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Finance for Nonprofit Leaders

Trainer: Denes L. Tobie, CPA, Partner

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Materials/Disclaimer

Please note that these materials are incomplete without the accompanying oral comments by the trainer(s).

These materials are informational and educational in nature and represent the speakers' own views. These materials are for the purchasing agency’s use only and not for distribution outside of the agency or publishing on a public website.

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Introduction

Financial Analysis covers all aspects of your organization and can be incorporated into, and obtained from, many aspects of your organization, including:

• Program reports

• Program financial statements

• Agency financial statements

• Tax returns

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Introduction

You will learn how to look at your internal information differently than you ever have before and the benefits will be gained by:

• Program Managers

• Executive Directors

• Fiscal

• Staff

• Board

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Why Financial Analysis is Important

Benefits to you, your auditor, and year-end audit process

• More understanding by you going into the audit process

• Provides enhanced communication between you and your auditor

• Gives you the ability to address areas considered higher risk as it effects your agency

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Benefits to you, your auditor, and year-end audit process (cont.)

• Time spent with your auditors doing more advanced audit procedures instead of bookkeeping

• Provides you with executive level review of key financial data

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Benefits to you, your auditor, and year-end audit process (cont.)

• Establishes additional internal control points within your own systems

• Allows for more specific and efficient planning for the audit process

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• Required by regulations (Uniform Guidance -Financial and Program Management)

• Also implied by DHHS in Head Start and Community Services Block Grant programs

• Improve the standards at which you operate your programs

• Provides more information to the Board and Executive Director

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What about governmental entities:

• Required management discussion and analysis (MD&A) as part of GASB audit requirements

• This will include ratios, non-financial and financial performance data

• Narrative recaps, etc.

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Why is financial analysis for NPO’s so different

from other businesses?

Several environmental differences

• Contributions – Significant amount of revenues from donors that don’t expect any direct benefit in return

• Operating purpose – Purpose of the entity is not to make a profit

• Absence of ownership interest – No stockholders or owners

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• Differences in these environment factors creates unique financial reporting objectives

• NPO’s should provide information useful to present and future donors

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• Making rational decisions about the allocation of resources to those organizations

• Assessing the services that the organization provides and its ability to continue to provide those services

• Assessing how managers have discharged their stewardship responsibilities and other aspects of their performance

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Determining profitability and net income are nota part of an NPO’s objectives.

(Good yes, objective no!)

Other major accounting and reporting differences:

• Contributions

• Net Assets

• Financial Statements

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IS THIS YOU?

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What We Will Cover

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Agenda

What information should you be looking at on a

monthly basis?

• Agency-wide information

• Program information

• Trends

• Key numbers

• Supporting information

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Agenda

What information should you be looking at on

an annual basis?

• Agency-wide information

• Analyticals

• Program information

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Agenda

How should you be preparing for your audit?

• What should I have ready?

• What is my auditor looking for?

• What are my responsibilities in the audit process?

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Agenda

What should you be looking at in your audit?

• What do the various Exhibits represent?

• What do the Footnotes mean?

• What exactly is the “Schedule of Federal Expenditures” and what does it mean?

• What should our reserves be?

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Overview

How does all this fit together?

• Easy!! It leads to a more productive and better informed organization!!

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Key #’s

SOFP

Audit

SOA

Ratios

TrendsReports

CFDA

Schedule

Tax

Returns

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Topic 1 – Monthly Financial Procedures

Most important item to review is the agency-wide trial balance

• (How many currently review on an agency-wide basis? Why not?)

• (Do you know what to look for?)

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FOUR (4) KEY QUESTIONS YOU SHOULD ASK

• What is it?

• Where is it from?

• What does it mean?

• What do we do with it?

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• First thing to know about the trial balance is where do the numbers come from

• Must have a review system in place that requires balances to be reviewed, reconciled, and adjusted on a regular basis

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• If the numbers aren’t supported by reliable information, the rest of analytical process is a waste of time

• Also, if numbers aren’t reliable, the information reported to funding agencies, program directors, and your board is incorrect

• (And a waste of their time!)

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What should you be looking for on the agency-wide statement of financial position?

• Does your statement of financial position balance?

• Does the bank reconciliation agree to the general ledger?

• Are there any credit balances in your asset accounts?

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What should you be looking for…

• Do subsidiary ledgers support the reported amounts on the statement of financial position?

• Did we buy any equipment this month with agency funds? Was it recorded properly?

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What should you be looking for…(cont.)

• Are there any debit balances in the liability accounts?

• Was any new debt incurred? If so, was it recorded properly?

• (Can be a very detrimental adjustment at year-end if not recorded properly)

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• Overall, does it look reasonable?

• Any odd looking accounts?

• If so, look into them now!

• Don’t wait for your auditors to find them.

• You won’t have reliable information and it will cost more during your audit!

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If your statement of financial position is correct, then your revenues and expenses are usually correct, but may be misclassified.

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Next, analyze your individual program trial balances and results.

• Any odd looking balances in the revenues?

• Any odd looking balances in the expenses?

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Next, analyze your individual program trial balances...

• Have all revenues been recorded properly?

• What is the bottom line? Are you over spent?

• Have you recorded all of your invoices properly or receivables properly?

