© 2014 KSM Business Services, Inc.

NonProfit Accounting and ReportingJune, 2015

Nicholas J. Wallace, Managing Director

Higher Education Services

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1. Introduction2. Review of accounting systems3. Discuss accounting process best practices4. Internal control basics for small organizations5. Financial reporting

Agenda

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Nick Wallace- Katz Sapper & Miller CPA’s (Top 100 firm)- 34 Years of experience with nonprofits of all sizes- Board experience with large and small organizations including

a college, a county social service agency and a small international ministry (Mission to Ukraine)

Introduction

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Can’t I get by with some handwritten notes, a spreadsheet and a bank statement?

Things to consider:1. Number of transactions2. Complexity3. Degree of centralization

Accounting Systems

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Can’t I get by with some handwritten notes, a spreadsheet and a bank statement?

ANSWER – No!You will most likely be better off with some form of

accounting system.

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▪Here’s Why:• Improved controls (Software Controls)• Fewer opportunities for human error• Improved reporting capability• Less manual work/more automation• Software many times will “talk” to other key systems like

fundraising packages.

Accounting Systems

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Some “In between” solutions:1. Bank reporting tools with online banking2. Guide Serve System

Accounting Systems

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Wells Fargo Small Business

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Wells Fargo Small Business

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GuideServe Outsourced Accounting

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GuideServe Outsourced Accounting

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Accounting Systems

What’s available?1. Low end and online (Under $1Mil)2. Mid Range (Over $1Mil or complex)3. Other (International, heavy grant reporting,

sophisticated users like Foundations and Federal Government)

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▪Sage One*• Online accounting• Online invoicing• Project/task management• Dashboard reporting• Less than $20/mo

* Introduced Sage One Nonprofit in 2012 - Currently $349/mo

Accounting Systems – Low End

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▪What’s available?

▪Quickbooks*• Market Leader• Prescribed reporting

• Good – (thinking is done for you)• Bad – (less flexible)

• Lots of bookkeepers familiar• $200/Basic $400/Multiuser

▪ *also online Nonprofit version also available

Accounting Systems – Low End

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▪What’s available?▪Sage 50 (AKA Peachtree)• Designed for fewer than 50 employees• Preferred by accountants for flexibility in reporting• $299/yr (Single user) to $3,249/yr (multiuser)

Accounting Systems – Mid Range

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▪Fund E-Z• Pricier (Probably $2,000 single user)• Designed for Nonprofits• Small user base (might be hard to find someone who is

familiar with it)

▪Abila MIP (Formerly Sage MIP)• Large user base (over 8,000)• Good reviews• Send in request for pricing

Accounting Systems – Mid Range

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▪Literally dozens to choose from:• Watch for pricing plus training needed • Watch for annual licensing fees

▪Places to look:• AccountingSoftware411.com (Browse by Industry)• Findaccountingsoftware.com (Browse by Indistry)

Accounting Systems – Other Systems

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Questions on Accounting Systems?

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1. Think through procedures and DOCUMENT2. Calendarize steps & establish people responsible3. Maintain accountability (manage expectations)4. Maintain calendar of compliance deadlines

▫ Funder reports▫ Tax reporting▫ Other compliance oriented reporting

Accounting Process Best Practices

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Each major accounting cycle should have a set of documents that govern policies and procedures related to that area:1. Revenue/Receivables2. Disbursements/Expense/Payables3. Cash and Investments4. Fixed Assets5. Debt6. Equity (Especially Temp Restricted and Perm Restricted)

Accounting Process Best Practices

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Payroll?Let someone else do that!

Accounting Process Best Practices

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Questions on Accounting Process Best Practices?

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What we will cover• General Issues/Segregation of duties• Contributions• Payroll• Disbursements/ Accounts Payable

Internal Control Basics

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1. Reconcile banks monthly2. Reconcile other accounts monthly3. Bank statement to be opened and reviewed by

someone other than check preparer4. Keep unused checks locked up/limit access5. 2 signatures on larger checks6. Make deposits daily7. No checks payable to cash8. No corporate credit cards

Internal Control Basics – General Issues

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1. Prevent one person from having both access to assets (like cash) AND the ability to make accounting entries (to cover up the fraud).

