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• Your donors are whoever provides the funding for your organization• Government Agencies• Federal• State• Local

• Corporations• Foundations

Who are your donors?

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• Your donors are whoever provides the funding for your organization• General Public• Contributions• Membership Dues• Fee for Service

• Board Members

Who are your donors?

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• What is important to your donors depends on who your donors are

• Many donors are reviewing your organization’s 990 tax return through sites such as Guidestar, Charity Navigator, etc.

• Government agencies are mostly concerned with grant compliance

Who are your donors?

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• Current ratio• Current assets divided by current liabilities• Should be 1.0 or higher

• Debt to equity ratio• Total debt divided by total net assets• The higher the number the more leveraged

the organization is

Financial ratios to consider

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• Working capital ratio• Unrestricted net assets divided by total

expenses• Should be 1.0 or higher

• Program expenses as a percent of total expenses

• Should be greater than 75%

Financial ratios to consider

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• Administrative expenses as a percent of total expenses• Should be less than 15%

• Fundraising expenses as a percent of total expenses• Should be less than 10%

Financial ratios to consider

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• Fundraising efficiency• Total fundraising expenses divided by total

contributions• Should be less than $0.10

• These ratios are just a few of the many that can be used to review the financial health of your organization

Financial ratios to consider

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• Your organization should select several key performance metrics that are relevant to your industry or are representative of outcomes in your strategic plan• Financial, operational or programmatic• Help you tell your story• Benchmark with other similar organizations

Financial ratios to consider

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• Unrestricted Net Assets should be positive• Indicates a history of net income and good

management of resources• Positive change in net assets (i.e. net

income)• Positive operating cash flows• Does the organization have cash reserves?

Other important financial statement items

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• Is the organization’s cash uninsured due to bank concentrations?• Unlimited FDIC insurance is no longer available

• Is there a high degree of uncollectible accounts receivable• Is there a significant amount of bad debt

expense or a large allowance for doubtful accounts

Other important financial statement items

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• What percentage of the organization’s investments are invested in alternatives?• As a general rule of thumb less than 10% is a

conservative amount• Is the revenue stream of the organization

concentrated in a one or two funding sources or donors?

Other important financial statement items

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• Is the organization’s mission identified in the footnotes?• Does the stated mission actually align with what

the organization does on a day to day basis?• Is the organization involved in any

litigation?

Other important financial statement items

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Other important financial statement items

• Are there any outstanding lines of credit and is there any availability to cover seasonality in funding?

• Are there significant changes in revenue or expense from year to year?

• What are the restrictions on endowment funds and how are they managed?

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• Are there any covenants on long-term debt and was the organization in compliance with those covenants?

Other important financial statement items

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• Independent Board of Directors• A majority of the board of directors should be

independent• IRS definition of an independent board member• Member was not compensated as an officer or other

employee of the organization or a related organization• Member did not receive total compensation or other

payments exceeding $10,000 during the tax year from the organization or related organization as an independent contractor

Governance Issues

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• IRS definition of an independent board member (continued)• Neither the member, nor a family member of the member,

was involved in a transaction with the organization that is required to be reported on Schedule L

• Neither the member, nor a family member of the member, was involved in a transaction with a taxable or tax exempt related organization that is required to be reported on Schedule L

• If the member flunks any of these 4 items, he/she is not independent

Governance Issues

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• Board review of financial statements and tax returns• The board and/or a committee of the board

should review and approve the audited financial statements and tax returns before they are issued.

Governance Issues

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• Board review of financial statements and tax returns (continued)• Form 990, Page 6, Part VI, Question 11a – Has the

organization provided a complete copy of this Form 990 to all members of its governing body before filing the form?

• Form 990, Page 6, Part VI, Question 11b – Describe in Schedule O the process, if any, used by the organization to review this Form 990

Governance Issues

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• Board review of financial statements and tax returns (continued)• Form 990, Page 12, Part XII, Question 2c – Does

the organization have a committee that assumes responsibility for oversight of the audit, review or compilation of its financial statements and selection of an independent accountant?

Governance Issues

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• Does the Organization have any loans to/from board members or management?• Loans to/from board members or management is

discouraged and not good governance.• Form 990, Page 4, Part IV, Question 26 – Was a loan

to or by a current or former officer, director, trustee, key employee, highly compensated employee or disqualified person outstanding as of the end of the organization’s tax year?

Governance Issues

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• Does the Organization have any loans to/from board members or management (continued)?• If yes, Schedule L, Part II is required to be

completed • Must report details on loans, advances and

receivables

Governance Issues

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• Does the organization have a policy for:• Conflict of interest• Whistleblower• Document retention and destruction

• Conflict of interest• Form 990, Page 6, Part VI, Question 12a – Did

the organization have a written conflict of interest policy?

Governance Issues

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• Conflict of interest (continued)• Form 990, Page 6, Part VI, Question 12b – Were

officers, directors or trustees and key employees required to disclose annually interests that could give rise to conflicts?

• Form 990, Page 6, Part VI, Question 12c – Did the organization regularly and consistently monitor and enforce compliance with the policy? If yes, describe in Schedule O

Governance Issues

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• Whistleblower• Form 990, Page 6, Part VI, Question 13 – Did the

organization have a written whistleblower policy?

• Three keys to policy• Employees know the policy exists• Employees know how to use the policy• Instances are reported to a member of the board or

some other independent person, not management

• Management may be the person conducting fraud, illegal acts, etc.

Governance Issues

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• Document retention and destruction• Form 990, Page 6, Part VI, Question 14 – Did the

organization have a written document retention and destruction policy?• Make sure policy complies with recommended IRS

guidelines for document retention and destruction

Governance Issues

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• Compensation Issues• Form 990, Page 6, Part VI, Question 15 – Did the

process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision? If yes, describe in Schedule O. • CEO or top management official• Other officers or key employees

Governance Issues

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• Compensation Issues (continued)• Form 990 requires disclosure of the salary for

any current officer, director or trustee regardless of the amount• From the organization or any related organization

• Form 990 requires disclosure of the salary for any former officer, director or trustee if more than $100,000• From the organization or any related organization

Governance Issues

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• Compensation Issues (continued)• Form 990 requires disclosure of the salary for the

five current highest compensated employees other than officers, directors and trustees who received compensation of more than $100,000 from the organization or a related organization

• For purposes of 990 reporting, the top management official and top finance official are considered officers.

Governance Issues

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• Compensation Issues (continued)• Is the board of directors compensated?• Generally discouraged• Could make them non-independent

• Excessive compensation issues• Many donors are reviewing 990 tax returns and making

their own determination if executive compensation is excessive.

Governance Issues

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• Are your financial statements and tax returns posted to your website?• Part of Charity Navigator’s transparency score

• Timeliness of audit and tax filings• How soon after year end is the audit

completed?• Do you extend your tax return or file by the

original due date?

Governance Issues

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That’s All Folks!!!