telling your financial story - sfcontroller.org · telling your financial story city & county...
Post on 26-Jun-2020
1 Views
Preview:
TRANSCRIPT
1
Telling Your Financial Story
City & County of San Francisco
May 31, 2018
Rebecca Coker, Lead ConsultantRoxanne Hanson, Senior Consultant
2
Financially resilient organizations
Stay focused on the long-term while continually assessing and responding to current needs. They
understand and are able to tell their financial story.
2
What does a financially resilient organization look like?Financial Resilience in Nonprofit Organizations
3
What do you want to know about your organization’s financials?
3
5
Order of statements in the audit
Statement of
Financial Position
BALANCE SHEET
Statement of
Activities
INCOME STATEMENT
Statement of
Functional Expenses
Statement of Cash Flows
Opinion LetterNotesOpinion LetterNotesManagement Letter
What does a financially resilient organization look like?Method of Accounting
6
VS
4
What does a financially resilient organization look like?Revenue restrictions
7
What does a financially resilient organization look like?Depreciation
8
5
What does a financially resilient organization look like?Statement of Activities & Statement of Functional Expenses
Unrestricted Revenue Expenses Surplus
(Deficit)
What was Earned What was Spent Results
Statement of Functional Expenses
9
Operating Results TRNA
balance going into the
next fiscal yearReserve
Balance
6
What does a financially resilient organization look like?Balance Sheet
Assets• Cash• Receivables• Investments• Fixed Assets
Liabilities• Bills due• Line of Credit• Deferred
Revenue• Debt (short-and
long-term)
Net Assets• Unrestricted
(Board Designated, Fixed Assets, Other)
• Temp. Restricted
• Perm. Restricted
What is Owned What is Owed Net Worth
11
Cash
Property & Equipment
Investments
Receivables
Acce
ssib
ility
Assets & Liquidity
12
7
What does a financially resilient organization look like?Statement of Cash Flows
14
Cash from Operations
Cash from Investing
Cash from Financing
Change in Cash
8
What does a financially resilient organization look like?Financial Health Analysis Tool
15
What does a financially resilient organization look like?Operating Results
Unrestricted Revenue Expenses Surplus
(Deficit)
What was Earned What was Spent Results
16
9
What does a financially resilient organization look like?Months of Cash-on-Hand
Cash and Cash
Equivalents
Average Monthly
Operating Expenses
Months of Cash on
Hand
Money in the Bank
What was Spent on Average Per
MonthOperating Runway
Money in the Bank
Unrestricted Net Assets
Illiquid Net Assets
Liquid Unrestricted Net Assets
What does a financially resilient organization look like?Liquid Unrestricted Net Assets (LUNA)
Unavailable Net Worth
Operating Reserves
Unrestricted Net Worth
18
Months of Operating Reserves
10
What does a financially resilient organization look like?Operating Revenue Mix
Unrestricted Revenue Source
Total Unrestricted
Revenue
Revenue Source %
Revenue for the Year
Amount of Revenue Source Relative to Total
Revenue from Source
What does a financially resilient organization look like?Expense Mix
Total Expenses
Program Management & General Fundraising
Overhead20
11
What does a financially resilient organization look like?Functional Expense Mix: Program
Program Expenses
Total Expenses
Program Expense %
What was Spent in Total
Amount Spent on Program
relative to Total
What was Spent on Program (Direct and
Shared)
21
What does a financially resilient organization look like?Notes to the Financial Statements
• Basis of accounting
• Fixed assets
• Debt
• Restricted net assets
• Related party transactions
• Subsequent events
• Commitment and contingencies
22
12
23
Financial Storytelling
https://www.youtube.com/watch?v=uI4fVgVVpiw
24
“When we consider responding to a challenge with purposeful action, we ask ourselves two questions:
why and how. Analytics helps answer the ‘how question’—how to uses resources efficiently, detect
opportunities, compare costs, and so on. But to answer the ‘why question’—why this matters, why we care, why we value one goal over the other—we turn
to narrative.”