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Next, analyze your individual program trial balances... (cont.)

• How is the program doing compared to budget?

• Any significant over spent areas?

• Do you need to get modification from your funding source?

• Have you followed internal procedures to get executive director or board approvals for budget modifications?

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Next, start to look at key numbers: what do you know about each program?

• Are you on track to serve the number of participants you are required to serve?

• What is your year-to-date in kind received? Are you on track to get the amount required?

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Finally, look at trends. Should be analyzing your programs based on individual cost.

• What is your average cost per child that month?

• How does that compare to last month?

• What about your annual cost per child budget?

• Is it over or under your projections?

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Total Federal Head Start Grant annually 3,000,000$

(Calendar year end)

Number of children to serve 600

Annual amount received per child 5,000$

Monthly amount received per child 417$

Jan Feb March April

Budgeted costs per month 250,000$ 250,000$ 250,000$ 250,000$

Budgeted costs year to date 250,000$ 500,000$ 750,000$ 1,000,000$

Actual costs per month 246,540$ 238,950$ 272,480$ 252,375$

Actual costs year to date 246,540$ 485,490$ 757,970$ 1,010,345$

Year to date variance 3,460$ 14,510$ (7,970)$ (10,345)$

Children to serve 600 600 600 600

Actual children served 589 604 602 610

Cost per month per child 419$ 396$ 453$ 414$

In Kind requried 50,000$ 50,000$ 50,000$ 50,000$

In Kind received 35,000 48,000 64,000 56,000

Year to date required 50,000 100,000 150,000 200,000

Year to date received 35,000$ 83,000$ 147,000$ 203,000$

Year to date variance (15,000) (17,000) (3,000) 3,000

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When deciding on what trends to look at, keep in mind “Key Performance Indicators”

• What is important to each program?

• Key performance indicators are separate from trends, but you need to monitor both aspects.

• Make sure they are meaningful.

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Assign measurables to each aspect of your organization

• If you think it is a waste of time, don’t do it, but we challenge you to tell us how you can manage your “business” without it!!

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Analysis of this type allows you to be proactive, not reactive!!

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• Program efficiency-

– Program service expenses/Total expenses

– Measures how much you are spending on mission vs. administrative expenses

• Operating reliance-

– Unrestricted program revenue/Total expenses

– Measures whether or not the organization can operate on program revenue vs. restricted net assets

• Fundraising efficiency-

– Unrestricted contributions/fundraising expenses

– How much you can raise for every $1

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Financial Key Indicators to monitor

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Statements of Activities

Years Ended August 31, 2016

2016

Temporarily

Unrestricted Restricted Total

Revenue:

Federal grants $ 11,228,847 $ 209,885 $ 11,438,732

State and county grants 482,807 19,036 501,843

Corporate contributions 137,608 750 138,358

Foundation contributions 10,493 40,917 51,410

Other revenue 111,740 0 111,740

In-kind contributions 1,195,619 0 1,195,619

Net assets released from restrictions 281,035 ( 281,035) 0

Total revenue 13,448,149 ( 10,447) 13,437,702

Expenses:

Program services:

Head Start 7,106,647 0 7,106,647

Early Head Start 2,434,235 0 2,434,235

Early Head Start Child Care Partnership 787,658 0 787,658

Food programs 358,216 0 358,216

State Preschool program 250,180 0 250,180

Local 27,244 0 27,244

Other program services 313,750 0 313,750

Total program services 11,277,930 0 11,277,930

Supporting services:

Management and general 2,050,486 2,050,486

Fund-raising 7,326 0 7,326

Total supporting services 2,057,812 0 2,057,812

Total Expenses 13,335,742 0 13,335,742

Change in net assets 112,407 ( 10,447) 101,960

Net assets - Beginning of year 1,723,290 2,011,673 3,734,963

Net assets - End of year $ 1,835,697 $ 2,001,226 $ 3,836,923 40

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• Program efficiency-

– 11,277,930/13,335,742=84.57%

– Looking for 80-90%

• Operating reliance-

– 13,448,149/13,335,742=1.008%

– Less than 1 mean additional funds are necessary to pay operations

• Fundraising efficiency-

– 148,101/7,326=2021%

– This shows how well they raise funds.

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Financial Key Indicators to monitor

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Next, use the key numbers to analyze trends in your programs…

• What is your transportation cost per child?

• What is your average cost to weatherize a home?

• What are your average meal costs for the HS children?

• What are your average meal costs for your senior programs?

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Monthly Dashboard

• Another tool is a monthly Dashboard of items that you, management, and the board can use.

• It can be tailored to your needs and is a way to be alerted to areas of concern.

