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Page 1©2012 Clark Nuber. All rights reserved
Sound Financial StewardshipFor Your Chorus
Chorus America ConferenceJune 14, 2013
Seattle, WA
Rob Fleming, CPA
Clark Nuber P.S.
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AGENDA• DUTIES OF BOARD• FINANCIAL RESPONSIBILITIES• READING FINANCIAL STATEMENTS• IRS FORM 990• INTERNAL CONTROLS• RISK MANAGEMENT
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BOD RESPONSIBILITIES
• DUTY OF CARE– KNOW YOUR DUTIES – BE INVOLVED
• DUTY OF LOYALTY– ACT IN BEST INTEREST OF CHARITY– AVOID SELF-DEALING
• DUTY OF OBEDIENCE– OBEY THE LAW– SEEK EXPERT COUNSEL
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BOD RESPONSIBILITIES• HIRE, COACH AND EVALUATE THE EXECUTIVE
DIRECTOR• DEVELOP MISSION, VISION, VALUES AND
POLICIES/PROCEDURES• DEVELOP STRATEGIC PLAN• ASSURE FINANCIAL STEWARDSHIP• FUNDRAISE• BE AN ADVOCATE• ENSURE BOD’S OWN EFFECTIVENESS
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WASHINGTON ATHLETIC CLUB
• MISSION– TO ENRICH THE QUALITY OF LIFE OF
OUR MEMBERS
• VISION– TO BE THE PREMIER ATHLETIC CLUB IN
AMERICA
• VALUES– LEADERSHIP, EXCELLENCE,
INTEGRITY, SERVICE, AND SENSITIVITY
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COMMON BOARD CONCERNS
• ACCOUNTABILITY AND TRANSPARENCY
• SUSTAINABILITY• PRUDENT BEHAVIOR• ETHICAL BEHAVIOR• COMPLIANCE WITH LAWS
AND REGULATIONS
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RECENT EXAMPLES
• PENN STATE/SECOND MILE
• SUSAN G. KOMEN
FOUNDATION
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RECENT EXAMPLES
• ARCHDIOCESE OF
NEW YORK
• GEORGETOWN U.
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RECENT EXAMPLES
• CITY OF DIXON, ILLINOIS
• LIVESTRONG FOUNDATION
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FINANCIAL STEWARDSHIP GOALS
• ACCOUNTABILITY AND TRANSPARENCY– FINANCIAL REPORTS ARE
ACCURATE, COMPLETE, TIMELY AND USEFUL
– MONITOR INTERNAL CONTROLS– COMMUNICATE WITH AUDITORS
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FINANCIAL STEWARDSHIP GOALS
• SUSTAINABILITY– REVIEW, APPROVE AND MONITOR
OPERATING AND CAPITAL BUDGETS– MONITOR CASH FLOWS (BOTH
INVESTMENT POLICIES AND DEBT POLICIES)
• PRUDENT BEHAVIOR– EXPENSES ARE REASONABLE AND
NECESSARY– APPROVE MAJOR TRANSACTIONS
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FINANCIAL STEWARDSHIP GOALS
• ETHICAL BEHAVIOR– MONITOR ISSUES RELATING TO
CONFLICTS OF INTEREST, CODE OF ETHICS, WHISTLEBLOWER REPORTS, AND EXCESSIVE COMPENSATION
• COMPLIANCE WITH LAWS AND REGULATIONS– MONITOR COMPLIANCE REPORTING– IMPLEMENT RECORD
RETENTION/DESTRUCTION POLICY
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TEXAS INSTRUMENT’S ETHICS TEST
• IS THE ACTION LEGAL?• DOES IT COMPLY WITH OUR VALUES?• IF YOU DO IT, WILL YOU FEEL BAD?• HOW WILL IT LOOK IN THE
NEWSPAPERS?• IF YOU KNOW IT’S WRONG, DON’T DO IT• IF YOU ARE NOT SURE, ASK• KEEP ASKING UNTIL YOU GET AN
ANSWER
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DISCUSSION
• PICK ONE OF THE EXAMPLES AND DISCUSS WHAT THE BOARD SHOULD HAVE DONE DIFFERENTLY OR WHAT PROCEDURE SHOULD HAVE BEEN FOLLOWED BUT WASN’T.
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BEST PRACTICES• NATIONAL
– CORPORATE GOVERNANCE PROPOSALS OF SENATE FINANCE COMMITTEE DID NOT BECOME LAW
– INDEPENDENT SECTOR IN OCTOBER, 2007 ISSUED “PRINCIPLES OF GOOD GOVERNANCE AND ETHICAL PRACTICE: A GUIDE FOR CHARITIES AND FOUNDATIONS”
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BEST PRACTICES• REPORT CONTAINS 33
SUGGESTED PRACTICES– LEGAL COMPLIANCE– EFFECTIVE GOVERNANCE– FINANCIAL OVERSIGHT– RESPONSIBLE FUNDRAISING
• SEE FULL REPORT AT Independentsector.org
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WHAT IS UNIQUE ABOUT NONPROFITS?
