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Non-Profit Fiscal GovernanceShawn Gillon, CPA

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GENERAL GOVERNANCE

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Corporate Governance

Corporate governance refers broadly to the rules, processes, or laws by which businesses are operated, regulated and controlled.

A well-defined and enforced corporate governance structure, at least in theory, works for the benefit of everyone concerned by ensuring that the organization adheres to accepted ethical standards and “Best Practices,” as well as to formal laws and regulations.

One of the most significant and valuable developments of the post-Sarbanes-Oxley Act environment has been the emergence of governance “Best Practices” designed to enhance and improve corporate responsibility and governance.

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Corporate Governance

Adoption of, and adherence to, “Best Practices” may reduce an organization's exposure to potential corporate, charitable and tax challenges.

Guidelines have been developed to assist nonprofit organizations respond to the current “corporate responsibility” environment.

“One size does not fit all” - the structure’s design is within the prerogative of each organization's Board of Directors based upon a variety of facts and circumstances unique to that entity.

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Corporate Governance

Also relevant to the corporate governance structure will be an access to a pool of willing Director candidates. Organizations based in smaller communities cannot reasonably be expected to have multiple committees, filled exclusively with independent Directors.

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Corporate Compliance

Regulations have closed most of the loopholes for all enterprises - for profit and nonprofit.

Does the organization have a written Conflict of Interest Policy?

Does the organization have a written Whistleblower Policy?

Does the organization have a written Document Retention and Destruction Policy?

Organizations must develop, adopt, and disclose a formal process to deal with complaints and prevent retaliation.

Organization leaders must take any employee and volunteer complaint seriously, investigate the situation, and fix any problems or justify why corrections are not necessary.

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Board Responsibilities

Duty of Care

Act in good faith. Act with a level of care that an ordinarily prudent

person would exercise in like circumstances. Act in the best interest of the organization.

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Board Responsibilities

Ensure that minutes are recorded and approved of all discussions and actions in meetings of the Board and committees acting on behalf of the Board.

Provide for an orientation program for new Directors and a development program for all Directors. Among other things, these programs should include presentations by executive management on the organization's mission, challenges, opportunities and strategic plans; code of conduct and corporate integrity program; and internal and external auditing processes.

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Board Responsibilities

The Board must also plan for succession to the position of the Board Chair, other Board positions, and the position of the Executive Director

Board members must set the tone. They must be fully engaged, assertive, and accountable in carrying out their fiduciary responsibilities.

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Board Responsibilities Define the organization’s mission and vision.

Who are we helping? How are we helping them?

Help with planning and implementation, monitor progress. Select executive director. Support executive director. Recruit new members and assess board performance. Provide financial oversight.

Have an experienced finance professional. Prepare budgets. Prepare financials. Understand the 990.

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Board Responsibilities Ensure legal and ethical standards are maintained. Assist with fundraising and ensuring adequate funding.

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Best Practices Pay attention! Be active! Periodic formal self assessments, including retreats. Term limits or other means to keep things fresh. Build board around the organization’s vision and mission. Board diversity. Understanding roles. Have an agenda. New board member orientation. Have a mission statement. Be involved in the finances.

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FISCAL GOVERNANCE

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Audit Committee

Probably not applicable to most in this room

The Audit committee should be composed entirely of independent Directors.

The Audit committee should have at least one member who is a "financial expert," defined in terms of thorough education and experience as a public accountant or controller or similar position, with sufficient accounting expertise.

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Audit Committee

Audit committee should include a charter under which it is directly responsible for the appointment, compensation, and oversight of the audit accounting firm (which shall report directly to the audit committee).

In addition, the Audit committee must have procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, audit matters and for confidential anonymous submissions by employees of concerns regarding questionable accounting or auditing.

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Budgeting Annual budget

Start with last year Build in known changes Build in anticipated changes Be realistic! Update when necessary Get board approval Monitor budget-to-actual Use as an evaluation tool

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Cash Flow Projections Look at timing of budgeted expenditures Look at timing of budgeted receipts Analyze ability of the organization to meet short-term cash needs Be aware of cash restrictions What if there is a liquidity problem?

Develop calendar of key payment due dates Review AP for critical vendors to pay first Identify additional cash sources

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Budgeting – First Year Issues No prior year budget-to-actual Where to start?

Tie to your vision / mission Think of common revenue streams

Board donations Community donations Special events Fundraisers

Think of common expenditures Salaries or consulting fees for any paid employees Space usage Supplies, printing Insurance

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Form 990 Be familiar with the form Know the different types (990 vs. 990-EZ) Know what’s public information Have good information available for your CPA to keep costs low Be aware of the deadlines and extensions available

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Internal Controls Have a procedure in place for all things cash:

No signature stamp! Limit authorized signers Have a threshold for dual signatures Have a policy for payments to self Have monthly bank reconciliations prepared and reviewed

Consider having a dollar threshold over which multiple bids are required Use a general ledger software package Understand proper document retention policy Have access to a financial professional Begin creating a processes and procedures manual to document everything Create personnel and conflict of interest policies

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Fundraising Be aware of any restrictions on funds received!

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Financial Reports To the extent practical:

Prepare balance sheet Prepare income statement Prepare cash flow statement

Understand each statement Be familiar with important ratios and metrics

Program vs. admin expenditures Cash on hand Receivables and payables

Monitor budget-to-actual

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Financial Reports Ask the right questions:

Do we currently have a profit or loss? Where do we stand compared to budget? Are there any key trends in our revenues or expenses we should be

aware of? Is our cash flow projection showing sufficient cash to last the year? Is money being spent in accordance with our strategic plan, mission,

and vision? Are we getting our money’s worth from our executive director and

vendors? Are we filing all of the appropriate forms timely?

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Document Retention See handout

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Considerations for Larger Organizations Audit committee Compensation committee Nominating and Governance committee

Thank You!

Shawn Gillon, CPAOne Spring Street

New Brunswick, NJ 08901 sgillon@withum.com

732.828.1614