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Monthly Dashboard

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Financial Dashboard

November 30, 2011

Measure Target 6 months ago Now Description

Current Ratio (Current Assets

divided by Current Liabilities) 1.00 and

above 1.16 1.06

Ability to pay off current

obligations with current

assets

Pay-Off Ratio (cash +

a/r)/Accts Payable)

3.00 and

above 2.59 2.82

Number of times existing

cash balance can pay off

existing accounts payable

balance

Average Day Cash On Hand

(cash & equivalents/avg exp

per day15-20 days

18.33 20.00

Number of days cash is on

hand to pay average daily

expenses

Average Days in Accounts

Receivable (Accts rev/avg

revenue per day)20-30 days

14.42 31.49

Number of days cash is

tied up in accounts

receivable

Average days in Accounts

Payable (accts payable/Avg

exp's per day)15-20 days

19.00 19.00

Number of days it takes to

pay vendors

Debt to Net Assets Ratio

(Total Liab/Total Net Assets) 100% and

below67% 75%

Determines how leveraged

the organization is

Unrestricted Net Assets

Reserve (Unrestricted Net

Assets/Avg total expenses

per month

2.00 and

above 1.11 0.90

Measures the long-term

sustainability of the

organization

Revenue to Expense (total

rev/total exp) 100% 99% 101%

Measures if the

organization was profitable

or not

Administrative Exp's to total

Exp's (Admin/total exp)10% and below 8% 8%

Computes the percentage

of expenses that are paid

for management activities

vs. program activities

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Indicator Good Watch Act

Staff retention

Turnover

Attendance at

board meetings

Quorum at

meetings

Board giving

Cash on hand

Months in

reserve

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• What do these trends tell you?

• But more importantly what can you, or will you do with this information?

• And when will you do it?

• Hopefully before it is too late! Or while you still can do something about it!

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• You can look at any program or cost center to begin trend analysis.

• Once established, they can be updated monthly to provide ongoing information to you and your program directors.

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• They can be early warning indicators of an impending problem.

• Act on it and correct the problem, or do nothing and jeopardize the program?

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• Lastly, do a budget vs. actual analysis for the agency-wide information and the individual program information.

• This is required by the Uniform Guidance

• HS governance regulations require it.

• The CSBG performance standards require it.

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To do this you need to be sure to budget correctly. This means if your program does not operate for 12 months, be sure your budget doesn’t make that assumption. Otherwise, your budget will have odd fluctuating variances.

• (How many do agency-wide budgets?)

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A true budget reflects anticipated activity during certain times of the year, not equally throughout the year.

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(Calendar year end)




ASSUMES SAME ACTIVITY EACH QUARTER

1st quarter 2nd quarter 3rd quarter 4th quarter

Budgeted costs per quarter 750,000$ 750,000$ 750,000$ 750,000$

Budgeted costs year to date 750,000$ 1,500,000$ 2,250,000$ 3,000,000$


Actual costs year to date 978,997$ 1,827,948$ 2,100,428$ 3,005,978$

Variance per quarter (228,997)$ (98,951)$ 477,520$ (155,550)$

Variance year to date (228,997)$ (327,948)$ 149,572$ (5,978)$

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(Calendar year end)




ASSUMES SAME ACTIVITY EACH QUARTER






Variance per quarter (228,997)$ (98,951)$ 477,520$ (155,550)$

Variance year to date (228,997)$ (327,948)$ 149,572$ (5,978)$

BUDGET BASED ON ACTUAL PERFORMANCE ACTIVITY






Variance per quarter (58,997)$ 76,049$ (2,480)$ (20,550)$

Variance year to date (58,997)$ 17,052$ 14,572$ (5,978)$

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• Consider doing a financial forecasting of activity.

• Once you have done the budget by month, as each month passes and you get real data, replace the budgeted information with actual.

• You will then have a schedule of actual and budget to year end. You will be able to see where there might be overrun issues and or under spent areas.

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Topic 2 – Annual Information

On the agency-wide trial balance, be sure that all accounts reconcile with supporting information.

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• Be sure to save this supporting documentation for your auditor, it will save time later and make the audit process more efficient.

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Any questions you ask at year-end when reviewing your account analysis, chances are your auditor will (or should) ask the same questions.

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• Compare the year-end balances to prior year-end balances.

• Can you explain these variances?

• Document so that whenever the question comes up again (executive director, program manager, auditor), you have the answer at your finger tips and don’t have to research it again.

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• What should you look for?

• Is your cash balance up from prior years? If so, why?

– Are your receivables down?

– Are your payables down?

– What is your deferred revenue balance?

• Each of these has a direct effect on your cash balance, both positively and negatively!

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Are your prepaid balances comparable to prior years? If not, why?

• If they have increased, have your corresponding expenses increased too?

• Or have your expenses not been recorded in the proper period?

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• Does your physical inventory of property and equipment agree with your property and equipment on your general ledger.

– Required to be done once every two years!

• If your property and equipment balances increased, has your depreciation expense increased?

• If property and equipment is down and disposals were sold, was the sale recorded properly?

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If you have loans receivable, have you considered collectability of the balances?

• GAAP requires an allowance if all loans not 100% collectible.

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• Are your accounts payable up? If so, are your overall expenses up as well?

• Or, are you experiencing cash flow problems, which may become greater when carried over to the next year.

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Are your accrued wages up in proportion to the increase in wage rates?

• Have you added new programs, therefore adding new staff? If so, did your accrued vacation increase proportionately too?

• What about other benefit accruals? Do they make sense given the level of employees?

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• How do your deferred revenues compare to prior years? Can you explain the variances from prior years?

• Finally, the most important number to verify is net assets. Do they agree with your prior year audit? If not, why?

• There should be NO adjustments to this account during the year.

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• What other accounts do you have?