• MISSION OTHER THAN TO MAKE A PROFIT
• TAX DEDUCTIBLE CONTRIBUTIONS• NO OWNERSHIP• SPECIAL TAX BENEFITS
– INCOME TAXES, PROPERTY TAXES, POSTAGE RATES AND LOCAL TAXES
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ACCOUNTANTS’ REPORTS• AUDIT - HIGHEST LEVEL• REVIEW - ANALYTICS AND
INQUIRY• COMPILATION - NO ASSURANCE• NO ACCOUNTANT’S REPORT –
FINANCIALS PREPARED INTERNALLY
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Financial Statements
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AUDITED FINANCIAL STATEMENTS
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COMPONENTS OF FINANCIAL STATEMENTS
• STATEMENT OF FINANCIAL POSITION– DETAIL OF ASSETS, LIABILITIES AND EQUITY
(NET ASSETS)– REPRESENTS A POINT IN TIME– INDICATES FUTURE CASH FLOW
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Statement of Financial Position
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Key Information - Statement of Financial Position
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COMPONENTS OF FINANCIAL STATEMENTS
• STATEMENT OF ACTIVITIES– SHOWS REVENUES AND EXPENSES OVER A
PERIOD OF TIME– SHOWS REVENUES BY RESTRICTION– SHOWS EXPENSES BY FUNCTION (PROGRAM
AND ADMIN./FUND RAISING)
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Statement of Activities
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Key Information – Statement of Activities
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COMPONENTS OF FINANCIAL STATEMENTS
• STATEMENT OF CASH FLOWS– SUMMARY OF CHANGES IN CASH DURING
THE PERIOD
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Statement of Cash Flows
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Key Information – Statement of Cash Flows
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Statement of Functional Expenses
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Key Information – Statement of Functional Expenses
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COMPONENTS OF FINANCIAL STATEMENTS
• FOOTNOTES – DESCRIPTION OF BUSINESS AND
OPERATIONS– DESCRIPTION OF ACCOUNTING POLICIES– DETAIL OF B/S AMOUNTS– UNUSUAL EVENTS AND CONTINGENCIES
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DISCUSSION
• WHAT FINANCIAL CONCERNS HAVE YOU HAD AT YOUR ORGANIZATION?
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IRS FORM 990
• SAME INFORMATION AS FINANCIAL STATEMENTS
• ALSO PROVIDES INFORMATION ON COMPENSATION, DONORS, EXPENSES BY CATEGORY, AND BOARD MEMBERS
• 17 QUESTIONS ON CORPORATE POLICIES NOW
ON FORM• FORM IS RECEIVING MUCH MORE
ATTENTION• IRS REVISED THE FORM FOR 2008
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MAINTAINING YOUR EXEMPT STATUS
• FOLLOW MISSION• NO POLITICAL ACTIVITY• LIMITED UNRELATED ACTIVITY• NO SELF INUREMENT• COMPLY WITH IRS AND STATE
REQUIREMENTS
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INTERNAL CONTROLS• ACTIVE INVOLVEMENT BY
MANAGEMENT• PERFORM BACKGROUND CHECKS• HAVE TWO PEOPLE PROCESS
CASH RECEIPTS• EXAMINE SUPPORT FOR ALL
DISBURSEMENTS• SEPARATE CONTROL OF ASSETS
FROM ACCOUNTING
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INTERNAL CONTROLS
• REVIEW UNOPENED BANK STATEMENTS
• APPROVE ALL ADJUSTMENTS AND WRITE-OFFS
• COMPARE ACTUAL RESULTS TO BUDGETS
• RELATE FINANCIAL RESULTS TO SERVICE EFFORTS AND ACCOMPLISHMENTS
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ENTERPRISE RISK MANAGEMENT
• PROCESS OF IDENTIFYING, MITIGATING AND MONITORING RISKS THAT COULD HAVE A SIGNIFICANT IMPACT ON YOUR ORGANIZATION
• Board and management should be asking three questions:– What are our major risks?
– How do we know we have identified all risks?
– What is our mitigation plan to reduce identified risks?
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HOW ARE RISKS IDENTIFIED?
• MANAGEMENT OBSERVATIONS
• BOARD OBSERVATIONS• INSURANCE ADVISORS• INVESTMENT ADVISORS• BANKERS• ACCOUNTANTS AND
AUDITORS• COMPUTER CONSULTANTS• GENERAL NEWS• INDUSTRY PUBLICATIONS
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RISK AREAS
• FINANCIAL • OPERATIONAL• TECHNOLOGY• GOVERNANCE• STRATEGIC• HUMAN RESOURCES• REPUTATION
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TOP 5 CHALLENGES FOR NONPROFITS IN 2012
1. PROPOSED LIMITS ON CHARITABLE DEDUCTIONS
2. SHRINKING GOVERNMENT AID
3. ATTRACTING YOUNGER EMPLOYEES
4. DEMANDS FOR RESULTS BY DONORS
5. SOCIAL ENTERPRISE BUSINESS MODELS
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ENTERPRISE RISK MANAGEMENT
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ENTERPRISE RISK MANAGEMENT
• MITIGATION OPTIONS– AVOIDANCE– SHARE THE RISK
• INSURANCE• JOINT VENTURE
– REDUCE THE RISK• LIMIT THE INVOLVEMENT• DIVERSIFY
– ACCEPTANCE
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DISCUSSION
WHAT WOULD BE SOME OF THE MAJOR RISKS FOR PENN STATE, SUSAN G. KOMEN, CITY OF DIXON, LIVESTRONG FOUNDATION, GEORGETOWN U. OR THE ARCHDIOCESE OF NEW YORK THAT SHOULD HAVE BEEN ADDRESSED?
Page 45©2012 Clark Nuber. All rights reserved
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