Creating, Managing and Analyzing a Nonprofit Budget. Green River Community College (Kent Campus) June 20, 2017

Transcription

1 Creating, Managing and Analyzing a Nonprofit Budget Chris McCauley, CPA, Esq. Green River Community College (Kent Campus) June 20, 2017 Agenda 1. Welcome and Introductions (6:00 PM 6:05 PM) 2. Learning Expectations (6:05 PM 6:10 PM) 3. Practical Financial Reporting (6:10 PM 6:30 PM) 4. Internal Control Basics (6:30 PM 6:35 PM) 5. (6:35 PM 7:00 PM) 6. Budget Exercise ( 7:00 PM - 7:50 PM) 7. Questions (7:50 PM 8:00 PM) 1

2 Presentation Goals For you to leave with: 1. An understanding on which financial statements deserve your attention and why you should prepare them. 2. How and when to report your budget and other financial information to certain stakeholders (i.e., donors, IRS, board, etc.). 3. Best practices for managing your financial information and the importance of accurately maintaining your books. 4. An overview of how to create, manage and analyze a budget for a nonprofit corporation and the benefits of these activities. Practical Financial Reporting Which Statements Deserve Your Attention? Statement of Financial Position (Balance Sheet) Statement of Activities (Income Statement) Bonus: Notes to the Financial Statements Details on Property and Equipment Details on Related Party Transactions Details on Legal Matters Details on Other Key Accounting Matters 2

3 Statement of Financial Position Assets = Liabilities + Net Assets Statement of Activities Revenue and Support (Less) Expenses Change in Net Assets 3

4 Notes to Financial Statements Notes report the details left out of the financial statements. Examples include: 1. Summary of Significant Accounting Policies a) Basis of Financial Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. b) Cash and Cash Equivalents Cash and cash equivalents consist of U.S. dollars and short-term certificate of deposits denominated in the same. 2. Related Parties Transactions The organization leases an office space owned by a board member. Non-interested board members made the decision to lease this office space after considering the needs and financial condition of the organization and other options available in the real estate market. 3. Legal Matters In the ordinary course of business, the organization may be subject to certain legal actions. In the opinion of management, such matters will not have a material effect on the financial position of the organization. Notes to Financial Statements 4

5 Practical Financial Reporting Why Regularly Prepare Financial Statements? 1. To fulfill fiduciary duties as a director (RCW ) or executive director (Liebergesell v. Evans, 93 Wash. 2d 881 (1980)). 2. To actively manage your budget and measure your organization s overall performance, including performance of your employees or volunteers. 3. To meet reporting requirements for certain donors, grantees, governmental agencies and other sources of funds and provide record of how funds are being used. Practical Financial Reporting When Will You Need Financial Statements? 1. General periodic reporting (i.e., month-end, quarter-end, year-end) for board of directors, lenders, donors/grantors, department/program managers, etc. 2. Filing your Form 990-EZ (Short-Form) or Form 990 (Long-Form), i.e., Return of Organization Exempt from Income Tax, Form Filing a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024, Application for Recognition Under Section 501(a). 4. Filing a Form 990-T, Exempt Organization Business Income Tax Return. 5. Filing Washington Department of Revenue Tax Returns (WAC ). 5

6 Internal Control Basics How to Maintain the Integrity of Your Financial Data Entity Level Controls Establish the control environment Clearly define roles and responsibilities Physical controls Segregation of duties Bank reconciliations Activity Level Controls Payroll controls Regular monthly financial statement reviews Check signing and distribution Expense reimbursement and review How Do Your Financial Statements Relate To Your Budget? Pro Forma Financial Statements Financial Projections Investments Consolidated Budget Donors Grants Operational Budgets Program 1 Budget Fundraiser 1 Budget Basic Data Vendor Information Client Data Staff Data Vendor Information Donations 6

7 What is an Operating Budget? The operating budget is an internal document that consists of an organization s expected revenues, contributions, other income, expenses and bottom line, or in the case for nonprofits, change in net assets. What s the Purpose of an Operating Budget? The purpose of the operating budget is to strategically allocate the organization s resources and manage spending decisions so each decision is effective and helps the organization in achieving its mission. Sample Consolidated Operating Budget 7

8 Why is Your Operating Budget Important? 1. Helps organizations focus on their priorities and operate a sustainable organization capable of carrying out its mission. 2. Allows leaders to monitor the organization s financial condition by tracking, measuring and analyzing spending. 3. Ensure the leaders vision for the future is executed and that they are able to measure what is working and what is not. 4. Build accountability while also empowering employees to think for themselves. 5. Incorporate discipline in the budgeting process and helps ensure that employees are doing the right things for right reasons. What Do You Need for an Effective Budget? 1. A culture that supports planning. 2. Top management s commitment. 3. A reliable and timely reporting system. 4. An agreement on principles and assumptions. 5. Reliable business information. 6. Structure and defined responsibilities. 8

9 Basic Steps of Creating a Good Budget (Steps 1 5) 1. Incorporate a budget structured within the organization. 2. Develop a vision for a period longer than one year. 3. Turn the long-term strategic plan into specific goals for shorter-term periods. 4. Determine the funds available for overall spending. 5. Convert the short-term plans into monetary terms and action plans. Basic Steps of Creating a Good Budget (Steps 6 10) 6. Allocate operating and capital funds on an organization-wide basis. 7. Allocate operating and capital funds to the various departments or programs. 8. Obtain each manager s commitment to carry out action plans and budgets. 9. Monitor the results of actual income and expenditures and compare them to the budget. 10. Take immediate action to keep within the budget by revising or updating the action plans or budget. 9

10 6/19/17 Nonprofit Budgeting How Do I Know My Budget is Working? 1. If you are managing the budget, do you feel in control of spending? 2. Are employees inspired to take action? 3. Are you able to use your budget as a tool to define critical success factors? 4. Are you able to use your budget as a communication system in planning for your organization? 5. Are you able to easily measure progress towards goals? 6. Are smarter decisions being made? 7. Are you able to evaluate employee performance? Budget Exercise: Geared-Up for Kids Founded: July 2016 Mission Summary: Encourage kids to develop healthy lifestyles while providing career training services in retail industry to community members. Legal Entity: Nonprofit Corporation State of Formation: Washington Tax-exempt: Yes, 501(c)(3) Employees: 1 part-time executive director 2 FTE staff members 10

11 Questions? Thank you for your interest and support. Contact Us! (866)