• What would account for their fluctuations?

• Can you explain the variances?

• An analytical review can be a key tool to use when closing the books at the end of the year.

– Auditors use it and so should you!

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Next, look at your statement of activities in comparison to prior years.

• Are revenues up?

– Did you get new programs?

– Did you get increases in your existing programs?

• Is your in-kind revenue up?

– How about donations?

– Did you have a new fundraising campaign?

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• How does your investment income compare? Are your investments up or down? Does your investment income reflect these changes?

• How many agencies budgeted correctly for their actual investment income results? How many do this at all in their budget process?

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How do your overall expenses look?

• Are salaries up? If so, is this increase comparable to wage increases, or did it come from new staff and new programs? (Remember to relate this to your statement of financial position amounts for accrued payroll and benefits.)

• Are space costs up?

• Are you renting new facilities?

• Or have your lease costs increased?

• Are you budgeting for anticipated (or built in) rental cost increases?

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• How do your depreciation expenses compare to prior years? Again, relate this to your statement of financial position analysis for property and equipment.

• How about interest expense?

– Does it agree with your year-end statement from your bank?

• How have you planned for or budgeted your insurance increases?

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Overall, what is your bottom line?

• Excess revenues over expenses?

– If so, why?

– Fee for service activities?

– Fund-raising campaign?

• Excess expenses over revenues?

– Are programs overspent?

– Did you lose funding and not cut expenses?

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What other things should you be looking at?

• How is cash flow from operating activities? Positive or negative? What has the past years’ trend been?

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What other things should you be looking at?

• Do you have large unfunded liabilities?

– Sick time accrual

– Vacation accrual

– Deferred revenue

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You should be able to answer all of these questions. They will be asked by all who use your statements.

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2001 2002 2003 2004 2005 2006

CASH 726,191 380,432 (27,571) 1,707,200 693,974 168,964

RESTRICTED CASH 0 0 0 0 145,836 459,528

CERTIFICATES OF DEPOSIT 0 0 0 0 0 125,056

ACCOUNTS RECEIVABLE-GRANTS 312,198 698,055 1,490,101 851,101 800,886 941,396

TRAVEL ADVANCES 0 0 2,829 2,080 0 0

PREPAID EXPENSE 41,021 2,165 2,681 1,195 34,525 93,190

CURRENT MICRO LOANS RECEIVABLE 0 0 0 0 2,782 6,221

CURRENT PORTION OF REVOLVING LOANS 0 0 0 0 0 23,928

LAND CONTRACT RECEIVABLE 18,955 18,699 18,699 18,699 18,699 18,699

BLDG/IMP HELD FOR SALE 0 0 0 0 0 74,474

CURRENT ASSETS 1,098,365 1,099,351 1,486,739 2,580,275 1,696,702 1,911,456

PROPERTY & EQUIPMENT 2,026,649 1,933,383 2,007,738 1,828,656 2,139,144 1,977,809

ENDOWMENTS 0 0 0 50,000 40,917 47,006

L/T CERTIFICATES OF DEPOSIT 0 0 0 0 0 30,000

L/T REVOLVING LOANS 0 0 0 0 133,689 306,416

L/T MICRO LOANS 0 0 0 0 9,976 20,206

L/T MORTGAGE 0 0 0 0 89,910 89,910

TOTAL ASSETS 3,125,014 3,032,734 3,494,477 4,458,931 4,110,338 4,382,803

CURRENT PORTION OF L/T DEBT 199,612 32,710 35,180 37,836 40,864 72,974

NOTES PAYABLE 0 169,093 157,867 147,714 131,164 112,298

ACCOUNTS PAYABLE 125,293 272,978 278,026 433,552 559,924 254,196

ACCRUED PERSONNEL EXPENSE 210,705 329,162 331,645 341,915 429,598 495,063

SELF-FUNDED INS RESERVE 0 0 0 0 62,732 0

DUE TO GRANTORS 0 64,384 76,372 76,284 0 0

ADVANCED PROGRAM INCOME 321,461 55,877 456,865 1,442,683 323,518 651,736

CURRENT LIABILITIES 857,071 924,204 1,335,955 2,479,984 1,547,800 1,586,267

LONG-TERM DEBT 394,758 376,498 372,878 335,469 334,862 252,501

L/T REVOLVING LOANS PAYABLE 0 0 0 0 150,525 366,872

L/T DUE TO GRANTORS 0 0 0 0 224,303 224,303

TOTAL LIABILITIES 1,251,829 1,300,702 1,708,833 2,815,453 2,257,490 2,429,943

INVESTMENT IN PROPERTY & EQUIP 1,432,279 1,355,082 1,458,381 1,290,683 1,467,129 1,422,358

UNDESIGNATED 421,951 358,251 308,564 334,096 367,020 511,803

UNRESTRICTED NET ASSETS 1,854,230 1,713,333 1,766,945 1,624,779 1,834,149 1,934,161

TEMPORARILY RESTRICTED NET ASSETS 18,955 18,699 18,699 18,699 18,699 18,699

TOTAL NET ASSETS 1,873,185 1,732,032 1,785,644 1,643,478 1,852,848 1,952,860

TOTAL LIABILITIES AND NET ASSETS 3,125,014 3,032,734 3,494,477 4,458,931 4,110,338 4,382,803

FISCAL YEAR ENDING

COMMUNITY ACTION AGENCY

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2001 2002 2003 2004 2005 2006