~Marshall Gantz, Leading Change: Leadership, Organization, and Social Movements
13
What does a financially resilient organization look like?IRS Form 990
What does a financially resilient organization look like?Resources
Public Website:
www.sfcontroller.org/nonprofits
– Training Materials
– Resources for Nonprofits
– Monitoring Form
– Monitoring Guidelines
Laura Marshall (Program Lead)
Project Manager(415) 554-7511Laura.Marshall@sfgov.org
Marnie Purciel-Hill (Technical Assistance)
Sr. Performance Analyst(415) 554-5313Marnie.Purciel-Hill@sfgov.org
Jeff Pomrenke (SharePoint)
Performance Analyst(415) 554-5365Jeffrey.Pomrenke@sfgov.org
Emily Vontsolos (General Assistance)
San Francisco Fellow(415) 554-7514Emily.Vontsolos@sfgov.org
26
14
What does a financially resilient organization look like?Resources
• The Key to Long Term Financial Health Liquid Unrestricted Net Assets (LUNA), Hilda Polanco, New York Nonprofit Press, May 2012:
• Keeping it in Reserve: Grantmaking for a Rainy Day. Hilda Polanco and John Summers, Nonprofit Quarterly, May 2016:
• Operating Reserve Policy Toolkit for Nonprofit Organizations. The National Center for Charitable Statistics, Dec. 2008
• Nonprofit Audit Guide
• StrongNonprofits.org
27
What does a financially resilient organization look like?Fiscal Management Associates (FMA)
• Established in 1999 to serve not-for-profit organizations around the country
• Provides customized financial management, accounting, software, organizational development, human resources, and other consulting services
• Works directly with organizations or through funder-supported management and technical assistance programs
FMA's mission is to empower not-for-profit organizations with the knowledge and skills to successfully serve their constituents and fulfill their missions
@FMA4Nonprofits
linkedin.com/company/fiscal-management-associates-llcwww.fmaonline.net
Rebecca Cokerrcoker@fmaonline.net
New York | Chicago | Oakland | Los Angeles
/FiscalManagementAssociates
28
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 1
Financial Audit A series of procedures followed by an independent professional accountant used to test, on a selective basis, transactions and internal controls in effect, all with a view to forming an opinion on the presentation of the organization’s financial statements. Independent means the CPA is not on the board, doesn’t have a financial interest or is a family member of someone who does. California Audit Requirements
• Audits required for charitable organizations with gross annual revenue > = $2 million • No threshold or requirements for a Review or Compilation
Single Audit (A-133)
• Audits are required for organizations that expend at least $750,000 in federal funding Material Weakness A deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. Significant Deficiencies A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. Audit Components
• Statement of Financial Position (Balance Sheet) • Statement of Activities (Income Statement) • Statement of Functional Expenses • Statement of Cash Flows • Opinion Letter • Notes • Management Letter (for Management, if applicable)
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 2
Revenue Types
Unrestricted Description: Contributions are free of donor restrictions on their usage
Examples:
• Foundation grants for general operations • Individual, corporate and other contributions • Performance-based contracts • Fee for service revenue • Investment income
Temporarily Restricted
Description: Contributions have donor imposed restrictions and may be removed by (1) the passage of time or (2) an act of the organization. Temporarily restricted revenue is reclassified as unrestricted revenue once the restriction has been met.
Examples:
• Foundation grants for specific programs • Multi-year foundation grants
Permanently Restricted
Description: Contributions have donor restrictions in perpetuity
Example:
• Endowments
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 3
How it Works Purchases of fixed assets provide value not only in the year that asset is purchased but over the full useful life of the asset. Rather than accounting for the full value of a large asset in the year it is purchased (e.g. a new building), depreciation is a way to account for how much of the asset is being used each year of its useful life.
For example, a fixed asset costing $100,000 with a useful life of 10 years would be depreciated at $10,000 each year for 10 years.
Fixed Asset (aka Capital Assets) An asset that is valued over a pre-determined dollar threshold and will benefit the organization beyond a time span of 1 year.
Depreciation Depreciation is an accounting method of allocating the cost of a fixed asset over its useful life. Depreciation is defined as the reduction in the value of an asset with the passage of time, due in particular to wear and tear.
