HABITAT Financial BASICS for Non-Financial Managers

Transcription

1 HABITAT Financial BASICS for Non-Financial Managers HFH OR/WA/HI Conference Oct 24, 2015 Frank Gorman Field Operations Manager State Support Organizations

2 Overview Basic Fiduciary Concepts Budgeting Process Financial Reports/Audits/IRS 990 Categorization/Allocation of Costs Internal Controls Donor Restrictions

3 What s a Board Member to Due? Budgets Fiscal Safeguards

4 Managing a non-profit is not rocket science but that doesn t mean it s not complicated!

5 Businesses Under The Typical Affiliate s Roof Real Estate Agent Social Service Networker Fund Raiser Mortgage Lender And Servicer Housing Advocate Construction Company Retail Store Non-profit Organization Developer Educator And Trainer Activities in red directly touch accounting and finance.

6 For-Profit versus Non-Profit Organizations What s the Difference? Non-profit does not mean that you cannot make a profit Profit = excess of revenue over expenditures Profits are kept in the non-profit corporation and not distributed to shareholders. They are plowed back into the program work of the organization. Guiding force is the mission Problems with finances mean problems accomplishing the mission

7 Duty of Care Fiduciary responsibility of the board of directors (aka Duty of Care), falls into three main areas: Overseeing the organization s finances Directors serve as the steward of organizational resources. Includes setting policy in the area of financial management, approving and monitoring the budget, and contracting for an annual audit. Developing funds Responsible for ensuring that the organization has the resources it needs to carry out its work. The board is responsible for approving the fund development plan, making an individual contribution to the organization, and participating in fundraising activities. Ensuring sound risk management policies Responsible for seeing that risks (flood, fire, malpractice, etc.) are identified and steps taken to prevent or manage the impact of such occurrences.

8 Board Positions Board positions most closely associated with finance functions are: Treasurer affiliate s primary financial officer Has overall responsibility for financial affairs on behalf of BOD Manages, with the finance committee, the BOD review of and action taken related to the board s financial responsibilities Ensures financial reports are made available to BOD on timely basis Responsible for Federal and State filings for the corporation Finance committee Oversees budgeting, financing and investment performance Anticipates financial problems and provides guidance to the treasurer Audit committee (may be assumed by Finance Committee) Selects auditor Manages annual audit process Affiliates over $250,000 in revenue or $500,000 in assets are required to engage a CPA firm to conduct an annual formal independent audit

9 Financial Policies Overview All affiliates in the United States, regardless of size, are required to follow basic financial policies. These include: Filing the appropriate IRS form annually (990, 990-EZ, 990-N ) Annually send to a copy to HFHI fs_990@habitat.org Maintaining formal written fiscal safeguards Distributing monthly written financial reports to the affiliate s board of directors Complying with restricted donation terms Managing mortgage delinquencies consistently and fairly in accordance with board-approved policy Analyzing escrow accounts annually and adjusting payments accordingly

10 Other Policies and Procedures Records retention Home sale policy - Transfer of title Late Payment Policy - Application to escrow versus principal - Late Fee

11 Budgets HFHI Quality Assurance Checklist Section 4. Finances #30 Affiliate board reviews the most recent expense and revenue statement against the budget at least quarterly.

12 Why Have a Budget Budget is a tool for planning and monitoring Process of building the budget is planning Once adopted, it is a management tool Budget consists of two parts Expenses Reflection of the work an organization wants to get done Income How you are going to pay for all that wonderful work

13 Budget Process Five Stages of Budget Process Define the plan Estimate costs Forecast income Strike balance Approve plan

14 Financial Reports Best practice financial statements Statement of financial position balance sheet Statement of activities income and expense Statement of cash flow Comparison of budget to actual Mortgage delinquency report Possible additional ReStore Special Events Property Status

15 Must Balance Balance Sheet Assets things of value to an organization Liabilities claims of outsiders against those resources Net assets (net worth) cumulative sum of all yearend pluses and minuses since the organization started Assets = Liabilities + Net Worth Assets Liabilities + Net Worth

16 Other Reports Income Statement (AKA Profit and Loss or P&L) Revenue minus expense = [hopefully] positive number Comparison of Budget to Actual often included as part of income statement Cash Flow Statement Flow of cash in and out of the organization Cash flow projections/needs vs. actual Delinquency Report

17 Mortgage Delinquencies Why is this a big issue? Major asset of the affiliate Legal requirements for escrow management Professional mortgage servicing Board approved and enforced payment policy Mortgage Delinquency Report Mortgages that are late and delinquent, broken down into categories Confidential report Summary of collection attempts

18 Monthly Board Report Reporting Period: 12/31/14 Total Mortgages: 175 Delinquent # Mortgages Delinquent Arrearage 1-29 days 20 $ % days* 12 $ % days* 5 $ % 90 plus days* 8 $ % % Delinquent Total This Month 45 $36, % (14.4%) Total Last Month (173 mortgages) Total Same Month Pr. Yr. (163 mortgages) 40 $ % 45 $ % *For reporting purposes with the quarterly Affiliate Statistical Reports and for comparison with national statistics, your delinquency rate is based on delinquent payments that are 30 or more days late (14.4% shown above) 18

19 Another Tool Financial Ratios Efficiency Ratio: Measures Flexibility for Growth Formula: Example: Fund Raising Expenses + Management & General Program Expenses $85,105+ $137,578 $1,607,439 = 12% What s an acceptable ratio? The lower the better BBB Guidelines under 30%; HFHI Affiliate of Distinction (AOD) standards 16% or lower

20 Survival Ratio: Measures days of cash on hand if no additional income were to be received. Formula: Another Tool Financial Ratios Unrestricted Cash Average monthly operating costs Example: $178,649 $11,362 = 15.7 months How much cash reserve is too much?

