Nonprofit Finance and Reporting: What every board member should know

Molly Lovelock

lovelock3@gmail.com

815-520-0811

Introductions…

Your organization(s) Your name, role in organization How much do you like financial statements?

– Love them and/or work with them all the time in your job

– Never look at them if you can avoid it– In between and/or….

Is this business successful?

0

10

20

30

40

50

60

70

80

Year 1 Year 2 Year 3 Year 4

Income

Expense

Is this nonprofit successful?

0

10

20

30

40

50

60

70

80

Year 1 Year 2 Year 3 Year 4

Income

Expense

Overall responsibility for board members

Setting policy

Promoting the mission

Board finance responsibilities

Annual budget Review financial

statements Audit IRS form 990 Setting financial

policies, including internal controls

Opening bank accounts

Determine who signs checks

Borrowing Approve capital

projects Compensation ED

Board protections

Your nonprofit is incorporated Directors and Officers insurance Delegation and oversight

The Annual Budget Key strategic document for the year ahead

The Board approves the budget each year Understand the revenue & expense items Compare proposed budget with previous

year’s budget and actual results Ask questions Board may approve a revised budget mid-

year, if needed (but not necessary)

Financial Reports

Board oversight Community oversight Funder requirements (grants, government

contracts, restricted donations) Legal requirements (e.g. IRS form 990) Management tool for operations

All those numbers every month…

Last monthBudget for

month Variance YTD BUDGET VarianceBudget this

year Last year percentINCOMEGrant XYE 118,208 172,875 (54,667) 4,240.72 8,500.00 (4,259) 75.50 5,600.00 76%Grant ABC 61,587 200,375 (138,788) 13,892.39 12,150.00 1,742 1,685.23 12,750.00 109%Special memorial X z 298,205 280,000 18,205 21,925.00 21,925.00 - 1,825.00 21,925.00 100%Government 3 37,275 18,000 19,275 47,919.73 61,000.00 (13,080) 0.00 52,788.00 91%Memorial Revenue 67,115 86,300 (19,185) 0.00 0.00 - 0.00 0.00 0%Fees from people 770 72,625 (71,855) 1,505.66 375.00 1,131 69.78 1,800.00 84%Feess fromother people 1,427 2,500 (1,073) 234,688.00 205,875.00 28,813 47,057.37 234,688.00 100%Donations 331.83 106,312.04 (105,980) 0.00 3,981.96 (3,982) 0.00 0.00 0%Special events 6,174.62 42,000.00 (35,825) 97,783.57 106,312.04 (8,528) 7,522.56 106,310.00 92%Conference 1,806.16 1,200.00 606 37,370.65 42,000.00 (4,629) 1,623.03 42,000.00 89%Programs 400.00 23.97 376 106.40 1,200.00 (1,094) 106.40 500.00 21%Misc. 53.00 55.36 (2) 245.75 246 245.75 4,000.00 6%Total income 593,352.33 982,266.37 (388,914.04) 0.00 463,319.00 (3,641.13) 60,210.62 459,677.87 0%EXPENSESOffice Occupancy Expenses 34,052 37,500 (3,448) 311,965.00 311,965.00 330,059.00 30,720.00 305,146.53 102%Other Office Expense 14,252 22,500 (8,248) 65,367.00 65,367.00 69,896.00 10,411.29 68,221.35 96%Employee Expense 214,422 330,915 (116,493) 5,000.00 5,000.00 5,000.00 4,514.00 4,514.00 111%Professional Services 22,727 46,250 (23,523) 11,350.00 11,350.00 11,680.00 4,500.00 7,280.00 156%Travel & Related 14,555 36,275 (21,720) 5,600.00 5,600.00 6,000.00 532.95 5,899.25 95%Conference 4,587 31,250 (26,663) 5,300.00 5,300.00 5,500.00 1,070.54 3,121.96 170%Meetings & Conferences 11,723 21,125 (9,402) 6,500.00 6,500.00 6,500.00 462.00 5,437.27 120%Program Expense 23,800 104,602 (80,802) 5,000.00 5,000.00 5,000.00 653.68 4,490.55 111%Professional Services 22,727 46,250 (23,523) 11,350.00 11,350.00 11,680.00 4,500.00 7,280.00 156%Travel & Related 14,555 36,275 (21,720) 5,600.00 5,600.00 6,000.00 532.95 5,899.25 95%Conference 4,587 31,250 (26,663) 5,300.00 5,300.00 5,500.00 1,070.54 3,121.96 170%Meetings & Conferences 11,723 21,125 (9,402) 6,500.00 6,500.00 6,500.00 462.00 5,437.27 120%Program Expense 23,800 104,602 (80,802) 5,000.00 5,000.00 5,000.00 653.68 4,490.55 111%Insurance 4,041 6,500 (2,459) 1,000.00 1,000.00 1,000.00 150.00 1,479.85 68%Computer & Equipment Expense 2,163 6,250 (4,087) 7,510.00 7,510.00 7,510.00 757.60 8,005.04 94%Bank & Merchant Account Fees 2,343 4,537 (2,194) 32,000.00 32,000.00 33,000.00 1,704.09 33,458.20 96%Depreciation Expense 2,822 2,750 72 5,000.00 5,000.00 5,550.00 1,070.72 19,104.50 26%Misc Expenses 6,784 5,500 1,284 525.00 525.00 525.00 0.00 0.00Total expenses 435,662.27 435,662.27 88% 495,867.00 495,867.00 521,900.00 63,766.04 466,158.50 106%difference 157,690.06 546,604.10 (495,867.00) (32,548.00) (525,541.13) (3,555.42) (6,480.63)

Focus in on what is important

Income and expense vs. budget Balance sheet, knowing the key items

Standard accounting is important– There is a reason for the rules and practices– Consistency allows better, broader understanding

Be sure that someone points out what’s important in words!

