Presented by Daniel Lemm

Review the board’s role to provide financial

leadership

Identify six key financial questions to ask and

acquire tools to answer them

Apply financial information to your organization

Duty of Care “Act in good faith, in a manner the director reasonably believes to be in

the best interests of the corporation, and with the care a prudent

person in a like position would exercise in similar circumstances.”

Duty of Obedience “Follow the organization’s governing documents, carry out the

organization’s mission, assure that funds are used for lawful purposes,

and comply with state and federal laws that relate to the organization

and the way in which it conducts its business.”

Duty of Loyalty “Put the good of the organization first and avoid engaging in

transactions with the organization from which the director will benefit.”

www.ag.state.mn.us/Consumer/Publications/FiduciaryDuties.asp

Financial Management “Musts” Comply with all federal and state financial regulations:

• Independent audit if total revenues exceed $750,000

• Complete, approve and file Form 990

• Complete, approve and file MN Charitable Annual Report

• Make available three most recent Form 990s to general public

Financial Management “Shoulds” o Prepare and approve budget on annual basis

o Receive timely, consistent, and accurate financial reports

o Review and understand financials with key staff

o Implement separation of duties and create written

financial procedures

www.minnesotanonprofits.org/nonprofit-resources

Statement of Financial Position o Snapshot of financial position at a point in time

o Assets = Liabilities + Net Assets

Statement of Activities o Financial activity during a specified period

o Revenue - Expenses = Change in Net Assets

Budget vs. Actuals o Comparison of planned activities to actual

o YTD Actuals – YTD Budget = YTD Variances

Cash Flows Projection o Project peaks and valleys from cash transactions

o Beginning Cash + Cash Receipts – Cash Disbursements

= Ending Cash

What is our cash position?

Can we pay our debts?

What restrictions are there on our net assets?

What are the reasons for an operating surplus or

deficit?

How reasonable and effective are our internal

controls?

What is the key information in our Form 990?

What is our cash position?

Cash is the most important asset, it funds

operations and pays debts

Too much not always good

o FDIC limit of $250,000

o Return on checking/savings accounts little or zero

Board Skills Practice:

o Days Cash on Hand

o Cash Flows Projection

Number of days an organization has of cash to

cover operating expenses

Calculate Diversity Wilderness’ days cash on hand

Benchmark varies, generally 90 to 270 days

Days Cash on Hand =

Cash + Short-Term Investments

Operating Expenses

365 x (N/12)

Timing of future cash received and paid

Plan for cash shortfalls and surpluses

Review Diversity Wilderness handout:

o What can you tell about Diversity Wilderness’ cash flows

projection?

o What actions would you consider to ensure operations

remain uninterrupted?

Can we pay our debts?

Make sure enough resources are available to meet

current obligations

Timely payment of vendors makes for good working

relationships

Be familiar with types of current and long-term debt

Board Skills Practice:

o Current Ratio

Ability to pay short-term obligations

Calculate Diversity Wilderness’ current ratio

Benchmark ratio varies, generally greater than 1.0

Current Ratio = Current Assets

Current Liabilities

What restrictions are there

on our net assets?

Not all assets are available to be used however the

organization needs them to meet its mission

Limits may be placed on what is owned from the

existence or absence of donor-imposed restrictions

Three Net Asset classes:

o Unrestricted

o Temporarily Restricted

o Permanently Restricted

Board Skills Practice:

o What does the breakdown of Wilderness

Diversity’s net assets tell you?

No restrictions on use except to advance mission

May divide into Undesignated & Board Designated

Examples:

o General contributions

o General operating grants

o Gains/Losses on investments

o Earned income

o Membership dues

Restricted for specific use or passage of time

Amounts released from restrictions moved to

unrestricted net assets

Examples:

o Program grants

o Capital campaign contributions

Cannot be released by either time or use

Donor or courts may release restriction

Examples:

o Endowment fund contributions

o Real asset for specific use

What are the reasons for an

operating surplus or deficit?

Results from operating activities are an indication

of the financial direction of an organization

Focus on major categories, discuss large variances

Surplus not always good, deficit not always bad

Budget is a guide and not the law

Board Skills Practice:

o What story can you tell from the operating

surplus’ of Diversity Wilderness?

o How does current depreciation expense

affect future budgets?

How reasonable and effective

are our internal controls?

Gauge whether the risk of loss due to fraud,

misuse, and abuse has been minimized

Then, assess how written policies and procedures

have been implemented into daily operations

There exist inherent limitations on internal controls

Consider the opportunity for internal audits and

external reviews

Internal Controls is a process designed to provide

reasonable assurance regarding the achievement

of organization objectives in three categories:

1) Effectiveness and efficiency of operations

2) Reliability of financial reporting

3) Compliance with applicable laws and regulations

Fraud is the intent to deceive for personal or

organizational gain,

Critical for board and executive staff to set proper

tone at the top

Opportunity ability to commit fraud

Motivation Rationalization reason to commit fraud justification for fraud

Complete separation of duties means no one

employee performs multiple functions

Four Functional Areas: 1) Custody of Assets

2) Authorization of Transactions

3) Recording of Transactions

4) Reconciliation

Recommended for small and mid-sized

organizations to incorporate compensating controls

What is the key information

in our Form 990?

Part I – Summary o Activities and Governance

o Revenue, Expenses and Net Assets

Part III – Program Service Accomplishments

Part VI – Governance, Management and Disclosure o Conflict of Interest Policy

o Whistleblower Policy

o Document Retention and Destruction Policy

o Process for Executive Compensation

Part VII – Compensation of TDOKEs & HCEs

Part IX – Statement of Functional Expenses

Schedule A – Public Support Test o 33 1/3% Support Test

o 10% Facts and Circumstances Test

Schedule O – Supplemental Information

American Institute of Certified Public Accountants www.aicpa.org

Association of Certified Fraud Examiners www.acfe.com

BoardSource www.boardsource.org

Internal Revenue Service www.irs.gov/charities

MAP for Nonprofits www.mapfornonprofits.org

MN Council of Nonprofits www.minnesotanonprofits.org

Nonprofits Assistance Fund www.nonprofitsassistancefund.org

Nonprofit Finance Fund www.nonprofitfinancefund.org