PROGRAM REVENUE 7,433,713 9,488,757 11,683,338 13,656,267 15,788,755 14,583,096

CONTRIBUTIONS 83,466 34,814 11,805 19,883 31,894 115,896

CONTRIB SPACE & MATER'L 2,756,680 2,426,229 351,348 149,963 127,625 404,693

FEE FOR SERVICE 200,432 110,565 214,937 33,862 13,473 79,494

INVESTMENT INCOME 37,940 21,586 35,349 51,057 31,227 15,781

OTHER 41,992 28,947 85,956 186,333 275,346 179,572

ACCT METHOD CHG- ENDOWNMENT 0 0 0 35,000 0 0

TOTAL SUPPORT / REVENUE 10,554,223 12,110,898 12,382,733 14,132,365 16,268,320 15,378,532

COMMUNITY SERVICES 1,302,992 2,546,415 4,372,644 4,506,250 5,582,550 6,096,674

HEALTH & NUTRITION 2,100,529 2,134,305 474,851 514,954 472,059 342,234

EDUCATION 6,057,970 6,234,351 5,970,997 7,004,582 8,187,239 7,132,726

ADM. & GENERAL 1,358,115 1,336,724 1,510,629 2,248,745 1,710,269 1,705,328

LOSS ON DISPOSAL OF ASSETS 0 0 0 0 106,833 1,558

TOTAL EXPENDITURES 10,819,606 12,251,795 12,329,121 14,274,531 16,058,950 15,278,520

INCREASE (DECREASE) IN UNRESTRICTED (265,383) (140,897) 53,612 (142,166) 209,370 100,012

INCREASE (DECREASE) IN TEMP RESTRICTED (382) (256) 0 0 0 0

TOTAL INCREASE/DECREASE IN NET ASSETS (265,765) (141,153) 53,612 (142,166) 209,370 100,012

PERFORMANCE MEASURES

HEAD START EXPENDITURES 3,600,000 3,636,000 3,672,360 3,709,084 3,746,174 3,783,636

NUMBER OF CHILDREN ENROLLED 500 499 502 501 500 480

EARILY HEAD START EXPENDITURES 1,200,000 1,212,000 1,224,120 1,236,361 1,248,725 1,261,212

NUMBER OF CHILDREN ENROLLED 220 221 230 225 224 200

Wx EXPENDITURES 890,000 898,900 907,889 916,968 926,138 935,399

NUMBER OF HOMES Wx 200 175 210 230 222 230


FISCAL YEAR ENDING

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RATIOS

2001 2002 2003 2004 2005 2006

CURRENT RATIO - LIQUIDITY 128.15% 118.95% 111.29% 104.04% 109.62% 120.50%

current assets

current liabilities

current assets as a % of current liabilities

PAY-OFF RATIO 8.3 4.0 5.3 5.9 2.7 4.4

(cash + a/r)