Budget vs. Actual

Board should have actual vs. budget at every meeting

Reporting is most useful if clear, uncluttered, and following standard accounting procedures

Management will review in more detail than the board. (Sometime Board Finance Committee may also review more detail.)

Example of simple presentation

EXPENSES July-Sept Actual Annual Budget Percent

Payroll - Salary 26,550 106,200 25.0%

Travel, Program 1,129 2,605 43.4%

Office Supplies 418 4,000 10.5%

Accounting 1,061 4,420 24.0%

Advertising 161 3,000 5.4%

Staff Development 525 2625 20.0%

etc….TOTAL EXPENSE $ 49,173 $ 190,625 25.8%

Graphics can illustrate key issues

Budget Revenue this year$1,757,180

Membership Dues,

$300,000

Policy Grants,

$300,000

Programs $891,180

ConferenceWorkshops

etc., $266,000

Actual Revenue last year$1,381,302

Membership Dues,

$228,599

Programs $659,135

Policyl Grants,

$255,000

Conference, Workshops,

etc., $239,068

What is crucial to know?

Every board member needs to know what income or expense items make the difference for that organization.

May want to highlight those items in a “dashboard”

Talk about these: what is behind the figures? What may need to change?

Balance Sheets are also crucial

The statement of “Financial position” Cash Fixed assets Money owed the organization? Debt or bills owed? Net assets

The board and balance sheets

Board should always have a balance sheet in reporting at each meeting

Report should be clean, uncluttered (e.g. combine like categories)

Comparison with prior year or prior period may be useful

Make sure board members know what the items mean and why they are important.

Basic Statement of Financial Position (Balance Sheet)

September 30, 2015ASSETS

Cash/bank 24,621

Accounts Receivable 4,876

Fixed Assets, net of depreciation 14,157

TOTAL ASSETS 43,654

LIABILITIES AND NET ASSETS

Liabilities:

Accounts Payable 7,553

Net Assets:

Temp Restricted 3,821

Unrestricted 36,888

Net Revenue (4,608)

Total Net Assets 36,101

TOTAL LIABILITIES AND NET ASSETS 43,654

Focus on balance sheet items

Cash: If problems, why? Accounts receivable: Who owes you what? What other assets do you have? Liabilities: Who will you need to pay and

when? Net Assets. This is KEY for nonprofits. How

much unrestricted? Temporary restrictions? Permanently restricted funds?

Restricted Funds

Tracking programs separately Keeping tabs on “temporarily restricted” on

the balance sheet—each purpose, and when “released from restrictions”

Permanently restricted (endowments) Distinguishing restricted from “designated”

funds Decisions on using unrestricted funds

Practice Reading Financial Statements

What is the most positive thing you see on these statements?

What is the thing that worries you the most? What question, as a board member, would

you most like to ask?

The Independent Audit

Required in Illinois if revenue over $300,000 (or may be required by funder etc.)

Role of audit committee of the board Board hires qualified CPA to do audit Good practice to go out to bid on the audit

every 3-5 years Auditor reports back to the board with final

financial report and other insights

The IRS 990

Required of 501(c)3 nonprofits Usually prepared by the auditor or a CPA Short form for smaller organizations The 990 asks questions about governance

and oversight, as well as finance Board must approve before submission Publicly available on Guidestar or if asked Illinois also requires its own form and 990.

Setting financial policies

Financial policies should be in writing Board approves (like personnel policies) Policies should reflect:

– Reality, nature of the work– Best practices– Size of the organization

Review/revise every few years

Include in financial policies

Purchasing and expense process

Incoming funds Bank account and

check signing Gift acceptance Credit cards

Payroll process Mileage

reimbursement Capitalization policy Budgeting Reporting Record retention

Other board functions

Open bank accounts and decide on signers Borrow money Embark on capital projects, including budget Approve certain grant applications Compensation/review of Exec. Director Ensure that legal obligations are met

(employment taxes, insurance, etc.)

Mission, mission, mission

Is the money there to do the important work of your organization?

Is it being used for your mission and according to policy/budget set by board?

Are funders requirements being met? (and does funding mesh with your mission?)

Is the organization sustainable? Is action or change needed?

Board Finance Checklist

Budget Financial

statements Audit IRS form 990 Financial policies Legal obligations

Bank accounts Check signers Borrowing Capital projects Compensation ED Mission!

Nonprofit Finance and Reporting: What every board member should know

Molly Lovelock

lovelock3@gmail.com

815-520-0811