Fixed Assets and Depreciation
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 4
Statement of Financial Position (Balance Sheet) The Statement of Financial Position is a financial statement that reports the assets, liabilities, and net assets of an organization on a given date. In the audit, it reflects the accumulated operating results for the life of an organization.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 5
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 6
Liquidity Liquidity describes how easily you can access your assets as cash. Assets are listed on your Balance Sheet in order of liquidity, with the most liquid assets (cash) listed at the top.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 7
Statement of Activities (Income Statement) The Statement of Activities is a financial statement that reflects organizational performance for a given period of time. In the audit, it reflects the changes to an organization’s net assets based on income and expenses in a given fiscal year.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 8
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 9
Statement of Functional Expenses The Statement of Functional Expenses reports expenses by their function (program, management & general, and fundraising) and by the nature of expense (salaries, rent). The expenses are included in much more detail than the Statement of Activities.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 10
Statement of Cash Flows
The Statement of Cash Flows is a financial statement that shows where cash was obtained and spent for a given period. This statement reports on Operations, Investing, and Financing, as well as any non-cash activity (e.g. acquisitions of equipment).
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 11
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 12
Financial Health Metrics
Liquid Unrestricted Net Assets (LUNA) LUNA represents the amount of unrestricted cash, receivables, and investments (excluding fixed assets) an organization has available to spend after board-designated reserves, bills, and debt are removed. LUNA consists of that portion of an organization's unrestricted net assets balance that could be converted to cash relatively easily if necessary. Months of LUNA is calculated as a percentage of average monthly operating expenses (excluding depreciation). LUNA represents an organization’s financial strength and flexibility to pursue new opportunities or weather financial challenges.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 13
Months of Cash-on-Hand Months of Cash-on-Hand represents the amount of cash the organization has available divided by the average monthly operating expenses of the organization. This metric does not remove any bills that need to be paid or distinguish between unrestricted and restricted assets that may both be included in cash.
Operating Results Operating Results measures the difference between the amounts of unrestricted revenue an organization brings in and the amount it spends for one year. An operating surplus (positive number) means the organization brought in more than it spent. An operating deficit (negative number) means the organization spent more than it brought in.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 14
Operating Revenue Mix Operating Revenue Mix shows the makeup of an organization’s unrestricted revenue. Revenue streams may include: contributions (individual, foundations, corporate, membership, and special events); government grants and/or contracts; earned revenue (e.g. program fees, rental income); and other revenue (such as interest from investment activities).
Organizations must plan for changes in revenue composition in addition to revenue growth or decline. The best mix of revenue streams will depend on the organization's business model and strategy.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 15
Functional Expense Mix Functional Expense Mix shows how much was spent on Program, Management & General, and Fundraising relative to the total spend.
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 16
Citywide Nonprofit Monitoring Standards
Audited Financial Statements As Applicable (Per Departmental Requirements):
Complete: all sections and statements included; opinion and other audit letters are signed; sections include: o Opinion Letter o Statement of Financial Position (Balance Sheet) o Statement of Activities (Income Statement) o Statement of Cash Flows o Statement of Functional Expenses o Footnotes
Unmodified opinion No material weaknesses mentioned or going concern stated in the notes to the financial statements No current audit findings and/or questioned costs Audit completed within six months of the close of the contractor's fiscal year
For Contractors that Received a Management Letter:
Management letter has been signed by the audit firm For any prior year findings, the Contractor has provided a reasonable explanation of how the Contractor has corrected all the findings
For Organizations with a Single Audit:
No material weaknesses mentioned or going concern stated in the notes to the financial statements No current audit findings and/or questioned costs For any prior year findings, the Contractor has provided a reasonable explanation of how the Contractor has corrected all the findings
3a
3b
3c
3d
3e
3f
3g
3h
3i
3j
GUIDE TO AUDITED FINANCIAL STATEMENTS
Fiscal Management Associates, LLC © 2018 17