accts payable

number of times cash + a/r can pay-off a/p

AVERAGE EXPENSES PER DAY $31,011 $37,791 $46,068 $54,325 $61,274 $57,207

total expenses - in kind

260 working days

AVERAGE DAYS IN ACCOUNTS PAYABLE 4.0 7.2 6.0 8.0 9.1 4.4

accts payable

avg exp's per day

avg number of days exp's in accts payable

AVERAGE PROGRAM REVENUE PER DAY $28,591 $36,495 $44,936 $52,524 $60,726 $56,089

program revenue

260 working days


FISCAL YEAR ENDING

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RATIOS

2001 2002 2003 2004 2005 2006

AVERAGE DAYS IN ACCOUNTS RECEIVABLE 10.9 19.1 33.2 16.2 13.2 16.8

accounts receivable

avg program revenue per day

avg number of days grant receivable in accts receivable

AVERAGE DAYS CASH ON HAND 23.4 10.1 (0.6) 31.4 11.3 3.0

cash & equivalents

avg exp's per day

ADMINISTRATIVE EXP'S TO TOTAL EXP'S 12.55% 10.91% 12.25% 15.75% 10.65% 11.16%

administrative + general exp's

total expenses

administrative + general exp's as a % of total expenses

DEBT TO NET ASSETS RATIO 66.83% 75.10% 95.70% 171.31% 121.84% 124.43%

total liabilities

total net assets

liabilities as a % of net assets

UNRESTRICTED NET ASSETS RESERVE 2.1 1.7 1.7 1.4 1.4 1.5

OPERATING STRENGHT

unrestricted net assets

avg total expenses per month

avg number of months exp's in unrest net assets

REVENUE TO EXPENSE 97.55% 98.85% 100.43% 99.00% 101.30% 100.65%

total revenue

total expense

total revenue as a % of total exp's


FISCAL YEAR ENDING

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RATIOS

2001 2002 2003 2004 2005 2006

PROGRAM EFFECTIVENESS

Program Expenes 87% 89% 88% 84% 89% 89%

Total Expenses

Amount spent on meeting the organizations goals

FUND-RAISING EFFICIENCY

Public Support

Fund-raising Expenses

Ability to raise funds in an economical manner


FISCAL YEAR ENDING

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RATIOS

2001 2002 2003 2004 2005 2006

PERFORMANCE MEASURES

AVERAGE COST PER HEAD START CHILD

head start expenses 7,200 7,287 7,315 7,403 7,492 7,883

number of kids enrolled

AVERAGE COST PER EARLY HEAD START CHILD

early head start expense 5,455 5,484 5,322 5,495 5,575 6,306

number of kids enrolled

AVERAGE COST OF HOMES Wx

total Wx expenditures 4,450 5,137 4,323 3,987 4,172 4,067

number of homes Wx


FISCAL YEAR ENDING

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Current Ratio

80%

90%

100%

110%

120%

130%

140%

2001 2002 2003 2004 2005 2006

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Average Days Cash on Hand

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2001 2002 2003 2004 2005 2006

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Pay-Off Ratio

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2001 2002 2003 2004 2005 2006

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Average Days in Accounts Payable

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2001 2002 2003 2004 2005 2006

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Average Revenue per Day

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2001 2002 2003 2004 2005 2006

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Average Expenses per Day

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2001 2002 2003 2004 2005 2006

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Remember bottom line is not a key performance indicator for NPO’s!

Consider using common-size statements –

• Line items in the SOFP can be shown as a percentage of Total Assets.

• Line items in the SOA can be shown as a percentage of Revenues or Expenses.

• By using this type of analysis you can compare how your organization is doing compared to others even though they might not be the same size.

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A S S E T S

CURRENT ASSETS 2005 2004 2003

Cash and cash equivalents 2,385,790$ 61% 1,264,205$ 39% 1,316,706$ 49%

Grants receivable 1,305,896 33% 1,722,446 53% 1,097,703 41%

Accounts receivable 22,188 1% 19,877 1% 21,001 1%

Deposits 13,715 0% 22,606 1% 17,585 1%

Prepaid expenses 83,521 2% 85,560 3% 72,285 3%

Total Current Assets 3,811,110$ 3,114,694$ 2,525,280$

LAND, BUILDING, AND EQUIPMENT, NET 104,012 3% 120,121 4% 139,039 4%

TOTAL ASSETS 3,915,122$ 3,234,815$ 2,664,319$

L I A B I L I T I E S A N D N E T A S S E T S

CURRENT LIABILITIES

Accounts payable 1,151,650$ 1,603,924$ 1,142,414$

Accrued payroll and related expenses 402,449 360,475 490,409

Accumulated leave 121,731 122,995 134,955

Unearned grant revenue 1,950,768 841,370 744,229

Total Current Liabilities 3,626,598$ 2,928,764$ 2,512,007$

NET ASSETS - UNRESTRICTED 288,524$ 306,051$ 152,312$

TOTAL LIABILITIES AND NET ASSETS 3,915,122$ 3,234,815$ 2,664,319$

© Wipfli LLP


How else to evaluate performance of an NPO?

Evaluate service effort and accomplishment measurements:

• Input measures

• Output measures

• Outcome measures

• Efficiency measures

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These measures provide information on the amount of effort expended to carry out a program (inputs), the level of services provided(outputs), what effect that service has had on the stated objectives of the program(outcomes), and comparison of the level of inputs with outputs or outcomes (efficiency).

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Input measures are often financial – How much did we spend on the program?

• i.e. senior meal program

Output measures are often nonfinancial – How many did we serve?

• i.e. # meals served

Outcome measures gauge the level of accomplishment of a program goal.

• Goal is to reduce level of hunger and increase the health of seniors by providing nutritious meals – Are the seniors healthier?

Efficiency is comparing inputs/outputs or inputs/outcomes to measure how efficient an organization is in achieving its goals.

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Topic 3 – Audited Financial Statements

Whose statements are they anyway?

• They’re yours!

• Auditor gives an OPINION only on them – does not PREPARE them

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Parts of an Audit Report• Financial

– Opinion

– Statement of Financial Position

– Statement of Activities

– Cash flow Statement

• Notes to the Financial Statements

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Parts of an Audit Report

• Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

• Independent Auditor’s Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and Internal Control Over Compliance

• Schedule of Findings and Questioned Costs

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• Footnotes to the financial statements provide the reader with information to further understand your financial information.

• It describes your significant account policies.

• Provides more detailed information to your material account balances.

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Basis of Presentation

• Accrual

• How do you record grant awards

• Description of Cost Allocation Plan

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Other Disclosures:

• Concentration of cash, if cash balances are over $250,000 (the FDIC insured limit)

• Terms of notes receivable and payable

• Related parties

• Subsequent events

• Commitments and contingencies

• Functional classification of expenses

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Other Disclosures: (cont.)

• Retirement plan

• Leases

• Property and equipment

• Descriptions of material statement of financial position items

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Other Disclosures: (cont.)