21 Survival Ratio-FY15 Months Cash on Hand End of FY14 Jul-Sep 14 Oct-Dec 14 Jan-Mar 15 Apr-Jun 15 Status Code Red: Less than 6 months Yellow: 7-12 months Green: More than 12 months Note: Increase due to release of $115,000 from restricted Funds in Quarter 2; Lower salary Quarter 4 due to staff departure

22 Financial Audits Throughout the year, the financial statements will be reviewed on an un-audited basis End of fiscal year, outside verification of information takes place in the form of an audit Compilation and reviews are not audits Auditor reports to board of directors HFHI requires audits if: Revenue is > $250,000 per year, or assets > $500,000 (inc. mortgages) Check laws in your states

23 IRS 990 Non-profits must submit an annual tax return Type Annual Revenue Total Assets Form 990 N E-Card < $50,000 n/a Form 990 EZ < $200,000 And < $500,000 Form 990 > $200,000 Or > $500,000 Due 15 th of 5 th month after end of accounting period Jun 30 th end due Nov 15 th Dec 31 st end due May 15 th

24 IRS 990, continued And don t forget. IRS has revoked a number of affiliate s tax-exempt status Need to know what your state requires, as well Public, funders and charity rating services (GuideStar and Charity Navigator) use this information A copy should be sent HFHI FS_990@habitat.org or ussupportcenter@habitat.org

25 IRS 990, continued Form has gone from almost exclusively financial to include an examination of governance, mission, policies and safeguards as well Yes/no questions for Review of 990 by board prior to filing Written policies for Whistleblower Document retention Conflict of interest Procedures for determining compensation of key employees Public access to various documents

26 Categorization/Allocation Categorization of Expenses Program expenses Fund raising Management and General (aka Administration)

27 Categorization/Allocation Allocation of Expenses Reasonable Defensible Consistent Documented

28 Internal Controls Written fiscal safeguards policies and procedures Protection of funds Limit access to affiliate assets Segregate duties Conflict of interest and nepotism Rotation of duties Cash controls Bank controls Purchase controls Payable controls

29 Donation Restrictions Designated/Restricted Donations Permanently restricted Temporarily restricted Event Time Donor designation BOD designated

30 UBIT Unrelated Business Income Tax Levy on revenue from business not related to the affiliate s charitable purposes Proceeds for tax-exempt purpose doesn t make it unrelated Usually because of certain ReStore activity Purchased product. All revenue is taxed, not just that from purchased product General rule of thumb: Less than 15% of revenue from purchased product should not trigger UBIT

31 My.Habitat KnowledgeCenter Resources AOMs, sample documents, policies Affiliate Support Center or Organization of nonprofits in your state Nonprofit financial ratios document from NP Assistance Fund W_Resources/Nonprofit_Financial_Ratios.pdf

32 Summary Basic understanding of financial reports, filing deadlines and budgeting process is important for any board member Financial ratios can be helpful in assessing the overall health and efficiency of the affiliate Important to have policy/procedures documented Fiscal Controls/Internal Controls Mortgage Delinquency

33 Questions??

34 ASSETS Current Assets Bank Accounts Total 1010 Huntington Bank Business 26, Capacity Building Checking 71, Huntington Money Market 83, OHIP Key Total Treasury 205, Total Bank Accounts $ 387, Accounts Receivable 1210 Grants Receivable 0.00 Total Accounts Receivable $ 0.00 Other current assets Total Other current assets $ 0.00 Total Current Assets $ 387, Other Assets 1600 OHIP Affiliate Loans 1601 Loans Receivable Summit County Loan 150, Stark County Loan 100, Cincinnati Loan 90, Wood County Loan 16, Belmont County Loan 140, Tri State Loan 90, Total 1601 Loans Receivable $ 586, Interest Receivable 4, Total 1600 OHIP Affiliate Loans $ 590, Total Other Assets $ 590, TOTAL ASSETS $ 978, LIABILITIES AND EQUITY Liabilities Other Current Liabilities 2100 Payroll Liabilities 10, Deferred Revenue - FirstEnergy Conference Sponsership 15, FE-Mahoning 12, Total 2117 FirstEnergy Grants $ 27, OHIP Loan 750, OHIP Interest Payable 7, Total 2600 OHIP Loan $ 757, Total Other Current Liabilities $ 795, Total Current Liabilities $ 795, Total Liabilities $ 795, Equity 3000 Opening Bal Equity Unrestricted Net Assets 285, Temporarily Restricted Net Assets 7, Retained Earnings Net Income Habitat for Humanity of Ohio Balance Sheet As of June 30, , , Total Equity $ 182, TOTAL LIABILITIES AND EQUITY $ 978,017.86