Financial Assessment:
Total unrestricted net income (change in net assets) is positive over 2 consecutive years or the contractor provides a reasonable explanation for how it will be positive by the end of the fiscal year [pilot standard] Total change in cash is positive over the sum of 2 consecutive years or agency has a reasonable explanation and/or plan to reverse cash outflow [best practice] In current audit, agency has at least 60 days of operating cash [best practice]
Financial Reports
Balance Sheet is current (as of the last four months, at least) Working capital ratio is greater than 1 Current bank reconciliation (as of the last four months, at least)
Profit and Loss Statement (aka Statement of Activity):
P&L Statement is current (as of the last four months, at least) Shows year-to-date (YTD) income and expense by program, contract or funding source, including indirect costs Year-to-date net income is either a positive number or the Contractor provides a sound explanation of how it will be positive by the end of the fiscal year
3k
3l
3m
6a
6b
6c
6d
6e
6f
FINANCIAL METRICS WORKSHEET
Year: ___________________
Operating Surplus (Deficit)
A: Unrestricted Revenue & SupportSource: Statement of Activities
B: Operating ExpensesSource: Statement of Activities
C: OPERATING SURPLUS (DEFICIT) C = A - B -$ Unrestricted Revenue & Support - Operating Expenses
Months of Cash on Hand
D: Cash & Cash EquivalentsSource: Statement of Financial Position
B: Operating ExpensesSource: Statement of Activities
E: DepreciationSource: Statement of Functional Expense
F: Average Monthly Expenses F = (B - E) / 12(Operating Expenses - Depreciation) / 12
G: MONTHS OF CASH ON HAND G = D / FCash and Cash Equivalents / Average Monthly Expenses
Months of Liquid Unrestricted Net Assets (LUNA)
H: Unrestricted Net AssetsSource: Statement of Financial Position
I: Board Designated Net AssetsSource: Statement of Financial Position
J: Fixed Assets, Net of DepreciationSource: Statement of Financial Position
K: Debt associated with Fixed Assets (e.g. Mortgages)Source: Statement of Financial Position
L: LUNA L = H - I - J + KUnrestricted Net Assets - Board Designated Net Assets - Fixed Assets, Net + Debt
F: Average Monthly Expenses F = (B - E) / 12(Operating Expenses - Depreciation) / 12
M: MONTHS OF LUNA M = L / FLUNA / Average Monthly Expenses
Fiscal Management Associates, LLC © 2017
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 1
Difference between Form 990 and Audited Financials
The Form 990 • Donor Restrictions: Contains no details about donor restrictions on revenue. Unlike the
audit which separates out contributions that are temporarily and permanently restricted by time or purpose, the Form 990 only show total revenue (equivalent to the total column on an audit’s Statement of Activities).
• Board Designated Net Assets: Contains no information about board designated net assets. A nonprofit board may decide to designate a portion of its Unrestricted Net Assets for a specified purpose. Unlike the audit which separates out board designated net assets from Unrestricted Net Assets, the Form 990 only includes total Unrestricted Net Assets.
• In kind donations of services and space are not recognized. • Sales: Sales of merchandise, special events, and rental activities are shown net of
expenses. • GAAP: Is not required to conform to Generally Accepted Accounting Principles (GAAP).
Unlike the audit which is performed by an auditor to provide an independent opinion to the management whether or not the nonprofit’s financial statements/records comply with GAAP, the Form 990 uses a blend of GAAP and tax-basis accounting as the reporting framework.
Critical Areas to Focus • Part I: Cover Page (Summary) • Part III: Statement of Program Service Accomplishments • Part IV: Checklist of Required Schedules • Part VI: Governance, Management & Disclosure • Part VII: Compensation of Officers, Directors, Key Employees, etc.
• Schedule A: Public Charity Status and Public Support: Proof that the organization
receives support from the general public, not just one person or family • Schedule D: Depreciation of Fixed Assets: Shows depreciation of fixed assets by
category: land, buildings, leasehold improvements, and equipment • Schedule G: Fundraising Activities: Types of fundraising activities conducted,
engagement of outside contractors for fundraising, and financial return on special events
• Schedule J: Additional Compensation: Provides additional information on compensation practices for officers, directors, trustees and key employees
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 2
Example: Central Asia Institute
Part I: Summary
Fiscal year
Revenue shown without restrictions
Expenses
Total surplus/ (deficit)
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 3
Part III: Program Services
Part IV: Checklist of Required Schedules
Mission
Description and expense totals for major programmatic
Conflicts of interest
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 4
Part VII: Officers, Directors, Key Employees
List of Board Members and highest paid staff members.
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 5
Part IX: Statement of Functional Expenses
Functional areas
GUIDE TO THE FORM 990
Fiscal Management Associates, LLC © 2018 6
Part X: Balance Sheet
Schedule O: Supplemental Information
The difference between these two numbers give you the unrestricted operating results
top related