• Revolving loans (housing)

• Notes/mortgages payable

• Changes in accounting policy

• Prior period adjustments

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Schedule A

Schedule of Program Activity

Year Ended December 31, 2009

F ED ER A L P R OGR A M S

D epartment o f A griculture D H H S

10.558 93.600

USD A C hild and A dult C are F o o d P ro gram

C hild and C hild and F ull-Year, T o tal

A dult C are A dult C are 10.558 P art-D ay F ederal GA A P T OT A L A gency

T o tal F o o d P ro gram F o o d P ro gram Subto tal O6C H 0201/ 22 P ro grams A djustments P R OGR A M S A ctivity

(1) (2) (2) (3) (4)

R EVEN UE

Gra nt re v e nue 3 ,3 4 1,110$ 16 0 ,5 7 0$ 7 1,4 12$ 2 3 1,9 8 2$ 3 ,10 9 ,12 8$ 3 ,3 4 1,110$ 0$ 3 ,3 4 1,110$ 0$

D o na t io ns 7 0 ,3 0 1 0 0 0 0 0 0 0 7 0 ,3 0 1

In k ind c o ntribut io ns 3 2 ,16 8 0 0 0 7 8 3 ,6 2 2 7 8 3 ,6 2 2 7 5 1,4 5 4 )( 3 2 ,16 8 0

To ta l R e v e nue 3 ,4 4 3 ,5 7 9 16 0 ,5 7 0 7 1,4 12 2 3 1,9 8 2 3 ,8 9 2 ,7 5 0 4 ,12 4 ,7 3 2 7 5 1,4 5 4 )( 3 ,3 7 3 ,2 7 8 7 0 ,3 0 1

EXP EN SES

P e rs o nne l 2 ,114 ,3 7 8 3 6 ,5 9 4 10 ,6 3 2 4 7 ,2 2 6 2 ,0 5 2 ,15 2 2 ,0 9 9 ,3 7 8 0 2 ,0 9 9 ,3 7 8 15 ,0 0 0

F ring e be ne f it s 3 7 2 ,2 6 5 0 0 0 3 6 7 ,9 18 3 6 7 ,9 18 0 3 6 7 ,9 18 4 ,3 4 7

Oc c upa nc y 2 2 0 ,0 15 0 0 0 3 6 3 ,7 8 0 3 6 3 ,7 8 0 14 4 ,8 6 6 )( 2 18 ,9 14 1,10 1

Tra v e l 2 1,4 2 2 0 0 0 2 1,4 4 2 2 1,4 4 2 0 2 1,4 4 2 2 0 )(

Equipm e nt re pa irs a nd m a inte na nc e 9 1,3 4 3 3 9 0 0 3 9 0 6 0 ,8 2 2 6 1,2 12 3 5 ,14 5 )( 2 6 ,0 6 7 6 5 ,2 7 6

F o o d 18 6 ,5 2 6 115 ,4 9 1 4 7 ,8 3 7 16 3 ,3 2 8 2 3 ,19 8 18 6 ,5 2 6 0 18 6 ,5 2 6 0

S upplie s 117 ,6 5 4 4 ,8 2 1 5 ,7 4 4 10 ,5 6 5 10 7 ,0 8 9 117 ,6 5 4 0 117 ,6 5 4 0

Othe r 16 9 ,7 3 9 3 ,2 7 4 7 ,19 9 10 ,4 7 3 112 ,7 2 7 12 3 ,2 0 0 13 ,0 4 6 )( 110 ,15 4 5 9 ,5 8 5

In k ind e xpe ns e s 3 2 ,16 8 0 0 0 7 8 3 ,6 2 2 7 8 3 ,6 2 2 7 5 1,4 5 4 )( 3 2 ,16 8 0

To ta l Expe ns e s 3 ,3 2 5 ,5 10 16 0 ,5 7 0 7 1,4 12 2 3 1,9 8 2 3 ,8 9 2 ,7 5 0 4 ,12 4 ,7 3 2 9 4 4 ,5 11)( 3 ,18 0 ,2 2 1 14 5 ,2 8 9

C ha ng e in N e t A s s e ts 118 ,0 6 9 0 0 0 0 0 19 3 ,0 5 7 19 3 ,0 5 7 7 4 ,9 8 8 )(

N e t a s s e ts - D e c e m be r 3 1, 2 0 0 3 8 6 1,7 4 0 0 0 0 0 0 0 0 8 6 1,7 4 0

N ET A S S ETS - D EC EM B ER 3 1, 2 0 0 4 9 7 9 ,8 0 9$ 0$ 0$ 0$ 0$ 0$ 19 3 ,0 5 7$ 19 3 ,0 5 7$ 7 8 6 ,7 5 2$

© Wipfli LLP


Which programs do you subsidize on an annual basis?

• How much reserves do you have on hand and how long will they last if you continue to subsidize?

• Every program should be analyzed to gain information.

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How should you use this schedule?

• Review each grant and program to see if it appears reasonable

• Which programs are overspent?

• Which programs are underspent?

• If there is an over expenditure, who is paying for it?

• CSBG $$, Agency $$, private funding sources

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• If a grant is completed, did you spend it all?

• Are the individual line items in line with the grant budget?

• If you didn’t spend it all, have you requested carryover?

• Or do you have to return unspent funds?

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• Are there any negative expenses? If so, why? Is there something that should be reclassified?

• What was the outcome of your agency activity?

• Did you have to use reserves to fund overspent grants?

• Did you add to your unrestricted net asset balance? Or take away?

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• What is the balance of your temporarily restricted net assets? And what are they restricted for?