2. Small organizations – design compensating controls- Board member review of bank statements- Board member review of executive director/president expense reports

Internal Control Basics – Segregation of Duties

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1. Dual Control if possible2. Prenumbered receipts and account for numerical

sequence of use3. Restrictively endorse all contributions immediately4. Limit delays in process contributions5. Deposit daily6. Reconcile donor system and General ledger

accounting monthly

Internal Control Basics – Contributions

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1. Segregate setting up employees and changing pay rates from the payroll check processing function

2. Someone should always review the physical evidence of the deposit of payroll taxes each pay period.

3. Reconcile payroll tax return information and accounting records quarterly

4. Executive level review of payroll detail report monthly5. Executive level review of payroll tax returns when

completed.

Internal Control Basics – Payroll

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1. Use Prenumbered checks2. Use checks in sequence and account for all checks3. Enter even $0 or voided checks into accounting system4. Make the check preparer function separate from the expense

approval5. Document board approval of check signers in board minutes6. Don’t sign blank checks7. Have a new vendor approval process (document)8. Reconcile accounts payable detail and general ledger9. Run and review an accounts payable aging report monthly

Internal Control Basics – Disbursements/ Accounts Payable

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Questions on Internal Control Basics?

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▪ Basic Principles

▪ Key Questions▫ Balance Sheet▫ Statement of Activity▫ Statement of Cash Flows

▪ Use numbers, stories and pictures/graphs

Financial Reporting

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1. A successful nonprofit is dependent on more than just financial stability…so more than numbers are needed to assess the success of the institution

2. External statements by themselves are too much detailed information to digest at one meeting. Boards need summary information.

3. The whole story is not found in the external statements4. Care for the systems and people that produce the data is

as important as the data itself

Background Principles

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▪ Internal management and board▪ Broad constituency

▫ General public▫ Donors and potential donors▫ Foundations

The data and messages are a bit different for each

Two Primary Audiences

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▪ Analytic questions on the three statements:▫ Balance Sheet▫ Income Statement▫ Statement of Cash Flows

Internal Management and Board

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1. Are your institutions existing resources sufficient and flexible enough to enable it to fulfill its mission?

What to watch:▫ Unrestricted net assets (Growth of this amount, net of Net

PP&E in relation to total expenses)▫ Temp restricted net assets and the related hard assets to

back them up.▫ Permanently restricted net assets (Are hard assets

adequate and is this balance growing with the institution?

Key Questions – Balance Sheet

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1. How did your institution perform this last year?2. Are you living within your means?3. How reliant are you on one or more revenue streams?4. Do operating expenses reflect organizational priorities?5. How dependent are you on investment income?6. How well are you managing investments?7. How well are you managing fundraising?

Key Questions – Income Statement

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Key Questions – Cash Flows1. Was cash flows from operations positive?2. Did cash increase or decrease?3. Was the increase in cash brought by borrowing?4. Was cash “locked up” by paying down debt?

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▪ Mission accomplishments▪ Financial health▪ The future

Constituency

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Constituency Report Examples

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual Report

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The Nature Conservancy Annual ReportThe 36 ACHIEVEMENTS that follow exemplify the many ways we protect, transform and inspire. But none stands alone: An act of protection will also serve to transform policy and practices elsewhere and inspire additional investments in nature … that will empower more protection.

Each achievement profiled here is part of a continuing cycle of protection, transformation and inspiration that fuels the Conservancy and its partners to safeguard nature at the scale and scope needed to enable people and nature to thrive globally.

These illustrative efforts are accompanied by the voices of supporters, staff, partnersand local stakeholders—all of whom are required to make these achievements a reality

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The Nature Conservancy Annual Report

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Questions on Financial Reporting?

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▪ Use a good Accounting System, don’t rely on spreadsheets and bank statements

▪ Establish accountability and a disciplined process to produce clear, accurate and timely reports

▪ Pay attention to internal control issues and make adaptations as needed.

▪ Communicate about the key accounting questions asked and use BOTH financial and nonfinancial data

Conclusion