• What is the balance of your unrestricted net assets? And how is it funded? I.e., property and equipment, receivables, loans, or cash?

• If either one (temporarily or unrestricted net assets) is in a deficit position, this needs to be addressed ASAP! Or it could be a finding.

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RULE OF THUMB: Available unrestricted net assets should be equal to 5-10% of annual revenue

Organization’s 2017 Revenue: $17,644,944

Organization’s 2017 Unrestricted Net Assets: $175,713

Recommended balance should be between$882,250 and $1,764,500

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Organization’s 2017 Revenue excluding in kind: $4.9 Million

Organization’s 2017 Unrestricted Net Assets: $290,016

Recommended balance should be between$245,000 and $490,000

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NPO’S 2017 Revenue: $19.2 Million

NPO’S 2017 Unrestricted Net Assets are $2,801,987 less property and equipment of $2,118,395 and loans receivable of $503,629 equal an available net assets balance of $179,963

Recommended balance should be between $960,000 and $1,920,000

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Topic 4 – Board Reports

• Should report on the agency as a whole, but what kind of information?

• What kind of program reporting should I be giving to the board?

• What other type of information would be helpful?

• What format should I use?

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• Ease in understanding and delivery should be the key.

• Most Boards are an oversight agency and specific details on a monthly basis may be too much information. Or cause them to micromanage.

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• Also, Boards turn over on a regular basis, so don’t assume that everyone is familiar with all of your programs or the makeup of your financial statements.

• Keep in mind the new Board reporting requirement in the Head Start Reauthorization.

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Every year consider a Board training session to explain the financial aspects of your organization. (Could be done in conjunction with the annual budget approval process.)

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CSBG recommends (but applies to all organizations):

• Orientation to statutory and regulatory requirements (CSBG act, federal and state regulations)

• Agency articles of incorporation and by-laws

• Overview of Board functioning (appointment, representation, meetings, committees, conflict of interest policy, relationship with Ex Dir and staff)

• Role and responsibilities of Board and Ex Dir.

• Overview of financial management policies and procedures

• Orientation or organization’s mission, programs and evaluation, and reporting policies and procedures

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• Explain in enough detail so that they will be able to understand the points you are making

• Board members have “fiduciary” responsibility for the overall operation of the agency

• Members are expected to carry out their duties as any “reasonably prudent person” would do

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Board oversight of fiscal controls includes making sure that fiscal controls are in place and maintained by the agency that provide for:

• Trained and qualified staff to manage fiscal accounts and records of the agency on a day-to-day basis

• Commonly accepted financial procedures

• Frequent reports to the board by agency fiscal staff on overall agency financial status, procedures, practices, and transactions

• Required board review and prior approval of all “substantial” agency fiscal transactions

• Audits and audit report to the board by a CPA firm independent of board member or staff association

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Reporting on an agency-wide basis is more informative as it pulls the whole picture together.

• Items to report:

– Cash balance

– Large account receivables

– Accounts receivable over 60 days old, status and follow-up

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• Items to report: (cont.)

– Major equipment purchases with agency dollars

– Investment activity changes

– Large outstanding accounts payable over 60 days

– Major changes in long-term debt

– Budget to actual comparisons on an agency-wide basis (again keep in mind that you must budget in this manner to be able to report in this manner)

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Report Format

• Use technology to help prepare, don’t recreate the wheel, saves time and reduces the possibility of human error.

• Use same format each month so the board gets used to it and becomes familiar with the process and reports.

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Present trend analysis

• It can present a lot of information in a concise manner

• Pictures are sometimes easier to follow than all of the numbers

• Gives history to new board members

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$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Total Assets, Total Liabilities and Net Assets for the Years Ended 1997-2005

Total Assets Total Libilitites Net Assets

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$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Revenue and Expenses for the Years Ending 1997-2005

Revenue Expenses

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$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

Dept. Ag HUD Dept

Justice

Dept

Labor

Dept.

Trans

EPA DOE FEMA Dept Ed DHHS BECA State Agency

Expenses by Funding Source

© Wipfli LLP

Summary

• Monthly account analysis supported by accurate data.

• Begin trend analysis. Once established, it will be easy to update.

• Do analytical work on your year-end numbers, document it and retain it.

• Know what is in your audit. It contains a lot of information for you and your board.

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Summary

• Know what the key numbers are in each program and share this information with staff so that everyone can use it effectively.

• Discuss with your board what kind of information they want, but keep it simple.

• Use technology to do this work for you, don’t recreate the wheel.

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Summary

• Analyze your net assets. Know what is temporarily restricted and unrestricted.

• Remember only donors or funding agencies can restrict your assets. Boards can only designate net assets.

• Be familiar with your tax return. It tells a lot about your organization and is public information.

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Summary

• While you are a nonprofit organization, you are also a business, and you need to manage your organization as a business.

• Grants are competitive and the organizations that are the most efficient and effective will prevail.

• You are increasingly being asked to do more with less, both dollars and staff, and you need to be able to respond to this challenge.

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Regulation questions

Audit

Process

Human Resource

Technology

Leadership

Evaluation:

Thank You!

Connect with me:

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Bring Wipfli to You:

Tammy T. Jelinek

[email protected]

608.270.2954

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